Here are excerpts from “The End” in Portfolio by Michael Lewis, author of Liar’s Poker, on the financial collapse. His article is based on the recollections of Wall Streeters who shorted subprime mortgages:

The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada.

Last I checked 50% of the number of defaults were in the four sand states. I haven’t seen any estimates of dollars defaulted in those four states, but I imagine it was 70% or higher.

Still, I’m not sure that “sand” is the truly relevant common characteristic of the sand states.

The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home­owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’ ” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”

This small hedge fund started shorting big investment banks, then found out they could short the securitized bonds directly.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.

The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’ ”

And short Eisman did—then he tried to get his mind around what he’d just done so he could do it better. He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. …

In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. But at the time Eisman began to do it, in the fall of 2006, that wasn’t clear. He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made: Which poor Americans were likely to jump which way with their finances? How much did home prices need to fall for these loans to blow up? (It turned out they didn’t have to fall; they merely needed to stay flat.) The default rate in Georgia was five times higher than that in Florida even though the two states had the same unemployment rate. Why? Indiana had a 25 percent default rate; California’s was only 5 percent. Why?

Why? Because the bubble was worse in Florida and California than in Georgia and Indiana. In the sand states in the fall of 2006, there were still Greater Fools around who believed that Hispanicization meant an unending increase in home values. The idea never gets fully articulated — are home prices high because Hispanics can pay high prices? Or are home prices high because non-Hispanics are desperately paying high home prices to get their kids away from public schools full of Hispanics? When you spell out the logical alternatives, neither one sounds terribly sustainable, but the point is that political correctness keeps people from thinking it through. Young Wall Streeters just all emotionally believed Diversity = Goodness = Money.

It’s one of those ideas — that a constant influx of Hispanics meant ever growing property values — that people get in their heads vaguely, but aren’t allowed to interrogate under our reigning worldview and our reigning EEOC regulations, under which Malcolm Gladwell makes a fortune and Charles Murray makes nothing lecturing corporations.

Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. “He’d call me and say, ‘Oh my God, this is a calamity here,’ ” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says. …

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

Still, this leaves open the question of why the financial engineers chose strawberry pickers with $720,000 mortgages to replicate in order to place double or nothing bets. Why not replicate your bets on Steve Jobs? Why build mountains of leverage on top of the pebble of probability that the strawberry picker was going to pay back his mortgage or find an even greater fool wanting to pay a fortune to live among strawberry pickers?

The Boston Globe’s Peter Canellos writes that we should credit the 1965 Immigration Act for making a Barack Obama presidency possible. Thus, Obama owes his victory to the Kennedys, at least one of whom will likely serve in the Obama Administration.[Obama victory took root in Kennedy-inspired Immigration Act, November 11, 2008]

Canellos approves of this Kennedy-led balkanization of the country, but fails to mention that Sens. Ted and Bobby Kennedy had promised that it would never take place when they originally advocated for the immigration policy change back in 1965. Email Peter Canellos

Excerpts from my review of “W.” in The American Conservative:

Given the limitations of Oliver Stone’s biopic about George W. Bush (modest budget, rushed production, lack of memoirs by the officials who started the Iraq War, and Stone’s own fading powers), “W.” turns out better than expected.

Anchored by another charismatic performance by Josh Brolin (the hunter turned hunted protagonist of “No Country for Old Men”), this tragicomedy of regression to the mean offers a plausible depiction of the President’s resentful yet admiring relationship with his imposing father, and the complicated ways that set the stage for the 2003 Iraq invasion. Brolin has emerged recently as such an enjoyable leading man to watch that he makes spending 129 minutes with George W. Bush fun.

The historical accuracy of Stone’s films has been improving since their nadir with the infuriating but stylistically dazzling “JFK” in 1991. Unfortunately, as the older, wiser Stone has gotten more honest, his aesthetic bravura has dwindled. … The great majority of the screenplay, though, strikes me as on solid ground, historically and psychologically. …

It has not been a success with the critics, who are annoyed that it doesn’t condemn conservatism as inherently evil. Indeed, Stone’s depiction of George H.W. Bush as an old-fashion prudent conservative is downright hagiographic. …

It’s unfortunate that Freud’s silly theories have discredited all psychological analyses based on nuclear family dynamics, because they can sometimes explain much about politicians. The ambitions of both Winston Churchill and Barack Obama, for example, were fired by political fathers who ignored their sons on the way up, then failed ignominiously.

George W. Bush’s Poppy Problem was the opposite of Obama’s: his father was an all around pretty good guy. As Stone commented, “Forty years is a long time to wait when your father is better at sports, politics, oil, money, diplomacy, and even academics than you are.”

“It took only 36 hours for President-elect Barack Obama to take the off ramp from the Change We Can Believe In Highway and slam his foot on the gas in the express lanes of the Chicago Way,” is how Chicago Tribune columnist John Kass opens his November 7 column. The “Chicago Way” is Kass’ shorthand for the Windy City’s corrupt machine-and-mob-riddled politics, which has been run, with a 13-year intermission, following the death of the current mayor’s father, for 53 years by the Daleys.

Kass, a child of Chicago’s working class, is the closest thing there is to a spiritual heir to Mike Royko (1932-1997). The working-class, Polish-Lithuanian Chicagoan, who never attended college, but who did his post-doctoral research at the Billy Goat saloon, was the greatest newspaperman in Chicago, and maybe in American history.

Kass is a royal pain in the neck to “Mayordaley,” the son, as Royko was to “Da Mayor,” the father. Granted, Kass is a Republican, whereas Royko was an Orthodox Democrat, but times have changed. The anti-white racism of today’s Democratic Party can no more be reconciled with the party of Royko’s youth, when it was working-class whites’ political home, than today’s politically correct, Evian-drinking, middle/upper-middle class, anti-military, anti-white racist (even if the majority of the staffers are white), smoke-free, tolerant newsroom can be reconciled with the smoke-filled, hard-drinking, working-class, veteran-filled newsroom of Royko’s glory days.

“[W]ith his first official act, Obama selected a Chicago Daley machine guy for his chief of staff,

U.S. Rep. Rahm Emanuel (D-Tomczak).

So much for transcending politics as we know it, eh?…

Among Chicago politicians, the Emanuel announcement was treated with enthusiasm. But it was enthusiasm of the political salivary gland at the prospect of federal pork and leverage.

“It’s a gain,” said Mayor Richard Daley, speculating on all the contracts he would be able to give with new federal money. “It’s a real gain, gain, gain,” he said, repeating the word as if in prayer….

From Washington, however, you could hear that giant sucking sound as the Washington media praised Emanuel, as if the appointment was testament to change. There was so much sucking up, they may have created an El Niño effect that will plague our planet for years.

Some of the sucking up is understandable because their currency is access and, as chief of staff, Emanuel will be gatekeeper to the president. But the least they could have done was rate themselves NC-17. And they could have acknowledged what they were doing, which was praising him to their readers and viewers in hopes of maintaining or guaranteeing that access.

Washington media types talk about him as a Clinton guy, but Emanuel is really a Chicago City Hall guy. At City Hall, the unwritten rule is we don’t want nobody nobody sent. The guy who sent Emanuel to then-candidate Bill Clinton in 1991 is named Daley. Bill Daley, the mayor’s brother.

Loyal readers know why I put the (D-Tomczak) at the end of Emanuel’s name. It refers to the corrupt Daley administration Water Department boss, Donald Tomczak, now in federal prison in Duluth, Minn. He sits there because he was convicted of bribery. Emanuel didn’t have anything to do with that. But he was a political beneficiary of Tomczak and the Chicago Way.

Two years ago, at the federal trial of Mayor Daley’s patronage chiefs—who were eventually convicted for building an illegal political army of city patronage workers to maintain the mayor’s control on Chicago—Tomczak was a key witness.

And he testified that he was ordered to put his political regiments on the streets in 2002 to elect Emanuel and defeat a liberal Democratic grass-roots candidate.[Emanuel pick shows change is state of mind, by John Kass, Chicago Tribune, November 7, 2008.

What I don’t get is why some people see a conflict between Obama’s socialism and his corruption. The political economy of socialism has always involved the corrupt enrichment of cronies, and the stealing from the productive and giving to the unproductive, while the economy shrivels up. And racial socialism is the most extreme socialism of all. Obama is just being a good racial socialist!

Patrick Martin writes at the World Socialist Web Site:

Obama declared, “We need a rescue plan for the middle class,” but the composition of his Transitional Economic Advisory Board belies his claim to be focusing on the economic difficulties of ordinary people. The panel consists entirely of representatives of the corporate and financial elite and the Democratic wing of the political establishment.

The 17 members of the panel include billionaire Warren Buffett, the richest man in America, the CEOs of Xerox and Google, the chairman of the board of Time Warner, Hyatt Hotels heiress Penny Pritzker, and Citigroup Vice Chairman Rubin.

Joining them in the meeting that preceded the press conference were former Clinton administration officials William Daley, Robert Reich, Laura Tyson and Lawrence Summers, as well as two former commissioners of the Securities and Exchange Commission, Volcker and former Fed Vice Chairman Roger Ferguson, former Democratic Congressman David Bonior, Michigan governor Jennifer Granholm and Los Angeles Mayor Antonio Villaraigosa.

The panel had the obligatory gender and racial diversity—two black members, two Hispanics, four women—but not even a semblance of class diversity. There was not a single individual representing workers, the unemployed, consumers, homeowners or those facing foreclosure and homelessness.

Nor were there any representatives of the labor federations—the AFL-CIO and Change To Win—which poured hundreds of millions of dollars into the Obama campaign—or of African-American, Hispanic and women’s organizations, such as the NAACP and NOW.

The link above is from a Trotskyist organization. Obama is sometimes depicted as “left wing“. I would suggest there is a strong division within the American left. The old, economic left placed a lot of emphasis on creating greater economic equality. Marxists and Social Democrats had a high profile in the US–especially among recent immigrant communities, but those influenced by thinkers like Henry George, Robert Owen and Edward Bellamy were more important historically in the U.S. up to the introduction of the New Deal.

The New Left that emerged in the 60’s  placed a lot more emphasis on civil rights, racial integration, gay rights and gender issues than we traditionally saw among the older U.S. left. The last 40 years have seen a mainstreaming of many ideas that were strong in the New Left. These have included the pervasiveness of affirmative action and political correctness–especially in media and academe, and the transformation of the United States via immigration.

These changes have occurred during a period in which wealth and income has become far more concentrated in the US. The American middle class has had their assets depleted while the composition of the upper class in America has changed dramatically from its “WASP” origins. I would suggest that Obama is very much more identified with the New Left than the Old Left.

The thing is, the jobs issue just won’t go away. The need to represent ordinary Americans in major economic decisions won’t go away. A lot of ordinary Americans just aren’t PC-and if you started asking a cross section of Americans what they wanted, one of the high priorities would be reduction of immigration to the US. The jobs issue in the US is heavily tied to immigration-and none of the established left groups in the US are really equipped to deal with it. I think ultimately we may see a resurgence of left populism in the US that is highly skeptical of immigration.