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Fighting The Old War

September 30th, 2010 Posted in Uncategorized

Sep, 30 2010

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September 30, 2010

The New York Times recently ran a story about Mayor Michael Bloomberg’s efforts to support the campaigns of centrist Republicans out of concern that the election of “Tea Party” – backed candidates was pushing the Republican Party to the extreme right. The article by Michael Barbaro began this way:

In an election year when anger and mistrust have upended races across the country, toppling moderates and elevating white-hot partisans, Mayor Michael R. Bloomberg is trying to pull politics back to the middle, injecting himself into marquee contests and helping candidates fend off the Tea Party.

Although it’s nice to see Mayor Bloomberg take a stand in support of centrism, I believe he is going about it the wrong way. There are almost as many different motives driving people to the Tea Party movement as there are attendees at any given Tea Party event. Although the movement is usually described as a far-right-wing fringe phenomenon, reporters who have attended the rallies and talked to the people found a more diverse group. Consider the observations made by True Slant’s David Masciotra, who attended a Tea Party rally in Valparaiso, Indiana back on April 14:

The populist anger of the Northwest Indiana tea partiers could be moved to a left-wing protest rally without much discernible difference.

As much as the NWI Patriots seemed to hate Obama and health care reform, they also hate large corporations and the favorable treatment they are given by Washington.

* * *

They have largely legitimate concerns and grievances about the quality of their lives and future of their children’s lives that are not being addressed in Washington by either party. Their wages have stagnated, while the cost of raising a family has crushingly increased.

My pet theory is that the rise of the Tea Party movement is just the first signal indicating the demise of the so-called “two-party system”. I expect this to happen as voters begin to face up to the fact that the differences between Democratic and Republican policies are subtle when compared to the parties’ united front with lobbyists and corporations in trampling the interests of individual citizens. On July 26, I wrote a piece entitled, “The War On YOU”, discussing the battle waged by “our one-party system, controlled by the Republi-cratic Corporatist Party”. On August 30, I made note of a recent essay at the Zero Hedge website, written by Michael Krieger of KAM LP. One of Krieger’s points, which resonated with me, was the idea that whether you have a Democratic administration or a Republican administration, both parties are beholden to the financial elites, so there’s not much room for any “change you can believe in”:

. . . the election of Obama has proven to everyone watching with an unbiased eye that no matter who the President is they continue to prop up an elite at the top that has been running things into the ground for years. The appointment of Larry Summers and Tiny Turbo-Tax Timmy Geithner provided the most obvious sign that something was seriously not kosher. Then there was the reappointment of Ben Bernanke. While the Republicans like to simplify him as merely a socialist he represents something far worse.

Barry Ritholtz, publisher of The Big Picture website, recently wrote a piece focused on how the old Left vs. Right paradigm has become obsolete. He explained that the current power struggle taking place in Washington (and everywhere else) is the battle of corporations against individuals:

We now live in an era defined by increasing Corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there are massive concentrations of wealth and influence, there will be abuse of power. The Individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.

* *   *

For those of you who are stuck in the old Left/Right debate, you are missing the bigger picture. Consider this about the Bailouts: It was a right-winger who bailed out all of the big banks, Fannie Mae, and AIG in the first place; then his left winger successor continued to pour more money into the fire pit.

What difference did the Left/Right dynamic make? Almost none whatsoever.

*   *   *

There is some pushback already taking place against the concentration of corporate power: Mainstream corporate media has been increasingly replaced with user created content – YouTube and Blogs are increasingly important to news consumers (especially younger users). Independent voters are an increasingly larger share of the US electorate. And I suspect that much of the pushback against the Elizabeth Warren’s concept of a Financial Consumer Protection Agency plays directly into this Corporate vs. Individual fight.

But the battle lines between the two groups have barely been drawn. I expect this fight will define American politics over the next decade.

Keynes vs Hayek? Friedman vs Krugman? Those are the wrong intellectual debates. It’s you vs. Tony Hayward, BP CEO, You vs. Lloyd Blankfein, Goldman Sachs CEO.   And you are losing   . . .

Barry Ritholtz concluded with the statement:

If you see the world in terms of Left & Right, you really aren’t seeing the world at all . . .

I couldn’t agree more. Beyond that, I believe that politicians who continue to champion the old Left vs. Right war will find themselves in the dust as those leaders representing the interests of human citizens rather than corporate interests win the support and enthusiasm of the electorate. Similarly, those news and commentary outlets failing to adapt to this changing milieu will no longer have a significant following. It will be interesting to see who adjusts.

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A Shocking Decision

September 23rd, 2010 Posted in Uncategorized

Sep, 23 2010

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September 23, 2010

Nobody seems too surprised about the resignation of Larry Summers from his position as Director of the National Economic Council. Although each commentator seems to have a unique theory for Summers’ departure, the event is unanimously described as “expected”.

When Peter Orszag resigned from his post as Director of the Office of Management and Budget, the gossip mill focused on his rather complicated love life. According to The New York Post, the nerdy-looking number cruncher announced his engagement to Bianna Golodryga of ABC News just six weeks after his ex-girlfriend, shipping heiress Claire Milonas, gave birth to their love child, Tatiana. That news was so surprising, few publications could resist having some fun with it. Politics Daily ran a story entitled, “Peter Orszag: Good with Budgets, Good with Babes”. Mark Leibovich of The New York Times pointed out that the event “gave birth” to a fan blog called Orszagasm.com. Mr. Leibovich posed a rhetorical question at the end of the piece that was apparently answered with Orszag’s resignation:

This goes to another obvious — and recurring — question: whether someone whose personal life has become so complicated is really fit to tackle one of the most demanding, important and stressful jobs in the universe. “Frankly I don’t see how Orszag can balance three families and the national budget,” wrote Joel Achenbach of The Washington Post.

The shocking nature of the Orszag love triangle was dwarfed by President Obama’s nomination of Orszag’s replacement: Jacob “Jack” Lew. Lew is a retread from the Clinton administration, at which point (May 1998 – January 2001) he held that same position: OMB Director. That crucial time frame brought us two important laws that deregulated the financial industry: the Financial Services Modernization Act of 1999 (which legalized proprietary trading by the Wall Street banks) and the Commodity Futures Modernization Act of 2000, which completely deregulated derivatives trading, eventually giving rise to such “financial weapons of mass destruction” as naked credit default swaps. Accordingly, it should come as no surprise that Lew does not believe that deregulation of the financial industry was a proximate cause of the 2008 financial crisis. Lew’s testimony at his September 16 confirmation hearing before the Senate Budget Committee was discussed by Shahien Nasiripour of The Huffington Post:

Lew, a former OMB chief for President Bill Clinton, told the panel that “the problems in the financial industry preceded deregulation,” and after discussing those issues, added that he didn’t “personally know the extent to which deregulation drove it, but I don’t believe that deregulation was the proximate cause.”

Experts and policymakers, including U.S. Senators, commissioners at the Securities and Exchange Commission, top leaders in Congress, former financial regulators and even Obama himself have pointed to the deregulatory zeal of the Clinton and George W. Bush administrations as a major cause of the worst financial crisis since the Great Depression.

During 2009, Lew was working for Citigroup, a TARP beneficiary. Between the TARP bailout and the Federal Reserve’s purchase of mortgage-backed securities from that zombie bank, Citi was able to give Mr. Lew a fat bonus of $950,000 – in addition to the other millions he made there from 2006 until January of 2009 (at which point Hillary Clinton found a place for him in her State Department).

The sabotage capabilities Lew will enjoy as OMB Director become apparent when revisiting my June 28 piece, “Financial Reform Bill Exposed As Hoax”:

Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit). The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study. The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban. Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome. Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact. Jim Jubak exposed the strategy employed by the lobbyists:

But lobbying Congress is only part of the game. Congress writes the laws, but it leaves it up to regulators to write the rules. In a mid-June review of the text of the financial-reform legislation, the Chamber of Commerce counted 399 rule-makings and 47 studies required by lawmakers.

Each one of these, like the proposed de minimus exemption of the Volcker rule, would be settled by regulators operating by and large out of the public eye and with minimal public input. But the financial-industry lobbyists who once worked at the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Commodities Futures Trading Commission or the Federal Deposit Insurance Corp. know how to put in a word with those writing the rules. Need help understanding a complex issue? A regulator has the name of a former colleague now working as a lobbyist in an e-mail address book. Want to share an industry point of view with a rule-maker? Odds are a lobbyist knows whom to call to get a few minutes of face time.

You have one guess as to what agency will be authorized to make sure those new rules comport with the intent of the financial “reform” bill . . . Yep: the OMB (see OIRA).

President Obama’s nomination of Jacob Lew is just the latest example of a decision-making process that seems incomprehensible to his former supporters as well as his critics. Yves Smith of Naked Capitalism refuses to let Obama’s antics go unnoticed:

The Obama Administration, again and again, has taken the side of the financial services industry, with the occasional sops to unhappy taxpayers and some infrequent scolding of the industry to improve the optics.

Ms. Smith has developed some keen insight about the leadership style of our President:

The last thing Obama, who has been astonishingly accommodating to corporate interests, needs to do is signal weakness. But he has made the cardinal mistake of trying to please everyone and has succeeded in having no one happy with his policies. Past Presidents whose policies rankled special interests, such as Roosevelt, Johnson, and Reagan, were tenacious and not ruffled by noise. Obama, by contrast, announces bold-sounding initiatives, and any real change will break eggs and alienate some parties, then retreats. So he creates opponents, yet fails to deliver for his allies.

Yes, the Disappointer-In-Chief has failed to deliver for his allies once again – reinforcing my belief that he has no intention of running for a second term.

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Voters Got Fooled Again

September 13th, 2010 Posted in Uncategorized

Sep, 13 2010

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September 13, 2010

With mid-term elections approaching, the articles are turning up all over the place. Newsweek’s Howard Fineman calls them pre-mortems: advance analyses of why the Democrats will lose power in November. Some of us saw the handwriting on the wall quite a while ago. Before President Obama had completed his first year in office, it was becoming clear that his campaign theme of “hope” and “change” was just a ruse to con the electorate. On September 21, 2009, I wrote a piece entitled, “The Broken Promise”, based on this theme:

Back on July 15, 2008 and throughout the Presidential campaign, Barack Obama promised the voters that if he were elected, there would be “no more trickle-down economics”. Nevertheless, his administration’s continuing bailouts of the banking sector have become the worst examples of trickle-down economics in American history — not just because of their massive size and scope, but because they will probably fail to achieve their intended result. Although the Treasury Department is starting to “come clean” to Congressional Oversight chair Elizabeth Warren, we can’t even be sure about the amount of money infused into the financial sector by one means or another because of the lack of transparency and accountability at the Federal Reserve.

In November of 2009, Matt Taibbi wrote an article for Rolling Stone entitled,“Obama’s Big Sellout”. Taibbi’s essay inspired Edward Harrison of Credit Writedowns to write his own critique of Obama’s first eleven months in office. Beyond that, Mr. Harrison’s assessment of the fate of proposed financial reform legislation turned out to be prescient. Remember – Ed Harrison wrote this on December 11, 2009:

As you probably know, I have been quite disappointed with this Administration’s leadership on financial reform. While I think they ‘get it,’ it is plain they lack either the courage or conviction to put forward a set of ideas that gets at the heart of what caused this crisis.

It was clear to many by this time last year that the President may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team. As smart and qualified as these two are, they are rightfully seen as allied with Wall Street and the anti-regulatory movement.

At a minimum, the picks of Geithner and Summers were a signal to Wall Street that the Obama Administration would be friendly to their interests. It is sort of like Ronald Reagan going to Philadelphia, Mississippi as a first stop in the 1980 election campaign to let southerners know that he was friendly to their interests.

I reserved judgment because one has to judge based on actions. But last November I did ask Is Obama really “Change we can believe in?” because his Administration was being stacked with Washington insiders and agents of the status quo.

Since that time it is obvious that two things have occurred as a result of this ‘Washington insider’ bias. First, there has been no real reform. Insiders are likely to defend the status quo for the simple reason that they and those with whom they associate are the ones who represent the status quo in the first place. What happens when a company is nationalized or declared bankrupt is instructive; here, new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firm’s demise. The same is true in government.

That no ‘real’ reform was coming was obvious, even by June when I wrote a brief note on the fake reform agenda. It is even more obvious with the passage of time and the lack of any substantive reform in health care.

Second, Obama’s stacking his administration with insiders has been very detrimental to his party. I imagine he did this as a way to overcome any worries about his own inexperience and to break with what was seen as a major factor in Bill Clinton’s initial failings. While I am an independent, I still have enough political antennae to know that taking established politicians out of incumbent positions (Joe Biden, Janet Napolitano, Hillary Clinton, Rahm Emanuel, Kathleen Sebelius or Tim Kaine) jeopardizes their seat. So, the strategy of stacking his administration has not only created a status quo bias, but it has also weakened his party.

Mr. Harrison’s point about those incumbencies is now being echoed by many commentators – most frequently to point out that Janet Napolitano was replaced as Governor of Arizona by Jan Brewer. Brewer is expected to win in November despite her inability to debate or form a coherent sentence before a live audience.

Bob Herbert of The New York Times recently wrote a great piece, in which he blasted the Democrats for failing to “respond adequately to their constituents’ most dire needs”:

The Democrats are in deep, deep trouble because they have not effectively addressed the overwhelming concern of working men and women: an economy that is too weak to provide the jobs they need to support themselves and their families. And that failure is rooted in the Democrats’ continued fascination with the self-serving conservative belief that the way to help ordinary people is to shower money on the rich and wait for the blessings to trickle down to the great unwashed below.

It was a bogus concept when George H.W. Bush denounced it as “voodoo economics” in 1980, and it remains bogus today, no matter how hard the Democrats try to dress it up in a donkey costume.

I was surprised to see that Howard Fineman focused his campaign pre-mortem on President Obama himself, rather than critiquing the Democratic Party as a whole. At a time when mainstream media pundits are frequently criticized for going soft on those in power in order to retain “access”, it was refreshing to see Fineman point out some of Obama’s leadership flaws:

The president is an agreeable guy, but aloof, and not one who likes to come face to face with the enemy. Sure, GOP leaders were laying traps for him from the start. And it was foolish to assume Mitch McConnell or John Boehner would play ball. But Obama doesn’t really know Republicans, and he doesn’t seem to want to take their measure. (Nor has he seemed all that curious about what makes Democratic insiders tick.) It’s the task of the presidency to cajole people, including your enemies, into doing what they don’t want to do if it is good for the country. Did Obama think he could eschew the rituals of politics — that all he had to do was invoke His Hopeness to bring people aboard?

Well, people aren’t on board and that’s the problem. The voters were taken for chumps and they were fooled by some good campaign propaganda. Nevertheless, as President George W. Bush once said:

Fool me once – shame on – shame on you. Fool me – You can’t get fooled again!

At this point, it does not appear as though the voters who supported President Obama and company in 2008 are willing to let themselves get fooled again. At least the Republicans admit that their primary mission is to make life easier for rich people at everyone else’s expense. The fact that the voters hate being lied to – more than anything else – may be the one lesson the Democrats learn from this election cycle.

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Geithner And Summers Draw Flak

August 30th, 2010 Posted in Uncategorized

Aug, 30 2010

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August 30, 2010

It’s coming from everywhere. House Minority Leader, John “BronzeGel” Boehner, while giving a speech in Cleveland on August 24, called for the ouster of Treasury Secretary Timothy Geithner as well as the removal of National Economic Council Director, Larry Summers. Bridget Johnson reported for The Hill that on August 28, Representative Tom Price (R-Georgia) echoed the call for Geithner and Summers to step down: “They need to resign because the policies that they’re putting in place are not being effective.”

An editorial from the Republican-oriented Investors Business Daily expanded on Boehner’s criticism of the duo, without really giving any specific examples of what Geithner or Summers did wrong. That’s because what they did wrong was to protect the banks at the expense of the taxpayers — the same thing a Republican administration would have done. As a result, there have been simultaneous calls from the left for the sacking of Geithner and Summers. Robert Scheer wrote a piece for The Nation entitled, “They Go or Obama Goes”. Here is some of what he said:

It is Obama’s continued deference to the sensibilities of the financiers and his relative indifference to the suffering of ordinary people that threaten his legacy, not to mention the nation’s economic well-being.

* * *

While Obama continued the Bush practice of showering the banks with bailout money, he did not demand a moratorium on foreclosures or call for increasing the power of bankruptcy courts to force the banks, which created the problem, to now help distressed homeowners.

* * *

There is no way that Obama can begin to seriously reverse this course without shedding the economic team led by the Clinton-era “experts” like Summers and Treasury Secretary Timothy Geithner who got us into this mess in the first place.

Economist Randall Wray wrote a great piece for Wall Street Pit entitled, “Boehner Gets One Right: Fire Obama’s Economics Team”. Professor Wray distinguished his argument from Boehner’s theme that because neither Geithner nor Summers ever ran a business, they don’t know how to create jobs:

Obama’s economics team doesn’t care about job creation. (here) So far, nearly three years into the worst depression since the Great Depression, they’ve yet to turn any serious attention to Main Street. The health of Wall Street still consumes almost all of their time — and almost all government funds. Trillions for Wall Street, not even peanuts for Americans losing their jobs and homes. No one, except a highly compensated Wall Street trader, could possibly disagree with Boehner. Fire Timmy and Larry and the rest of the Government Sachs team.

As an aside: If you take offense at Professor Wray’s suggestion that the government should get actively involved in job creation, be sure to watch the interview with economist Robert Shiller by Simon Constable of The Wall Street Journal.

The Zero Hedge website recently published an essay by Michael Krieger of KAM LP. One of Krieger’s points, which resonated with me, was the idea that whether you have a Democratic administration or a Republican administration, both parties are beholden to the financial elites, so there’s not much room for any “change you can believe in”:

. . . the election of Obama has proven to everyone watching with an unbiased eye that no matter who the President is they continue to prop up an elite at the top that has been running things into the ground for years. The appointment of Larry Summers and Tiny Turbo-Tax Timmy Geithner provided the most obvious sign that something was seriously not kosher. Then there was the reappointment of Ben Bernanke. While the Republicans like to simplify him as merely a socialist he represents something far worse.

* * *

What Obama has attempted to do is to wipe a complete economic collapse under the rug and maintain the status quo so that the current elite class in the United States remains in control. The “people” see this ploy and are furious. Those that screwed up the United States economy should never make another important decision about it yet they remain firmly in control of policy. The important thing in any functioning democracy is the turnover of the elite class every now and again. Yet, EVERY single government policy has been geared to keeping that class in power and to pass legislation that gives the Federal government more power to then buttress this power structure down the road. This is why Obama is so unpopular. Everything else is just noise to keep people divided and distracted.

“Keeping people divided and distracted” helps preserve the illusion that there really is a difference between the economic policies of the two parties. If you take a close look at how President Obama’s Deficit Commission is attempting to place the cost of deficit reduction on the backs of working people, the unified advocacy for the financial sector becomes obvious. What we are left with are the fights over abortion and gay marriage to differentiate the two parties from each other.

It’s time to pay more attention to that man behind the curtain.

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Failed Leadership

July 8th, 2010 Posted in Uncategorized

Jul, 08 2010

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July 8, 2010

Exactly one year ago (on July 7, 2009) I pointed out that it would eventually become necessary for President Obama to propose a second economic stimulus package because he didn’t get it right the first time. As far back as January of 2009, the President was ignoring all of the warnings from economists such as Nobel Laureate Joseph Stiglitz, who forewarned that the proposed $850 billion economic recovery package would be inadequate. Mr. Obama also ignored the Bloomberg News report of February 12, 2009 concerning its survey of 50 economists, which described Obama’s stimulus plan as “insufficient”. Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve a robust stimulus initiative. As we now approach mid-term elections, the politicians whom Barry Ritholtz describes as “deficit chicken hawks” – elected officials with a newfound concern about budget deficits – are resisting any further stimulus efforts. Worse yet, as Ryan Grim reported for the Huffington Post, President Obama is now ignoring his economic advisors and listening, instead, to his political advisors, who are urging him to avoid any further economic rescue initiatives.

Ryan Grim’s article revealed that there has been a misunderstanding of the polling data that has kept politicians running scared on the debt issue. A recent poll revealed that responses to polling questions concerning sovereign debt are frequently interpreted by the respondents as limited to the issue of China’s increasing role as our primary creditor:

The Democrats gathered on Thursday morning to dig into the national poll, which was paid for by the Alliance for American Manufacturing and done by Democrat Mark Mellman and Republican Whit Ayers.

It hints at an answer to why people are so passionate when asked by pollsters about the deficit: It’s about jobs, China and American decline. If the job situation improves, worries about the deficit will dissipate. Asking whether Congress should address the deficit or the jobless crisis, therefore, is the wrong question.

* * *

About 45 percent of respondents said the biggest problem is that “we are too deep in debt to China,” the highest-ranking concern, while 58 percent said the U.S. is no longer the strongest economy, with China being the overwhelming alternative identified by people.

As I pointed out on May 27, even Larry Summers gets it now – providing the following advice that Obama is ignoring because our President is motivated more by fear than by a will to lead:

In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.

* * *

Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.

It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.

Since our President prefers to be a follower rather than a leader, I suggest that he follow the sound advice of The Washington Post’s Matt Miller:

I come before you, in other words, a deficit hawk to the core. But it is the height of economic folly — and socially dangerous, in my view — to elevate deficit reduction as a goal today over boosting jobs and growth. Especially when there are ways to goose the economy while at the same time legislating changes that move us toward fiscal sanity once we’re past this stagnation.

Mr. Miller presented a fantastic plan, which he described as “a radically centrist ‘Jobs Now, Deficits Soon’ package”. He concluded the piece with this painfully realistic assessment:

The fact that nothing like this will happen, therefore, is both depressing and instructive. Republicans are content to glide toward November slamming Democrats without offering answers of their own. Democrats who now know the first stimulus was too puny feel they’ll be clobbered for trying more in the Tea Party era.

The leadership void brought to us by the Obama Presidency was the subject of yet another great essay by Paul Farrell of MarketWatch. He supported his premise — that President Obama has capitulated to Wall Street’s “Conspiracy of Weasels” — with the perspectives of twelve different commentators.

The damage has already been done. Any hope that our President will experience a sudden conversion to authentic populism is pure fantasy. There will be no more federal efforts to resuscitate the job market, to facilitate the availability of credit to small businesses or to extend benefits to the unemployed. The federal government’s only concern is to preserve the well-being of those five sacred Wall Street banks because if any single one failed – such an event would threaten our entire financial system. Nothing else matters.

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I Knew This Would Happen

May 27th, 2010 Posted in Uncategorized

May, 27 2010

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May 27, 2010

It was almost a year ago when I predicted that President Obama would eventually announce the need for a “second stimulus”. Once the decision was made to drink the Keynesian Kool-Aid with the implementation of last year’s economic stimulus package, we were faced with the question of how much to drink. As I expected, our President took the half-assed, yet “moderate” approach of limiting the stimulus effort to less than what was admitted as the cost of the TARP program, as well as approving the waste of stimulus funds on “pork” projects, ill-suited to stimulate economic recovery. In that July 9, 2009 piece, I discussed the fact that liberal economist, Paul Krugman, was not alone in claiming that $787 billion would not be an adequate amount to jump-start the economy back to firing on all cylinders. I pointed out that a survey of economists conducted by Bloomberg News in February of 2009 revealed a consensus opinion that an $800 billion stimulus would prove to be inadequate. The February 12, 2009 Bloomberg article by Timothy Homan and Alex Tanzi revealed that:

Even as Obama aims to create 3.5 million jobs with a stimulus plan, economists foresee an unemployment rate exceeding 8 percent through next year.

As we now reach the mid-point of that “next year”, the unemployment rate is at 9.9 percent. Those economists were right. Beyond that, some highly-respected economists, including Robert Shiller, are discussing the risk of our experiencing a “double-dip” recession. As a result, Larry Summers, Director of the President’s National Economic Council, is advocating the passage of a new set of spending measures, referred to as the “second stimulus”. To help offset the expense, the President has asked Congress to grant him powers to cut unnecessary spending, as would be accomplished with a “line item veto”. The Financial Times described the situation this way :

The combined announcements were made amid rising concern that centrist Democrats, or those representing marginal districts, might vote against the spending measures, which include more loans for small businesses, an extension of unemployment insurance and aid to states to prevent hundreds of thousands more teachers from being laid off.

* * *

Taken together, Mr Summers’s speech and Mr Obama’s announcement show an administration walking a fine line between the need to signal strong medium-term fiscal discipline and not jeopardising what they fear may be a fragile recovery.

Because they couldn’t get it right the first time, the President and his administration have placed themselves in the position of seeking piecemeal stimulus measures. If they had done it right, we would probably be enjoying economic recovery and a boost in the ranks of the employed at this point. As a result, this half-assed, piecemeal approach will likely prove more costly than doing it right on the first try. With mid-term elections approaching, deficit hawks have their knives sharpened for anything that can be described as an “entitlement” (unless that entitlement inures to the benefit of a favored Wall Street institution). Harold Meyerson of The Washington Post challenged the logic of the deficit hawks with this argument:

Those who oppose the jobs bills in the House and Senate this week should be compelled to answer some questions, starting with: Absent more stimulus, what do they see as the plausible engine of economic recovery? What effect will laying off as many as 300,000 teachers have on the education of American children? And, more elementally, don’t they know there’s a recession on?

Marshall Auerback of the Roosevelt Institute picked up where Harold Meyerson left off, as this recent posting at the New Deal 2.0 website demonstrates:

In fact, full employment is also the best “financial stability” reform we could implement, because with jobs growth comes higher income growth and a corresponding ability to service debt. That means less write-offs for banks and a correspondingly smaller need to provide government bailouts.

Fiscal austerity, by contrast, won’t cut it. Our elites seem think that you can cut “wasteful government spending” (that is, reduce private demand further) and cut wages and hence private incomes and not expect major multiplier effects to make things significantly worse. Of course, that “wasteful”, “unsustainable” spending never seems to apply to the Department of Defense, where we always seem to be able to appropriate a few billion, whenever necessary. “Affordability” principles never extend to the Pentagon, it appears.

The fact that we are still in the midst of a severe recession (rather than a robust economic recovery as is often claimed) accounts for the rationale asserted by Larry Summers in advocating a second stimulus amounting to approximately $200 billion in spending measures. Here’s how Summers explained the proposal in a May 24 speech at the Johns Hopkins School of Advanced International Studies:

It has in recent years been essential for the federal deficit to increase as the economy has gone into recession and has been severely constrained by demand.

And I cannot agree with those who suggest that it somehow threatens the future to provide truly temporary, high-bang-for-the-buck jobs and growth measures.

Rather, assuring as rapid a recovery as possible strengthens our future economy, our future prosperity, with many benefits, including a greater ability to manage our debts.

On the other hand, those who recognize the fiscal and growth benefits of strong expansionary policies must also recognize that it is simultaneously desirable to provide confidence that deficits will come down to sustainable levels as recovery is achieved. Such confidence both spurs recovery by reducing capital costs and reduces the risk of financial accidents.

To put the point differently: It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance.

*   * *

It is important to recognize that the ultimate consequences of stimulus for indebtedness depend critically on the macroeconomic conditions. When the economy is demand constrained, the impact of a dollar of tax cuts or expansionary investment will be at its highest and the impact on deficits at its lowest.
*   *   *

In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.   This explains the logic of the Recovery Act’s success and the rationale for taking additional targeted actions to increase confidence in our economic recovery.

Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.

It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.

So, here we are at the introduction of the second stimulus plan. Despite the denial by President Obama that he would seek a second stimulus, he has Larry Summers doing just that. Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve such measures. This time around, it might not happen and that would be due to the leadership flaw I observed last year:

President Obama should have done it right the first time. His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”. The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return. The voting public will perceive this as weak leadership. As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

At this point, Obama’s “flexibility” is often viewed by the voting public as a lack of existential authenticity, sincerity or — worse yet — credibility. As a result, I would expect to see more articles like the recent piece by Carol Lee at Politico, entitled, “Obama: Day for ‘partnership’ passed”.

Here comes the makeover!

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Getting It Reich

April 8th, 2010 Posted in Uncategorized

Apr, 08 2010

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April 8, 2010

Robert Reich, former Secretary of Labor under President Clinton, has been hitting more than a few home runs lately. At a time when too many commentators remain in lock-step with their favorite political party, Reich pulls no punches when pointing out the flaws in the Obama administration’s agenda. I particularly enjoyed his reaction to the performance of Larry Summers on ABC television’s This Week on April 4:

I’m in the “green room” at ABC News, waiting to join a roundtable panel discussion on ABC’s weekly Sunday news program, This Week.

*   *   *

Larry Summers was interviewed just before Greenspan. He said the economy is expanding, that the Administration is doing everything it can to bring jobs back, and that the regulatory reform bills moving on the Hill will prevent another financial crisis.

What?

*   *   *

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin.

*   *   *

I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

The direction financial reform is taking is not encouraging. Both the bill that emerged from the House and the one emerging from the Senate are filled with loopholes that continue to allow reckless trading of derivatives. Neither bill adequately prevents banks from becoming insolvent because of their reckless trades. Neither limits the size of banks or busts up the big ones. Neither resurrects the Glass-Steagall Act. Neither adequately regulates hedge funds.

More fundamentally, neither bill begins to rectify the basic distortion in the national economy whose rewards and incentives are grotesquely tipped toward Wall Street and financial entrepreneurialism, and away from Main Street and real entrepreneurialism.

Is it because our elected officials just don’t understand what needs to be done to prevent another repeat of the financial crisis – or is the unwillingness to take preventative action the result of pressure from lobbyists? I think they’re just playing dumb while they line their pockets with all of that legalized graft. Meanwhile, Professor Reich continued to function as the only adult in the room, with this follow-up piece:

Needless to say, the danger of an even bigger cost in coming years continues to grow because we still don’t have a new law to prevent what happened from happening again. In fact, now that they know for sure they’ll be bailed out, Wall Street banks – and those who lend to them or invest in them – have every incentive to take even bigger risks. In effect, taxpayers are implicitly subsidizing them to do so.

* * *

But the only way to make sure no bank it too big to fail is to make sure no bank is too big. If Congress and the White House fail to do this, you have every reason to believe it’s because Wall Street has paid them not to.

Reich’s recent criticism of the Federal Reserve was another sorely-needed antidote to Ben Bernanke’s recent rise to media-designated sainthood. In an essay quoting Republican Senator Jim DeMint of South Carolina, Reich transcended the polarized political climate to focus on the fact that the mysterious Fed enjoys inappropriate authority:

The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JP Morgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.

The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed – then run by Tim Geithner – was very much in the center of the action.

* * *

The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.

You probably thought that Ron Paul was the only one who spoke that way about the Federal Reserve. Fortunately, when people such as Robert Reich speak out concerning the huge economic and financial dysfunction afflicting America, there is a greater likelihood that those with the authority to implement the necessary reforms will do the right thing. We can only hope.

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More Fun Hearings

January 11th, 2010 Posted in Uncategorized

Jan, 11 2010

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January 11, 2010

In my last posting, I discussed the need for a 9/11-type of commission to investigate and provide an accounting of the Federal Reserve’s role in causing the financial crisis. A more broad-based inquiry into the causes of the financial crisis is being conducted by the Financial Crisis Inquiry Commission, led by former California State Treasurer, Phil Angelides. The Financial Crisis Inquiry Commission (FCIC) was created by section 5 of the Fraud Enforcement and Recovery Act (or FERA) which was signed into law on May 20, 2009. The ten-member Commission has been modeled after the Pecora Commission of the early 1930s, which investigated the causes of the Great Depression, and ultimately provided a basis for reforms of Wall Street and the banking industry. Like the Pecora Commission, the FCIC has subpoena power.

On Wednesday, January 13, the FCIC will hold its first public hearing which will include testimony from some interesting witnesses. The witnesses will appear in panels, with three panels being heard on Wednesday and two more panels appearing on Thursday. The witness list and schedule appear at The Huffington Post website. Wednesday’s first panel is comprised of the following financial institution CEOs: Lloyd Blankfein of Goldman Sachs (who unknowingly appeared as Dr. Evil on several humorous, internet-based Christmas cards), Jamie Dimon (a/k/a “The Dimon Dog”) of JP Morgan Chase, John Mack of Morgan Stanley and Brian Moynihan of Bank of America. Curiously, Vikram Pandit of Citigroup was not invited.

Frank Rich of The New York Times spoke highly of FCIC chairman Phil Angelides in his most recent column. Nevertheless, as Mr. Rich pointed out, given the fact that the banking lobby has so much influence over both political parties, there is a serious question as to whether the FCIC will have as much impact on banking reform as did the Pecora Commission:

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties.

A similar degree of skepticism was apparent in a recent article by Binyamin Appelbaum of The Washington Post. Mr. Appelbaum also made note of the fact that the relatively small, $8 million budget — for an investigation that has until December 15 to prepare its report — will likely be much less than the amount spent by the banks under investigation. Appelbaum pointed out that FCIC vice chairman, William Thomas, a retired Republican congressman from California, felt that the commission would benefit from its instructions to focus on understanding the crisis rather than providing policy recommendations. Nevertheless, both Angelides and Thomas expressed concern about the December 15 deadline:

The tight timetable also makes it impossible to produce a comprehensive account of the crisis, both men said. Instead, the commission will focus its work on particular topics, perhaps producing a series of case studies, Angelides said.

* * *

Both Angelides and Thomas acknowledged that the commission is off to a slow start, having waited more than a year since the peak of the crisis to hold its first hearing. Thomas said that a lot of work already was happening behind the scenes and that the hearing next week could be compared to a rocket lifting off after a lengthy construction process.

Even as books and speeches about the crisis pile up, Thomas expressed confidence that the committee’s work could still make a difference.

“There are a lot of people who still haven’t learned the lessons,” he said.

One of those people who still has not learned his lesson is Treasury Secretary “Turbo” Tim Geithner, who is currently facing a chorus of calls for his resignation or firing. Economist Randall Wray, in a piece entitled, “Fire Geithner Now!” shared my sentiment that Turbo Tim is not the only one who needs to go:

There is a growing consensus that it is time for President Obama to fire Treasury Secretary Timothy Geithner. While he is at it, he needs to clean house by firing Larry Summers, by banning Robert Rubin from Washington, and by appointing a replacement for Chairman Bernanke. It is time for a fresh start.

Geithner is facing renewed scrutiny due to his questionable actions while at the NYFed. As reported on Bloomberg and in the NYT, secret emails show that the NYFed under Geithner’s command prohibited AIG from reporting that it was passing government bail-out funds directly to counterparties, including Goldman Sachs.

Beyond that, Professor Wray emphasized that Obama’s new economic team should be able to recognize the following four principles (which I have abbreviated):

1. Banks do not face a liquidity crisis, rather they are massively insolvent. Reported profits are due entirely to trading activities – which amount to nothing more than a game of Old Maid, with institutions selling bad assets to each other at inflated prices on a quid-pro-quo basis. As such, they need to be shut down and resolved. …

2. Saving financial institutions does not save the economy. …

3. As such, all of the bail-outs and guarantees provided to financial institutions (over $20 trillion) need to be unwound. Not because we cannot “afford” them but because they are dangerous. Unfortunately, Congress has come to see all of these trillions of dollars committed to Wall Street as a barrier to spending more on Main street. …

4. Finally, we need an economic team that understands government finance. The current team is hopelessly confused, led and misguided by Robert Rubin. …

At The Business Insider website, Henry Blodget gave a four-minute, video presentation, citing five reasons why Geithner should resign. The text version of this discussion appears at The Huffington Post. Nevertheless, at The Business Insider’s Clusterstock blog, John Carney expressed his belief that Geithner would not quit or be forced to leave office until after the mid-term elections in November:

We would like to see Geithner go now.

* * *

But there’s little chance this will happen. The Obama administration cannot afford to show weakness. If it caved to Congressional critics of Geithner, lawmakers would be further emboldened to chip away at the president’s authority. Senate Republicans would likely turn the confirmation hearing of Geithner’s replacement into a brawl — one that would not reflect well on the White House or Democrat Congressional leadership.

There’s also little political upside to getting rid of Geithner now. It will not save Congressional Democrats any seats in the mid-term election. Obama’s popularity ratings won’t rise. None of the administration’s priorities will be furthered by firing Geithner.

All of this changes following the midterm elections, when Democrats will likely lose seats in Congress. At that point, the administration will be looking for a fall guy. Geithner will make an attractive fall guy.

Although there may not be much hope that the hard work of the Financial Crisis Inquiry Commission will result in any significant financial reform legislation, at least we can look forward to the resignations of Turbo Tim and Larry Summers before the commission’s report is due on December 15.

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A Closer Look

December 28th, 2009 Posted in Uncategorized

Dec, 28 2009

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December 28, 2009

As the year and the decade come to a close, we are being bombarded with a slew of retrospectives about what was “important” during this crazy time. Those of us who are capable of directing our attention to intellectually stimulating subjects, have found the increasing availability of information from internet-based sources to be life-changing. Now that we are no longer stuck with a focus on the handful of news stories deemed “important” by mainstream media outlets, we have familiarized ourselves with the ever-expanding marketplace of ideas to be found online. We all have our favorite websites, where we go first when we want to find out the latest and most attention-grabbing news events of the day. From there, many of us take a closer look at a particular topic by going to a more specialized, subject-oriented website. I keep a blogroll at the left side of this page, which is offered as a diverse aggregation of sources and perspectives on subjects usually covered in this blog. Lately, I’ve found myself spending more and more time reading the great material by Edward Harrison of Credit Writedowns. As a result, I’ve added a link to that site on my blogroll.

Edward Harrison explained the reason why he chose such a gloomy name for his website:

I named my blog “Credit Writedowns” because I anticipated an historic wave of credit writedowns in the global banking system which would lead to a wave of deleveraging, systemic risk, and bank failures — in short, a massive financial and economic bust to rival the Great Depression.

Mr. Harrison has an MBA degree in Finance from Columbia University and he works as a banking and finance specialist for Global Macro Advisors. One of his noteworthy efforts from the first year of Credit Writedowns came about on September 24, 2008, when he published “The Dummy’s Guide to the US Banking Crisis”.

I have been particularly impressed by the “year in review” series, presently underway at Credit Writedowns. On December 23, Mr. Harrison published a great essay about how “kleptocracy” (rule by thieves) has become the status quo. The premise for this piece was originally included in one of Harrison’s early postings on Credit Writedowns, from March 24, 2008. At that time, he explained the subject this way:

First, let’s use a theory from Guns, Germs, and Steel by Jared Diamond as the center-piece for this little theory. In Chapter 14, entitled “From Egalitarianism to Kleptocracy,” Diamond postulates that more stratified societies are by definition less egalitarian, but more efficient and are, thus, able to eradicate or conquer more egalitarian, less stratified societies. Thus, all “advanced” societies with high levels of GDP are complex and hierarchical.

The problem is: these more stratified, more complex societies are in essence Kleptocracies, where those in power re-distribute societal wealth to themselves. Those at the bottom of the society’s pyramid accept this unequal, non-egalitarian state of affairs because they too benefit from their society’s relative advancement. It’s a case of a rising tide lifting all boats.

Back in March of 2008, Edward Harrison was one of just a small handful of thinkers capable of facing up to the ugly reality of where the credit bubble brought us:

The United States has been living beyond its means for some time. Since the 1960s, we have run up a massive federal debt and current account deficit, while debt levels have doubled on a percentage of GDP basis. Our present levels of consumption are simply not justified by our current levels of productivity, if we want to maintain our present standard of living in the future.

* * *

The fact is our day of reckoning is upon us. We will soon realize that our massive debt and an outsized credit bubble have not only saddled us with debt, but it has also misallocated capital so that we are less productive than we believed. We have built miles and miles of telecom dark fibre when we could have invested in schools. We have built massive numbers of new homes, when we could have repaired our bridges and roads. The last 35 years have been an illusion of extreme productivity and wealth because we have artificially pulled forward demand by misallocating resources in order to consume today, what could have been consumed tomorrow. In essence, we are consuming today, while unwittingly making it more difficult to consume tomorrow because we believe we are wealthier than we truly are.

The recent sneaky move by Treasury Secretary “Turbo” Tim Geithner on Christmas Eve, lifting the $400 billion restriction on bailouts to Fannie Mae and Freddie Mac (sidestepping the need for Congressional approval because it was done before the end of the year) is drawing attention to the kleptocracy’s strategy of relying on distraction of public attention in order to get away with skullduggery. Harrison’s point from the December 23 posting: that the kleptocracy anesthetizes the public with television, which has become “our own modern-day agent of mental anesthesia”, struck a chord with me.

The latest entry in the “year in review” series at Credit Writedowns concerns the subject of crony capitalism. Here’s how Edward Harrison described the piece:

In this post, I want to talk about Obama’s economic policies in the context of what I perceive as a crony capitalism which is now endemic in Washington. As I see it, Americans are angry because the economy is still quite fragile and the personal financial situation for many ordinary Americans is still quite dire. Yet, the so-called fat cats seem more pigs eating at the trough of government largesse. This juxtaposition is galling and undermines any success that the Obama Administration has achieved.

A key theme of that essay is expressed in this passage:

The evidence, therefore, tends to demonstrate that we have witnessed an orchestrated campaign by the Bush and Obama Administrations to recapitalize too big to fail institutions by hook or by crook, bypassing Congressional approval if necessary. And when it comes to healthcare, both Congress and the White House have bent over backwards to keep the lobbyists onside. As I see it, our government has favored special interests in the past year of Obama’s tenure to our detriment.

As more economists voice agreement with the opinion expressed by Joseph Stiglitz, that there will likely be further economic contraction in the second half of 2010, the inevitability of a dreaded “double-dip” recession will become more apparent. Mr. Harrison pointed out that this scenario could result in some disdain for President Obama, which might impact the 2010 election results. Perhaps President Obama should start reading Credit Writedowns — and stop listening to Larry Summers.

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No Free Pass For The Disappointer-In-Chief

December 14th, 2009 Posted in Uncategorized

Dec, 14 2009

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December 14, 2009

The election of Barack Obama to the Presidency was hailed by many as an event that “transcended race”. Ever since Obama’s primary election victory in lily-white Iowa, the pundits couldn’t stop talking about the candidate’s unique ability to vault the racial barrier before Hillary Clinton could break through the glass ceiling. As we approach the conclusion of Obama’s first year in the White House, it has become apparent that the Disappointer-in-Chief has not only alienated the Democratic Party’s liberal base, but he has also let down a demographic he thought he could take for granted: the African-American voters. At this point, Obama has “transcended race” with his ability to dishearten loyal black voters just as deftly as he has chagrined loyal supporters from all ethnic groups.

Charles Blow’s recent opinion piece for the December 4 edition of The New York Times, entitled: “Black in the Age of Obama” shed some light on the racist backlash against the black population as a result of the election of our nation’s first African-American President. Mr. Blow then focused on Obama’s approach to his sinking poll numbers:

This means that Obama can get away with doing almost nothing to specifically address issues important to African-Americans and instead focus on the white voters he’s losing in droves. This has not gone unnoticed. In the Nov. 9 Gallup poll, the number of blacks who felt that Obama would not go far enough in promoting efforts to aid the black community jumped 60 percent from last summer to now.

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The Age of Obama, so far at least, seems less about Obama as a black community game-changer than as a White House gamesman. It’s unclear if there will be a positive Obama Effect, but an Obama Backlash is increasingly apparent. Meanwhile, black people are also living a tale of two actions: grin and bear it.

As Silla Brush reported for The Hill on December 2, ten members of the Congressional Black Caucus had threatened to withhold their votes on the financial reform bill, because the President had not been “doing enough to help African-Americans through the bleak economy”.

It has been easy to understand the dissatisfaction with Obama expressed by the Democratic Party’s liberal base. In a piece entitled “The Winter of Liberal Discontent”, Louis Proyect incorporated the umbrage expressed by such notables as Tom Hayden and Michael Moore, while providing a thorough assessment of Obama’s abandonment of the Left. He concluded the piece with a quoted passage from an essay written for The Huffington Post by Elizabeth Warren, chair of the Congressional TARP Oversight Panel. Mr. Proyect quoted Ms. Warren’s reference to some brutally unpleasant statistics, raising the question of whether America will continue to have a middle class. The theme of Mr. Proyect’s discussion was based on this point:

The chorus of disapproval is louder than any I have heard from liberal quarters since 1967 when another very popular Democrat did an about-face once he was in office. When LBJ ran as a peace candidate, very few people — except unrepentant Marxists — would have anticipated a massive escalation in Vietnam. It was well understood a year ago that Obama was committed to escalating the war in Afghanistan, but the liberal base of the Democratic Party was too mesmerized by the mantras of “hope” and “change” to believe that their candidate would actually carry out his promise.

There is a tendency to regard right-wing Republican presidents being replaced by idealistic-appearing Democrats who betray their supporters, thus enabling a new Republican candidate to take over the White House, as a kind of Western version of karma. We are compelled by universal law in some way to undergo an endless cycle of suffering without hope of redemption short of Enlightenment.

The criticism of Obama expressed by African-American commentators underscores the President’s unique ability to alienate those who might support him on the basis of ethnic solidarity, just as thoroughly as he can antagonize the melanin-deficient “limousine liberals” of Park Avenue. On December 11, Edward Harrison of Credit Writedowns made a point of letting us know that the complete text of Matt Taibbi’s recent Rolling Stone article, “Obama’s Big Sellout” is now available online. Before quoting some of the discussion in Matt Taibbi’s essay, Mr. Harrison provided some hard-hitting criticism of the Obama administration’s financial and economic policy shortcomings. You may note that the administration’s abandonment of the African-American base was not discussed. It wouldn’t do justice to Mr. Harrison’s great work to quote a snippet of this because it’s too good. I have to give you the whole thing:

As you probably know, I have been quite disappointed with this Administration’s leadership on financial reform. While I think they ‘get it,’ it is plain they lack either the courage or conviction to put forward a set of ideas that gets at the heart of what caused this crisis.

It was clear to many by this time last year that the President may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team. As smart and qualified as these two are, they are rightfully seen as allied with Wall Street and the anti-regulatory movement.

At a minimum, the picks of Geithner and Summers were a signal to Wall Street that the Obama Administration would be friendly to their interests. It is sort of like Ronald Reagan going to Philadelphia, Mississippi as a first stop in the 1980 election campaign to let southerners know that he was friendly to their interests.

I reserved judgment because one has to judge based on actions. But last November I did ask Is Obama really “Change we can believe in?” because his Administration was being stacked with Washington insiders and agents of the status quo.

Since that time it is obvious that two things have occurred as a result of this ‘Washington insider’ bias. First, there has been no real reform. Insiders are likely to defend the status quo for the simple reason that they and those with whom they associate are the ones who represent the status quo in the first place. What happens when a company is nationalized or declared bankrupt is instructive; here, new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firm’s demise. The same is true in government.

That no ‘real’ reform was coming was obvious, even by June when I wrote a brief note on the fake reform agenda. It is even more obvious with the passage of time and the lack of any substantive reform in health care.

Second, Obama’s stacking his administration with insiders has been very detrimental to his party. I imagine he did this as a way to overcome any worries about his own inexperience and to break with what was seen as a major factor in Bill Clinton’s initial failings. While I am an independent, I still have enough political antennae to know that taking established politicians out of incumbent positions (Joe Biden, Janet Napolitano, Hillary Clinton, Rahm Emanuel, Kathleen Sebelius or Tim Kaine) jeopardizes their seat. So, the strategy of stacking his administration has not only created a status quo bias, but it has also weakened his party.

The magic of the Obama candidacy has vanished with the disappointments of the Obama Presidency. His supporters have learned, the hard way, that talk is cheap. The President’s actions during the next three years will not only impact the viability of his administration — they could undermine the careers of his fellow Democrats.

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