Category: Financial Crisis

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Barack Obama Criticism Economics Financial Crisis Foreign Policy Politics The Opinionsphere

Kashkari, 2009’s Ideas, Richard Milhouse Obama, Frum!, Chinese-American Trade Imbalance, Obama’s Nobel, and Charborg

1. The Personal Toll TARP Exacted. Laura Blumenfeld profiled Neel Kashkari for the Washington Post – the Treasury employee and Hank Paulson confidante who presided over TARP and assisted with much of the government’s response to the bailout who is now “detoxing” from Washington by working with his hands in an isolated retreat. The piece focuses not on what happened and the enormous impact, but on the personal toll this crisis exacted on Kashkari and those around him: the heart attack by one of his top aides; the emotional breakdowns; the trouble in his marriage as he didn’t come home for days, sleeping on his office couch and showering in the Treasury’s locker room:

Thoughts tended toward the apocalyptic. During midnight negotiations with congressional leaders, Paulson doubled over with dry heaves. A government economist broke into Kashkari’s office sobbing, “Oh my God! The system’s collapsing!” Kashkari counseled her to focus on things they could control. (Minal: “So you offered her a bag of Doritos.”)

“We were terrified the banking system would fail, but the thing that scared us even more was, what would we do the day after? How would we take over 8,000 banks?”

The piece seems to ask us to feel pity for these men and women who toiled under difficult circumstances, but it seems inappropriate to feel pity for those who assume power because they also feel its heavy weight. But the piece acknowledges that Kashkari himself seeks to get back to Washington again, “Because there’s nowhere else you can have such a large impact — for better and for worse.” Lionize them for their heroic sacrifices if you will, but there is no place for pity. Those who choose to take on the burdens of power should not be pitied because it proves too weighty.

2. New Ideas. The New York Times briefly discusses the Year in Ideas. Some of the more interesting entries:

  • Guilty Robots which have been given “ethical architecture” for the American military that “choose weapons with less risk of collateral damage or may refuse to fight altogether” if the damage they have inflicted causes “noncombatant casualties or harm to civilian property.”
  • The Glow-in-the-Dark Dog (named Ruppy) that emits an eerie red glow under ultraviolet light because of deliberate genetic experiment.
  • Applying the Google Algorithm that generates the PageRank which first set Google apart from its competitors to nature, and specifically to predicting what species’ extinctions would cause the greatest chain reactions.
  • Zombie-Attack Science in which the principles of epidemiology are applied to zombies.

3. Obama’s Afghanistan Decision. Fareed Zakaria and Peter Beinart both tried to place Obama’s Afghanistan decision into perspective last week in important pieces. Both of them saw in Obama’s clear-eyed understanding of America’s power shades of the foreign policy brilliance that was Richard Nixon and Henry Kissinger. Zakaria:

More than any president since Richard Nixon, he has focused on defining American interests carefully, providing the resources to achieve them, and keeping his eyes on the prize.

Beinart:

Nixon stopped treating all communists the same way. Just as Obama sees Iran as a potential partner because it shares a loathing of al-Qaeda, Nixon saw Communist China as a potential partner because it loathed the U.S.S.R. Nixon didn’t stop there. Even as he reached out to China, he also pursued détente with the Soviet Union. This double outreach — to both Moscow and Beijing — gave Nixon more leverage over each, since each communist superpower feared that the U.S. would favor the other, leaving it geopolitically isolated. On a smaller scale, that’s what Obama is trying to do with Iran and Syria today. By reaching out to both regimes simultaneously, he’s making each anxious that the U.S. will cut a deal with the other, leaving it out in the cold. It’s too soon to know whether Obama’s game of divide and conquer will work, but by narrowing the post-9/11 struggle, he’s gained the diplomatic flexibility to play the U.S.’s adversaries against each other rather than unifying them against us.

Perhaps this accounts for Henry Kissinger’s appreciation for Obama’s foreign policy even as neoconservative intellectuals such as Charles Krathammer deride Obama as “so naïve that I am not even sure he’s able to develop a [foreign policy] doctrine“:

“He reminds me of a chess grandmaster who has played his opening in six simultaneous games,” Kissinger said. “But he hasn’t completed a single game and I’d like to see him finish one.”

4. The Unheeded Wisdom of Frum. It seems that almost every week a blog post by David Frum makes this list. This week, he rages at how the Republican’s “No, no, no” policy is forcing the Democrats to adopt more liberal policies (which Frum believes are worse for the country, but in the case of health care, more popular among voters):

I hear a lot of talk about the importance of “principle.” But what’s the principle that obliges us to be stupid?

5. Fiscal Imbalances. Martin Wolf in the Financial Times identifies the imbalance between America’s deficit spending and China’s surplus policy as the root of our financial imbalances in a piece this week:

What would happen if the deficit countries did slash spending relative to incomes while their trading partners were determined to sustain their own excess of output over incomes and export the difference? Answer: a depression. What would happen if deficit countries sustained domestic demand with massive and open-ended fiscal deficits? Answer: a wave of fiscal crises.

While he says both sides have an interest in an orderly unwinding of this arrangement, both also have the ability to resist:

Unfortunately, as we have also long known, two classes of countries are immune to external pressure to change policies that affect global “imbalances”: one is the issuer of the world’s key currency; and the other consists of the surplus countries. Thus, the present stalemate might continue for some time.

Niall Ferguson and Morris Schularack offered a few suggestions in a New York Times op-ed several weeks ago as to how best unwind this. I had written about it some months ago as well, albeit with a pithier take.

6. War & Peace. Obama’s Nobel Prize acceptance speech was an audacious defense of American power and ideals. If you read nothing else on this list, read this.

7. Song of the week: Pinback’s “Charborg.”

Categories
Economics Financial Crisis

Playing BrickBreaker While the Financial System Burned

[digg-reddit-me]The weekend of September 12 through September 14 – before the collapse of Lehman Brothers on Monday, September 15, 2009 and the near collapse of the world financial system that followed – was a frenzied one in the financial world. By this point, everyone knew huge events would occur: perhaps massive government bailouts, or perhaps multiple mergers of titans of finance, or if all else failed, a cascading series of major business failures. Treasury Secretary Hank Paulson, New York Federal Reserve Chairman Tim Geithner, and Securities and Exchange Commissioner Chris Cox thus convened a meeting of the “heads of the families” – the CEOs and top management of the big Wall Street firms – at the Federal Reserve Bank of New York on Liberty Street in downtown Manhattan to try to, through collective action, stave off disaster.

Paulson and Geithner seemed to be trying to recreate the “Drama at the Library” that averted the Panic of 1907, in which J. P. Morgan almost single-handedly averted a financial catastrophe by himself, as he used his own fortune and cajoled other major bankers to inject liquidity into the stock markets and bond markets to keep them active. The high point occurred when Morgan locked the bankers and the trust company officials in his library to force them to reach a consensus on how to save the insolvent trust companies. A few years later, the Federal Reserve was created in a large part to mimic what J. P. Morgan had done in managing that financial crisis.

As options for Lehman began to dwindle on this September weekend, and its moment of insolvency came closer, Paulson and Geithner summoned the heads of the current elite of Wall Street to a room and told them to come up with a plan – if necessary using their own money to aid another company in the purchase of Lehman. These were the men (and some women) who were paid the big bucks to make the big decisions – all put in the same room with the goal to avert the disaster that they could all see would rock their industry. Yet despite all the power and the extraordinary circumstances, these top bankers were reluctant to help a competitor unless they could see their own upside, and were convinced that Washington would step in. As Andrew Ross Sorkin, reporter for the New York Times and author of Too Big to Fail, reported, conversations took place in which these top bankers made it clear that even as they felt a responsibility to the world at large, their first responsibility was to their shareholders. Systematic risk was the responsibility of the federal government, they felt.

Even with all these decision-makers gathered in a room, Sorkin explained that the “CEOs and their underlings” felt that “Despite the grave assignment they’d been given, there was little they could actually accomplish on the spot.” The top executives knew that the people with “real expertise” to figure out what could be done were doing their work elsewhere – the numbers people working for them who could understand high finance and Lehman Brothers’ balance sheet – and would let their bosses know their conclusions.

So, the executives, twiddling their thumbs, did what they could to pass the time. They did “vicious imitations of Paulson, Geithner, and Cox:

“Ahhhh, ummmm, ahhhh, ummmm,” one banker muttered, adopting Paulson’s stammer. “Work harder, get smarter!” another shouted, mocking Geither’s Boy Scoutish exhortations. A third did his best Christopher Cox, whom they all were convinced had little understanding of high finance: “Two plus two? Um – could I have a calculator?”

And of course:

Colm Kelleher, Morgan’s CFO, had begun playing BrickBreaker on his BlackBerry, and soon an unofficial tournament was under way, with everyone competitively comparing scores.

No word yet on what top score won the tournament.

As well all know, several days after the BrickBreaker tournament, Paulson, Bernanke, Geithner, and the Congress gave in and bailed out the executives in the room as they realized though these executives controlled vast amounts of capital, they were not willing or able to save their competitors and preserve the financial system in order to save themselves.

Most of the information from page 326 of Andrew Ross Sorkin’s Too Big to Fail. Quite an interesting book – well worth a read.

[Image by Cyndie@smilebig! licensed under Creative Commons.]

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Barack Obama Criticism Economics Financial Crisis National Security Politics The Bush Legacy The Media The Opinionsphere The War on Terrorism

Dueling Op-Eds

Last Friday saw two sets of dueling op-eds on the opinion pages of the Washington Post and the New York Times.

At the Post, Charles Krauthammer, professional pundit, accuses the Obama administration of aiding Khalid Sheikh Muhammad in giving “voice” to the “propaganda of the deed” that was September 11. Krauthammer accepts no justification offered and launches one after another attack on the very idea of trying KSM, and most of all, on the Obama administration for bringing him to trial. Reading Krauthammer, it is difficult to understand why Attorney General Holder made the decision he did. It seems unfathomable and downright un-American.

Elsewhere in the section, two former top Bush Justice Department officials – Jack Goldsmith and James Comey – make the case that Attorney General Holder’s decision was reasonable, though there may be reason to disagree with it. They go through some of the advantages of the Attorney General’s decision, and conclude:

The wisdom of that difficult judgment will be determined by future events. But Holder’s critics do not help their case by understating the criminal justice system’s capacities, overstating the military system’s virtues and bumper-stickering a reasonable decision.

Over at the New York Times, David Brooks and Paul Krugman have a more evenly balanced argument over Timothy Geithner.

Brooks’s conclusion was that Geither’s intervention was effective:

On the other hand, you would also have to say that Geithner, like many top members of the Obama economic team, is extremely context-sensitive. He’s less defined by any preset political doctrine than by the situation he happens to find himself in…In the administration’s first big test, that sort of pragmatism paid off.

Krugman though concludes Geither is part of the problem, and even if he got the short-term economics right, the political situation won’t allow for any significant course corrections because the initial steps were so against the popular mood:

Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery.

It’s interesting to see such jousting on the same op-ed page. As opposing sides make their case, one can often learn more than from reading mere news.

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Barack Obama Catholicism China Criticism Economics Financial Crisis Gay Rights Politics The Bush Legacy The Media The Opinionsphere

Chinese Racism, Andrew Ross Sorkin’s Power, Andrew Sullivan’s Catholicism, America’s Decline (?), and Megan Fox’s Savvy Self-Creation

Chinese Racism. Reiham Salam posits that China’s ethnocentrism will retard it’s development into a superpower – especially given the demographic obstacles it is facing thanks to it’s One Child Policy.

Andrew Ross Sorkin’s Power. Gabriel Sherman describes the world of Andrew Ross Sorkin, star financial reporter for the New York Times, in New York magazine. He describes the unique amount of power Sorkin has accumulated in financial circles, all from the paper that was traditionally lagging behind the others in financial journalism. Attending a book party, Sherman observes the way Sorkin is treated by the many powerful titans of Wall Street:

“What you noticed when you went was how many powerful Wall Street people were there to kiss his ring,” adds The New Yorker‘s Ken Auletta, a party guest. “He’s a 32-yeard old guy, and there were all these titans of Wall Street crowding around to say hello and make nice to Andrew.”

That type of praise only makes your job harder of course.

Andrew Sullivan’s Catholicism. Andrew periodically writes these moving pieces about his Catholicism, and why he is still a Catholic. Yesterday, in an emotional response to a number of recent events, he writes:

Maybe I am too weak to leave and be done with it. But in my prayer life, I detect no vocation to do so. In fact, in so far as I can glean a vocation, it is to stay and bear witness, to be a thorn in the side, even if the thorn turns inward so often, and hurts and wounds me too.

I stay because I believe. And I stay because I hope. What I find hard is the third essential part: to love. So I stay away when the anger eclipses that. But the love for this church remains through the anger and despair: the goodness of so many in it, the truth of its sacraments, the knowledge that nothing is perfect and nothing is improved if you are not there to help it.

America’s Decline (?). John Plender writing in the Financial Times pokes several more holes in the growing consensus that China’s power will soon eclipse America’s. Rather, he sees China as returning to it’s historic position of economic power – increasing relative to America, but not eclipsing it given the various problems they are facing.


Megan Fox’s Savvy Self-Creation. When I saw the New York Times Magazine was writing a major article about Megan Fox I was intrigued. What about her might be interesting enough to hold up a feature? It turns out that there was quite enough. Lynn Hirschberg writes about a starlet whose main focus is her own image, the character she plays in the media. Fox deliberately holds herself apart from this character:

I’ve learned that being a celebrity is like being a sacrificial lamb. At some point, no matter how high the pedestal that they put you on, they’re going to tear you down. And I created a character as an offering for the sacrifice. I’m not willing to give my true self up. It’s a testament to my real personality that I would go so far as to make up another personality to give to the world. The reality is, I’m hidden amongst all the insanity. Nobody can find me.

As she studies Marilyn Monroe, Ava Gardner, Elizabeth Taylor, and other Hollywood icons, almost all of whom were overwhelmed by their characters, Fox seems to be searching for lessons she can take herself:

Monroe was her own brand before branding existed. “She lived her whole life as a character playing other characters,” Fox said. “And that was her defense mechanism. But Marilyn stumbled and lost her way. She became overwhelmed by the character she created. Hollywood is filled with women who have tried to cope. I like to study them. I like to see how they’ve succeeded. And how they’ve failed.”

Hirschberg didn’t seem to know whether Fox’s obsession with Monroe and other starlets would foreshadow Fox’s own decline, or whether it could be managed. The last lines Hirschberg leaves her readers with are plaintive:

In a few short weeks, she had gone from happily outrageous to virginal and controlled. It was, perhaps, a healthier attitude, but pale by comparison. “I have to pull back a little bit now,” Fox said. “I do live in a glass box. And I am on display for men to pay to look at me. And that bothers me. I don’t want to live that character.”

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Barack Obama Criticism Economics Election 2008 Financial Crisis Gay Rights Health care New York City Politics The Opinionsphere

Must-Reads of Last Week: Data Warfare, Gay Rights, McCaughey, Summers, and Yankee Tickets

Data Warfare. Marc Ambinder got hold of Catalist’s after-action report on the 2008 elections – describing how effective the Democrats were in pushing their voters to vote. According to the report, the combination of the effectiveness of data targeting and the pull of Obama’s candidacy made the difference in at least four states: Ohio, Florida, Indiana in North Carolina.

Gay Rights. Andrew Sullivan takes on the Weekly Standard‘s arguments in favor of Don’t Ask Don’t Tell and continues his crusade to push the gay rights movement to agitate for change instead of simple accepting leaders who make the right noises. He continued over the weekend:

The president wasn’t vilified on the streets on Sunday as he has been recently. We are not attacking the president; we are simply demanding he do what he promised to do and supporting the troops who do not have the luxury of deciding to wait before they risk their lives for us.

We know it isn’t easy; but the Democrats need to know we weren’t kidding. You cannot summon these forces and then ask them to leave the stage. We won’t.

Remember: we are the ones we’ve been waiting for. Not him, us.

A Professional Health-Care Policy Liar. Ezra Klein recommends: “Michelle Cottle’s take down of professional health-care policy liar Betsy McCaughey is deservedly vicious and unabashedly welcome.” The entire article is illuminating, but I want to point out Cottle’s nice summary of McCaughey’s brilliance at debate:

Ironically, her familiarity with the data, combined with her unrecognizable interpretation of it, makes it nearly impossible to combat McCaughey’s claims in a traditional debate. Her standard m.o. (as “Daily Show” host Jon Stewart recently experienced) is to greet each bit of contradictory evidence by insisting that her questioner is poorly informed and should take a closer look at paragraph X or footnote Z. When those sections don’t support her interpretation, she continues to throw out page numbers and footnotes until the mountain of data is so high as to obscure the fact that none of the numbers add up to what she has claimed.

But it is Klein, in recommending the article that gets at the heart of why McCaughey is so effective:

She’s among the best in the business at the Big Lie: not the dull claim that health-care reform will slightly increase the deficit or trim Medicare Advantage benefits, but the claim that it will result in Death Panels that decide the fate of the elderly, or a new model of medical ethics in which the lives of the old are sacrificed for the good of the young, or a government agency that will review the actions of every doctor. McCaughey isn’t just a liar. She’s anexciting liar.

Summers. Ryan Lizza profiles Larry Summers for the New Yorker. Read the piece. This excerpt isn’t typical of the approach of the Obama team that the article describes, but it touches on something I plan on picking up later:

Summers opened with a tone of skepticism: The future of activist government was at stake, he warned. If Obama’s programs wasted money, they would discredit progressivism itself. “I would have guessed that bailing out big banks was going to be unpopular, and bailing out real companies where people work was going to be popular,” he said. “But I was wrong. They were both unpopular. There’s a lot of suspicion around. Why this business but not that business? Is this industrial policy? Is this socialism? Why is the government moving in?”

Noblesse oblige. Wright Thompson for ESPN explains the reason for the exorbitant prices and examines their affect on the loyalty of longtime fans. The article provides a close-up view of the  of the corrosive effect of the concentration of wealth and Wall Street culture – and how it destroys what the very things it enriches.

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Barack Obama Criticism Economics Financial Crisis History Morality Political Philosophy Politics The Bush Legacy The Opinionsphere

Must-Reads of the Week: Krugman v. Ferguson, Ted Kennedy again, Hank Paulson, Sedaris, and Phreaking

This week there are quite a few good pieces to take a look at over the long weekend – in between games of beer pong, or BBQs…

Krugman v. Ferguson. Matthew Lynn in the Times of London wrote a feature on the “war” over the response to the economic crisis going on between the American Princeton Professor, New York Times columnist, Nobel-prize winner, and noted liberal Paul Krugman and British Harvard Professor, Financial Times columnist, and noted conservative Niall Ferguson. I had been following it closely already, but this article had a number of more details and conveyed the story arc well. Meanwhile, Krugman released another attack on Ferguson – indirectly though – in which he laid out his vision (as a kind of short intellectual history of economics in the 20th and 21st centuries) of what happened in the most recent crisis, why so many economists got it wrong, and why we’re taking the right steps now:

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

The article is missing Krugman’s usual zingers and partisan swipes – and is really quite good. It also reminds you that Ferguson is an historian – not an economist.

Ted Kennedy, leaky vessel. Sam Tanenhaus writes about Senator Ted Kennedy as a kind of magnificent character, capturing him and the movement he led better than most others:

But if the art of governance did not redeem Mr. Kennedy, it irradiated him, and the liberalism he personified. At a time when government itself had fallen into disrepute Mr. Kennedy applied himself diligently to its exacting discipline, and wrested whatever small victories he could from the machinery he had learned to operate so well. Whether or not his compass was finally true, he endured as the battered, leaky vessel through which the legislative arts recovered some of their lost glory.

Hank Paulson. Todd Purdhum of Vanity Fair finally writes his piece about his many conversations with Hank Paulson before and during the financial crisis – a piece notable for the fact that Paulson seemed exceptionally forthcoming as he knew the piece wouldn’t come out until well after he had left public office.

The Wisdom of David Sedaris. A nice story from last week’s New Yorker:

[S]he invited us to picture a four-burner stove.

“Gas or electric?” Hugh asked, and she said that it didn’t matter.

This was not a real stove but a symbolic one, used to prove a point at a management seminar she’d once attended. “One burner represents your family, one is your friends, the third is your health, and the fourth is your work.” The gist, she said, was that in order to be successful you have to cut off one of your burners. And in order to be really successful you have to cut off two.

Pat has her own business, a good one that’s allowing her to retire at fifty-five. She owns three houses, and two cars, but, even without the stuff, she seems like a genuinely happy person. And that alone constitutes success.

I asked which two burners she had cut off, and she said that the first to go had been family. After that, she switched off her health. “How about you?”

I thought for a moment, and said that I’d cut off my friends. “It’s nothing to be proud of, but after meeting Hugh I quit making an effort.”

“And what else?” she asked.

“Health, I guess.”

Hugh’s answer was work.

“And?”

“Just work,” he said.

Phone Phreak. David Kushner in Rolling Stone features the story of a poor, fat, lonely, blind boy who finds a way to be happy as a phone phreaker (a kind of hacker on telephone lines.) The boy – Matthew Weigman – submerges himself in the culture, and due to his unique skillset is able to become an almost cartoon villain, without the manic desire to take over the world. Instead, he unleashes SWAT teams on girls who refuse to have phone sex with him, as he fakes calls from inside their house pretending he is holding them hostage; or ferrets out all the names and biographies of the team tracking him down, which he jovially explains to an FBI agent who comes to recruit him.

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Barack Obama Economics Financial Crisis Health care Life Morality Politics Reflections The Opinionsphere The Web and Technology

Weekly Must-Reads: Disappearing, the Super-Rich, Harry Potter, the Public Option, Craziness, and Abortion

[digg-reddit-me]A low-key blogging day today. Further events complicated my normal week-night blog writing, as my brother was hospitalized yesterday. He’s doing fine. But to some extent, it impressed upon me the reality of some small portion of this health care debate. To get to my brother’s room, I had to walk through the hospital – through security measures in the pediatric section, and then further security measures in the Intensive Care Unit of the pediatric section – and then to his room where I saw him, looking wan, but apparently much better than in the morning, with maybe a half-dozen tubes giving him drugs and liquid and food and another half-dozen wires monitoring his oxygen levels and heart beat and who knows what else. The nurses had to do tests on him every hour. And as I visited in the evening, I didn’t see the doctors who are figuring out what’s wrong and directing the treatment. The whole set-up must be outrageously expensive. And with my brother lying there, getting better, every cent is worth it. As a society, we have made a choice to spend some large portion of our wealth on protecting our families, ourselves – on following our natural human instinct to care for those who are not well. We have made a choice to maximize life at the expense of wealth.

But we must acknowledge that our system has limits. If my father didn’t have a generous health insurance plan, he could never have afforded for my brother to be treated this way. The hospital would treat him anyway – and then they would go after my father for everything he had. About a third of all Americans would be in this position – on the verge of bankruptcy – if an emergency required serious medical attention. And while hospitals have an ethical obligation to treat anyone who needs treatment, studies have shown that those without sufficient insurance get significantly worse treatment. When people argue that health care is not a right, they must do so in the face of those who need treatment. And if you consider health care to be a right, then health insurance must be a necessary responsibility for each citizen.

We do need to reign in increasing health care costs; we also need to preserve our system’s willingness to spend. But what we need most of all is a reasoned debate about what type of system we have and what type of system we want – and it doesn’t seem that America is capable of that. To that, I don’t know the solution.

Without further ado, here are the must-reads of the week:

1. Disappearing. Evan Ratcliff explains in Wired the difficulty of disappearing in our modern world – and how even the smallest slip-up can bring the authorities to your door. It’s an interesting look at the desire to start over – and how technology today makes it both easier and harder.

2. The Super-Rich. David Leonhardt and Geraldine Fabrikant examine the implications of the current recession on the super-rich – including John McAfee of McAfee Anti-Virus fame, whose net worth went from $100 million to $4 million in the downturn. Not that anyone should feel bad for the guy. The piece looks at the historical implications of our recent massive inequality and what this downturn’s implications are for such inequality in the long-term. The prognosis: the super-rich will stay richer than they were in the 1950s and 1960s, but their relative wealth will decline a bit.

3. Harry Potter and theological libraries. Michael Paulson in the Boston Globe explains how Harry Potter is becoming a serious subject of theological debate:

[S]cholars of religion have begun developing a more nuanced take on the Potter phenomenon, with some arguing that the wildly popular series of books and films contains positive ethical messages and a narrative arc that is worthy of serious scholarly examination and even theological reflection. The scholars are primarily interested in what the books have to say about the two big issues that always preoccupy people of faith – morality and mortality – but some are also interested in what the series has to say about tolerance (Harry and friends are notably open to people and creatures who differ from them) and bullying, the nature and presence of evil in society, and the existence of the supernatural.

Scholarly interest in the Harry Potter books began long before the series was finished, and shows no signs of slowing. There have been several academic books, with titles such as “The Ivory Tower and Harry Potter: Perspectives on a Literary Phenomenon” and “Harry Potter’s World: Multidisciplinary Critical Perspectives.” The American Academy of Religion last fall offered a panel at its annual convention titled “The Potterian Way of Death: J. K. Rowling’s Conception of Mortality.” And there is a raft of articles in religion journals with titles including “Looking for God in Harry Potter” and “Engaging with the spirituality of Harry Potter,” as well as the more complex, “Harry Potter and the baptism of the imagination,” “Harry Potter and the problem of evil,” and the crowd-pleasing “Harry Potter and theological libraries.”

4. Fighting for the Public Option. Ezra Klein makes a persuasive argument against simply giving up on the public option, but he still comes down on the side of those willing to give it up:

For all that, it’s one thing to fight for an uncertain, but promising, policy experiment. It’s another thing to sacrifice health-care reform on its altar. In July, Families USA released a paper explaining “10 Reasons to Support Heath-Care Reform.” The public plan is one of the reasons. But only one of them. And it’s not even the most convincing.

5. Crazy is a Preexisting Condition. Rick Perlstein, author of Nixonland, has an editorial in the Washington Post examining the “crazy” that he sees as an essentially American part of the political process. Read the whole piece:

So the birthers, the anti-tax tea-partiers, the town hall hecklers — these are “either” the genuine grass roots or evil conspirators staging scenes for YouTube? The quiver on the lips of the man pushing the wheelchair, the crazed risk of carrying a pistol around a president — too heartfelt to be an act. The lockstep strangeness of the mad lies on the protesters’ signs — too uniform to be spontaneous. They are both. If you don’t understand that any moment of genuine political change always produces both, you can’t understand America, where the crazy tree blooms in every moment of liberal ascendancy, and where elites exploit the crazy for their own narrow interests.

6. Watching an Abortion. Sarah Kliff for Newsweek, who is pro-choice, watched her first abortion and reported on her feelings. Rather moving and honest. A welcome inclusion into our fraught debate.

[Image by me.]

Categories
Economics Financial Crisis Politics The Opinionsphere

Fact-Checking Taibbi: The Sarah Palin of Journalism?

Having cited Matt Taibbi’s well-read Rolling Stone article on Goldman Sachs in a few previous posts, it’s worth taking some time to air some fact-checks of it. (Complete article here.) Megan McCardle has dubbed Matt Taibbi “the Sarah Palin of journalism”  but I wonder what this makes McCardle – whose feeling-based objections to any of the health care reforms on the table seem different only in tone than Taibbi’s hysteric rants on financial companies.

Which is why I cite this article at The Big Money instead – which takes a fact-based rather than feeling-based – look at Taibbi’s article. The takeaway by Heidi Moore is about what I suspected:

The mammoth article disappointingly failed to provide the smoking gun that so many people on Wall Street—who have envied and admired and hated Goldman for much of this decade—would have been delighted to see.

Moore’s piece also points out some of the ways in which Taibbi’s article is misleading – and it’s worth a read. Unfortunately, I do not know have the expertise in the subject to adjudicate these disputes – which essentially involve whether Goldman Sachs was a player or the main player in these various financial disasters.

It’s worth taking a look at Moore’s piece if you were one of the many who has read Taibbi’s. But I think it was pretty clear to anyone reading Taibbi’s piece that it was deliberately over-the-top and overstated.

Categories
Economics Financial Crisis

Theories of the Financial Crisis: Deference to the Financial Sector

[digg-reddit-me]Closely related to the previous theory of the financial crisis – that Goldman Sachs did it – is the more generalized version of this idea – that the financial sector itself – whether through political donations, lobbying, corruption of politicians, respect, fear, or any other means at their disposal – was able to demand and receive undue influence over the political processes affecting them.

Since Ronald Reagan took office in 1980, the financial industry has been growing more quickly than the rest of the economy – whether because of this or as a result of this, politicians of both parties have given the industry about every policy they wanted. The financial industry began to feel its oats when a cultural revolution swept America – the Reagan Revolution – which removed the various moral stigmas from money and profits just as the 1960s had from sex. Reagan also instituted several policies which served to concentrate wealth (thus enlarging the financial sector) and removing regulations. He cut taxes – especially for the wealthiest; he instituted a de facto Bretton Woods II agreement in which the savings of East Asia were transferred to America, thus enlarging the financial sector further and decimating our manufacturing sector; he ran massive deficits, thus super-charging the economy – from which the financial sector was a main beneficiary; he deregulated various industries thus allowing private enterprises to capitalize on the investments of the public in them; he reduced regulations overall, especially those on the financial sector.

Bill Clinton came into office with various plans to help out the middle class – to pass a stimulus bill, to tackle health care – but was forced by an unruly bond market to back off. Bob Woodward quoted Clinton realizing the power of Wall Street a few days into office:

You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?

But Clinton came around and designed an agenda that would win Wall Street’s approval. He brought down the deficit – running surpluses even. He reformed welfare. He pursued free trade agreements – especially NAFTA. The Committee to Save the World – consisting of Treasury Secretary Robert Rubin, Assistant Secretary Lawrence Summers, and Federal Reserve Chairman Alan Greenspan (with an assist from Timothy Geithner) organized emergency interventions committing taxpayer dollars to help Mexico, the Asian markets, Russia, and domestic markets with the collapse of Long Term Capital Management in order to keep the markets stable and growing. By the end of his presidency, Clinton was a major proponent of deregulatory measures – signing the repeal of the New Deal era Glass-Steagall Act, forbidding the regulation of derivratives, and allowing off-balance sheet accounting. All of these changes greatly benefited the financial sector and were much sought after by the industry.

And then of course came further deregulation under George W. Bush and his proposal of various housing initiatives under the rubric of an Ownership Society. The deregulatory fervor was probably best symbolized by the efforts of the Office of Thrift Supervision (OTS) to bring more financial institutions under its authority. (Regulators were funded based on what companies they oversaw, so the various regulators began to compete to be more lax.) The head of OTS brought a chainsaw to the photo-op in which the heads of the various regulatory agencies attacked a stack of paper representing bank regulations to demonstrate their commitment to reducing oversight. As Simon Johnson wrote in The Atlantic regarding these many causes of the financial crisis:

[T]hese various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector.

His thesis is essentially this:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

Whether politicians of both parties deferred to the financial sector because of their massive contributions to both parties or because the financial sector became the leading driver of GDP growth doesn’t really matter.

What’s clear is that when the financial sector wanted something, they got it. They blocked reforms; they got deregulation, free trade agreements, business consolidations, and policies that led to market inefficiences and bubbles they could exploit. The financial sector was pushing virtually every policy which contributed to the economic collapse – and politicians of both parties went along.

Categories
Barack Obama Conservativism Criticism Financial Crisis Latin America Politics

In Case You Missed It: Best Reads of the Week on Whining Conservatives, Internet Battles, Peru, The Single Life, and the Unborn

1. Whiny Conservatives. David Frum scolds conservatives for  quite whining and points out how silly they look doing so given how far the conservative movement has moved America since it gained power:

In 1975, the federal government set the price of every airline ticket, every ton of rail freight, every cubic foot of natural gas and every barrel of oil. It controlled the interest rates paid on checking accounts and the commission charged by stockbrokers. If you wanted to ship a crate of lettuce from one state to another, you first had to file a routemap with a federal agency. It was a crime for a private citizen to own a gold coin. The draft had ended only two years before, but not until 1975 itself did Congress formally end the state of emergency (and the special grant of presidential powers) declared at US entry into the First World War.

2. The Battle for the Internets. Fred Vogelstein writes in Wired about the brewing battle between Facebook and Google for the internet.

3. Peru’s Moment. Most of the world has lost ground in the financial crisis and recession. Daniel Gross in Newsweek tells the story of one country that has managed the financial crisis perfectly (Peru), and their secret ingredient: leadership in the years leading up to the crisis:

In the latter half of 2008, being a poor, export-dependent, commodity-producing country set you up for a vicious downturn. But Peru has weathered the storm, in large part because President Alan García, an old leftist turned center-leftist, and the Peruvian central bank have proved adept at a set of capabilities notably lacking in the United States in recent years: sound fiscal and financial management. Fearful of a return of hyperinflation amid rapid growth, Peru’s central bank raised interest rates throughout 2008. Instead of spending the foreign currency that piled up on its books ($32 billion at the end of 2008), the government saved it. In 2008, Peru ran a $3.3 billion budget surplus.
And so, when troubles came, it was able to respond in textbook fashion. In December 2008, García announced a stimulus program, promising to boost government spending by $3.2 billion, and to take up to $10 billion in further measures. The total of $13 billion in promised stimulus doesn’t sound like much, but that’s equal to about 10 percent of Peru’s GDP.

4. New York Wins Again. Forbes has released a list of the top cities for singles. New York is – as in everything else – number one.

5. This strong, invisible and unacknowledged force. David Brooks (in a piece that Yglesias ridiculed, justly on some grounds) – manages to write an interesting meditation on the importance of the unborn to our society:

People live in a compact between the dead, the living and the unborn, and the value of the thought experiment is that it reminds us of the power posterity holds over our lives.

Bonus: This song came out months ago, but I just starting enjoying it recently, so here’s to sharing:

[Image by me.]