Closer to a deal

Congressional leaders say they have made progress. Paulson agrees to pay limits.

NEW YORK (CNNMoney.com) -- The debate over a proposed $700 billion government bailout of the nation's financial system raced forward on Wednesday as the Bush administration and congressional Democrats moved closer to a deal.

With lawmakers demanding that the president explain to Americans why the bailout is necessary, President Bush plans to address the nation in a prime-time speech.

In a show of unity, House Speaker Nancy Pelosi, D-Calif., and Minority Leader, John Boehner, R.-Ohio, said Tuesday evening that they are working closely with the administration and "have made progress" on hammering out a deal.

"We agree that key changes should be made to the administration's initial proposal," they said in joint statement. "It must include basic good-government principles, including rigorous and independent oversight, strong executive compensation standards, and protection for taxpayers."

Meanwhile, Sen. Christopher Dodd, D-Conn., said that the Senate is getting closer, but will not rush through a plan that "will have implications for decades to come."

"We're not there yet, but we're getting there," he said, adding the plan requires smart, thoughtful discussion and must include help for homeowners.

Earlier in the day, the House Financial Services Committee, led by Rep. Barney Frank, D-Mass., grilled Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke over the details of the controversial proposal.

At the hearing, Paulson agreed that the bill should curb executive compensation at the firms that sign up for the rescue plan, one of the Democrats' key demands.

"The American people are angry about executive compensation and rightfully so," he said. "Many of you cite this as a serious problem and I agree. We must find a way to address this in the legislation but without undermining the effectiveness of this program."

The Treasury secretary, however, said he would oppose allowing bankruptcy judges to change mortgage terms because it's "inconsistent with what we're trying to do, which is increase the flow of funds."

The Treasury's plan, the most sweeping federal intervention in the financial markets since the Great Depression, calls for the government to buy from firms up to $700 billion in troubled assets - mainly mortgage-backed securities - whose values have declined as the housing market imploded. The goal is to stabilize the companies and prompt them to lend again.

Paulson and Bernanke have been touring Congress this week, hoping to convince lawmakers to pass the bill quickly without adding too many provisions.

The Treasury Secretary acknowledged lawmakers' concerns about protecting the taxpayers.

"I understand the view that I have heard from many of you on both sides of the aisle, urging that the taxpayer should share in the benefits of this plan to our financial system," Paulson said.

"Let me make clear - this entire proposal is about benefiting the American people, because today's fragile financial system puts their economic well-being at risk," he continued. "When local banks and thrifts aren't able to function as they should, Americans' personal savings, and the ability of consumers and businesses to finance spending, investment and job creation are threatened."

What Congress wants

Almost immediately after the Bush administration unveiled its $700 billion bailout of the financial sector on Saturday, Congress started making demands. Lawmakers have a long list, which includes more oversight over the Treasury program and a potential equity stake in the companies that sell their troubled mortgage assets.

Others feel that Congress should dramatically revamp the plan to protect taxpayers and prevent a fundamental change to the American financial system.

Rep. Paul Kanjorski, D-Pa., said the administration had to make a better economic case for the bailout so Americans can understand why it's so desperately needed.

"If our markets and capitalism itself are truly on the line, then the president must speak openly, frankly and publicly about these problems," Kanjorski said. "Once the administration establishes the predicate for emergency action, only then should the Congress consider passing this package of truly massive proportions."

Several lawmakers said American taxpayers shouldn't bail out companies that took enormous risks. Also, they questioned the idea of setting a purchase price based on the "hold to maturity" value of an asset instead of on its current market value.

Why should taxpayers have to pay a price based on what something might be worth in the future, Rep. Luis Gutierrez, D-Ill., asked in an animated exchange with Paulson.

The fate of the high-stakes legislation was very much up in the air on Wednesday. President Bush will address the nation at 9 p.m. ET about the need for lawmakers to pass a bailout package quickly.

A senior administration official said Bush has been contemplating a prime-time speech for several weeks but finally decided to deliver it tonight because the situation has reached crisis stage and he believes it's crucial to get Congress to support the $700 billion bailout package.

"This is a bullet you only fire once," said the senior official. "We have reached a point in the process where we just have to get action."

The urgent atmosphere over the proposal spilled over into the presidential campaign on Wednesday when Republican candidate Sen. John McCain said he was suspending his campaign and wants a delay in the first debate, which is scheduled for Friday night.

Ultimate cost unknown

At the hearing, Paulson said the ultimate cost of the program would depend how fast the housing market recovers. And reiterating a point he and Bernanke have made repeatedly in the past few days, he added that "the loss to the taxpayers should be much less than the purchase price of the assets."

Paulson and Bernanke faced strong criticism Tuesday from both Democrats and Republicans on the Senate Banking Committee. The pair spent almost as much time conceding problems with the plan as they did championing it as the solution to the nation's current financial problems.

Earlier Wednesday, Bernanke warned the financial crisis could drag the U.S. economy into a deeper downturn and urged Congress to take action on a proposed bailout package.

"The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth," he told the Joint Economic Committee. "The downside risks to the outlook thus remain a significant concern."

Bail-out 'vital to easing crisis'

President Bush said urgent action was needed to end turmoil

Americans must support a massive bail-out of financial markets to ease a "serious financial crisis", US President George W Bush has said.

The entire economy was in danger, he said in a live TV speech, and failure to act now would cost more later.

He has invited presidential rivals John McCain and Barack Obama to the White House on Thursday to discuss the $700bn (£378bn) rescue package.

The rivals have disagreed on delaying a TV debate over the economic turmoil.

Mr McCain says he is suspending his campaign to help with the crisis, but Mr Obama says voters now need to hear from the candidates more than ever.

Wrangling

Mr Bush made his comments in an evening address to the nation.

His administration is calling on Congress to approve a costly bail-out - under which the Treasury would use public money to buy bad debt from troubled financial institutions - as soon as possible to prevent further harm to the economy.

But lawmakers from both the Democratic and Republican parties have voiced doubts about the plan and the speed at which they are being asked to approve it.

They want assurances that it will benefit ordinary American home-owners as well as Wall Street, and be subject to adequate oversight.

Both of the candidates in November's presidential election have been speaking out on the issue.

Mr McCain said he was suspending his campaign to return to Washington to help agree a deal, saying he feared the rescue package would not pass "as it currently stands".

He also called for his first presidential debate with Mr Obama on Friday to be suspended - something Mr Obama did not support.

Americans needed to "hear from the person who in approximately 40 days will be responsible for dealing with this mess", Mr Obama told journalists.

Both candidates have, however, called for a bipartisan approach to passing a bail-out deal.

"This is a time to rise above politics for the good of the country," they said in a joint statement.

President Issues Warning to Americans

WASHINGTON — President Bush urged the American people and their Congress on Wednesday evening to support his administration’s vast economic-recovery package, saying that a failure to do so could plunge the United States into “a long and painful recession.”

Jim Bourg/Reuters

Stagehands preparing the stage on Wednesday for the first presidential debate at the University of Mississippi.

“Fellow citizens, we must not let this happen,” the president said in a speech from the White House.

Mr. Bush sought to rally the country and its lawmakers in the kind of bipartisan effort he said is needed, not just to preserve American investment houses and big businesses but the savings and aspirations of millions of citizens in cities and on farms.

The $700 billion plan his administration has put forth would normally be anathema to him, Mr. Bush said, because in normal times he would adhere to his philosophy that “companies that make bad decisions ought to be allowed to go out of business.”

But these are not normal times, he said, warning that without quick action, “America could slip into a financial panic,” with ramifications from coast to coast and, indeed, across oceans.

Shortly before Mr. Bush’s speech — possibly the last prime-time address of his presidency to the nation — the White House announced that the president had invited the men who want to succeed him, Senators Barack Obama and John McCain, and Congressional leaders to a meeting on Thursday in the hope of securing an accord on a rescue package. And the two presidential candidates released a joint statement calling on members of Congress to work together. “This is a time to rise above politics for the good of the country,” the statement said. “We cannot risk an economic catastrophe.”

The program’s basic premise calls for the Treasury Department to oversee the purchase of distressed mortgage-backed securities, and hopefully resell them to recoup at least some of the taxpayers’ money used to buy them.

Mr. Bush’s speech loomed as perhaps the most important of his presidency since the days immediately after the terrorist attacks of Sept. 11, 2001. Moreover, the president and his speech-writers faced a delicate problem of tone: How to convey a sense of concern so as to muster support for the bailout program, yet not sound so pessimistic as to overly alarm millions of Americans and, perhaps, affect the markets.

A few hours before Mr. Bush’s speech, Treasury Secretary Henry M. Paulson Jr. agreed to demands from lawmakers in both parties to limit the pay of executives whose companies benefit from the bailout. The sizable pay packages of some Wall Street executives, coupled with the realization among nonwealthy Americans that the crisis could affect their financial foundations, have created an incendiary issue on Capitol Hill.

“The American people are angry about executive compensation, and rightfully so,” Mr. Paulson told the House Financial Services Committee. “Many of you cite this as a serious problem, and I agree. We must find a way to address this in legislation without undermining the effectiveness of the program.”

As for the president’s television appearance, Senator Harry Reid of Nevada, the Democratic majority leader, said beforehand that the president should use it to explain things to the American people.

“Today we face what economists call the gravest economic danger since the Great Depression,” Mr. Reid said on the Senate floor. “We’ve come to this point after eight years of President Bush waging a war on fiscal responsibility. His Republican philosophy of removing all accountability from big business — and expecting no responsibility from them in return — has created this crisis that now threatens to devastate America’s working families.”

“It is time for him to explain how eight years of deregulation policies have brought us to this dangerous ground,” Mr. Reid said. “And most importantly, it is time for him to explain how his plan — drafted literally under cover of darkness — will help America weather this storm.”

Earlier Wednesday, the Federal Reserve chairman, Ben S. Bernanke, urged Congress to take quick action on the proposed $700 billion economic recovery plan, and warned that delays threatened not only financial stability in the United States but also, by implication at least, prosperity overseas.

“Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial markets remain under extraordinary stress,” Mr. Bernanke told the Joint Economic Committee. “Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and our economy.”

The chairman of the committee, Senator Charles E. Schumer, said that all but “a few outliers” among lawmakers agreed that some version of the plan to rescue the American financial system must be approved, and soon. But he said it would not be passed without adequate safeguards.

“We will not be dilatory, we will not add extra amendments, we will not Christmas-tree this bill,” Mr. Schumer, Democrat of New York, said, a reference to the lawmakers’ occasional propensity to tack special-interest items onto legislation.

Mr. Bernanke said that international trade “provided considerable support for the U.S. economy over the first half of the year,” but that this stimulus could not be counted on in the long run.

“Economic activity has been buoyed by strong foreign demand for a wide range of United States exports, including agricultural products, capital goods and industrial supplies, even as imports declined,” he said.

“However,” Mr. Bernanke went on, “in recent months, the outlook for foreign economic activity has deteriorated amid unsettled conditions in financial markets, troubling housing sectors and softening sentiment. As a consequence, in coming quarters, the contribution of net exports to United States production is not likely to be as sizable as it was in the first half of the year.”

Mr. Bernanke’s remarks added to the continuing sense of urgency, as he alluded to extraordinarily levels of uncertainty and risk, well beyond the sagging housing market whose troubles are at the core of the problems.

“Given the extraordinary circumstances, greater-than-normal uncertainty surrounds any forecast of the pace of activity,” Mr. Bernanke said. Overall growth will probably continue “below its potential rate,” he said, and “the inflation outlook remains highly uncertain.”

The session offered a blend of concerns over financial markets, both on Wall Street and abroad, and intensely political worries for the lawmakers as Election Day draws near.

Mr. Schumer said he and other lawmakers were listening to their constituents, who were reacting with “amazement, astonishment and intense anger” to the original outlines of the $700 billion plan, as laid out by the Bush administration, and to the high-risk behavior that spawned the crisis.

“We were told that markets knew best, and that we were entering a new world of global growth and prosperity,” Mr. Schumer said as the committee greeted Mr. Bernanke, who is testifying on Capitol Hill for a second consecutive day. “We now have to pay for the greed and recklessness of those who should have known better.”

It is time, Mr. Schumer said, for the American economy to be revived as the “engine of prosperity,” rather than as a “casino” for high-rollers in the realm of finance.

“With the exception of a few outliers on either side, there is clear recognition among members of both parties that we must act and act soon,” Mr. Schumer said. But without adequate safeguards, he said, “then we risk the plan failing.”

Mr. Bernanke, who reminded lawmakers on Tuesday that his background was in academe, not Wall Street, told Mr. Schumer’s panel that the Federal Reserve believes in general that “private sector arrangements” were best in straightening out problems in the financial markets.

“Government assistance should be given with the greatest of reluctance and only when the stability of the financial system and, consequently, the health of the broader economy is at risk,” Mr. Bernanke said. And now is such a time, he said.

Meanwhile, doubts were raised about the ultimate cost of the bailout, assuming it was approved in some form. Until more details emerge about what the government will buy, and how, the director of the Congressional Budget Office said it could not provide “a meaningful estimate of the ultimate cost” to taxpayers.

Over time, Peter R. Orszag of the nonpartisan budget office told the House Budget Committee, the cost could be less than $700 billion.

The challenge, he said, was for the Treasury to avoid taking the riskiest assets off Wall Street’s hands unless it can get them at fire-sale prices.

Bush to Push Bailout Plan in Meeting With McCain, Obama, Other Lawmakers

President Bush invited John McCain, Barack Obama and congressional leaders to the White House on Thursday to discuss his administration's proposed bailout of the financial industry and press them to back the plan.

The invitation was extended Wednesday evening, and Bush called Obama personally to ask him to the Thursday afternoon meeting, which Obama accepted, his campaign said.

The latest development served as a prelude to President Bush's TV address to the country at 9 p.m. EDT Wednesday, in which he was expected to rally support for his plan.

It also caps a day in which McCain said he was suspending his presidential campaign to focus on working in Washington on the bailout plan, while Obama called that decision unnecessary and rejected calls to postpone the two candidates' debate Friday night.

The proposed $700 billion bailout plan, in its original form, has faced strong opposition on Capitol Hill this week. By Wednesday, Congress seemed open to a less costly plan as Democrats won a key concession from the White House, which agreed to limit the pay packages of Wall Street executives.

Top House leaders issued an upbeat statement at day's end saying that they had made progress toward revised legislation. "We are committed to continuing to work cooperatively and on a bipartisan basis to safeguard the interests of the American taxpayers," said Speaker Nancy Pelosi, D-Calif., and House Republican leader John Boehner of Ohio.

But they offered no timetable on a bailout that the administration said was needed more with each passing day.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke spent most of the day in the Capitol, shuttling between public hearings on the proposal and private meetings with lawmakers.

In their statement, Pelosi and Boehner said, "We agree that key changes should be made to the administration's initial proposal. It must include basic good-government principles, including rigorous and independent oversight, strong executive compensation standards and protections for taxpayers."

Earlier, Paulson agreed to demands from critics in both parties to limit the pay packages of Wall Street executives whose companies would benefit from the proposed bailout.

"The American people are angry about executive compensation and rightfully so," Paulson told the House Financial Services Committee. "We must find a way to address this in the legislation without undermining the effectiveness of the program."

The issue has been a much-debated point in the struggle to win congressional approval of the historic rescue of the financial industry, though the "golden parachute" money involved would be relatively insignificant compared with the huge sums being talked about.

At the same time, Democrats were asking the Bush administration to dramatically cut the size of the rescue and then come back to Congress later if they need more.

Under that plan, which was still emerging, Congress would approve a fraction of what Bush is asking for — perhaps $150 billion or $200 billion — to allow the government to begin rescuing tottering financial companies.

Pelosi has privately suggested the idea to Paulson, according to officials who spoke on condition of anonymity because the negotiations are private.

Sen. Chuck Schumer, D-N.Y., pressed Paulson on the idea Tuesday and was told it would be a "grave mistake."

Rep. Barney Frank, D-Mass., said Wednesday, "Ultimately $700 billion has to be available but ... they are making progress about how to give people some assurance that it is not going to go to $700 billion in one fell swoop."

Frank, who as chairman of the Financial Services Committee has taken a lead in the negotiations, said Paulson also "accepts the fact" that the bill will give the government an ownership stake in the companies whose bad debts are taken over, a Democratic goal.

The heart of the unprecedented plan, dramatically unveiled less than a week ago, involves the government buying up sour assets of tottering financial firms to keep them from going under and to stave off a potentially severe recession and the accompanying lost jobs and further home foreclosures.

Hong Kong Savers Fret as Bank East Asia Fights Rumors (Update1)

Sept. 25 (Bloomberg) -- For the first time since the Asian financial crisis more than a decade ago, Hong Kong has faced a bank run.

Hundreds of depositors lined up at the city's third-largest lender Bank of East Asia Ltd. yesterday as the bank hit out at ``malicious rumors,'' and Chairman David Li rushed back to Hong Kong from the U.S. to reassure clients and investors. The city's central bank jumped to BEA's defense and police said they're investigating phone text messages questioning its health.

``The rumors were groundless,'' Li told reporters at Hong Kong's airport late yesterday. ``The bank has no problem.''

BEA's woes underline how a year of turmoil in financial markets has undermined confidence in the global banking system. Britain's government last year bailed out mortgage lender Northern Rock Plc after a run. The U.S. took over American International Group Inc., the nation's biggest insurer, to prevent the worst financial collapse in American history.

In Singapore, customers thronged outside the offices of AIG's local unit last week to terminate their policies.

BEA extended opening hours and the stock fell 6.9 percent. The 90-year-old lender said its ``exposure'' to bankrupt Lehman Brothers Holdings Inc. and AIG is less than 0.2 percent of assets.

Joseph Yam, chief executive of Hong Kong's central bank, said BEA has ``ample capital'' and the city's banking system is ``robust.'' Under Hong Kong's deposit insurance program, bank depositors are protected up to HK$100,000 in the case of a bank failure.

`Anything Can Happen'

BEA Executive Director Joseph Pang said at a press briefing in Hong Kong late yesterday that he didn't know where the rumors originated.

As Pang spoke, hundreds of people surrounded the 90-year-old bank's branch at Des Voeux Road in central Hong Kong. Similar crowds also amassed outside a Caine Road outlet, and managers had to turn people away at closing time and ask them to return the next morning.

The lines continued today, with about 70 people queuing outside the Des Voeux office at 9 a.m. One woman brought a chair.

``Anything can happen,'' said 63-year old Li Chun, a retiree. ``I better take out my money first.''

BEA shares closed 6.9 percent lower yesterday after earlier tumbling 11 percent. The stock has dropped 53 percent this year, the worst performance among banks traded in Hong Kong, as losses on mortgage investments swelled.

Image Tarnished

BEA had HK$396.6 billion of assets as of June 30 and a capital adequacy ratio of 14.6 percent.

``Their exposure should be limited,'' said Mona Chung, a fund manager who helps oversee more than $2 billion at Daiwa Asset Management Ltd. ``The reaction to those rumors seems a bit exaggerated. This is probably a bigger problem in the U.S. than for local banks.''

Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hong Kong's richest man, bought shares of BEA ``heavily'' yesterday, the South China Morning Post reported today, citing a person it didn't identify.

BEA's image was tarnished on Sept. 18 as it reduced first- half profit by HK$109 million because of ``manipulation'' of the valuation on equity derivatives it holds. The restatement prompted Moody's Investors Service and Standard & Poor's to say they may cut BEA's credit ratings.

1997 Bank Run

Hong Kong's last bank run occurred in 1997, when International Bank of Asia suffered depositor withdrawals. On Nov. 11, 1997, the bank's then-Chief Executive Officer Mike Murad declared the run over.

``I am very worried as most of our family's assets are with the bank,'' Annie Poon, 52, said yesterday outside the Des Voeux Road branch. ``My mother has gone to another branch to find out the latest.''

Other banks moved to reassure the public about their finances. DBS Group Holdings Ltd., South East Asia's biggest lender by assets, today said its Hong Kong unit is ``in a strong financial and capital position.''

BEA's Li, a scion of one of Hong Kong's most prominent families, in February quit the city's cabinet after agreeing to pay $8.1 million in fines to the U.S. securities regulator for allegedly tipping off a friend about News Corp.'s takeover of Dow Jones & Co. Li agreed to pay the fine without admitting or denying wrongdoing.

Asian Stocks Decline, Led by Banks, on Tighter Lending Rates

Sept. 25 (Bloomberg) -- Asian stocks dropped for a third day after credit markets tightened as U.S. lawmakers raised opposition to the government's plan to bail out banks.

Sumitomo Mitsui Financial Group Inc. fell for the first time in four days after the Nikkei newspaper said the bank won't take a stake in Goldman Sachs Group Inc., contradicting earlier reports. National Australia Bank Ltd. lost 1.7 percent after lending rates between banks rose to the highest since January. Hanjin Shipping Co. slipped 3.1 percent as rates for carrying commodities slumped to a seven-month low.

The MSCI Asia Pacific Index declined 1.4 percent to 114.57 as of 9:33 a.m. in Tokyo. All 10 industry groups retreated, with about four stocks falling for each one that advanced.

Japan's Nikkei 225 Stock Average dropped 2.2 percent, the most in a week. Australia's S&P/ASX 200 Index slid 0.6 percent as Australia & New Zealand Banking Group Ltd. declined after a report the bank called for voluntary redundancies among staff in New Zealand. South Korea's Kospi Index fell 1.6 percent as Hynix Semiconductor Inc. retreated after MoneyToday reported its capital spending in 2009 may be lower than this year.

The S&P 500 Index slipped 0.2 percent yesterday as Federal Reserve Chairman Ben S. Bernanke fended off congressional criticism of the $700 billion rescue proposal. S&P futures were little changed today.

The one-month London interbank offered rate, or Libor, for dollars jumped 22 basis points to 3.43 percent as banks clamped down on lending to each other amid doubts the U.S. plan will be enacted.

The Baltic Dry Index, a measure of commodity-shipping rates, yesterday fell 6.1 percent, the steepest drop since June 12. The index has declined 50 percent this year as demand for shipping raw materials weakened with a slowing global economy.

His Pie Charts Bear Real Fruit: Making Economics Accessible

JOANNE KAUFMAN

In a piece about the credit crisis scheduled to air this week on PBS's "The NewsHour With Jim Lehrer," the show's economics correspondent, Paul Solman, will display an IOU issued by the czar in 1912 to build the Kahetian Railway with "an absolute guarantee of repayment" and a 4.5% annual interest rate. "On the back," as Mr. Solman will tell viewers by way of offering quirky historical perspective, "you can see the first 12 interest coupons were clipped and redeemed." Unlucky coupon 13, dated August 1918, was affixed to a now worthless bond. After the Russian Revolution, the Bolsheviks said nyet to the czar's debts.

For a piece this past spring on how the mortgage disaster was convulsing numerous other sectors Mr. Solman trotted out a set of dominos along with the red and green plastic houses and hotels from a Monopoly game. The balding, voluble Mr. Solman, 64, made like a magician, complete with wand, when he was charged with explaining the "ledger-demain" that caused Enron to disappear.

Ismael Roldan

Mr. Solman trades in whimsy and wonkery to the profit of "NewsHour" viewers. In his constantly moving hands, derivatives, mortgage-backed securities, credit-default swaps and tranches all become manageable concepts.

He navigates carefully in the 20 pieces he does for the program each year. (It used to be more than 30, but the market conditions he limns so memorably have affected the size of the donations and underwriting grants that help pay his salary.) "You walk a fine line between being engaging and being a buffoon," he said. It's a similarly fine line between being clarifying and being condescending. "Are we in a classroom? Are we in kindergarten? It's hard to strike a balance," admitted Mr. Solman, a onetime kindergarten teacher who's been with "The NewsHour" since 1985.

"What I'm trying to do is achieve a certain companionship with the viewer when, for example, I use dominos to illustrate the domino effect. I'm using the device because I know you'll find it amusing. I want to explain the things that I think people want -- and need -- to know but also to convey the sense that we're all in on the joke together."

So Mr. Solman will call on the services of a pizza pie or fruit pie as a stand-in for a pie chart when talking about the federal budget deficit, make fun of himself for using the pie -- then use the pie again. He often prefaces a taped image of the trading floor with "and now we go to our usual stock footage."

His singular style grew out of his eagerness to connect with people. "And the way I do it," he said, "is by explaining things to them and entertaining them." The toys and the tchotchkes that frequently serve as visual aids are a throwback to Mr. Solman's days as business editor for a local public-television news show in Boston where money was tight and making do was mission critical. "I had to make a virtue of necessity," he said.

The elder of two children of the modern figurative artist Joseph Solman, Mr. Solman grew up in Manhattan, where a high-school English instructor characterized something he'd written "as having 'a journalistic tone.' I don't think it was a compliment," Mr. Solman said, "but when the teacher said it, I thought 'journalism -- that would fit.'"

At Brandeis University he worked on the school paper, subsequently becoming one of the founding editors of the Boston alternative weekly the Real Paper. Mr. Solman reached a turning point in the mid-1970s while doing research for a story comparing how Beantown and Cambridge raised money to keep going. "I asked the banks issuing the cities' bonds, 'So how much is Boston paying and how much is Cambridge paying?'"

But there was no simple answer for Mr. Solman because there was no simple rate. The bonds came due at different times, were trading at different amounts with different interest rates. "I could follow the words," he recalled, "but I had no idea what anyone was talking about."

“I want to explain the things that I think people want -- and need -- to know but also to convey the sense that we're all in on the joke together.” Paul Solman

Mr. Solman had an epiphany: He didn't know squat about the workings of economics and business. This was followed by another epiphany: "I'm a year ahead of the baby boom. I'm a serious-minded person. If I don't understand this, all the people behind me more or less don't understand it either." By way of remedy, he applied for a Neiman Fellowship to attend Harvard Business School, which led to epiphany No. 3: "One of the guys interviewing me for the Neiman asked if I could imagine explaining business on television after my time at Harvard," recalled Mr. Solman who, in fact, had already done some on-camera work for the local PBS affiliate WGBH. "And though it had never before occurred to me, I said 'Yeah, that would really be a good idea.'"

Mr. Solman's education is a continuous thing. He gets his information from sources as diverse as John Maynard Keynes; Rousseau; Cornell economist Robert Frank; Berkeley economist Brad DeLong; Zvi Bodie, an economist at Boston University; and Robert Lawrence, an economist at Harvard's Kennedy School. And he checks in regularly on the blog written by Richard Posner and Gary Becker. "Yardeni I read every day," he said, referring to the newsletter by iconoclastic economist Ed Yardeni.

Even so and even now, Mr. Solman admits, he sometimes has trouble getting a bead on just what gives in the ever-changing market. "All the time, I'm trying to understand the nuances of what's going on," he said. "What's a credit-default swap? I know what it is now, but I sure as hell didn't a year ago.

"I've been through a number of crises but have never seen anything like this," he added, referring to Wall Street's current travails. "It seems to me like the end of a nearly 30-year boom and/or bubble that began with the taming of inflation in the early '80s. It's very scary."

He compares the mortgage crisis to the dot-com implosion: "In both cases there were people out there, sober commentators, saying 'this is crazy, this is nuts. This is going to come a cropper.'"

When assembling his pieces, Mr. Solman keeps in mind all those people who come up to him and say somewhat sheepishly but very gratefully, "you make it so simple that even I understand." One such appreciative viewer is Mr. Solman's boss, Jim Lehrer.

"I'm a huge fan," said Mr. Lehrer. "Everything I know about economics I've learned from Paul. Like all good teachers, he makes it come alive for dodos like me. Some people have a lot of knowledge but don't have a prayer of explaining it. But Paul can translate what he knows, and he'll do anything to make people stay with him."

That viewers -- and anchors -- are so desperately in need of business Berlitz is a fault of the education system, Mr. Solman believes. "It's not taught in a systematic way in school," he said. "If you do take economics, you get a theoretical course which is basically built for people who are going to be economists; it doesn't have much to do with the real world."

He is well-equipped for his role of explainer-in-chief. Never mind that he hasn't balanced his checkbook in 15 years. "I know perfectly well that everyone is befuddled," Mr. Solman said. "I'm just telling them what I would have wanted to know before I learned it."

The Woe on Wall Street

TODD G. BUCHHOLZ

Columnist Thomas Friedman keeps telling us that the world is flat. Well, the world of Wall Street sure got flattened this week -- that is, steamrollered like Wile E. Coyote. Now comes David Smick to argue for a curvaceous Earth, where globalization raises tempers and volatility, not just income. In "The World Is Curved," Mr. Smick warns -- with prescience, as it turns out -- that financial disaster lurks just beyond the horizon, thanks to reckless investment banks, rash hedge funds, fraudulent Chinese bankers and American voters who are learning to hate the taste of free trade. Mr. Smick's book arrives just in time to give you that final nudge out onto the ledge.

Mr. Smick, a Washington consultant, neatly spells out both the upsides and downsides of economic liberalization: the hundreds of millions of people lifted from poverty as well as the middle-class workers struggling to keep their jobs amid ferocious competition. Overall he gives two cheers for global capitalism, offering a quote from Kofi Annan that must have staggered many of the former U.N. secretary- general's fans: "The main losers in today's very unequal world are not those who are too much exposed to globalization. They are those who have been left out."

But Mr. Smick is hardly a flat-Earther of the Friedman stripe. He attacks the pernicious leverage practices of the past decade and describes how hypocritical banks slashed hedge-fund lending after Long-Term Capital Management nearly blew up the world in 1998 but then juiced up their own leverage. How did they do this? How did they escape the restraints of the Basel capital standards adopted to ensure global financial stability in the wake of the LTCM debacle? By shunting risky positions to new, separate entities. In other words, Wall Street has been torching itself of late because banks thought they could avoid scrutiny by writing down their risky bets on a completely separate piece of paper!

The real problem running throughout the system was not a lack of new regulations. It was a lack of skin -- that is, skin in the game. Mortgage brokers turned into fly-by-nighters, immune from the effects of reckless decisions. Local bankers securitized loans and packed them off to some naïve investor or to a rating agency manned by analysts who weren't sharp enough to get a job at Bear Stearns or Lehman. Homebuyers who put nothing down or lied about their income could pack up and run off, leaving no skin behind. The entire housing sector began to look like a motel renting rooms by the hour, as johns and hookers snuck out during the wee hours. Where were the regulators? Where was Eliot Spitzer? (Maybe we know the answer to that one.)

Was it all a mirage? Was the fabulous economic growth of the 1980s and 1990s, including the tenfold rise in equity markets, just a series of hot checks changing hands? Mr. Smick does a fine job of illustrating the pace of change. In the 1960s and 1970s, only 20 firms dropped off the Fortune 500 list per year. Between 1990 and 1995, 200 firms went poof. Just this week we've lost a few more. Still, the boom was real. While the U.S. created about 40 million net new jobs in the 1980s and 1990s, Europe created 40. Not 40 million. Just 40, a few dozen. Whole industries in computing and telecommunications rose up in the U.S. from the imaginations of geniuses as well as from the garages of tinkerers. Net worth soared, and the U.S. jobless rate plunged, snickering at the Keynesians who worried about the "natural rate of unemployment."

Today we are, of course, paying back for outrageous over-leverage in recent years, but it doesn't look as though we will substantially surrender our general standard of living. Wall Street might be a muddy mess, but Main Street is actually holding up rather well. Mr. Smick likens the global financial market to a "rich, generous, but occasionally deeply paranoid great-uncle" who can suddenly cut off the money spigot. That uncle has never been more paranoid or ornery than he is today.

Mr. Smick has dined with a great many rich, powerful and ornery people. The blurb pages bulge with just about anyone who has ever signed the paper money of any country you've ever heard of. Hans Tietmeyer loved the book! Alan Greenspan's endorsement shows up on the cover -- and he often shows up inside, too. Mr. Smick relates how, as Federal Reserve chairman, Mr. Greenspan would try to impress and confound his colleagues by citing obscure data points -- or challenging others to come up with them. At one Fed meeting, Mr. Greenspan suddenly asked: "Does anyone know the latest price of tomatoes?" The chairman was hungry for status, not a BLT. Mr. Smick recalls regular breakfasts with Mr. Greenspan but admits that the Fed chairman "never offered any useful information about his monetary policy goals." As a former economic adviser to President George H.W. Bush, I can tell you that the president never got anything out of the man, either.

In its later chapters, "The World Is Curved" focuses on class warfare and fears that U.S. trade policy may retreat into a protectionist cave. In the 2008 Democratic primaries, for example, Sens. Barack Obama and Hillary Clinton threatened to rewrite or rip up the North American Free Trade Agreement. And Mr. Smick frets over demagogues flaying the wealthy and bemoaning unequal income distribution. With Lehman Brothers employees, like Bears Stearns employees before them, lugging cardboard boxes out of dimmed offices, there will be fewer Bentleys rolling around town and riling the masses. That's one problem solved. Alas, the only one so far.

Mr. Buchholz is the managing director of Two Oceans Fund and the author, most recently, of "New Ideas From Dead Ceos" (HarperCollins).

McCain Calls the Dems' Bluff

He refuses to give them political cover. Now he needs to show some real leadership.

JAMES TARANTO

Around 3 p.m., the AP NewsAlert hit our inbox: "John McCain wants to delay debate with Obama to focus on economic crisis." That would be the foreign-policy debate scheduled for this Friday.

Here's the Associated Press with some elaboration:

McCain said Wednesday he is directing his staff to work with Democrat Barack Obama's campaign and the presidential debate commission to delay Friday's debate because of the economic crisis.

In a statement, McCain said he will stop campaigning after addressing former President Clinton's Global Initiative session on Thursday and return to Washington to focus on the nation's financial problems.

McCain said he wants President Bush to convene a leadership meeting in Washington that would include him and Obama.

"It has become clear that no consensus has developed to support the administration's proposal," McCain said. "I do not believe that the plan on the table will pass as it currently stands, and we are running out of time."

McCain said if Congress does not pass legislation to address the crisis, credit will dry up, people will no longer be able to buy homes, life savings will be at stake and businesses will not have enough money

"If we do not act, ever [sic in AP report] corner of our country will be impacted," McCain said. "We cannot allow this to happen."

But several paragraphs down in the AP report, we learn that McCain was responding to a suggestion from Obama:

The Obama campaign said Obama had called McCain around 8:30 a.m. Wednesday to propose that they issue a joint statement in support of a package to help fix the economy as soon as possible. McCain called back six hours later and agreed to the idea of the statement, the Obama campaign said. McCain's statement was issued to the media a few minutes later.

What is going on here? This report from the Washington Post Web site, which appeared shortly before noon, may give a clue:

Sen. John McCain said this morning that he has not assured Democratic leaders of his support for the financial bailout package, disputing comments by Majority Leader Harry Reid that he had.

Reid told reporters Tuesday that, in a private conversation Monday, Treasury Secretary Henry Paulson assured Reid that McCain would eventually back the bailout legislation, which Reid has set as a precondition for approving the bill to tone down the partisan atmosphere surrounding the controversial issue. "I've got some good news," said Reid, adding that it "appears" McCain would back the package.

Before a meeting of his economic brain-trust, McCain denied that report.

Told of Reid's comment that the GOP nominee would vote for the plan put forth by Paulson, McCain said, "I did not say that."

Senior McCain adviser Mark Salter told reporters later that "he hasn't said that to Paulson or to Reid or to anybody else. He hasn't said that to me."

From Obama's communication to McCain, and from Reid's statement that McCain would back the bailout, it sounds as though the Democrats were counting on McCain to provide political cover for them. "Apparently knowing that," reader Tom Silvestri writes, "McCain decided to expand that reality from an inside-the-Beltway thing to an on-the-national-stage thing, just like he did with the invasion of Georgia and the hurricane on the eve of the Republican Convention":

Once again he puts Obama in the position of saying something like, "If he wants to talk about the bailout, that's a discussion that I'm willing to have," instead of actually doing something about the issue in question.

Early reports are that Obama wants the Friday debate to go on. Of course, that can't happen without McCain's cooperation--but Obama can, and will, claim McCain is chickening out. The only way McCain can counter this is by showing some real leadership over the next couple of days. Then the question will be whether Obama is capable of doing the same.

Without Extreme Prejudice
Our Monday item on the so-called Bradley effect prompted an email from reader Bill Saracino, who fills in some of the details lost in the standard liberal narrative of the 1982 California governor's campaign:

In 1982, I was executive director of Gun Owners of California, which at the time was one of the five largest non-party-controlled political action committees in California.

The gun-phobics qualified an initiative for the '82 fall ballot that would have essentially banned all handguns. It became Proposition 15. Gun Owners of California, in partnership with the National Rifle Association, assembled a broad coalition of gun, hunting and outdoor sport groups to oppose Proposition 15. I was chosen to be the chairman of the official No on 15 committee. After being far ahead in surveys in the spring and early summer, Proposition 15 failed in November by about 65% to 35%. George Deukmejian opposed Proposition 15; Tom Bradley supported it. With that background, I make the following points:

* Proposition 15 was enormously unpopular with Reagan Democrats and rural voters of all stripes.

* We tried to include Bradley vs. Deukmejian comparisons in as much of our anti-15 advertising as possible, and we outspent Yes on 15 by about 5 to 1 in the fall campaign (largely on the NRA's money).

* Because of Proposition 15, turnout in our rural areas was unprecedented, reaching 85% to 90% in some Central Valley and Sierra foothill counties.

* Deukmejian ran ahead of even Reagan (and usually even or just slightly behind "No on 15") in some rural, usually Democratic counties. The one county I remember off the top of my head is Modoc, a small county in the northeast corner of the state, bordering Nevada and Oregon. "No on 15" got 88%, Deukmejian in the low 70s. This trend was repeated--basically without exception--in large and small rural counties throughout the state.

* At a think-tank sponsored event a month or so after the election, Bradley's manager stated he thought that the presence of Proposition 15 on the ballot had cost his guy the election.

* The absentee-ballot factor is totally overlooked by folks trying to ascribe a racial component to Bradley's defeat and the surveys missing the final outcome. The final pre-election surveys weren't all that far off the mark. They showed a small to middling Bradley lead--which in fact materialized at the polls on election day. Bradley won the vote cast at the ballot boxes, but because of an aggressive absentee-ballot effort by the Deukmejian campaign (and our separate effort for No on 15), an unprecedented percentage of total turnout was represented by absentees. Deukmajian won a large majority of the absentee ballots

The pollsters totally missed this factor leading up to election day, as did the exit polls. In a still-memorable tableau Mervin Field, director of the almost-always-liberal-slanted Field poll, was on television at midnight insisting that Bradley was going to win as the tote boards showed a 50,000 vote Deukmejian lead with 99% of the vote counted.

That's a long way of saying what I wanted to, which is not that there wasn't anybody in California in 1982 who lied to pollsters about voting for Bradley and then voted against him because he was black. I suspect there were. But my firsthand experience tells me that the "No on 15"-driven turnout among pro-gun conservative Democrats, combined with the very wily absentee ballot campaigns conducted by Deukmejian and No on 15, had much more to do with Bradley losing than did any hidden racial factor.

To confirm this, we went in search of contemporaneous press accounts. We found a February 1983 column by Tom Wicker, a liberal New York Times columnist. Wicker's column--based on an analysis by Mervin Field, the pollster Saracino cites in his email to us--acknowledges the role of absentee ballots (California had just passed a law allowing anyone to vote absentee) and of Proposition 15:

Another major factor was the overwhelming defeat of Proposition 15, a strong handgun-control initiative. A $6 million opposition campaign reversed a majority originally favoring the initiative, to a 63-to-37-percent defeat. Mr. Field measured a 32-point turnaround in the last month alone. Since Mr. Bradley favored Proposition 15, the late tide against it obviously hurt him, too; 60 percent of ''no'' voters said in exit polls that they voted for Mr. Deukmejian.

But it wasn't just that $6 million campaign that defeated Proposition 15 and maybe Tom Bradley too. Mervin Field's exit polls showed that 48 percent of all voters said they kept a gun in their households; factoring in the absentees, that means that more than half of California's voters had a gun in their households on Election Day.

Field did attempt to quantify the effect of racial prejudice on the outcome:

Mr. Field's exit poll--a secret ballot--found that 3.8 percent of Deukmejian voters said they did not want a black governor. That projects to about 136,000 votes--more than the final Deukmejian margin of victory. But 0.6 percent of Bradley voters--about 23,000--said they could not vote for an Armenian. So the net of these prejudices appears to have yielded Mr. Deukmejian about 113,000 votes, still enough to have elected him.

But was this advantage offset by blacks turning out for a black candidate? The average black vote for white Democratic candidates in five other statewide races was 91.8 percent. Mr. Bradley won 94.8 percent of black votes--an edge of 3 percentage points that projects to about 16,500 of the votes he won from blacks. Subtracting that from Mr. Deukmejian's net advantage among voters biased against blacks and Armenians, Mr. Field found the ''net measurable loss'' to Mr. Bradley because he was black to be about 96,500 votes, slightly more than the actual Deukmejian plurality of 93,345.

It should be noted that none of this implicates the Bradley effect, which posits a discrepancy between what people tell pollsters and how they actually vote. Field's analysis deals entirely with what people did tell pollsters.

That said, we see two obvious problems with Field's analysis. First, it does not make sense to count every prejudiced voter as a net gain for his candidate. If someone votes for Deukmejian and says he doesn't want a black governor, it does not follow that he would vote against Deukmejian if the other candidate were white or if the voter were free of racial prejudice--only that in those circumstances the voter might be open to voting for the other guy. The same applies to the smaller number of people who voted for Bradley and harbored prejudice against Armenians.

Podcast

James Taranto discusses the Bradley effect.

Second, there is this asymmetry: Whereas Field accounts for both antiblack and anti-Armenian prejudice, he cites ethnic pride as a factor helping only Bradley. But California has a considerable Armenian-American community, which surely gave Deukmejian a boost--quite possibly a bigger boost than Bradley got from black voters, who usually vote overwhelmingly Democratic anyway.

In any case, it seems likely that Proposition 15 and absentee voting were bigger factors militating in Deukmejian's favor than racial prejudice. Bradley himself more or less conceded that the gun issue had cost him the election. In 1986, challenging Deukmejian again, he reversed himself and said he was against banning handguns. That year Deukmejian got more than 60% of the vote to Bradley's 37%. At least no one tries to attribute that outcome to racial prejudice.

Obama's Iran Pivot
John McCormack, blogging for The Weekly Standard, argues that Barack Obama has switched positions on Mahmoud Ahmadinejad, the president of Iran's Islamist regime, who spoke at the U.N. yesterday. "I strongly condemn President Ahmadinejad's outrageous remarks at the United Nations, and am disappointed that he had a platform to air his hateful and anti-Semitic views," Obama said in a statement yesterday. McCormack contrasts this with the following Obama quote from last year, when Ahmadinejad spoke at Columbia University as well as the U.N.:

Although I probably would not have invited him to speak [at Columbia]--he's got other forums, he's got the United Nations available to him--hateful lies that he may utter about Israel or the Holocaust, the answer to those lies is for us to promote the truth and show the world the kind of values and ideals that we hold dear. . . . We don't need to be fearful of the rantings of somebody like Ahmadinejad.

We're not sure this is quite as glaring a contradiction as McCormack makes it out to be; he describes Obama last year as having "supported Ahmadinejad's right to speak at the UN," which seems to us to read a statement of fact as one of advocacy. But the McCain campaign, in a statement McCormack reproduces, has a stronger rejoinder:

Barack Obama has the gall today to express "disappointment" that Mahmoud Ahmadinejad had "a platform to air his hateful and anti-Semitic views." It is Barack Obama who would give him the greatest platform of all, an unconditional summit with the President of the United States. Barack Obama's reckless determination to meet with a man who believes our Israeli friends are "Zionist murderers" undermines our nation's allies and demonstrates a frightening lack of judgment.

Of course this is mere general-election posturing. A President Obama would no more prevent Ahmadinejad from speaking to the U.N. than President Clinton got tough on China or Saddam Hussein, President Bush put an end to nation-building, or any recent president moved the U.S. Embassy to Jerusalem. And it is mildly encouraging that Obama is making the right noises now, although it was far more worrying that he made the wrong noises months ago, when he expressed a desire to meet one-on-one with Ahmadinejad. One suspects this reflects Obama's genuine inclinations, and one is fairly certain it reflects the inclinations of a large portion of his political base.

National Public Radio's "Morning Edition" yesterday aired an interview with Ahmadinejad. His answers were not terribly revealing, but some of reporter Steve Inskeep's questions were, especially this one:

I think it is fair to say that there has been rhetoric on both sides. I think it is fair to say that you have spoken of wiping countries off the map, and chopping off hands. Does that rhetoric, when you speak that way--do you, in fact, play into the hands of President Bush? You give rhetoric that reinforces his case. He says you are a certain kind of leader, and you pose as that leader.

It reminds us of something Howard Dean said at a Democratic debate in September 2003: "We need to remember that the enemy here is George Bush, not each other." Dean at least was talking about a disagreement over domestic policy, but can we be sure Obama doesn't see foreign policy the same way?

Drill, Baby, Drill
"Democrats have decided to allow a quarter-century ban on drilling for oil off the Atlantic and Pacific coasts to expire next week," the Associated Press reports from Washington:

House Appropriations Committee Chairman David Obey, D-Wis., told reporters Tuesday that a provision continuing the moratorium will be dropped this year from a stopgap spending bill to keep the government running after Congress recesses for the election.

Finally, the congressional Democratic majority has something to show for their nearly two years in power.