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When the Music Stops

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Forget about all that talk concerning the Mayan calendar and December 21, 2012.  The date you should be worried about is January 1, 2013.  I’ve been reading so much about it that I decided to try a Google search using “January 1, 2013” to see what results would appear.  Sure enough – the fifth item on the list was an article from Peter Coy at Bloomberg BusinessWeek entitled, “The End Is Coming:  January 1, 2013”.  The theme of that piece is best summarized in the following passage:

With the attention of the political class fixated on the presidential campaign, Washington is in danger of getting caught in a suffocating fiscal bind.  If Congress does nothing between now and January to change the course of policy, a combination of mandatory spending reductions and expiring tax cuts will kick in – depriving the economy of oxygen and imperiling a recovery likely to remain fragile through the end of 2012.  Congress could inadvertently send the U.S. economy hurtling over what Federal Reserve Chairman Ben Bernanke recently called a “massive fiscal cliff of large spending cuts and tax increases.”

Peter Coy’s take on this impending crisis seemed a bit optimistic to me.  My perspective on the New Year’s Meltdown had been previously shaped by a great essay from the folks at Comstock Partners.  The Comstock explanation was particularly convincing because it focused on the effects of the Federal Reserve’s quantitative easing programs, emphasizing what many commentators describe as the Fed’s “Third Mandate”:  keeping the stock market inflated.  Beyond that, Comstock pointed out the absurdity of that cherished belief held by the magical-thinking, rose-colored glasses crowd:  the Fed is about to introduce another round of quantitative easing (QE 3).  Here is Comstock’s dose of common sense:

A growing number of indicators suggest that the market is running out of steam.  Equities have been in a temporary sweet spot where investors have been factoring in a self-sustaining U.S. economic recovery while also anticipating the imminent institution of QE3.  This is a contradiction.  If the economy were indeed as strong as they say, we wouldn’t need QE3.  The fact that market observers eagerly look forward toward the possibility of QE3 is itself an indication that the economy is weaker than they think.  We can have one or the other, but we can’t have both.

After two rounds of quantitative easing – followed by “operation twist” – the smart people are warning the rest of us about what is likely to happen when the music finally stops.  Here is Comstock’s admonition:

The economy is also facing the so-called “fiscal cliff” beginning on January 1, 2013.  This includes expiration of the Bush tax cuts, the payroll tax cuts, emergency unemployment benefits and the sequester.  Various estimates placed the hit to GDP as being anywhere between 2% and 3.5%, a number that would probably throw the economy into recession, if it isn’t already in one before then.  At about that time we will also be hitting the debt limit once again.   U.S. economic growth will also be hampered by recession in Europe and decreasing growth and a possible hard landing in China.

Technically, all of the good news seems to have been discounted by the market rally of the last three years and the last few months.  The market is heavily overbought, sentiment is extremely high, daily new highs are falling and volume is both low and declining.  In our view the odds of a significant decline are high.

Charles Biderman is the founder and Chief Executive Officer of TrimTabs Investment Research.  He was recently interviewed by Chris Martenson.  Biderman’s primary theme concerned the Federal Reserve’s “rigging” of the stock market through its quantitative easing programs, which have steered so much money into stocks that stock prices have now become a “function of liquidity” rather than fundamental value.  Biderman estimated that the Fed’s liquidity pump has fed the stock market “$1.8 billion per day since August”.  He does not believe this story will have a happy ending:

In January of ’10, I went on CNBC and on Bloomberg and said that there is no money coming into stocks, and yet the stock market keeps going up.  The law of supply and demand still exists and for stock prices to go up, there has to be more money buying those shares.  There is no other way in aggregate that that could happen.

So I said it has to be coming from the government.  And everybody thought I was a lunatic, conspiracy theorist, whatever.  And then lo and behold, on October of 2011, Mr. Bernanke then says officially, that the purpose of QE1 and QE2 is to raise asset prices.  And if I remember correctly, equities are an asset, and bonds are an asset.

So asset prices have gone up as the Fed has been manipulating the market. At the same time as the economy is not growing (or not growing very fast).

*   *   *

At some point, the world is going to recognize the Emperor is naked. The only question is when.

Will it be this year?  I do not think it will be before the election, I think there is too much vested interest in keeping things rosy and positive.

One of my favorite economists is John Hussman of the Hussman Funds.  In his most recent Weekly Market Comment, Dr. Hussman warned us that the “music” must eventually stop:

What remains then is a fairly simple assertion:  the primary way to boost corporate profits to abnormally high – but unsustainable – levels is for the government and the household sector to both spend beyond their means at the same time.

*   *   *

The conclusion is straightforward.  The hope for continued high profit margins really comes down to the hope that government and the household sector will both continue along unsustainable spending trajectories indefinitely.  Conversely, any deleveraging of presently debt-heavy government and household balance sheets will predictably create a sustained retreat in corporate profit margins.  With the ratio of corporate profits to GDP now about 70% above the historical norm, driven by a federal deficit in excess of 8% of GDP and a deeply depressed household saving rate, we view Wall Street’s embedded assumption of a permanently high plateau in profit margins as myopic.

Will January 1, 2013 be the day when the world realizes that “the Emperor is naked”?  Will the American economy fall off the “massive fiscal cliff of large spending cuts and tax increases” eleven days after the end of the Mayan calendar?  When we wake-up with our annual New Year’s Hangover on January 1 – will we all regret not having followed the example set by those Doomsday Preppers on the National Geographic Channel?

Get your “bug-out bag” ready!  You still have nine months!


 

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Scientists Bust the Top One Percent

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Ever since the Occupy Wall Street movement began last fall, we have been hearing the incessant mantra of:  Don’t blame the rich for wealth inequality.  In fact, Herman Cain’s futile bid for the Presidency was based (in part) on that very theme.  Last January, James Q. Wilson (who passed away on Friday) wrote an opinion piece for The Washington Post entitled, “Angry about inequality?  Don’t blame the rich”.  Paul Buchheit of the Common Dreams blog rebutted Wilson’s essay with this posting:  “So say the rich:  ‘Don’t blame us for having all the money!’ ”.  How often have you read and heard arguments from apologists for the Wall Street banksters, upbraiding those who dared speak ill of those sanctified “job creators” within the top one percent of America’s economic strata?

Finally, a group of scientists has intervened by conducting some research about the ethics of those at the top of America’s socioeconomic food chain.  Stéphane Côté, PhD, Associate Professor of Organizational Behavior at the University of Toronto’s Rotman School of Management, worked with a team of four psychologists from the University of California at Berkeley to conduct seven studies on this subject.  Their paper, “Higher social class predicts increased unethical behavior” was published in the February 27 issue of the Proceedings of the National Academy of Sciences (PNAS).  Here is the abstract:

Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals.  In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals.  In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals.  Mediator and moderator data demonstrated that upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.

The impact and the timing of this article, with respect to the current debate over income inequality, have resulted in quite a bit of interesting commentary.  I enjoyed the perspective of Peter Dorman at the Econospeak blog:

The tone of the first wave of commentary, as far as I can tell, is that we knew it all along – rich people are nasty.  I would like to put in a word, however, for the other direction of causality, that dishonesty and putting one’s own interests ahead of others are conducive to wealth.

*   *   *

The reason I bring this up is because there is a constant background murmur in our society that says that greater wealth has to be a reward for more talent, more effort or more contribution to society.

Most of the commentary written about the PNAS article has been relatively non-partisan.  Two-day access for reading the article on-line will cost you ten bucks.  For those of us who can’t afford that (as well as for those who can afford it – but are too greedy to pay for anything) I have assembled a number of excerpts from articles written by those who actually read the entire scientific paper.  The following passages will provide you with some interesting details about the research conducted by this group.

Christopher Shea of The Wall Street Journal gave us a brief peek at some of the specific findings of the studies conducted by this team.

It went so far as to show that higher-class people will literally take candy from the mouths of children.

An excerpt quoted by Shea illustrated how the group expanded on an observation made by French sociologist Émile Durkheim:

 “From the top to the bottom of the ladder, greed is aroused,” Durkheim famously wrote.  Although greed may indeed be a motivation all people have felt at points in their lives, we argue that greed motives are not equally prevalent across all social strata.

Brandon Keim of Wired offered us more research data from the article, while focusing on the observations of team member Paul Piff, a Berkeley psychologist:

“This work is important because it suggests that people often act unethically not because they are desperate and in the dumps, but because they feel entitled and want to get ahead,” said evolutionary psychologist and consumer researcher Vladas Griskevicius of the University of Minnesota, who was not involved in the work.  “I am especially impressed that the findings are consistent across seven different studies with varied methodologies.  This work is not just good science, but it is shows deeper insight into the reasons why people lie, cheat, and steal.”

According to Piff, unethical behavior in the study was driven both by greed, which makes people less empathic, and the nature of wealth in a highly stratified society.  It insulates people from the consequences of their actions, reduces their need for social connections and fuels feelings of entitlement, all of which become self-reinforcing cultural norms.

“When pursuit of self-interest is allowed to run unchecked, it can lead to socially pernicious outcomes,” said Piff, who noted that the findings are not politically partisan.  “The same rules apply to liberals and conservatives.  We always control for political persuasion,” he said.

For Thomas B. Edsall of The New York Times, the research performed by this group helped explain the rationale behind a bit of Republican campaign strategy:

Republicans recognize the political usefulness of objectification, capitalizing on “compassion fatigue,” or the exhaustion of empathy, among large swathes of the electorate who are already stressed by the economic collapse of 2008, high levels of unemployment, an epidemic of foreclosures, stagnant wages and a hyper-competitive business arena.

Compassion fatigue was fully evident in Rick Santelli’s 2009 rant on CNBC denouncing a federal plan to prop up “losers’ mortgages” at taxpayer expense, a rant that helped spark the formation of the Tea Party.  Republican debates provided further evidence of compassion fatigue when audiences cheered the record-setting use of the death penalty in Texas and applauded the prospect of a gravely ill pauper who, unable to pay medical fees, was allowed to die.

Jonathan Gitlin of Ars Technica reported on some of the juicy details from a few experiments.  When reading about my favorite experiment, keep in mind that the term “SES” refers to socioeconomic status.

Study number four involved participants rating themselves on the SES scale to heighten their perception of status; they were then answered a number of questions relating to unethical behavior.  At the end of the experiment, they were presented with a jar of individually wrapped candy and told that, although it was for children in a nearby lab, they could take some if they wanted.  At this point you might be able to guess what the results were.  High SES participants took more candy.

Gitlin concluded his review of the paper with this thought:

The researchers argue that “the pursuit of self-interest is a more fundamental motive among society’s elite, and the increased want associated with greater wealth and status can promote wrongdoing.”  However, they point out that their findings aren’t absolute, and that philanthropic efforts such as those of Bill Gates and Warren Buffet buck the observed trend, as does research which has shown a relationship between poverty and violent crime.

Meanwhile, the debate over economic inequality continues to rage on through the 2012 election cycle.  It will be interesting to observe whether this scientific report is exploited to bolster the argument that most of the one-percenters suffer from a character flaw, which not only got them where they are today – but which is shared by their kleptocratic comrades, who have facilitated a system of legalized predation.


 

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Widespread Disappointment With Financial Reform

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Exactly one year 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 bill – 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 year since that posting, I felt a bit less misanthropic each time someone spoke out, wrote an article or made a presentation demonstrating that our government’s “financial reform” effort was nothing more than political theater.  Last July, Rich Miller of Bloomberg News reported that according to a Bloomberg National Poll, almost eighty percent of those surveyed expressed “just a little or no confidence” that the financial reform bill would make their financial assets more secure.  Forty-seven percent believed that the bill would do more to protect the financial industry than consumers.  The American public is not as dumb as most people claim!

This past week brought us three great perspectives on the worthlessness of our government’s financial reform facade.  I was surprised that the most impressive presentation came from a Fed-head!   Thomas M. Hoenig, President and CEO of the Kansas City Federal Reserve Bank, gave a speech at New York University’s Stern School of Business, concerning the future of “systemically important financial institutions” or “SIFIs” and the Dodd-Frank Act.  (Bill Black prefers to call them “systemically dangerous institutions” or “SDIs”.)   After a great discussion of the threat these entities pose to our financial system and the moral hazard resulting from the taxpayer-financed “safety net”, which allows creditors of the SIFIs to avoid accountability for risks taken, Tom Hoenig focused on Dodd-Frank:

Following this financial crisis, Congress and the administration turned to the work of repair and reform.  Once again, the American public got the standard remedies – more and increasingly complex regulation and supervision.  The Dodd-Frank reforms have all been introduced before, but financial markets skirted them.  Supervisory authority existed, but it was used lightly because of political pressure and the misperceptions that free markets, with generous public support, could self-regulate.

Dodd-Frank adds new layers of these same tools, but it fails to employ one remedy used in the past to assure a more stable financial system – simplification of our financial structure through Glass-Steagall-type boundaries.  To this end, there are two principles that should guide our efforts to restore such boundaries.  First, institutions that have access to the safety net should be restricted to certain core activities that the safety net was intended to protect – making loans and taking deposits – and related activities consistent with the presence of the safety net.

Second, the shadow banking system should be reformed in its use of money market funds and short-term repurchase agreements – the repo market.  This step will better assure that the safety net is not ultimately called upon to bail them out in crisis.

Another engaging perspective on financial reform efforts came from Phil Angelides, who served as chairman of the Financial Crisis Inquiry Commission, which conducted televised hearings concerning the causes of the financial crisis and issued its final report in January.  On June 27, Angelides wrote an article for The Washington Post wherein he discussed what caused the financial crisis, the current efforts to “revise the historical narrative” of what led to the economic catastrophe, as well as the efforts to undermine, subvert and repeal the meager reforms Dodd-Frank authorized.  Angelides didn’t pull any punches when he upbraided Congressional Republicans for conduct which the Democrats have been too timid (or complicit) to criticize:

If you are Rep. Paul Ryan, you ignore the fact that our federal budget deficit has ballooned more than $10 trillion annually since the financial collapse.  You disregard the reality that two-thirds of the deficit increase is directly attributable to the economic downturn and bipartisan fiscal measures adopted to bolster the economy.  Instead of focusing on the real cause of the deficit, you conflate today’s budgetary disaster with the long-term challenges of Medicare so you can shred the social safety net.

*   *   *

If you are most congressional Republicans, you turn a blind eye to the sad history of widespread lending abuses that savaged communities across the country and pledge to block the appointment of anyone to head the new Consumer Financial Protection Bureau unless its authority is weakened.  You ignore the evidence of pervasive excess that wrecked our financial markets and attempt to cut funding for the regulators charged with curbing it.  Across the board, you refuse to acknowledge what went wrong and then try to stop efforts to make it right.

David Sirota wrote a great essay for Salon entitled, “America’s unique hatred of finance reform”.  Sirota illustrated how bipartisan efforts to undermine financial reform are turning America into – what The Daily Show with Jon Stewart called – “Sweden’s Mexico”:

On one hand, Europe’s politics of finance seem to be gradually moving in the direction of Sweden — that is, in the direction of growth and stability.  As the Washington Post reports, that Scandinavian country — the very kind American Tea Party types write off with “socialist” epithets — has the kind of economy the U.S. can now “only dream of:  growing rapidly, creating jobs and gaining a competitive edge (as) the banks are lending, the housing market booming (and) the budget is balanced.”  It has accomplished this in part by seriously regulating its banking sector after it collapsed in the 1990s.

*   *   *

After passing an embarrassingly weak financial “reform” bill that primarily cemented the status quo, the U.S. government is now delaying even the most minimal new rules that were included in the legislation.  At the same time, Senate Republicans are touting their plans to defund any new financial regulatory agencies; the chairman of the House Financial Services Committee has declared that “Washington and the regulators are there to serve the banks” — not the other way around; and the Obama administration is now trying to force potential economic partners to accept financial deregulation as a consequence of bilateral trade deals.

Meanwhile, the presidential campaign already looks like a contest between two factions of the same financial elite — a dynamic that threatens to make the 2012 extravaganza a contest to see which party can more aggressively suck up to the banks.

Any qualified, Independent political candidate, who is willing to step up for the American middle class and set out a plan of action to fight the financial industry as well as its lobbyists, would be well-positioned for a 2012 election victory.


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Crazy Like Fox

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Donald Trump has enjoyed a good deal of publicity during the past few weeks, since he jumped on the “birther” bandwagon, voicing skepticism as to whether Barack Obama was really born in the United States.  Many of Trump’s critics insist that The Donald is not a serious Presidential candidate and that his newfound “birther” agenda demonstrates that his Presidential campaign is nothing more than a flimflam publicity stunt.

I have a different theory.  I believe that Trump is running a “decoy” campaign.  Keep in mind that Trump is currently the #2 contender for the Republican nomination.  Remember also that the Republican Presidential primaries for 11 states (and the District of Columbia) are conducted on a “winner-take-all” basis – meaning that when a candidate wins a state primary, that candidate wins all of the delegates who will represent that state at the Republican National Convention.  If Trump can win a few of those states, he could amass an impressive amount of “pledged” delegates.  I suspect that Trump’s goal is to win the support from the extreme right wing of the Republican Party and “hijack” those delegates who would have been otherwise pledged to candidates acceptable to the Tea Party.  Bill O’Reilly’s intervention to defuse the “birther” controversy (at which point he insisted that Trump has not been seriously seeking the nomination) was apparently motivated by the fact that the candidates most likely to be eliminated from contention because of Trump’s presence – Michele Bachmann and Sarah Palin – are both darlings of Fox News.  In fact, Palin is a Fox News contributor.

At the 2012 Republican Convention in Tampa, Trump could step aside and support Willard Romney, who is despised my many Tea Party activists for having created what is now known as “Obamacare”.  Trump’s elimination of the Tea Party favorites before the convention would solve Romney’s problem with that voting bloc.  Romney can be expected to have an equally difficult time winning the support of dog lovers, as a result of his decision to strap the family dog, Seamus, to the car roof for a 12-hour family vacation drive to Ontario.  Despite his “Presidential” appearance, this Homer Simpson-esque episode from Romney’s life has already impaired efforts to portray him as a potentially effective Commander-In-Chief.

Meanwhile, President Obama is busy trumpeting his newly-minted, false campaign promises.  Gallup reported that on April 15, Obama’s approval rating had tied its all-time low of 41%.  More interestingly, his approval rating among African-American and Hispanic voters is beginning to slip from its enormously-high levels:

Though majorities of blacks (85%) and Hispanics (54%) continue to approve of the job Barack Obama is doing as president, his ratings among these groups slipped in March and have set or tied new lows.

*   *   *

Obama, elected to office with strong support from minority voters, has averaged better than 90% approval among blacks, and 65% among Hispanics, during his term.  Prior to March, Obama’s lowest monthly average among blacks was 88% in July 2010 and December 2010.  The president’s 54% March job approval rating among Hispanics ties the low from July and August 2010.

Despite the efforts of Republican commentators, such as Peggy Noonan, to create a narrative to the effect that Obama’s waning popularity – as well as the losses sustained by the Democrats in the 2010 elections – resulted from voter concern about government spending and the deficit, I suspect that Americans have simply become alienated by the failure of Obama and his party to deliver on their 2008 promises.  Worse yet, the capitulation to the interests of Wall Street by Democrats who promised “reform” has reinforced voter apathy – the real factor in the 2010 Democratic setbacks.

Cord Jefferson of Good provided this graphic of what Congress would look like if it truly represented America.  The failure of Democrats to win the support of Independent and centrist voters is readily apparent.  You can blame gerrymandering all you want, but as long as the Democrats fail to provide alternatives to Republican policies, they will continue to lose.  I believe it was William Black who said:

Under America’s two-party system, we have one party that is owned by big business and another party that sells out to big business.

I was pleased to see my own sentiments shared and articulated quite well by Mike Kimel of the Presimetrics Blog, in his recent posting entitled, “Why I Will Not be Voting for Obama in 2012”.  Although Mr. Kimel doesn’t have an alternative candidate in mind, the very reason for his disillusionment with Obama is that – with respect to the nation’s most significant problems – our current President has proposed no alternative policies to those of his predecessor:

And yes, there are a handful of things Obama did that GW might not do, but let’s be realistic – this has looked from the very beginning like GW’s third term.

Which leaves just one question – if the policies of the Republicans are even worse than Obama’s – and they tend to support anti-growth tax policies (calling them pro-growth doesn’t change the data), what should a rational person do?  I don’t know.  But I think if I’m going to see Republican policies enacted, I’d prefer to see them run under a Republican label.  See, Democratic policies may not be very good, but historically they have tended to produce better results than Republican policies.  (BTW – Michael Kanell and I have an entire book called Presimetrics looking at how Presidents performed on a wide range of topics.)  Another four years spent bringing the feeble Democratic brand down to the levels of the even more feeble Republican brand will cause lasting damage.

Obama will never re-ignite the enthusiasm of 2008 by presenting himself to the voters as “the devil you know” or “the lesser of two evils”.  What America’s middle class really needs is an honest, Independent candidate to make a run for The White House in 2012.


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The Biggest Challenge For Hillary

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December 1, 2008

The recent attacks in Mumbai, India focused international attention back to the continuing problem of organized terrorist activity.  As Hillary Clinton is presented to the world as our next Secretary of State, the more sensationalist elements of the media have their focus on terrorism.  Terrorism is highlighted to the exclusion of the other pressing matters to be faced during Secretary Clinton’s upcoming tenure, presiding over that all-important bureaucracy in the neighborhood known as “Foggy Bottom”.  Nevertheless, Secretary Clinton will have several other pressing issues on her agenda  — “leftovers” that have stumped the previous administration for the past eight years.  Among these abandoned, stinking socks on the floor of the Oval Office, the least fragrant involves the situation with Iran.  The Bush years took that bad situation and made it far worse.  A December 1 article in the Tehran Times focused on the remarks of Majlis Speaker, Ali Larijani, about what might lie ahead between the United States and Iran.  While suggesting that the Bush Administration “sabotaged” efforts to resolve the dispute over Iran’s nuclear program, the article mentioned Larijani’s criticisms of what was described as the Democrats’ Iran containment policy.

A report in the December 1 Los Angeles Times examined the expectations of Arabs and Israelis, with Hillary Clinton as Secretary of State.  Discussing various forecasts concerning American strategy towards Iran, the article noted:

Some analysts predict the Obama administration will try instead to broker an Israeli-Syrian accord, aimed at drawing Syria away from Iran’s influence and diminishing Iran as a threat to the Jewish state.

Elizabeth Bumiller’s article in the November 22 New York Times described the “working chemistry” that has developed between Barack Obama and Ms. Clinton.  This chemistry resulted in a softening of Clinton’s position, expressed during the primary season debates, about negotiating with Iran:

But although Mrs. Clinton criticized Mr. Obama for being willing to sit down and talk to dictators, he has said he would have a lower-level envoy do preparatory work for a meeting with Iran’s leaders first.  Mrs. Clinton has said she favors robust diplomacy with Iran and lower-level contacts as well.

In the November 24 Jerusalem Post, Douglas Bloomfield gave us a refreshing look at how the Obama – Clinton foreign policy team might function:

Hillary’s great challenge will be to remember who IS President, who ISN’T and who WAS.  She will have to focus on rebuilding relationships damaged during the Bush years of “my way or the highway” foreign policy, taking the lead from the man she once described as not ready to be president.

*  *  *

In the Middle East peace process, as in other policy areas, Obama seems intent on charting a pragmatic, centrist course.  While that will disappoint both the Jewish Right and Left, it could prove a welcome change after eight years of the Bush administration’s faith-based foreign policy and not-so-benign neglect of the peace process.

As Inauguration Day approaches, the Bush Administration’s legacy of complete incompetence in nearly all areas is being documented by countless writers around the world.  By invading Iraq, Bush-Cheney helped Iran realize its dreams of hegemony.  Bush’s mishandling of Iran’s rise as a nuclear power became the subject of a thought-provoking opinion piece by David Ignatius in the November 30 Washington Post.  Mr. Ignatius noted that Iran had neither enriched uranium nor the technology to enrich uranium (centrifuges) when Bush took power.  As Bush’s days in the White House wind down, we now see Iran with nearly 4,000 centrifuges and approximately 1,400 pounds of enriched uranium.  The 2006 precondition that Iran halt uranium enrichment before the United States would participate in diplomatic efforts to address this issue, exemplifies the handicapped mindset of the Bush-Cheney regime.  As Mr. Ignatius pointed out:

It’s impossible to say whether Iran’s march toward nuclear-weapons capability could have been stopped by diplomacy.  But there hasn’t yet been a good test.  Because of bitter infighting in the Bush administration, its diplomatic efforts were late in coming and, once launched, have been ineffective.

By the time we finally have a President and a Secretary of State who are capable of taking on the dicey task of negotiating with Iran on the nuclear issue, it may be too late.  Hillary Clinton’s biggest challenge in her new job has already been cut out for her by the Bush Administration’s nonfeasance.

Summers Solstice

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November 27, 2008

We are now approaching the winter solstice (December 21 – the time at which the sun is at its most southern distance from the equator during the year – a/k/a:  “the shortest day of the year” for those of us in the northern hemisphere).  President-elect Obama’s appointment of Larry Summers as Director of the National Economic Council reminds me of another definition of the word “solstice”:  a turning point.  For all his faults (most notably, his infamous remarks as President of Harvard University, about the involvement of women in the study of science) he is no longer considered so much of a “supply sider” as a centrist in the world of economics.  Summers has apparently passed a turning point in his economic philosophy.

For those unfamiliar with Larry Summers, David Leonhardt’s article, “The Return of Larry Summers” in the November 25 New York Times is worth reading. I’ve been hearing reverberations of Leonhardt’s commentary throughout the mainstream media lately.  Here is an important observation from Mr. Leonhardt’s piece:

He (Summers) is also the centrist who has made it safe for other centrist Democrats to move to the left.  Both times I’ve interviewed Mr. Obama this year, he has brought up Mr. Summers, unbidden, and pointed out that Mr. Summers was now writing a lot more about the plight of the middle class than about budget deficits.  At Monday’s news conference, Mr. Obama called him “a thought leader.”

The “thought leader” remark came up in the following context when Barack Obama announced his appointment of Summers to the National Economic Council post on November 24.

As a thought leader, Larry has urged us to confront the problems of income inequality and the middle class squeeze, consistently arguing that the key to a strong economy is a strong, vibrant, growing middle class.

This idea is at the core of my own economic philosophy and will be the foundation of all of my economic policies. And as one of the great economic minds of our time, Larry has earned a global reputation for being able to cut to the heart of the most complex and novel policy challenges.

Looking back to June 10, 2007, we find another article in the New York Times written by David Leonhardt, entitled:  “Larry Summers’s Evolution”.  As we revisit this commentary in light of our current economic crisis, the pronouncements made by Summers seem almost prophetic:

The model that most appeals to Summers is, in fact, the United States — in the decades after World War II.  At the time, this country was opening itself to more global competition, by rebuilding Europe and signing financial agreements like Bretton Woods.  But it was also taking concrete steps to build the modern middle class.  In addition to the G.I. Bill, there were the Federal Housing Administration, the Interstate Highway System and a very different tax code.  The history of progressivism “has been one of the market being protected from its own excesses,” Summers says.  “And I think now the challenge is, again, to protect a basic market system based on open trade and globalization, to make it one that works for everyone or for almost everyone, at a time when market forces are often producing outcomes that seem increasingly problematic to middle-class families.”

That essay inspired The Economist to post a piece on its Free Exchange blog on the following day, entitled “Has Larry Summers Gone Soft?”

Nevertheless, conservative writers such as Kevin Hassett of Forbes still think of Summers as an opponent to increased capital gains taxation and hence, an advocate of “supply side” economics.   Conservative writer, David Harsanyi of the Denver Post exhibited similar enthusiasm about the appointment of Summers.  However, in the November 24 National Review, Larry Kudlow saw Obama’s appointment of Summers as a move to the center:

As for Summers, while he has been mau-maued by Democratic feminists and some of the unions, he is a tough, clear-headed thinker who has for years tried to merge Keynesian and supply-side policies.  No mean feat.

At this point, many pundits are attempting to “read the tea leaves” for hints as to whether President Obama will act to reverse the Bush tax cuts or let them expire in 2011.  The consensus suggests that he may simply let them expire.  This has drawn some anxious criticism from the left.  On the November 25 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers:  “I think this is really troubling.”  However, on that same program, economics professor Robert Kuttner (the chief economics adviser to Rep. Dennis Kucinich) explained that he was “less pessimistic” than Ms. Klein about the Summers appointment:

I think even Larry Summers, because he is such an opportunist, has lately been calling for very large stimulus package, has been calling for tighter regulation of banks.

The influence of Larry Summers on the Obama Administration’s economic policy will be a continuing saga for the next few years.  At this point, the “change you can believe in” seems to absorb more than a little input from the center.

Silver’s Streak

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November 24, 2008

One of the most interesting characters to emerge from the 2008 election cycle is a young man named Nate Silver.  Not to be upstaged by Sarah Palin, once he caught the interest of the mainstream media, Nate immediately picked up a new, snappy-looking pair of eyeglasses.

Nate is a 30-year-old math wizard who turned the world of political polling on its ear by introducing said ear to some new sounds that make nearly perfect mathematical and sonic sense.  He graduated cum laude from the University of Chicago in 1980 with a major in Economics.  He then took a job for a few years, working for a consulting firm.  During that time, he developed a statistical system to forecast the performance of professional baseball players.  In 2003, he went to work for a group producing an annual book on professional baseball player performance analysis and performance forecasts, called Baseball Prospectus.  He then sold his statistical analysis system to that company and joined their staff.

In November of 2007, Nate began using his skills and systems to make forecasts of the Presidential primaries, using the pseudonym:  “Poblano” on the Daily Kos website.  On February 11, 2008, neocon William Kristol wrote an opinion piece for the New York Times, wherein he made note of “an interesting regression analysis at the Daily Kos Web site” done by Mr. Silver.  The next month, Nate started his blog, FiveThirtyEight.com, where he utilized his new system for analyzing and forecasting Presidential primary results, as well as the ultimate outcome the 2008 Presidential election.  As a consequence of this endeavor, the studios at CNN and MSNBC quickly became familiar surroundings to him.  By November 14, 2008, The New York Observer had this to say about Nate:

Mr. Silver’s statistical skills were ratified when the outcome of the presidential race aligned almost exactly with his final predictions both for the popular vote and the Electoral College breakdown  …

Later that day, Leon Neyfakh reported on The Observer website that Nate had inked a book deal with Penguin Group, USA including a $700,000 advance.  Although this advance is only ten percent of the amount allegedly offered as an advance to Sarah Palin for “her” “book”, you need to keep in mind that Nate is only 30 years old and Sarah will be a grandmother soon.

As the recount for Minnesota’s Senatorial election moves along, Nate’s November 23 posting on his FiveThirtyEight.com website has received quite a bit of attention.  The title alone says it all:  “Projection:  Franken to Win Recount by 27 Votes”.  Will Mr. Silver’s “streak” continue?  A reader, identified as “Max” posted the following comment on that blog:  “If you are right about this you should put all others out of business.”

Nate provided us with another interesting take on the 2008 election, with a particular focus on the state of California.  I was surprised at how Maureen Dowd’s article in the November 23 New York Times exhibited either an unfamiliarity with Nate’s California analysis or (less likely) a refusal to agree with it.  To my disappointment, I detected Ms. Dowd’s apparent acceptance of the “conventional wisdom” concerning California’s controversial ballot initiative:

This month, gays who supported Barack Obama had the bittersweet experience of seeing some of the black and Latino voters who surged to the polls to vote Democratic also vote for Proposition 8, which turned gay “I dos” into “You can’ts.”

She should have known better.  I would expect a pundit of her stature to be familiar with Nate’s November 11 posting on FiveThirtyEight.com:  “Prop 8 Myths”.  Here is some of what he had to say:

But the notion that Prop 8 passed because of the Obama turnout surge is silly.

*  *  *

At the end of the day, Prop 8’s passage was more a generational matter than a racial one.  If nobody over the age of 65 had voted, Prop 8 would have failed by a point or two.  It appears that the generational splits may be larger within minority communities than among whites, although the data on this is sketchy.

Get with it, Maureen!  If Al Franken turns out to be Minnesota’s new junior Senator, you will no longer be justified in overlooking the observations of Nate Silver.

Michelle In The Spotlight

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November 20, 2008

I receive many strange comments on this website that I simply delete.  Although I am a strong proponent of First Amendment rights, I exercise my option of deleting defamatory remarks, spam-based “comments” and miscellaneous lunacy.  That final category includes a comment I received a while ago from an alleged female, focused on Michelle Obama.  The rant included this statement:  “Someone should look into Michelle  …”   I felt inclined to reply with the following:

An obstetrician actually did look into her and found two African-American babies, who were sired by Barack Obama.  Are you scared yet?

Throughout the Presidential campaign, the crazy stuff about Michelle kept turning up all over the media.  Monday, November 17, was a landmark day for that ignominious chapter in “news” coverage.  You may remember Fox News anchor E.D. Hill, who, on June 6, called attention to Michelle’s “terrorist fist jab” with Barack.  Fox News subsequently removed Hill from its America’s Pulse program.  On November 17, TVNewser reported that the Fox News Senior Vice-President of programming, Bill Shine, informed TVNewser of his decision not to renew Hill’s current contract with Fox, which expires within the next few months.  A small step for Fox, but a giant leap for  …  uh …  Fox.

From a more rational perspective, another item about Michelle appeared on today’s Daily Beast website.  The article, “Michelle’s Closet Agenda”, was written by Geraldine Brooks.  Ms. Brooks summarized the theme of her posting with this statement:

The point of this long-winded anecdote is not to add more fuel to the bonfire of the vanities surrounding the fact that, my God, we’re finally gonna’ have another first lady like Jackie who knows how to dress.  The point is twofold:  Michelle seems to be able to do everything she sets her mind to, and to do it at a high level of excellence.  And, more importantly: she knows this, and isn’t about to be “handled” into any role in which she is not supremely confident and comfortable.

This point emphasizes an aspect about Michelle that many people find threatening.  They saw it all before with Hillary Clinton:  A woman who attended law school with her husband at Yale, who went on to have an active and successful legal career.  Although Barack is two years older than Michelle, she graduated from Harvard Law School three years before our President-elect graduated from that same institution.  While working as Vice-President for Community and External Affairs for the University of Chicago Hospitals, Michelle was earning approximately $273,000 per year, in comparison with Barack’s $157,000 salary as a United States Senator representing the State of Illinois.

Michelle’s stint as First Lady follows that of Laura Bush, who did not have much to say during her husband’s eight-year tenure.  Nevertheless, book publishers are stomping on each other’s toes in the quest to obtain the publishing rights to Laura’s memoirs.  As for Michelle, many are expecting a First Lady who might have a little more to say, than did Laura Bush.  There is a great deal of doubt as to whether Michelle will become as involved in government as was Hillary Clinton, during her days promoting expanded health care.  Despite that, many people are anxious to get a little more insight from Michelle than we heard from Laura Bush.  One of the first commentators to express this craving was Jason Zengerle.  After Michelle’s speech at the Democratic National Convention, Mr. Zengerle had this to say in the August 25 edition of The New Republic:

Michelle Obama introduced herself as a sister, a wife, a mother, and a daughter–which are all incredibly important identities.  But those identities don’t reveal her full person–the Princeton and Harvard Law grad, the corporate attorney, the hospital executive–which were parts of her life that she barely mentioned.  Instead, she gave us predictable pap like “the Barack Obama I know today is the same man I fell in love with 19 years ago.”

Many pundits are hungry for more incisive, quotable wisdom from our next First Lady.  They will surely get it.  They will know better than to scrutinize Michelle’s statements for gaffes.  Joe Biden has proven himself as the new administration’s most abundant source of those.  Why look elsewhere?

Money Falling From The Sky

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November 17, 2008

The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives.  House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.

In the words of Yogi Berra, we are experiencing “déjà vu all over again”.  This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion.  Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure.  Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:

“Bailout after bailout is not a strategy,” said Stearns, who said that taxpayers could be left with a huge bill.

Yet, “bailout after bailout” is exactly where we are now.  On November 15, T-Bone Pickings appeared on NBC’s Meet the Press.  Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”.  The response was:

I wonder what you’re going to do about the next industry.  Is it going to be the airlines or what if Toyota and Honda want some help, too?  I don’t know.  I don’t know where it stops.

Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”.  However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology.  Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:

Can it withstand the shock to the economy if GM were to go?

Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:

When you talk about the negative shock that would result from bankruptcies of these companies, right now  …

The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled:  “Here We Go Again”.  At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.  She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crises we are going through now.

Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation.  She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”.  Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans?  Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:

There is no way to reconcile the public’s vote for change with the market’s foot-stomping for more of the same.  Any and all moves to change course will be met with short-term market shocks.  The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust.  Furthermore, the timing for this turbulence has never been better.  Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise.  That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first.  Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate.  The longer he waits, however, the more memories fade.

When transferring power from a functional, trustworthy regime, everyone favors a smooth transition.  When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

The Obama Administration would be wise to heed Ms. Klein’s suggestions.  It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.

Because He Is A Tool

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November 13, 2008

The “Tool Watch” continues.  In the days after the historic 2008 Presidential election, intrigue abounds as to the future political career of Joe “The Tool” Lieberman.  Lieberman was re-elected to the Senate in 2006 as an Independent candidate (after having lost the Democratic primary to Ned Lamot).  The Tool realized that his betrayal of the Democrats could result in the loss of his many important appointments, should Obama get elected.  Joe had already “sold his soul” to Bush, Cheney and Rove in his quest for re-election.  At that point, he had no choice but to “go for broke” by endorsing John McCain.  However, The Tool went beyond that.  He spoke ill of Obama at the Republican Convention.  He followed McCain around throughout the Presidential campaign, giving rally speeches himself, in addition to serving as McCain’s “nodder” when McCain would question Obama’s patriotism.  The Tool questioned Obama’s patriotism with his own allegations that Obama placed allegiance to the Democratic Party ahead of his allegiance to the country.  The Tool evoked further outrage from Democrats by campaigning for “down ticket” Republicans, while stumping around the country for McCain and Palin.  Now that Obama has been elected President, many Democrats are hungry to avenge The Tool’s malicious acts by stripping him of the appointments earned while in good standing as a member of the Democratic Party.  The most notable of these is his chairmanship of the Senate Committee on Homeland Security and Governmental Affairs.  President-elect Obama has expressed his desire to see Lieberman remain in the Senate Democratic Caucus.  Obama has said nothing about The Tool’s numerous committee and subcommittee memberships or chairmanships.  In keeping with his “No Drama Obama” image, the President-elect appears to have distanced himself from any “blood feuds” involving Lieberman.

My animosity toward The Tool is based on the fact that he is a pathetic ass-kisser.  He knew that his committee appointments would be in jeopardy in the event of an Obama victory.  Accordingly, he didn’t simply endorse John McCain.  He followed McCain around as a stray dog, looking for a new home.  Those of us with the experience of having worked with such people, know that these individuals don’t deserve much in the way of respect.  One of the reasons we enjoy watching “action movies” is because the “ass-kisser” is usually the first person to get killed (by either the hero or the villain).  It seems as though justice and karma are well-served in these movies, when such cretins get their due.

Many people who consider themselves “liberal Democrats” seem anxious to make The Tool an example for future, would-be defectors.  On November 12, MSNBC’s Rachel Maddow expressed her concern that the Lieberman case could set a precedent, regardless of what action the Senate Democrats might take in light of The Tool’s transgressions.  Her November 10 program included an interview with Steve Clemons of The Washington Note website.  Mr. Clemons suggested removing Lieberman from his chairmanship of the Committee on Homeland Security and Governmental Affairs because of the The Tool’s fear mongering on the subject of homeland security throughout the 2008 campaign.  Clemons emphasized the proposition that Lieberman should not be able to use homeland security or national security as a foundation to batter Democrats who want a smarter national security policy.

Rachel Maddow discussed this subject again on November 12, with Indiana Senator Evan Bayh.  Senator Bayh discussed the possibility that Lieberman might be unwilling to suffer the indignity of being stripped of his appointments and thus relegated to the status of backbencher.  Bayh worried that under such circumstances, The Tool  might self-destruct:  resign from the Senate and allow Connecticut’s Republican Governor (Jodi Rell) to appoint a “pure Republican” to replace Lieberman.  To Bayh, this would be a more undesirable alternative than putting up with a traitor.  His logic seems based on the rationale that because Lieberman is such a tool, the Democrats could make him their tool once again.  Bayh suggested a two-part compromise.  First, Lieberman should be allowed to retain his chairmanship of the Committee on Homeland Security with “oversight”.  Bayh pointed out that a committee chairman could be replaced at any time.  If those overseeing The Tool reached the conclusion that he should be ousted, it would only then become appropriate for such action.  The second part of Bayh’s proposed compromise would involve an apology from Lieberman for his antics during the 2008 campaign.  I would like to suggest another alternative.  In the event Lieberman might be unwilling to make such an apology, the Senate Democrats should demand that The Tool have the word “Craftsman” tattooed on his forehead.