Was Hurricane Sandy a Democrat? Two weeks ago, Mitt Romney’s tormentor was a debate moderator named Candy. This week, Romney’s nemesis is a storm named Sandy. The latest blow to the Republican’s Presidential campaign came from an actual wind. Precious news program time, normally devoted to the battle for the White House – which amounts to free infomercial time from the networks – is now being diverted to coverage of the storm’s havoc. Worse yet, the Benghazi story has become “old news”, bumped back to oblivion. As Romney’s surrogates complain that Obama cannot be trusted to work with Republicans, news coverage shows the President with Republican Chris Christie at his side so frequently that rest-home-bound geriatrics are remarking about the excessive weight gained by Joe Biden. Despite the claim that government is the problem rather than the solution, many of Sandy’s victims are finding the opposite to be the case. FEMA can no longer be described as a government extravagance. If all that weren’t bad enough – global warming is back in the news . . . big time . . .
What could likely be a lasting legacy from Sandy will have a bipartisan impact – a painful blow to Democrats and Republicans who remain dogmatically opposed to government-initiated fiscal stimulus programs. Sandy is about to prove them wrong. The massive infrastructure restoration efforts, which will be necessary to address Sandy’s damage, could end up providing the financial stimulus which Congress would never have approved if Sandy had not headed westbound.
Duncan Bowen Black has a PhD in Economics from Brown University. His Eschaton blog presents the liberal perspective on more issues than those related to the economy. Love him or hate him, his April 30 USA Today article is downright prescient. Sandy will prove, once and for all, that Keynes was right. Resistance is futile. Consider his points:
To suggest that the response to the storm impact might improve the economy is not to suggest that the storm is somehow a good thing, but a quick mobilization of resources to complete necessary repairs could temporarily boost employment and improve business for companies producing and selling construction materials. There would also be additional multiplier effects of this spending on the economy, as workers and business owners spend their increased wages and profits.
But this could be true even absent widespread storm damage. Speeding up other infrastructure repair projects would also put people back to work. For example, many cities have aging water systems that experience regular costly water main breaks. These projects don’t need costly studies or lengthy environmental impact reports and could be implemented almost immediately. Buy materials, dig up the streets, replace the pipes, repair the streets and pay your workers. They are truly shovel ready projects in need of funding.
No degree of Austerian opposition will be able to prevent the post-Sandy infrastructure restoration programs from being implemented. Sandy is about to teach America an important lesson, which could motivate many politicians to repeat what Richard Nixon said in 1971: “I am now a Keynesian in economics”.
Comments Off on Real-Time Fact Checking for Political Debates
Note: This posting was published before the second 2012 Presidential debate at HoftsraUniversity.
After the Vice-Presidential debate, many of Team Obama’s surrogates were referring to both Paul Ryan and Mitt Romney as liars. Obviously, most Republicans were upset by this. What I found amusing about the entire dust-up was that at no time did anyone from Team Obama support their aspersions with a reference to a fact-checking website. It would have been easy enough. Directing people to a fact-checking website would have been even more helpful because the site would inform the reader that the candidate in question told a number of lies. Upon visiting one of the fact-checking websites, Team Obama’s aversion to using such a site to support those nasty allegations becomes obvious: there are a number of untrue statements from Obama and Biden which are also exposed.
The PolitiFact page concerning the Denver Obama – Romney debate can be found here. The FactCheck analysis of that first Obama – Romney debate can be found here.
As for the Vice-Presidential debate, the PolitiFact page is here and the FactCheck Veep debate page is here.
After learning the truth about what was said during the debates, I immediately imagined a political debate in which three meters – similar to PolitiFact’s Truth-O-Meter – appear at the bottom of the screen. The meters would provide readings from three independent fact-checking services. When a candidate would finish making a factual assertion, the meters would indicate the degree of veracity for that statement. Upon further consideration, it quickly became obvious that a delay of as much as twenty minutes might be necessary between the time of the statement and the broadcast. If seven-second delays are used to censor obscene words, why not use a twenty-minute delay to expose lies? If a twenty-second delay was used to avoid broadcast of a grizzly mishap during Felix Baumgartner’s supersonic skydive, why not use a twenty-minute delay to open a window to the truth? If the networks can provide audience response meters to the candidates’ statements, they should be able to provide fact-checking readouts in real time. It might be necessary to delay the broadcast version of the debate as much as twenty minutes later than “live”, and it could get bogged down by delays between questions so that the meter reading from one candidate’s previous statement would not remain on the screen while the opposing candidate would begin speaking in response to the next question. Nevertheless, it would be more interesting and the candidates would have no reason to resort to calling each other liars.
If such a debate format were actually suggested, it would be amusing to watch the responses to the proposal. I would be willing to bet that all candidates and political parties would oppose it. Lies are politicians’ tools. Exposing candidates’ lies during a political debate would be compared to requiring a magician to expose the secrets behind each trick during the course of a performance.
It is up to the voters to insist that political campaigns are not magic. Some politicians may have a supernatural ability for making enormous amounts of money appear in their campaign accounts, but the truth of what these candidates say should not be shrouded in mystery. Beyond that, viewers should not be required to take notes and then look up each fact on a website to determine whether a politician is lying. The use of three different, independent fact-checking services would provide a more objective measure of truth-telling.
Here’s hoping that the 2016 election campaign will involve the use of real-time fact checking during the debates. We might find ourselves watching candidates who have more integrity than the characters we have been watching during the current campaign cycle.
By now, you’ve heard about it dozens of times. Mitt Romney is taking heat for remarks he made at a private fundraiser in Boca about the 47 percent of Americans who won’t vote for him because they enjoy taking handouts from the government. In response to the dustup, the Romney camp has focused on remarks made by Barack Obama during the 2008 campaign about people who “cling to their guns and religion”. Obama’s discussion with “Joe the Plumber” about “spreading the wealth around” has been cited as another example of Obama’s favoritism of one population segment over another. Nevertheless, as Brit Hume explained to Greta on Fox News, the Republicans’ focus on those remarks did not work during the 2008 campaign and there is no reason to believe that it will gain any more traction during the current election cycle.
Actually, there is a better example of Obama’s expression of contempt for a bloc of voters during a fundraiser, which is somewhat analogous the situation involving Romney in Boca. During the mid-term election campaign in September of 2010, Obama managed to alienate a good number of his own supporters during an event at the home of the appropriately-named Rich Richman. The event demonstrated how politicians – from either party – will speak more candidly and cynically about the “little people” when talking to their fat cat contributors. Nevertheless, the Republicans will not likely exploit Obama’s remarks at the Rich-man event. Of course, Obama supporters would be reminded that their candidate is not a significantly different alternative to Romney. However, by the same token, Romney supporters would be reminded that their candidate does not offer a significantly distinct alternative to Obama. As a result, the Republicans will never use it.
Let’s jump into the time machine and look back at how I discussed the Richman event on September 20, 2010:
President Obama recently spoke at a $30,000-per-plate fundraising event for the Democratic National Committee at the home of Richard and Ellen Richman. (Think about that name for a second: Rich Richman.) Mr. Richman lives up to his surname and resides in the impressive Conyers Farm development in Greenwich, Connecticut. Christopher Keating of the Capitolwatch blog at courant.com provided us with the President’s remarks, addressed to the well-heeled attendees:
. . . Democrats, just congenitally, tend to get – to see the glass as half empty. (Laughter.) If we get an historic health care bill passed – oh, well, the public option wasn’t there. If you get the financial reform bill passed – then, well, I don’t know about this particularly derivatives rule, I’m not sure that I’m satisfied with that. And gosh, we haven’t yet brought about world peace and – (laughter.) I thought that was going to happen quicker. (Laughter.) You know who you are. (Laughter.)
The tactlessness of those remarks was not lost on Glenn Greenwald of Salon.com. Mr. Greenwald transcended the perspective of an offended liberal to question what could possibly have been going on in the mind of the speaker:
What’s most striking about Obama’s comments is that there is no acceptance whatsoever of responsibility (I’ve failed in some critical areas; we could have/should have done better). There’s not even any base-motivating vow to fight to fix these particular failures (we’ll keep fighting for a public option/to curb executive power abuses/to reduce lobbyist and corporate control of our political process). Instead, he wants you to know that if you criticize him — or even question what he’s done (“well, I don’t know about this particular derivatives rule, I’m not sure that I’m satisfied with that”) – it’s your fault: for being some sort of naive, fringe-leftist idiot who thought he would eliminate the Pentagon and bring about world peace in 18 months, and/or because you simply don’t sufficiently appreciate everything he’s done for you because you’re congenitally dissatisfied.
* * *
Sitting at a $30,000 per plate fundraising dinner and mocking liberal critics as irrational ingrates while wealthy Party donors laugh probably does wonders for bruised presidential egos, but it doesn’t seem to be a particularly effective way to motivate those who are so unmotivated. Then again, Barack Obama isn’t actually up for election in November, so perhaps the former goal is more important to him than the latter. It certainly seems that way from these comments.
Of course, liberals weren’t the only Obama supporters who felt betrayed by the President’s abandonment of his campaign promises. In fact, Obama owed his 2008 victory to those independent voters who drank the “Hope and Change” Kool-Aid.
Glenn Greenwald devoted some space from his Salon piece to illustrate how President Obama seems to be continuing the agenda of President Bush. I was reminded of the quote from former Attorney General John Ashcroft in an article written by Jane Mayer for The New Yorker. When discussing how he expected the Obama Presidency would differ from the Presidency of his former boss, George W. Bush, Ashcroft said:
“How will he be different? The main difference is going to be that he spells his name ‘O-b-a-m-a,’ not ‘B-u-s-h.’ ”
One important difference that Ashcroft failed to anticipate was that Bush knew better than to disparage his own base.
By the onset of the 2012 Presidential Campaign, many of Obama’s 2008 supporters had become ambivalent about their former hero. As I pointed out on August 13, once Romney had named Paul “Marathon Man” Ryan as his running mate (rather than Ohio Senator Rob Portman), he provided Democrats with a bogeyman to portray a Romney Presidency as a threat to middle-class Americans:
As the Democratic Party struggled to resurrect a fraction of the voter enthusiasm seen during the 2008 campaign, Mitt Romney came along and gave the Democrats exactly what they needed: a bogeyman from the far-right wing of the Republican Party. The 2012 campaign suddenly changed from a battle against an outsourcing, horse ballet elitist to a battle against a blue-eyed devil who wants to take away Medicare. The Republican team of White and Whiter had suddenly solved the problem of Democratic voter apathy.
We have never experienced a Presidential campaign with more fact-checking than what we are seeing during the current cycle. The well-timed release of a popular new book by Janine Driver entitled, You Can’t Lie to Me might be one of the reasons why this is happening. Fact-checking websites such as PolitiFact and FactCheck have been overflowing with reports of exaggerations, half-truths and flat-out lies by the candidates and their surrogates.
Paul Ryan’s acceptance speech drew instant criticism from a number of news outlets. I quickly felt vindicated for my last posting, which asserted that Romney made a mistake by selecting Ryan, rather than Ohio Senator Rob Portman, as his running mate. FactCheck provided this breakdown of the misrepresentations in Ryan’s speech:
Paul Ryan’s acceptance speech at the Republican convention contained several false claims and misleading statements. Delegates cheered as the vice presidential nominee:
Accused President Obama’s health care law of funneling money away from Medicare “at the expense of the elderly.” In fact, Medicare’s chief actuary says the law “substantially improves” the system’s finances, and Ryan himself has embraced the same savings.
Accused Obama of doing “exactly nothing” about recommendations of a bipartisan deficit commission — which Ryan himself helped scuttle.
Claimed the American people were “cut out” of stimulus spending. Actually, more than a quarter of all stimulus dollars went for tax relief for workers.
Faulted Obama for failing to deliver a 2008 campaign promise to keep a Wisconsin plant open. It closed less than a month before Obama took office.
Blamed Obama for the loss of a AAA credit rating for the U.S. Actually, Standard & Poor’s blamed the downgrade on the uncompromising stands of both Republicans and Democrats.
If the widespread criticism of the veracity of Ryan’s speech had not been bad enough, Runner’s World saw fit to bust Ryan for making a false claim that he once ran a marathon in less than three hours. In reality, it took him just over four hours.
Ultimately, convention speeches are about making the argument for your team. We should fully expect politicians to make their case using facts and figures that either tilt positive about their accomplishment – or negative about their opponents. As the fact-checking business has blossomed in the news media, it has been increasingly hard for politicians to get away with such truth-shading without someone noticing.
Both political parties will stretch the truth if they believe it will advance their political interests. It’s been a rough campaign so far, but the GOP convention that just ended was strictly in the mainstream for such party celebrations.
As the Democratic Convention approaches, a good deal of attention has been focused on PolitiFact’s Obameter, which measures how well Obama has delivered on his campaign promises. PolitiFact’s most recent status report offered this analysis:
Our scorecard shows Obama kept 37 percent of his promises. He brought the war in Iraq to a close and finally achieved the Democratic dream of a universal health care program. When the United States had Osama bin Laden in its sights, Obama issued the order to kill.
Sixteen percent are rated Broken, often because they hit a brick wall in Congress. Global warming legislation passed the House but died in the Senate. He didn’t even push for comprehensive immigration reform. His program to help homeowners facing foreclosure didn’t even meet its own benchmarks. (PolitiFact rates campaign promises based on outcomes, not intentions.)
With four months left in Obama’s term, PolitiFact has rated Obama’s remaining promises Compromise (14 percent), Stalled (10 percent) or In the Works (22 percent).
The ad claims that Romney raised taxes on the middle class. It’s true that Romney imposed a number of fees, but none of them targeted middle-income persons. Also, Romney proposed cutting the state income tax three times – a measure that would have resulted in tax cuts for all taxpayers – but he was rebuffed every time by the state’s Democratic Legislature.
I suspect that the Obama campaign has a secret plan in the works to avoid the scrutiny of fact-checkers during their convention. Their plan to have John Kerry speak is actually part of a plot to cause the fact-checkers to fall asleep. Once “Operation Snoozeboat” is complete, the speakers who follow Kerry will be able to make the wildest claims imaginable – and get away with it!
Comments Off on Wisconsin Bogeyman Will Help Obama
Mitt Romney’s choice of Paul Ryan as his running mate will do more so solve President Obama’s voter apathy problem than it will do to boost the enthusiasm of Republican voters. While the Tea Party branch of the Republican Party complains that “Massachusetts moderate” Romney is not a significant alternative to Barack Obama, the Democratic Party’s base complains the bank-centric Obama administration is indistinguishable from a Romney administration. Criticism of the Obama administration’s domestic surveillance program comes from across the political spectrum. One need look no further than the Business Insiderto find disappointment resulting from the Obama administration’s efforts to turn America into a police state.
As the Democratic Party struggled to resurrect a fraction of the voter enthusiasm seen during the 2008 campaign, Mitt Romney came along and gave the Democrats exactly what they needed: a bogeyman from the far-right wing of the Republican Party. The 2012 campaign suddenly changed from a battle against an outsourcing, horse ballet elitist to a battle against a blue-eyed devil who wants to take away Medicare. The Republican team of White and Whiter had suddenly solved the problem of Democratic voter apathy.
Politics 101 suggests that you play toward the center of the electorate. Although this rule has more frequently been violated when it comes to vice-presidential picks, there is evidence that presidential candidates who have more “extreme” ideologies (closer to the left wing or the right wing than the electoral center) underperform relative to the economic fundamentals.
Various statistical measures of Mr. Ryan peg him as being quite conservative. Based on his Congressional voting record, for instance, the statistical system DW-Nominate evaluates him as being roughly as conservative as Representative Michele Bachmann of Minnesota.
* * *
Because of these factors, a recent analysis I performed placed Mr. Ryan 10th from among 14 potential vice-presidential picks in terms of his immediate impact on the Electoral College. If Mr. Romney wanted to make the best pick by this criterion, he would have been better off to choose an alternative like Senator Rob Portman of Ohio, or Gov. Bob McDonnell of Virginia.
Nate Silver was not alone with his premise that Romney’s choice of Ryan was made out of desperation. At the Right Condition blog, Arkady Kamenetsky not only emphasized that the Ryan candidacy will help galvanize Obama’s liberal base – he went a step further to demonstrate that the Ryan budget is a “smoke and mirrors” pretext for preserving the status quo. After highlighting Ryan’s support of TARP, Medicare Part D and No Child Left Behind, Arkady Kamenetsky performed a detailed comparison of the Ryan budget with the Obama budget to demonstrate a relatively insignificant difference between the two. Kamenetsky concluded the piece with these observations:
So this of course begs the question, why did Romney do this? Why select a VP that will provide such easy ammunition for the Left with virtually no reward? The answer is quite simple. Romney and Ryan represent exactly the same problem even if one appears to be a moderate and the other appears to be an epic fiscal warrior. The Republican party fights for and pushes through the status-quo. The images you see up above and the Ryan record is the status-quo. No doubt about it.
Yet Romney is counting on the ignorance of Republican base to run with the facade of Ryan’s conservatism. If that illusion holds then Ryan’s image will invariably boost Romney’s own image as many will view Romney’s decision as courageous and bold despite Obama’s willingness to distort Ryan’s budget. In other words, you are witnessing a most fantastic and glamorous circus. A bad Hollywood movie, except that ending will be quite real and not something you can pause or turn off.
* * *
Romney and Ryan will lose in November and the image of the heartless Conservative killing granny will resonate with America, the tragedy of course is that neither Ryan or Romney are willing to actually cut anything! The tragedy will become even more amusing as we will witness a nasty and partisan fight further dividing Americans as they fight and defend differing policies with the exact same results.
During the coming weeks, watch for efforts by the mainstream news media to portray this election as a close contest – in their own desperate attempts to retain an audience for what will probably turn out to be the least exciting Presidential campaign since Reagan vs. Carter.
With the Republican Convention set to begin on August 27, we are heading toward the final phase of the GOP Veepstakes. Currently, the mainstream media mania is focused on the belief that Romney will play the Rice Card. It won’t happen. The excitement concerns the possibility that playing the Rice Card will enhance support from African-American and female voters. Unfortunately, Condoleezza Rice lacks the degree of charisma one would expect in a Vice-Presidential candidate. Worse yet, the baggage she brings from her testimony before the 9/11 Commission, particularly in response to the questions posed by Richard Ben-Veniste concerning the August 6, 2001 Presidential Daily Briefing is the most important reason she will not be picked. Her failure to seriously heed the warning, “Bin Laden Determined to Attack Inside the United States” would become a big issue – once again. Her response to Ben-Veniste’s interrogation was asinine:
Commissioner, this was not a warning. This was a historic memo — historical memo prepared by the agency because the president was asking questions about what we knew about the inside.
We often hear pundits recite the Cardinal Rule for Presidential candidates, in selecting their Vice-Presidential nominee, as: “Do No Harm”. In other words: Don’t screw up your campaign by choosing a controversial running mate. If Romney were to play the Rice card, he would append to his own campaign the Bush administration’s failure to heed the warnings about the September 11 attacks. It won’t happen.
Wall Street Journal columnist Peggy Noonan – who considered the choice of Sarah Palin as “cynical” – recently endorsed Rice as the best candidate:
Consider: A public figure of obvious and nameable accomplishment whose attainments can’t be taken away from her. Washington experience – she wouldn’t be learning on the job. Never ran for office but no political novice. An academic, but not ethereal or abstract. A woman in a year when Republicans aren’t supposed to choose a woman because of what is now called the 2008 experience – so the choice would have a certain boldness. A black woman in a campaign that always threatens to take on a painful racial overlay. A foreign-policy professional acquainted with everyone who’s reigned or been rising the past 20 years.
What is really happening here is that potential candidates from minority groups are being paraded before the public, purely for optics. Last month, it was Marco Rubio and now it’s Condoleezza Rice. It has been important for the Romney camp to convince the voters that it seriously considered putting a minority group member on the ticket before finally deciding on a white man.
At this point, the smart money is on Ohio Senator Rob Portman. Portman is from a battleground state and Romney can be confident that Portman won’t make any stupid moves or inappropriate remarks which could damage the campaign. Romney needs to play it safe and Portman is a safe choice.
Actually, the Rice Card is being played right now. You won’t see it again after August.
On May 22, the Congressional Budget Office released its report on how the United States can avoid going off the “fiscal cliff” on January 1, 2013. The report is entitled, “Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013”. Forget about the Mayan calendar and December 21, 2012. The real disaster is scheduled for eleven days later. The CBO provided a brief summary of the 10-page report – what you might call the Cliff Notes version. Here are some highlights:
In fact, under current law, increases in taxes and, to a lesser extent, reductions in spending will reduce the federal budget deficit dramatically between 2012 and 2013 – a development that some observers have referred to as a “fiscal cliff” – and will dampen economic growth in the short term.
* * *
Under those fiscal conditions, which will occur under current law, growth in real (inflation-adjusted) GDP in calendar year 2013 will be just 0.5 percent, CBO expects – with the economy projected to contract at an annual rate of 1.3 percent in the first half of the year and expand at an annual rate of 2.3 percent in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
As the complete version of the report explained, the consequences of abruptly-imposed, draconian austerity measures while the economy is in a state of anemic growth in the wake of the 2008 financial crisis, could have a devastating impact because incomes will drop, shrinking the tax base and available revenue – the life blood of the United States government:
The weakening of the economy that will result from that fiscal restraint will lower taxable incomes and, therefore, revenues, and it will increase spending in some categories – for unemployment insurance, for instance.
An interesting analysis of the CBO report was provided by Robert Oak of the Economic Populist website. He began with a description of the cliff itself:
What the CBO is referring to is the fiscal cliff. Remember when the budget crisis happened, resulting in the United States losing it’s AAA credit rating? Then, Congress and this administration just punted, didn’t compromise, or better yet, base recommendations on actual economic theory, and allowed automatic spending cuts of $1.2 trillion across the board, to take place instead. These budget cuts will be dramatic and happen in 2012 and 2013.
Spending cuts, especially sudden ones, actually weaken economic growth. This is why austerity has caused a disaster in Europe. Draconian cuts have pushed their economies into not just recessions, but depressions.
The conclusion reached by Robert Oak was particularly insightful:
This report should infuriate Republicans, who earlier wanted to silence the CBO because they were telling the GOP their policies would hurt the economy in so many words. But maybe not. Unfortunately the CBO is not breaking down tax cuts, when there is ample evidence tax cuts for rich individuals do nothing for economic growth. Bottom line though, the CBO is right on in their forecast, draconian government spending cuts will cause an anemic economy to contract.
Although the CBO did offer a good solution for avoiding a drive off the fiscal cliff, it remains difficult to imagine how our dysfunctional government could ever implement these measures:
Or, if policymakers wanted to minimize the short-run costs of narrowing the deficit very quickly while also minimizing the longer-run costs of allowing large deficits to persist, they could enact a combination of policies: changes in taxes and spending that would widen the deficit in 2013 relative to what would occur under current law but that would reduce deficits later in the decade relative to what would occur if current policies were extended for a prolonged period.
The foregoing passage was obviously part of what Robert Oak had in mind when he mentioned that the CBO report would “infuriate Republicans”. Any plans to “widen the deficit” would be subject to the same righteous indignation as an abortion festival or a national holiday for gay weddings. Nevertheless, Mitt Romney accidentally acknowledged the validity of the logic underlying the CBO’s concern. Bill Black had some fun with Romney’s admission by writing a fantastic essay on the subject:
Romney has periodic breakdowns when asked questions about the economy because he sometimes forgets the need to lie. He forgets that he is supposed to treat austerity as the epitome of economic wisdom. When he responds quickly to questions about austerity he slips into default mode and speaks the truth – adopting austerity during the recovery from a Great Recession would (as in Europe) throw the nation back into recession or depression. The latest example is his May 23, 2012 interview with Mark Halperin in Time magazine.
“Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
Romney explains that austerity, during the recovery from a Great Recession, would cause catastrophic damage to our nation. The problem, of course, is that the Republican congressional leadership is committed to imposing austerity on the nation and Speaker Boehner has just threatened that Republicans will block the renewal of the debt ceiling in order to extort Democrats to agree to austerity – severe cuts to social programs. Romney knows this could “throw us into recession or depression” and says he would never follow such a policy.
* * *
Later in the interview, Romney claims that federal budgetary deficits are “immoral.” But he has just explained that using austerity for the purported purpose of ending a deficit would cause a recession or depression. A recession or depression would make the deficit far larger. That means that Romney should be denouncing austerity as “immoral” (as well as suicidal) because it will not simply increase the deficit (which he claims to find “immoral” because of its impact on children) but also dramatically increase unemployment, poverty, child poverty and hunger, and harm their education by causing more teachers to lose their jobs and more school programs to be cut.
Mitt Romney is beginning to sound as though he has his own inner Biden, who spontaneously speaks out in an unrestrained manner, sending party officials into “damage control” mode.
This could turn out to be an interesting Presidential campaign, after all.
Comments Off on Get Ready for the Next Financial Crisis
It was almost one year ago when Bloomberg News reported on these remarks by Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group:
“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan inTokyotoday in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
I have frequently complained about the failed attempt at financial reform, known as the Dodd-Frank Act. Two years ago, I wrote a piece entitled, “Financial Reform Bill Exposed As Hoax” wherein I expressed my outrage that the financial reform effort had become a charade. The final product resulting from all of the grandstanding and backroom deals – the Dodd–Frank Act – had become nothing more than a hoax on the American public. My essay included the reactions of five commentators, who were similarly dismayed. I concluded the posting with this remark:
The bill that is supposed to save us from another financial crisis does nothing to accomplish that objective. Once this 2,000-page farce is signed into law, watch for the reactions. It will be interesting to sort out the clear-thinkers from the Kool-Aid drinkers.
During the past few days, there has been a chorus of commentary calling for a renewed effort toward financial reform. We have seen a torrent of reports on the misadventures of The London Whale at JP Morgan Chase, whose outrageous derivatives wager has cost the firm uncounted billions. By the time this deal is unwound, the originally-reported loss of $2 billion will likely be dwarfed.
Former Secretary of Labor, Robert Reich, has made a hobby of writing blog postings about “what President Obama needs to do”. Of course, President Obama never follows Professor Reich’s recommendations, which might explain why Mitt Romney has been overtaking Obama in the opinion polls. On May 16, Professor Reich was downright critical of the President, comparing him to the dog in a short story by Sir Arthur Conan Doyle involving Sherlock Holmes, Silver Blaze. The President’s feeble remarks about JPMorgan’s latest derivatives fiasco overlooked the responsibility of Jamie Dimon – obviously annoying Professor Reich, who shared this reaction:
Not a word about Jamie Dimon’s tireless campaign to eviscerate the Dodd-Frank financial reform bill; his loud and repeated charge that the Street’s near meltdown in 2008 didn’t warrant more financial regulation; his leadership of Wall Street’s brazen lobbying campaign to delay the Volcker Rule under Dodd-Frank, which is still delayed; and his efforts to make that rule meaningless by widening a loophole allowing banks to use commercial deposits to “hedge” (that is, make offsetting bets) their derivative trades.
Nor any mention Dimon’s outrageous flaunting of Dodd-Frank and of the Volcker Rule by setting up a special division in the bank to make huge (and hugely profitable, when the bets paid off) derivative trades disguised as hedges.
Nor Dimon’s dual role as both chairman and CEO of JPMorgan (frowned on my experts in corporate governance) for which he collected a whopping $23 million this year, and $23 million in 2010 and 2011 in addition to a $17 million bonus.
Even if Obama didn’t want to criticize Dimon, at the very least he could have used the occasion to come out squarely in favor of tougher financial regulation. It’s the perfect time for him to call for resurrecting the Glass-Steagall Act, of which the Volcker Rule – with its giant loophole for hedges – is a pale and inadequate substitute.
And for breaking up the biggest banks and setting a cap on their size, as the Dallas branch of the Federal Reserve recommended several weeks ago.
This was Professor Reich’s second consecutive reference within a week to The Dallas Fed’s Annual Report, which featured an essay by Harvey Rosenblum, the head of the Dallas Fed’s Research Department and the former president of the National Association for Business Economics. Rosenblum’s essay provided an historical analysis of the events leading up to the 2008 financial crisis and the regulatory efforts which resulted from that catastrophe – particularly the Dodd-Frank Act. Beyond that, Rosenblum emphasized why those “too-big-to-fail” (TBTF) banks have actually grown since the enactment of Dodd-Frank:
The TBTF survivors of the financial crisis look a lot like they did in 2008. They maintain corporate cultures based on the short-term incentives of fees and bonuses derived from increased oligopoly power. They remain difficult to control because they have the lawyers and the money to resist the pressures of federal regulation. Just as important, their significant presence in dozens of states confers enormous political clout in their quest to refocus banking statutes and regulatory enforcement to their advantage.
Last year, former Kansas City Fed-head, Thomas Hoenig discussed the problems created by the TBTFs, which he characterized as “systemically important financial institutions” – or “SIFIs”:
… I suggest that the problem with SIFIs is they are fundamentally inconsistent with capitalism. They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.
Although the huge derivatives loss by JPMorgan Chase has motivated a number of commentators to issue warnings about the risk of another financial crisis, there had been plenty of admonitions emphasizing the risks of the next financial meltdown, which were published long before the London Whale was beached. Back in January, G. Timothy Haight wrote an inspiring piece for the pro-Republican Orange County Register, criticizing the failure of our government to address the systemic risk which brought about the catastrophe of 2008:
In response to widespread criticism associated with the financial collapse, Congress has enacted a number of reforms aimed at curbing abuses at financial institutions. Legislation, such as the Dodd-Frank and Consumer Protection Act, was trumpeted as ensuring that another financial meltdown would be avoided. Such reactionary regulation was certain to pacify U.S. taxpayers.
Unfortunately, legislation enacted does not solve the fundamental problem. It simply provides cover for those who were asleep at the wheel, while ignoring the underlying cause of the crisis.
More than three years after the calamity, have we solved the dilemma we found ourselves in late 2008? Can we rest assured that a future bailout will not occur? Are financial institutions no longer “too big to fail?”
Regrettably, the answer, in each case, is a resounding no.
The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.
The multi-billion dollar derivatives loss by JPMorgan Chase demonstrates that the sham “financial reform” cannot prevent another financial crisis. The banks assume that there will be more taxpayer-funded bailouts available, when the inevitable train wreck occurs. The Federal Reserve will be expected to provide another round of quantitative easing to keep everyone happy. As a result, nothing will be done to strengthen financial reform as a result of this episode. The megabanks were able to survive the storm of indignation in the wake of the 2008 crisis and they will be able ride-out the current wave of public outrage.
As Election Day approaches, Team Obama is afraid that the voters will wake up to the fact that the administration itself is to blame for sabotaging financial reform. They are hoping that the public won’t be reminded that two years ago, Simon Johnson (former chief economist of the IMF) wrote an essay entitled, “Creating the Next Crisis” in which he provided this warning:
On the critical dimension of excessive bank size and what it implies for systemic risk, there was a concerted effort by Senators Ted Kaufman and Sherrod Brown to impose a size cap on the largest banks – very much in accordance with the spirit of the original “Volcker Rule” proposed in January 2010 by Obama himself.
In an almost unbelievable volte face, for reasons that remain somewhat mysterious, Obama’s administration itself shot down this approach. “If enacted, Brown-Kaufman would have broken up the six biggest banks inAmerica,” a senior Treasury official said. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
Whether the world economy grows now at 4% or 5% matters, but it does not much affect our medium-term prospects. The US financial sector received an unconditional bailout – and is not now facing any kind of meaningful re-regulation. We are setting ourselves up, without question, for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system. This can end only one way: badly.
The public can forget a good deal of information in two years. They need to be reminded about those early reactions to the Obama administration’s subversion of financial reform. At her Naked Capitalism website, Yves Smith served up some negative opinions concerning the bill, along with her own cutting commentary in June of 2010:
I want the word “reform” back. Between health care “reform” and financial services “reform,” Obama, his operatives, and media cheerleaders are trying to depict both initiatives as being far more salutary and far-reaching than they are. This abuse of language is yet another case of the Obama Administration using branding to cover up substantive shortcomings. In the short run it might fool quite a few people, just as BP’s efforts to position itself as an environmentally responsible company did.
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So what does the bill accomplish? It inconveniences banks around the margin while failing to reduce the odds of a recurrence of a major financial crisis.
In particular, the transaction appears to have been a type of proprietary trade – which is to say, a trade that a bank undertakes to make money for itself, not its clients. And these trades were supposed to have been outlawed by the “Volcker Rule” provision of Obama’s financial reform law, at least at federally-backed banks like JP Morgan. The administration is naturally worried that, having touted the law as an end to the financial shenanigans that brought us the 2008 crisis, it will look feckless instead.
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But it turns out that there’s an additional twist here. The concern for the White House isn’t just that the law could look weak, making it a less than compelling selling point for Obama’s re-election campaign. It’s that the administration could be blamed for the weakness. It’s one thing if you fought for a tough law and didn’t entirely succeed. It’s quite another thing if it starts to look like you undermined the law behind the scenes. In that case, the administration could look duplicitous, not merely ineffectual. And that’s the narrative you see the administration trying to preempt . . .
When the next financial crisis begins, be sure to credit President Obama as the Facilitator-In-Chief.
The Dimon Dog has been eating crow for the past few days, following a very public humiliation. The outspoken critic of the Dodd-Frank Wall Street Reform and Consumer Protection Act found himself explaining a $2 billion loss sustained by his firm, JPMorgan Chase, as a result of involvement in the very type of activity the Act’s “Volcker Rule” was intended to prevent. Financial industry lobbyists have been busy, frustrating regulatory attempts to implement Dodd-Frank’s provisions which call for stricter regulation of securities trading and transactions involving derivatives. Appropriately enough, it was an irresponsible derivatives trading strategy which put Jamie Dimon on the hot seat. The widespread criticism resulting from this episode was best described by Lizzie O’Leary (@lizzieohreally) with a single-word tweet: Dimonfreude.
The incident in question involved a risky bet made by a London-based trader named Bruno Iksil – nicknamed “The London Whale” – who works in JP Morgan’s Chief Investment Office, or CIO. An easy-to-understand explanation of this trade was provided by Heidi Moore, who emphasized that Iksil’s risky position was no secret before it went south:
Everyone knew. Thousands of people. Iksil’s bets have been well known ever since Bloomberg’s Stephanie Ruhle broke the news in early April. A trader at rival bank, Bank of America Merrill Lynch wrote to clients back then, saying that Iksil’s huge bet was attracting attention and hedge funds believed him to be too optimistic and were betting against him, waiting for Iksil to crash. The Wall Street Journal reported that the Merrill Lynch trader wrote, “Fast money has smelt blood.”
When the media, analysts and other traders raised concerns on JP Morgan’s earnings conference call last month, JP Morgan CEO Jamie Dimon dismissed their worries as “a tempest in a teapot.”
Dimon’s smug attitude about the trade (prior to its demise) was consistent with the hubris he exhibited while maligning Dodd-Frank, thus explaining why so many commentators took delight in Dimon’s embarrassment. On May 11, Kevin Roose of DealBook offered a preliminary round-up of the criticism resulting from this episode:
In a research note, a RBC analyst, Gerard Cassidy, called the incident a “hit to credibility” at the bank, while the Huffington Post’s Mark Gongloff said, “Funny thing: Some of the constraints of the very Dodd-Frank financial reform act Dimon hates could have prevented it.” Slate’s Matthew Yglesias pointed back to statements Mr. Dimon made in opposition to the Volcker Rule and other proposed regulations, and quipped, “Indeed, if only JPMorgan were allowed to run a thinner capital buffer and riskier trades. Then we’d all feel safe.”
At issue is corporate governance at JPMorgan and the ability of its CEO, Jamie Dimon, to manage its risk. It’s reasonable to ask whether any CEO can manage the risks of a bank this size, but the questions surrounding Jamie Dimon’s management are more targeted than that. The problem Jamie Dimon has is that JPMorgan lost control in multiple areas. Each time a new problem becomes public, it is revealed that management controls weren’t adequate in the first place.
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Jamie Dimon’s problem as Chairman and CEO–his dual role raises further questions about JPMorgan’s corporate governance—is that just two years ago derivatives trades were out of control in his commodities division. JPMorgan’s short coal position was over sized relative to the global coal market. JPMorgan put this position on while the U.S. is at war. It was not a customer trade; the purpose was to make money for JPMorgan. Although coal isn’t a strategic commodity, one should question why the bank was so reckless.
After trading hours on Thursday of this week, Jamie Dimon held a conference call about $2 billion in mark-to-market losses in credit derivatives (so far) generated by the Chief Investment Office, the bank’s “investment” book. He admitted:
“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored.”
During the party, Mr. Dimon took questions from the crowd, according to an attendee who spoke on condition of anonymity for fear of alienating the bank. One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher.
Mr. Dimon responded that he had just two words to describe them: “infantile” and “nonfactual.” He went on to lambaste Mr. Fisher further, according to the attendee. Some in the room were taken aback by the comments.
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The hypocrisy is that our nation’s big financial institutions, protected by implied taxpayer guarantees, oppose regulation on the grounds that it would increase their costs and reduce their profit. Such rules are unfair, they contend. But in discussing fairness, they never talk about how fair it is to require taxpayers to bail out reckless institutions when their trades imperil them. That’s a question for another day.
AND the fact that large institutions arguing against transparency in derivatives trading won’t acknowledge that such rules could also save them from themselves is quite the paradox.
Dimon’s rant at the Dallas party was triggered by a fantastic document released by the Federal Reserve Bank of Dallas on March 21: its 2011 Annual Report, featuring an essay entitled, “Choosing the Road to Prosperity – Why We Must End Too Big to Fail – Now”. The essay was written by Harvey Rosenblum, the head of the Dallas Fed’s Research Department and the former president of the National Association for Business Economics. Rosenblum’s essay provided an historical analysis of the events leading up to the 2008 financial crisis and the regulatory efforts which resulted from that catastrophe – particularly the Dodd-Frank Act.
And now – only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent, pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression – J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, and poorly-executed and excessively risky trades that caused the crisis in the first place.
In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.
The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?
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But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.
At Salon, Andrew Leonard focused on the embarrassment this episode could bring to Mitt Romney:
Now that Mitt Romney has secured the Republican presidential nomination, commentators are focusing on the question of whether the candidate can motivate the conservative Republican base to vote for the “Massachusetts moderate” in November.
The White House wants to fast track the Trans-Pacific Partnership (TPP) “free trade” agreement with Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Japan is waiting in the wings, Canada and Mexico want in, Taiwan has announced its intention to meet membership requirements and China says it will “earnestly study” whether to seek entry into the agreement.
Basically, the TPP is NAFTA on steroids. The White House wants to reach a deal prior to the election because they know all the apparatchiks feeding on the $1 billion in Obama campaign money flowing through the system will launch tribalistic attacks on anyone organizing against it (activists, labor unions, workers) for “helping Mitt Romney win” – thus facilitating its easy passage.
At her Naked Capitalism blog, Yves Smith introduced a video clip of Matt Stoller’s appearance on Cenk Uygur’s television program with the following anecdote:
Matt Stoller, in this video clip from an interview last week with Cenk Uygur (hat tip Doug Smith), sets forth what should be widely accepted truths about Obama: that he’s an aggressive proponent of policies that favor the 1%. Yet soi disant progressives continue to regard him as an advocate of their interests, when at best, all he does is pander to them.
It reminds me of a conversation I had with a black woman after an Occupy Wall Street Alternative Banking Group meeting. She was clearly active in New York City housing politics and knowledgeable about policy generally. I started criticizing Obama’s role in the mortgage settlement. She said:
I have trouble with members of my community. I think Obama needs not to be President. I think he needs to be impeached. But no one in my community wants to hear that. I tell them it’s like when your mother sees you going out with someone who is no good for you.
“Why don’t you leave him? What does he do for you?”
“But Momma, I love him.”
“He knocked you down the stairs, took your keys, drove your car to Florida, ran up big bills on your credit card, and Lord only knows what else he did when he was hiding from you.”
“But Momma, I still love him.”
Her story applies equally well to the oxymoron of the Establishment Left in America. Obama is not only not their friend, but he abuses them, yet they manage to forgive all and come back for more.
After nine months in office, Obama has a clear track record as a global player. Again and again, US negotiators have chosen not to strengthen international laws and protocols but rather to weaken them, often leading other rich countries in a race to the bottom.
After discussing Obama’s failure to take a leading role to promote global efforts to combat pollution, or to promote human rights, Ms. Klein moved on to highlight Obama’s subservience to the financial oligarchy:
And then there are the G-20 summits, Obama’s highest-profile multilateral engagements. When one was held in London in April, it seemed for a moment that there might be some kind of coordinated attempt to rein in transnational financial speculators and tax dodgers. Sarkozy even pledged to walk out of the summit if it failed to produce serious regulatory commitments. But the Obama administration had no interest in genuine multilateralism, advocating instead for countries to come up with their own plans (or not) and hope for the best – much like its reckless climate-change plan. Sarkozy, needless to say, did not walk anywhere but to the photo session to have his picture taken with Obama.
Of course, Obama has made some good moves on the world stage – not siding with the coup government in Honduras, supporting a UN Women’s Agency… But a clear pattern has emerged: in areas where other wealthy nations were teetering between principled action and negligence, US interventions have tilted them toward negligence. If this is the new era of multilateralism, it is no prize.
President Obama gave an interview to Rolling Stone‘s Jann Wenner this week and was asked about his administration’s aggressive crackdown on medical marijuana dispensaries, including ones located in states where medical marijuana is legal and which are licensed by the state; this policy is directly contrary to Obama’s campaign pledge to not “use Justice Department resources to try and circumvent state laws about medical marijuana.” Here’s part of the President’s answer:
I never made a commitment that somehow we were going to give carte blanche to large-scale producers and operators of marijuana – and the reason is, because it’s against federal law. I can’t nullify congressional law. I can’t ask the Justice Department to say, “Ignore completely a federal law that’s on the books” . . . .
The only tension that’s come up – and this gets hyped up a lot – is a murky area where you have large-scale, commercial operations that may supply medical marijuana users, but in some cases may also be supplying recreational users. In that situation, we put the Justice Department in a very difficult place if we’re telling them, “This is supposed to be against the law, but we want you to turn the other way.” That’s not something we’re going to do.
Aside from the fact that Obama’s claim about the law is outright false – as Jon Walker conclusively documents, the law vests the Executive Branch with precisely the discretion he falsely claims he does not have to decide how drugs are classified – it’s just extraordinary that Obama is affirming the “principle” that he can’t have the DOJ “turn the other way” in the face of lawbreaking.
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The same person who directed the DOJ to shield torturers and illegal government eavesdroppers from criminal investigation, and who voted to retroactively immunize the nation’s largest telecom giants when they got caught enabling criminal spying on Americans, and whose DOJ has failed to indict a single Wall Street executive in connection with the 2008 financial crisis or mortgage fraud scandal, suddenly discovers the imperatives of The Rule of Law when it comes to those, in accordance with state law, providing medical marijuana to sick people with a prescription.
It’s becoming obvious that Mitt Romney is not the only candidate who will have to worry about whether his party’s “base” will bother to stand in line at the polls in November, to vote for a candidate who does not find it necessary to accommodate the will of the voters who elect him.
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.