In that Newsweek piece (noted below), which details Rick Davis's continuing financial ties to mega-lobby firm Davis Manafort, Mike Isikoff reveals that in addition to paying Davis's salary directly to Davis Manafort, the McCain campaign has paid almost a million dollars to 3eDC, a web development company, part owned by Davis.

That's a decent chunk of change for web development. So TPM Reader UB looked up 3eDC's website. And as you can see, for a firm in the business of billing $1 million for high-end design work, their own website appears to be one of those off-the-rack professional firm template sites you can by for $19.99.

I'm not saying it's Jukt Micronics exactly. But 3eDC's existence as an actual company seems rather thin.

Now, digging around a little, I notice that 3eDC is pretty closely tied to Davis Manafort. Not only, as Newsweek notes, does the company share an address with Davis Manafort. Last year, US News got Davis to admit that the company has two owners -- Rick Davis and Paul Manafort.

And there's a bit more. According to a July 2007 article in the Wall Street Journal, 3eDC was a "start-up ... with one customer -- the [McCain] campaign." The Journal further reported that within the campaign it was understood that 3eDC was essentially a pass-through, that it had a series of other 'partner firms' that did the actual work.

Perhaps not surprisingly, in June, the Post's Matthew Mosk reported that shortly after McCain took over the Republican National Committee in his role as de facto nominee, 3eDC resurfaced with its second client to date -- the Republican National Committee -- with a contract potentially worth as much as $3 million.

So to cycle back, how we got into all this was trying to figure out whether Rick Davis had really cut his ties with Davis Manafort. The question most people have been asking is whether Davis was still drawing a salary. What it seems like now, however, is that Davis has born poring tons of McCain campaign money back into Davis Manafort -- either by having his campaign salary paid to the firm or by having huge consulting accounts set up for paper companies owned by Davis and Manafort. In either case, the question seems no longer to be whether Davis still draws a salary from Davis Manafort but whether McCain-Palin 2008 and Davis Manafort are even distinct organizations.

Brad DeLong says it's a better option than the Paulson model bailout. (And it did seem to work out pretty well for the Swedes when they got into a somewhat similar situation.)

I'm curious what Krugman thinks.

Late Update: This Krugman post from this morning suggests to me that he may think something like the Swedish model makes more sense but that the politics won't work and that given the severity of the crisis the not-as-terrible Dodd-Frank proposal is likely the way to go.

Jonathan Weisman has a fascinating, even riveting narrative of what went down in Washington on Thursday as John McCain made his play to commandeer the high-level negotiations over the bailout bill. And TPM Reader TW called my attention to a passage that may help to explain the smoldering hostility that made it impossible for McCain even to make eye contact with Barack Obama during last night's debate.

We pick up Weisman in that big meeting at the White House ...

Pelosi said Obama would speak for the Democrats. Though later he would pepper Paulson with questions, according to a Republican in the room, his initial point was brief: "We've got to get something done."

Bush turned to McCain, who joked, "The longer I am around here, the more I respect seniority." McCain then turned to Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) to speak first.

Boehner was blunt. The plan Paulson laid out would not win the support of the vast majority of House Republicans. It had been improved on the edges, with an oversight board and caps on the compensation of participating executives. But it had to be changed at the core. He did not mention the insurance alternative, but Democrats did. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, pressed Boehner hard, asking him if he really intended to scrap the deal and start again.

No, Boehner replied, he just wanted his members to have a voice. Obama then jumped in to turn the question on his rival: "What do you think of the [insurance] plan, John?" he asked repeatedly. McCain did not answer.

One Republican in the room said it was clear that the Democrats came into the meeting with a "game plan" aimed at forcing McCain to choose between the administration and House Republicans. "They had taken McCain's request for a meeting and trumped it," said this source.

Congressional aides from both parties were standing in the lobby of the West Wing, unaware of the discord inside the Cabinet room, when McCain emerged alone, shook the hands of the Marines at the door and left. The aides were baffled. The plan had been for a bipartisan appearance before the media, featuring McCain, Obama and at least a firm statement in favor of intervention. Now, one of the leading men was gone.

Assuming this is an accurate portrayal of events, it may help explain some of what happened last night.

Last week, TPM and other news outlets were looking into whether McCain campaign manager Rick Davis had really cut his ties to the mega-lobby shop, Davis Manafort -- of which he is a part owner. Even though Davis insisted he was no longer drawing any salary from the firm, what David Kurtz and I were wondering was whether Davis had somehow redirected his salary to some other entity from which he could later profit from it or draw it back. Well, it seems Newsweek has finally caught up with Davis's flimflam ...

The McCain campaign told reporters the fees were irrelevant because Davis "separated from his consulting firm ... in 2006," according to the campaign's Web site, and he stopped drawing a salary from it. In fact, however, when Davis joined the campaign in January 2007, he asked that his $20,000-a-month salary be paid directly to Davis Manafort, two sources who asked not to be identified discussing internal campaign business told NEWSWEEK. Federal campaign records show the McCain campaign paid Davis Manafort $90,000 through July 2007, when a cash crunch prompted Davis and other top campaign officials to forgo their salaries and work as volunteers. Separately, another entity created and partly owned by Davis--an Internet firm called 3eDC, whose address was the same office building as Davis Manafort's--received payments from the McCain campaign for Web services, collecting $971,860 through March 2008.

In an e-mail to NEWSWEEK, a senior McCain official said that when the campaign began last year, it signed a contract with Davis Manafort "in which we purchased all of [Davis's] time, and he agreed not to work for any other clients."

Frankly, it's even more convoluted than I'd imagined. But the McCain campaign's claim that anything done by Davis Manafort is irrelevant to the campaign since no one at the campaign has any tie to the firm now seems pretty ridiculous.

In my initial reaction last night, I wrote that while I thought the debate was basically a draw, that amounted to a narrow win for Obama since foreign policy is supposed to be John McCain's forte. Now, after half a day, with more time to think about it and the benefit of seeing initial polling data and surveying other people's reactions, I'm only confirmed in that view.

In fact, I think it was a much bigger win for Obama than I was ready to figure last night. And that's for two basic reasons.

First, the pattern in the 2000 and 2004 presidential debates was essentially this: the Democrat generally won each debate on points and even in the snap polls of undecided voters. But there was usually some remark or bit of affect that -- ludicrous or not -- right-wing commentators and yakkers fixed in on and were able to parlay into the dominating conversation of the next few days. In this way, strong debate performances turned into weak debate performances.

I'm not seeing anything like that this time. Mainly that's because Obama just didn't make any mistakes. But I suspect it's also because there's now more meta-media parity between right and left.

Second was McCain's attitude. Whether it was contempt or condescension or some sort of fear or inability to -- in the most literal sense -- face Obama, it made McCain look small and angry. I apologize that I can't link to them because I don't remember who wrote it. But as someone wrote after the debate, for that kind of attitude to have 'worked' for McCain, Obama needed to come off as completely ignorant and unprepared. And I don't think even his harshest critics believe that is what happened. Roll it all together and Obama just seemed like a bigger person than McCain. And in a race in which the issue agenda and party identification already work strongly in Obama's favor, that's an advantage that is very hard for McCain to give up.

I know that many Obama supporters are disappointed that he passed on various opportunities to deliver a smackdown that McCain couldn't recover from. But having watched the guy for 18 months now, for better and worse, that's not who he is. What he did do though is stand on the stage with McCain for 90 minutes on what's supposed to be McCain's terrain. He had an easy command of the issues. And he didn't get rattled by any of McCain's attacks. For all those reasons, I think he had a much better night than McCain.

(ed.note: For some very acute debate analysis from a very experienced hand, see this post from James Fallows.)

McCain's unwillingness to make eye contact with Obama through the debate seems to be getting picked up by a lot of observers. Here's an interesting exchange on the subject between Chris Matthews and the Post's Eugene Robinson ...

Here's one comment we got from TPM Reader EO ...

As a psychotherapist and someone who treats people with anger management problems, we typically try to educate people that anger is often an emotion that masks other emotions. I think it's significant that McCain didn't make much, if any, eye contact because it suggests one of two things to me; he doesn't want to make eye contact because he is prone to losing control of his emotions if he deals directly with the other person, or, his anger masks fear and the eye contact may increase or substantiate the fear.

I noticed him doing the same thing in the Republican primary debates. The perception observers are likely to have is that he is unwilling to acknowledge the opponent's legitimacy and/or is contemptuous of the opponent.

And here's another note from TPM Reader TB. I guess I'm really not sure quite how to characterize it ...

I think people really are missing the point about McCain's failure to look at Obama. McCain was afraid of Obama. It was really clear--look at how much McCain blinked in the first half hour. I study monkey behavior--low ranking monkeys don't look at high ranking monkeys. In a physical, instinctive sense, Obama owned McCain tonight and I think the instant polling reflects that.

So McCain may have given away his status as a low-ranking monkey. I'd never even considered monkey rank.

Late Monkey Science Update: In case anyone's wondering, I looked up TPM Reader TB's page at the University he teaches at. And no doubt about it, he appears to be a genuine monkey scientist, or to be more specific a researcher on social cognition and behavior in primates. I'd link to his page. But readers remain anonymous, save for their initials, until they tell us otherwise.

One of the more interesting factual face-offs was this question about who said what about meeting enemies without preconditions and just what Henry Kissinger said on the topic. My own sense was that McCain got caught out and then tried to change what they were talking about. But it was sort of complicated since both were weaving in different issues over an extended passage of the debate. We compressed down the key exchanges on that issue -- the key five minutes from the roughly eight and a half minutes they discussed it ...

It's interesting to consider that once the election has ended and the excitement dies down, the most important result of this debate could turn out to be McCain's reviving the verb 'festoon' for a new generation of Americans.

John King credits McCain with pulling down his TV ads for "about 72 hours" during the so-called "suspension." 72 hours? McCain only announced the suspension about 57 hours ago, and the best estimates from media buyers is that McCain was only off the air for about 24 hours (although readers have reported ads running in different parts of the country virtually the entire time). One day, three days, eh, who's counting?

There've been a few snap polls now. And they each seem to show that the respondents -- mainly independents -- thought Obama did better, in some cases by substantial margins. But I'd caution that these snap polls are often at variance with how people think each candidate did one or two days out. So while they're encouraging for Obama supporters, I'd say take them with a grain of salt.

My own sense remains that this was basically a tie between these two candidates, with both bringing their A game. But since this was the foreign policy debate, the topic on McCain has staked his campaign, I think the advantage is to Obama. Not on points, but on the net effect.

Seems like the no-eye-contact weirdness is starting to catch on.

Late Update: Oy, Matthews asked if it's weird that Obama was so "non-ethnic" tonight.

Pretty measured debate, but on hammering McCain Biden was on fire ...

I keep coming back to McCain's comment that Pakistan was a "failed state" when Musharraf hatched his coup d'etat. It's a vague term. But I don't think that adds up. It's always been the key fear that Pakistan, with its nuclear weapons, could become a failed state. It's got lots of the ingredients. But I don't think that adds up.

My take on this debate was that both candidates made their basic arguments clearly. They stuck to the points they're making on the campaign trail. Neither of these guys are powerful debaters but both held up well. I didn't see many real gaffes or mistakes.

I said before the debate started that we should expect some outside the box, over the top antics from McCain. But that didn't really turn out to be true.

Through most of the debate -- as I was live-blogging -- I was thinking, Hmm, this is pretty much a draw, about what you'd expect with one person arguing McCain's agenda and another arguing Obama's. In that sense, I thought it was largely a tie. But McCain's whole campaign is based on his supposed superior knowledge and judgment on foreign policy. So I think that's a problem for McCain.

A few key points to consider that may pick up steam over the next hours and days.

McCain repeated what everyone agrees is a lie in claiming that Barack Obama has voted to increase taxes on people making as little as $42,000. Flat out lie.

He repeated his line about the wasteful earmark studying Bear DNA when it's now been revealed that his vice presidential running mate did the exact same thing -- only about seal DNA.

I said above that McCain didn't have any freak-out moments. But he did have that sneer and there did seem to be this thing where he was so contemptuous and angry at Obama that he couldn't get himself to make eye contact. I think we'll hear more about that.

Angry, angry, angry. Part of the key here is that McCain is clearly miffed that he even has to debate or run against Obama. He thinks it's an insult.

10:07 PM ... China cleaned up its act before Nixon's overtures to China? No Cultural Revolution?

10:10 PM ... Good response from Obama on the topic of diplomacy and meetings with enemies. Most of what we've heard from maybe a half hour has been basically a draw, at least in debating terms. But this is strong.

10:12 PM ... Spain!!!

10:13 PM ... I'm not sure most people will know what the hell McCain means by "the Dear Leader".

10:21 PM ... I'm not sure it will resonate with people -- but let me just stipulate that McCain is completely nuts on Ukraine and all the former Soviet Republics on Russia's borders. Okay, I've said it.

10:26 PM ... I haven't focused on this myself. But a number of readers are writing in to say that McCain has not looked at or made eye contact with Sen. Obama once this evening. Have you seen that?

(Todd Gitlin adds some more on this point.)

10:34 PM ... McCain running for the Presidency of the Surge.

9:06 PM ... Wait, didn't McCain just say that he got the House Republicans to take part in the negotiations when he seemed to lead them out of the negotiations?

9:11 PM ... Interesting the degree to which, so far, neither Obama or McCain want to engage each other.

9:12 PM ... I guess Lehrer noticed the same thing.

9:13 PM ... Friend points out, Obama has flag pin; McCain has none.

9:15 PM ... Three millions for seal DNA! None for Bears!

9:21 PM ... So far I think this is basically a draw, a lot of jousting, not a lot of hits. But Obama seems to have come into the debate with a much clearer strategy.

9:25 PM ... McCain's been called out on that $42k lie a hundred times. Telling it again.

9:33 PM ... "How about a spending freeze?" Just tossing it out as a possibility?

9:34 PM ... Solar, biodiesel and whatever the other crap is ...

9:34 PM ... Can we elect Lehrer?

9:35 PM ... Good line from Obama on hard decisions but also knowing what our basic values are.

9:45 PM ... You were wrong, you were wrong, you were wrong? This is the kind of situation where McCain might flip out.

9:50 PM ... Pretty evenly matched debaters.

9:53 PM ... McCain's the voice of considered rhetoric during foreign policy crises?

9:56 PM ... Exactly, Barack ... (Extinction for North Korea, Bomb, Bomb, Iran, etc.)

We set up a thread at TPMCafe for tonight's debate. No bailout/financial crisis excuses should keep you from participating.

Looking forward to what we can expect from tonight's debate, the most telling points are situation and character. The polls for the moment look good for Barack Obama. And what he needs to prove in the context of the entire campaign is that he has the stature and heft to be President of the United States. That and Obama's character both suggest that he'll try to put in a solid, reassuring performance rather than aiming for a knock-out punch or some game-changing moment.

Meanwhile, everything about John McCain's character and the situation he finds himself in suggests he'll do precisely the opposite.

Whether we call it John McCain's freak-outta-palooza or just some freewheeling maverickism, everything John McCain has done over recent months and especially and with a new intensity over the last week has been geared to upsetting the applecart and creating some event which trips up Obama and shifts the trajectory of the campaign. Some of us may see it in a negative light or a positive light, but descriptively, I don't think many people on either side of the political aisle would disagree with that analysis.

Add to that the issue of character. A high stakes campaign brings out the essence of an individual. And campaigns, in almost every case, are defined by the candidate. With these rapid-fire rash and erratic actions, I think we're seeing the real John McCain. It may be filtered through and packaged by Steve Schmidt or Salter or Davis. But fundamentally I believe this all stems from John McCain.

(To add to the miss, note this pool report filed as McCain headed for the plane to Mississippi tonight with Rudy Giuliani in tow -- the "general atmosphere is utter confusion." Not conducive to going into a high stakes debate. But very much in line with McCain's recent affect and behavior.)

Put those two factors together -- recent behavior/strategy and fundamental character -- and I think you have to expect a John McCain who is unpredictable, possibly uncontrollable and looking for any moment to launch a dramatic ambush or confrontation that will amount to his ultimate roll of the dice.

We who are about to maverick, salute you!

John Judis says all that can or should be said now about John McCain.

McCain spokesperson Nicole Wallace tries to move the bar for why McCain can debate tonight even though the bailout is not resolved, and MSNBC's David Shuster will have none of it:

From Politico ...

A growing number of Republicans are expressing concern about Sarah Palin's uneven -- and sometimes downright awkward -- performances in her limited media appearances.

Conservative columnists Kathleen Parker, a former Palin supporter, says the vice presidential nominee should step aside. Kathryn Jean Lopez, writing on the conservative National Review, says "that's not a crazy suggestion" and that "something's gotta change."

Tony Fabrizio, a GOP strategist, says Palin's recent CBS appearance isn't disqualifying but is certainly alarming. "You can't continue to have interviews like that and not take on water."

Regulars must already know. But as usual we'll be bringing you live debate coverage this evening right here at TPM -- pre-debate reporting, live blogging of the debate and video clips of the key moments as they pop.

Over at TPM Election Central we've crunched the numbers on party affiliation in key swing states and found, as we expected, a substantial increase in Democratic voter registration since 2004 compared to the Republicans.

What if Sarah Palin were President and trying to bailout the economy? Here she is waxing ineloquent to Katie Couric on what the alternatives to the current plan before Congress might be:

TPMmuckraker has learned that the long-awaited report by the Justice Department's Inspector General on its investigation into the U.S. Attorney firings of 2006-07 will be released Monday morning.

Lots of you are addicted to polls and the latest political news in these final weeks before the election. Not just the bumpy daily presidential tracking numbers, but all the house and senate and state presidential numbers from around the country.

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John McCain is saying that now that he's gotten the bailout negotiations back on track he can resume his campaign and show up tonight at the debate. But every news report I'm seeing says they were moving along smoothly until John McCain showed up and they fell apart.

Who can help me here?

MSNBC yanks a TV ad from Dem-leaning independent groups today after Bill O'Reilly called out NBC corporate execs on his show last night.

I know we're focusing on the collapse of our financial system. But the live fire fights we're getting into with the Pakistani military would seem to throw our alliance with them into some question, no?

Tracking polls are inherently volatile. But the initial results suggest that McCain's suspension/debate cancellation stunt has been a big bust.

Didn't Barack Obama just make John McCain flinch?

Late Update: Numerous readers are informing me that I am incorrect -- that McCain didn't 'flinch' but rather 'blinked'. I can live with that.

Murray Waas has a new report out on one particular aspect of the DOJ Inspector General's investigation into former Attorney General and former White House Counsel Alberto Gonzales:

In reauthorizing the [warrantless] surveillance program over the objections of his own Justice Department, President Bush later claimed to have relied on notes made by Gonzales about a meeting that had taken place the day before (March 10), in which Gonzales and Vice President Cheney had met with eight congressional leaders--also known as the "Gang of Eight"--who receive briefings about covert intelligence programs. According to Gonzales's notes, the congressional leaders had said in the meeting that they wanted the surveillance program to continue despite the attorney general's refusal to certify that it was legal.

But four of the congressional leaders present at the meeting say that's not true; they never encouraged the White House to sidestep the objections of the attorney general and continue the program without his approval.

Investigators are skeptical of the notes because Gonzales did not write them until days after the meeting with the congressional leaders, and he wrote them after both Bush and Gonzales had together signed a reauthorization of the surveillance program.

Late Update: Waas also reports, in a second piece, that Gonzo has admitted to investigators that President Bush directed him to go to the then-Attorney General John Ashcroft's hospital bedside in that dramatic late night showdown over the warrantless wiretapping program. Gonzales has previously refused to answer congressional questions on that point in this testimonial trainwreck from July 2007:

Stunt over.

McCain resumes all campaign activities. Will debate tonight.

Fox News falling all over itself to explain why the campaign ploy that led to torpedoed bailout plan was an "accomplishment" for McCain. Embarrassing even to watch.

How does McCain justify showing up at tonight's debate even if a bailout plan hasn't passed? Move the bar a bit.

Sen. Lindsey Graham (R-SC) now says: "What's more important than anything that when we go to Mississippi tonight, both candidates can say that the Congress is working ..."

Ed Rollins dissects the motives of the House Republicans who McCain is siding with to derail bailout plan:

Slate predicts McCain's next 10 Hail Mary stunts.

(My fave: "Challenges Obama to suspend campaign so they both can go and personally drill for oil offshore.")

Would you trust John McCain to run a small or medium sized business?

John Harwood on CNBC: McCain will own any market sell-off today.

Dow dropped 130 points in first two minutes of trading ...

Polls show McCain's lead slipping, and within the margin of error, in Florida and Missouri. That and the day's other political news (did someone say debate?) in the TPM Election Central Morning Roundup.

As we've been reporting, John McCain's attack ads have remained up on the air across the country as late as this evening. And now it turns out that his campaign has instructed TV stations around the country to start airing them again starting on Saturday. In other words, McCain's ads may actually disappear from the air for a few hours on Friday.

At this point it looks like the only thing that got cancelled is McCain's much ballyhooed suspension of his campaign was the appearance on David Letterman.

It is no small irony that after years of being at odds with the right wing of his own party, John McCain is staking his campaign for the presidency on it.

During the late afternoon meeting at the White House (a meeting which was McCain's idea), McCain sat silently at the table until nearly the end, according to a Hill source who was briefed on the meeting. At that point, I'm told, McCain vaguely brought up the proposal being pushed by the Republican Study Committee, the group of House conservatives that is bucking the GOP leadership. But McCain didn't offer any specifics and didn't necessarily advocate for the plan, according to the Hill source.

Responding to McCain, Treasury Secretary Paulson said that the RSC proposal was unworkable, my source says, at which point McCain didn't really advocate for it or state his own position. The meeting adjourned soon after, amid confusion over where negotiations could go next.

Democrats were incensed. "It sounds like Sen. McCain has sided with the House Republicans who want to start with a completely different approach," Rep. Henry Waxman (D-CA) told Reuters later, after being briefed on the meeting.

The McCain campaign this evening issued a statement denying he had torpedoed the negotiations, but it's not just McCain's behavior at the meeting that suggests he's sided with House conservatives.

As The Hill reports, Rep. Spencer Bachus (R-AL), the ranking Republican on the House Financial Services Committee, presaged the day's events when he told reporters that he'd had breakfast with McCain's advisers on Wednesday morning and talked by phone with McCain Wednesday night:

"We would prefer a loan or supplying insurance," Bachus told reporters. "These are the ideas Sen. McCain tried to maximize. He feels strongly we have to design a program where taxpayers won't lose."

In fact, House conservatives did float a mortgage insurance proposal today, though it's exact outlines were apparently a mystery to Democrats and Treasury Secretary Henry Paulson alike.

McCain also met during the day with Minority Leader John Boehner (R-OH), but I'm told that Boehner is ready to sign off on the plan negotiated by Paulson and the Democrats -- he simply doesn't have control over his caucus (although other reports place Boehner as aggressively leading the charge).

This evening on Fox, McCain spokesperson Nancy Pfotenhauer was surprisingly solicitous of the arguments put forward by House conservatives:

You kind of have the Administration talking to the Democrats in Congress but maybe not working as closely as they should have with the Republicans. ... I don't know why people are shocked that that's how it played out tonight. ...

The conservative Republicans have been very, very focused on taxpayer protections, and one thing that Sen. McCain has been clear on from the beginning is that that's absolutely essential. ...

So McCain's gambit to shake up the election by "suspending" his campaign and returning to Washington to hammer out a deal at a big White House meeting ends up killing at least for now the hastily negotiated bailout plan that Treasury and Congress had hammered out. Strangely, almost inexplicably -- or maybe just desperately -- McCain has thrown his lot in with the same conservatives who see him as the perfect example of what is wrong with their party. Strange days indeed.

It seems like McCain's decision to parachute into the bailout negotiations has finally brought about consensus.

If Palin loses, can we all go back to admitting the Cold War is over?

Feds seize Washington Mutual in largest bank failure in U.S. history.

On CNN a little while ago, Jeffrey Toobin threw a monkey wrench into the media narrative that persists in crediting John McCain with having "suspended" his campaign:

Late Update: The Obama camp tells TPM Election Central that the McCain campaign is directing TV stations across the country to start airing its ads again beginning Saturday, which would mean McCain will be off the air all day Friday only. It also suggests that McCain isn't waiting until the bailout plan is approved to resume campaigning.

CBS/NYT: Obama 48%, McCain 43%.

From Marc Ambinder, it seems like we know what McCain's agenda was today: to scuttle the bailout negotiations.

Late Update: But later, Ambinder says it's just the opposite. Go figure ...

According to this report, Obama advisor Robert Gibbs says he believes that John McCain will show up for the debate tomorrow night in Mississippi. But drawing on my own experience, I think that the encouragement and support of people close to McCain could be critical in giving him the kind of safe emotional space that would make it possible for him to come.

Those of you who've read the site for a long time probably remember that I long struggled with a crippling fear of air travel, one which I've now largely, but by no means entirely, overcome. And I know for me, when facing that kind of fear, it really helped having people close to me giving me the strength to overcome my fears.

And I think it can be the same thing with McCain.

My question is, who does McCain need with him today to give him the courage to head down South and debate Obama? Any thoughts? Who can be McCain's support team?

In a riveting interview with Katie Couric, Sarah Palin reveals that Alaska lies between Canada and Russia. Really:

Late Update: I had totally missed this reporting. We've all heard the McCain-Palin argument that Palin is qualified to be president because her state is near Russia. But it turns out there's actually been a lot of contact and regional level and grassroots diplomacy between the local governments on both sides of the border. Only Palin has stood out on this issue for completely ignoring anything to do with Russia.

So let's see. In the interests of saving the country, John McCain has to cancel the debate. But he's got time to do prime time interviews on each of the three broadcast networks tonight.

There're freakouts and there are freakouts. And yesterday's Manic Act Out moments from John McCain were in a class by themselves. First there he tried to cancel Friday night's debate and then he tried to beg off David Letterman's show by making up a story about having to hop on a plane to rush back to Washington. We wrap it all up for you today's episode of TPMtv ...

As Letterman said, "It really is starting to smell now."

Full-size video at TPMtv.com.

What do the pundits think of McCain's whacko debate cancellation stunt? We rounded up the key responses.

The Huffington Post called 15 McCain campaign headquarters in various battleground states and could not find a single one that said that it was suspending its operations.

Practically speaking, it'll be the end of the day today before most of McCain's TV ads are off the air across the country, an expert who tracks media ad buys tells TPM Election Central.

It's just another measure of the personal courage and unyielding principle McCain demonstrated by "suspending" his campaign.

Presidential spokesperson Dana Perino on this afternoon's high-profile White House meeting among Bush, McCain and Obama: "Sen. McCain is the one who called for the meeting, and we thought it was a good idea."

TPM Reader RN wants to know: "Do you think McCain will still find time for his pre-debate nap on Friday in the midst of this financial crisis?"

Alaska Gov. Sarah Palin finally faced more than one reporter today and was asked about her support for the reelection of Sen. Ted Stevens (R-AK) and Rep. Don Young (R-AK):

POLITICO: Do you support the reelection bids of embattled Alaska Republicans, Rep. Don Young and Sen. Ted Stevens?

A: Ted Stevens trial started a couple days ago. We'll see where that goes.

POLITICO: Are you gong to vote for them?

[no answer.]

Late Update: Watch:

TPM Reader JB gets it ...

The current stunt is certainly at the top of the list, but I think there is another aspect of his rash decision to suspend the Republican National Convention that has not been commented on enough. It wasn't just that he truncated the convention. It was that his campaign leaked that he might give his acceptance speech by live feed from the disaster zone. As if he, John S. McCain III, somehow had to be there......doing what? Commandeering FEMA? This idea that McCain had to be there in the disaster zone instead of addressing his party in St. Paul is in some ways even more ridiculous than the notion that only he could save the Wall Street bailout and that the only way to do that is to "suspend" his campaign. (Although as you and John Aravosis point out, he has a funny way of suspending his campaign given that he's doing everything he was planning on doing anyway, except debating Obama.)

McCain admits that, as of Tuesday at least, he hadn't had a chance to look at the Paulson plan yet.

Is he kidding? The Paulson plan is like three pages long.

Did someone say suspension?

Here's Nancy Pfotenhauer's appearance on Fox a little while ago, laying into Obama for taking credit he doesn't deserve:

This just goes to show the absurdity of "suspending" the campaign in the first place.

When we look back at the 2008 campaign, whoever wins, what will your top Manic McCain Act Out moments from the campaign be?

For me, the economy ate my debate homework has to be in the top three. But there must be at least half a dozen others.

Lemme see, two of McCain's press spokespeople on TV attacking Obama; McCain attack ads up on TV across the country. This is the suspension? What did I miss?

The guy is literally out of control. At what point do his friends need to start discussing an intervention?

I guess suspending your campaign doesn't including taking your talking head surrogates off the cable nets.

We'll have video soon of top McCain surrogate Nancy Pfotenhauer who was just on Fox attacking Obama.

Late Update: Doesn't preclude Pfotenhauer from doing live chat right now with Washington Times either.

Later Update: Latest McCain camp line, in response to question of whether debate will go on Friday with an empty podium: Obama can always debate Joe Biden instead.

Readers have been sending in reports all morning that John McCain's attack ads are still up in swing states around the country, notwithstanding McCain's puffed-up and vainglorious claims to have suspended his campaign to go to Washington and destroy the giant meteor hurtling toward earth save the economy. We are, as I write this, working the phones to confirm just what's up. In McCain's possible defense it can take a while to get ads down off the air. But we'll be getting to the bottom of it shortly.

If you see McCain's ads up, definitely let us know.

The TPM Election Central Morning Roundup is proud to announce that it is not suspending operations and will soldier on in the face of all crises, foreign and domestic (except maybe the occasional hangover), to bring you the day's latest political news.

DOJ monitoring reports of Michigan GOP's lose your house, lose your vote scheme.

Perhaps this will shine an unflattering light on my psyche. But, like many of you, I have a busy schedule, with lots of work obligations and meetings. I also end up doing a decent number of panel discussions and speeches, though I try hard to keep those to a minimum. And like everyone, sometimes I get tired or overwhelmed and I wish I could get out of this or that responsibility.

Occasionally in these moments, in a perverse kind of private entertainment, I've found myself imagining what would happen if I pawned off on someone just the ballsiest, most inane excuse for flaking on some commitment. And not something that people might buy -- nothing entertaining about that -- but just something completely off the wall and nonsensical. What would people's reaction be? Speechless, laughter, tearing me limb from limb? Would they ever speak to me again?

So, let's see, I can't moderate the panel because I've been called to Washington to give a special briefing on guerilla tactics to be used against the Taliban?

Or maybe, I want to be at the meeting, but as weird as this sounds, all the bridges and tunnels out of Manhattan have been shut for the day. Some counter-terrorism thing probably. I tried renting a helicopter but they're all booked by people at the UN.

Isn't this pretty much what John McCain tried to pull today? But actually really did it? And on a national stage? He wants to cancel the debate? And maybe also Palin's debate. Are you kidding? Why not cancel the election too? And because he has to go back to DC to solve the financial crisis? Really? The topic he knows nothing about and after he's shown up less in the senate in the last two years than anyone but Tim Johnson, the guy who had the stroke? Which of my employees is going to call from home tomorrow and say they can't come to work because of the financial crisis?

One of the advantages of running a presidential campaign is that roughly half the country is deeply committed to believing or at least saying that virtually anything you do or say makes sense. And so it is here. But, look, if you were living in the real world, if you were some hotshot young executive at a Fortune 500 company trying to rise in the ranks, and you pulled some whacked crap like this, it would probably get you blackballed permanently. People would think you were either deeply unreliable or maybe just had a screw loose. And yet here he is -- is he kidding? He can't debate Barack Obama because he's got to go to Washington and save the economy? It's like the biggest 'dog ate my homework' in history.

Seems like only yesterday the McCain was explaining to us, no, lecturing us on how Rick Davis has completely severed his ties from his lobbying firm that was taking $15,000 a month from Freddie Mac until August.

Guess that didn't pan out. Turns out he's still a director and treasurer of the firm.

Wow, he even lied to Letterman.

Read the content free joint statement from the Obama and McCain campaigns.

"A few moments ago, President Bush called Senator Obama and asked him to attend a meeting in Washington tomorrow, which he agreed to do. Senator Obama has been working all week with leaders in Congress, Secretary Paulsen, and Chairman Bernanke to improve this proposal, and he has said that he will continue to work in a bipartisan spirit and do whatever is necessary to come up with a final solution. He strongly believes the debate should go forward on Friday so that the American people can hear from their next President about how he will lead America forward at this defining moment for our country," said Obama-Biden spokesman Bill Burton.

These guys are just digging into such depths of nonsense and desperation that pretty soon they're going to pop out in China, which will be helpful since they can ask the Chinese for the trillion dollars it'll take to bail out McCain's pals on Wall Street for the mess his economics advisor Phil Gramm made possible. Here's the latest attempt to exploit the financial market crisis for political ends (from CNN)...

McCain supporter Sen. Lindsey Graham tells CNN the McCain campaign is proposing to the Presidential Debate Commission and the Obama camp that if there's no bailout deal by Friday, the first presidential debate should take the place of the VP debate, currently scheduled for next Thursday, October 2 in St. Louis.

So we need to put the country first and cancel the vice presidential debate.

It seems that today during the time Barack Obama was waiting to hear back from Sen. McCain about their planned joint statement -- and while McCain says he was meeting with key advisors and becoming increasingly concerned about the financial crisis facing the country -- he was actually holding a special meeting with Lady Lynn Forester de Rothschild, the expat international financier who once supported Hillary Clinton but now is supporting McCain because she thinks Obama is "elitist".

TPMmuckraker has obtained a copy of a draft bailout plan that was circulating on the Hill this afternoon.

SurveyUSA has just completed a snap poll on response to John McCain's request to cancel or postpone the presidential debate.

Several questions. But two key ones.

What to do about debates?

Hold as Scheduled 50%
Hold with Econ Focus 36%
Postpone 10%

Suspend Campaigns?

Suspend 14%
Continue 31%
Refocus on Fin. Crisis 48%

Would canceling the debates be good for America? 14% say yes.

I'm very curious to see the big-media pundit reaction to McCain's debate cancellation stunt. When you see, can you let me know? Folks on the cable nets. Prestige pundits with their own blogs like Klein et al. Lemme know and we'll round them up.

Sen. Schumer on McCain stunt: "Just weird..."

Late Update: Joe Klein sees it for what it is -- a desperate gimmick. Doesn't like Obama's joint statement idea either.

A plugged in reader who's a Democratic lobbyist writes in with a good point:

The deal on the "bail out" is 98% done. Treasury has capitulated on almost every point. A draft is circulating on the Hill now. No one needs McCain to help do the remaining 2%....except the White House who has no standing on this matter on the Hill with either Democrats or Republicans.

Let's state outright a few obvious points. Bringing the presidential candidates and their press entourages back to Capitol Hill won't speed or improve the process of coming up with a good bailout deal. It will politicize it. That's so transparently obvious that it barely requires stating. And of course that is the point.

By going public with his 'suspension' announcement as a breaking news statement McCain intended to make any agreement between the candidate impossible. Contrast that with Obama's campaign, which apparently tried to get both campaigns to agree on a common set of principles privately before going public. There's no logical reason there can't be a presidential debate while a bailout plan is being negotiated.

Finally, does anyone think that McCain would have come up with this gambit if his polls were where they were two weeks ago instead of where they are today? Of course, not. This isn't a reaction to the national financial crisis but to the McCain polling crisis.

The McCain supporters who are cheering this aren't doing so because they think it's the right thing to do but because they hope it's ingenious politics.

If anyone can think of any reason why these points are not incontestably accurate, I would be obliged if you could let me know.

He's desperate and reckless. This is what it appears to be: political stunt dressed up as vainglorious self-sacrifice. In other words, typical John McCain.

The guy who a week ago said the fundamentals of our economy remain strong suddenly suspends his campaign and wants to cancel the first presidential debate to rush back to Washington to deal with a crisis that his vice presidential candidate now says could lead to another Great Depression if not addressed immediately.

So far Dems are more than just a little lukewarm to this McCain gambit.

Here's part of Sen. Harry Reid's just-released statement:

I understand that the candidates are putting together a joint statement at Senator Obama's suggestion. But it would not be helpful at this time to have them come back during these negotiations and risk injecting presidential politics into this process or distract important talks about the future of our nation's economy. If that changes, we will call upon them. We need leadership; not a campaign photo op.

Reid also calls for the debate to go on as scheduled.

Early reports are that Obama wants the debate Friday to go forward as scheduled.

What's changed today in the financial crisis other than John McCain's poll numbers tanking? Isn't this the campaign equivalent of faking an injury when you're down late in the 4th quarter? Note too that McCain was in the midst of debate prep when he made this decision.

Look at what appears to have happened. Obama reached out to McCain privately to agree to a shared set of bailout principles. McCain went off the handle again and tried to use the crisis as a way to call off the debates.

Late Update: One longtime reader says it's worse than that:

Obama reached out privately, because once this discussion went public it was bound to be politicized. Instead of taking his call and hearing what he had to say, McCain spent the next six hours huddling with his aides, searching for a way of turning the situation to his political advantage. His response - a unilateral, public call for cooperation - was designed to retake the initiative and steal Obama's thunder. But it also ends any hope of actual cooperation.

Obama reached out, hoping that McCain would see something more important at stake than his own personal ambition. Alas, it would appear that there is nothing more important to McCain.

At 8:30 this morning, Senator Obama called Senator McCain to ask him if he would join in issuing a joint statement outlining their shared principles and conditions for the Treasury proposal and urging Congress and the White House to act in a bipartisan manner to pass such a proposal. At 2:30 this afternoon, Senator McCain returned Senator Obama's call and agreed to join him in issuing such a statement. The two campaigns are currently working together on the details.

McCain asks Barack to call off presidential debate.

(Desperate and Reckless: Ramp up Georgia crisis for votes; call off half the GOP convention; pick a demonstrably unqualified freshman governor to salvage his campaign; call for firing head of the SEC; now ask to have presidential debates delayed or canceled so he can politicize the bailout debate ... )

The McCain camp has just sent word that the senator is suspending his campaign and returning to Washington to deal with the financial crisis.

McCain is also calling for a postponement of Friday night's debate and for Obama to suspend his campaign as well.

We have McCain's prepared remarks here.

Oddly, the cable news nets are now playing a recorded -- not live -- statement given by McCain himself announcing the suspension:

Late Update: The Obama camp initially sent out this statement from spokesperson Bill Burton in reaction to the McCain announcement:

At 8:30 this morning, Senator Obama called Senator McCain to ask him if he would join in issuing a joint statement outlining their shared principles and conditions for the Treasury proposal and urging Congress and the White House to act in a bipartisan manner to pass such a proposal. At 2:30 this afternoon, Senator McCain returned Senator Obama's call and agreed to join him in issuing such a statement. The two campaigns are currently working together on the details.

Later Update: The White House approves and, as if on cue, issues a statement:

"We welcome Sen. McCain's announcement," said White House spokeswoman Dan Perino in a statement. "We are making progress in negotiations on the financial markets rescue legislation, but we have not finished it yet. Bipartisan support from Sens. McCain and Obama would be helpful in driving to a conclusion. The financial market crisis is a big problem that requires a big solution, and solving this in a bipartisan way will help prevent economic damage spreading from Wall Street to all Americans."

John McCain's strategy at the moment appears to be to vote against any federal financial market bailout plan -- whether it's a good one or bad one -- because it will give him an issue to pivot against both Obama, the Democratic Congress and Bush. But Sarah Palin appears now to have all but committed her running mate to support of whatever Congress passes. According to the AP, "Republican vice presidential nominee Sarah Palin says the United States could be headed for another Great Depression if Congress doesn't act on the financial crisis." The context and quote aren't clear. So we'll have to see precisely what she said. But this would appear to box McCain in a bit -- or force a retraction from Palin.

Late Update: Here's video of Palin:

For $700 billion, I'd sure want to know what I was getting. So what is the American economy getting for its $700 billion bailout? Well, it's kind of like a bazooka, or a mythological sea monster, or something like that ...

Full-size video at TPMtv.com.

From Lynn Sweet ...

John McCain campaign manager Rick Davis--under the spotlight because of his work for mortgage giants Fannie Mae and Freddie Mac--is skipping a Wednesday lunch with reporters sponsored by the Christian Science Monitor.

On Tuesday, word came that McCain political director Mike DuHaime will substitute for Davis because he is "heading out on the trail" today.

Davis is the subject of stories in the New York Times and Newsweek about his work for the failed mortgage market makers. At issue right now: did Davis contradict McCain's statement that he has not been involved with Fannie and Freddie for some time.

Rick Davis: I experimented with Freddie. But I didn't inhale.

Virginia remains very close, with a new Mason-Dixon poll giving McCain a 47%-44% lead. That and the day's other political news in the TPM Election Central Morning Roundup.

So the latest is that we find that McCain campaign manager Rick Davis's firm was on the Freddie Mac payroll until last month when the government took over Freddie and forced it to stop paying money to lobbyists and insiders like Rick Davis. Now, Davis is part owner of Davis Manafort, the firm in question. But the McCain campaign is insisting that Davis hasn't drawn any compensation from the firm since 2006. So, the question is, is that true?

McCain campaign house blogger Michael Goldfarb says this is demonstrably false. And it may well be false. But the only evidence seems to be Davis's and the campaign's claims. I suspect that what they're saying may be true. But at this point with Davis and the campaign caught in so many different lies, do they really have any credibility to make such claims absent actual evidence? I mean, just yesterday Davis was saying he hadn't had any contact with the mortgage giants since the front group he ran for them shut down in 2005. And now we learn that the following year he asked them to keep sending more checks, apparently in return for no services rendered -- a point, you should note, that Goldfarb appears unable to deny.

Second, if I'm an owner of a company, I don't have to draw compensation today to reap benefits from the company's current success and profits.

The best statement I've read so far on this tangled web is just out from Public Action Campaign Fund ...

"John McCain's campaign manager and Freddie Mac essentially had what amounts to a secret half a million dollar lay-a-way plan. For almost three years and as late as last month, Freddie Mac made secret, monthly payments of $15,000 to Rick Davis's firm, apparently in exchange for providing special access to a future McCain White House. If McCain knew about this, his presidential campaign should be in serious trouble. If he didn't know about it, he ought to fire Rick Davis immediately," said David Donnelly, Director of Campaign Money Watch.

McCain on the Bailout: Please don't make me vote on this one.

The New York Times has more on Rick Davis' recent PR work ("work" used loosely here) for Freddie Mac:

One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month to a firm owned by Senator John McCain's campaign manager from the end of 2005 through last month, according to two people with direct knowledge of the arrangement. The disclosure contradicts a statement Sunday night by Mr. McCain that the campaign manager, Rick Davis, had no involvement with the company for the last several years. Mr. Davis's firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the people said.

They said they did not recall Mr. Davis doing much substantive work for the company in return for the money, other than speak to a political action committee composed of high-ranking employees in October 2006 on the coming midterm congressional elections. They said Mr. Davis's his firm, Davis & Manafort, was kept on the payroll because of Mr. Davis's close ties to Mr. McCain, the Republican presidential nominee, who was widely expected by 2006 to run again for the White House.

Mr. Davis took a leave from Davis & Manafort for the duration of the campaign, but as a partner and equity-holder continues to share in its profits.

Then there's this gem about that 2006 speech Davis gave to top officials at Freddie Mac :

A Freddie Mac executive said that as the event was being planned, and organizers were looking for a speaker from each party, "People at the office were saying, 'Well, we have Rick Davis on contract and we never use him for anything. Why don't we at least get him up here to talk like he knows what's going on in the campaigns?"

It was not unusual for Freddie Mac and Fannie Mae to have well-connected people from both parties on their payrolls, but doing little work, in the high-flying days.

Robert Reich: The Bailout to End All Bailouts.

It seems quaint to have been focusing today on the fact that McCain's transition chief was a lobbyist for Freddie Mac when, as Roll Call is now reporting, campaign manager Rick Davis' lobbying firm, Davis & Manafort, still has a $15,000 per month contract with Freddie Mac.

Obama's TV ad spending has jumped, according to the latest figures provided to TPM Election Central, especially in Florida, Colorado, Nevada, and Pennsylvania (while scaling back in Missouri).

If Sarah Palin has to be treated with kid gloves to this extent how feeble must she be?

Forget rapacious CEOs, regulation-busting politicians, and the lobbyists that are keeping the whole system afloat (that is, until it got hit by a torpedo and sank). Republicans have found the real culprit behind the meltdown: Past Dem administrations and minority homeowners!

Full-size video at TPMtv.com.

Why did Bush ruin the country?

Kos comes across this remarkable admission from White House spokesperson Tony Fratto (emphasis mine):

With respect to executive pay, again, I'm not going to get into specific, point-by-point details on what our views are on that, other than the Secretary of Treasury said it would make [it] more difficult to make this plan work and effective if you provide disincentives for companies and firms out there who are holding mortgage-backed securities and other securities from participating in the program. You have to remember, these are not all weak or troubled firms that own mortgage-backed securities. A lot of them are very successful banks and investment houses that have done very well, have been responsible, are holding performing assets that have value. They were not necessarily irresponsible players, and so you have to be careful about how you deal with them.

Who are they kidding? Of course the Democratic proposal for limits on executive compensation only applies to firms who participate in the bailout. But apparently the White House view is that "very successful banks and investment houses that have done very well" should be bailed out, too, and they should be allowed to have their cake and eat it, too.

Actually, as I think about it, it's even worse than that. Under its "the more the merrier" plan, the White House doesn't want firms who are doing just fine to be discouraged from the participating in the bailout. Kind of like the way Republicans always want to make sure we maximize participation in Medicaid, welfare, and other social service programs, right?

Late Update: TPM Reader SL hints at the flip side to this:

I think you guys are off on the outrage about good banks getting in on this bailout. First off, I think it all stinks. I'm nauseated. I'd prefer a massive bankruptcy reorganization and fire sale.

BUT... if you are going to bail out any bank, you have to bail them all out. Why? Because otherwise you're creating a competitive disadvantage for those who don't participate. You reward the ones who have taken the most risks and punish their competitors if you don't.

Later Update: Similar sentiments from TPM Reader AM:

Regarding the outrage over the bailout plan covering responsible banks, I think that the administration is arguing that responsible banks are cutting back their lending due to mortgage backed securities. So while these banks don't need the bailout plan to remain solvent, they won't be lending. And since the plan isn't designed to keep individual companies afloat, as much as it is designed to avert widespread economic catastrophe, it does make sense that the administration would want "responsible" banks to participate.

That said, I think the administration is wrong. A bank whose
leadership avoided dramatically improving their balance sheet because
of executive pay limitations would face shareholder lawsuits in a
heartbeat.

Seems that at least some Alaska Republicans may be moving into open revolt against the McCain campaign's obstruction of the Trooper-gate investigation.

David Cay Johnston, the former NYT reporter who won a Pulitzer for his reporting on tax policy, has a post up at Romenesko worth your read:

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question -- are the credit markets really about to seize up?

You can read the rest here.

As we've been noting, a lot about the Paulson/Bush bailout plan only makes sense if you assume the US Government is going to be paying premium prices for worthless or near worthless securities. And Here Fed Chief Bernanke seems to be saying precisely that.

From MarketWatch ...

Federal Reserve Board chairman Ben Bernanke said that criticism of the $700 billion plan proposed by Treasury Secretary Henry Paulson overlooked a key ingredient: it is designed to avoid forcing banks to sell or value their mortgage assets at a "fire-sale" price. In a harsher tone than he has ever used in testimony, Bernanke spelled out the benefits that would accrue when the government can buy these mortgage assets at close to "hold to maturity" prices instead of the fire-sale price. Banks would have a basis for valuing the assets and won't have to use fire-sale prices and their capital won't be unreasonably marked down, he said. Liquidity should begin to come back to the markets and uncertainty should dissipate. Credit markets should start to unfreeze, he said. If the assets are purchased near the true hold to maturity prices, taxpayer losses should be minimal, he said.

As I read this, what we're doing is taking a trillion taxpayer dollars to recapitalize these companies. The upside is that taxpayers break even if ... and this seems like a pretty crazy if ... these really are good investments rather than worthless paper. And the only issue is getting past this period of panic till they stabilize to the prices the taxpayers bought them for.

What am I missing?

Late Update: TPM Reader JR sends in this explanation ...

Bernanke's point is that for accounting purposes, banks are forced to write down their assets to market price. That causes a cycle of de-leveraging, in which banks try to increase their capital base by cashing in other assets, which makes their partner banks illiquid, in a cycle.

Bernanke is arguing that the government needs to make the market price equal the inherent value. Then, banks will be able to stop the damaging process of de-leveraging.

A well-designed auction can indeed estimate the inherent value.

But you're right at the end - there's very little upside for the taxpayer. Bernanke is suggesting that a well designed auction should minimize downside risk.

I think I'm saying the same thing as you, but I really think that you're being too liberal in your description of these assets as worthless.

And TPM Reader EP adds this ...

I saw your piece on Bernanke's testimony regarding the mortgage bailout. The problem with fire-sale prices is that not enough liquidity will be freed up. A long term hold strategy works better and will probably help buffer against a radical downturn in the near future. However, I don't agree with paying "hold to maturity" premiums for these assets across the board. Some of the real estate securing these loans are never going to come back, and I don't think a 20-30 year strategy is in the best interests of this country right now.

The final number is somewhere in the middle between say, 25 cents on the dollar, and $1.50 on the dollar. Doing a loan-by-loan analysis to see where each loan balance falls in relation to an approximate value would take too long. Better to agree on a number - say 50 cents or 60 cents - that gives added liquidity, unloads the bad loans that are sucking up capital in analysis and collection costs, and lets banks lend more money.

I was at [major national bank] last year, and this year moved to [major national bank]. As a salesman I can say it has been extremely difficult to qualify borrowers for loans. Rates have not been very high, but downpayment, liquidity, and credit restrictions, plus the elimination of many of the awful loan programs (like stated income), have succeeded in weeding out bad borrowers. The good borrowers are waiting on the sidelines to see how much lower prices will go before committing to a loan. We are also requesting a lot more documentation from borrowers to prove what they say in the loan application. Appraisers are isolated from the sales process. These are all good things, even if they are a little bit of an over-reaction.

I think the bailout plan, modified with Dodd's suggestions, will work, so long as oversight is ongoing, and bank management is given enough incentive financially to keep up the recovery process. Penalizing bank management is counter-productive. A punishment will just send many otherwise intelligent people to move on, leaving the mess with less-qualified people to manage.

I don't normally like printing so many emails stacked on top of each other. But I'm finding a lot of these very clarifying. So I'll add TPM Reader JL's note too ...

I just saw your post "More on the tell ...". Let me try to explain Bernanke's thinking. I'm a little puzzled by the exact language the Marketwatch article attributed to the Fed chief, but I'm pretty sure I understand his logic. (FYI, I spent over a decade with a company that services the securitization industry, so I have some background here.)

The bulk of the assets that the Treasury would buy under the Paulson plan are the highest rated "tranches" of subprime bonds issued between 2005 and 2007. These bonds sit above other, lower rated bonds in the capital structure of the relevant securities. To simplify, you might have a pool of $100 million worth of subprime mortgages used to issue $70m in AAA bonds and $25m in let's say BBB bonds. The remaining $5m is "overcollateralization." As mortgages default, the overcollateralization begins to disappear. Once that's gone, the BBB bonds get hit. Meantime, principal being repaid by the borrowers who aren't defaulting is used to pay back the AAA bondholders. The math gets really complicated, but suffice it to say that the $30m in cushion provided to the AAA bondholders allows them to withstand very high default rates. The typical 2006 AAA subprime bond was able to withstand a cumulative default rate of 50% or so with recoveries of around 50%. Cumulative default rate just means what percentage of borrowers from the original pool end up not paying. Recoveries means what percentage of the loan is recovered on foreclosure. At this point, it looks like cumulative default rates may be somewhat higher than 50% and recoveries may be somewhat lower than 50%. So, the AAA bondholders are probably going to suffer some principal losses. The question is how much. (By contrast, a lot of the lower rated tranches are certain to be wiped out ... but the Treasury won't be buying these.)

Right now, these formerly AAA bonds have a market price of around 50 cents on the dollar. To justify that price, you'd have to have going forward cumulative default rates of something like 80% to 90% with recoveries of around 30%. The math is complicated, but I believe that's what it works out to. That is a really, really extreme scenario and probably entails very dramatic additional declines in housing prices (say 30% down from here).

I think Bernanke and Paulson's logic is that they can go in and buy these bonds at, say 60 cents on the dollar. The sellers would not have to take any further writedowns. And, the Treasury by holding the bonds to maturity would most likely collect more than 60 cents on the dollar based on some number of mortgagees continuing to make payments (believe it or not, most of them still are) and the proceeds from foreclosures.

From the AP:

Republican vice presidential candidate Sarah Palin, who has not held a press conference in nearly four weeks of campaigning, on Tuesday banned reporters from her first meetings with world leaders, allowing access only to photographers and a television crew.

CNN, which was providing the television coverage for news organizations, decided to pull its TV crew, effectively denying Palin the high visibility she had sought. ...

The campaign told the TV producer, print and wire reporters in the press pool that follows the Alaska governor that they would not be admitted with the photographers and camera crew taken in to photograph the meetings. At least two news organizations, including The Associated Press, objected and were told that the decision was not subject to discussion.

Late Update: The Times has more details about what it calls the "media rebellion." There's some suggestion that the McCain camp has relented, at least in part, though that's not entirely clear.

Later Update: Looks like the campaign relented on CNN being able to take a producer to the photo op, according to Politico:

The campaign also at first moved to bar CNN, the television network designated for pool duty, from sending its editorial producer - basically a hybrid print/video journalist - though the campaign budged when the network threatened to withhold its cameras as well.

Latest Update: All just a "miscommunication," a Palin flack now tells the AP. Reporters and producers will be able to accompany cameras into Palin's later photo ops with world leaders. The AP, in its obscure way, telegraphs that there was no miscommunication at all. The same flack had earlier said no reporters or producers were going to be allowed in the photo ops.

Later Than Late Update: Here's the pool report from Palin's photo op with Hamid Karzai from which print reporters were excluded. Not sure which is more pathetic: that Palin is so not ready for primetime she can't risk a photo op in the presence of real reporters -- or that the traveling press decided to stake its righteous claim on missing a 29-second photo op.

Sen. Obama is saying his spending programs may have to be delayed in light of the massive bailout bill. A few questions though, What about McCain's high income tax cuts that would go to the CEOs who created the mess? Any word on that? Still full speed ahead on that? Second, as we've discussed, if the Treasury bought these junk securities at real market rates and then held them until the market stabilized they could likely make money for the taxpayer. But that's the key, if they pay fair market rates very little money would go to the banks who are looking for their bailout and free ride back on to the gravy train. So that's an unresolved question. And remember, if Obama wins, his Treasury Dept. would be administering a lot of this. So are they planning to pay premium prices for the worthless or near worthless paper the banks are trying to dump on the public (in order to recapitalize the banks at public expense)?

I notice that the McCain campaign has now explicitly named Max Boot as a key advisor and campaign surrogate. So I'd be interested in seeing a list of all the completely insane things Max has said and written over the last decade. My favorite is when he told me -- circa 2002 -- that the US should seize and confiscate the Saudi oil fields and run them as a protectorate.

There are plenty of examples. And they're a good way to illustrate the nuthouse a McCain foreign policy would be. Please take a look and see what you can find and then send in the best stuff with citations.

CNN punk'd on Palin probe? Check out this piece on her decision to cooperate with the investigation (i.e., the sham one she set up after McCain helped her shut down the real one.)

New dueling TV ads on the economy are out from both campaigns. That and the day's other political news in the TPM Election Central Morning Roundup.

The guy John McCain has chosen to manage his presidential transition was lobbying for Freddie Mac until this month.

And from McCain ...

McCain has labeled Freddie Mac and Fannie Mae as prime culprits in creating the financial storm that has roiled Wall Street and Washington.

``At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac,'' he said last week in Green Bay, Wisconsin.

Honestly, I expect a lot of hypocrisy of all politicians, of both parties. But John McCain is really in a class of his own.

The more he sees of it, the more Krugman likes Dodd's plan.

Jon Alter has this so, so right.

From Countdown ...

[Y]ou remember the Keating Five scandal that he was a part of, which, by the way, it's crazy but there's been very little about it in the press in the last few weeks. And McCain thinks he's getting a hard time, he's really getting a free ride on the fact that he was in the middle of the last great financial scandal in our country. But his reaction to that, you would have thought, would have been more regulation of the financial services industry. Instead he moved forward on campaign finance reform after being caught in that scandal, but did nothing - nothing - to try to prevent another savings and loan crisis from happening down the road. He was missing in action when it came to even learning the basic lessons of a scandal that he said taught him all kinds of things that he would never forget.

Let's face it. On major economy-imperiling financial scandals brought about by lax regulation and help from lobbyist-encrusted politicians, McCain really is the candidate of experience.

I think Kos, Digby and Kilgore have this about right. The Republican/McCain plan is to get the Democrats to bail out the GOP's Wall Street friends and then run against them for doing it.

McCain camp promises not to prioritize Middle East peace process and to scuttle Israel-Syria talks.

Things are very much in flux on the Hill as both parties grapple with this massive bailout proposal. From what we're hearing, things are in such a preliminary stage that members are still trying to figure out basics like where colleagues stand and what type of legislation the bailout will be packaged as, let alone what it will contain.

TPMmuckraker obtained a copy of the outline of an alternative bailout plan being floated by Rep. Brad Sherman (D-CA) that offers more oversight of the bailout, which isn't hard to do, since the Administration's proposal is virtually oversight-free.

Late Update: At least one Republican on the House Financial Services Committee considers the Paulson proposal is a no-go.

Hillary is pulling out the stops for Obama in Ohio.

McCain camp convenes conference call to demand reporters stop calling them liars.

Late Update: Joe Klein says the tirade is Steve Schmidt's shark-jumping moment.

Bush and Paulson caving on Dem demands for equity stakes and oversight?

Democrats are pushing for oversight and some protection for taxpayers in the bailout bill. You know about that. But now the banks are saying they need more too? Can beggars be choosers? From CNN ...

At the same time, financial institutions are weighing in with what they want in the bill. On Sunday, the Financial Services Roundtable - a lobbying group representing the nation's banks - called on Congress to make the plan "broad enough to include different types of assets."

The Treasury has amended its original request to give it authority to buy up not just troubled mortgage assets, but troubled assets period.

This comes after the push to bail out foreign banks and bank lobbyists calling regulatory fixes a "deal breaker."

Is it a "deal"?

Who are the Obama-Biden Democrats that Sarah Palin is referring to in a new fund-raising email claiming they attacked her family? TPM Election Central asked the McCain camp, and they gave us three examples, two of which were Andrew Sullivan and a diary at DailyKos.

Krugman says Dodd's plan is "a big step in the right direction."

TPMCaférs Jared Bernstein, Dean Baker and Dr. C.A. Rotwang weigh in on the bailout. In Bernstein's words: Take a breath, Congress, and start negotiating a better plan.

Here's Rick Davis explaining that he didn't lobby for Freddie Mac and Fannie Mae for $2 million. He only headed up the lobbying organization. He didn't lobby, just ran the lobbying organization.

This is from the McCain conference call this morning. And following Davis, here's McCain enforcer Steve Schmidt. He realizes Davis's answer is laughable. So he doesn't even try to defend Davis and launches off on the Times (note: audio has had spittle removed for your protection)...

Getting pegged as liars makes Schmidt and Davis really, really mad.

Late Update: For more on why Davis and Schmidt are upset, note the quote from the former Fannie Mae spokesman who notes that Davis "didn't really do anything" for the money. "The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again."

Ch-Ching ...

We're going to be keeping a very close eye on the negotiations in Congress over this epic bailout proposal, but things are moving very quickly, so we need help from our readers on the Hill. The broad outlines of the deal are starting to emerge, but we want to know the specifics. What's on the table? Who are the holdouts? On what issues? What is getting added to sweeten the deal? How unified are the caucuses? Those are the kinds of things we want to be able to report to readers, so if you're on the Hill, drop us a line about what's happening.

Republicans have decided that their argument on the credit crisis will be to argue that Democrats created the crisis by forcing banks to give too many loans to black people and other minorities.

And here's a similar argument written by Kevin Hassett for Bloomberg. In case you don't remember, he's the genius who wrote Dow 36,000 just before the tech bubble burst.

Time's Mark Halperin has declared that John McCain "wins the week." Which week he's referring to is anybody's guess, because the prevailing consensus on the past week of financial turmoil is that John McCain lost badly:

Full-size video at TPMtv.com.

This morning in an interview with John McCain on Today, Meredith Viera reasonably enough pointed out that, while McCain has been railing against golden parachutes for CEOs, his adviser and surrogate Carly Fiorina received a $40-million-plus severance package when she was fired from H-P.

McCain said he didn't know anything about Fiorina's compensation, but was back at it soon after, railing against golden parachutes at a rally later this morning:

McCain camp quite touchy about being pegged as liars. Very upset at the NYT for revealing that Rick Davis got $2 million from Fannie and Freddie to help them fight off tighter regulation.

According to McCain enforcer Steve Schmidt, reporting on Davis' Fannie/Freddie connection means the Times "is not today by any standard a journalistic organization."

I guess Schmidt is pining for those 2002-2003 lickspittle days.

Sen. Ted Steven's corruption trial got underway today, and he's contemplating calling a slew of fellow senators and other luminaries, like Colin Powell, to testify in his defense.

As Zachary Roth points out at TPMmuckraker, the McCain campaign has largely succeeded in its mission to shut down the Trooper-Gate investigation into Sarah Palin until after the election.

The legislative investigator still plans on issuing his report in October into whether Palin abused her power as governor, but with Palin and the McCain camp refusing to comply with his subpoenas of key witnesses, his report will be incomplete at best.

If there's one lesson to be drawn from the Bush years, it's that the old chestnut about the cover up being worse than the crime is just not true. It's a lesson the McCain camp has learned well. They made the calculation that whatever political price would be paid by impeding the duly authorized investigation of the Alaska legislature would be less than the political damage resulting from a full investigation. So far, it looks like they calculated correctly.

In case you missed it, Newsweek did a tally on the number of cars owned by the two candidates and their spouses: McCains 13, Obamas 1.

Obama gets his turn with Spanish-language radio and says John McCain's refusal to meet with Spain's prime minister is a continuation of the Cheney foreign policy.

Last week I got a mountain of emails asking me to call the McCain campaign out for 'lying' about former Fannie Mae CEO Franklin Raines' relationship with the Obama campaign. It was pretty clear, as Karen Tumulty noted in Time, that the McCain camp was happy to play up Raines' race. And all the McCain camp could find to justify calling Raines an Obama 'advisor' was a stray reference in an article in the Washington Post which reported that Raines had taken a couple phone calls with people tied to the Obama campaign.

Still, in the rough world of politics, this amounted to basically a lie and not the usual McCain standard of 100% lie. But now we learn from the NY Times that McCain's campaign manager and right hand man Rick Davis bagged more than $2 million running a front group set up by Fannie Mae and Freddie Mac to defend them against stepped up federal regulation.

Obama pulls out of North Dakota. That and the day's other political news in the TPM Election Central Morning Roundup.

Is Ruth Marcus really so desperate to 'even the scales' that she's claiming that the phrase "privatizing Social Security" is "incendiary" language that amounts to deception? Is she so ignorant of this debate that she doesn't know that it was the preferred language of the advocates of privatization for more than two decades until they found out it wasn't polling well enough during the first two years of the Bush administration?

And it's apparently a big lie to say that Florida retirees would be in a big jam right now if John McCain had had his way right now and privatized Social Security because under McCain's and Bush's plan current retirees and those a few years from retirement wouldn't be affected. So in other words, from when McCain instituted the plan five years ago it wouldn't have affected those now drawing benefits or just entering the system. Or wait, McCain's not even president yet, right? So, true, presumably it wouldn't apply right now in 2008 to anyone in advance of McCain's even being in office and putting through his plan.

The point is that there's no end of special pleading and candidate hand-holding when the topic is the privatization of Social Security. And even the prestige columnists appear completely innocent of the details of how the proposed changes would work.

The era of the standalone investment bank comes to an end as Goldman Sachs and Morgan Stanley elect to become bank holding companies.

The New York Times reports this evening that "foreign banks, which were initially excluded from the [Wall Street bailout] plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks."

The Times further reports that two of the biggest foreign banks in need of such relief are Barclays and UBS. In fact, my understanding is that UBS is more on the line here than any other foreign bank.

Let's add this up.

John McCain's top economics advisor, who is widely believed to be his choice for Treasury Secretary, should he win in November, is former Sen. Phil Gramm. (Indeed, just last night his spokesman refused to say Gramm wouldn't be McCain's choice for Treasury Secretary.)

Gramm is both vice chairman of UBS's US division and a lobbyist for UBS.

If UBS successfully lobbied over the weekend to get in on the bailout, what was Gramm's role in the lobbying?

President Bush, through Secretary Paulson, have asked for a massive bailout package with minimal oversight and no protection for taxpayers. Sen. Obama has now come back with a response that while imperfect and insufficient, makes clear that any plan must include independent accountability and oversight, some ability for taxpayers to recoup their investment, and more. Speaker Pelosi is making similar sounds, while congressional Republicans are asking for a 'clean' bill without oversight or taxpayer protection provisions.

Has John McCain done or said anything so far beside ask for advice from former Sen. Phil Gramm, the guy more singly responsible for creating the mess than anyone else? Which side is he on?

From TPM Reader DP ...

As a Wall Street guy I am sort of glad that this bailout is being organized. However, what seems unfair to me is that there are absolutely no provisions for homeowners. Moreover, this morning on Stephanopulous I saw Hank Paulson talking about homeowners taking out mortgages that were higher than they could afford and about them needing to live up to their obligations.

I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren't able to live up to their obligations.

In any loan transaction there are at least two parties. If I give my unemployed and uneducated brother-in-law a half a million dollar loan wouldn't I be just as irresponsible giving it as he is taking it? Moreover, a large majority of borrowers did not have financial training to be able to understand complex mortgage terms and risks of the underlying investments. Investment banks have armies of Ph Ds working for them that helps them analyze market risks and credit exposure. They got it wrong too! It strikes me as strange that unsophisticated borrowers are being held to much higher standard than ultra-sophisticated bankers.

From the NYT ...

The financial crisis that began in the United States spread to many corners of the globe. Now, the American bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics.

Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.

From TPM Reader CC ...

Considering as how the proposed Wall Street bailout will be one of the most intensely lobbied efforts in American history, will there be anyone left to manage John McCain's campaign?

TPM Reader JS makes another ...

You would never know it from watching the news, but one of the candidates in this race happens to have been previously implicated in a national scandal involving pressuring regulators to back off of a bank making risky moves with its assets, leading to disaster for investors and an expensive government bailout.

Is there a good reason why no one is mentioning John McCain's Keating Five membership in any of these arguments over who is on the side of regulating risky private banking practices? I know that McCain sort of asked for our forgiveness or something at some point during his "maverick period" around 2000-2003, but since he wants to engage in a debate about who is on the side of government regulation of risky banking practices, I think maybe we're allowed to call him out on this issue. Does anyone believe that if Barack Obama were one of the Keating Five that the Republicans would for some reason hold back from mentioning that fact?

There appears to be pretty widespread agreement that some major rescue plan is in order. But I'm having a hard time finding economists or others with related expertise -- either on the right or left -- who don't believe two things: a) that this plan gives way, way too much discretionary power to the Treasury Department with little requirement even to make reports to Congres and b) as Paul Krugman puts it, "there's no quid pro quo here -- nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving." Whether that means equity stakes for taxpayers or simply some assurance that the USG won't be paying premium prices for worthless crap, that key component just doesn't seem to be anywhere in the proposal.

And unless I'm not being clear, this request isn't simply for effect. This is not a rhetorical question. I'm really looking for examples. I can see lots of politicians saying we need to do something now or we'll all die and lining up to vote for whatever Paulson says. But I'm curious how many economists there are (or people with relevant professional expertise) who don't agree that these two shortcomings must be rectified.

I'll leave to others whom I respect to craft out just what sort of plan is likely to be successful in stabilizing the financial markets and equitable to taxpayers. But any sort of narrow focus on executive compensation strikes me as a load of crap. Yes, they are too high. And yes, I believe they are part of the problem. But I don't think I need to know too much about economics to know that they are not a significant structural problem in what led to this mess. And the dollars in questions are chump change compared to the bill the big investment houses are now pawning off on the American people.

The key components in exchange for the money have to be some sort of equity in the companies being rescued (I'll leave it to the experts to figure out the mechanics -- which I grant is likely a highly complex matter) and structural reforms that create oversight, accountability and transparency to ensure nothing like this happens again.

And in case it isn't obvious, those begging as they cling by their fingertips on the precipice are not in a position to be making any demands or calling any proposals "deal killer."

Late Update: My instincts tell me that the effort to pretty this up by adding a 'stimulus package' is equally bogus. That's not to say it's not important in itself. But if we blow 700 million or a trillion dollars cleaning up Wall Street's mess, having also budgeted 25 or 50 billion on helping ordinary people won't make that trillion dollars any less blown. The focus here needs to be on making sure this bailout makes sense, isn't going to be farmed out to Neil Bush and provides something for taxpayers in return. Let's keep the focus on that.

Is there anyone more vain than John McCain?

At the meeting between Sarah Palin and Henry Kissinger.

Robert Reich on the bailout: no blank check!