I just heard CNN’s week-end money team giving stock tips to their viewers to “recession proof” their lives. Now, I don’t doubt that there are great buys to be had in the market and that some people may be in a position to invest right now and make some big bucks over the long haul. But if the hosts of the show also feel it’s necessary to first explain what a stock is and tell them that the odd letters on the screen stands for the company’s ticker symbol, I think maybe stock picking may be over the heads of their audience.
I used to think the political media was as bad as it gets, with their high school kewl kid mentality and their boundless lack of self-awareness. The financial media make them look like sober, mature professionals by comparison.
Has Chuck Grassley always been such a loose cannon or is something weird going on with him? He’s calling for executives to commit suicide and endorsing a spending freeze in the middle of a recession to “stop socialism”. And now this:
Marking up budget legislation can be a brutal affair, often beginning early and lasting long into the night.
But buried within the hours of debate in the Senate on Thursday is an exchange you’d be more likely to hear in a locker room than a congressional hearing.
Budget Committee Chairman Kent Conrad (D-N.D.) was on the receiving end of this one, after telling Sen. Charles Grassley (R-Iowa), “Oh, you are good.”
“Well, your wife said the same thing,” Grassley responded.
Bada-bing!
I never thought of Grassley as being especially colorful, but lately he’s giving James Inhofe a run for his money.
Senate Majority Leader Reid said today he would drop a cram-down provision from a House-passed banking bill if the language threatened to keep the Senate from passing the overall bill. The provision would allow a bankruptcy judge to reduce a homeowner’s mortgage principal. “If we can’t get the votes for that, and I am hopeful we can — I am semiconfident we can — then what I’ll do is take that off [the bill] and do the other banking provisions,” Reid said at a Christian Science Monitor breakfast. Reid said he would work to keep the package intact, but raising the prospect of pulling the provision seemed to acknowledge assertions by Sen. Evan Bayh, D-Ind., and others that the cram-down bill cannot pass due to opposition from Republicans and some Democratic moderates.
Apparently, the “compromise” is to only apply cramdown to subprime mortgages, which sounds terrific, right? Except, as Kagro points out here, most of the subprime mortgages have already defaulted. So that’s all over. The big money boyz don’t want regular qualified borrowers who are caught up in the recessionary blowback of unemployment and soaring uncovered health care costs to be able to renegotiate mortgages through bankruptcy. Moral hazard, dontcha know. Because, gawd knows, these lending institutions are all about morality.
Yesterday there was a lot of discussion about Obama’s response to the question about marijuana at his online forum. (Dday covered it here.) A lot of pro legalization activists as well as online activists rightly, in my view, were a bit miffed at the dismissive attitude.
But I think this speaks to the deeper problem of our government’s approach to dealing with drugs everywhere. When Obama and his very enthusiastic audience laughed and applauded his condescension, it was sadly obvious that administration is as irrational and anti-intellectual on that issue as the Bush administration was on science during its eight years. It’s a dangerous attitude considering what’s happening south of the border right now. We need rationality more than ever right now.
And it’s an even scarier thing when you consider Afghanistan. That’s why these comments from Richard Holbrooke are rather intriguing:
Holbrooke did speak somewhat candidly about a vexing part of the Afghanistan problem: drugs. What to do about the opium flowing out of Afghanistan has always been a knotty element of US policy regarding Afghanistan. How much of a priority should it be? (Simply put, if you attack the the opium trade, warlords and locals get pissed off and join or support the other side.) Asked about the priority of drug fighting in the Afghanistan review, Holbrooke, as he was leaving the briefing, said “We’re going to have to rethink the drug problem.” That was interesting. He went on: “a complete rethink.” He noted that the policymakers who had worked on the Afghanistan review “didn’t come to a firm, final conclusion” on the opium question. “It’s just so damn complicated,” Holbrooke explained. Did that mean that the opium eradication efforts in Afghanistan should be canned? “You can’t eliminate the whole eradication program,” he exclaimed. But that remark did make it seem that he backed an easing up of some sort. “You have to put more emphasis on the agricultural sector,” he added.
For years, officials of the US government and other government have pondered what to do about the poppy fields of Afghanistan. Holbrooke indicated he favors a significant shift in this front of the war on drugs. But what specific policy does he fancy? He offered no clues, and then began talking to several reporters in French. Whatever he was saying, it sounded quite good.
A very smart political friend and I were chattering about Afghanistan a couple of months ago and he wondered if it wouldn’t be cheaper for the American government simply buy up the opium crop at top prices rather than spend the money on redevelopment and military action that never seems to work. My immediate thought was that even if people agreed that it would work, it would be impossible because of our irrational view of drugs in this country (as compared to billions spent on useless wars ….) But maybe I was wrong.
And maybe Holbrooke is just yammering about something completely different. But it would be great if there was some fresh thinking about this stuff. being irrational about drugs has gotten us absolutely nowhere. (And yes, Holbrooke needs to share some of that fresh thinking with his boss.)
You didn’t think Bill Kristol and the PNAC crowd would just go away, did you?
What do you do if your previous organization — and the ideology behind it — has become inextricably bound in the public’s imagination to one of the worst foreign policy blunders in American history? Obviously, shut it down, and start a new organization with a new name.
The Foreign Policy Initiative lists Robert Kagan, Bill Kristol, and Dan Senor on its board of directors, so no prizes for guessing what they’re about (more power, less appeasement, stronger wills.) Kagan and Kristol need no introduction, they’re the Tick and Arthur of disastrously counterproductive military adventurism. Given the staggering costs in American blood, treasure, security, and reputation incurred by their boundless enthusiasm for blowing stuff up, you might think they’d have had the decency to retreat to a Tibetan monastery by now, but sadly no. The way it works in Washington is, if you’re willing to argue for more defense spending, you’ll always find someone willing to fund your think tank.
Dan Senor is less known to the general public, but familiar to those who’ve followed the Iraq debacle closely. From 2003 to 2004, Senor served as a Coalition Provisional Authority spokesman under Paul Bremer. After that smashing success, Senor returned to Washington, where, among other things, in September 2004 he helped write speeches for Iraqi interim prime minister Ayad Allawi’s U.S. visit, and then apparently went on television to praise those speeches as evidence of Bush’s accomplishments in Iraq.
Senor is also Campbell Brown’s husband, so I’m sure this will be covered extensively on her show, which as you know is both no bias and no bull.
Spencer Ackerman and Ari Rabin-Havt have more. Interestingly, this little group’s first public event is a half-day conference on how to succeed in Afghanistan, featuring some of the same cheerleaders who blundered us into war in Iraq.
FPI, whose founders and principals include Robert Kagan, Bill Kristol, and Dan Senor, will host a summit next Tuesday titled “Afghanistan: Planning for Success.” Billed as a “half-day conference” to “discuss how the United States and our allies can succeed in Afghanistan,” the event will feature appearances and discussion from Sen. John McCain (R-Ariz.), Rep. John M. McHugh (R-N.Y.) — ranking member of the House Armed Services Committee — and Rep. Jane Harman (D-Calif.), who chairs of the House Homeland Security Intelligence Subcommittee.
“I know these people and recognize where they’re coming from,” the Congresswoman said of her appearance at the event. “I’m coming from a different place and want to be sure that point of view is heard. My point of view will be extremely sympathetic to the Obama Administration position on Af/Pak.”
Maybe Harman could go ahead and not show up to give a point of view that none of the magical thinkers and armchair generals who make up this outfit would possibly care about. But I am intrigued by the focus on Afghanistan. As Matt Duss notes, the better title for the conference would be “Afghanistan: Dealing With The Huge Problems Created By Many Of The People On This Very Stage.” The relentless focus on Iraq drew attention and resources from Afghanistan and helped to put us in this predicament. But the current dynamic shows Republicans both praising Obama’s Afghanistan/Pakistan plan and calling it “the new surge.” Here’s John Cornyn.
I commend President Obama on his plan for a surge in Afghanistan, which is our front line in the Global War On Terror. Victory there is imperative, and President Obama and our troops on the ground in Afghanistan have my full support. I will do everything in my power to ensure that Congress provides any and all resources required to accomplish the mission […]
It is my hope that President Obama’s surge in Afghanistan achieves results similar to the surge in Iraq, enabling victory and bringing our fighting men and women home as soon as possible.
You can see an outline of the foreign policy critique here. First of all, the neocons are trying to redeem the Bush strategy in Iraq by casting it as a success (I have hundreds of thousands of reasons why this is not the case). Then there is the support of Afghanistan, which will quickly turn into “there needs to be a greater commitment” as it falters. Neoconservatism cannot fail, of course, it can only be failed. And so the argument will be that Green Lantern’s will just needs to be stronger and we can exterminate the brutes and claim victory. Which is actually not Obama’s Af/Pak plan (a plan I don’t fully support), so the space on the right can be easily carved.
It would be easy to say “Forget about these idiots who wrecked the world, they have been totally discredited,” but the country’s politics have never worked that way. The same discredited group one year returns to power the next. And so it’s crucial to keep tabs on these knaves and see what most excellent adventure they have planned for the country when they claw their way back.
NFL running back Ryan Moats just wanted to get his wife to the hospital before her mother died. You can’t blame him for rolling through a red light. You can blame the officer who pulled him over outside the ER, ignored his pleas (and those of hospital staff), threatened to screw him over, and took his time writing a ticket.
His mother in law passed away while the offer forced Moats to remain in his car as he checked for outstanding warrants.
He’s lucky he didn’t get tasered.
H/t to reader Bill, who points out that the best cops are good sociologists and psychologists, common sense law enforcement skills which seem to have disappeared in the age of forced compliance by any means necessary.
The Dallas police department apologized, which is terrific and all, but one wonders if the person wasn’t an NFL player if he’d even get that.
Krugman does a great service today by putting the financial system crash into perspective and laying out the case for fundamental change in the system itself rather than restoration. And such a thing shouldn’t be scary to anyone but the highest flyers in the financial system. The stock market will still be there and will be open for prudent investment. People still need places for their money to grow and businesses needs ways to raise money to expand, so the markets aren’t going anywhere. But this over-dependence upon arcane financial instruments that no average citizens or even wealthy investor can understand is too dangerous. And having institutions that are “too big to fail” actually increases risk.
He talks at length about the way the system worked in the decades after the depression and then writes:
It all sounds primitive by today’s standards. Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation. After 1980, of course, a very different financial system emerged. In the deregulation-minded Reagan era, old-fashioned banking was increasingly replaced by wheeling and dealing on a grand scale. The new system was much bigger than the old regime: On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s. By early last year, the Dow contained five financial companies — giants like A.I.G., Citigroup and Bank of America. And finance became anything but boring. It attracted many of our sharpest minds and made a select few immensely rich. Underlying the glamorous new world of finance was the process of securitization. Loans no longer stayed with the lender. Instead, they were sold on to others, who sliced, diced and puréed individual debts to synthesize new assets. Subprime mortgages, credit card debts, car loans — all went into the financial system’s juicer. Out the other end, supposedly, came sweet-tasting AAA investments. And financial wizards were lavishly rewarded for overseeing the process. But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
You can’t have a stable society if economic ups and downs are too dislocating. It’s possible that this is a once in a century event and everything can readjust and go back to the way it was a couple of years ago, but it’s doubtful. We have seen over and over again that this reliance on complexity too often turns out to be fraud — see the Enron energy market, the AIGFP CDS market etc. This recent implosion has shown us just how risky it is to allow such opaque, inscrutable deal making to dominate our financial system. Thre incentives are all skewed th wrong way. William Greider makes a similar point in his new book Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Countryand will be appearing on Moyers tonight. I am looking forward to hearing what he has to say because he’s one of those guys who’s been railing about Greenspan and the Fed for decades. (If you haven’t read Secrets of the Temple: How the Federal Reserve Runs the Country–from 1987! — you should pick it up. You only thought you were living in a democracy.) These are people with good track records. They could be wrong now, of course. Nobody is perfect and as we’ve seen economics is an especially treacherous predictive field. But the underlying concerns they express, regardless of whether or not the stock market turns around or whether the recession last for another year or two years, are things we should take seriously. We don’t know where all this is going to end up right now. But whether or not we see a recovery soon or a long, painful economic slump, the system has to be reformed. And sadly, we’re not seeing any sign that the ruling class is ready to do that. .
Increasingly over the past several weeks, my favorite blog has become Baseline Scenario, written by Simon Johnson and James Kwak. Johnson was the chief economist at the IMF and now teaches at MIT, while Kwak is a student at the Yale Law School. And throughout this crisis, the two have consistently offered the best explanation of the financial crisis, how we got here and what we must do to get out. Many writers of this stripe argue on the basis of policy and which resolution is most likely to be the most cost-effective and successful. What sets Johnson and Kwak apart has been their ability to properly contextualize the crisis as a failure of elites, who grew too rich and too powerful and must be made to take losses, as a necessary component, indeed the only component, to revitalizing the American economy.
Johnson has now put those thoughts into The Atlantic, in something of a long summary of the work of Baseline Scenario over the past few months, a description of how the financial industry took over the government, much like in most banana republics, and how the only way to properly wind this down is to shrink the power and influence of the industry, as would be done in any other emerging country when the bankers grow too big and the elites start stealing everything. This is must reading.
From 1945 until around 1980, the financial sector was one industry among many in the United States. Then something happened.
People in finance started making more money, jobs in finance became more desirable, financial institutions became more influential, and the linkages between the financial sector and the political establishment became stronger. At the same time that our financial sector became more leveraged and more risky, it also became more powerful. The result was a confluence of interests between Wall Street and Washington – one more normally found behind the scenes of emerging market crises, the kind the IMF is called on to resolve.
The chart shows that pay in the financial sector has risen to 181% of the average for all domestic private industries. They didn’t just get too big to fail, they got way too big.
(Let me be clear at this point that there is no question the IMF has not had an entirely beneficial effect on the societies it has served. That said, Johnson’s pinpointing of the problem is what is important here, and the general solution of having to break the back of the elites. It is a template, upon which we can imagine different specific solutions than what an emerging market would be forced into taking.)
This is a familiar story to those who have been paying attention, but I’ve never seen it captured better. As the elite financiers grew richer and concentrated their wealth, they became more embedded with the government, not just with campaign contributions but through a shared belief system which made an unlimited virtue out of the unfettered free market. Certainly there has been a revolving door between Washington and Wall Street (and also at the top levels of academia, with econ professors shuttling in and out of financial institutions), but concurrent with that has been this image of Wall Street as a bunch of virtuous benefactors of their will, of the Masters of the Universe who can do no wrong.
Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world […]
Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.
A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”
Over the past several decades and thanks to this shared ideology, finance has been massively deregulated, what regulations remained in place were never followed, institutions were allowed to grow in an almost unlimited fashion, leverage themselves tremendously, and “innovate” with exotic instruments that nobody truly understood. Every policy, seemingly, benefited the financial sector to an outsized degree. And every policy that would have limited the sector was quietly set aside.
Of course, what’s best for the financial titans has never been what’s best for the country, and this is true for any nation on Earth, many with which Johnson has real-world experience. The key to every financial crisis lies in that moment when the need for solutions runs up against a politics that practically exists to protect and defend elites.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise [….]
Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large […]
From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets.
We have a far more developed country than those the IMF typically counsels, in some respects. Yet with the rise of an unaccountable and impenetrable oligarchy of elites, with a political class unwilling to do anything that would upset them, America resembles very closely the developing nations in banana republics. This continued fealty to the banks represent the leading threat to economic recovery. Whether through stoking fear of their failure or outright intimidation of the policymakers or something in between, the banksters own the country.
Johnson has his own prescriptions for the way forward: nationalizing the insolvent banks (which won’t be cheap, but neither will any alternative), resolving the assets and returning them to private hands, increased regulation, etc. But none of that will work without the total and utter breakup of the oligarchy at the heart of the crisis.
Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.
Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.
This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.
Johnson argues, compellingly, that President Obama is taking after the wrong Roosevelt, and what we need right now are the trust-busting policies of Teddy in addition to the New Deal policies of Franklin. But he ends on a downbeat note, mindful that the American oligarchy is much stronger, and the nation much less desperate, to expect the breaking of their money train to happen quickly or easily. It may take the threat of a real global collapse to shake us into action and away from this continued death-dance with the elites.
Anyway, read this and commit it to memory. To the extent that our political leaders listen at all anymore, they must understand how essentially untenable this economic power structure has become. I leave you with this quote from Mr. Johnson:
To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time.
Following dday’s post below, you might want to check out this post by Ed Kilgore featuring the plaintive lament of the Red State confederates:
It appears Republicans just couldn’t bear letting Obama’s challenge stand until they had their act together, and had to do some quick posturing lest someone imagine they were just the “party of no.” But at one prominent conservative website, there seems to be some deep resentment that Republicans didn’t respond a little more forcefully. Check out this interesting observation from Jeff Emanuel at Redstate:
There was a time in our country’s history where opponents who had a genuine beef with each other were not only unafraid to debate the issue (see Lincoln-Douglass), but were willing to actually do battle over it (see Sumner-Brooks). Heck, we’ve even had a sitting Vice President kill a former Treasury Secretary in a duel! How fortunate it is for President Obama that he lives in an age in which the virtue of manhood as once understood and revered has been utterly depleted; an age in which we not only have nonviolent disagreements (which are largely — and sometimes unfortunately — governed by the rules of comity), but where out-and-out challenges like those he repeatedly made to McCain during the campaign, and like that he made to the House GOP last night (during what is, for all intents and purposes, simply an “extended campaign”), are treated as being a sign of all the toughness a Democratic president needs, even when they are nought but rhetorical devices he has no intention whatsoever of backing up with actual action.
Since–alas and alackaday–in this era of depleted manhood and runaway nonviolence and comity, there no manly men left in the Republican Party willing to emulate Bully Brooks and Aaron Burr by literally bludgeoning or shooting their opponents, it seems they must bludgeon Democrats with talking points and return fire with “ideas” left over from the Bush administration and the McCain-Palin campaign.
The 101st Keyboarders have been mustered out of the GWOT and are back on the home front, reduced to playing Scarlett O’Hara in virtual Gone With The Wind reenactments. Don’t worry boys, tomorrow is another day.
“It does not have, in the sense of a traditional budget, numbers…”
by dday
The President and his team walked into the worst economic crisis in decades, beset on all sides by naysayers and unhelpful ConservaDems looking to frustrate their agenda, and with the populist anger over the AIG bonuses and a perceived coziness with Wall Street, the pitfalls are large and ominous. A smart political opposition could take this environment and turn it to their advantage.
Fortunately, or unfortunately, depending on your perspective, we don’t have one of those. We have one actual political party and a conservative know-nothing rump faction which literally has absolutely no ideas about how to capitalize on this political moment. They released a budget plan today without numbers. No, really.
There certainly was no hard budgetary data in the attractively designed 18-page packet that the House GOP handed out today, its blue cover emblazoned with an ambitious title: “The Republican Road to Recovery.” When Minority Leader John Boehner (R-OH) was asked what his goal for deficit reduction would be — President Obama aims to halve the nation’s spending imbalance within five years — Boehner responded simply: “To do better [than Obama].”
When pressed further by reporters, Boehner promised that Republicans would release their actual budget within the next few days and pointed a finger back at the president.
If you really hate yourself, you can read this hash of a plan. Ezra Klein has the best line:
It’s reads like what would happen if The Onion put together a budget. “Area Man Releases Proposal for 2010 Federal Spending Priorities.”
Maybe there’s a real opportunity for the Green Party once the Republicans truly sink into utter irrelevance?
