Category: Financial Crisis

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Barack Obama Domestic issues Economics Financial Crisis Green Energy Health care Politics The Opinionsphere

The Larger Narrative

[digg-reddit-me]David Brooks:

The crisis was labeled an economic crisis, but it was really a psychological crisis.

Republican pollster David Winston:

[Obama]’s going to have to fit other issues into the larger narrative of the economy.

Michael D. Shear and Paul Kane in the Washington Post:

Whichever side proves to be right, the sharp, partisan lines over the stimulus bill make it plain that both parties intend to exact a political cost over last week’s votes. And their leaders are looking to history for inspiration as they consider how to maneuver in the weeks and months ahead…

Republicans have made it clear that they intend to try to shift the economic debate toward concern about the federal deficit.

Obama is now completing the three-step jig he planned from the beginning, with his address to Congress tonight focused on the Grand Bargain needed to shore up our economy for the forseeable future.

The first step of this jig was supposed to be easy, nonpartisan, and uncontroversial – a spending and tax cutting bill to stimulate the economy. The second step was supposed to be harder but still nonpartisan – dealing with the mortgage and banking messes. In both cases, Obama has approached these problems as a mechanic trying to figure out what has gone wrong and taking whatever steps are necessary to fix it. Just as a mechanic does not make moral judgments about springs and gears but focuses instead on doing what is necessary to get the machine working again, so Obama approached the economy. Most Americans appreciate this, as polls show that while many dislike the specific measures he has had to take, they approve of the job he is doing. The question was: how to get growth started again – greedy bankers and lying loan applicants and wasteful consumers all are being bailed out – because the problems they have caused are “gumming up the works.” And the consumers at least are being encouraged to continue in their spendthrift ways – at least for now, as Dana Milbank explained:

[Ben Bernanke] even indulged in a bit of economist humor when talking about the paradox of encouraging people to spend even though overspending caused the problem: “Somebody once called this the Augustinian principle, which says something like, ‘Let me be moral, but not quite yet.’ “

The third step is more complicated and politically fraught – as Obama seeks to tackle the third-rail of American politics – Social Security; and at the same time, health care reform; and deficit reduction; and tax reform; and possibly climate change legislation. Obama argues that this economic crisis – and the borrowing to stimulate us out of the economic crisis – have created a “fierce urgency of now” – and that all these issues must be tackled at once. 

John Harwood of The New York Times spoke with Senator Judd Gregg about this:

To protect America’s currency and its borrowing capacity, Mr. Gregg said in an interview, “the world has to be told that we’re going to be fiscally disciplined in the out years.”

Efforts to tame long-run entitlement spending may find more Republican support than Mr. Obama achieved on the stimulus. “He has extremely fertile ground in the Senate,” Mr. Gregg said, crediting the president’s early outreach and “courageous position of saying the can’s been kicked down the road long enough.”

Yet despite the bipartisan consensus that these issues must be tackled, here is where the real disagreements should be. Contra George F. Will who argued constantly that the stimulus bill and banking and mortgage bailouts should be opposed by Republicans and supported by Democrats on based their principles, the initial stimulus and other emergency measures should only have raised principled objections from those with an unflagging belief in the free market – which describes only a minority of Republicans. These measures violate the ideologies of both parties – as big business is bailed out and the market is intervened in. There were issues to be raised as to what the most effective methods of dealing with the crisis were – but to oppose measures wholesale as the Republicans did – indicates a lack of seriousness.

The real debate should come now as we decide the shape of things to come and address the moral and political and long-term issues instead of the emergency measures taken to attempt to stimulate the economy.

But in this challenge is an opportunity, as Richard Florida explained in The Atlantic:

The Stanford economist Paul Romer famously said, “A crisis is a terrible thing to waste.” The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?

David Brooks writes with both concern and a carefully measured dose of hope:

[Obama’s] aides are unrolling a rapid string of plans: to create three million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools — and to do it all while cutting the deficit in half.

If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. The crisis demands a large response. The people around Obama are smart and sober. Their plans are bold but seem supple and chastened by a realistic sensibility.

Brooks is still concerned about how this may turn out. As are we all. 

With tonight’s speech, Obama will begin to craete his legacy – beyond fixing the problems accrued during Bush’s tenure. He will begin to, at long last, deal with the stability issues raised by the combination of FDR’s New Deal revision of the social contract and Reagan’s counter-revolution, as he sets a fiscally sane course for the future. In the midst of this crisis, if Obama is to be the leader we need him to be, he needs to see the opportunity to re-write the social contract and create a more stable economic, financial, and international system. Tonight is his chance to make that case. 

Here’s hope it is not wasted.

Categories
Barack Obama Criticism Election 2012 Financial Crisis Jindal Politics

Jindal’s Soapbox

Governor Bobby Jindal, 2012 contender and current governor of Louisiana, argued on Meet the Press this past Sunday that he opposed the stimulus bill and would refuse some to accept some of it’s monies for his state despite it’s looming budget deficit. He gave a few reasons – echoing the established conventional wisdom that Obama should have taken it upon himself to craft the stimulus bill instead of allowing Congress to play it’s part as a coequal branch of government and stating that there was too much spending that Democrats wanted in the bill. This, of course, is a standard politician’s trick, used by Democrats such as Obama as well as Republicans such as Jindal – be outraged at the “the very chaotic, decentralised and often irrational mess” that is American politics while at the same time demonstrating a healthy respect for the distinct advantages of this politics, with the knowledge that, “What keeps America behind is also what keeps pushing it relentlessly, fitfully forward.” In other words – Jindal is railing against the system itself as a political weapon while only taking positions that would keep the system intact. His opposition then clearly has a political component – rather than being a matter of pure principle. There’s nothing wrong with this – but it’s important to acknowledge. 

Jindal gave another reason for rejecting federal stimulus money –  because:

You’re talking about temporary federal money that would require a permanent change in state law.

He continued, using a rather sneaky phrasing to make his point:

[T]he federal law, if you actually read the bill–and I know it was 1,000 pages, and I know they got it, you know, at midnight, or hours before they voted on it – if you actually read the bill, there’s one problem with that.  The word permanent is in the bill. [my emphasis]

Hearing especially that last phrase, with it’s seeming definitiveness yet clear allowance for the opportunity to weasel out of what it seems to be saying, I was rather convinced that only a politician trying to exaggerate a point would use the phrase. Regardless of whether the policy was positive or not, it would have been nice to 

Yet, upon reading the bill, I found that Jindal was right – the law did require unemployment benefits be calculated in a particular way – and that the state law establishing this be permanent rather than temporary. At the same time, the bill offers what seems to be an escape clause – in which the Secretary of Labor is allowed to judge whether states have met the criteria set forth in the law. 

If Jindal’s objection were merely that he did not want to change the state law permanently in order to receive the monies, he could just apply for the funds and see what happened. There are enough ambiguities in the text that a clever lawyer could probably find a loophole allowing the monies to be given to Louisiana. More important, this would provide better political ground for Governor Jindal to make the case against this provision – he would have clearly focused the political debate on whether it was right for the stimulus bill to impose permanent changes. I personally think it unlikely that the Secretary of Labor would provoke such a conflict – which is probably why Jindal is making his case this way.

He chose to reject the funds because he wanted a soapbox issue to helped cement his national opposition to the plan. 

Jackie Calmes and Robert Pear wrote in the New York Times last week that Jindal was joined by a number of other Republican governors in vocal opposition to the plan:

The harshest critics include Mr. Sanford and Govs. Bobby Jindal of Louisiana, Haley Barbour of Mississippi, the national chairman of the party in the 1990s, Rick Perry of Texas, and Sarah Palin of Alaska, the party’s 2008 vice-presidential nominee.

Interestingly, all seem to have national ambitions – and designs for 2012. 

The point I’m trying to make is one I’ve made before – the Republican opposition to the stimulus is clearly a matter of politics rather than principle.

Categories
Financial Crisis

The Opportunity of Foreclosure

An interesting suggestion from Richard Florida in The Atlantic:

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

Categories
Barack Obama China Economics Financial Crisis Foreign Policy The Bush Legacy The Opinionsphere

Dubya’s China Legacy

Isabel Hilton in The Guardian:

George W Bush’s presidency…was a pleasure for Beijing to deal with: it distracted itself with two unwinnable wars, leaving China to expand its influence, quietly contrasting Beijing’s peaceful international profile with the US’s embattled one. By playing the bad boy in international climate politics, the Bush administration eased the pressure on China to do more about its own soaring emissions. And in the most active and important aspect of Bush’s China policy, the strategic economic dialogue, set up in 2006 to strengthen ties, the US depended on China first to soak up US debt and then to help manage the consequences of the crisis.

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Financial Crisis New York City

Will New York Survive The Financial Crisis?

The initial response by many suggested that New York, the home of Wall Street, had been severely diminished in the financial crisis and would never recover. Washington was where the excitement was.

Yet, as David Brooks pointed out, even still:

Forty-five percent of Americans between the ages of 18 and 34 would like to live in New York City.

Richard Florida points out in The Atlantic  that:

Worldwide, people are crowding into a discrete number of mega-regions, systems of multiple cities and their surrounding suburban rings like the Boston–New York–Washington Corridor. 

This is crucual according to Florida:

“A crucial contributory factor in the financial centres’ development over the last two centuries, and even longer,” writes Cassis, “is the arrival of new talent to replenish their energy and their capacity to innovate.” All in all, most places in Asia and the Middle East are still not as inviting to foreign professionals as New York or London. Tokyo is a wonderful city, but Japan remains among the least open of the advanced economies, and admits fewer immigrants than any other member of the Organization for Economic Cooperation and Development, a group of 30 market-oriented democracies. Singapore remains for the time being a top-down, socially engineered society. Dubai placed 44th in a recent ranking of global financial centers, near Edinburgh, Bangkok, Lisbon, and Prague. New York’s openness to talent and its critical mass of it—in and outside of finance and banking—will ensure that it remains a global financial center.

This helps account for why “major shifts in capitalist power centers occur at an almost geological pace.” The perverse effect of this dynamism is that:

While the crisis may have begun in New York, it will likely find its fullest bloom in the interior of the country—in older, manufacturing regions whose heydays are long past and in newer, shallow-rooted Sun Belt communities whose recent booms have been fueled in part by real-estate speculation, overdevelopment, and fictitious housing wealth. These typically less affluent places are likely to become less wealthy still in the coming years, and will continue to struggle long after the mega-regional hubs and creative cities have put the crisis behind them.

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Economics Financial Crisis

The Mechanics of the Market Versus the Morality of the Market

[digg-reddit-me]A rough draft of a thought:

There is a substantial difference in how many people view the market today that this financial crisis has brought out into the open. Some view the market primarily in moral terms – on both the left and right. Others view the market in mechanistic terms.

You can see this in the opposition of some extremists to any type of stimulus at all – believing that the market is sacred and the government an often unnecessary evil interfering in the market. You can see this in those on the left who believe the market creates fundamentally unfair situations or fundamentlly unjust processes. You can see this in the outrage many people feel at bailing out bankers, borrowers, shareholders – or anyone. In essence, those who view the market in moral terms tend to fall in two camps:

  1. Those who see blame our current crisis on the perversion of capitalist values, as people neglected to save, were pressured by the government to make bad loans, borrowed too much, were rewarded for short-term success, etcetera. (Capitalist values here mean a combination of Max Weber’s Protestant Work Ethic – diligence, hard work, and restrained expenditure among others – and libertarian values – freedom from government interference or coercion among others.)
  2. Those who see the roots of our current crisis extending back many years and blame it on the fact that capitalist values are perversions themselves. (Some of these thinkers focus on ends; the others on means. Income inequality and pollution are important issues for those who focus on ends. Government corruption by big business is a major issues for those who focus on means. These people see capitalist values as greed, selfishness, exploitation, social Darwinisn – all of which pervert our society and individual nature.)

I’m not sure everyone – or even most people – consciously take any of these positions, and I’m sure most people have contradictory perceptions. But those on the left and the right with strong opinions seem to fall comfortably in one camp or another.

On the other hand are those who see our economy as a machine. Specifically, this machine can be seen to produce something of great worth: increasing opportunity which is considered the main guarantee of societal stability. The question for those who take this approach to the economy primarily is, ‘How do we fix this?’ There is little worry about helping ‘losers’ and those who did wrong; there is no attempt to overthrow the entire capitalist system. Instead of treating the economic theory as a theological matter, they treat it as a mechanical matter. Something is gumming up the works; something is out of place. A mechanic doesn’t make a moral judgment about whether a cog or spring is doing it’s job – he does what he needs to do to get the machine running again.

As with the two types of moral judgments, many of those who are tackling this issue from a mechanical perspective also probably have moral opinions about what is going on. But they believe that fixing the machine is more important than judging who has sinned. Thus they pump money into banks that acted badly; they help bail out car companies that have been managed poorly; they help those homeowners who agreed to bad loans.

Categories
Barack Obama Economics Financial Crisis Politics

The Hypocrisy of the Traders’ Revolt

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[Click image for larger version.]

Matt Drudge seems to be cheering the call for a ‘Tea Party’ and other civil disobedience in opposition to Obama’s proposed mortgage plan.

ABCNews describes the plan as “help [for] up to 9 million homeowners facing foreclosure or struggling to make their mortgage payments.”

The plan seeks to help two groups of people as described by ABCNews:

  • First, some 4 million to 5 million families who have seen their home values drop, but are not at risk of foreclosure, would now be able to refinance into new mortgages.
  • The other group, 3 million to 4 million homeowners with adjustable-rate mortgages, would be able to temporarily have their loans modified to a lower interest rate – for at least five years.

In order to accomplish this, Obama is proposing that $100 billion be given to Fannie Mae and Freddie Mac to allow these groups to refinance the loans for those whose home values have dropped below what they owe.

For the second group, Obama is propsing that $75 billion be used to help those with predatory loans temporarily modified to a lower rate. That’s a total of $175 billion. The plan doesn’t yet have a complete budget, but these are the basics and the largest elements.

The response being promoted by Drudge and CNBC:

The government is promoting bad behavior… do we really want to subsidize the losers’ mortgages… This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama are you listening? How about we all stop paying our mortgage! It’s a moral hazard…

My emphases above. Am I the only one who finds it incredible that CNBC and financial traders are talking about civil disobedience and moral hazard and “losers” as soon as Obama proposes a $175 billion plan to directly help about 9 million Americans? Yet these same people assured us that bailing out the banks to the tune of $700 billion was necessary for financial stability – and that plan directly helped how many?

What the fuck is wrong with these people?

Edit: Apparently, the trader explained that “The trading floor is a pretty good cross section of America” as part of his justification. And of course, it’s better to help this “pretty good cross section” of rich America than to help an actual cross section of the population.

Edit again: A commenter over at reddit says that the particular CNBC host in the clip has actually been calling on mobs to go after any CEOs who take the TARP bailout money too. That removes the charge of hypocrisy from him, although not from those others who supported the bailout out to Wall Street but complain about any funds being used to fix the mortgage situation. And it still leaves the CNBC anchor, Dylan Ratigan, open to charges of pure stupidity.

Continue reading “The Hypocrisy of the Traders’ Revolt”
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Economics Financial Crisis Foreign Policy Great Britain Pakistan Politics Russia

An Age of Upheaval? – Instability, Legitimacy, and the Economic Crisis

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[Source, page 19 of the “Global Employment Trends 2009” [pdf report by the United Nations International Labor Organization.]

Niall Ferguson, writing for Foreign Policy with foreboding sees the current economic crisis as the final element needed for “an age of upheaval”:

Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.

Certainly, around the world, the economic crisis is causing instability – as the legitimacy of many governments around the world is called into question. The constitutional legitimacy of most governments, the bargain they have made with their people, is based on a growing economy that provides for the people’s needs, and increasingly, also provides individual economic opportunity. While this “deal” was often discussed with regards to authoritarian capitalist systems such as China’s, it is also true of governments in democratic capitalist systems. Thus it makes sense that this economic crisis is a serious threat to the stability of nations throughout the world.

If, as the chart above suggests, the worst is yet to come, the current unrest is but a preview. Already though, this crisis has provoked significant concerns and serious riots. Nelson D. Schwartz described the worldwide destabilizing effects of this crisis in his New York Times piece entitled “Job Losses Pose a Threat to Stability Worldwide.” Schwartz saw the crisis as potentially more destabilizing for countries in the former Soviet bloc:

Many newer workers, especially those in countries that moved from communism to capitalism in the 1990s, have known only boom times since then. For them, the shift is especially jarring, a main reason for the violence that exploded recently in countries like Latvia, a former Soviet republic.

Meanwhile, Niall Ferguson described how the crisis is undermining one of the key stabilizing elements in Pakistan, it’s middle class:

Pakistan’s small but politically powerful middle class has been slammed by the collapse of the country’s stock market. Meanwhile, a rising proportion of the country’s huge population of young men are staring unemployment in the face. It is not a recipe for political stability.

Patrick Hosking in The Times of London predicts that Great Britain will be hit by social unrest as well, though it certainly is not as vulnerable to collapse as Pakistan which is simultaneously fighting a civil war:

[I]t may already be too late to prevent social unrest, especially in Britain, which is tipped to be one of the worst-hit countries economically.

The spectacle of bankers continuing to award themselves bonuses while taking taxpayer support is feeding an extraordinary public rage and a fierce sense of injustice. With 40,000 people losing their jobs each month, it is a recipe for trouble, come the traditional rioting months of the summer.

Despite the fact that we have yet to come to the “traditional rioting months of the summer,” there have been large riots in Latvia, Bulgaria, Iceland, Greece, ((Greece’s riots were of course triggered by a police shooting, but it is hard to imagine they would be as intense without the instability caused by the financial crisis.)) and Russia. Russia has proven to be especially vulnerable – and as Arkady Ostrovsky of Foreign Policy explained, “The Kremlin is acutely aware that civil unrest in Russia could trigger the country’s disintegration.” He describes Putin, however, as the best of bad options:

Putin’s social contract has been based on co-opting Russia’s elites, bribing the population, and repressing the disobedient. A mixture of nationalistic rhetoric, rising incomes, and pride in Russia’s resurgence won public support. Until now, money has been Putin’s most powerful weapon. Rising incomes and a strong ruble (due to high commodity prices) have enabled Russians to enjoy imported food, holidays abroad, and foreign cars and technology. But even if the lives of ordinary people have not improved dramatically (49 percent say they have enough money for basic needs but struggle to buy much else), Russians at least felt that they had stopped sliding backward. Now things are looking bleak again…

But the chances of a liberal renaissance as a result of Putin’s social contract unraveling are highly unlikely. There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former KGB agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular. ((A side note: Ostrovsky also describes “Putin’s most damaging and possibly longest-lasting legacy…that he has played to Russia’s worst instincts. Rather than develop a sense of pride in Russia’s victory over the Soviet Union in 1991, Putin has fostered feelings of past humiliation and defeat, and subsequently a longing for retribution.”))

What this seems to add up to – short of some economic miracle – is an increasingly unstable world – as long as this economic crisis lasts. At the same time, the trend towards the decentralization of power from the United States to corporations, individuals, non-governmental organizations, and other nations – the trend from unipolarity to nonpolarity, as Richard Haas describes it – could potentially make this problem harder to solve. Regardless, it seems certain that this crisis will reshape international politics – and that America’s power to effect the shape of what is to come is significant though limited.

Categories
Economics Financial Crisis Politics

What Are Republican Principles Again? (cont.)

Jonah Goldberg acknowledges how the political motives of the congressional Republicans may well backfire (h/t Andrew Sullivan):

Despite their successes in the newscycle, I think congressional Republicans made significant mistakes in how they attacked the stimulus bill. First, their recently discovered hatred for deficit spending is long overdue, but hardly persuasive given the previous eight years. The disconnect between their past actions and the requirements of the present crisis lend credibility to the charge that Republicans are just being petulant and partisan.

Previous post on this subject here.

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Barack Obama Financial Crisis Politics The Opinionsphere Videos

What Are Republican Principles Again?

[digg-reddit-me]Dan Akroyd joined Saturday Night Live to explain how Republicans were using this crisis to move past business-as-usual while staying in touch with the citizens they represent:

(h/t TPIP for the link. I had already seen the clip, but was fruitlessly looking for it on Hulu until I saw it on his blog.)

I must commend the Republican Party for discovering the value of fiscal responsibility, of Congressional oversight, and of Congress’s proper role as a coequal branch of government and a balance to the executive branch now that they have no elective power except a slender foothold in Congress. A few more losses in Congress and we might see the Republican Party start making the much maligned case for judicial activism – as our federal court system is filled with conservatives, despite protests to the contrary.

It seems to be part of the nature of our oppositional party structure that such ideological shifts make fools of politicians from time to time. Sometimes I think it would be better for them if we just booted them all out so they wouldn’t need to face the embarrassment of changing their opinions on how things should work so obviously based on political calculations. 

Of course, giving the lie to the Republican’s newfound financial responsibility (aside from their continued support for such expensive programs as continuing Bush’s tax cuts and funding the various imperial activities which together cost some trillions of dollars and got us in the financial pickle we are in now) is their response to the Obama stimulus plan – a tax cut plan that would expand the deficit even further:

 

At the end of the clip, that was Kimberley Strassel of the Wall Street Journal. In response to her: yes, we all did notice that there are no Republicans in charge of anything in Washington anymore. I wonder how and why that happened?

At the same time, the Republicans are now trying to make a big deal of business-as-usual in Washington – after embracing the same practices while in power. This is, of course, standard fare in itself. As Republican opinion-makers suddenly begin to decry how Congressmen and women did not have time to read the stimulus bill, I think most of us remember that infamous exchange from Michael Moore’s Fahrenheit 9/11 in which a Congressman explains why no one read the PATRIOT Act before it was signed into law:

My purpose is not to defend these practices – but to point out the hypocrisy in suddenly objecting to them. The Republicans, led by Eric Cantor, are acting with the transparent hypocrisy of an Inspector Renault:

In all honesty, I do welcome the Republicans embrace of fiscal responsibility, of Congressional oversight, and of Congress’s proper role as a coequal branch of government and a balance to the executive branch, hypocrisy and all. Their sanctimony on the subject though is hard to stomach.