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A Page From The Jimmy Carter Playbook

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March 30, 2009

When Barack Obama began his Presidential campaign, I was initially skeptical.  Here was another guy from “out of the blue” pursuing a bid for the White House.  I was reminded of Jimmy Carter:  a man who had served a term as Governor of Georgia, who began his Presidential campaign with little name recognition.  Carter’s Presidency was marked by rampant inflation and an ill-advised decision to allow Iran’s ailing, deposed Shah into the United States (from exile in Mexico) to die here.  That move resulted in the attack on the U.S. Embassy in Iran, and the holding of 52 American diplomats as hostages until the end of Carter’s term in office.  Teddy Kennedy unsuccessfully challenged Carter for the Democratic nomination in 1980, knowing that Carter had little chance of re-election.   After serving only one term as President, Carter was voted out of office.

At the outset, Carter’s Presidential campaign got a lot of traction from the widespread belief among young voters that Carter would do something to change our nation’s marijuana laws.  Not only did Carter lack the political courage to take such a stand once he became President, he did the opposite.  Carter authorized the use of an herbicide called Paraquat, to be sprayed on marijuana fields in Colombia and Mexico.  Upon realizing that their crops were sprayed with this substance, the sleazy pot farmers quickly harvested the contaminated weed and sent it to market in the United States.  As a result, many Americans developed permanent respiratory problems.

Now that the Obama Administration has taken a “States’ rights” position on medical marijuana laws (by refusing to continue the Bush administration’s tactic of prosecuting medical marijuana facilities) proponents for repeal of pot prohibition, have stepped up their campaign.  Given the current economic crisis, now might be the time for the government to consider legalizing marijuana and taxing it, as is done with the more dangerous ethyl alcohol.

On Thursday, March 26, President Obama held a “town hall” meeting in the East Room of the White House.  Although there were only 100 audience members in the East Room, viewers were invited to submit questions over the Internet.  Nearly 100,000 questions were submitted on-line in response to this invitation.  As John Ward Anderson reported for Politico:

In this moment of national economic crisis, the top four questions under the heading of “Financial security” concerned marijuana; on the budget, people voted up questions about marijuana to positions 1-4; marijuana was in the first and third positions under “jobs”; people boosted a plug for legalizing marijuana to No. 2 under “health care reform.”  And questions about decriminalizing pot occupied spots 1 and 2 under “green jobs and energy.”

After taking questions lower on the list, Obama addressed the pot issue head-on, noting the huge number of questions about marijuana legalization and remarking with a chuckle, “I don’t know what that says about the online audience.”

“The answer is no, I don’t think that is a good strategy to grow our economy,” he said, as the audience in the room applauded and joined him in a laugh.

Although the enthusiastic sycophants in the audience shared a chuckle with the President, many commentators took a dim view of Obama’s discourteous response.  Conservative pundit Andrew Sullivan was particularly incensed by the President’s affront to “the online audience”:

The chuckle suggests a man of his generation.  The dismissiveness toward the question of ending Prohibition as both a good in itself and a form of tax revenue is, however, depressing.  His answer was a non-answer.  I’m tired of having the Prohibition issue treated as if it’s trivial or a joke.  It is neither.  It is about freedom and it’s deadly serious.  As for your online audience, Mr president, have you forgotten who got you elected?

On his blog at Salon.com, Pete Guither took stock of reactions to the President’s superciliousness from across the blogosphere.  Many of the rejoinders he quoted came from people at The Huffington Post.  I will include some of them here.

Jim Gilliam said:

Pot saved my life. It’s a miracle drug, even the crappy non-organic kind made in a lab.

The President will be asked this question again, and maybe next time he won’t laugh at us.

Sam Stein’s retort included the reaction of a law enforcement professional:

Jack Cole, executive director of Law Enforcement Against Prohibition (LEAP), said in response:

“Despite the president’s flippant comments today, the grievous harms of marijuana prohibition are no laughing matter. Certainly, the 800,000 people arrested last year on marijuana charges find nothing funny about it, nor do the millions of Americans struggling in this sluggish economy.  It would be an enormous economic stimulus if we stopped wasting so much money arresting and locking people up for nonviolent drug offenses and instead brought in new tax revenue from legal sales, just as we did when ended alcohol prohibition 75 years ago during the Great Depression.”

Dan Sweeney had this to say:

According to Arizona Attorney General Terry Goddard fully 75 percent of Mexican drug cartels’ cash comes from the sale of marijuana.  Legalizing marijuana would, of course, take away that massive source of income for the cartels, just as ending prohibition cut bootlegging as a source of revenue for La Cosa Nostra.

Combining all of the above effects, the legalization of marijuana means billions of dollars saved or made, the creation of jobs and the curbing of violence along the Mexican border, which in turn means saving thousands of lives.

Barack Obama can certainly be against legalization, but he owes it to nonviolent drug offenders caught in the horror show that is the U.S. prison system, the families of innocent victims of the Mexican drug wars and economically bloodied U.S. taxpayers to explain why. Ganja may cause the giggles, but legalization shouldn’t be a laughing matter.  And it certainly shouldn’t be treated as cavalierly as it has by the current administration, especially when it has been proven to be a popular issue every time Obama has tried to go straight to the people.

President Obama’s expressed position on the marijuana issue demonstrates the same political cowardice America witnessed in Jimmy Carter.  If you want to read an uplifting story about political courage, Constitutional law and civil rights attorney, Glenn Greenwald, wrote an excellent piece concerning Virginia Senator Jim Webb’s political courage for Salon.com.  Not surprisingly, the example Mr. Greenwald chose to contrast with Jim Webb’s political bravery was President Obama’s “adolescent, condescending snickering when asked about marijuana legalization”.  The marijuana controversy presents our new President with the opportunity to demonstrate the same degree of political courage exhibited by Jim Webb.  He ought to give it a try.

Understanding The Creepy Bailouts

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March 26, 2009

The voting, taxpaying public had no trouble understanding the outrageousness of AIG’s use of government-supplied, bailout money to pay $165 million in bonuses to its employees.  As we all saw, there was a non-stop chorus of outrage, running from letters to the editors of small-town newspapers to death threats against AIG employees and their next-of-kin.  However, what most people don’t really understand is how this crisis came about and what the failed solutions have been.  Some of us have tried to familiarize ourselves with the alphabet soup of acronyms for those government-created entities, entrusted with the task of solving the most complex financial problems of all time.  Nevertheless, we are behind the curve with our own understanding and we will remain behind the curve regardless of how hard we try.  It’s no accident.  Opacity is the order of the day from the Federal Reserve, the Treasury, the Securities and Exchange Commission and the Commodity Futures Trading Commission.  In other words:  You (the “little people”) are not supposed to know what is going on.  So just go back to work, pay your taxes and watch the television shows that are intended to tie-up your brain cells and dumb you down.

This week, Wall Street was excited to learn the details of Treasury Secretary “Turbo” Tim Geithner’s latest version of what, last week, was called the Financial Stability Plan.  In order to make the unpopular plan sound different, it was given a new name: the PPIP (Public-Private Investment Partnership or “pee-pip”).  Those economists who had voiced skepticism about the plan’s earlier incarnations were not impressed with the emperor’s new clothes.  As Nobel laureate and Princeton University Professor Paul Krugman explained in The New York Times:

But the real problem with this plan is that it won’t work.  Yes, troubled assets may be somewhat undervalued.  But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem.  They lost that bet.  And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

The plan’s supporters now claim that Professor Nouriel Roubini, an advocate for “nationalization” (or more accurately:  temporary receivership) of insolvent banks now supports the “new” plan.  As one can discern from the New York Daily News op-ed piece by Dr. Roubini and fellow New York University Professor Matthew Richardson, they simply described this plan a “a step in the right direction”.  More important were the caveats they included in their article:

But let’s not have any illusions.  The government bears the risk if and when the investors take a bath on the taxpayer-provided loans.  If the economy gets worse, it could get very ugly, very quickly.  The administration should be transparent in making clear that there is still a wealth transfer taking place here – from taxpayers to investors and banks.

*    *    *

Moreover, there’s the issue of transparency – or lack thereof.  No one knows what the loans or securities are worth.  Competing investors will help solve this by promoting price discovery.  But be careful what you wish for.  We might not like the answers.

James K. Galbraith (the son of famed economist John Kenneth Galbraith) has a PhD in Economics from Yale and is a professor at the University of Texas at Austin.  His reaction to the PPIP appears on The Daily Beast website in an article entitled:  “The Geithner Plan Won’t Work”:

The ultimate objective, and in President Obama’s own words, the test of this plan, is whether it will “get credit flowing again.”  (I have dealt with that elsewhere.)  Short answer:  It won’t.  Once rescued, banks will sit quietly on the sidelines, biding their time, until borrowers start to reappear.  From 1989 to 1994, that took five years.  From 1929 to 1935 — you get the picture.

*    *    *

And the reality is, if the subprime securities are truly trash, most of the big banks are troubled and some are insolvent.  The FDIC should put them through receivership, get clean audits, install new management, and begin the necessary shrinkage of the banking system with the big guys, not the small ones.  It should not encumber the banking system we need with failed institutions.  And it should not be giving CPR to a market for toxic mortgages that never should have been issued, and certainly never securitized, in the first place.

Back in May of 2006, Dr. Galbraith wrote an article for Mother Jones that is particularly relevant to the current economic crisis.  Many commentators are now quoting Galbraith’s observations about how “the predator class” is in the process of crushing the rest of us:

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia.  Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class.  The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth.  But it is the defining feature, the leading force.  And its agents are in full control of the government under which we live.

The validity of Galbraith’s argument becomes apparent after reading Matt Taibbi’s recent article for Rolling Stone, called “The Big Takeover”.  Taibbi’s article is a “must read” for anyone attempting to get an understanding of how this mess came about as well as the sinister maneuvers that were made after la mierda hit the fan.  It’s not a pretty picture and Matt deserves more than congratulations for his hard work on this project, putting the arcane financial concepts and terminology into plain, easy-to-understand English.  Beyond that, he provides the Big Picture, which, for those who read Galbraith’s discourse on predation, is all too familiar:

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough.  The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’etat.  They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grace:  Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.  And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class.  But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Let’s hope I haven’t scared you out of reading Matt’s article.  Besides:  If you don’t — you are going to feel really stupid when you have to admit that you don’t know what the ABCPMMMFLF is.

The Betrayal

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March 23, 2009

We the people, who voted for Barack Obama, are about to get ripped off by our favorite Hope dealer.  Throughout the recent controversy arising from the huge bonuses paid to AIG executives, President Obama has done quite a bit of hand wringing over the fact that the government is rewarding “the very same people who got us into this mess”.  Treasury Secretary, “Turbo” Tim Geithner is now rolling out the administration’s so-called Financial Stability Plan, wherein once again, “the very same people who got us into this mess” will be rewarded with our tax dollars.  Over a trillion dollars of taxpayer money will be used to either buy back or insure an arbitrarily-assigned value for the infamous mortgage-backed securities.  The purpose of this exercise will be to prevent the bankers themselves from losing money.  The country’s top economists, including two Nobel Prize winners (Paul Krugman and Joseph Stiglitz) have advocated a different solution:  placing those banks that are about to fail into “temporary receivership”.  However, this process would result in a significant reduction of the stock prices for those banks, in addition to replacement of the management of those institutions.  The big-shot bankers won’t put up with this.

In Sunday’s New York Times, Frank Rich referenced a reader’s observation that this is President Obama’s “Katrina Moment”.  How the new President responds to this crisis will likely shape “the trajectory of his term”.  I prefer to call it Obama’s “Yellow Cake Moment”, since he and his administration are bent on selling a lie (the likelihood that the Financial Stability Plan can succeed) to the public in order to further assist the bad bankers.  It is similar to when George W. Bush convinced many in Congress and the public, that Saddam Hussein was attempting to purchase yellow cake uranium to make atomic bombs (with Bush’s ultimate goal being widespread support for the invasion of Iraq).

It should be no coincidence that the Financial Stability Plan is rewarding the bad bankers, since it was prepared by some of “the very same people who got us into this mess”.  I am specifically referring to Larry Summers and Turbo Tim himself.  Frank Rich covered this point quite well in Sunday’s article.  As a result, Obama’s attempt to chastise “the very same people who got us into this mess” is quite specious, in light of the fact that some of those people have shaped his latest bank bailout.

Back during the campaign, Candidate Obama caught quite a bit of flack for talking about “putting lipstick on a pig”.  Nevertheless, his continued promotion of the various incarnations of what is essentially the same ill-conceived plan floated by former Treasury Secretary Henry Paulson, demonstrates that Obama himself is now putting lipstick on a pig.  As Paul Krugman pointed out:

Why was I so quick to condemn the Geithner plan?  Because it’s not new; it’s just another version of an idea that keeps coming up and keeps being refuted.  It’s basically a thinly disguised version of the same plan Henry Paulson announced way back in September.

*    *    *

But Treasury is still clinging to the idea that this is just a panic attack, and that all it needs to do is calm the markets by buying up a bunch of troubled assets.  Actually, that’s not quite it:  the Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines, so it has produced what Yves Smith calls “a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for [I don’t think I can finish this on a Times blog]”

Nevertheless, “public outcry” is exactly what is warranted in response to this soon-to-be fiasco.  Most economists favor the “temporary receivership” approach, rather than the continued bailouts of insolvent banks.  The Administration’s Financial Stability Plan is just another way to reward “the very same people who got us into this mess”.  This plan is expected to cost at least one trillion dollars.  As a result, the government is about to bilk the taxpayers out of an amount in excess of 20 Bernie Madoff Ponzi schemes.

MSNBC’s Rachel Maddow has recently vilified Senator Evan Bayh’s caucus of moderate Democrats, whom she calls “Conservadems” because they have been offering some resistance to a few of Obama’s proposals.   These Senators are actually smart people who can detect the distinctive odor of snake oil.  They know better than to tie their political futures to a bank bailout plan that can destroy their own credibility with the voting public.  They know that public support of Obama’s broader agenda is hinged on how he deals with the banking problem.  As Ben Smith and Manu Raju reported for Politico:

But many lawmakers made clear Tuesday their view that voters’ willingness to trust Obama on some subjects will be determined by their view of how well he handles the economic crisis.

*    *    *

“Unless we can instill some trust back with the American people that these people who brought on this problem, who risked our 401K funds and hard-working people’s money, aren’t going to be able to profit from their folly, I think we are at risk of losing their trust,” said Sen. Amy Klobuchar (D-Minn.).

Meanwhile, there’s an ill wind a-blowin’ and it’s coming from 1600 Pennsylvania Avenue.  The efforts by many pundits to blame the flawed financial policy on Geithner are misplaced.  If President Obama weren’t on board with this plan, it would have never made it outside of the Oval Office.  The problem is with Obama himself, rather than Geithner.  Unfortunately, the decision our President has made will likely turn a two-year recession into a ten-year recession.  To him, the corresponding benefit of helping out the bankers must apparently be worth it.

“Bank Rage” Stresses The Obama Agenda

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March 19, 2009

Public anger over the AIG bonus controversy has risen to the point where no politician wants to be complicit in any government action to further reward those characters, widely regarded to have helped cause the economic crisis.  Worse yet, bailout fatigue is finally taking its toll on the consensual psyche.  On March 18, Chairman Ben Bernanke announced the decision of the Federal Reserve’s Open Market Committee (FOMC) to print up another trillion dollars to buy back long-term Treasury bonds and to purchase some of those toxic, mortgage-backed securities.  The most immediate beneficiaries of this news were the usual suspects:  the banks.  Citigroup saw its stock value jump over 22% on Wednesday.  Bank of America made a similar gain and Wells Fargo’s stock rose over 17%.  As John Dickerson reported for Slate, President Obama is walking a tightrope by resonating with the public outrage over the behavior of Wall Street’s investment banks, since too much taxpayer anger could cause him trouble down the road:

Administration aides know this outrage can go too far.  If the president stokes too much outrage, he’ll have a tougher time asking for more tax money for future bailouts of banks and other industries.  But, as it was explained to me by an administration adviser, it is impossible for the president not to show that he’s outraged.  If he didn’t, he’d lose credibility, which would eventually hurt his ability to sell future bailouts and his budget.

Meanwhile, Treasury Secretary “Turbo” Tim Geithner continued to take heat from members of Congress, as he is increasingly perceived as the individual who failed to prevent the villains at AIG from being rewarded $165 million for their role in causing the financial meltdown.  As Rick Klein reported for ABC News, two Republican Congressmen (Connie Mack of Florida and Darrell Issa of California) have called for Geithner’s resignation.  Klein’s article went on to point out:

Several congressional aides said members of Congress remain unlikely to press for Geithner’s ouster in large numbers.  At the very least, according to one Democratic leadership aide, members are likely to wait for Geithner to present his comprehensive bank bailout plan before passing judgment.

Once Turbo Tim does finally present “his comprehensive bank bailout plan” (a/k/a the Financial Stability Plan), he will validate his new-found reputation as a lackey for the Wall Street establishment.  If you think he’s unpopular now  …  wait until that happens.  Harold Meyerson’s March 18 op-ed piece in The Washington Post is emblematic of the criticism the new administration faces as it attempts to assimilate Geithner-ism into its economic recovery strategy:

But Geithner’s indulgence of bankers’ indulgences is fast becoming the Obama administration’s Achilles’ heel.  The AIG debacle is the latest in a series of bewildering Geithner decisions that threaten to undermine the administration’s efforts to restart the economy.  So long as it’s Be Kind to Bankers Week at Treasury — and we’ve had eight straight such weeks since the president was inaugurated — American banking, and the economy it is supposed to serve, will remain paralyzed.  The Geithner plan to restart the banks provides huge taxpayer subsidies to hedge funds, investment banks and private equity companies to buy the banks’ toxic assets without really having to assume the risk.  That’s right — the same Wall Street wizards who got us into this mess, using the same securitization techniques that built mountains of debt within a shadow financial system that remains unregulated, are the saviors whom Geithner has anointed to extricate us — with our capital, not theirs — from the mess that they created.

A more plausible solution would be for the government to assume control of those banks that are insolvent, as it routinely does when banks go under.  It could then install new management, wipe out the shareholders, take the devalued assets off the banks’ books, restart lending and restore the banks to private control at a modest profit for the taxpayers.  There may be reasons that Geithner’s plan makes more sense than this one, but if they exist, Geithner has failed to explain them.

Nothing could more seriously undermine President Obama’s “big bang” strategy (of simultaneously tackling the problems of energy, health care, climate change and education) than Geithner’s inept approach to solving the nation’s economic problems.  In fact, it appears as though the growing “bailout fatigue” is already taking its toll.  As Ben Smith and Manu Raju reported for Politico, Indiana Senator Evan Bayh’s 15-member caucus of conservative and centrist Democrats seems convinced that it will be impossible to adequately address the nation’s financial ills while pursuing such an ambitious, multi-front agenda.  Worse yet, as the Politico article pointed out, if the administration is seen as mishandling the economic crisis by catering to the interests of Wall Street, the public could become unwilling to trust the new administration with such a far-reaching scheme, involving so many costly programs:

But many lawmakers made clear Tuesday their view that voters’ willingness to trust Obama on some subjects will be determined by their view of how well he handles the economic crisis.  That judgment, in turn, will be shaped by whether the White House effectively responds to public outrage over large bonuses to executives at bailed-out American International Group.

“Unless we can instill some trust back with the American people that these people who brought on this problem, who risked our 401K funds and hard-working people’s money, aren’t going to be able to profit from their folly, I think we are at risk of losing their trust,” said Sen. Amy Klobuchar (D-Minn.).

If Rush Limbaugh still wants to see President Obama fail in advancing the “big bang” agenda  .  .  .

He must have a lot of love for Tim Geithner.

The Pushback From Europe

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March 16, 2009

There was plenty of action and plenty of inaction in Europe last week, toward addressing the world financial crisis.  Our new Treasury Secretary, “Turbo” Tim Geithner, has been in Horsham, (West Sussex County) U.K., chatting it up with G-20 finance ministers in a run-up meeting to the big London Summit on April 2.  (Meanwhile . . . Who was conducting the “stress tests” on the nineteen “stressed” banks while Turbo Tim was across the pond, eating the awful, British food?  Worse yet:  Treasury still has a few positions to fill.)

We got a taste of the European response to the financial crisis during Sunday’s broadcast of NBC’s Meet The Press.  Near the end of the program, David Gregory asked the BBC’s Katty Kay about the “back story” to the G-20 finance ministers’ meeting in England:

MR. GREGORY:  You’re just back from Europe, Katty, and one of the big debates this week with the administration and Europe is that Europe does not want to do larger stimulus.  And we know that some of the problems in Europe and around the globe with this recession are quite acute.

MS. KAY:  You know, it’s really interesting traveling through Europe this week, and two things really struck me.  One is that there is less public concern about the nature of this crisis, and part of that is that Europeans have a broader social safety net.  I was speaking to a journalist in Sweden who said to me, “You know, if I lose my job, I lose some of my income.  But I still have very good health care and my children have very good state education.”  So people aren’t as panicked by this recession as they are here.  That means that there is less political pressure on European leaders to spend their way out of this and to act some kind of stimulus package, a global stimulus package, what the administration’s been calling for.  There is also a feeling in Europe that they don’t want to have to submit to an American made solution to what is seen by many, by many Europeans as an American made problem.  There is a real resistance here …

Europe’s portrayal of the world financial crisis as “an American problem” became painfully apparent during the recent G-20 finance ministers’ meeting.  As Damien Paletta and Stephen Fidler reported for The Wall Street Journal, the G-20 members exploited the opportunity to pressure Secretary Geithner on solving the problems in America’s banking sector before asking the G-20 to make any efforts toward increased economic stimulus spending.  The G-20 members are well-aware of the Obama administration’s unwillingness to place insolvent banks under government receivership, particularly since this is widely perceived in the United States as being too “un-American”, or worse yet  —  European.  As The Wall Street Journal article pointed out:

The turnaround suggests the limits of U.S. power in the world emerging out of the rubble of the financial crisis.  Many countries, including U.S. allies, are increasingly putting pressure on America to clean up a mess they believe it created.

Mr. Geithner’s actions during the next two weeks will be scrutinized by both Wall Street and world financial markets, which have remained unconvinced that the Obama administration can pull the world out of the downturn.

*    *    *

Participants said they were pleasantly surprised by the meeting’s unity of purpose, given comments beforehand from the Germans and the French rebuffing U.S. calls to make further commitments to fiscal expansion.  But it was also clear U.S. officials had a long way to go before they could satisfy concerns about the banking sector, which emerged as a surprising point of contention during the negotiations.

“I and some others were expecting much quicker movement on the part of the administration” related to the treatment of banks, said one central banker.

From the Obama administration’s perspective, there can only be one culprit responsible for this attitude about our government’s failure to address the unresolved problem of “troubled assets” (i.e. mortgage-backed securities and the multitude of  ill-begotten “derivatives”) responsible for the questionable health of so many American banks.  This culprit is Nobel Prize-winning Economist, Paul Krugman.  Professor Krugman has written again and again about the urgent need for the Obama administration to face the ugly reality that the “zombie banks” must be placed under government receivership (which is not really “nationalization”).

Fortunately, Professor Krugman stepped up and pointed out (in The New York Times) that if the EU really believes that it doesn’t have any skin in this game, it is in for an unpleasant surprise:

The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.

Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.

*    *    *

Why is Europe falling short? Poor leadership is part of the story.  European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent.

*    *    *

You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank.  But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad.  The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.

Europe, in other words, is turning out to be structurally weak in a time of crisis.

What transpired in this trans-continental dialogue was a lot like a volleyball game between politicians and commentators from the European Union against politicians and commentators from the United States.  After the EU team “spiked” the ball over the net —  it hit Tim Geithner on the head.  The ball then bounced away.  Just as the ball passed above Paul Krugman  —  “Boom Goes the Dynamite!”  Nice play, Paul!

The Big Bite

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March 12, 2009

As President Obama’s “big bang” agenda gets underway (wherein the government is simultaneously tackling the problems of the economy, health care, education and energy) criticism of this strategy is beginning to mount.  Commentators from the conservative end of the spectrum are, not surprisingly, the most vocal in their admonitions that these other issues are detracting attention from the most pressing issue facing America and the world:  the economy.  As William Galston pointed out in The New Republic, Obama’s “big bang” strategy runs the risk of repeating Jimmy Carter’s failed attempt to push a far-reaching agenda at the beginning of his term:

It is time for President Obama to focus his considerable leadership and communication skills on the financial crisis–to speak candidly with the people about the magnitude of pthe roblem, to embrace a solution commensurate with the problem, and to do whatever it takes to persuade Congress and the people to accept it.  If he does not, he could end up where another highly intelligent, self-disciplined, and upright president did three decades ago.

Conservative pundit, Tony Blankley, expressed similar dismay that not enough thought and effort have been dedicated to this urgent problem.  He added that this sentiment is not limited to those on the “far right”:

Obama not only is failing to focus more or less exclusively on protecting the financial system and the economy that depend on it but also is letting his ideological ardor drive him to expend both his own and his administration’s attention, along with the vast new tax dollars, on those programs rather than on the financial and economic crises.

Thus — and here is his political danger — if the financial system fails (and much of the economy along with it), it will be a fair, true and politically lethal charge against Obama that he didn’t do all he could as soon as he could to protect us from the catastrophe.  It was this decision that shocked even some of his moderate supporters, such as David Gergen, David Brooks and others, who are muttering in private.

And this misjudgment is only compounded by the slow and inept start of Treasury Secretary Timothy Geithner, the man who has the line responsibility to fix it and who only this past weekend got around to nominating some of his vital sub-Cabinet officials.  The failure of both Obama and Geithner, in the five months since the election, to come up with a plan to deal with the toxic assets and insolvency of major financial institutions may well look even more irresponsible than it already does if the derivatives crisis in fact hits the world.

Most of the anxiety over the Obama administration’s economic plan (or lack thereof) concerns its lack of disclosed details and the administration’s apparent decision to ignore the warnings of prominent economists about the urgency of taking the only logical action:  put the “zombie” banks through receivership to purge them of their “toxic assets” (most notably mortgage-backed securities).  The scant information disclosed about Treasury Secretary, “Turbo” Tim Geithner’s Financial Stability Plan is that it involves “stress testing” the banks to determine their true financial condition and creating some sort of investment fund by which private investors would be enticed to purchase the toxic assets with taxpayer money being used to guarantee the value of those assets.

Turbo Tim has repeatedly stated that he is opposed to “nationalization” of the functionally insolvent banks.  This position is in direct opposition to the warnings of two Nobel laureates and countless other Economics professors, including Dr. Nouriel Roubini, who predicted the economic crisis back on September 7, 2006.  As Steve Coll discussed on The New Yorker‘s Think Tank blog:

To compound all this, Geithner, Bernanke, and the President seem to have organized themselves as a determined minority in resistance to the gathering view among mainstream economists, even Alan Greenspan, that the best solution to the bank problem, at this point, is, in fact, temporary receivership — on the model of the Resolution Trust Corporation that cleaned up the savings-and-loans industry in the early nineteen-nineties, or the more routine receivership processes of the Federal Deposit Insurance Corporation.  Is this resistance by Geithner, Bernanke, and the President genuine and fully determined, or is it part of the political and confidence equation above, and therefore susceptible to change?  In the President’s case, it’s hard to be sure.  In Geithner’s case, he seems to be saying what he means. Where is Larry Summers, the top White House economic adviser, on this critical question?  Also hard to tell.  Perhaps, like Alan Greenspan, he is privately leaning toward receivership; if so, his position would be complicated by the fact that his younger, former protege, Geithner, who now holds a more visible position than his own, thinks otherwise.  Anyway, the facts about the health of the banks are not yet officially in hand — that is the purpose of the “stress tests” that are now being administered, to analyze which of the country’s largest nineteen banks are in the strongest positions, and which are in the weakest.  Policy options are still being developed. The likelihood of various economic forecasts is still being debated.  And so we endure more Kremlin-like opacity.

Is Turbo Tim simply “playing it close to the chest” by holding off on announcing any plans to put zombie banks into receivership, so as to prevent a “run” on more healthy institutions and the destruction of what is left of their stock value?  Although I would like to believe that, those more knowledgeable than myself are quite skeptical.  Columbia University Professor Joseph E. Stiglitz (2001 recipient of the Nobel Prize in Economics) pointed out in the March 29 issue of The Nation, that placing the insolvent banks into receivership must be done immediately.  The process of endless bailouts for these banks is a waste of money that appears to be solely for the benefit of the banks’ shareholders:

It has been obvious for some time that a government takeover of our banking system–perhaps along the lines of what Norway and Sweden did in the ’90s–is the only solution.  It should be done, and done quickly, before even more bailout money is wasted.
*    *    *
The politicians responsible for the bailout keep saying, “We had no choice. We had a gun pointed at our heads.  Without the bailout, things would have been even worse.”  This may or may not be true, but in any case the argument misses a critical distinction between saving the banks and saving the bankers and shareholders.  We could have saved the banks but let the bankers and shareholders go.  The more we leave in the pockets of the shareholders and the bankers, the more that has to come out of the taxpayers’ pockets.
*    *    *
By these standards, the TARP bailout has so far been a dismal failure. Unbelievably expensive, it has failed to rekindle lending.  Former Treasury Secretary Henry Paulson gave the banks a big handout; what taxpayers got in return was worth less than two-thirds of what we gave the big banks–and the value of what we got has dropped precipitously since.

Since TARP facilitated the consolidation of banks, the problem of “too big to fail” has become worse, and therefore the excessive risk-taking that it engenders has grown worse.  The banks carried on paying out dividends and bonuses and didn’t even pretend to resume lending.

The most recent recipient of the Nobel Prize in Economics, Paul Krugman, has become increasingly vocal in his criticism of the Obama administration’s approach to this problem:

A real fix for the troubles of the banking system might help make up for the inadequate size of the stimulus plan, so it was good to hear that Mr. Obama spends at least an hour each day with his economic advisors, “talking through how we are approaching the financial markets.”  But he went on to dismiss calls for decisive action as coming from “blogs” (actually, they’re coming from many other places, including at least one president of a Federal Reserve bank), and suggested that critics want to “nationalize all the banks” (something nobody is proposing).

As I read it, this dismissal — together with the continuing failure to announce any broad plans for bank restructuring — means that the White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around.  And with the stimulus plan too small to deliver an economic recovery … well, you get the picture.

Is the administration’s approach to the financial crisis being handicapped by an over-extension of resources because of the overwhelming demands of the “big bang” strategy?  Whether or not that is the case, the administration’s current solution to the bank problem is drawing criticism from both the left and the right.  If President Obama stays with the course charted by “Turbo” Tim Geithner, odds are that our new President will be restricted to a single term in The White House.

Food For Thought

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March 9, 2009

Every so often, conservative columnist (and baseball fan) George Will hits one out of the park.  He did so again in Sunday’s Washington Post.  While other conservative columnists busied themselves by blaming Barack Obama for our current recession (after all, he’s been in office for 48 whole days!) Mr. Will found something more important to discuss.  In an article called “Where the Obesity Grows“, Mr. Will addressed America’s diet problem.  The undercurrent of Will’s article focused on the fact that our new Agriculture Secretary, Tom Vilsack, is the former Governor of Iowa (a state which obtains a large amount of revenue from corn production).  Nevertheless, it is doubtful that Vilsack will embark on some sort of “corn agenda”, especially since Iowa produces a number of other crops, including the increasingly-popular soybean.  Besides, Nebraska is widely accepted as America’s greatest corn-producing state.

Consider these points discussed in George Will’s article and be sure to remind yourself that these aren’t the rantings of some “lefty”:

A quarter of the 45,000 items in the average supermarket contain processed corn.  Fossil fuels are involved in planting, fertilizing, harvesting, transporting and processing the corn. America’s food industry uses about as much petroleum as America’s automobiles do.

*    *    *

Corn, which covers 125,000 square miles of America — about the size of New Mexico — fattens 100 million beef cattle and at least that many bipeds.  Much of the river of cheap corn becomes an ocean of high-fructose corn syrup, which by 1984 was sweetening Coke and Pepsi.  Disposing of the corn also requires passing it through animals’ stomachs. Corn, together with pharmaceuticals and other chemicals  …   has made it profitable to fatten cattle on feedlots rather than grass, cutting by up to 75 percent the time from birth to slaughter.  Eating corn nourished by petroleum-based fertilizers, a beef cow consumes almost a barrel of oil in its lifetime.

Although Tom Vilsack received some attention in Will’s article, the star character was a man named Michael Pollan.  Pollan is a professor of Journalism at the University of California at Berkeley and a contributing writer to The New York Times Magazine.  Last year, David Laskin of The Seattle Times reviewed Pollan’s latest book, In Defense of Food: An Eater’s Manifesto:

Pollan’s bugbear this time is the so-called science of nutrition. Back in the good old days, people ate plants and animals raised (or foraged) close to (or at) home and prepared accordingly to age-old traditions.  But once nutritionists started isolating the chemical components of what we ate and putting them back to together in “new, improved” and highly processed ways, Americans began growing steadily more obese, more prone to diabetes, cancer and heart disease, and more stressed about our dietary options.  These days our food is cheap, convenient and increasingly plastered with health claims–but it’s making us and everyone else who eats it fat and sick.

More importantly, Mr. Laskin’s review of Michael Pollan’s new book made a point that was (surprisingly) not included in George Will’s article:

As the Senate’s recent rubber-stamping of yet another pork-filled farm bill demonstrates, America still lacks the political will to reform the agricultural practices at the root of our dietary woes.  But to Pollan, that’s no reason why enlightened eaters can’t rise up and start changing the Western diet one meal, one garden, one family farm at time.

On December 17, the more left-leaning Irregular Times website pointed out that the Organic Consumers Association had specifically asked that Vilsack not be appointed as Agriculture Secretary and that within one week, 10,000 people signed a petition opposing that appointment.  The Irregular Times piece gave us this appraisal of the Vilsack appointment:

Significant food reform is not what we can expect from a Secretary Vilsack.  As the Governor of Iowa, Tom Vilsack defended the interests of industrial agriculture, and did plenty of favors for giant agricultural corporations like Monsanto.  Iowa agriculture is no longer typified by small family farms, but by gigantic fields of genetically engineered corn and soybeans, interspersed with concentrated feeding lots in which cattle and pigs pumped full of antibiotics stand in their own filth all day long.

Agricultural pollution from Iowa is so bad that it significantly contributes to dead zones all the way down in the Gulf of Mexico.  It contributes to global warming too, with methane oozing out of manure lagoons near livestock factory farms adding significantly to the concentration of greenhouse gases in our planet’s atmosphere.

None of these problems got better when Tom Vilsack was Governor of Iowa.  Vilsack has seemed more interested in promoting big agribusiness as it is than in reforming it.

On that same day, Gabriel Winant of Salon.com asked Michael Pollan for his reaction to the selection of Vilsack.  Pollan replied that Vilsack’s record in Iowa “does not give one much reason to believe he’s going to bring a reformist agenda to the Department of Agriculture.”  Pollan went on to explain:

He was biotech governor of the year.  And he has very close relations to Monsanto.  As with every other pick, the focus is on the Nixon-in-China scenario, the hopeful fantasy, which is that these people will be able to drive reform in their bureaucracies — that’s the story of this Cabinet.  Whether that comes true or not, we’re just going to have to wait and see.

By making Michael Pollan the subject of his article, perhaps George Will’s hidden message was:  Don’t expect too much Change from this administration or you will be sadly disappointed.

Hillary Clinton Begins Making History

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March 5, 2009

While most American media outlets focus their attention on Rush Limbaugh’s vainglorious publicity extravaganza, Hillary Clinton is traveling around the world, letting everyone know that the foreign policy of the United States is being drastically changed by the new administration.

The new Secretary of State took quite a bit of heat for her failure to stage a fit of righteous indignation over China’s record of human rights abuses, during her visit there.  Nevertheless, America has been a critic of these transgressions for decades.  Given the current economic situation, our need to maintain a healthy business relationship with China and our country’s embarrassing human rights track record for the past eight years, her decision to leave that issue on the back burner for her initial visit, wasn’t such a bad idea.

Her trip to the Middle East was the first step toward rehabilitating the role of the United States as an effective peace broker for the Israeli – Palestinian conflict.  As Barak Ravid reported for Haaretz, prior to Clinton’s arrival in Israel, a list of demands or “red lines” was created and “approved by Prime Minister Ehud Olmert, Foreign Minister Tzipi Livni and Defense Minister Ehud Barak at a meeting with senior defense officials last week”.  These individuals are apparently so accustomed to browbeating Condoleezza Rice, they feel comfortable about dictating their own “marching orders” to be followed by Clinton as she approaches engaging Iran in formal, diplomatic relations.  The Haaretz article itemized these four mandates as follows:

1. Any dialogue must be both preceded by and accompanied by harsher sanctions against Iran, both within the framework of the UN Security Council and outside it.  Otherwise, the talks are liable to be perceived by both Iran and the international community as acceptance of Iran’s nuclear program.

2. Before the dialogue begins, the U.S. should formulate an action plan with Russia, China, France, Germany and Britain regarding what to do if the talks fail.  Specifically, there must be an agreement that the talks’ failure will prompt extremely harsh international sanctions on Iran.

3. A time limit must be set for the talks, to prevent Iran from merely buying time to complete its nuclear development.  The talks should also be defined as a “one-time opportunity” for Tehran.

4. Timing is critical, and the U.S. should consider whether it makes sense to begin the talks before Iran’s presidential election in June.

Steve Clemons of The Washington Note emphasized that “Israel is crossing the line” by attempting to dictate this agenda to our new Secretary of State and President:

Iran’s pretensions in the region are a problem in my view — but Iran, which fears regime change efforts by the US and other of its neighbors, is responding to an “ecosystem” that many around the world have complicity in building.

Israel should be rebuffed by Hillary Clinton.  She should listen to Israel’s views on the region of course — and consider proposals.  But this kind of instruction manual on what red lines can be tolerated or not is pretty outrageous — and borders on the type of irresponsibility and consequences of what a Taiwanese declaration of independence from China would mean.

In another Haaretz article by Barak Ravid, we see Clinton giving Israel some “pushback” that may or may not have been anticipated:

U.S. Secretary of State Hillary Clinton on Wednesday blasted Israel’s plans to demolish Palestinian homes in East Jerusalem as a violation of its international obligations and “unhelpful” to Middle East peace efforts.

“Clearly this kind of activity is unhelpful and not in keeping with the obligations entered into under the ‘road map’,” Clinton said, referring to the long-stalled peace plan.

On March 4, a day before meeting with Israeli leaders in Jerusalem, Clinton met with Palestinian Authority President Mahmoud Abbas and Palestinian Prime Minister Salam Fayyad in the West Bank city of Ramallah.  According to a CNN report, Clinton advised the Palestinian leaders that the United States is committed to the “two-state solution” (establishing a separate Palestinian state) despite the objections to that plan, voiced by Israel’s Prime Minister-designate, Benjamin Netanyahu.

“The United States through President Obama is committed to a comprehensive peace including a two-state solution,” Clinton said.  “I have said that publicly, I have said that privately.  There is no difference in any message.”

Meanwhile, Secretary Clinton made it a point to single out Iran’s “supreme leader”, Ayatollah Ali Khamenei, for interfering in Palestinian affairs by funding terrorism “whether it’s Hezbollah, Hamas or other proxies”.  As the Voice of America News pointed out:

Khamenei also called the Jewish state a “cancerous tumor” and accused U.S. President Barack Obama of following what he called the same mistaken path as George W. Bush in supporting Israel.  He made the comments during a conference in Tehran earlier Wednesday.

Clinton and Palestinian President Mahmoud Abbas dismissed the ayatollah’s remarks.  Mr. Abbas said Iran should look after its own affairs and stop trying to widen the divide among Palestinians.

Although many critics of the new administration complain that Obama has failed to deliver on his promise of “Change”, one important agent of Change on the Obama team is turning out to be none other than Hillary Clinton.  Who could have foreseen that development at this point, last year?

The Republicans Have No Choice

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March 2, 2009

Republican pundit Mike Murphy drove the message home on the March 1 telecast of NBC’s Meet The Press.  Demographics have changed since the Republican heyday of the Reagan era.  The Republican mission, message and strategy must adapt to our changing world.

On the other hand, last week brought us the CPAC (Conservative Political Action Convention) with its unique focus that has no relevance to current reality.  The Democratically-inclined pundits on MSNBC were delighted by the CPAC festivities. These commentators were left with visions of Sarah Palin as the 2012 Presidential candidate, dancing in their heads.

We’ve seen and heard plenty of opinions about the current leadership vacuum within the Republican Party.  Almost by default, he who makes the most noise, Rush Limbaugh, has found himself as the new, de facto leader of the Republicans.  Although he is not a candidate for anything, he enjoys more of a papal role with the diehard Republicans.  His message is amplified by people like Chris Matthews on MSNBC (who regularly discourses about how the Republicans always swing back to the “hard right”, when a moderate Presidential candidate fails).  Matthews then describes John McCain as the failed “moderate” and proceeds to (hopefully) set the stage for a “wing nut” Presidential candidate such as Sarah Palin or Bobby “The Exorcist” Jindal.  In either case, Obama gets re-elected — even if unemployment is at 42 percent and the Dow Jones is at 369.

The problem with Chris Matthews’ logic is that McCain pandered to the hard-right “base” in his quest for the White House and could not really be considered as a truly moderate candidate.  The Republicans could wise-up and move toward the center by 2012.  Besides:  They have no choice.

Here in Florida, we have a fait accompli.  Our next Senator, replacing the retiring Republican Senator Mel Martinez, will be our current Governor, Charlie Crist.  Governor Crist is a moderate Republican who enjoys a 73% approval rating.  Crist’s support of President Obama’s stimulus bill resulted in his appearance in Ft. Myers on February 10, to introduce the new President to an adoring crowd.  Governor Crist took lots of heat for that, from know-nothing conservative pundits.   Charlie Crist is laughing all the way to the Senate.  As the February 24 article by Aaron Blake on The Hill website pointed out:  the Democrats don’t have any strong challengers.  It’s a lost cause.  Here, “on the ground”, everyone knows it.

Meanwhile the “liberal” media are busy snarking at Crist, repeating the “gay” rumors that circulated prior to his recent marriage.  This hostility is probably due to the fact that Crist is on the record as opposing any change to Florida’s existing ban on gay adoption.  Any useful resemblance to former Republican Senator Larry Craig’s hypocrisy on gay issues would be a convenient “G-bomb” to throw into an election campaign.   The Huffington Post is big on these “gay” rumors, as is the current incarnation of Wonkette.  What those people don’t know is that the rumors never seemed to matter.  For example:  I’ve known and worked with many conservative Republicans who assumed those rumors were true.  Nevertheless, they still supported and voted for Charlie Crist.  It didn’t matter to them, nor did the issue ever matter to any significant number of people in this State.  Governor Crist had been married to a woman named Amanda Morrow in 1979.  That marriage lasted one year.  On December 12, 2008 he married Carole Rome.  Many of the rumor-mongers claim that this was a “staged” marriage, to advance Crist’s political career.  Nevertheless, you can trust my opinion, as a heterosexual bachelor of approximately the same age as Governor Crist …  If he is trying to “fake” a marriage at this point in his life … You will see him running out of the Governor’s mansion within a very short time, yelling:  “All right!  I’m GAY!  I CONFESS!!!  I’m GAAAAAAAAAYYY!!!”

I don’t believe we will see that happen.  Beyond that, I’m really disappointed that purportedly “gay-friendly” media would be taking these cheap shots at Charlie Crist.  He is going to be our next Senator and he will win because a majority of Democratic voters will support his candidacy.  Deal with it.

The next question is whether the Republican party will finally figure out, after the 2010 election, that there is a trend here.  Republicans are faced with the likelihood that future campaign strategies will nullify the efforts of extremists whose political ambitions have been based on the existence of the political primary system.  As Newsweek‘s Howard Fineman has often discussed, the political primary system, by its nature, results in extremists from both sides getting much better traction than they would have in an open election.  Politicians are on to this.  Watch for more centrists running as independent candidates — and witness the disintegration of the “wing nut” dominance within the Republican Party.