As Congress passed the $700 billion handout bailout of Congress, news broke here in California of a $7 billion problem that has immediate and massive impact on regular working folks.

According to Reuters:

California may need an emergency loan of up to $7 billion from the federal government within weeks, the Los Angeles Times on Friday quoted Gov. Arnold Schwarzenegger as saying in a letter to U.S. Treasury Secretary Henry Paulson.

…

On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state’s cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.

…

In the letter, Schwarzenegger noted California’s plans to issue $7 billion in revenue anticipation notes in the coming days to fund short-tern cash needs — now put in doubt by the crisis in the credit markets.

Even a broken clock is right twice a day and Governator AHnold may actually understand what a dire situation this economic climate is becoming for the states:

“The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time.”

Sean-Paul Kelley over at The Agonist spells out the implications:

Look, if the States can’t function we’re all hosed. And the so-called Congressional bailout does nothing to address these issues. It’s not even remotely close to a ‘clear resolution.’ Even Krugman says as much, “Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority.”

Remember Jefferson County and the City of Vallejo in California? We mentioned them here, as proverbial canaries in the coal mines and where was our government? Pretty much saying, “it’s contained.”

Here’s a question for Paulson and others: how do you contain Armageddon?

More from Paul Krugman:

How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are “the financial equivalent of the Reign of Terror during the French Revolution,” while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on “the edge of the abyss.”

As Congress and the President argue over exactly how many zeroes to add to the Wall Street bailout, California teeters on the brink.

If “across the board bailouts” are going to be the safe bet with the current leadership then lets make sure we apply this standard across the board. Because I don’t trust Bush and Paulson not to gamble that California can be allowed to fail too. And Paulson’s bets have been going bad lately:

The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong.

For a fifth of the cost of the Bear Stearns bailout, a tenth of the cost of the Fannie Mae/Freddie Mac bailout, and one one hundredth of the cost of the Wall Street bailout, we can keep California state government from going under.

Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, and now California. The Bush economy is turning into a black hole and threatens to suck us all in.

Cross posted on: myDD

… Let’s face it, we can only have a stimulus package if the President is willing to sign one.  But we can only go as far as the President will sign.

That’s House Speaker Nancy Pelosi starting the negotiations on a second stimulus package by giving away the farm.

There’s an old story in Texas about a young man whose daddy has sent him to trade horses on his own for the first time. He meets a wise old sharpie and the guy says, “So how much do you want for that horse son?” The kid answers: “Well Daddy told me to ask for $100 but to take $50.” “That’s great kid, here’s $50, give your daddy my regards.”

That’s what the Congressional Democrats do EVERY TIME.

While every stop is being pulled out to save the Wall Street “Masters of the Universe”, state governments across the nation are being pulled into an economic black hole. It’s no surprise that President Bush doesn’t care, but its very frustrating to see Pelosi being complicit in his indifference.

She’s apparently telegraphing her willingness to throw the states over the side. Why not make the most unpopular president in history veto a bill that would be popular just in time for the election?

Not having a vote on a strong economic recovery package is bad politics. Bad terrible awful dumb politics.  What’s the point of electing Democratic Members to Congress if they won’t stand up for Americans even when the President won’t?

Newsflash to the Democrats on Capitol Hill, this is the perfect time to force some Republicans up for re-election to put themselves on the record as opposing a package to save the economy.

But Pelosi doesn’t get that concept. Instead she wants to pass something on the first go and she’s so eager to please the president that shes pre-gutting a second stimulus package. Even though she’s talking a good game to the press:

Pelosi renewed her vow to try to pass a stimulus measure that would combine billions of dollars for jobs-producing infrastructure projects, more food stamps, additional Medicaid aid to states, home heating subsidies and a further extension of unemployment insurance.

Persistent rumors from Capitol Hill indicate that she’s telling the White House that she’s willing to throw the Medicaid aid to states overboard.

Should we settle for a bill that only goes halfway in addressing the economic crisis? No. We did that once, earlier this year, and the first stimulus package failed.

This has been on the table for a long time. The same experts who said the first economic stimulus package failed also said aid to states needs to be in the next stimulus:

If a second round of stimulus is necessary, other options that should be on the table. These include payments to states that will need to cut spending because of balanced budget provisions as their tax revenue falls.

And in a letter to House Leadership in late January as the first stimulus package was being prepared, a bipartisan group of 39 Governors “requested that state aid be included in the stimulus:

The nation’s governors urge you to include state countercyclical funding as part of your legislation to stimulate the economy.

…

In 2003, Congress approved $20 billion in assistance to states, including $10 billion in Medicaid and $10 billion in block grants. The governors’ current stimulus proposal is essentially the same, with the exception that it is a total of $12 billion as opposed to $20 billion. This proposal can be enacted quickly, as there is precedent and it is timely, temporary and targeted.

The plan is there, we know what is needed to help dig us out of this economic muck, and potentially shield the states from further dramatic losses if Wall Street keeps acting up. Our mentality shouldn’t be “take what we can get” it should be “this is what we need, this is what will pass.” If Republicans want to vote against improving the economy, let them explain it to the voters.

It’s time to have a clear vote on a real, working economic stimulus package. It’s time to show voters there’s a real difference between Democrats and Republicans.

( – promoted by Robert in Monterey)

Cross posted on myDD

Like the proverbial thief in the night, the US federal government snuck in Friday night and bailed out Fannie Mae and Freddie Mac. I hate to say I told you so, but I wasn’t surprised. They didn’t really have a choice

The Ministry of Finance and the Federal Reserve had no choice but to intervene due to one single reason: The collapse of Fannie Mae and Freddie Mac could have precipitated a core meltdown of the American bank and stock market systems, dragging the rest of the world with it into the abyss.

That is because these two banks are responsible for $5.3 billion (3.7 billion euros) of America’s $12 billion (8.4 billion euro) total mortgage debt. That corresponds to one third of America’s gross domestic product.

But never fear, the CEOs of the collapsing companies are safe:

Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.

Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in mid-July as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.

Meanwhile more than one half of the state governments in the U.S. are running massive deficits too, but no bailout is in store for them.

As I’ve been posting for a while, the money being spent on bail outs for financial entities is larger than the combined deficit of all the states. This report from the Center on Budget & Policy Priorities shows that the states are now being hit hard by the same hard economic times that dropped Bear Sterns and now Fannie and Freddie:

At least twenty-seven states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 27 states, specific estimates are available for 22 states and the District of Columbia; the combined deficits of these 22 states plus the District of Columbia are expected to total at least $39 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected.

…

The 22 states in which revenues are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arizona, California, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $39.1 to $40.8 billion, averaging 8.9 – 9.3 percent of these states’ general fund budgets.

The Governator has hit a new low and shown an even lower understanding of how to weather a recession. Schwarzenegger followed through on his plans to sign the most asinine and ill fated executive order I've ever seen. Michael Rothfeld of the LA Times has the story and the Governor's plan:

Nearly 200,000 employees could have their pay cut to the federal minimum wage of $6.55 an hour, with full salary reimbursed once a budget is signed. More than 10,000 lost their jobs Thursday. Exceptions were made for those deemed too critical to let go for purposes of law enforcement, public health and safety or other crucial services

Schwarzenegger also limited overtime and imposed a hiring freeze.

Wow AAhnald, that's your answer to a stalled budget process? Taking money out of the pockets of 200,000 hard working state employees and killing student and seasonal jobs just because you're frustrated with lawmakers being unable to reach a budget deal? I'm sure the newly made minimum wage workers are pretty upset as well, unfortunately they don't have people to use as bargaining chips like the Governator in his poker game with the legislature.

Let's take a look at the situation via this story from Juliet Williams of the AP. Democrats have proposed a way to close California's $15.2 billion deficit:

They want to raise $8.2 billion by boosting taxes on the wealthiest Californians and corporations, and say another $1.5 billion can come to the state through an amnesty on tax scofflaws.

Seems reasonable to me. One would think the best thing to do if you disagree with something is to offer an alternative. That doesn't seem to be the case for California republicans:

Republicans oppose any new taxes but have yet to offer their own budget proposal, said Assembly Budget Committee Chairman John Laird, a Democrat. "It's time for the legislative Republicans to tell the public how they would balance the budget," he said.

Exactly right. Instead California Republicans have fallen into line with their leader in the governors mansion; disagree, complain, argue, kick and scream, but refuse to offer any alternative.

The Governor's plan does nothing but hurt even more Californians facing a bad economy and an even worse housing crisis. Playing with the lives of state employees to score cheap political points, its no wonder the Government is having such a difficult time trying to get a budget deal in place. But what should we expect from a Governor who has enjoyed yucking it up in front of the cameras more than being engaged in the budget process.

George Skelton wrote about this in the Los Angeles Times:

"I am a governor that does not believe that the action is in Sacramento and sitting around an office. That is not going to do anyone any good."

This may be true as it relates to dousing wildfires. But unfortunately, that's the Schwarzenegger governing style for virtually every problem — whether healthcare, education or budgeting: Hit the road, stage the "town halls," perform for the cameras. Showboat.

Now yes, the Dems asked in June that he stay out of it, but he should have known better. Smart Governors know better:

"Getting the legislators to finish the budget without pressure from the corner office is like getting teenagers to come home early without a curfew," says Dan Schnur, former communications director for Gov. Pete Wilson and the new director of the Jesse M. Unruh Institute of Politics at USC.

Fortunately, some are still fighting this preposterous measure:

State Controller John Chiang, a Democrat who was elected to his post, suggested that the governor had overstepped his authority and said he would not cooperate. Chiang made his statements in a letter to Schwarzenegger and at a Los Angeles news conference.

"The state of California, the elected leadership, cannot put the important public servants of California in harm's way," he said. "We put people first, we make sure we protect their interests, and that's why I have to tell the governor, with all due respect, I am not going to comply with this order."

Good, maybe that will finally force the Governor to take a look at real solutions for the budget crisis and California working families.

Pressure from the Governor, or some shred of true leadership probably would have saved California from a lot of the turmoil they find themselves in today. Instead Californians got politicking in front of the camera, a failure to engage in negotiations until the situation was out of control, and now an embarrassing executive order launched as a scare tactic. Governor Schwarzenegger still doesn't understand. George Skelton does though:

All this compromising should have been concluded weeks ago — at least by the July 1 start of the new fiscal year. No excuses.

Just when you thought the economy had hit rock bottom. The Conference Board, a non-profit global business organization has reported that its consumer confidence index has dropped to its lowest point since the last recession in 1992. The New York Times paints the grim picture:

Tuesday’s data suggested a nation struggling with expensive gas and devalued homes, where people are fearful for their jobs and wary about where the economy is headed.

Any positive signs that economists and forecasters may have cited need to be thrown out the window. Even with the consumer confidence index at 50.4%, down a whopping 7.7% from May, the worst may still be yet to come. This report should be a wake up call to legislators across the country on behalf of a nation in desperate need of more help.

As the economy worsens, more and more key players are getting on board with the idea of a second economic recovery package. But not everyone’s where we need them to be to get something done in time to matter. For example Rep. David Obey (D-WI), powerful chairman of the Appropriations Committee free associated to Congress Daily (subscription only) and revealed that he doesn’t quite get how urgent doing something to stave off this recession is:

“People use all kinds of terminology; I don’t care if you call it a second supplemental or a second economic [stimulus] package — to me there are all kinds of things that we need domestically — but we need finish this job [war supplemental] before we can start thinking about the next one”

This pains me. Not only are House Democrats punting on telecom immunity, they’re putting war spending ahead of domestic spending.

Bush’s first economic stimulus package just didn’t work. We didn’t get the big sweeping surge of economic growth we were promised. Even what good news we’ve gotten was drowned out by a chorus of  story after story of bad economic news. The costs of living are growing rapidly as employment becomes harder to find. Food is getting more expensive as food bank lines grow longer. The longer Congress waits to act, the worse things will get.

And the states can’t wait for the aid that Democratic leaders say must be included in a second stimulus package either. State spending is the last prop holding up the economy and is at a tipping point. More than half of the states are facing crippling budget shortfalls that total $48 billion for the upcoming fiscal year. In the absence of aid from the federal government, states have been forced to cut vital services for many of our most vulnerable citiznes. The Center on Budget and Policy Prioritiesgives outlines the chopping block:

At least 12 states have implemented or are considering cuts that will affect low-income children’s or families’ eligibility for health insurance or reduce their access to health care services.

At least 10 states are cutting or proposing to cut K-12 education; three of them are proposing cuts that would affect access to child care.

At least 11 states have proposed or implemented reductions their state workforce. Workforce reductions often result in reduced access to services residents need.

And when states are forced to do things like cut their state workforce, the economy suffers even more. According to CNN/Money:

With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.

Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.

It’s cool that Obey recognizes the need for a  second stimulus package. But he also needs to understand that each day he lets pass without doing something means the economic hole we’re in is that much deeper and is going to require that much more federal spending to help us get out of.

By now California’s unemployment woes have been written about again and again . Like so many other economic problems in the country, this one isn’t getting any better:

California’s jobless rate now stands at more than 6 percent after April: and some reports claim that it takes the average unemployed American approximately four months to find work, and often much longer.

And common sense relief from the federal government is nearly impossible with an administration that refuses to acknowledge the plight of working class America, and encourages others to do the same:

People need help and they need Capitol Hill to respond, but instead of some relief, an extension of unemployment benefits faces a difficult fight in the Senate and President Bush is threatening to veto.

This week, Congress will have another opportunity to rebuke these disastrous Bush administration policies.

On Thursday the Labor-Health and Human Services-Education Appropriations Subcommittee is considering a funding bill for key domestic programs and services under those federal departments.

Hopefully, the Subcommittee will approve a $781 million increase in the Employment Service — basically the people who connect those needing work with those who need work done. This is exactly the kind of stuff that’s critical in a recession.

Unsurprisingly, the Bush Administration is seeking to gut employment services. This bit of wanton stupidity is a nice bookend to the White House's unwillingness to extend unemployment benefits.

Progressive groups are also seeking an $874 million increase for Child Care and Development Block Grant, funding which the Bush administration wants to freeze for a 7th consecutive year. Of course, this will have consequences for real kids:

Years of flat funding have already resulted in 150,000 fewer children receiving assistance." At this rate, it is projected that 300,000 fewer children will receive child care assistance by 2010. The harsh reality is that parents "may have been forced to go into debt; return to welfare; choose lower-quality, less stable child care; or face untenable choices in their household budgets."

Finally the Subcommittee will hopefully approve a $350 million allocation for emergency preparedness in the event of a pandemic flu outbreak. If there’s anything we know about a potential pandemic flu outbreak it’s that we are not adequately prepared for it. As DemforCT has warned us at dKos.

Numerous groups are mobilizing supporters to encourage the Labor-Health and Human Services-Education Subcommittee to support the $781 million increase to the Employment Service, the $874 million increase in Child Care Development Block Grants, and the $350 million allocation for emergency preparedness.

AFSCME is collecting signatures for a petition in support of a $781 million increase to Employment Services, an $874 million increase in Child Care Development Block Grants, and a $350 million allocation for emergency preparedness.

Sign it. The country's in recession and the federal government needs to get the safety net unfurled before we all go splat.