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Formula For Failure

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The Democratic Party is suffering from a case of terminal smugness. Democrats ignored the warning back in 2006, when the South Park television series ran the episode, “Smug Alert”.

I recently came across a dangerous manifestation of  “The Smug” in a recent article written by Ed Kilgore for The New Republic, in which Mr. Kilgore complacently explained “why Obama won’t face a primary challenge”.  We are supposed to forget about the “shellacking” taken by Democrats in the mid-term elections.  We are to ignore the fact that “mischief-making pundits have seized on a couple of polls to burnish their narrative”.  In an act exemplifying what my late father described as “tempting fate”, Mr. Kilgore proceeded to belittle the most serious criticisms of the President, while daring lightening to strike:

Above all, primary challenges to incumbent presidents require a galvanizing issue.  It’s very doubtful that the grab-bag of complaints floated by the Democratic electorate — Obama’s legislative strategy during the health care fight; his relative friendliness to Wall Street; gay rights; human rights; his refusal to prosecute Bush administration figures for war crimes or privacy violations — would be enough to spur a serious challenge.  And while Afghanistan is an increasing source of Democratic discontent, it’s hardly Vietnam, and Obama has promised to reduce troop levels sharply by 2012.

The timing of Kilgore’s supercilious disregard of a challenge to Obama’s presence atop the 2012 ticket could not have been worse.  Thanks to the efforts of the late Mark Pittman, a Freedom of Information Act lawsuit filed by Bloomberg News has forced the Federal Reserve to disclose the details of its bailouts to those business entities benefiting from the Fed’s eleven emergency lending programs initiated as a result of the 2008 financial crisis. The Fed’s massive document dump on December 1 (occurring right on the heels of the WikiLeaks publication of indiscretions by Obama’s Secretary of State — Hillary Clinton) has refocused criticism of what Kilgore described as the President’s “relative friendliness to Wall Street”.  Although Mr. Obama had not yet assumed office in the fall of 2008, after moving into the White House, the new President re-empowered the same cast of characters responsible for the financial crisis and the worst of the bailouts.  The architect of Maiden Lane III (which included a $13 billion gift to Goldman Sachs) “Turbo” Tim Geithner, was elevated from president of the New York Fed to Treasury Secretary.  Ben Bernanke was re-nominated by Obama (over strenuous bipartisan objection) to serve another term as Federal Reserve Chairman.

In the 2008 Democratic Primary elections, voters chose “change” rather than another Clinton administration.  Nevertheless, what the voters got was another Clinton administration.  After establishing an economic advisory team consisting of retreads from the Clinton White House, President Obama has persisted in approaching the 2010 economy as though it were the 1996 economy.  Obama’s creation of a bipartisan deficit commission has been widely criticized as an inept fallback to the obsolete Bill Clinton playbook.  Robert Reich, Labor Secretary for the original Clinton administration recently upbraided President Obama for this wrongheaded approach:

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn’t legitimize the Republican world view.  Obama doesn’t have that luxury.  The American public is still hurting and they want to know why.

The Pragmatic Capitalist criticized President Obama’s habitual reliance on members of the Clinton administration as futile attempts to bring about the same results obtained fifteen years ago.  Obama’s appointment of Erskine Bowles (Clinton’s former Chief of Staff) as co-chair of the deficit commission was denounced as a recent example.  Bowles’ platitudinous insistence that it’s time for an “adult conversation about the dangers of this debt” drew this blistering retort:

Yes.  America has a debt problem. We have a very serious household, municipality and state debt crisis that is in many ways similar to what is going on in Europe.   What we absolutely don’t have is a federal government debt problem.  After all, a nation with monopoly supply of currency in a floating exchange rate system never really has “debt” unless that debt is denominated in a foreign currency.  He says this conversation is the:

“exact same conversation every family, every single business, every single state and every single municipality has been having these last few years.”

There is only one problem with this remark.  The federal government is NOTHING like a household, state or municipality.   These entities are all revenue constrained.  The Federal government has no such constraint. We don’t need China to lend us money.  We don’t need to raise taxes to spend money.  When the US government wants to spend money it sends men and women into a room where they mark up accounts in a computer system.   They don’t call China first or check their tax revenues.   They just spend the money.

*   *   *
Mr. Bowles finished his press conference by saying that the American people get it:

“There is one thing I am absolutely sure of.  If nothing else, I know deep down the American people get it.   They know this is the moment of truth”

The American people most certainly don’t get it.  And how can you blame them?  When a supposed financial expert like Mr. Bowles can’t grasp these concepts how could we ever expect the average American to understand it?  It’s time for an adult conversation to begin before this misguided conversation regarding the future bankruptcy of America sends us towards our own “moment of truth” – a 1937 moment.

I hope it doesn’t take “a 1937 moment” for the Democrats to appreciate the very serious risk that the Palin family could be living in the White House in 2013.


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The Legacy Of Mark Pittman

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December 3, 2009

Just a week before the Senate banking committee was to begin confirmation hearings on President Obama’s nomination of Ben Bernanke to a second term as chairman of the Federal Reserve, one of the most important watchdogs of the Fed died at the age of 52.  Mark Pittman was the reporter at Bloomberg News whose work was responsible for the lawsuit, brought under the Freedom of Information Act, against the Federal Reserve, seeking disclosure of the identities of those financial firms benefiting from the Fed’s eleven emergency lending programs.  The suit, Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, (U.S. District Court, Southern District of New York) resulted in a ruling last August by Judge Loretta Preska, who rejected the Fed’s defense that disclosure would adversely affect the ability of those institutions to compete for business.  The suit also sought disclosure of the amounts loaned to those institutions as well as the assets put up as collateral under the Fed’s eleven lending programs, created in response to the financial crisis.  The Federal Reserve is pursuing an appeal of that decision.

Since September of 2008, we have been overexposed to the specious claims by politicians, regulators and other federal officials, that the financial crisis was “unforeseeable”.  The veracity of such statements is undercut by the fact that on June 29 of 2007, Mark Pittman provided us with this ominous warning from his desk at Bloomberg News:

The subprime meltdown is sending shock waves through the capital markets in part because mortgage bonds are the world’s biggest debt market, according to the Securities Industry Financial Markets Association.

Pittman’s groundbreaking work on the havoc created by the subprime mortgage-backed securities market resulted in his receiving the Gerald Loeb Award in 2008, which he shared with his fellow Bloomberg reporters, Bob Ivry and Kathleen Howley, for a five-part series entitled “Wall Street’s Faustian Bargain”.

On November 30, Bob Ivry wrote what many have described as the “definitive obituary” for Mark Pittman.  Ivry disclosed that although the actual cause of death was not yet known, Pittman had suffered from “heart-related illnesses”.  In addition to providing us with his colleague’s impressive biography, Ivry shared the reactions to Pittman’s death, expressed by several prominent individuals:

“He was one of the great financial journalists of our time,” said Joseph Stiglitz, a professor at Columbia University in New York and the winner of the 2001 Nobel Prize for economics. “His death is shocking.”

*   *   *

“Who sues the Fed?  One reporter on the planet,” said Emma Moody, a Wall Street Journal editor who worked with Pittman at Bloomberg News.  “The more complex the issue, the more he wanted to dig into it.  Years ago, he forced us to learn what a credit- default swap was.  He dragged us kicking and screaming.”

*   *   *

“He’s been on this crisis since before the crisis,” said Gretchen Morgenson, the Pulitzer Prize-winning financial columnist for the NewYork Times.  “He was the best at burrowing into the most complex securities Wall Street could come up with and explaining the implications of them to readers of all levels of sophistication.  His investigative work during the crisis set the standard for other reporters everywhere.  He was a giant.”

Congressman Brad Miller of North Carolina wrote an informative remembrance of Pittman for The Huffington Post.  This statement is one of the highlights from that piece:

The financial crisis is a result of a failure of every institution of our democracy.  Regulators failed.  Congress failed.  And the financial press failed abysmally.  Mark was an exception.  Mark’s irreverence allowed him to see the crisis coming when other financial reporters accepted uncritically what the industry said.  Mark’s irreverence was what made him a great reporter.

Mark Pittman was featured in the recent film American Casino, a documentary which analyzed the subprime mortgage catastrophe and the resulting financial crisis.  In September of 2008, when the crisis had most people in the world scratching their heads in confusion, Pittman provided a roadmap to the initial bailouts, shortly after they were distributed.

The interview with Mark Pittman, conducted by Ryan Chittum for the Columbia Journalism Review in February of 2009, gave Pittman the opportunity to share his experiences during the onset of the financial crisis.  The interview is especially informative as to what we can expect to find out about this mess in the future, as the investigations begin to unfold.  Passages like these reveal the magnitude of the loss resulting from Pittman’s death:

TA:  Does there need to be regulation just to simplify things to where it makes sense to more people?

MP:  If it was all transparent the complexity wouldn’t matter.  If the CDO market had had publicly available prospectuses with the contents of the CDO disclosed, we wouldn’t have this issue, because Bloomberg probably would have made fun of anybody who bought anything like this.  But there was this enormous shadow banking system going on.  We did a series about that, too.  A lot of times people don’t see what we do.

*   *   *

The thing that people don’t realize is that the Fed is now the “bad bank.”  That’s just something that people don’t understand.  They’ve taken collateral, and they refuse to tell us how they valued it  …

We have numerous banks — dozens, maybe hundreds that are insolvent.  And they become more insolvent every day because more people quit paying their mortgage loans, and more guys move out of the shopping center, and more people quit paying their credit cards.  But nobody wants to have the adult conversation.  We need to be honest about what the problem is here, how big it is, and how we’re going forward to clean it up, and who’s going to pay for it.

*   *   *

Hopefully, we will be able to inform the people enough to know how badly we’re getting screwed (laughs).  We need to know how to prevent it from happening again, and we need to know who did it.  There’s renewed energy on this front because we’ve staffed up the people who cover banks, the securities firms.  We have a lot more people going at real estate and a bunch of different areas that this involves.  That was a conscious move from meetings we started having in 2007.  We hired people and we moved people from one area to another area.

Pittman’s final statement during the interview underscores the fact that one of the greatest fighters for an informed public has been lost:

This is a big deal and it’s going to be going on — I swear to God I’m going to retire on this story, because it’s just going to keep happening.

Tragically, Mark Pittman was forced to “retire” on terms that were not satisfactory to any of us.  We can only hope that others will be inspired by his work and follow his lead.



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