A public policy colleague in Washington likes to retell an observation and joke that made the rounds as President George W. Bush was leaving office:

'When President Bush realized he had screwed up half-way through his presidency, he then decided to really screw things up, because he knew if he did, whatever Democrat who won in November 2008 would not succeed, because he'd have to deal with and confront so many daunting problems!'

The economic firestorm that we are in the midst of is yet to be contained, or for that matter, completely understood.

Some things are very clear like the fact we spent more than we earned, as individuals and as a nation, for decades on end. That we know for sure, and regardless of who we blame the most for this situation there is no bigger economic mistake one can make.

This is something that I harp on often, and I expect I will keep on doing so because I do not have any reason to believe things will change; see: Ignore Washington -- keep saving; General Patton makes a point.

Last Friday, the big economic news was the shocking loss of 533,000 jobs which spurred President Bush to accept this weekend a bailout plan for the automobile industry likely to be announced in the week ahead. So did stocks crash on Friday as a result of the bad jobs news? No -- the Dow rose 259 points. And despite the daily failure of the stock market to fit the simple storyline that stocks go down with bad news and up with good, this media mental model persists.

In the week ahead, there is likely to be more bad news. Here are three such items:

• Spiking unemployment filings. On Thursday, first time unemployment filings are likely to top 500,000 for the fourth straight week.
• Slumping retail sales. On Friday, retail sales are likely to decline for the fifth month in a row -- the longest such streak since the numbers were first collected.
• Non-forecasting companies. A few companies are expected to report their results and claim that they lack visibility -- code for the future looks dark and they don't want to speculate publicly about just how dark.

So what will the market do this week? I have absolutely no idea. But it would not surprise me if it rose and fell wildly for no apparent reason.

Nero was a Roman emperor who was rumored to have played a lyre in his palace in July 64 while Rome burned for six days. And to paraphrase Mark Twain, history may not be repeating itself now; but it sure is rhyming. The 30 developed economies are receding -- expected to shrink 0.3% in 2009. Meanwhile, in the U.S., foreclosures are up 25% since last year and Wal-Mart Stores, Inc. (NYSE: WMT), which was thought to be the place everyone would shop in a recession, now forecasts fourth quarter earnings per share to be as much as 7% lower than analysts expected. And the S&P 500 has lost 41.4% of its value in the last year.

So why does this feel like Nero's Rome? Two things: Hank Paulson -- who has consistently made confident predictions that later proved to be wrong -- has done so again. And, Washington, which was required by the terms of the $810 billion rescue plan to report on its progress after 30 days, has missed its deadline. As I posted yesterday, Paulson admitted that his plan to save the world by using reverse auctions to buy toxic waste was DOA. But the subtext of speech was that he does not have a clue about what to do -- and he has his eye on the exit door.

Meanwhile, a special inspector -- to be appointed by Bush -- and a Congressional Oversight Panel, which was supposed to check the dictatorial powers that Paulson originally asked for, has no staff members. This means that the taxpayers do not know exactly where the $290 billion that Treasury has committed so far has been spent. Simply put, the economy is getting worse, the program to restore it is rudderless, there is no public information on how the money has been spent, and nobody is in a position to provide that information.

It's not exactly a repeat of ancient Rome. While I doubt anyone in the White House knows how to play the lyre, the global economy is going up in flames.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008. He has no financial interest in the securities mentioned.

Today, the President-elect is meeting at the White House with the current President. No President in U.S. history has left his successor with two long wars with no end and an economic depression. That is until the current one. But George W. Bush has more trouble in store for his successor. And he's piling on the problems in his usual secretive manner -- hoping nobody will notice.

How so? First, the Treasury Department this morning announced that it would increase the size of the bailout of American International Group (NYSE: AIG) from $143.7 billion to $150 billion and it would do so from funds in the $810 billion bank bailout bill. Second, he snuck a $140 billion bank tax break into that same bailout bill that would encourage bank mergers by allowing profitable banks to pay less tax by using the losses from unprofitable ones they buy to offset their taxable income.

Each of these moves is complex but the bottom line is that more of your money is going to bail out the mistakes of a handful of executives without any input from taxpayer representatives. The new AIG bailout swaps a program that gave it $143.7 billion of taxpayer money -- the original $85 billion loan for warrants to buy 79.9% stake; plus $37.8 billion more to cover losses from AIG's money-losing securities lending unit; plus another $20.9 billion worth of Commercial Paper -- for a new deal.

I realize that it's not a reason to pick a president, but if you care about your stock portfolio, you'd be better off with a Democratic president. How so? Peter Siris of Guerrilla Capital has run some numbers -- comparing an investment of $10,000 in the S&P 500 under Republican administrations to the same investment under Democratic ones. He permitted me to preview these numbers which will run in his New York Post column on November 3rd.

Since 1929 both parties have controlled the White House for 40 years and Siris estimates that the $10,000 would be worth $11,733 under Republican administrations and $300,671 under Democratic ones. According to Siris, "for whatever reason, Republicans have been in office during the three worst stock market declines: The Great Depression, the early to mid-1970s, and the current market."

That may sound interesting but what about recent presidents? Under the Clinton administration, the S&P 500 rose the most in the last 60 years -- up an average of 17.4% per year. The only president who posted a negative performance is a familiar name -- George W. Bush -- under his administration, the S&P 500 has fallen 27% from 1,342 to 979. It's an exceptional record and one that I hope will never recur.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

With unemployment rising and the signs of slowdown all around, is a second tax rebate or second stimulus check from Congress up ahead?

The U.S. economy continues to slow. More than 800,000 jobs have been lost since the slowdown began about a year ago, and many economists say the lay-offs are likely to continue or even increase.

Meanwhile, the world's major industrialized nations are striving to stabilize the global financial system and end a credit crunch that could further damage economies around the world.

Well, the answer to the question about a second stimulus check may very well rest on the answer to this one: Who are you voting for on Election Day, November 4?

Key factor: 2008 Election

Congressional Democrats, led by House Speaker Nancy Pelosi, D-California, have vowed to push for a second stimulus package totaling up to $150 billion to help jump-start the anemic U.S. economy, The San Francisco Chronicle reports.

We have finally reached a point where all denial is gone and we are ready to admit the error of our ways. Sure, there were plenty of folks ringing the alarm bells years ago, but universal acceptance of the fundamental economic calamity that faces us from every corner of the world, and every person with two cents to rub together, has just now taken hold.

I wrote quite some time ago that the turning point in the economy cannot come about until President Bush admits there is a problem and that he will be the last person to do so. While I do not have a high opinion of President Bush, the facts speak for themselves as I wrote one year ago. (See Is Bush giving the country away without knowing it?)

The storm is not over, but we are coming to grips with it at very great expense. Admitting our errors is only the start; now we will have to spend years fixing problems and making many compromises. Unfortunately many people may lose their homes, jobs or both before we see significant growth.

Readers of this space know that economist David H. Wang, a colleague and friend of yours truly, approaches the economic scene from a unique perspective.

Wang was born and raised in Communist China for 22 years, before moving permanently to the United States in 1989 for graduate school, completing his Ph.D. in economics in 1995.

Of course Wang still talks with family and friends in China, and right now there's this joke making the rounds in the great centers in Beijing and Shanghai.

Question: What's the difference between U.S. President George W. Bush and Chairman Mao?

Answer: Chairman Mao actually put some bankers in jail.

**

As officials and citizens in China, India, Russia, Brazil, and many other developing nations look on, the United States is attempting to end a financial crisis that threatens to severely damage economies worldwide.

In the process, Wang and other economists agree, a number of myths and misnomers -- some promoted by the current U.S. administration, are being dispelled, and we'll review each in the months ahead.

If the government is finally willing to admit that we are in some deep crap and Warren Buffett is willing to make the call to arms himself, a non-Bush supporter, then the members of Congress that can't find some satisfactory compromise on the $700 billion appropriation are screwing up!

I don't care if the number is a trillion dollars at this point. The money is not a give-away if it is a loan. It may be a bailout, but it is also a backstop against further erosion of our economy.

If the value of equity in the United States, all real estate, stocks, bonds, gold, you name it is worth 100 trillion dollars (wild guess) than how much do we lose if it goes down in value like it is doing now as I type. See Flash: House rejects bailout package, market dives

Every man, woman and child in the country will lose if confidence and liquidity are not propped up. How many jobs will be lost?

Think about this, if the downward spiral is not curtailed than the amount of taxes NOT collected by the Federal Government in the next year or two will be larger than the amount of the backstop the fed is trying to create now! That alone makes the deal worth doing.

Update: The Dow Jones Industrial Average lost 7% of its value today. That is in just one day! How many billions of equity is that? How much did you house go down in value today? How much less secure do you feel in your job today?

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.

In perhaps the shortest press conference on record, President George W. Bush confidently predicted that the government's $700 billion rescue of Wall Street will pass. I am not holding my breath.

Bush remarked that the legislative process sometimes is not "pretty." Talk about an understatement. Rhetoric on both sides of the aisle has been boiling over all week. People are angry, and who can blame them? It's a tough sell to taxpayers that there is a huge sense of urgency to rescue financial services companies that overextended themselves by lending money to people who could not afford to pay them back. The whole thing strikes many Americans, particularly those living paycheck to paycheck, as unfair.

Polls have overwhelmingly shown that most people are against the bailout. Most members of Congress have very little to gain right now by sticking out their necks for the Bush plan. If it passes, they have to explain to their constituents why they are helping out Wall Street fat cats. Voters will be angry and will demand explanations about why the value of their 401 (k) has plunged.

Pundits continue to plead on CNBC that the credit market is frozen, making it more difficult for people and businesses to get loans. They have warned of a financial apocalypse worse than the Great Depression. Maybe they are making valid economic arguments, but their message is not resonating with the public.

Members of Congress can ill-afford to alienate voters, many of whom are struggling to make ends meet. A bailout bill may pass but odds are that the process will be ugly and the end result may not be to Wall Street's liking.

Some of you will remember this story from last November when the door to our current world-wide financial industry meltdown was just beginning to crack open. At that time, we were facing tens of billions of dollars in losses and write-downs, but now we have witnessed hundreds of billions of dollars of the same and the government is telling us that it will take another $700 billion to shore up the industry.

Naturally, most of the people that got us into this mess are receiving golden parachutes as they abandon or are ejected from their burning empires. President Bush has been in over his head for years and turned a blind eye, (I think blind in both eyes) see: The George W. Bush economic plan? The shame does not end with Bush, though he has shown no leadership on the subject.

Sen. Christopher Dodd, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said of the recent Fannie Mae and Freddie Mac bailout, "Americans deserve to know if this proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."

Where were Bush and Dodd when the foundation for this crises was being developed See: SEC opens the gates and the world drowns.

The entire political system is jam-packed with conflicts of interest. Here are Senators Dodd's contributors by firm and industry as reported by OpenSecrets.org:

• Top 5 Contributors, 2003-2008: Citigroup Inc. $310,294, SAC Capital Partners $282,000, United Technologies $263,400, American International Group 224,678, Bear Stearns $205,600.
• Top 5 Industries, 2003-2008: Securities & Investment $,245,796; Lawyer/Law Firms 1,976, 063; Insurance $1,416,972; Real Estate $1,262,791; Commercial Banks $850, 544.

In one of my recent rants I blamed the Bush administration for some of what ails us (The George W. Bush economic plan?) and now an Ex-SEC Official Blames Agency for Blow-up of Broker-Dealers, as reported by Julie Satow, staff reporter of the New York Sun, September 18, 2008.

In my post I simply tried to make the point that government policy and leadership does affect how laws are written, rules are enforced, and the sentiments of leadership affects things even when those leaders are not holding the smoking gun. I am not giving the legislature a free pass on this either, but policy is set by the President.

During the current administration, policies that were put in place in 1975 to prevent the kinds of transgressions we are witnessing now by financial institutions were shredded by the current SEC management.

Allegations are being made by a former SEC official, Lee Pickard, who says a rule change in 2004 are what led to the failure of Lehman Brothers (NYSE: LEH, not trading) , Bear Stearns (NYSE: BSC, not trading), and Merrill Lynch (NYSE: MER).

Now we learn that rules put in place regarding capital reserves, leverage limits, and basic accounting principals were removed, eased, and modified as reported: "allowing the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount."

As an example, up until 2004 the net capital rule required that broker dealers limit their debt-to-net capital ratio to 12-to-1. To make matters worse the SEC is not admitting the ERROR of THEIR WAYS, but are making excuses for the failings and considering even further liberalization of the rules governing lenders and investment houses.

It is an ironic twist and one that has many conservatives in an uproar that the current administration has been so liberal with fiscal policy and fiscal restraint that Federal spending has grown out of control and the controllers have turned a blind eye to their responsibility.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.

Bloomberg columnist Caroline Baum gently reminds us that not every tax cut achieves its intended effect.

Case study: The 2001 Bush Administration federal income tax cut, which included a cut in the marginal tax rate to 35% from 39.6%. The Bush Administration touted it as a tax cut that would increase incentives to invest, save and work.

The result? The tax cut didn't work: saving and investment have been "anemic" during the Bush years, Baum said, citing data provided by Paul Kasriel, chief economist at Northern Trust Corp. in Chicago. Business investment is down, the savings rate is at a post-World War II low. Further, the labor participation rate has declined.

No guarantee tax cut would be invested in U.S.

But why didn't cutting the top marginal rate do all of the good things the Bush Administration touted? Economist Peter Dawson said the reason is the tax cut's inherent flaw.

"The tax cut contained the mistaken belief that rich taxpayers would invest their money and invest in the right way, in the U.S., to increase GDP," Dawson said. "There was no guarantee that they would do that. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States."

In November, Barack Obama will be elected president. People are fed up with George Bush and the Republican candidate wants to continue his policies -- tax cuts for the rich (even though he opposed them before), 100-year war in Iraq, etc. Americans know we can't afford a third Bush term.

President Obama will offer a middle class tax cut and raise the capital gains rate. This change will put more money into the pockets of consumers which account for 70% of GDP growth. And it will help balance the budget -- Bush's tax cuts have helped hit a record $410 billion deficit. Obama will also veto earmarks and implement pay-go rules which require a balanced budget.

These fiscally sound policies will strengthen the dollar which will help drop the price of gasoline and food. Obama will also create incentives to encourage investment in alternative energy. America knows that high oil prices enrich the enemy -- 15 of 19 9/11 hijackers were from Saudi Arabia -- our second biggest oil supplier. The sooner we can free ourselves of that devil's bargain, the safer we'll be.

For the sake of our economy, January 2009 can't arrive soon enough.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.