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Troubled Times Blog has moved!

After four-and-a-half years of using Google's somewhat limited (but free) Blogger, I am now publishing with WordPress 2.7. I think the customization, tools and templates are exponentially better over there, and I plan to keep this as its new home for the indefinite future.

So update your bookmarks, feed readers, etc. Troubled Times Blog is now being updated at www.stevenjosselson.com/blog!

Update: For now, I'm going to leave the blogroll, post archives and other content at this web page as well.

Signs of Life

No, I haven't dropped off the face of the planet.

Lots of new posts on the way... I promise.

Apologizes for taking this unprecedented hiatus without offering a word of explanation, but I've been very busy playing with my 18-month old son and launching a new business venture.

Stay tuned!

I'm starting to think . . .

A few things: First, my predictions here for the result of the Presidential election - from just a few months ago - are looking like they were very incorrect. Second, it is clearly the economy, especially the long-brewing and widely predicted global economic crisis that has changed the game. Third, while it is very important to recognize the extent to which Neo-liberalism has once again been revealed to be a disastrous and dangerous ideology, it is a little scary how quickly foreign policy has dropped off the radar. We are, after all, in the midst of fighting the War on Terror across the Middle East and Central Asia; engaged in an open-ended military occupation of Iraq and still battling al-Qae'da in Afghanistan.

This leads me to believe that Obama's foreign policy will be light-years ahead of Bush's lunacy, but will still need to be closely followed - and critiqued - by rational actors (and bloggers).

And I am not planning on changing the name of this blog any time soon, either.

What hath Alan "John Galt" Greenspan wrought?

Daily Kos diarist "Devilstower" has a must-read post tracing the career of former Fed Chairman Alan Greenspan, from his early days as a member of Ayn Rand's Objectivist cult to considering his legacy. Namely, that would be his successful push to change this country's long-standing moneary policy by deregulating the securities industry ,which led to the current financial crisis.

An excerpt:

When Ford replaced Nixon, Greenspan became the chair of the Council of Economic Advisors. And when Reagan took power, Greenspan was no longer the voice crying in the wilderness, he was the very center of the establishment. Objectivism and Conservatism had united in Market Fundamentalism, and that force was on a jihad against regulation of any kind.

For the next thirty years, Greenspan would cheer the deregulation of the S&Ls and join John McCain in trying to protect Charles Keating from regulators. He would praise the deregulation of energy trading, and assure everyone that companies like Enron were pointing the way to greater efficiency and lower consumer prices -- and collect the 2000 "Enron Prize" in exchange. He would urge not only the creation of credit default swaps, but applaud their lack of regulation and invisibility in the system. He would argue against oversight, against limits on CEO pay, and for the increasingly complex systems by which banks generated new instruments of credit.

No one person did more to spread Rand's message of unregulated markets, unconstrained free trade, and unlimited power for corporate officers than Alan Greenspan.

If you were to asked to assign blame for the collapse of Neo-Keynesian economics as the governing ideology of the US, and the government oversight and fine-tuning that came with it, you would be hard-pressed to find a bigger culprit than Greenspan, with the only exception, of course, being Ronald Reagan. We really shouldn't be surprised by Greenspan's latest attempt to rehabilitate his legacy by loudly disowning the radical deregulation he rammed through.

Big Oil's Last Stand?

The editors of think tank Foreign Policy In Focus (which is now a project of the Washington, DC-based Institute for Policy Studies) have been gracious enough to provide a meaty excerpt from Antonia Juhasz's latest book - The Tyrrany of Oil.

Also, check out the author's description of the book on its official website here. I plan on buying, reading and reviewing the book in its entirety in the near future.

I'm not going to bother excerpting a paragraph or two from the excerpt; if you're interested in oil geopolitics (and who isn't there days?) just click on the link and check out the official web page.

Update: I forgot to include a link to the non-profit she is currently working at, International Oil Change.

The financial crisis and 9/11

Boston University Professor Neta Crawford offers up five predictions about how the global economic crisis and US military spending will intersect and suggestions for how the American government could prevent them from becoming inevitable:

First, a no-brainer: the U.S. budget will need to be cut to pay for the "rescue." Unless we can mobilize a strong counterweight, the cuts will mainly come from domestic programs — education, health, alternative energy, infrastructure improvements. There may be cosmetic cuts to some military programs.

Military spending will continue to be essentially unproductive but its share of government spending may grow. The military spending that focuses on healthcare and education for veterans is "productive," but that may suffer in this climate. We must push for meaningful military budget cuts. For instance, we might argue for a commission on closing U.S. overseas military bases. We should argue for cutting military programs like missile defense, which are both destabilizing and wasteful.

Americans will remain afraid — and rightly so. Homeland security is, in a word, a mess. Current U.S. foreign policy results in too many accidental killings of Afghan, Pakistani, and Iraqi civilians, and creates more resentment abroad. Economic anxiety will feed into feelings of insecurity.

There will be pressure to approve any program that is said to create jobs, including programs to sell military equipment and nuclear technology overseas. We've seen it already. The long-term counterproductive aspects of these programs will be deemphasized. We need to resist the jobs-at-any-cost mantra and emphasize not only how military spending is less productive than other modes of spending, but also how military and technology export programs have a tendency to "blow back."

As after 9/11, American leaders will likely become even more cautious about domestic and foreign policy. Our "leaders" will hunker down, think small, and point fingers. Unless we can mobilize a dramatic rethinking of U.S. foreign policy, it will likely remain much the same no matter who is in the White House. Now is the time to push for creative solutions and stress the need for big thinking. We need to stress how the conventional wisdom has been wrong, not only on U.S. foreign policy but also on the environment, health care, education, and energy. The progressive community needs to continue to be farsighted, proactive, and bold.

Character assassination, GOP style

The New Yorker's Hendrik Hertzberg takes a quick look at the McCain campaign's sustained efforts to brand Barack Obama as a Muslim sympathizer, a terrorist sympathizer, a community organizer (which he actually was) and most recently . . . a socialist.

This is such a ridiculous charge to make that it is clear most of the conservatives that are jumping in on the bandwagon must realize the intellectual bankruptcy of their collective rhetoric. At least McCain acknowledges the fact that all this loose talk has no basis in reality.

After all, one of the biggest industries contributing to Obama's campaign has been the large investment banks, along with their high-flying brethren in the world of hedge funds.

Alternatively, one could look at economic platform he has been campaigning on for the past 18 months, or his legislative record as a State Senator and Senator. And perhaps the most delicious irony is the fact that at this very moment that the Treasury is implementing a bipartisan “rescue package” aimed at redistributing taxpayer wealth . . . to prop up the securities industry. A plan supported by Candidate McCain as well as Candidate Obama.

And as Hertzberg points out:

For her part, Sarah Palin, who has lately taken to calling Obama "Barack the Wealth Spreader," seems to be something of a suspect character herself. She is, at the very least, a fellow-traveller of what might be called socialism with an Alaskan face. The state that she governs has no income or sales tax. Instead, it imposes huge levies on the oil companies that lease its oil fields. The proceeds finance the government's activities and enable it to issue a four-figure annual check to every man, woman, and child in the state. One of the reasons Palin has been a popular governor is that she added an extra twelve hundred dollars to this year's check, bringing the per-person total to $3,269.

A few weeks before she was nominated for Vice-President, she told a visiting journalist—Philip Gourevitch, of this magazine—that "we're set up, unlike other states in the union, where it's collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs." Perhaps there is some meaningful distinction between spreading the wealth and sharing it ("collectively," no less), but finding it would require the analytic skills of Karl the Marxist.

Hypocrisy, thy name is McCain-Palin.

Obama and McCain's (not so) radically different foreign policy advisors

Foreign policy journalist and blogger Jim Lobe, writing in IPS News:

McCain identifies closely with the unilateralist instincts and Manichean worldview of the coalition of Israel-centred neo-conservatives and aggressive nationalists who dominated the first term of President George W. Bush's administration and place a premium on military power, as opposed to diplomacy or other forms of "soft power".

Indeed, McCain is surrounded by advisers, such as his main foreign policy spokesman, Randy Scheunemann, from both traditions. But he reportedly also consults closely with their nemeses, the foreign policy "realists", most notably former secretaries of state Henry Kissinger, Lawrence Eagleburger, James Baker, and Richard Armitage, who served as deputy secretary of state under Colin Powell. While not shy about using military power or acting unilaterally as a last resort, they place greater emphasis on diplomacy and working with other countries to further U.S. national interests.

Obama, on the other hand, is generally seen as grounded in the "liberal internationalist" school, whose founding is credited to President Woodrow Wilson and which became the basis for the U.S.- and western-led multilateral order -- presided over by the United Nations, the two Bretton Woods institutions, and an embryonic World Trade Organisation -- elaborated in large part by President Franklin Roosevelt in the waning days of World War II.

However . . .

[A] number of influential realists, most recently Bush's first-term secretary of state, Gen. Colin Powell, have come out in strong support of Obama and are also found among his top advisers.

Indeed, the candidate has himself extolled as a model the foreign policy record of former President George H.W. Bush's administration -- widely considered the most realist of the past generation -- and publicly stressed his admiration for the ranking member on Biden's committee, Republican realist Sen. Richard Lugar who, along with another Republican, Sen. Chuck Hagel, has been mentioned as a possible secretary of state under Obama.

The inclusion of prominent realists -- who, more than any other school, constitute what could be called the foreign policy "Establishment" -- as advisers in both campaigns may be designed primarily to reassure independent and centrist voters that their respective candidates will avoid radical departures of the kind that resulted in the 2003 invasion of Iraq, when the influence of the neo-conservatives and aggressive nationalists reached their zenith.

But whoever wins the Nov. 4 election is likely to come to office in January with a foreign policy team that spans a fairly broad spectrum of advisers susceptible to fundamental disagreements regarding the definition of U.S. national interests, the appropriate use of military force, and the degree to which Washington should rely on multilateral institutions, as opposed to taking unilateral action, if those interests are threatened.

I think the reality is that an Obama administration, which is looking increasingly likely to follow as opposed to a McCain administration, would most likely pursue much more of a classical or even neo-classical Realist School-type foreign policy. And to what extent he would also incorporate Wilsonian-style Liberal Interventionism, I think, is much less clear - or even likely - of a predictable outcome going forward.

Is McCain's principal foreign policy advisor actually crazy?

Fact: John McCain's main foreign policy advisor Randy Scheunemann is actually a very scary person with a rather dodgy background, and he loudly advocates our country adopt some dangerous, borderline-insane, ideas about how we ought to deal with the world around us.

A reliance upon unilateralist, preventative war-making, and the parallel exclusion of bi- or multilateral diplomacy as a meaningful component of its foreign policy, rank high in the delusional prescriptions he offers his candidate. In other words, he is a hard-core Neoconservative and one of the mutants who pushed this country into war with Iraq.

Let's just pray McCain doesn't win this election.

Tom Engelhardt: "Spying on the Future"

What, exactly, is the National Intelligence Community doing with billions of our tax dollars trying to predict the geopolitical future of the US? Reviewing NIEs (National Intelligence Estimates) issued in the recent past, Tom Engelhardt discovers some interesting commonalities, and some trends in offering flawed prescriptive advice.

America "in shambles," right-wing pundits' delusions notwithstanding

Writing in his blog over at Salon.com, Glenn Greenwald explains, as only he can, how misguided and frustrating the application of the David Brooks Syndrome has proven to be during this election cycle. As he notes, "As polling data conclusively demonstrates, the mindset of the voting public is infinitely more rational and substance-based than the pundits and the Right fantasize when they lyrically praise the Regular American -- at least it is in this time of perceived (and actual) crisis."

And there is no question that this country is currently in the midst of a crisis, or rather, several interrelated crises, that are very much the result of eight years of right-wing Republican misrule. The economic and/or financial crisis is certainly receiving the most media coverage right now, and the greatest concern to most Americans, as it should be as it is arguably the most serious pressing threat to the country in the near-term. But the catastrophic failure of Neoliberalism," or "free market fundamentalism," if you will, to maintain a sustainable capitalist economy that is well-regulated and isn't subjected to wild speculative bubbles as well as fraud and outright manipulation by its more sophisticated players, is just a part of the problem. The Bush Doctrine and its eight years of unilateralist, "preventative war" has greatly threatened the future of the Republic as well.

Or, as Greenwald states it rather elegantly:

What's happening in this country, and in this election, is rather simple and easy to see: (1) the country is in total shambles -- possibly far worse than what people even realize; (2) we have lived for the last eight years under virtually absolute GOP rule; (3) the public knows this; (4) the Republican President and his party are therefore intensely -- historically -- unpopular; and (5) the voting public doesn't want to continue living under the rule of the same faction and same political party that has driven the country into the ground.

But his penultimate paragraph sums up the situation Americans are finding themselves in the best:

That the Right believes in the fundamental stupidity of the American voter while simultaneously pretending to revere and speak for them them is reflected in their belief that they can successfully blame the financial crisis and the country's woes generally on Democrats, who -- while hardly covering themselves with glory -- haven't had any meaningful power in this country for as long as one can remember. Ponder how stupid you must think Americans are to believe that you can blame the financial crisis on the 2004 statements of House Democrats about Fannie Mae and Freddie Mac when that was a time when the GOP controlled all branches of the Government and nothing could have been more inconsequential than what Barney Frank or Maxine Waters, languishing in the minority in Tom DeLay's tyrannical House, said or did about anything.

Emerging economies are "swimming in cash"

Peter Engardio, writing in BusinessWeek a few days ago, asks an interesting question: Do the governments of some Emerging Market - particularly Middle Eastern and Asian nations - actually have too many American dollars floating around in their treasuries?

He points out that "Between the central banks, commercial banks, and investment funds such as Singapore's Temasek Holdings, Asian governments have $2.6 trillion in foreign assets available for investment, according to research firm Global Insight. The Gulf States have hundreds of billions in foreign banks and equities. Russia and Brazil boast hefty reserves and trade surpluses."

But this doesn't necessarily mean that these governments can sit back and party like it's 1999:

A lot depends on how countries are managing their economies while stockpiling dollars.The big winners appear to be in Asia, where corporations have kept debt in check and banks have largely shunned the risky mortgage-backed paper from the U.S. Despite ill-timed investments in the likes of Morgan Stanley (MS) and Merrill Lynch (MER), government investment funds such as China Investment Corp. and Singapore's Temasek can still buy stakes in U.S. companies at bargain rates once the smoke clears.

Also from the article:

Beijing's problem recently has been too much foreign cash, which has led to stock speculation and overinvestment. But if a U.S. slowdown hits China's exporters, the nearly $2 trillion in foreign assets Beijing controls leaves plenty of leeway to expand credit. Council on Foreign Relations geoeconomist Brad W. Setser estimates foreign assets in Chinese institutions swelled by $700 billion just this year. "This gives them enormous freedom to stimulate the economy," Setser says.

For more, see this post from Brad Setser's blog at CFR, as well as this recent article by AP discussing Emerging Markets' perceptions of the root causes of the global financial crisis. (Hint: They aren't blaming themselves.)

US credit market instability poses graver threat than equity markets

Just a friendly reminder: The dislocations in the credit markets are even more serious than the more high-profile volatility evidenced by equity markets, and this poses "a greater threat to the long-term stability of the US economy."

Russia, Georgia and the US: "A double standard in action"

Writes Edward Herman: "The way in which U.S. officials and the media handled the Russian response to the Georgian assault has been a lesson in bias, misrepresentation, decontextualization, and the applied double standard. It has also often been funny."

He is talking, of course, about the Ossatian War of the few months ago, and he delves deeper than most critics into the Western media's coverage of the military action and the systemic biases it unwittingly exposes.

He then elaborates on his thesis:

It is amazing to watch the U.S. imperialist establishment, including the media, wax indignant about "Russian aggression," Russian "brutality," and a renewal of Russian "expansionism." This establishment can never admit its own regular, serial, and massive aggressions—the word was never used by mainstream reporters or editors to describe the attack on Vietnam, 1954-75, or Iraq in 2003 and onward. And the Iraq war has never been ascribed to a planned expansionism, although this "projection of power" in the Middle East and beyond was actually announced in advance in the Project for a New American Century's Rebuilding America's Defenses (2000) and the National Security Policy program of 2002. We may kill millions in Indochina and Iraq—including in the latter the 500,000 children's deaths from the "sanctions of mass destruction" that were "worth it" (to Madeleine Albright)—but this is not "brutal," a word used freely in the case of the hundreds killed in the Russian aggression. What this shows is that the U.S. establishment can swallow anything, no matter how outlandish, to rationalize that projection of power now built-in to the U.S. political economy. While McCain relishes it, Obama also bows down to it as he seeks electoral victory here.

We and our "defense department" are protecting U.S. "national security," according to the cliché-myth. That the electoral intervention, political capture, arming, and proposed absorption of Georgia into NATO posed a security threat to Russia was barely recognized in the West. If the Russians (or Chinese) had entered into a military alliance with Mexico, supplied it with arms and military advisors, used a Russian or Chinese version of the "National Endowment for Democracy" and other agents to bring about political change in Mexico (recall that Mexico has had a series of elections won by fraud), and perhaps put some ABMs in place to protect Mexico against a possible threat from Colombia, can you imagine the frenzy of U.S. politicos and the "free press?"

For the imperialist establishment only this country and its clients have "national security" threats. Certainly the Russians don't, even as we encircle them and arrange for ABMs on their very borders.

When it is occasionally recognized that the NATO expansion and U.S.-client status and arming of Georgia does worry Russia, this wasn't accompanied by suggestions that maybe we should lay off, withdraw, and stop trying to bully Russia (or China) into subservience. No, it was used to explain that this gave Russia an excuse to resume its expansionist ways, that is, it "gave Putin an easy excuse to exercise his iron fist" (Friedman, "What Did We Expect?", August 20).

Only Russia has bad motives. Georgia's President Saakashvili merely made a "mistake" or foolishly "baited" the Russians or the United States was careless or not very observant in failing to constrain him—but neither of them was guilty of aggression, brutality, blackmail, or expansionism.

As can usually be said about Herman's all-too-infrequent commentary on US geopolitics, it's worth one's time to read his analysis in its entirety.

Republican economic theories don’t add up

If the tragic consequences of the last eight years of mostly GOP-controlled fiscal policy management of the US economy, combined with following the radical, free-market-worshipping monetary policies of the Fed doesn't make this conclusion rather obvious to most people, I really don't know what could do the trick. But Arthur Blaustein, writing over at Truthdig, offers up a pretty pithy and compelling argument - just in case.

Mantega: "Reform of Global Financial System Needed"

IPS News reporter Mario Osava writes from Rio de Janeiro that:

A new international financial architecture, based on different rules, is a reform that has long been demanded by different sectors and is now "inevitable" in the face of the "universal and systemic crisis" originating in the United States, says Brazilian Finance Minister Guido Mantega.

The need for "regulation, controls and supervision" to limit excessive indebtedness on the part of financial institutions has been highlighted by the crisis, which is systemic because it has "obstructed credit" around the world and created difficulties for all financial institutions, the minister said Thursday at a press conference with foreign reporters in Rio de Janeiro.

Unless there are new rules, "confidence, which is vital in the financial system, will not be restored," he said, announcing that he would raise the issue at an International Monetary Fund (IMF) meeting to be held in Washington in early October.

I'm with Mantega so far, but he goes on:

The crisis may be creating a new world scenario, in which "the role of advanced countries, that are in fact prostrated" by economic and demographic stagnation, will give way to greater leadership by "emerging countries, that represent the future" because of their population, wealth and economic growth, he said.

It is no longer possible to keep countries that today are "the engines of global growth" out in the cold, with scant representation or none at all on international bodies, he added, mentioning BRIC (Brazil, Russia, India and China), which is excluded from the Group of Seven most powerful countries (G7), in which Russia has only "partial" participation.

While Emerging Markets such as the aforementioned BRIC countries may (or may not) be the "engines of global growth" either today or tomorrow, I think it is not only possible but overwhelmingly likely that the G7 - led by the US - will continue to lead the Bretton Woods Institutions (i.e. the IMF and World Bank) that continue to control the global financial infrastructure and this bloc will continue to ignore the reasonable demands of the rest of the world.

The article goes on to note, correctly, that:

The present crisis arose from a combination of financial troubles in the United States and soaring commodity prices, which reached their height in June and July, according to Mantega, an economist belonging to the governing leftwing Workers' Party (PT), who is close to President Luiz Inácio Lula da Silva.

Commodity prices have declined or increased more slowly since August, because of the end of a wave of speculation, but 2009 will still be a difficult year for countries around the world, the minister predicted.

The worst effects will be felt in "fragile countries, that is, the advanced countries" that were directly involved in U.S. bank and investment fund collapses or losses, have a "shrinking" domestic market, and in some cases have serious fiscal deficits and negative trade balances, like the United States, he said.

The "strong countries" at this juncture are the "emerging" economies, which have expanding domestic markets that can offset falls in exports, and a stronger fiscal situation with plenty of foreign exchange reserves, and are not hampered by the "rotten assets" that rich countries now have to absorb, the minister said.

But this next paragraph is suspect:

The BRIC countries, with their dynamic economies, will suffer a more moderate impact from the crisis, with a mild slowdown in economic growth. In Brazil, Mantega predicted gross domestic product (GDP) growth of "over four percent" in 2009, and of between five and 5.5 percent in 2008.

(See this recent economic forecast by JPMorgan for a rather different perspective.)

Although the rest of the report consists mostly of uncritical stenography of the Brazilian government's official line, it does go on to point out some economists simply are not in touch with reality - and most likely haven't been for quite some time, noting that:

Economist Fernando Cardim de Carvalho, of the Federal University of Rio de Janeiro, told IPS that seeking to reform the international financial system at a meeting similar to the 1944 United Nations Monetary and Financial Conference at Bretton Woods is not a viable prospect right now.

"There is no consensus," at the moment, and neither is there a dominant world power to "enforce it," as the United States did at the end of World War II, he said.

Cardim, who regards it as an "exaggeration" to speak of a systemic crisis today, said that only "a monumental disaster," more serious than the present one, could produce a global agreement for a new financial world order. Previous attempts, like that of the Basel Committee on Banking Supervision (BCBS), met with failure, he said.

Once again proving that a broken clock is right twice a day, Cardim does manage to correctly predict that:

The crisis will continue, however, because the U.S. model of financial organisation, based on independent institutions, "is moribund," and the European alternative of a universal bank has not proved efficient, Cardim said. Uncertainty will reign for a long time to come.

I do wonder what exactly the good professor means by calling the IMF and World Bank (and I suppose he might be referring to the WTO here as well) as independent, though. I mean, what countries have represented the leadership of these multilaterals other than the US and the wealthiest European ones? Who developed the world's financial architecture and the rules of international trade they follow, and more to the point, which countries benefit the most from these arrangements?

World Economic Forum event draws industry calls for greater regulation

Reporting for Huffington Post, J. Carl Ganter reports from the World Economic Forum's laughable "New Champions" event in Tianjin, China and notes the humble tone coming from Wall Street's Masters of the Universe.

He drops this quote from William Rhodes, vice chairman of Citigroup, who warned attendees that:

"What is happening in the markets in the US is affecting the credit markets worldwide," . . . "We are in a crisis of confidence. There is just no confidence in financial institutions in the market."

"One of the things that must come out of this crisis that did not come out of previous crises is some form of international accounting standards," . . . "We really need a set of internationally accepted regulatory norms. We are too tied together in a globalized world."

Notes Ganter: "This humility among the world's power brokers emerged as I looked over their shoulders watching Wall Street's drama unfold on the BBC and CNN, coincidentally in parallel with China's own tainted milk scandal. If there was a confluence for a confidence crisis, it was here."

So will governments worldwide, and most importantly the next President of the US, heed these calls from market participants themselves for more robust oversight from competent regulators who are not beholden to the companies they are expected to watch over? And will these regulatory bodies then pass any meaningful reform which are geared toward ending the Reagan Revolution's deregulation of Wall Street and returning the US to the New Deal policies that rescued this nation from the last Great Depression?

Update: And why we're on the subject of apportioning blame for the current crisis, let's not forget to mention John McCain's former economic advisor Phil Gramm, who is responsible for Commodity Futures Modernization Act.

SEC Inspector General: Deregulation and lack of oversight led to crisis

A very important bit of insight from the New York Times published Friday - which I missed when it first came out - can be read here. Stephen Labaton writes that according to a report recently released by the SEC's Inspector General, the agency tasked with oversight of Bear Sterns and other financial services institutions completely dropped the ball in relying upon a "voluntary" supervision program for the industry wherein these companies essentially monitored themselves.

The key paragraphs from the article:

The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down.

The S.E.C.’s oversight responsibilities will largely shift to the Federal Reserve, though the commission will continue to oversee the brokerage units of investment banks.

Also Friday, the S.E.C.’s inspector general released a report strongly criticizing the agency’s performance in monitoring Bear Stearns before it collapsed in March. Christopher Cox, the commission chairman, said he agreed that the oversight program was “fundamentally flawed from the beginning.”

“The last six months have made it abundantly clear that voluntary regulation does not work,” he said in a statement. The program “was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate” of the program, and “weakened its effectiveness,” he added.

Mr. Cox and other regulators, including Ben S. Bernanke, the Federal Reserve chairman, and Henry M. Paulson Jr., the Treasury secretary, have acknowledged general regulatory failures over the last year. Mr. Cox’s statement on Friday, however, went beyond that by blaming a specific program for the financial crisis — and then ending it.

The complete Inspector General's report can be viewed here and here. And check out this post on Christopher Cox's pro-industry (and anti-investor) policies from last year here.

Galbraith's Alternative

Besides arguing against the Treasury Department's critically flawed Wall Street bailout plan, economist James Galbraith actually puts forward some workable, common-sense solutions in this Washington Post editorial for the main problems caused by the credit crisis.