Harry Hopkins was followed by a second Commerce Secretary who was an important Roosevelt administration figure, but not really important in his capacity as Secretary of Commerce. That man was Jesse H. Jones. Born in Tennessee, as a young man Jones went to work for his uncle at age 19; the uncle then died when Jones was just 24, at which point he moved to Houston and took over the family business. Jones became a major Houston figure, and helped secure federal funding for the Houston Ship Channel that turned Houston into an important port.

Woodrow Wilson offered him the Commerce job back in the day, but Jones turned it down. Later, Wilson prevailed upon him to run military relief for the American Red Cross. After the war, Jones went back into private business, but Herbert Hoover called on him to serve as a member of the board of the Reconstruction Finance Corporation which was initially tasked with trying to rescue troubled banks by providing loans and liquidity. This didn’t really work very well and, as is well known, the situation got worse and worse throughout the Hoover years. When FDR took office, he reorganized the RFC and put Jones in charge.

The new RFC had more funding and a broader mandate—it made loans directly to businesses and to state and local governments across the country. The result was perceived by Jones’ rivals inside and outside of the administration as a patronage empire, but it seems Roosevelt was happy enough with his work. When Hopkins was sent abroad to represent FDR in London and Moscow, his Commerce hat was passed to Jones. Soon enough, the war was on and domestic reform projects were out of the spotlight. Instead, the RFC was reoriented toward war production. By 1944, Roosevelt was sick of Vice President Henry Wallace and wanted him dumped from the ticket which he was, in favor of Harry Truman. But there was a desire to keep Wallace on the inside of the tent pissing out, so the Commerce job was given to him and Jones was forced out in 1945.

Brad DeLong recommends this plan from Susan Woodward, Robert Hall, and Jeremy Bulow as “the cleverest plan I have yet seen.”

And, indeed, it is clever. Here’s the plan in chart form:

The other two columns show the balance sheets of the new good bank and bad bank. The good bank will continue to operate under the Citi brands as a well-capitalized operating entity. The bad bank will be a financial fund with no operating functions. The good bank gets the short-terms assets and the “other” assets because many of these are related to its operating activities. It gets the better half of the long-term assets, taken to have book value, while the bad bank gets the poor half, where the impairment has already occurred and suspicions of further price declines persist. The bad bank holds the valuable equity in the good bank to the tune of $427 billion.

The deposits remain as liabilities of the good bank. Because the good bank is heavily capitalized, the deposits are safe. Most are uninsured, so the creation of the good bank eliminates the danger of a run on the bank by those depositors. All of the debt goes to the bad bank. The holders of the debt were never promised a government guarantee. The shareholders in Citicorp become the shareholders in the bad bank. They are indirectly shareholders in the good bank as well, because the bad bank owns the good bank.

The bad bank is thinly capitalized. In fact, it has exactly the same amount of capital that Citi had in the first place. With further declines in the values of the troubled assets, the bad bank may become insolvent. In that case, the bondholders will need to negotiate diminished values or the bad bank will need to be reorganized. In either case, the shareholders will lose all their value, just as they would have lost that value had Citi not been divided and there had been no further bailout from the government. The bondholders will lose part of their value, because there is no reason or justification for bailing them out.

This seems suspiciously like magic, so I’d like to know what others with some expertise have to say.

Inspired by this Chris Bowers post, here’s a chart I made comparing public support for legalizing marijuana to the approval ratings for Rush Limbaugh and various Republican Party leaders that I found on PollingReport:

Needless to say, support for marijuana legalization is pretty much a “fringe” view in national politics. And it certainly doesn’t have majority support. And yet put it in perspective and this is what you get.

Senator Richard Lugar (R-Indiana) has long been a voice of reason on foreign policy issues. And now via Steve Clemons, I see an important new report titled “CHANGING CUBA POLICY — IN THE UNITED STATES NATIONAL INTEREST” (PDF) that his staff has prepared for the Senate Foreign Relations Committee on which he serves as ranking minority member. The opening:

Economic sanctions are a legitimate tool of U.S. foreign policy, and they have sometimes achieved their aims, as in the case of apartheid South Africa.

After 47 years, however, the unilateral embargo on Cuba has failed to achieve its stated purpose of “bringing democracy to the Cuban people,” while it may have been used as a foil by the regime to demand further sacrifices from Cuba’s impoverished population.

The current U.S. policy has many passionate defenders, and their criticism of the Castro regime is justified. Nevertheless, we must recognize the ineffectiveness of our current policy and deal with the Cuban regime in a way that enhances U.S. interests.

This is not much more than common sense, but in political terms it’s extremely bold. I can only hope that Senator Kerry and the Obama administration will show some boldness of their own and work toward implementing the sort of approach Lugar is talking about.