Posted inPolitics: National

Two roads to the future?

With the exception of LBJ, Democratic presidents since 1960 have fared badly in their legislative agendas, even when Congress was controlled by their party. President Obama, for all his gifts, may be on track to fare little better. Health care. Cap-and-trade. Financial reform. Big-time tax evasion. Even for this cool-handed moderate, it's a tough sell.

Meanwhile, the media and the salesmen on Wall Street are in a constant search for "green shoots" — signs this historic recession is over. Nobody is thinking through what these shoots will turn into, exactly what the road ahead looks like. But for many, including policymakers, we find a desperate assumption that the economy will pick right up where it left off in 2006.

Two schools of thought are at work here. One says the fundamentals are sound, as President Hoover put it, and the future will look much like the recent past. The other, found more among the outliers, argues we have hit a historic pivot point — but will we realize it and save ourselves?

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Posted inPolitics: National

Will AIG be Obama’s Bay of Pigs?

The scandal over $165 million in retention bonuses paid to AIG executives goes beyond the rhetoric of cheap populism — including among Republicans who steadfastly deregulated the financial sector, defended outrageous executive compensation and thought the Greenspan-driven housing-derivatives bubble was just dandy. I know this much: It is the biggest test yet for President Obama. Will it be his Bay of Pigs?

The bonuses are being paid out to "retain" executives at the Financial Products Unit at AIG that nearly brought the world economy to collapse — leading the U.S. government to pump in so much taxpayer money to rescue AIG that we own 80 percent of it. These executives who created the house of cards of credit-default swaps are now government employees, for all intents and purposes. If only our teachers were paid so well. And "retain"? The teenagers working in the AIG mail room would be more prudent than these Masters of the Universe. But the government claims it has little ability to stop the payments. Contracts must be honored, don't you know.

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Posted inUncategorized

A conspiracy of bears?

My economics blog in liberal Seattle has lately attracted a crowd of commenters that would make Phoenix proud. The stock market's decline has nothing to do with the collapse of housing and banking bubbles, with historic levels of debt and all the unwinding of contracts based on leverage, nothing to do with a nation groping against fundamental discontinuity. No, it's Obama's fault. Sure enough, this has become a growing point of attack by the reactionaries, who offer no solutions beyond the failed policies that caused this mess.

But it caused me to think…we have Tim Geitner at Treasury, rather than, say, Joe Stiglitz. We have Larry Summers, and hovering in the background, Bob Rubin, as chief White House economic advisers. Not Robert Reich. Kathleen Sebelius at Health and Human Services, instead of Dr. Howard Dean. Obama insiders rushed to reassure the idiot David Brooks that "they do not see themselves as a group of liberal crusaders. They see
themselves as pragmatists who inherited a government and an economy
that have been thrown out of whack. They’re not engaged in an
ideological project to overturn the Reagan Revolution…"

This may be smart centrist politics. It will be completely inadequate to address the crises before us. Yet it may also mean that Obama realizes that the government was long ago taken over by, let's say a community of interests, that is fundamentally opposed to reform. Does this group have the capacity to bring him into line by collapsing the stock market — naked short-selling it — until he yells "uncle"?

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Posted inUncategorized

A simple primer on the banking crisis

The more I learn about the $750 billion bailout of derivatives, tranches and collateralized debt obligations, the more I think about drunks. The true drunk will do anything to keep drinking. Cheat. Steal. Betray. No one is above his treachery. He will destroy his family to get the next drink. On a binge, he will spend the wealth it took his family generations to accumulate, right down to the treasured mementos. He can be clever, fun, charismatic. Behind this mask he is a monster. At his most destructive, he wraps his addiction in layers of complexity and opacity, which non-drunks would simply call lies.

Substitute "banker" for "drunk" and I think we have a better understanding of the mess we're in. Consider State Street Bank. Its shares plunged 59 percent Tuesday as it revealed previously "unrealized losses." That's the drunk telling his wife he's wiped out the family savings. Citigroup and Bank of America shares are cheaper than value meals at McDonald's — territory we saw with the late Washington Mutual on the way to failure. That's the drunk in the gutter. The difference is they don't know they've hit bottom and must fundamentally change. They just want another drink.

They call it capital, and the last bar open is the federal Treasury.

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Posted inPolitics: National

The dog ate his tax returns?

I can't help but point out with satisfaction that the pilot who perfectly glided the stricken US Airways plane into the Hudson, saving all aboard, is one of those experienced Baby Boomers who has spent a lifetime perfecting his skills, doing something real and productive, rather than pushing financial swindles. He's also a union member. These are the people our economy can't dump fast enough. And we wonder why America is in trouble.

Then there's Timothy F. Geithner, President-elect Obama's choice to be the next Treasury secretary. I've been uncomfortable with Geithner since his selection, chiefly because he has been president of the New York Federal Reserve Bank, the mother ship of the Fed, since 2003. This means he was in a position of significant influence as the financial portion of the Great Disruption was emerging. He apparently raised no alarms or did anything to stop the outright fraud running like a river of manure on Wall Street. He has been, as the New York Times put it, "a central player" in the $750 billion financial bailout. So he was a co-pilot who ditched the financial system, but unfortunately it keeps taking on water and the casualty toll is mounting.

Then there's the wee little problem with his taxes.

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