It’s already time to announce the winner of TheCenterLane.com’s fifth annual Jackass of the Year Award. This was another one of those years when we had a last-minute contestant, who tried to his best to snatch the award away from those who had been working all year for the honor.
In the aftermath of the tragic mass-murder of 26 young children at the Sandy Hook Elementary School, the National Rifle Association’s vice-president, Wayne LaPierre, held his infamous press conference on December 21, wherein he blamed everything except guns for the killings. LaPierre blamed television violence, video games, hurricanes, “other natural or man-made disaster(s)”, terrorist attacks, and numerous other scapegoats. Did he blame porn? I can’t remember. After the press conference, even Rupert Murcoch’s New York Post saw fit to trash the guy with its headline: “Gun Nut: NRA Loon In Bizarre Rant Over Newtown”. The New York Daily News ran a headline describing LaPierre as a “vile NRA nut”, and the “Craziest Man on Earth”. Although I lack the professional credentials to render a diagnosis on the sanity of any individual, I do know a jackass when I see one. Wayne LaPierre is such a severe jackass that he deserves serious consideration as our 2012 Jackass of the Year.
Every year I have to resist the temptation to nominate Stuart Varney of Fox News. Varney is the senior business commentator for the Fox News Network. It seems as though Jon Stewart runs at least one video clip per week of Varney making a fool of himself. Varney is an unabashed hater of solar power and most other sources of “green energy”. He frequently refers to advocates of green energy as “greenies”, as though such an approach were something shameful. Nevertheless, Varney was able to dodge the award this year with his recent interview with Tommy Chong. The interview wasn’t that great, but it was good enough to warrant sparing Varney the indignity of this award.
Unfortunately, there is no single individual whom we can blame for the December 21 hysteria. The Vancouver Sun ran an interesting article about a local author named Brad Carrigan, who did his part to promote a good bit of the December 21 foolishness through a website where he sold books, videos, his own seminars and sessions at his “spiritual retreat centre in the mountains”. Unfortunately, Carrigan did not become prominent enough to earn our Jackass of the Year Award.
In an election year, the candidates are usually too easy to single out for this award. Nevertheless, the 2012 Presidential Campaign brought us this year’s Jackass of the Year Award winner: Donald Trump. His idiotic “birther-ism” served no other purpose than to motivate 400,000 people to sign a petition, requesting Macy’s to abandon its relationship with Trump. A good place to find a handy list of reasons why Trump deserves this award can be found at the New York Daily News website. There you will find a link to Penn Jillette’s book excerpt at Salon about Trump and what it was like to appear on Celebrity Apprentice. According to Jillette, Trump really cares about the things insignificant bloggers have to say about him. As one such insignificant blogger, all I can say is: Congratulations, Jackass!
Matt Taibbi has done it again. His latest article in Rolling Stone focused on the case of United States of America v. Carollo, Goldberg and Grimm, in which the Obama Justice Department actually prosecuted some financial crimes. The three defendants worked for GE Capital (the finance arm of General Electric) and were involved in a bid-rigging conspiracy wherein the prices paid by banks to bond issuers were reduced (to the detriment of the local governments who issued those bonds).
The broker at the center of this case was a firm known as CDR. CDR would be hired by a state or local government which was planning a bond issue. Banks would then submit bids which are interest rates paid to the issuer for holding the money until payments became due to the various contractors involved in the project which was the subject of the particular bond. The brokers would tip off a favored bank about the amounts of competing bids in return for a kickback based on the savings made by avoiding an unnecessarily high bid. In the Carollo case, the GE Capital employees were supposed to be competing with other banks who would submit bids to CDR. CDR would then inform the bidders on how to coordinate their bids so that the bid prices could be kept low and the various banks could agree among themselves as to which entity would receive a particular bond issue. Four of the banks which “competed” against GE Capital in the bidding were UBS, Bank of America, JPMorgan Chase and Wells Fargo. Those four banks paid a total of $673 million in restitution after agreeing to cooperate in the government’s case.
The brokers would also pay-off politicians who selected their firm to handle a bond issue. Matt Taibbi gave one example of how former New Mexico Governor Bill Richardson received $100,000 in campaign contributions from CDR. In return, CDR received $1.5 million in public money for services which were actually performed by another broker – at an additional cost.
Needless to say, the mainstream news media had no interest in covering this case. Matt Taibbi quoted a remark made to the jury at the outset of the case by the trial judge, Harold Baer: “It is unlikely, I think, that this will generate a lot of media publicity”. Although the judge’s remark was intended to imply that the subject matter of the case was too technical and lacking in the “sex appeal” of the usual evening news subject, it also underscored the aversion of mainstream news outlets to expose the wrongdoing of their best sponsors: the big banks.
Beyond that, this case exploded a myth – often used by the Justice Department as an excuse for not prosecuting financial crimes. As Taibbi explained at the close of the piece:
There are some who think that the government is limited in how many corruption cases it can bring against Wall Street, because juries can’t understand the complexity of the financial schemes involved. But in USA v. Carollo, that turned out not to be true. “This verdict is proof of that,” says Hausfeld, the antitrust attorney. “Juries can and do understand this material.”
One important lesson to be learned from the Carollo case is a simple fact that the mainstream news media would prefer to ignore: This is but one tiny example of the manner in which business is conducted by the big banks. As Matt Taibbi explained:
The men and women who run these corrupt banks and brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartelstyle scheming, are all legitimate market processes that lead to legitimate price discovery. In this lunatic worldview, the bidrigging scheme was a system that created fair returns for everyone.
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That, ultimately, is what this case was about. Capitalism is a system for determining objective value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above
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Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging. Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again. Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.
By now we are all familiar with the “revolving door” principle, wherein prosecutors eventually find themselves working for the law firms which represent the same financial institutions which those prosecutors should have dragged into court. At the Securities and Exchange Commission, the same system is in place. Worst of all is the fact that our politicians – who are responsible for enacting laws to protect the public from such criminal enterprises as what was exposed in the Carollo case – are in the business of lining their pockets with “campaign contributions” from those entities. You may have seen Jon Stewart’s coverage of Jamie Dimon’s testimony before the Senate Banking Committee. How dumb do the voters have to be to reelect those fawning sycophants?
Yet it happens . . . over and over again. From the Great Depression to the Savings and Loan scandal to the financial crisis and now this bid-rigging scheme. The culprits never do the “perp walk”. Worse yet, they continue on with “business as usual” partly because the voting public is too brain-dead to care and partly because the mainstream news media avoid these stories. Our political system is incapable of confronting this level of corruption because the politicians from both parties are bought and paid for by the banking cabal. As Paul Farrell of MarketWatch explained:
Seriously, folks, the elections are relevant. Totally. Oh, both sides pretend it matters. But it no longer matters who’s president. Or who’s in Congress. Money runs America. And when it comes to the public interest, money is not just greedy, but myopic, narcissistic and deaf. Money from Wall Street bankers, Corporate CEOs, the Super Rich and their army of 261,000 highly paid mercenary lobbyists. They hedge, place bets on both sides. Democracy is dead.
Why would anyone expect America to solve any of its most pressing problems when the officials responsible for addressing those issues have been compromised by the villains who caused those situations?
Support for President Obama’s re-election bid is in disarray. His sinking poll numbers have left many Democrats hoping for a miracle (i.e. some degree of economic recovery before November of 2012). A significant component of the party’s progressive bloc is looking for a challenger to step forward – as can be seen at the StopHoping.org website. One of the bloggers at Corrente – Hugh – recently had a good laugh at those who were anticipating a possible Primary challenge to Obama from former Wisconsin Senator Russ Feingold. Here is some of what Hugh had to say:
The point is that Feingold could have been, and should have been, if he were legit, a focus for progressive organizing. But he wasn’t. . . . Feingold could have been the voice of opposition to Bush and his policies, but the silence from the Wisconsin Senator’s office was deafening. He could have played the same role opposing Obama’s right wing corporatist agenda. He did not. Indeed he lost his Senate seat largely because of his failure to distance himself from Obama.
There are other reasons to dislike Feingold and question his progressive credentials. He voted for John Roberts as Chief Justice of the Supreme Court. He voted for Obamacare. And he is a deficit hawk.
Many left-leaning commentators have been offering suggestions to the President as to what actions he should be taking – as well as what message he should be delivering. Experience has demonstrated that Obama never pays attention to well-intentioned, sensible advice. How many times has Robert Reich written a roadmap for the President to use toward saving the economy as well as Obama’s own Presidency – only to be ignored? As the campaign drags on, try to keep count of how many commentaries are written under the theme: “What Obama Needs to Say and Do Right Now”. Rest assured that he won’t say or do any of it.
Meanwhile, Republican voters are currently flocking to the standard-bearer du jour, Texas Governor Rick Perry. Alexander Cockburn of CounterPunch wrote a great essay about Perry’s unmatched political instincts and the challenges ahead for both parties in the upcoming Presidential race:
The obvious question is whether Perry, having won the right, can clamber back along the kook branch towards something vaguely resembling the solid timber of sanity, to capture the necessary independents and disillusioned folk who bet on Obama in 2008. Hard to say. Perry is pretty far out on the limb. Reagan, with the strenuous help of the press, managed the crawl back in 1980, amid widespread disappointment and disgust with Jimmy Carter. Disappointment and disgust with Barack Obama? The president has slithered down in the most recent polls, and now is just above the 50 per cent disapproval rating. There are still around 30 million Americans without work, or enough work. There’s the endlessly cited observation that no president presiding over more than a 7 per cent jobless rate can hope for a second term.
The progressive sector is already rallying the Obama vote by pounding out the unsurprising message that Perry is a shil and errand boy for corporate America, Amazing! Imagine that a conservative Texas Republican would end up in that corner, arm in arm with Barack Obama, messenger of hope and change, also shil and errand boy for corporate America, starting with the nuclear industry, the arms sector, the ag/pesticide complex and moving on through Wall Street and the Fed, and equipped with truly noxious beliefs about fiscal discipline, the merits of compromise. He’s a far more dangerous man to have in the Oval Office than Perry. We need a polarizer to awaken the left from its unending, unbreakable infatuation with our current president, despite all the horrors he has perpetrated and presided over, most significantly the impending onslaught on Social Security and Medicare.
Any Republican who wants to maintain a viable candidacy will be forced to start taking some hard swings at Rick Perry. Jon Huntsman has already started to do so. Michele Bachmann might not, if she wants a shot at becoming Perry’s running mate. It won’t matter what Ron Paul says … because the mainstream media are pretending as though he doesn’t exist. If you haven’t seen it yet, Jon Stewart ran a superb piece, exhibiting how all of the major news outlets – including Fox – were apparently reading from the same script after Congressman Paul came within 100 votes of beating Michele Bachmann in the Iowa Straw Poll. Watching those reports could have led one to believe that Ron Paul had dropped out of the race. On August 17, Tara Sartor of the Pew Research Center’s Project for Excellence in Journalism provided this analysis of how the television news organizations squelched Ron Paul’s near-victory in Iowa:
In a further attempt to gauge the post-straw poll attention to Paul’s campaign, PEJ also used the Snapstream server’s closed captioning capability to assess the candidates’ television coverage in the first few days after that balloting.
The sample included the three network Sunday morning panel shows on August 14, the morning and evening network news programs on August 15 and four hours of prime-time cable and one hour of daytime from each of the three major cable news networks on August 15.
According to that analysis, Paul was mentioned just 29 times. By comparison, Perry was mentioned 371 times, Bachmann was mentioned 274 times, and Romney was mentioned 183 times.
I hope that the anti-Paul conspiracy helps to energize those voters who had been ambivalent about supporting the “other Texan” in the race.
At some point, the progressive Democrats are going to be faced with the ugly reality that they don’t have a candidate in the 2012 Presidential campaign. As has been the case with Ron Paul and his supporters – the Left will be left out.
Treasury Secretary Tim Geithner’s “charm offensive”, began one year ago. At that time, a number of financial bloggers were invited to the Treasury Department for an “open discussion” forum led by individual senior Treasury officials (including Turbo Tim himself). Most of the invitees were not brainwashed to the desired extent. I reviewed a number of postings from those in attendance – most of whom demonstrated more than a little skepticism about the entire affair. Nevertheless, Secretary Geithner and his team held another conclave with financial bloggers on Monday, August 16, 2010. The second meeting worked more to Geithner’s advantage. The Treasury Secretary made a favorable impression on Alex Tabarrok, just as he had done last November with Tabarrok’s partner at Marginal Revolution, Tyler Cowen. Steve Waldman of Interfluidity provided a candid description of his own reaction to the August 16 event. Waldman’s commentary exposed how the desired effect was achieved:
First, let me confess right from the start, I had a great time. I pose as an outsider and a crank. But when summoned to the court, this jester puts on his bells. I am very, very angry at Treasury, and the administration it serves. But put me at a table with smart, articulate people who are willing to argue but who are otherwise pleasant towards me, and I will like them.
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I like these people, and that renders me untrustworthy. Abstractly, I think some of them should be replaced and perhaps disgraced. But having chatted so cordially, I’m far less likely to take up pitchforks against them. Drawn to the Secretary’s conference room by curiosity, vanity, ambition, and conceit, I’ve been neutered a bit.
More recently, a good deal of attention has focused on a November 4 article from Bloomberg News, revealing that back on April 2, Turbo Tim paid a call on Jon Stewart. The disclosure by Ian Katz raised quite a few eyebrows:
Geithner and Stewart, host of Comedy Central’s “The Daily Show,” held an off-the-record meeting at Stewart’s office in New York on April 2, according to Geithner’s appointments calendar, updated through August on Treasury’s website.
Since that time, we have heard nothing from Jon Stewart about his meeting with Geithner. I expect that Stewart will continue his silence about that topic, focusing our attention, instead, on the controversy concerning a book, which should have been titled, Pedophilia For Dummies, while referring to Amazon.com as “NAMBLAzon.com”. If he uses that joke – remember that you saw it here, first.
The November 13 New York Times article by Yale economics professor, Robert Shiller, raises the question of whether Professor Shiller is the latest victim of the Geithner Kool-Aid. Shiller’s essay reeks of the Obama administration’s strategy of approaching the nation’s most pressing crises as public relations concerns — a panacea for avoiding the ugly task of actually solving those problems. The title of Shiller’s article, “Bailouts, Reframed as ‘Orderly Resolutions’” says it all: spin means everything. The following statement is a perfect example:
Our principal hope for dealing with the next big crisis is the Dodd-Frank Act, signed by President Obama in July. It calls for bailouts of a sort, but has reframed them so they may look better to taxpayers. Now they will be called “orderly resolutions.”
Huh? It’s widely acknowledged that Dodd Frank is too weak. In the Treasury meeting with bloggers last August, Geithner didn’t argue the point much, but instead contended that big enough capital levels, which were on the way with Basel III, were the real remedy.
It’s also widely recognized that the special resolution process in Dodd Frank is a non-starter as far as the institutions that pose the greatest systemic risk are concerned, the really big international dealer banks. A wind-up of these firms is subject to the bankruptcy proceedings of all the foreign jurisdictions in which it operates; the US can’t wave a magic wand in Dodd Frank and make this elephant in the room vanish.
In addition, no one has found a way to resolve a major trading firm without creating major disruption.
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Shiller’s insistence that the public is so dumb as to confuse a windown with a bailout reveals his lack of connection with popular perceptions. The reason the public is so angry with the bailouts is no one, particularly among the top brass, lost his job, and worse, the firms were singularly ungrateful, thumbing their noses at taxpayers and paying themselves record bonuses in 2009.
Bill Maher’s Real Time program of November 12 is just the most recent example of how Bill Maher and most of his guests from the entire season are Geithner Kool-Aid drinkers. The show marked the ten-trillionth time Maher claimed that TARP was a “success” because the banks have “paid back” those government bailouts. Bill Maher needs to invite Yves Smith on his program so that she can debunk this myth, as she did in her June 23 piece. “Geithner Yet Again Misrepresents TARP ‘Performance’”. Ms. Smith is not the only commentator who repeatedly calls out the administration on this whopper. Marshall Auerback and almost everyone else at the Roosevelt Institute have said the same thing. Edward Harrison of Credit Writedowns wrote this piece for the Seeking Alpha website, in support of Aureback’s TARP critique. Will Wilkinson’s October 8 essay in The Economist’s Democracy in America blog presented the negative responses from a number of authorities in response to the claim that TARP was a great success. With all that has been written to dispute the glorification of TARP, one would think that the “TARP was a success” meme would fade away. Nevertheless, the Geithner Kool-Aid is a potent brew and its effects can, in some cases, be permanent.
As we approach Election Day, many commentators are confirming an observation used as the theme of my posting from September 6:
The steps taken by the Obama administration during its first few months have released massive, long-lasting fallout, destroying the re-election hopes of Democrats in the Senate and House.
Too many people whom the President thought he could count among his supporters have become his biggest critics. One might expect that after eight years of outrage over the antics of the Bush administration, Maureen Dowd would be thrilled about the work done by the Obama White House. Nevertheless, her most recent discussion of Obama’s performance was less than flattering:
In 2008, the message was him. The promise was him. And that’s why 2010 is a referendum on him.
With his coalition and governing majority shattering around him, President Obama will have to summon political skills — starting Wednesday — that he has not yet shown he has.
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With the exception of Obama, most Americans seemed to agree that the “right” thing to do until the economy recovered was to focus on jobs instead of getting the Congress mired for months in making over health insurance and energy policy. And the “right” thing to do was to come down harder on the big banks for spending on bonuses instead of lending to small businesses that don’t get bailouts.
Contrary to the President’s expectations, the voting public has not overlooked the administration’s refusal to heed the advice of Bill Black, Robert Reich, and the roster of economists that included Adam Posen and Matthew Richardson advocating the use of the so-called “Swedish solution” of putting the zombie banks through temporary receivership. To the dismay of everyone in the world (outside of Obama’s inner circle) the new President chose to follow the advice of Larry Summers and put the welfare (as in corporate welfare) of those insolvent, too-big-to-fail banks ahead of the nation’s economic health. When President Obama appeared on The Daily Show with Jon Stewarton October 27, Stewart began the discussion by asking Obama to explain the rationale underlying his appointment of Larry Summers (a retread from the Clinton administration) as director of the National Economic Council. President Obama fell back on his two-year-old claim that to follow any course other than that recommended by Summers, would have resulted in the failure of at least 100 banks. Obama’s claim that the cost of the financial crisis was less than 1% of GDP did not slip past Yves Smith of the Naked Capitalism website. Ms. Smith (who voted for Obama in 2008) didn’t pull any punches in refuting that claim:
I’m so offended by the latest Obama canard, that the financial crisis of 2007-2008 cost less than 1% of GDP, that I barely know where to begin. Not only does this Administration lie on a routine basis, it doesn’t even bother to tell credible lies. And this one came directly from the top, not via minions. It’s not that this misrepresentation is earth-shaking, but that it epitomizes why the Obama Administration is well on its way to being an abject failure.
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The reason Obama makes such baldfacedly phony statements is twofold: first, his pattern of seeing PR as the preferred solution to all problems, and second, his resulting slavish devotion to smoke and mirrors over sound policy.
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But Team Obama is no doubt rationalizing this chicanery: if they can keep from recognizing losses until the recovery takes place, then the ultimate damage will be lower. But Japan’s post bubble record shows that doesn’t work. You simply don’t get a recovery with a diseased financial system. You need to purge the bad assets, only then will meaningful growth resume.
Financial risk management guru, Chris Whalen, recently expressed his anguish over the administration’s unwillingness to restructure the zombie banks:
The reluctance comes partly from what truths restructuring will reveal. As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private. Remember that the Dodd-Frank legislation was not so much about financial reform as protecting the housing GSEs.
Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years. And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile.
The idea that Obama sees “PR as the preferred solution to all problems” surfaced again in a great piece by Peter Baker of The New York Times, which included this observation:
Rather than entertaining the possibility that the program they have pursued is genuinely and even legitimately unpopular, the White House and its allies have concluded that their political troubles amount to mainly a message and image problem.
Baker’s article focused on the most recent gripe made by Obama at another one of his highbrow fundraisers. Remember the blowback from the President’s recent diatribe at a fundraiser hosted by the appropriately-named Rich Richman? Well, something similar happened again. The setting this time was a $15,200-per-ticket affair for doctors at the home of a wealthy hospital executive in Boston. While addressing this audience, the President explained that the reason why the voters have not embraced the Democrats during this election cycle is because the voters are having trouble thinking clearly, as they are “scared”. Not surprisingly, this re-ignited the controversy focused on Obama’s elitism.
The Tea Party spokespeople aren’t the only ones who are accusing President Obama of elitism. The Progressive-oriented TruthDig website, recently published an interesting essay by Chris Hedges, author of Death of the Liberal Class. Hedges points out that elitism is exactly the problem afflicting not only Obama, but the entire group, referred to as “the liberal class”. Consider his argument:
The liberal class, which once made piecemeal and incremental reform possible, functioned traditionally as a safety valve. During the Great Depression, with the collapse of capitalism, it made possible the New Deal. During the turmoil of the 1960s, it provided legitimate channels within the system to express the discontent of African-Americans and the anti-war movement. But the liberal class, in our age of neo-feudalism, is now powerless. It offers nothing but empty rhetoric. It refuses to concede that power has been wrested so efficiently from the hands of citizens by corporations that the Constitution and its guarantees of personal liberty are irrelevant. It does not act to mitigate the suffering of tens of millions of Americans who now make up a growing and desperate permanent underclass. And the disparity between the rhetoric of liberal values and the rapacious system of inverted totalitarianism the liberal class serves makes liberal elites, including Barack Obama, a legitimate source of public ridicule. The liberal class, whether in universities, the press or the Democratic Party, insists on clinging to its privileges and comforts even if this forces it to serve as an apologist for the expanding cruelty and exploitation carried out by the corporate state.
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As long as the liberal class had even limited influence, whether through the press or the legislative process, liberals were tolerated and even respected. But once the liberal class lost all influence it became a class of parasites. The liberal class, like the déclassé French aristocracy, has no real function within the power elite. And the rising right-wing populists, correctly, ask why liberals should be tolerated when their rhetoric bears no relation to reality and their presence has no influence on power.
As Maureen Dowd pointed out, Wednesday is going to be a big day. If President Obama thought he had his hands full going into this election . . . wait until the aftermath.
For some reason, a large number of people continue to rely on the advice of stock market prognosticators, long after those pundits have proven themselves unreliable, usually due to a string of erroneous predictions. The best example of this phenomenon is Jim Cramer of CNBC. On March 4, Jon Stewart featured a number of video clips wherein Cramer wasn’t just wrong — he was wildly wrong, often when due diligence on Cramer’s part would have resulted in a different forecast. Nevertheless, some individuals still follow Cramer’s investment advice.
This summer’s stock market rally made many of us feel foolish. John Carney of The Business Insider compiled a great presentation entitled “The Idiot-Maker Rally” which focused on 15 stock market gurus “who now look like fools” because they remained in denial about the rally, while those who ignored them made loads of money.
One guy who got it right was a gentleman named Jeremy Grantham. His asset management firm, GMO, is responsible for investing over $85 billion of its clients’ funds. On May 14, I discussed Mr. Grantham’s economic forecast from his Quarterly Letter, published at the end of this year’s first quarter. At that time, he predicted that in late 2009 or early 2010, there would be a stock market rally, bringing the Standard and Poor’s 500 index near the 1100 range. As you probably know, we saw that happen last week. Unfortunately, he was not particularly optimistic about what would follow:
A large rally here is far more likely to prove a last hurrah — a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.
Mr. Grantham’s Quarterly Letter for the third quarter of 2009 was recently published by his firm, GMO. This document is essential reading for anyone who is interested in the outlook for the stock market and our economy. Grantham is sticking with his prediction for “seven lean years” which he expects to commence at the conclusion of the current rally:
Price, however, does matter eventually, and what will stop this market (my blind guess is in the first few months of next year) is a combination of two factors. First, the disappointing economic and financial data that will begin to show the intractably long-term nature of some of our problems, particularly pressure on profit margins as the quick fix of short-term labor cuts fades away. Second, the slow gravitational pull of value as U.S. stocks reach +30-35% overpricing in the face of an extended difficult environment.
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So, back to timing. It is hard for me to see what will stop the charge to risk-taking this year. With the near universality of the feeling of being left behind in reinvesting, it is nerve-wracking for us prudent investors to contemplate the odds of the market rushing past my earlier prediction of 1100. It can certainly happen.
Conversely, I have some modest hopes for a collective sensible resistance to the current Fed plot to have us all borrow and speculate again. I would still guess (a well informed guess, I hope) that before next year is out, the market will drop painfully from current levels. “Painfully” is arbitrarily deemed by me to start at -15%. My guess, though, is that the U.S.market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1098 on October 19).
Scary as that may sound, Mr. Grantham does not believe that the S&P 500 will reach a new low, surpassing the Hadean level of 666 reached last March. On page 4 of the report, Grantham expressed his view that the current “fair value” of the S&P 500 “is now about 860”.
What I particularly enjoyed about the latest GMO Quarterly Letter was Grantham’s discussion of the factors that brought our economy to where it is today. In doing so, he targeted some of my favorite culprits: Alan Greenspan (who was pummeled on page 3), Larry Summers, Turbo Tim Geithner (who “sat in the very engine room of the USS Disaster and helped steer her onto the rocks”), Goldman Sachs and finally: Ben Bernanke — whose nomination to a second term as Federal Reserve chairman was treated with well-deserved outrage.
The report included a supplement (beginning at page 10) wherein Mr. Grantham discussed the imperative need to redesign our financial system:
A simpler, more manageable financial system is much more than a luxury. Without it we shall surely fail again.
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I have no idea why the current administration, which came in on a promise of change, for heaven’s sake, is so determined to protect the status quo of the financial system at the expense of already weary taxpayers who are promised only somewhat better lifeboats. It is obvious to most that there was a more or less complete failure of our private financial system and its public overseers. The regulatory leaders in particular were all far too captured and cozy in their dealings with reckless and greedy financial enterprises.
Grantham’s suggested changes include forcing banks to spin off their “proprietary trading” operations, wherein a bank trades investments on behalf of its own account, usually in breach of the fiduciary duties it owes its customers. He also addressed the need to break up those financial institutions considered “too big to fail”. (As an aside, the British government has now taken steps to break up its banks that pose a systemic risk to the entire financial structure.) Grantham’s final point concerned the need for public oversight, to prevent the “regulatory capture” that has helped maintain this intolerable status quo.
Jeremy Grantham is a guy who gets it right. Our leaders need to pay more serious attention to him. If they don’t — we should vote them out of office.
Last week’s news that Goldman Sachs reported $3.44 billion in earnings for the second quarter of 2009 provoked widespread outrage that was rather hard to avoid. Even Jon Stewart saw fit to provide his viewers with an informative audio-visual presentation concerning the role of Goldman Sachs in our society. Allan Sloan pointed out that in addition to the $10 billion Goldman received from the TARP program, (which it repaid) Goldman also received another $12.9 billion as a counterparty to AIG’s bad paper (which it hasn’t repaid). Beyond that, there was the matter of “the Federal Reserve Board moving with lightning speed last fall to allow Goldman to become a bank holding company”. Sloan lamented that despite this government largesse, Goldman is still fighting with the Treasury Department over how much it should pay taxpayers to buy back the stock purchase warrants it gave the government as part of the TARP deal. The Federal Reserve did more than put Goldman on the fast track for status as a bank holding company (which it denied to Lehman Brothers, resulting in that company’s bankruptcy). As Lisa Lerer reported for Politico, Senator Bernie Sanders questioned whether Goldman received even more assistance from the Federal Reserve. Because the Fed is not subject to transparency, we don’t know the answer to that question.
A commentator writing for the Seeking Alpha website under the pseudonym: Cynicus Economicus, expressed the opinion that people need to look more at the government and the Federal Reserve as being “at the root of the appearance of the bumper profits and bonuses at Goldman Sachs.” He went on to explain:
All of this, hidden in opacity, has led to a point at which insolvent banks are now able to make a ‘profit’. Exactly why has this massive bleeding of resources into insolvent banks been allowed to take place? Where exactly is the salvation of the real economy, the pot of gold at the end of the rainbow of the financial system? Like the pot of gold and the rainbow, if we just go a bit further…..we might just find the pot of gold.
In this terrible mess, the point that is forgotten is what a financial system is actually really for. It only exists to allocate accumulated capital and provision of insurances; the financial system should be a support to the real economy, by efficiently allocating capital. It is entirely unclear how pouring trillions of dollars into insolvent institutions, capital which will eventually be taken out of the ‘real’ economy, might facilitate this. The ‘real’ economy is now expensively supporting the financial system, rather than the financial system supporting the real economy.
The opacity of the Federal Reserve has become a focus of populist indignation since the financial crisis hit the meltdown stage last fall. As I discussed on May 25, Republican Congressman Ron Paul of Texas introduced the Federal Reserve Transparency Act (HR 1207) which would give the Government Accountability Office the authority to audit the Federal Reserve as well as its member components, and require a report to Congress by the end of 2010. Meanwhile, President Obama has suggested expanding the Fed’s powers to make it the nation’s “systemic risk regulator” overseeing banks such as Goldman Sachs, deemed “too big to fail”. The suggestion of expanding the Fed’s authority in this way has only added to the cry for more oversight. On July 17, Willem Buiter wrote a piece for the Financial Times entitled: “What to do with the Fed”. He began with this observation:
The desire for stronger Congressional oversight of the Fed is no longer confined to a few libertarian fruitcakes, conspiracy theorists and old lefties. It is a mainstream view that the Fed has failed to foresee and prevent the crisis, that it has managed it ineffectively since it started, and that it has allowed itself to be used as a quasi-fiscal instrument of the US Treasury, by-passing Congressional control.
Since the introduction of HR 1207, a public debate has ensued over this bill. This dispute was ratcheted up a notch when a number of economics professors signed a petition, urging Congress and the White House “to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability.” An interesting analysis of this controversy appears at LewRockwell.com, in an article by economist Robert Higgs. Here’s how Higgs concluded his argument:
All in all, the economists’ petition reflects the astonishing political naivite and historical myopia that now characterize the top echelon of the mainstream economics profession. Everybody now understands that economic central planning is doomed to fail; the problems of cost calculation and producer incentives intrinsic to such planning are common fodder even for economists in upscale institutions. Yet, somehow, these same economists seem incapable of understanding that the Fed, which is a central planning body working at the very heart of the economy — its monetary order — cannot produce money and set interest rates better than free-market institutions can do so. It is high time that they extended their education to understand that central planning does not work — indeed, cannot work — any better in the monetary order than it works in the economy as a whole.
It is also high time that the Fed be not only audited and required to reveal its inner machinations to the people who suffer under its misguided actions, but abolished root and branch before it inflicts further centrally planned disaster on the world’s people.
Close down the Federal Reserve? It’s not a new idea. Back on September 29, when the Emergency Economic Stabilization Act of 2008 was just a baby, Avery Goodman posted a piece at the Seeking Alpha website arguing for closure of the Fed. The article made a number of good points, although this was my favorite:
The Fed balance sheet shows that it injected a total of about $262 billion, probably into the stock market, over the last two weeks, pumping up prices on Wall Street. The practical effect will be to allow people in-the-know to sell their equities at inflated prices to people-who-believe-and-trust, but don’t know. Sending so much liquidity into the U.S.economy will stoke the fires of hyperinflation, regardless of what they do with interest rates. In a capitalist society, the stock market should not be subject to such manipulation, by the government or anyone else. It should rise and fall on its own merits. If it is meant to fall, let it do so, and fast. It is better to get the economic downturn over with, using shock therapy, than to continue to bleed the American people slowly to death through a billion tiny pinpricks.
So the battle over the Fed continues. In the mean time, as The Washington Post reports, Fed Chairman Ben Bernanke takes his show on the road, making four appearances over the next six days. Tuesday and Wednesday will bring his semiannual testimony on monetary policy before House and Senate committees. Perhaps he will be accompanied by Goldman Sachs CEO, Lloyd Bankfiend, who could show everyone the nice “green shoots” growing in his IRA at taxpayer expense.
It was the opportunity for a “game-changing move” in the 2008 Presidential campaign. Just as John McCain was dropping back in the polls, providing Barack Obama the chance to “close the deal” even more decisively than he did with Hillary Clinton, McCain missed the opportunity to turn the game around. Last week, he arrived in Washington (after the pseudo-suspension of his campaign) on a mission to save us all from the crisis declared by Treasury Secretary Henry Paulson. After McCain arrived, he found a number of both Republican and Democratic members of the House of Representatives opposed to the revised, 110-page, economic “bailout bill” (the Emergency Economic Stabilization Act of 2008). At that point in time, McCain had the opportunity to break with the unpopular Bush Administration and band together with the 133 Republican and 95 Democratic House members (who eventually voted against the bill) to form a “coalition of mavericks” (oxymoron, non-sequitur or both?) resisting this bailout of the big banks and other “fat cats” on Wall Street. He didn’t. He chose instead, to copy whatever Barack Obama was doing. Besides, his move dovetailed well with the pseudo-“bipartisan” duet he had been playing, throughout the entire campaign, with Joe “The Tool” Lieberman. Had McCain stood with those 133 young Republican members of the House and the 95 Democrats (many of whom consider themselves conservative, “Blue Dog” Democrats) he could have re-ignited his flatulent campaign. (Is it really safe to do that? — Let’s ask Johnny Knoxville.)
Howard Fineman provided an interesting retrospective of this phase in the evolution the economic “bailout bill” at the Newsweek website on September 30:
The Paulson Plan is not great. Some two hundred academic economists have ridiculed it, and so have the House Republicans, by a 2-1 margin. Public opinion (and not just the angry phone callers) is turning against the measure—to the extent that anybody understands it.
But the consensus is that Washington has to do something, and that the current version is far better than what the lawmakers started with.
McCain made a show of returning to Washington to try to jam the original measure through. He deserves credit for the instinct. An old Navy motto is: Don’t just stand there, DO something! That is McCain to the core, and so much the better for it.
But when he got to town, he realized something that no one had bothered to tell him, apparently: the grassroots of his own party (the grassroots that has never really trusted him) hated the Paulson Plan. They weren’t about to support it and risk their own necks. McCain worked the phones, but fell back in the ranks.
When the second revision of this bill (at over 400 pages) finally made it to the Senate floor for the vote on Wednesday, October 1, there were 9 Democrats, 15 Republicans and Independent Senator Bernie Sanders of Vermont, voting against it. McCain again missed the opportunity for a truly bipartisan resistance to this measure. Such an act would have demonstrated genuine leadership. He could have rejoined his old buddy, Wisconsin Senator Russ Feingold, as well as Florida Democrat Bill Nelson and rising Democratic star, Maria Cantwell from the State of Washington, all of whom voted against this measure. Such a move would have emboldened resistance to the “bailout bill” in the House of Representatives, where the term of office lasts only two years. (The short term results in greater accountability to American voters, who are believed to have notoriously short memory spans.)
Is this bill really necessary? On the October 1 edition of MSNBC’s Countdown with Keith Olbermann, Paul Krugman, Economics Professor at Princeton University, admitted that:
… it will be relatively ineffective, although rejecting it will cause a big run on the system. Then we will come back and do it right in January or February …
When Keith Olbermann asked Krugman about the likelihood that nothing consequential would happen if this bill did not pass, Krugman responded by saying that such possibilities have “shrunk in the past week”. Krugman went on to claim that “the credit crunch has started to hit Main Street”, using, as an example, the rumor that: “McDonald’s has started to cut credit to its franchisees.” McDonald’s has issued a press release stating that this was not the case. What is really happening is that the banks are acting like spoiled children, holding their breath until the government gives them what they want, using the threat of unavailable credit as a gun to the head of Congress.
Public opposition to this bailout was best summed up by Peggy Noonan, when she appeared on The Daily Show with Jon Stewart on October 1:
But we are in a real economic crisis and the American political establishment said we must do A, B and C to deal with it and the American people … said: “No. We don’t trust you to handle this. We don’t trust you to do the right thing.”
John McCain had the opportunity to stand with those people, as well as the 133 House Republicans and 15 Senate Republicans, to do “the right thing”. He decided to forego that opportunity. Barack Obama said, on the Senate floor Wednesday, that it was not worth risking the American economy and the world economy by challenging this bill. John McCain decided that it was not worth risking his Presidential campaign on such a challenge. That’s too bad for him. The gamble probably would have paid off.
Throughout John McCain’s Presidential campaign, he had been unable to enlist the support of the coveted Republican “base”. His choice of Sarah Palin as his running mate, appears to have been a big hit with those people. At the Republican Convention, she received an adoring response from the audience. Perhaps Jay Leno had it best when he said: “As an Alaskan, she must have felt right at home there. She could look out from the podium, over an endless sea of white.”
Sarah Palin has indeed won the hearts of the “hard right” Republican voters and politicians. At this point, the only obstacle to the acceptance of her as the candidate, seems to be: getting everyone familiar with her name (literally). Geriatric Jo Ann Davidson, Co-Chair of the Republican National Committee, referred to the Vice-Presidential candidate as “Sarah Pawlenty” before the Convention audience. This provided Jon Stewart with yet another “Moment of Zen”.
As reported by Juliet Eilperin and Robert Barnes in the September 3 Washington Post, Palin’s acceptance speech was written by Matt Scully:
An initial version of the address, which speechwriter Matthew Scully started crafting a week ago for an unnamed male vice presidential pick, included plenty of attacks aimed at Democratic nominee Barack Obama along with ample praise for McCain, aides said.
It is ironic to observe that Matt Scully (a former speechwriter for George W. Bush) is an outspoken defender of the rights of those animals considered prey by human hunters. The “Annie Oakley” image of Sarah Palin as a moose hunter, seems to make her the kind of person Scully wouldn’t @font-face { font-family: “Calisto MT”; }p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0in 0in 0.0001pt; font-size: 12pt; font-family: “Times New Roman”; }div.Section1 { page: Section1; }necessarily like. She’s lucky Scully wrote that speech before he knew she would be the one delivering it. Worse yet, Palin’s pleasant persona will likely result in the targeting of Scully for the factual misrepresentations contained in the speech (i.e. that Obama will raise taxes for all Americans). Rather than “shoot” the charismatic messenger, critics may choose to level their attacks at Scully himself, as the author of the speech. It would serve him right for not going along on the moose hunt!
It remains to be seen whether McCain’s secondary strategy in choosing Palin (to win the support of the disgruntled supporters of Hillary Clinton) will work. Susan Page and Martha Moore of USA Today have been following this subject and how it is playing out in the polls. Page and Moore reported:
In USA TODAY polls, McCain’s standing among women didn’t budge with the pick of Palin. He was backed by 42% of women in a poll taken before the convention, another on the day of her announcement and a third taken Saturday and Sunday.
Whether these numbers hold as the campaign progresses, will be another matter. In the mean time, the Democrats cannot afford to be pulling their punches as Palin establishes her own style of pugilism on the stump. Time will tell whether she can live up to the expectations and the enthusiasm of the Convention crowd, the Republican base and the McCain team itself. Her most likely problems (aside from the “abuse of power” scandal) will result from the video clips of her saying things inconsistent with the message du jour. There will be plenty of opportunities ahead for negative campaign ads, especially as Republican luminaries continue to get caught, on the record, disclosing their low regard for McCain’s selection of Palin. Over an open microphone during a commercial break on MSNBC, Peggy Noonan expressed dismay that the McCain camp “… went for this – excuse me – political bullshit about narratives.” Noonan later defined the term “narrative” as: “The story the campaign wishes to tell about itself and communicate to others.” Is that really it? Or, is the “narrative” in this case, Palin’s life story, which is supposed to endear her to us. Noonan is promoting that bullshit herself, so it’s hard to imagine her objecting to it. Peggy Noonan also complained about how Republican leaders believe that “whatever the base of the Republican Party thinks is what America thinks”. At this point, Sarah Palin is doing fine with the Republican base. Meanwhile, the rest of America will be reading about Palin’s track record on “earmarks”, the unfolding “abuse of power” saga, as well as whatever important information the McCain camp never read in the local Alaska newspapers. Whether we admit it or not, we will all be anxious to see if the National Enquirer can outdo its John Edwards exclusive with its juicy tale involving this new darling of “the base”.
Back in 1993, John Guare’s play, Six Degrees of Separation, made it to the big screen. Shortly into the story, Stockard Channing’s character, Ouisa Kittredge, explained the following to her daughter:
I read somewhere that everybody on this planet is separated by only six other people — six degrees of separation between us and everyone else on this planet — the President of the United States, a gondolier in Venice. … Just fill in the name. I am bound — you are bound — to everyone else on this planet by a trail of six people.
Not long afterward, three students at Albright College: Craig Fass, Brian Turtle, and Mike Ginelli, were watching the movie, Footloose, on television. The next movie to come on the television that night after Footloose was Quicksilver. This led the trio to recall all the movies Kevin Bacon had been in, as well as all the people with whom Bacon had worked. They developed their own party game called “The Six Degrees of Kevin Bacon”. Their next step was to write a letter to Jon Stewart, expressing their theory that Kevin Bacon was “the center of the entertainment universe”. This led to their appearances on Stewart’s TV show, as well as The Howard Stern Show and an article in Spy magazine. Under the game’s rules, the number of degrees by which an actor is removed from Kevin Bacon, is referred to as that actor’s “Bacon Number”. Although he was initially annoyed by all of this, Kevin Bacon (whose Bacon Number is O) went on to from a charity called SixDegrees.org.
At this point in the Presidential campaign, the McCain camp must believe that their next attack strategy should be to connect Barack Obama to some Islamic terrorist and make him look more like that cartoon on the cover of The New Yorker. McCain had tightened up the race for a while but his stupid “cost of gasoline” campaign ad, his desperate attacks on Obama’s patriotism and Obama’s successful world tour have put McCain behind by as much as 9 percent (Gallup, July 27). As a result, the game is now on to find someone (some terrorist – hopefully Islamic) who can be connected to Barack Obama. Since everyone in the world is connected by six degrees (as we learned from John Guare’s movie) McCain’s people are probably looking for the most menacing individual out there, with the lowest “Obama Number” possible.
This past weekend brought some publicity to a couple of men with an “Obama Number” of 1. The first was Barack’s half-brother, Bernard, who was found by the British Sun tabloid. Their article published on Saturday, July 26, referred to him as “Muslim Bernard”. Bernard, a convert to Islam, runs a car parts firm in Nairobi, Kenya and is not a terrorist. Nevertheless, McCain’s people must have been energized by the identification of someone who is a Muslim with an “Obama Number” of 1. Who knows? They might find that sought-after “Islamist terrorist” with an Obama Number as low as 2.
Not to be outdone, Sunday’s Times of London found another half-brother of Barack Obama, living in southern China. The Times reported:
Mark Ndesandjo is the son of Barack Obama’s late father and his third wife, an American woman named Ruth Nidesand who runs the up-market Maduri kindergarten in Nairobi.
The Times article described Mr. Ndesandjo as someone who “has been helping to promote cheap Chinese exports in a low-profile business career”. McCain’s people must have been delighted by the term “cheap Chinese exports”. Now they have someone with an “Obama Number” of 1, a half-brother, whom they might try to link to the lead-painted toy scandal. Nevertheless, this still isn’t juicy enough. They need a terrorist with a nice, low Obama Number. The McCain camp must have been encouraged by the statement in the Times piece that said “Barack Obama senior fathered eight children by four different women.” Now, if only one of those eight could be connected by one degree to a terrorist . . .
TheCenterLane.com offers opinion, news and commentary on politics, the economy, finance and other random events that either find their way into the news or are ignored by the news reporting business. As the name suggests, our focus will be on what seems to be happening in The Center Lane of American politics and what the view from the Center reveals about the events in the left and right lanes. Your Host, John T. Burke, Jr., earned his Bachelor of Arts degree from Boston College with a double major in Speech Communications and Philosophy. He earned his law degree (Juris Doctor) from the Illinois Institute of Technology / Chicago-Kent College of Law.