[digg-reddit-me]David Segal of The New York Times interviewed a former Wall Street executive who wished to remain anonymous for his article on how “Wall Street” has become a financial epithet. The executive said:
I’d almost rather say I’m a pornographer. At least that’s a business that people understand.
The self-pity is unbecoming – and the lack of an acknowledgement of responsibility is not surprising. After all – it was indecent greed and irresponsibility that got Wall Street into such trouble.
What’s funny is – I think this anonymous executive is right. Whether in New York or Topeka, a pornographer is now held in more esteem than a Wall Street banker.
Obama has clearly been trying to stay above the fray in this debate over the stimulus bill. He set guidelines as to what he wanted in the bill and let Congress fight over the specifics. He wanted a bill:
in which 75% of the spending would occur within two years;
that would focus on long-term projects such as infrastructure, health care, and educational improvements and on short-term stability measures dealing with unemployment;
that would have little to no “pork”;
that would include significant tax cuts; and
that would be ready to pass as soon as possible – by last week.
The president has been willing to give House and Senate Democrats substantial leeway in crafting their proposals because he knows that both will end up being broadly to his liking. He can influence the final outcome when the two houses work out their differences next month.
The administration did intervene, however, to chip away at a few small but politically troublesome expenditures…
Dionne is referring to the items the Republicans voiced displeasure over (with press releases and coordinated apperances on cable news shows). Obama pressed the Democrats in Congress to remove the items (including state funding for contraception and STD prevention and a museum of the mob in Las Vegas). The Republicans wanted tax cuts – and Obama obliged with over 35% of the cost of the stimulus going to tax cuts. A number of other Republican proposals have been incorporated into the bill from Chuck Grassley’s Alternative Minimum Tax fix to Arlen Specter’s additional funding for the National Institute of Health to Eric Cantor’s proposal to place the bill on the internet.
The Republicans who have been criticizing the bill have praised the popular President Obama’s outreach and tried to place the blame on the unpopular House Democrats. The talking point is that Obama is too timid to stand up to the House Democrats who are foisting this awful bill upon us. This seems to me to be a misleading interpretation of the above events designed to undercut Obama politically. From what I can see and from what I read – the Democrats, and especially Obama, are making a good faith effort to make sure this bill has bipartisan support. They are incorporating Republican suggestions and principles; they are involving them in some, though not all discussions of the bill. Even if there is truth to the complaints of House Republicans that they are being frozen out of the House’s deliberations, their input is clearly being taken into account by Obama who has presssed the House Democrats to make changes suggested by the House Republicans. The Senate bill seems to be even more reflective of Republican concerns, with 78% of it’s spending projected to be done by 2010.
Which is why the unanimous opposition of the House Republicans is disappointing. It is best explained, it seems, by politics, as the AFP described the dynamic at work:
[I]f Obama’s stimulus works and revives the reeling economy, they would be unlikely to get any credit even if they voted for it – by opposing the measure they can at least expect some political gain if it fails.
But the battle of whether the Republicans are being true to their ideals or merely obstructionist hasn’t yet been resolved. The Republicans have been dominating the media coverage while the Democrats have hung back. They have been expressing their criticism of the stimulus plan in partisan terms – bringing up culture war issues related to sexual morality, calling the bill a mere sop to Democratic interest groups, and failing to acknowledge the significant concessions that have been made. Rush Limbaugh – as part of his continuing quest to hijack the Republican Party – wrote an op-ed for the Wall Street Journal full of his usual misinformation: exaggerating the cost of the bill; downplaying the tax cuts within the bill (when his real objection is to who these tax cuts are going to); and most of all claiming that it was an example of Democratic policies being forced down the throat of an America who wants a bipartisan approach – like the one Rush Limbaugh is offering.
There are major changes that should be made to this bill – the most pragmatic and popular one being to eliminate the portions of the bill extending past 2010 and keeping those provisions for other legislation. But by necessity, out of a need for quick action, this bill will be far from perfect – utilizing existing programs rather than creating more appropriate and effective ones. Obama should ensure that the Senate Democrats make this change to the bill, which is already an improvement over the House bill in that 78% of it’s monies will be disbursed within two years.
But regardless of whether this bill is the right bill or not, Obama will soon face a choice. The Republicans seem to be interpreting Obama’s civility and openness to dialogue as weakness. They do not seem to realize where they are headed. Voting against tax cuts. Voting against a stimulus measure. Obstructing the government from acting in the midst of a crisis. Obama will likely continue to reach out for the rest of this week, making obsequious efforts to woo Senate Republicans to his side. Given the dynamics that are dominating in Washington, I find it difficult to believe they will give in, although some might. (The question would become, did Obama get enough Republicans.) As described above, most Republicans have far more to gain by being obstructionist – especially if they are misinterpreting Obama’s attempts at biparisanship as weakness – and think there will be no consequences.
My bet – and my advice if it were needed – would be for Obama to make a final private plea for Republican support later this week. Then, if it fails, to schedule a speech this coming weekend in one of his more vulnerable opponents’ states. He should make clear that this bill is not perfect – but that decisive action in the midst of this crisis is important. He should make clear that bipartisanship is not unilateral disarmament. He can only work with those who will unclench their partisan fists and are willing to get down to the work of governing. He should make it clear that this bill is not our only response to the crisis – that we will likely need to do more – to reform the banking and mortgage industries; to continue to create liquidity in the credit markets. He should make clear that this stimulus bill is only one part of his overall plan. Shortly after this speech, he should sent out an email to his supporters asking them to write their Congressmen and Senators and ask the Obama movement to prove it’s continued political worth.
In short, he should give a brief demonstration of the consequences of crossing Obama – he must show his opponents the back of his hand. It may not be civil – but politics cannot be civil without respect. Perhaps it is time for Obama to demonstrate his ability to change the debate in Washington – and in the country.
[digg-reddit-me]Aside from the partisan power play that seems to be motivating most of the Republican opposition to the stimulus plan, there are a number of fair-minded criticisms.
First, the plan lacks the Obama touch – the deft promise to cut those programs that don’t work and to make sure the ones that are around still do work, the libertarian paternalistic designs of Cass Sunstein, the nimble government program that does not coerce but merely offers opportunity. Of course, there is a sensible reason for this. The stimulus is needed right now – and it will take time to design new programs with this balancing between libertarian principles and liberal ends in mind. So, Obama has decided that this stimulus package must work within existing programs – which Republicans have used as an excuse to attack those programs.
Second, there is not a clear exit strategy. Many of these spending measures and tax breaks are supposed to be emergency measures that the government will only maintain during this crisis – but new spending and cuts in taxes both are hard to roll back. The idea that taxes are hard to raise is, of course, the basis of the “Starve the Beast” strategy that conservatives adopted (as described by George Will):
For years, many conservatives advocated a “starve the beast” approach to limiting government. They supported any tax cut, of any size, at any time, for any purpose, assuming that, deprived of revenue, government spending would stop growing.
But they found out that spending was also hard to cut:
But spending continued, and government borrowing encouraged government’s growth by making big government cheap: People were given $1 worth of government but were charged less than that, the balance being shifted, through debt, to future generations.
Obama’s stimulus plan involves both increasing spending and cutting taxes. The question is – can we then raise taxes and cut spending after this is over? Obama has clearly indicated he intends to – and to shore up America’s long-term fiscal solvency by dealing with entitlement spending too. If he is able to pull off this Grand Bargain, then he will belong in the rank of the best presidents. If he is not, then this temporary increase could have disasterous effects.
Third, by trying to act so quickly, there will inevitably be unintended consequences. To avoid as many of these as possible, the bill should be cleaner and its provisions should work faster.
As it turns out, President Obama didn’t make the tough choices on the stimulus package. He could have either used the program mainly (a) to bolster the economy or (b) to advance a larger political agenda, from energy efficiency to school renovation…There were tough choices to be made – and Obama ducked them.
This bill is something of a muddle so far, in part because of the need for speed, and in part because Obama has let the House and Senate Democrats craft the bill, waiting to give his input until the conference in which the bills passed by the House and Senate will be reconciled.
Fifth, the bill offers both short term stimulus measures and downpayments on longer term (and worthy) projects. A stimulus bill should only include spending in the short term. The 75% goal Obama has set is too low. Every dime in the stimulus package should be out by the end of 2010. Kay Bailey Hutchinson ably stuck to this point in her Meet the Press appearance this past Sunday. Her confident demeanor and obvious grasp of policy made me wonder what had led John McCain to bypass her in choosing his Vice Presidential nominee.
In short, most of the bills problems seem to come from the speed with which it is being forced out. This is a tradeoff Obama seems to be willing to make – as this bill is intended primarily to demonstrate that stimulus is coming and the problem is being taken seriously.
There are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.
What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public’s dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.
This brings to mind what George Stephanopoulos was so excited about last Sunday on This Week:
(Yes, I need to work on improving my DVR to computer quality.)
It seems that Obama is preparing to bet his presidency on a Grand Bargain – that will allow him (and us) to rewrite the social contract in a more extensive way than any president since Franklin Delano Roosevelt. Even during Obama’s campaign, he spoke of tackling the challenges that were necessary – and not putting off hard discussions about our country’s long-term stability. But the financial crisis – which at first prompted the endlessly parroted conventional wisdom that whoever won would need to cut all of their projects and focus narrowly on the crisis itself – has instead proved to be an opportunity.
The amount of spending needed to stimulate the economy is enormous – with the numbers being thrown around today dwarfing that of any previous government intervention (save perhaps for our major wars). What Obama understands is that this type of spending, while necessary in the short-term, poses a serious long-term threat. Which is why he is now speaking of the second step – after the financial crisis has passed – of tackling entitlement reform and tax reform, and finally putting America on sound financial footing after years of prolifigacy.
None of these insights are exceptional. What is exceptional is how Obama is already shaping the arch of his first term, using this crisis to set up his next objective, and shaping the conventional wisdom.
The problem I see though is that the Obama administration has not done a good job of conveying to the public the place this stimulus bill has within Obama’s agenda. The word is that in the next week or so, Tim Geithner will present “a ‘comprehensive’ plan that [he] hope[s] will command market confidence.” My hope is that this comprehensive plan will lay out a broad legislative agenda based on Obama’s campaign. Based on the campaign plans and signals sent during the transition, here’s what I see:
Step 1 (The First 100 Days)
Release the rest of the funds from TARP.
A large stimulus package to demonstrate the government’s commitment to addressing the crisis, especially in alleviating it’s effects on the majority of Americans.
A banking and mortgage bill that takes whatever steps are necessary to shore up these sectors of the economy, including new regulations, new oversight, and possibly additional funds.
A combination of a cap-and-trade program and funding for green energy.
The goal of this first period would be to begin to make both short-term and long-term investments into those sectors that will lead to long-term growth – which will stimulate the economy in the short-term. This is the spending stage. After this burst of legislating, Obama would be able to focus on tinkering with education programs and seeing what works, as well as addressing the simmering foreign policy issues which are constantly threatening to take over the agenda.
Step 2 (Post-Crisis)
Entitlement reform (Social Security, Medicare, Medicaid.) Everything is on the table.
Tax reform. Not much has been said about this. This will certainly be a wild card – but Obama has criticized our corporate tax rate for its irrationality. It’s very high – but due to the enormous number of exemptions and credits, the effective rate for those businesses able to lobby for benefits, it is very low. This should be rationalized.
Universal health care.
Education reform.
This is the “cutting back” stage and consolidation stage. The goal of this second stage would be to put America on a solid financial footing again – to eliminate the unsustainable domestic policies that undermine our stability and power.
This is obviously an enormous agenda. And it’s far from clear that Obama can accomplish this. But if he does not lay out the vision – which I have pieced together from numerous statements – then it’s hard to see how he can accomplish it. Of course, Geithner was just confirmed last week – and Obama’s only been in office for two weeks – so he does have a bit more time to lay this out. But he doesn’t have long.
The BBC proposes reintroducing a word from the 1930s into the current lexicon: bankster.
Readers of the blog – and friends of mine – know that I have a deep and abiding hatred of the Bank of America. Of course, this hatred was based on my own personal experience with that sorry institution. I did not know the back story – of a poor immigrant who used his bank to build a community, who financed the Golden Gate Bridge and Snow White and the Seven Dwarfs, who refused pay increases or bonuses, who helped rebuild San Francisco after the great earthquake of 1906. This only makes me despise even more the institution that grew from this good bank – which perverted the bank Amadeo Peter Giannini founded.
[digg-reddit-me]Now that the World Economic Forum 2009 meeting in Davos, Switzerland has concluded, let me present some highlights.
The number one highlight, of course, is the Turkish Prime Minister, Tayyip Erdogan, storming off the stage after not being allowed to finish addressing Israeli Prime Minister Shimon Peres on the issue of Gaza:
Keep in mind that the “spirit of Davos” is supposed to be international cooperation and civil discussion between the business and political elites and the journalists who so eagerly report on them- and that Turkey and Israel are allies rather than enemies. Dr. George Friedman of the Stratfor Institute saw this as the clearest demonstration yet of Turkey’s increasingly prominent role as the leader of the Muslim world – and certainly Erdogan is being lionized for standing up to the Western media and the Israeli prime minister.
But the immediate buzz in the hall wasn’t about the global significance of this fit, but about breakdown of the spirit of Davos. For journalists, Davos is a kind of ideal as William Lewis of London’s the Telegraph described it:
The beauty of Davos is that one can meet large numbers of the world’s most important/interesting/powerful/egotistical people in the space of four days. Interviews that would otherwise take months to arrange, and hours to travel to, take place in a small Swiss ski resort. It’s a journalist’s dream…
More significantly, Lewis noted that this year, for the first time in many years, Americans did not dominate. Barack Obama only sent his advisor Valerie Jarrett. The most prominent American present was Bill Clinton. More on him later. Instead, Davos was dominated by the Chinese premier and Russian prime minister, each of whom confronted America and blamed it for the crises in their countries in a different manner. Joe Conanson of Salon described the mood:
Accustomed to flattering themselves and each other as benevolent masters of the globalizing world, they now confront an unprecedented crisis – actually a conglomeration of crises – that has diminished their financial worth and moral credibility.
What roused the global elitists from their glum torpor was the opportunity to lay blame for the economic catastrophe that has befallen the world. There was one obvious target: the United States of America, whose stupid and criminal bankers have inflicted so much harm on the whole of humanity. It is an undeniable fact that the Russian and Chinese leaders explored with great relish at every opportunity.
The Chinese premier, Wen Jiabao, in a characteristic manner, did not directly name America as the cause of the financial crisis, but elliptically described it as “attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit,” etcetera. It was clear to everyone who he was talking about. Wen’s speech was warmly received – but his private remarks to a meeting of Western business leaders demonstrated his real political skill – as he charmed the gathered free market capitalists by referencing such touchstones as the work of Adam Smith (which he had recently re-read.)
Then, there were Vladimir Putin’s remarks on the “perfect storm” that is the current financial crisis. The theory of the perfect storm – “the simultaneous occurrence of weather events which, taken individually, would be far less powerful than the storm resulting of their chance combination” – seems to be a rather apt metaphor for the confluence of events shaking the global system. Putin placed the blame directly on America though, in part no doubt due to his honest assessment, and in part to deflect responsibility. While he was giving this speech, violent protests calling on him to step down were being put down back in Russia as many blamed his financial mismanagement as he bet Russia’s economy on strong commodities prices.
This is not a time for denial or delay. Do something. Give people confidence by showing confidence. Don’t give up. Don’t bet against yourself. Don’t bet against your country. This is still a good time to be alive.
Described as “the lone American to whom anyone at Davos might actually listen as he attempted to uphold the name of his country,” Clinton not only tried to rally the world leaders from their sour mood, but also responded more specifically to Putin in response to a question:
Later, Clinton met with Putin privately for an hour and a half, seemingly with the consent of the State Department and White House.
The overall lesson of this year’s Davos seems to be a reinforcement of the consensus view of the foreign policy establishment: We are now living in a nonpolar world in which, though America retains great power and is the most powerful single force, it will not hold the same leverage that it once did. We can no longer act as the world’s only superpower – but instead can take our place as the first among equals.
[W]hy is it the GOP is so easily galvanized by sexual panic? Weird, if you ask me. This is the budget we’re talking about here. Even there, they reach, like the exhausted tacticians they are, for the culture war.
“There is nowhere to hide,” Roubini, an economics professor at NYU’s Stern School of Business who predicted the financial crisis, said from Zurich in an interview with Bloomberg Television. “We have for the first time in decades a global synchronized recession. Markets have become perfectly correlated and economies are also becoming perfectly correlated. This is not your kind of traditional minor recession.” [my emphasis
Nouriel Roubini was one of the economists whose analysis I latched onto in the immediate aftermath of the collapse of Lehman Brothers. His writing makes a lot of sense, especially recently. But I’m sure I’m not the only person tired of hearing people identified as someone “who predicted the financial crisis.”
Many of these people who “predicted the financial crisis” have been predicting the financial crisis we are now seeing every year since the 1980s. Specifically, I’m thinking of Michael Lewis and Nassim Nicholas Taleb – both of whom were in the finance industry in the 1980s and got out while the going was good – and then went on to write about it’s unsustainability. They were right that the Wall Street boom was unsustainable and built on shakey foundations. But they obviously missed something in what was going on as the boom continued for many years. In other words, they were right in the end, but wrong for quite some time. Their insight allowed them to see moral problems that would come back to haunt us but had little practical effect in terms of predicting the future – including this crisis.
All this is less true of Roubini though who famously did predict with some precision what has happened – and did so in a timely fashion. As the New York Timesdescribed his 2006 presentation to the IMF:
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.
What Michael Lewis and Nassim Nicholas Taleb did was correctly point to an unsustainability in our system – but their insights haven’t had the same predictive value as Roubini’s.
Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices. Stock prices go up and down: let them. An absurd number of the official crises have been negotiated and resolved over weekends so that they may be presented as a fait accompli “before the Asian markets open.” The hasty crisis-to-crisis policy decision-making lacks coherence for the obvious reason that it is more or less driven by a desire to please the stock market. The Treasury, the Federal Reserve and the S.E.C. all seem to view propping up stock prices as a critical part of their mission — indeed, the Federal Reserve sometimes seems more concerned than the average Wall Street trader with the market’s day-to-day movements. If the policies are sound, the stock market will eventually learn to take care of itself.
