WEATHERING THE STORM

"I won't believe corporations are people until Texas executes one."

2011-10-17T08:33:00.011-05:00

Is she the OWS genius
who first had this insight?

The Dayton version

This delectable slogan goes to the heart of the cocomanie notion that corporations are people. Corporate personhood (and artificial personhood) is how lawyers refer to this idea. [Move to Amend is looking to reverse the 2010 U. S. Supreme Court ruling that corporations are people, from the standpoint that corporations, like people, have a right to free speech.]

The immortality of corporations - that fact that Texas will never execute one - has a lot to do with the gap between the 99% and the 1% that informs OWS.

Moneywise, being immortal is a terrific thing. Whereas the much of the net worth of mortals is subject to estate taxes at death, corporate net worth goes untouched because corporations never die (though they're dissolved when they fail financially). So let's bounce around the Internet a bit to pick up a few things about corporate personhood.

Wikipedia nicely covers the pros and cons of corporate personhood in this useful entry. This short piece at How Stuff Works sums up the debate over corporate personhood that began at between Hamilton and Jefferson in the 1780's at the time of the framing of the Constitution.

Opposing the business-friendly Hamilton, Jefferson predicted (foresaw?) that corporations, if granted the legal status of personhood as eventually did happen after the Civil War in 1868 with the passing of the 14th amendment, would gain influence far surpassing that of mortal voters. OWS is reviving this debate today.

Jefferson despised the very idea.

Supreme Court Justice
Stephen Field: tool
of the railroads
in the 1870's?

On the anti-corporation side of this debate, Reclaim Democracy has lots of information, including proposed amendments to the Constitution that would deny corporations the status of personhood. Here's Occupy Together's interactive map listing dozens of OWS meetup groups that oppose corporate personhood.

I stumbled on some interesting history. This piece by Ryan Grim and Mike Sachs at Huff Post describes the efforts of Supreme Court Justice Stephen Field in the 1870's as instrumental to establishing in American law the notion of corporate personhood. They see Justice Field as a tool of the powerful railroad lobby. On the other hand, Wikipedia's entry on Justice Field makes little mention of Field's ties to the railroads. It sees him as a colorful if violent man who pioneered legislation strengthening the legal concept of due process. Wikipedia observes that "During his time on the Supreme Court of California, Field had a special coat made with pockets large enough to hold two pistols so that he could shoot at his various enemies through the pockets.^[5] " Wikipedia's entry on the key Supreme Court ruling on corporate personhood - its 1886 railroad-friendly ruling re Santa Clara County v. Southern Pacific Railroad - mentions Field only as a Associate Justice of the Court that made this ruling.

In making the case for Field's contributions to the idea of corporate personhood, Grim and Sachs refer to Jack Beatty's The Age of Betrayal: The Triumph of Money in America, 1865-1900. Looks like a great book.

In January 2010, the Supreme Court issued a ruling on the status of corporate personhood that was its most important since its 1886 ruling. The Court ruled against Citizens United, a (surprisingly) "conservative non-profit organization"(Wikipedia) that opposes corporate personhood. The Citizens United site features five women, including Ann Coulter and Michele Bachmann. For more information on the Supreme Court ruling against Citizens United, see this site at the Chicago Kent College of Law. Wikipedia info is here. At the conservative Heritage Foundation site, Hans von Spakovsky writes here that 2010 Supreme Court ruling against Citizens United was a victory for free speech.

I need time to get a handle on this Citizens United ruling. But I gotta run. This post was supposed to take 20 minutes, not three hours!

OccupyWallStreet: Why are the New York Times and Mayor Bloomberg Dissing OWS? In a Word: Fear.

2011-09-28T09:23:00.086-05:00

All we have to fear is fear itself (none here).

[Sep 28, updated through Oct 2.] Let's begin with a paragraph from the front page of today's New York Times: "As Scorn for Vote Grows, Protests Surge around the Globe":

MADRID — Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries.

It's gone global. New York Times front page .

OK, so it's happening, all of it triggered by the immolation last December of Mohammed Bouazizi, the Tunisian street fruit vendor whom history will one day remember as the Rosa Parks of the Arab Spring of 2011. As a fine CBS 60 Minutes segment showed last February, it was Bouazizi's death (and life) that triggered the Arab Spring. And now, the Arab Spring is a Global Spring, as Peter Coy foresaw in his BloombergBusinessweek cover story of last February.

But. Wonder of wonders. Even as the Times covers the Arab Spring in its global aspect, it belittles the occurrence of this phenomenon in its own back yard. Times coverage to date has consisted of dismissive stories like this and this, "Gunning for Wall Street with Faulty Aim" (9/23), by Gina Bellafonte, whose interviews with a few occupiers convince her that the "cause [of the occupation] . . . in specific terms, was virtually impossible to decipher."

Photo accompanying the 9/27 Times OWS story

Ms. Bellafonte might have chosen her interview subjects with more care. Or she might have Googled OccupyWallStreet, which would have led her to the OWS motto: "One Citizen. One dollar. One Vote." And this motto, when you think of it, is actually a constructive version of the negative "Scorn for the Vote" that the Times chose for its headline today. So what's going on here? Why would the Times, as America's newspaper of record downplay and even disparage the local instance of the global story it frontpages as a pure news story? Is the paper beholden to Wall Street? Is it trying to protect New York from riots like those that hit London last August? The latter possibility certainly concerns New York Mayor Michael Bloomberg:

"You have a lot of kids graduating college, can't find jobs. That's what happened in Cairo. That's what happened in Madrid. You don't want those kinds of riots here."

Hosni Mubarak didn't want riots either. But he got them, as Peter Coy's story makes clear, because Egypt's ruling classes had created a nation where young people had no future. Mayor Bloomberg's riot-averse assertion is clearly informed by Coy's BloombergBusinessWeek story of last February, and Bloomberg, as founder of the Bloomberg financial news juggernaut that owns the magazine for which Coy writes, had certainly read it. Yet Bloomberg's assertion is problematic because it prohibits public protest while acknowledging the underlying fact of youth joblessness. Bloomberg concedes that young people have cause to be demonstrating. And he sees that OWS is part of a global phenomenon. The man is both defiant and afraid. Just so, the New York Times. Example: this 9/29 Times OWS story is told not from the perspective of occupiers, but from that of police. See the (bored) cop in the photo above. This Times bias can verified in the paper itself. Visit the Times' City Room section and, as of 10/1, you'll see far more OWS coverage in its Crime and Public Safety category than its Government and Politics category.

The paper, like the Mayor, is afraid.

9/30: OSJ in the NYT: the hippie image

Not surprisingly, as the OWS gains credibility and force, the Times' negative attitude towards OWS shows signs of shifting. Granted, its front-page Sep 30 story foregrounds OWS' "hippie" aspect. Yet it also shows a little respect to the OWS "demonstrators". Here's a quote: "Not all of them can articulate exactly why they are here or what they want. Yet there is a conviction rippling through them that however the global economy works, it does not work for them." What's more, the Times' online edition has this video of occupiers: more articulate by far than those quoted by Ms Bellafonte.

That said, the Old Gray Lady is still covering OWS, old-media style, as a local physical demonstration [not an occupation] in Zucotti Park in lower Manhattan. But we live in a new media age. Public space is virtual, not just physical. Designed to use both kinds of space, OWS is getting major media coverage, national news coverage and global news coverage (Google News counts some 200 new stories daily). OWS is also generating hundreds of social networking sites and is triggering support demonstrations in 30 American cities alone. Time is running out on the Times' head-in-the-sand approach. Here's a sample of who's leaving the Time's in the dust:

10/2 Time Magazine "Occupy Wall Street: 700 arrested on the Brooklyn Bridge" As of 10:00am, the Times gives only a CityRoom account of this major development. As 10:30am it's the lead story at Drudge, which links to this Reuters account. Brilliant sign held by a demonstrator: "I won't believe a corporation is a person until Texas hangs one." Photo on the right is the photo of the year.
10/1 ABC News: "Occupy Wall Street" Protests Spread Across Country". How true is this? Just Google your own city. Every place I Googled comes up with something:

9/30 "OccupationWallStreet only growing stronger", James Downie, Washington Post,
9/30 NYC Transit Union joins OccupyWallStreet, Matt Sledge, Huff Post NewYork. The Times appears not even to have mentioned this fact as of 10/1.
9/26 Thoughtful coverage in Richard Adams's "US Politics Live blog" in the Guardian (England).
9/26 Reuters. More thoughtful commentary. This time by Anthony DeRosa: "Don't dismiss the Wall Street Occupation"
9/25 long video of interview with Chris Hedges, sees OWS as "where the hope of America lies." Hedges is wordy here (he writes better than he speaks) and I have to roll somewhat with his flat-out rejection of our consumerist society, but he sure makes me think.
Ongoing coverage in the local New York Indypendent
Shout out to #occupywallstreet from Inagist (GreenPeace) with useful Twitter Updates
9/22. Background story Fiscal Times "Has America Lost the Future? Ask a College Grad"

figures show that employment among young adults is now at a dismal 55.3 percent, down from 67.3 percent in 2000 and the lowest since World War II. Nearly 1 in 5 of these young adults is at risk of living in poverty.

9/ 21. Amy Goodman (Democracy Now) in the Manchester Guardian on "Why Occupy Wall Street Makes Sense"".
9/16. Free Republic "Radical Rage: Marxist Mob Plans to Occupy Wall Street"
8/21. Good background story: Joel Bakan, "The Kids are Not Alright
3/11. Time Magazine "Twilight of the Elites" Pretty perceptive. How online social networking is forcing society to rebuild itself from the bottom up.

More to come. I think the Times will now start shifting to catch-up mode. With dispatch.

OccupyWallStreet: American Tahrir Square?

2011-09-17T12:34:00.078-05:00

September 17. The New York Times writes that 1,000 people today converged on Wall Street. [9/19 ABC News and The Guardian of England put the number at 5,000.] The corporate-critical publication Adbusters, which spearheaded this action, had called for 20,000 people to occupy Wall Street not for a day but for a period of months, emulating the occupation of Cairo's Tahrir Square that forced the ouster last February of Egyptian President Hosni Mubarak.

"Ragingly ignorant anti-capitalists"?

How credible is OccupyWallStreet? What do occupiers want? What impact might they have if they follow through on their pledge of a two-month occupation? And who are they: "ragingly ignorant anti-capitalists", as a TownHall commentator Erika Johnsen writes, or angry youth "united in the spirit of the Tahrir Square revolutionaries", as MarketWatch's Paul Farrell asserts?

Since last February I've been following worldwide explosion of youth unrest that began with the Arab Spring in Tunisia and Egypt. I took my cue from Peter Coy's prescient Youth Unemployment Time Bomb cover story in BloombergBusinessweek (2/2/11). Coy documents the spread of youth joblessness and disaffection "from Cairo to London to Brooklyn" and attributes it to "failure—not just of young people to find a place in society, but of society itself to harness the energy, intelligence, and enthusiasm of the next generation." Coy's piece is proof positive that a corporate publication can give eloquent voice to the concerns of young people. A must-read.

9/17 - New York's finest protect Wall Street's Bull

In today's post I do two things. I review initial media coverage of OccupyWallStreet as a gauge of the movement's credibility as reflected in mainstream media. This credibility was minimal at the outset, at least by comparison with media coverage previous major demonstrations like the 1963 civic rights demonstration or the 1995 million man march. Until its dismissive account late today, even the local the New York Times had been silent on this protest. So had the local Wall Street Journal.

The story so far, as the Times tells it, is that police succeeded in blocking "protesters" (not occupiers) from access to Wall Street. End of story. Occupiers marginalized. No interest in who they are, where they come from, what they want or whether other Americans might want what they want. The Times is keeping the lid on.

After reviewing media coverage, I look into what occupiers want. A quick preview: on September 6, Paul Farrell said occupiers "want their democracy back: One citizen. One dollar. One vote. Get the corrupting influence of money out of elections." Here's the USDayOfRage Principles Page.

OK. Back to media coverage. Check out these searches for "Occupy Wall Street"at Google (which gives a count of stories) Google News -- Google Video -- Google Blogs -- You Tube -- and you may see something brewing. Ninety news stories as of the night of September 17, but four times that number four days later. Here is Google Trends. Initial coverage is at ABC News, CBS News, Fox News. CNNMoney and Agencefrancepresse, BloombergBusinessweek and a blog: TNGG (The Next Great Generation). [Reminder: results of these searches are current to moment of your search.]

[update 9/18] I am fascinated by lead story in the New York Times: "Tumult of Arab Spring Prompts Worries in Washington." Wow. Almost as if by magic, the Times in the space of 24 hours has managed to leapfrog over the mini Arab Spring in its own back yard and hop to Washington's global (not local, heaven forfend!) concern with a development whose significance, as I noted here last February, rivals that of the fall of the Berlin Wall or the collapse of communism in 1989.

That said, the Times story confirms that Washington - the White House - is responding, with a touch of panic, to a degree of popular unrest not seen since the Vietnam and civil rights era of the late 1960's. One senses desperation in Secretary of State Hillary Rodham Clinton's patently disingenuous plea that things are happening that "nobody could have imagined and few predicted just a few years ago”.

Nonsense. Journalists and academics, including Robert Fisk of The Independent in England, have for decades been warning about the inevitability of popular uprisings in the Middle East. Clinton's plea recalls President Obama's disingenuous plea that he didn't foresee - couldn't have foreseen - the financial meltdown of 2007-'08. And it recalls that utter failure of American intelligence services to detect either the rise of the Berlin Wall or the collapse of Soviet Communism.

Here's a live feed of the Occupation, taken from the OccupyWallStreet site, will all kinds of corporate sponsors, including Jack Daniel's Kentucky bourbon.

In a subsequent post, I'll give my own two cents on what it will take for the Wall Street Occupation to have constructive impact. For starters, here are six desiderata, most of them fairly obvious. I think.

Leave the repair of our broken financial system to the next generation of leaders elected by a repaired electoral system. All of this, of course, will take years. But radical changes can occur in a matter of months if most Americans are behind them.
Depolarize political discourse. Win equal support from left, center and right. Not necessarily broad popular support initially - that comes with time - but balanced support from left, center and right.
Win support from credible financial insiders. There are many! One is Yves Smith of Naked Capitalism, which linked me the 9/06 Paul Farrell story quoted above. A good number of financial insiders will support the Wall Street Occupation if its focus is on credible change. (I'd mention politicians as well but name one that will sign on to the Occupation without looking for safety in numbers from their constituents.) Here, from Naked capitalism, are just two of many informed comments that point to what actually links the Occupiers, financial insiders and probably most Americans:

The common thread of this week’s events is that national depositors and taxpayers are revolting against the idea that they should bear the risks of international finance and permit an elite class of global bankers such as Mr Adoboli – or the feckless citizens of other countries – to take the rewards.

John Gapper, from a column in the Financial Times on which Yves Smith comments and then invites reader comments, of which the comment below is a sample.

I think the US is absolutely ripe for forcing government action. The inchoate rage is palpable outside of elite circles. All that’s needed is to tap into it and channel it into something effective, garnering as much media attention as possible all the way. And if we don’t tap it and channel it, violent civil disorder is surely not far away.

In orientation, be democratic capitalist, not anti-capitalist. Focus on electoral change that makes the system work for the many, not the few: "One citizen. One dollar. One vote."
Get on message and either stay on message or use online communications to generate an evolving messages that people really respond to. "One citizen. One dollar. One vote". Interesting to me, but is this message that Occupiers want? So far I don't see it in media accounts of the Occupation. What's more, this post at the OccupyWallStreet site seems to have backed off from it to embrace larger and as yet undefined messages: messages that are planned to take shape via online crowdsourcing: the use of online media to facilitate large-audience decision-making processes.

Gene Sharp

Remain steadfastly non-violent. In the tradition of Gandhi, King and of Gene Sharp, whose writings online here have informed Arab Spring occupiers in Egypt and elsewhere. Amazing guy.

It will be interesting to see what happens when Wall Street comes to work tomorrow. What Joe Kernan or Becky Quick or Jim Cramer or Art Cashin be saying on CNBC. And how Bloomberg Financial will be covering it. Also be interesting to see if the old gray lady at the New York Times wakes up and changes her tune.

Wall Street since the Credit Crisis

2011-04-11T07:07:00.005-05:00

In a word, they got away with it. How the other half, or the other one per cent, is living now. In New York Magazine, a provocative series of articles by John Hellemen (Wall Street "Triumphant"), John Gapper (Wall Street "Anxious") and Felix Salmon ("Oblivious" at Davos).

Arab World since the Feb 11 Departure of Mubarak

2011-02-21T08:19:00.027-06:00

Good stuff about the Arab Spring:

The Guardian 5/21/11, Ahdaf Soueif, "Our Revolt is not Obama's: Barack Obama says he wants change in the Arab world yet insults us with the same old bad policies". A short piece, yet surpassingly powerful, about Obama's subversion of the Arab world's quest for economic opportunity even as he professes support for it. U.S. It has wonderful paragraphs like this one:

The blame is not all with America. We had a regime that was susceptible, that became actively complicit; assiduously finding ways to serve US and Israeli interests – and ruin us. But: we got rid of it. Peaceably, with grace and within the law. We Got Rid of It.

Ahdaf Soueif (pictured right) is an Egyptian short story writer, novelist and political and cultural commentator. More Soueif pieces at the Guardian.

New York Times 2/17/11 Egyptians Say Military Discourages an Open Economy
Bloomberg BusinessWeek: transcript of the Feb 17 Charlie Rose Talks to Shady El Ghazaly Harb
Video of the Feb 17 Charlie Rose interview with El Ghazaly Harb
Terrific and frequently updated Wikipedia page on the 2010–2011 Middle East and North Africa protests.
Look for and listen to superb information about the Arab Awakening on Worldview, hosted by Jerome McDonnell on Chicago Public Radio. This foreign affairs program for my money is the best foreign affairs program anywhere, in any medium. Here are links to a few recent Worldview interviews on the Arab World, spiced with a few articles, with attribution, from other solid sources:

Algeria
Egypt
Iran
Israel
Libya
Libya "Libya in the Balance', Nicolas Pelham, Middle East Report, 3/15/2011.
Morocco Links to articles on Morocco at MIddle East Report
Oman
Palestine
Sudan
Syria "Is Syria the Next Domino?" Ribal Al-Assad, Director of the Organization for Democracy and Freedom in Syria. (Project Syndicate)
Tunesia
Yemen Links to articles on Yemen at MIddle East Report

Here is some background material on the changing situation in the Middle East (I completely overlook Libya; haven't had time to select good links):

Dr. Avigdor Haselkorn 2/21, The Middle East's False Dawn of Democracy
New York Times 2/21, U.S. Blocks Security Censure of Israeli Settlements
Robert Fisk in The independent, 3/5/11, The Tunisian whose jihad was for the people, not God
The Independent 3/7/11 Saudis Mobilise Thousands of Troops to Quell Growing Revolt
3/11 Foreign Affairs Links to "Articles on the Middle East Crisis".
Nouriel Roubini, The Economic Consequences of of the Arab Revolt," Project Syndicate, 3/14/11
Thoimas Friedman, "Hoping for Arab Mandelas", New York Times, 3/27/11

And here some stories about the impact of Egypt on the USA

Matt Stoller in "The Liquidation of Society Versus the Global Labor Revival" (posted at Naked Capitalism) sees the Arab world protests as doing what labor strikes used to do in the U.S. - and as inspiring (state employees at least) in Madison, WI and Providence, RI. He uses this striking Doug Henwood graph to account for why U.S. wages have kept "getting cut" since 1947:

More to come!

Ride the Youth Unemployment Highway from Cairo to Wall Street and Chicago.

2011-02-13T15:00:00.156-06:00

[Note: This long, meandering post, last updated 9/7/11, is a running history of historic events that began in December 2010 in the Middle East - in Tunisia - and are spreading to Europe and the United States. The author teaches writing courses at a community college in the north suburbs of Chicago. This post takes the form of a letter to two students of his who last spring wrote papers about Egypt's Arab Spring. One of them, Ossama, is Egyptian, but, like the author of this piece, he knew next to nothing about the extraordinarily powerful youth-centered forces that appear to have transformed the Middle East and are now impacting the rest of the world.]

Hi Taniya and Ossama,

I just stumbled on a trove of information about Egypt that I want to share with you. My discoveries began with this story in today's New York Times about ousted Egyptian dictator Hosni Mubarak's wealth. It's interesting: Swiss banks have frozen Mubarak's accounts. But I wanted to know more about the youth organizers of the Egyptian revolution. Midway through the Times story I saw this link to the National Association for Change in Egypt at the Carnegie Guide to Egypt's elections. Here I found this fascinating 15 minute interview with youth activist Ahmed Maher, a civil engineer and co-founder of the April 6 movement. I had struck gold.

Maher speaks of the April 6 Movement (website here) as a group of "young people with an abundance of energy and awareness and self-discipline" (3:33 of the clip). If you scroll down to the "Use of Technology" segment of the above video, you'll see that the April 6 movement made heavy use of Facebook and cell phones. But Maher hastens to say that the April 6 movement was equally concerned to reach people without Internet access: old, young and "people in the street." And, he says, it has did so, often face-to-face. Here's a useful piece about him from Wired Magazine going back to his activities in 2008.

Maher says that his April 6 movement feeds into Mohamed ElBaradei's larger National Association for Change, described as we've seen at the Carnegie Egypt site, and which Wikipedia describes here. Then, at Wikipedia, I linked to its coverage of the Egyptian revolution of 2011. This page is an impressive piece of work. And from it I linked to the mind-boggling and frequently updated Wikipeida page on the 2010-2011 Arab World Protests, which begins with this simple declarative sentence:

The 2010-2011 Arab world protests are an unprecedented series of major uprisings, demonstrations and protests in the Arab countries of Tunisia, Algeria, Egypt, Yemen and Jordan, with minor incidents occurring in Mauritania Saudi Arabia, Oman Syria, Iraq, Libya, and Morocco.

and features a terrific color-coded map the likes of which I've seen nowhere else:

  Revolution
  Governmental changes
  Major protests
  Minor protests
  Other Arab League nations

Wow. I hate to say so, but these developments were news to me until I say this page. And to think that the Arab World protests have been mostly non-violent in the face of all kinds of government harrassment, provocation and repression. Incredible discipline. Where is it coming from?

Yesterday, in our Saturday class, I noted that several Buddhist priests had immolated themselves in the late 1960's in order to arouse the world to the horrors of the Vietnam War. Read down the Wikipedia Arab Wold page, and you will see that the December 2010 revolution in Tunisia was in fact sparked by the self-immolation of Mohamed Bouazizi, "a Tunisian street vendor who [Wikipedia says] set himself on fire on December 17, 2010, in protest of the confiscation of his wares and the humiliation that was inflicted on him by a female municipal official." [update 9/18: in this video a man from Greece sets himself afire after being denied a loan modification.]

Bouazizi strikes me as the Rosa Parks of Tunisia: Rosa Parks, the 48 year-old African American riding a Montgomery, Alabama bus who sparked the entire U. S. civil rights movement when she refused the order of a white busdriver to surrender her seat to a white passenger. On Feb 20 CBS' 60 Minutes ran this fine 13-minute segment on Bouazizi.

But wheras the American civil rights movement enjoyed the non-violent leadership of Dr. King, young Tunisians and Egyptians had . . . what or whom? Maher makes clear that the Egyptian police had long jailed and tortured student leaders but did not respond with violence. Why not? At one point in the video above, Maher refers to "principles of non-violence" that guided the Egyptian revolution. So had his April 6 colleagues read Dr. King or Gandhi? Probably not. Interviewed by the New York Times, Maher says he "stumbled upon" a writing by the little-known American activist Gene Sharp, whose humane, no-nonsense 90-page manual for nonviolent liberation, From Dictatorship to Democracy, has been translated into two dozen languages. Videos of Sharp are here (13 min) and here (1990, 90 min).

Stepping back a back to look at the larger picture, it seems certain that what's happening in Egypt is part of something larger than what young people are now risking their lives to achieve throughout the Arab World. As I said in class yesterday, historians fifty years from now may well look back on the Arab world revolutions of 2011 as the most important development in world affairs since the collapse of the Soviet Union in 1980.

And to think it's all been done so far without tanks, bullets or bodybags. Gandhi, King, Tutu, Mandela and old Gene Sharp must be happy.

OK, OK, you say, but Mr. Sewall what about the youth unemployment highway running from Cairo to Chicago? That's easy. Tunisia and Egypt are waking up the planet - our entire global village - to the alarming fact of youth unemployment worldwide, not just in the Middle East. You want proof? Check out this Feb 7 Bloomberg BusinessWeek cover story for 2/07 with this photo:

The story's headline asserts that:

From Cairo to London to Brooklyn, too many young people are jobless and disaffected.

So there you have it: a respected mainstream media source is saying outright that the youth unemployment highway runs from Cairo to Brooklyn - and from there of course it's only a short hop to Chitown. The headline of the magazine text is even sharper and more to the point:

Youth unemployment is driving unrest in the Middle East and hollowing out societies from Europe to the U.S.

So what about Chicago? The Windy City is a tale of two cities: affluent Loop/Lakefront and gang/drug dominated South and West sides. Doubt this assertion? It's substantially verified in "Walk With Me," a brilliant and comprehensive mapping of Chicagoland gangs by Chicago rapper D.J. Smart:

In 1992, I heard Mayor Richard M. Daley himself tell 50 Chicago high school students straight out that "Chicago has lost two generations of young people to gangs and drugs." I could not believe what I was hearing, but in fact Mayor Daley often talks like this in his fairly frequent visits to the South and West sides. (Chicago's mainstream media don't follow him there.) And of course he was not exaggerating Chicago's loss, not one bit. In Chicago, chronic youth unemployment - almost five decades of it - wears the mask of gangs and drugs, as in virtually every American city. The Obama administration knows all this too. In his autobiographical Dreams of My Father, President Obama devotes almost 170 pages to his three years as a community organizer in the early 1980's in Chicago's gang-infested Altgeld Gardens projects. So what is his administration doing about gangs and drugs? Nothing, when it comes down to it. Nothing substantial.

But I'll bet you that Homeland Security is working overtime to see how Americans will react to the Arab Spring revolutions against oligarchy and plutocracy.* In my wildest dreams I'd never have guessed, not even a month ago, that a global sea-change would first occur in Tunisia, of all places, and flower in Egypt, a country where

50% of the total population of 84 million is under 30.
Among Egypt's approx. 40 million citizens under 30, unemployment and illiteracy rates are 60%.
90% of all wealth in Egypt is own by only 200 families.

These figures come from Dr. M. Cherif Bossiouni of the Egyptian American Society and DePaul University at 1:20 of this informative Jan 31 interview on WTTW public TV in Chicago:

Dr. Bossiouni's account forces an astonishing conclusion: that the non-violent revolutions of Tunisia and Egypt sprouted and matured from the precisely the groups deemed by the U.S. State Department and America's intelligence services to be the recruiting grounds for terrorists and suicide bombers that have waged the so-called War on Terror: the impoverished, uneducated, unemployed Muslim youth from whose ranks the likes of Al Qaeda, Taliban and Hamas draw their followers. Tunisia and Egypt are proof positive, it seems to me, that of a miscalculation - a misjudgement of human nature - of historic proportions.

Another argument for the idea that the winds of the Arab world will blow in the United States comes from Economist Jeffrey Sachs, who in this video asks, "Do we have to have our own Egypt here in the United States?"

[March 29] Here Paul Farrell of MarketWatch warns against an Egypt-style revolution against plutocracy in the United States.

[Sep 7] And here Paul Farrell writes about the impending Sept. 17 "invasion of Wall Street":

The start of WWIV? Too strong? Maybe just the “Second American Revolution?” Too dramatic? Either way, this is a new D-Day, the invasion of Wall Street. And a global game-changer.

On Sept. 17, the Arab Spring becomes the new American Fall, with 20,000 revolutionaries in a tent city. Plus “solidarity” occupations in major financial centers worldwide, all ready for a long siege, vowing not to leave till they get their “one simple demand.” . . . They want their democracy back: “One citizen. One dollar. One vote.” Get the corrupting influence of money out of elections.

Occupy Wall Street is a “leaderless resistance movement” spearheaded by the edgy Adbusters magazine, which in July issued a call for the Sept. 17 occupation of Wall Street.

So: from Cairo to our own Chicago the youth unemployment highway runs, via London and (as of 9/19/11) Wall Street. Going back in time to last March, here's what happened London: "London Protests Gather Strength After Massive Budget Cuts Announced."

More than 250,000 people took to London's streets to protest the toughest spending cuts since World War II – one of the largest demonstrations since the Iraq war – as riot police clashed with a small groups. More than 200 people were arrested.]

[June 7] Here is an account from the German paper Der Spiegel of youth protests in Europe.

[August 19] Here is Time magazine's (subscriber only) "Decline and Fall of Europe (and Maybe the West)" cover story focused on youth riots and high unemployment in England:

[March 29] Hey, my job as your English teacher is not to tell you what to write or think but how to do so. So me point out that for every argument, including all of the above, there are counterarguments. Count on that! For instance, a thoughtful counterargument to much of what I say here is found in this short history on the origins of the Tea Party by Fox News contributer Stephen F. Hayes. It closes as follows:

When President Obama spoke before the United Nations General Assembly in September 2009, he declared that a world order that elevates one country or group of countries over others is bound to fail. So he’s changing that order. If his domestic policy priority is the redistribution of wealth, his foreign policy priority seems to be the redistribution of power. [italics mine]

Most Americans don’t agree with the president’s priorities. And many of these Americans are now active in the Tea Party movement, a movement that has succeeded in starting a serious national conversation about a return to limited government.

The operative sentence here is the assertion that "Most Americans don't agree with the president's priorities." If this is so, and for all I know it could be so, then the best alternative to violence in America may be new dialogic public forums that enable all Americans to deal rationally and non-violently with the extraordinary winds of change that began in Tunisia and Egypt. (But note that Hayes made this speech "during a Hillsdale College cruise running from Rome to Dover." Sounds pretty upperclass to me. Context, people, Context!)

So - Taniya and Ossama - Good luck with your Egypt papers - but are they really only about Egypt?!

Mr. Sewall

* Plutocracy and oligarchy are terms that most observers agree accurately describe Egypt, and since they are being increasingly applied to the United States, here are some links : [plutocracy - Wikipedia definition] [plutocracy - 2005 Citigroup Memo to investor clients] [plutocracy - Robert Reich] [plutocracy - Matthew Skomarovsky] [plutocracy - Francis Fukuyama] [plutocracy - Bill Moyers and Kevin Phillips] [oligarchy - Weekly Standard]

Where the Action is in Financial News Reporting . . .

2011-01-14T15:14:00.022-06:00

It's NOT in mainstream media (though the Financial Times has my respect). Two days ago Yves Smith posted this story, and for good reason: her Naked Capitalism finance blog finished #1 in London-based MindfulMoney's recent survey of the "Twenty Most Influential Blogs in Financial Media." These blogs, the survey concludes, are running rings around mainstream financial media:

The research confirms the existence of a network of investment super-connectors with extraordinary media influence and reach. These super-connected new influentials are, for the most part, not well established voices in the media but individual bloggers who fiercely champion their independence….In the US, the network functions as the unofficial voice of Wall Street & the US federal bank with no mainstream media players at the centre of the network.

MindfulMoney bills itself as "The social news and knowledge network for the investment community." Their 54 page report describes not 20 but 50 finance blogs. Sadly a few first rate writers are missing: I especially miss Steve Randy Waldman's Interfluidity, Michael Whitney (not a blogger, and political, but very sharp) and Michael Hudson's Website (again not a blog, but profoundly sharp). On the whole, the survey seems thoughtfully done. You can access it, full screen size, via the graphic below. In two steps. First, click the lower left orange/blue icon. On the screen that appears, click the lower left "Full" to get a full screen. Use arrows to scroll through pages.

Social Finance: The New influentials

Thank goodness for these expert, independent-minded finance bloggers. In a world of government by Wall Street, they alone may be separating us from complete financial mismanagement.

Rich and Poor in America: a Second Gilded Age?

2010-11-07T11:06:00.022-06:00

Robert Reich, Secretary of Labor under President Clinton, writes that "The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us." Wow. Here are some takes on this topic. Most are liberal and alarmist in outlook. They make a strong case. But the list below also has opposing viewpoints, conservative and libertarian. Plus one by a sociologist who maintains that rich people are more stressed and overworked than other people.

• Riobert Lieberman, Why the Rich Are Getting Richer: American Politics and the Second Gilded Age, Foreign Affairs, Jan/Feb 2011 "The dramatic growth of inequality, then, is the result not of the "natural" workings of the market but of four decades' worth of deliberate political choices."
• Brian Domitrovic, The Bitter Fruits of Equality, Forbes, 12/28/10. ". . . in reality, what happens given high taxes is that the rich see themselves through very well . . . , while good livelihoods for the rank-and-file become ever more elusive."
• Chris Hedges "Power and the Tiny Acts of Rebellion" OpEdNews, 11/10. Tiny acts or large?
• Charles Blow, The Great American Cleaving, New York Times 11/5/10 "That ripping sound you hear [after the 2010 Congressional midterm elections] is the fabric of a nation."
• Robert Reich, The Perfect Storm That Threatens American Democracy, Huffington Post, 10/20/10. "The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that's raising its taxes, reducing its services, and unable to get it back to work. We're losing our democracy to a different system. It's called plutocracy."
• Robert Reich, How to End the Great Recession, New York Times, 9/2/10. Labor day. "Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession."
• James Kwak, Advancing Oligarchy, The Stradler, Fall 2010. A deliberative piece, not as strong as its title suggests. Kwak and Simon Johnson of MIT wrote 13 bankers, which takes "a highly critical stance toward recent palliative measures, arguing that nationalization of the banks would have been preferable to the bailouts, which have allowed the banks to further consolidate power and resources. Given the swelling size of the six megabanks, the authors make a persuasive case that the financial system cannot be secure until those banks that are too big to fail are somehow broken up." (Publishers Weekly)
• Bill Moyers, Plutocracy and Democracy Don't Mix, 4 minute YouTube video, 5/2/10. Moyers quotes from the 2005 Citigroup "Plutonomy" client memo to argue that America, thanks to "market-friendly governments," is now a plutocracy. "Democracy," he concludes, "only works when we claim it as our own."
• Gus Lubin, 15 Mind-Blowing Facts about Wealth and Inequality in America, Business Insider, 4/9/10 Amazing charts & graphs.
• Christopher Caldwell, American Oligarchy, The Weekly Standard, 5/1/10. Thoughtful response to Johanson and Kwak. "But are the banks in fact too big to fail? Not necessarily. The banks are certainly too big to fail without destroying the economy. But that is not the same as saying they are too big to fail. The first duty of a sovereign public is to defend its sovereignty, not to prop up its banking system. The public is in a mood to risk cutting off its nose to spite its face. If voters are again offered a choice between bailouts and a likely second Great Depression, it is by no means certain they will choose the bailouts. "
• Associated Press, Nearly Half of U.S. Households Escape Fed Income Tax, 4/7/10
• Simon Johnson, The Quiet Coup, The Atlantic 5/2009
• Dalton Conley, Rich Man's Burden, New York Times, 9/2/08
• Bill Moyers and Steve Fraser on the Second Gilded Age on Bill Moyers Journal, 6/13/2008
• Elizabeth Gudrais, Unequal America, Harvard Magazine, 7/2008
• Steve Fraser, The Gilded Age, Past and Present, Salon.com, 5/28/08
Rich Man, Boor Man Wall Street Journal, /28/07
• Thomas Sowell, A Dangerous Obsession, National Review, 12/26/06
• David Cay Johnston, '04 Income In U.S. Was Below 2000 Level, New York Times, 11/28/06
• Stephen Fleischman, The Great American Oligarchy, Counterpunch, 9/2/06
• Citigroup, Equity Strategy memo to clients ("Plutonomy" memo) 11/16/05 (noted in Michael Moore's 2009 film "Capitalism: a Love Affair."Relevant excerpt from the film on YouTube.
• Paul Krugman "For Richer" New York Times Magazine, 10/20/02
• P. J. O'Rourke, "Closing the Wealth Gap," Cato Institute 6/97
• The controversial 2005 Citigroup "Plutonomy" client memo arguing that "The World is dividing into two blocs - the Plutonomy and the rest." Attached by journalist Bill Moyers and filmmaker Michael Moore (see above) 10/05

John Hathaway: Meltdown for the World's Monetary System?

2010-10-29T07:51:00.032-05:00

John Hathaway, writing today for Bloomberg, asserts boldly that

The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.

This sure caught my attention. It's the lead piece at Real Clear Markets, my favorite daily finance resource along with Yves Smith's Naked Capitalism. Hathaway's assertion was a shocker for me; it's far and away the boldest statement I've seen in a year about the dollar's status as global reserve currency. And it will shock others, as Hathaway notes:

It’s amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.

This man is no optimist. And he goes on to assert that

The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

Wow. But even as I write this post, I hear market-watcher Art Cashin of CNBC quipping at 1:40 of this clip that "The fear is that QEII, which originally looked like the Loveboat, may turn out to be the Titanic."

So wow again. A month ago, John Authers of the Financial Times sounded a note of alarm about the failure of central bankers to reform the world's financial markets since the fall of Lehman Brothers in 2008:

Two years on, then, the world’s financial regulation has changed less than I predicted. Regulators can argue, with some justice, that they had no choice but to be lenient when banks’ very survival seemed in doubt. Now, they can get tough. But it looks alarmingly as though an unrepeatable opportunity to make the world’s financial system safer has been missed.

Auther's alarm sounds like a modulated version of Hathaway's message. More recently, in the October 18 Financial Times, economist Michael Hudson, writing from a global perspective, came out strongly against QEII, warning that it will short-sightedly create a world of competing blocs of developed and developing countries:

The real threat is a world broken into two competing financial blocs, one centred on the dollar, the other on the Bric nations of Brazil, Russia, India and China. Tentative steps in this direction occurred last year when China, India and Russia, along with Iran and members of the Shanghai Co-operation Organization took early steps to use their own currencies for trade, rather than the dollar. China took a simpler path last month when it supported a Russian proposal to start direct trading using the renminbi and the rouble. It negotiated similar deals with Brazil and Turkey.

And Hudson had two recommendations:

To deter this the US and Japan should refrain from QE2, even at the cost of lower US growth. An even better response, however, would be new regulations stopping western banks from speculating in foreign currencies, by using heavier reserve requirements or a short-term tax on foreign currency trades and options. Without such steps other countries will soon move to protect their currencies. If they do it will have been US policy short-sightedness, conducted without concern for its effect on developing economies, that will ultimately have isolated the dollar and its users.

So what chance is there for the regulations that Hudson calls for? Probably nil, says my cynical self. The banks run the show. I hasten to add that I'm uninformed on this point.

Hudson, who sees the 2007-08 meltdown as a "once-in-a-century transfer of wealth" (from the not-so-rich to the super-rich), is himself quite modulated in this column. It's Hathaway who minces no words. So who is he? I guess he's a goldbug. But Harvard-educated. From his bio:

JOHN C. HATHAWAY, CFA, Senior Managing Director, is a Portfolio Manager and a member of the Investment Committee at Tocqueville Asset Management L.P. Mr. Hathaway, who has 39 years of investment experience, manages the Tocqueville Gold Fund, Tocqueville Gold Partners and separate accounts for individual and institutional clients following a gold strategy. Mr. Hathaway has a B.A. degree from Harvard College, an M.B.A. from the University of Virginia and is a CFA charter holder.

In closing, by way of attempting to give balance to the above dismaying thoughts, I offer this piece from the latest Economist about America and Obama doing better than Americans think. The piece concludes:

Despite its problems, America has far more going for it than its current mood suggests. It is still the most innovative economy on earth, the place where the world’s greatest universities meet the world’s deepest pockets. Its demography is favourable, with a high birth rate and limitless space into which to expand. It has a flexible and hard-working labour force. Its ultra-low bond yields are a sign that the world’s investors still think it a good long-term bet. The most enterprising individuals on earth still clamour to come to America. And it still has a talented president who can surely do better than he has thus far.

Those ultra-low bond yields: do they reflect safe-haven confidence, as the Economist would have it, or any-port-in-a-storm fear?

Michael Hirsch of Newsweek Nails It

2010-09-17T06:57:00.002-05:00

September 17 2010

Michael Hirsch writes for Newsweek. Here is his Sept 16 article on the failure of modern economics. Important piece!

Three Cheers for Economist Michael Hudson!!!

2010-05-18T14:38:00.017-05:00

Michael Hudson writes in latest Counterpunch that the "wealthy in Greece won’t pay their taxes, so labor must do so". First time I've heard anyone say anything like that. (I checked and the tax rate in Greece for incomes over Euros 75,000 is 40%. So wealthy Greeks are paying something. But the superrich are probably sliding through relatively untaxed one way or the other.)

I respect Hudson and find his article fascinating. People are listening to him in some high quarters these days and I am glad of it.

On May 10, Real Clear Markets - a hot source for up-to-the-minute financial opinion - picked up his piece on the need to protect whistleblowers from The Big Money. And here the Financial Times gives 15 references to Hudson that have appeared in that paper, including two op ed pieces this year about Eastern Europe and Iceland.

And here is Hudson's March 2009 piece on the AIG bailout from Counterpunch.

Below is a ten minute interview taped in London in 2009 wherein Hudson compares the absurdity of modern debt-creation finance with the common sense of debt-limiting traditions of (get ready) ancient Babylonia. Sound crazy? It's not. Read and think. Impracticable under present circumstances, I suppose, but definitely not crazy.

Hudson describes the 2007-2008 global meltdown and its bailout aftermath managed by the Obama administration as a "once-in-a-century transfer of wealth". From whom to whom? Basically, so far as I can see, from those who can afford to invest (speculate) to those who can't.

You may not feel the alternatives he proposes to the modern system are practicable - writing down home mortgages in the midst of a housing crises to pennies on the dollar, with lenders taking catastrophic losses - but it's hard to dismiss the force of Hudson's reasoning behind them.

His May 2006 Cover Story for Harpers Magazine - "The New Road to Serfdom: an Illustrated Guide to the Coming Real Estate Collapse" - scroll down a bit to find it - is the most comprehensive description I've seen of the debt-building economic system that for decades has been relocating the cash and savings of most Americans into the pockets of the big money lenders who now manage America's so-called FIRE economy driven by intertwined Finance, Real Estate and Insurance interests. And, I might add, driven by the federal government as well, which borrows from taxpayers to lend to these big lenders. (Thought it's good to the likes of Citigroup and GM paying back their loans ahead of schedule.)

All told, I think Michael Hudson, sees it and tells it it pretty much like is.

A New Battle Plan for the Global Economy: Steven Roach to the world's Central Bankers

2010-05-18T09:15:00.007-05:00

In today's Financial Times, Stephen Roach says it's high time for central banks to create a "new battle plan" for the global economy. He begins:

The pace and severity of financial crises has taken an ominous turn for the worse. Over the past 30 years, a crisis has occurred, on average, every three years. Yet, now, only 18 months after the meltdown of late 2008, Europe’s sovereign debt crisis has hit with full force. With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.

Around 1990, several years after the Japanese central bank in effect bailed out the United States after the stock market crash of 1987, economist David Hale wrote that the global economy, managed now by enlightened (as he saw them) central banks, had entered a phase in which economic progress and regress would take the form of a (manageable) succession of financial bubbles moving from one country or region to another with boom growth and burst bubbles driving movement from one area to the next.

But Hale did not anticipate what Stephen Roach, in retrospect, sees as the Achilles heal of the Hale's prediction of a succession of bubbles: the alarming fact of the acceleration of bubbles: the alarming frequency of their occurrence because central banks, in managing one bubble, are unwisely sowing the seeds for the next.

Breaking the "daisy chain" of accelerating bubbles "won't be easy," Roach says. But history will help us, he says, and he looks back to the late 1970's and suggests that a second "Volcker moment" is what the world needs now. He sets guidelines for a new approach and illustrates it:

As an example of how this approach might work, consider the task of the Federal Reserve.
Step One: Announce a target of restoring the real federal funds rate back to its long-term average of 2 per cent.
Step Two: Lay out a three-year macro forecast of the US economy. For the sake of argument, plug in average real GDP growth and inflation of 2.5 per cent and an unemployment rate that falls back to 6 per cent by the end of 2013.
Step Three: Conditional on that forecast coming to pass, announce a normalisation plan of nine moves of 50 basis points in the federal funds rate – spread out over 18 months and commencing as soon as the dust settles on the euro crisis.

I'd love to hear David Hale's take on them.

"The Rot At the Heart of Wall Street"

2010-03-19T09:51:00.016-05:00

Real Clear Markets today gave this apt moniker to a fine piece by finance writer William D. Cohan, whose remedy for the rot is soooo simple:

What if every senior Wall Street executive had to worry that he could lose his entire net worth at any moment — including his mansions in Greenwich, Conn., and Palm Beach to say nothing of his job — if the revenue he was generating turned out to be unprofitable or excessively risky?

Does this loser-lose-all system sound impracticable today? Of course it does, given Wall Street's refusal to abandon the winner-take-all system that gave us the financial meltdown of 2007-2008. But as Cohan notes, Wall Street wasn't always addicted to risk: the Great Depression triggered a loser-lose-all system that worked just fine until 1970:

As with so many simple and obvious solutions, this one has the benefit of having a long track record of success. Once upon a time — not so long ago — this was how investment banking compensation worked. During the Golden Era of Wall Street, the years between the reforms of 1933 and, say, 1970, Wall Street was a series of small, private partnerships. If a firm made money in a given year, a partner would receive his share of the pre-tax profits. If the firm lost money, a partner was liable for his share of those losses up to and including his entire net worth. In those days, Wall Street stuck to prudent risk-taking.

Cohan's column then gives a nice overview of the risk-friendly corruptions than began in 1970 "when a small Wall Street partnership — Donaldson, Lufkin & Jenrette — decided to go public." His piece, modestly titled "Lehman’s Demise, Dissected" actually focuses on Anton Valukas' recent 2,200 page report documenting the off-balance sheet machinations of Dick Fuld (cropped to look evil, at right) and his crew at Lehman Brothers. Cohan's commentary on key passages of the report is here.

Robert Lenzner Critiques Larry Summers' new Social Compact between Wall Street and Main Street

2009-10-25T08:27:00.008-05:00

Robert Lenzner at Forbes writes that Larry Summers "has a dream of a new social compact between Main Street and Wall Street - but no details." Summers, Lenzner notes, sounds serious:

In a sober warning, Summers noted that "roughly every three years for the last generation, a financial system that was intended to manage, distribute and control risk has, in fact, been the source of risk--with devastating consequences for workers, consumers and taxpayers."

Forbes describes Summers' social compact in a separate article. Lenzner continues:

So, what's Summers' prescription to deal with the crises to come? He is borrowing former Sen. Daniel Patrick Moynihan's solution for automobile safety proposed in the late 1950s when Moynihan was working for Averill Harriman in New York. The financial equivalent of "guardrails, shatterproof glass and speed limits," for Wall Street is Summers' clever model.

So where, Lenzner asks, are the details? There are none, he says. And in conclusion he offers this pessimistic and sweeping generalization about human nature:

Summers' idea to create a "social compact" between the financial community and the rest of the nation is pie in the sky. It has never existed and never will, I'd venture, because you can't regulate human nature.

Ugh - so is Wall Street exempt from the powerful government regulators of human nature in America that include schools, jails and police departments? Is Lenzner is granting exemption from regulation of human nature only in its intelligent free market aspect? Actually, I find myself thinking that Summers' idea of a social compact between Wall Street and Main Street may not be a idea. But if so, I suspect this social compact may be better realized voluntary communication between these two streets than government regulation of one of them.

In closing: today the New York Times editorializes on the much ballyhooed 90% pay cuts [and 50% compensation package cuts] to be imposed by pay czar Kenneth Feinberg on top executives at Citigroup, Bank of America and five other big banks that owe their survival to the U.S. taxpayer. Here's one observation:

If you read the fine print you will discover that these reductions apply only to the remaining two months of 2009.

Over and out.

Caution! This is not a civic media site . . .

2009-08-14T08:42:00.005-05:00

Even though it tried to be one. But it didn't work out. Its few readers had few comments on the site's 39 posts going back to May of '08. So the site lacked the dynamic give-and-take energy that sustains a civic media. And recently, in calling for President Obama to replace Larry Summers, it took a partisan and personal turn that - oops - disqualifies it from civic media's non-partisan and solution-oriented character. (One solves a problem not by replacing an employee but by finding the right solution, right?)

So I'll not likely be adding more posts now that I'm working to create Chicago WRKS, Chicago's first-ever problem-solving media platform. But I'll leave this blog online because it gathers together a good number of finance writers and economists from whom I've learned a great deal. They are mostly leftists and listed in the left hand column. I would welcome (and in the future will happily respond to) ideas from the center and right. But if you want to know what's going on in the world, it helps to read folks like these. So for now, thanks for reading - and see you at Chicago WRKS or our other sites.

Krugman, Taibbi, Johnston and Morgan nail Goldman; Commmenter nails Summers

2009-07-17T09:09:00.033-05:00

Paul Krugman may not yet be awake to civic media as the only democratic remedy for America's economic (and soon to be political) crisis, but in today's column he does pillory Goldman Sachs as the driver of the financial oligarchy that has usurped control of American government and its elite universities as well. Comment after comment on Krugman's column is sharp; enough so perhaps to put some pressure on President Obama to recast his economic bailout program and change its leadership. References by commenters to GS critics like Matt Taibi, David Cay Johnston (audio clip from CBC Canada) and Mike Morgan are must reading. Morgan himself writes that

Sadly, what people don’t realize . . . is this time Goldman Sachs and other Banksters have raided our future, as they have control over many of our pensions, endowments and other fiduciary assets. Over the next few years, as people start to realize their pensions are gone, that is when the masses may finally rise up and crush Goldman Sachs and other greedy bastards that have destroyed so much. Unfortunately, it will be too late.

At Harvard in the 1960's, my professors would have dismissed language like this as "generating more heat than light." What would their counterparts at Harvard say about it today?

One comment to the Krugman column, #5 from Ruskin of Buffalo, NY, was recommended by more readers than any other - about 500 so far. It calls on President Obama to replace Larry Summers:

There are clearly MANY people in the Obama administration who have had a hand in the extraordinary betrayal of ordinary Americans represented by the policies formulated by Treasury Secretary Geithner, but the one person I would beg the President to get rid of is the second-in-command, Lawrence Henry Summers, head of the National Economic Council. I can think of nothing the President could do that would more clearly signal to the American people that he understands how angry tens of millions of us are, over the policies which have lavishly rewarded the banks at the expense of the taxpayers, than terminating Larry Summers's tenure in the Obama White House.

Why single out Summers? Because he is so obviously the big enchilada in the economic team; because his insensitivity to common sense behavior for someone in his position led to his "earning" millions and millions of dollars by giving talks [my link] to bankers and consulting for other players in financial services; because he was singularly unsuccessful in the most important job he ever took on (the presidency of Harvard) where his tin ear and lack of empathy left him isolated and rejected by the central faculty of the university. For God's Sake, Mr President, this MAN HAS HAD HIS TURN in the corridors of power - replace him with someone who has a heart as well as a brain, someone who has not lived his whole life surrounded by moneyed people, someone who CARES about the "little people" of this country (to reference Leona Helmsley.)

As a Harvard Alum, I can say that Ruskin says what I've been thinking for months. Summers really should go, and Ruskin's case for the man's quick departure is just plain eloquent. And David Olive at the Toronto Star says it's time for Summers to go, with Laura Tyson a a competent and ready-made "plug and play" replacement.

Wake Up, Paul Krugman!

2009-07-13T17:00:00.011-05:00

In "Boiling the Frog," New York Times Nobel prize winning economist Paul Krugman today compares America to the proverbial frog that lacks the ability to hop out of a slowly heating pot. So what's making life hot for the American frog? Krugman says it's government gridlock on two critical issues: inaction on a second stimulus plan to prevent potentially crippling unemployment and inaction on climate change. This gridlock scares Mr. Krugman, who concludes:

So if we can’t get action to head off disaster now, what would it take? I don’t know the answer. And that’s why I keep thinking about boiling frogs.

Of course, many Americans vehemently disagree with the liberal Mr. Krugman on these vexed issues. Yet the solution to polarized disagreement and government gridlock obvious: it's a national decision-making process on these issues, available to all Americans. Why are smart liberals like Mr. Krugman so blind to it? To open his eyes, I cranked out and submitted the following to the comments section of his column. (oddly, it never appeared).

Mr. Krugman, with all respect, the answer to your dilemma has been staring all Americans in the face for years: it has to do with the television and computer screens that mirror the nation to itself. The obvious solution to your problem - which is rooted in the nation's polarizing, ideologically divisive political media - is a non-partisan, issue centered, problem-solving CIVIC MEDIA whose ongoing interactive public forums give ALL Americans an informed voice in the government decisions that affect their lives. This media exists to make citizens and government responsive and accountable to each other in shaping the nation's future: solving its problems, resolving its conflicts and maximizing its opportunities. It creates political discourse at local state and national levels that bring out the best in us, not the worst.

For years all of the interactive communications technologies needed to create a true dialogic civic media have abundantly been in place in America. One format - the game show format of voter-driven reality TV - is particularly appealing in a civic media context. Why? Because its weekly votes mimic and, in their sequence, actually refine and articulate the great voter-driven game of democracy.

Just think of what a vital civic media, produced with integrity, could do for the nation. Imagine an ongoing three month contest of ideas starring 16 four-member teams of well-informed, telegenic ordinary Americans who have been charged to compete AND co-operate with each other in an intensive search, broadcast each Sunday night on network TV and 25/7 on the Internet, for the best solution to your problem of climate change. Imagine these 16 teams being able to interview anyone, anywhere with a view to creating "60 Minutes"-style segments that advance their findings on this issue. Now imagine millions of Americans linking up with these teams and then voting their preferences each week, as on American Idol. And finally, imagine the excitement and media buzz as millions of Americans, in schools, colleges, business, homes and government offices nationwide cast their votes for a single winning team.

Interactive public forums like this would at long last give America the democracy it needs in order to function in an age of information. The winning solutions of these forums would of course be advisory to government and not binding. Market (citizen) demand for interactive media experiences they provide is enormous. So what's keeping mainstream media like the New York Times and CBS TV from creating them? Do these managers and conduits of public opinion fear that ordinary Americans lack the interest, capacity or desire to participate in an intelligent decision making process? Are they afraid that American people, given all the information needed to make sensible decisions on the economic and environmental issues you speak of, will make stupid choices, or choices that do not serve the interests of the powers that be?

The implementation of a civic media is critical to America's future. At issue is the Jeffersonian principle of government "of, by, and for the people." Should you, your paper and your readers therefore not give it careful thought?

When it comes to frogs, I submit that the heat that's about to boil the American frog comes less from the economic and environmental dangers you speak of and more from the reluctance of the powers that be to give all Americans an informed voice in the decisions that effect their lives. The real danger, as you say, is the nation's inability to make decisions, and in our democracy, civic media is the appropriate response to this danger.

"10,000 Home Foreclosures Daily" prompt Saskia Sassen to call for a new economic model.

2009-07-05T09:20:00.028-05:00

At this site, we've been mulling over the idea of economic models since last Februar y and pondering the possibile need for a new one here in the USA. I just found what could be a seminal article on this topic, "Too big to save: the end of financial capitalism," by Saskia Sassen, a professor of sociology at Columbia University, New York, and at the London School of Economics. It appeared last April at Opendemocracy.com. It begins as follows:

The misnamed "Group of Twenty" (G20) meets in London on 2 April 2009 to discuss how to save the global financial system. It is too late. The evidence is in: we don't have the resources to save this system - even if we wanted to. It has become too big to save: the value of global financial assets is several times the size of global gross national product (GDP). The real challenge is not to save this system but to definancialise our economies, as a prelude to move beyond the current model of capitalism. Why should the value of financial assets stay at almost four times the overall GDP of the European Union, and even more of the United States. What do everyday citizens - or the planet - gain from such excess?

Sassen has a strong term to describe the predatory practices of the existing model of capitalism:

A defining feature of the period that begins in the 1980s is the use of extremely complex instruments to engage in new forms of primitive accumulation, with taxpayers' money the last frontier for extraction.

And here, says Sassen, is what primitive accumulation has been designed to do:

Finance has created some of the most complicated financial instruments in order to extract the meagre savings of modest households: by offering credit for goods they may not need and (even more seriously) promising the possibility of owning a house.

The outcomes of primitive accumulation, in Sassen's account, recall those of Aesop's story of the man who killed the goose that laid the golden eggs:

Thus in the United States - ground zero for these forms of primitive accumulation - an average of 10,000 homeowners have been losing their home to foreclosures every day. An estimated 10-to-12 million households in the US will not be able to pay their mortgages over the next four years; under current conditions they would lose their home. This is a brutal form of primitive accumulation: presented with the possibility (which is mostly a fantasy, a lie) of owning a house, many people of modest income will put whatever few savings or future earnings they have into a down-payment.

This, it would seem, is not how democracy should work. Let me interject a question. How would the Amerian people react today if President Obama were use language like this? Would citizens support him? Would he alienate the financial community and the U. S Chamber of Commerce? Getting back to Sassen, how true this observation of hers?

The difference of the current crisis [and prior ones] is precisely that financialised capitalism has reached the limits of its own logic. It has been extremely successful at extracting value from all economic sectors through their financialising. It has penetrated such a large part of each national economy (in the highly developed world especially) that the parts of the economy where it can go to extract non-financial capital for its own rescue have become too small to provide the amount of capital needed to rescue the financial system as a whole.

Score one scarcity, zero for abundance. But how does Sassen think this crisis can be solved?

The implication of the foregoing is that two major challenges need to be faced:
▪ the need to definancialise the major economies

▪ the need to move out of the current model of capitalism.

She calls for a transition, or bridge, to a new model:

If seen in this light, the financial "crisis" could serve as one of the bridges into a new type of social order. It could help all involved - citizens and activists, NGOs and researchers, local communities and networks, democratic governments - to refocus on the work that needs to be done to house all people, clean our water, green our buildings and cities, develop sustainable agriculture (including urban agriculture), and provide healthcare for all. This innovative order would employ all those interested in working. When all the work that needs to be done is listed, the notion of mass unemployment makes little sense.

This is not socialism. It's capitalism renewed and designed to meet the needs of all citizens, not just those dedicated to wealth generation.

Sassen was recently interviewed by Chuck Mertz on This Is Hell. Here's Chuck's hellish image. Don't be fooled. Despite the show's sometimes sophomoric format (e.g., a weekly hangover cure), this is the finest political talk show in America. Very left wing, but still by far the best: 30-minute interviews of splendid guests all the over the world for four hours every Saturday AM. Broadcast on WNUR, Northwestern University Radio, 89.3 on your radio dial and streaming live. Great program, great interview. And a great website with complete archives going back to 2001! Look for the Sassen interview in the Archives for July 4.

The Danger of Incentives for Bankers to Take Risks with Taxpayer Dollers: Martin Wolf Gets It, Larry Summers Doesn't.

2009-07-02T07:19:00.022-05:00

Martin Wolf of the Financial Times said flat out yesterday that the inadequate reforms of the U. S. financial system coming from Summers & Co are certain to lead to a second financial crisis. His main concern? Incentives: the incentives that Summer & Co. have given America's "too-big-to-fail" bankers to take risks with taxpayer dollars. Links to three recent Martin Wolf columns are here, here and here. The first is the most outspoken and urgent. It opens with a warning.

With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed.

He goes on to say of the Summers reforms that

what has emerged after the crisis is . . . an even worse financial system than the one with which we began. The survivors are an oligopoly of “too-big-and-interconnected-to-fail” financial behemoths. They are the winners not because they are necessarily the best businesses, but because they are the best supported. It takes no imagination to realize what these institutions might now do, given the incentives for risk-taking.

Wolf has three remedies for this state of affairs: capitialization, liquidity and incentives. He deserves close attention. He is the most widely respected financial writer in the world. And it's amazing how no one of our side of the pond seems to be listening to him. One exception is finance blogger Yves Smith at Naked Capitalism who says that

Wolf understands the problem, but only alludes to the implications. It is now abundantly clear, to use that Richard Nixon turn of phrase, that the big banks not only have a license to steal, but the goverment now undermines its risks. That plus the failure to try to engineer controlled deleverging (high leverage is systemically destablizing) guarantees that if we do not sink into Japan-style maliase, we will have an even bigger crisis in pretty short order, five years at the very outside. The failure to implement real reforms will cost us dearly, and sooner than anyone wants to believe.

If you can stomach this, take a look at the latest column from Mike Whitney.

Gone Fishin'

2009-06-19T19:31:00.012-05:00

I'm taking a break from this site for awhile. For just how long, I don't know. I've decided to put all my energies into creating a civic media platform tapping the "market of the whole" 9.5 million residents of the Chicago area, where I live.

Looking back on these posts, I've learned something useful about the economic crisis. I did so by making little jumps. I'd put up a post and then wait to see if stimulus (hah!) for the next post would pop up. It always did. Yet without feedback from readers, these posts came to reflect only my personal outlook, namely that the U.S. (and the world) was blowing its best chance to rebuild its economy on a firmer foundation than that of replacing one house of cards with another - a house of structured private debt with one of government debt. My first thoughts on what constitutes a firmer economic foundation are here.

The absence of feedback to my posts was a disappointment, but not too much of one given my rank amateur status and the abundance of expert and gifted finance writers online. I did, however, receive emails from people I respect in response to information I'd sent: Northern Trust economist Paul Kasriel, finance blogger Yves Smith, Carnegie Mellon economist Allen Meltzer and from Clive Crook and (my hero) John Authers of the Financial Times. Now for an old English major, that's good company!!

I'm grateful to these folks and to everyone listed on my Finance Links, to the left. Nouriel Roubini, you the man, and Meredith Whitney, you the woman. But thanks also to Lifters of the Veil like Charles R Morris (sadly overlooked, a brilliant explicator), Pulitzer Prize-winning tax expert David Cay Johnston (fearless in describing rottenness when he sees it), economist Simon Johnson of MIT (whose Baseline Scenario site is the place to be for finance crisis activists), and so many other others. The individual I most want to tip my hat to, however, is economist Mike Hudson of the University of St Louis at Missouri, whose New Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse struck me as overly radical two years but makes more sense to me as time goes by.

Chiao for now!

Mid-Course Correction

2009-06-12T08:15:00.007-05:00

I haven't posted since May 15, when the Dow, at 8268, was 500 points lower than it is today. I've been busy talking about the future of journalism at Seeding Civic Media. Also began a diary about President Obama's $75 billion Making Home Affordable plan at Daily Kos. But there's another reason. This site, while fascinating to me, has not interested others. Something needs to change. It's mid-course correction time.

Posts, my buddy Arturo tells me, need to be shorter. Make one point at a time, let people respond. Makes sense. I'll also look into promoting the site.

Meanwhile, the Green Shoots are looking strong in the battle for the World Cup. To me, though, their recent strength is dubious. I can't help thinking that Summers and Co. are building a house of cards - a house of government debt - modeled on the house of leveraged debt from whose collapse the global economy is struggling to emerge. William Buiter of the Financial Times says it all in his June 12 piece, "The Fiscal Black Hole in the U.S."

So where does civic media fit into all this? At the risk of sounding like a scratchy record, let me repeat one simple axiom: neither the U.S. or the global economy will be on a sound footing until citiznes everywhere have a genuine voice in the economic decisions that affect their lives.

World Cup Final: Green Shoots vs. Yellow Weeds

2009-05-15T15:45:00.039-05:00

The match was on when President Obama spoke of "green shoots" as signs of economic recovery. Nouriel Roubini quickly countered by pointing to "yellow weeds" signaling possible continued recession. In recent days the ball has been more on the Green Shoot's half of the field, with the Yellow Weeds getting somewhat the better of the play in a midfield game. No big scoring opportunities for either team over the past week.

Notably (at least for this observer) the Weeds have been unable to get their game-changing player onto the field: he's Dollar Crisis, the story of the dollar's beleagured status as the world's global reserve currency. In London he appeared for a moment with the May 12 FT story on "America's Triple A rating is at risk". But not in the U.S., where American financial media ignored (suppressed?) his brief appearance. CNBC Europe mentioned him here - but not CNBC U.S., so far as could find at the CNBC site. We've been tracking the fate of the dollar here since March 23. I'm amazed at paucity of coverage of this story in the U.S. Mainstream financial media reject it as mere chatter of the Goldbugs who yearn for a dollar bust and a gold boom. Goldbug are always talking up the immanent collapse of the dollar, yet goldbugs like Jim Willie are well worth following - just take a look at what he said in January of 2008:

The year 2008 will be the year that THINGS JUST PLAIN BREAK. It will be a truly deadly year, unavoidably lethal to the US Economy and especially to the banking sector. Nothing has been repaired. Some tangible solutions will be offered in the next section [of his post], all legitimate in a real world. However, we do NOT live in a real world, but rather in a Fairy Tale world of US Hegemony and Wall Street with a choke hold around the entire system.

Willie is a libertarian investor with a strong populist streak. He is not alone in his thinking and I suspect central bankers keep a close eye on folks like him. If and when the Weeds finally get their man Dollar Crisis onto the field - watch out. Meanwhile, or failing that, here are some notable Shoots vs. Weeds takes on the topic of economic recovery.

Nouriel Roubini and his team dig deep and offer a region-by-region global survey in "Green Shoots or Yellow Weeds?" (Forbes 5/14)
Maria Bartiromo interviews Nouriel Roubini and Harvard Economist Ken Rogoff in this CNBC video. Roubini sees more Weeds than Shoots; Rogoff too. At 5 min 20 sec note their responses to Maria's question about the possibility of the Obama administration's growth forecast of 4% in 2011. (5/15)
The Economist's Special Report on the fat green shoots for international banking looks like yellow weeds in reader comments. (5/14)
Samuel Brittan at FT weighs "Green Shoots and Dud Forecasts." (5/15)
David Brooks discusses neither Shoots or Weeds but the health care dilemma confronting President Obama: "If you . . . talk to enough experts, you come away with a stark conclusion: There are deep structural forces, both in Medicare and the private insurance market, that have driven the explosion in health costs. It is nearly impossible to put together a majority coalition for a bill that challenges those essential structures. ("Fiscal Suicide Ahead", NYT 5/14)
In this entertaining 7-minute video, New York financial consultant Howard Davidowitz demolishes the Shoots story (rhetorically at least - and at least somewhat substantially - listen to his comments on commercial real estate). (Yahoo Finance Tech Ticker 5/15) (Thanks, Yves)
Big one for the Green Shoots? Donald Luskin writes that Northwestern University economist Robert J. Gordon, pointing to reduced numbers of "jobless claims" - claims from the unemployed for jobless benefits - says the recession is over. (Smart Money 5/15)
Alan Blinder, Princeton economist and former Federal Reserve chairman, likes the Green Shoots but warns against premature tightening of the economy like that of Roosevelt in 1936 that plunged a recovering America back into recession. (NYT 5/16)
Martin Wolf of FT casts an influential if cautious vote for Green Shoots and for the future of capitalism (5/19)

World Cup Final? Let's go it one better. Imagine a global civic media contest with an audience of billions participating in a contest of contests to find best solutions to the world's economic plight. This contest could happen today except for resistance from the world's governments and financial elite, who seem to want it not to happen. The technology for it exists: the contest would integrate the resources of American Idol, telephony, a TV channel like Discovery or CNBC and social networks like Facebook, MySpace and Twitter.

America's Big Banks: STILL Crazy to Get College Students into Debt After All These Years?

2009-05-06T06:24:00.052-05:00

In 1985, American college students graduated with a credit card balance of zero. They didn't have credit cards then. Today, college seniors are graduating with an "average credit card debt of more than $4,100, up from $2,900 almost four years ago," according to Sallie Mae. The origins of this growing mountain of debt go back to the early 1990's and to a single bank, Citibank, which then was on the verge of bankruptcy. As Robert Manning writes, CEO Sandy Weill saved CITI by flooding American college campuses with free frisbees and credit card applications. Given the disastrous outcomes of fast money schemes like this and given also the present life-support status of dinosaur banks like Citi, you'd think they'd no longer be getting people into debt while they're too young to know any better and keeping them there.

Not so. Although the government has forced big banks to give up most of their failed "debt peonage" home mortgage models, as Mike Hudson intriguingly calls them, the government has done nothing to stop these banks from getting college students into debt and keeping them there. Last week I saw for myself that Bank of America CEO Ken Lewis, for one, is playing Weil's "enthrall the students" game aggressively.

It hit me as I entered the lobby of the north suburban Chicago community college where I teach. There it was: two gaily festooned tables chock full of free goodies - frisbees, coffee mugs, key chains - all decked out in banners and streamers in bright Bank-of-America red and white. Two non-white salesmen (matching the non-white majority of the college student body) manned the tables. Me being me, I walked up and jovially asked if I could get a credit card. One of the BofA guys sidled up and in a sugary voice whispered in my ear, "And how would you like a mortgage?"

I laughed and asked if BofA prepares students to be financially responsible. Soon my hands were full of booklets and brochures, one quite helpful on this point. Yet in my very next class, a student turned in an eye-opening paper on student credit card use. It drew from a Chicago Tribune article based on a recent Sallie Mae study of student credit card use. Key findings of the study? Here they are, verbatim. Read 'em and weep. Sallie Mae says that

In this time of credit crunch and economic downturn, college students are relying on credit cards more than ever before. Nearly every indicator measured in spring 2008 showed an increase in credit card usage since the last study was conducted in fall 2004. Eighty-four percent of undergraduates had at least one credit card, up from 76 percent in 2004, the last time the study was conducted. The average number of cards has grown to 4.6, and half of college students had four or more cards.

Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.
By year in college, credit card usage and debt also is increasing across all categories—credit card ownership, average balance, median balance, those carrying any balance, and those carrying high balances.
Since 2004, students who arrived on campus as freshmen with a credit card already in-hand have increased from 23 percent to 39 percent.
In spring of 2008, only 15 percent of freshmen had a zero balance, down dramatically from 69 percent in the fall of 2004. The median debt freshmen carried was $939, nearly triple the $373 in 2004.
Seniors graduated with an average credit card debt of more than $4,100, up from $2,900 almost four years ago. Close to one-fifth of seniors carried balances greater than $7,000.
Nine in 10 undergraduates reported paying for direct education expenses with credit cards—and the average amount they charged more than doubled since the last study.
Ninety-two percent of undergraduate credit cardholders charged textbooks, school supplies, or other direct education expenses, up from 85 percent when the study was last conducted, in 2004.
Nearly one-third (30%) put tuition on their credit card, an increase from 24 percent in the previous study.
Students who used credit cards to pay for direct education expenses estimated charging $2,200, more than double 2004’s average of $942.
The most common education expenses charged were textbooks (76%), school supplies (75%), and commuter costs (54%).
Food (84%), clothing (70%), and cosmetics (69%) ranked at the top of other expenses charged.
Many college students seem to use credit cards to live beyond their means—not just for convenience—and more than three-quarters incurred finance charges by carrying a monthly balance.
Sixty percent experienced surprise at how high their balance had reached, and 40 percent said they have charged items knowing they didn’t have the money to pay the bill.
Only 17 percent said they regularly paid off all cards each month, and another 1 percent had parents, a spouse, or other family members paying the bill. The remaining 82 percent carried balances and thus incurred finance charges each month.
One-third of students rarely or never discussed credit card use with parents, and nearly all undergraduates would like more information on financial management topics.
Two-thirds of survey respondents said they had frequently or sometimes discussed credit card use with their parents. The remaining one-third who had never or only rarely discussed credit cards with parents were more likely to pay for tuition with a credit card and were more likely to be surprised at their credit card balancewhen they received the invoice.
Eighty-four percent of undergraduates indicated they needed more education on financial management topics. In fact, 64 percent would have liked to receive information in high school and 40 percent as college freshmen.

Question for President Obama: in light of these findings, what is your administration doing to keep American college students from being further exploited by the very banks whose business models crippled the global economy and whose non-exploitative conduct your administration insists is critical to recovery? And more important, what is your administration doing to make college more affordable for all qualified American students? (Here's how civic media can empower college students and others to address and help solve the problem.)

This morning I see that BofA stock is rising in early trading"amid reports that it needs $34 billion in new capital." Who's got the barf bag? For students, the Tribune article has these tips:

Several student credit cards have interest rates of 14.99 percent for those with good credit, according to the Web site Bankrate.com. Federal Stafford loans have interest rates of 6.8 percent. Private-school loan rates average about 8 percent, according to Bankrate.com.

May 4: Could the Storm Be Winding Down? Is Obama's "Glimmer of Hope" More than Just a Glimmer?

2009-05-04T10:49:00.009-05:00

Let's look at the upside for a change. Lot's people are saying the worst may be over. The chorus is growing. Even my trader buddy Big Bill is thinking that the market rally could extend past summer and through the December holiday season.

Warren Buffet on the topic of government actions to save the economy says "Overall I commend the actions that were taken. To expect perfection from people working 20 hour days and getting hit by new and sometimes bad information - when you’re getting punched from all sides - you’re not gonna do everything perfectly. I think overall they did a very good job…" (5/2)
Albert Bozzo at CNBC says a small but growing number of economists is saying that the "US Economy Could Recover Much Sooner Than Expected" (5/4)
Even Nouriel Roubini seems to be moderating his gloomy views somewhat (4/27)
Global Markets are hitting seven month highs (Reuters 5/4)
This John Authers video shows that markets are rising globally due to faith in China's economic upturn (FT 5/4).
Ben Bernanke testifies that the U.S. "may be stabilizing" (FT 5/5)
Libor rates fall to historic lows (FT 5/5).
Martin Wolf endorses Obama's (and FDR'S) pragmatic conservatism and the stress tests - with reservations (FT 5/12)

This list is just underway. SEND LINKS! (Good ones are not easy to find.)

You call this civic media? Yeah, I do . . . sort of.

2009-04-26T17:32:00.055-05:00

In a one-man-talking-to-himself sort of way. So far at least. Where a true civic media is dialogic, this site, so far, is pretty monologic. Too bad. I talk, but people aren't talking back - not yet. And where civic media sites are non-partisan and non-ideological, this one, maintained by a political independent who is relieved and often glad that Obama is our president, is marked by a deepening concern that his financial team of Bernanke, Summers and Geithner are so beholden to Wall Street that Obama is being shielded from the information he needs in order to help the U.S. and the world emerge from the global financial crisis. In the Apr il 29 Press Conference held to mark his first 100 days in office, the President unblushingly conceded his ignorance of the coming crisis:

You know, when I first started this race [in December, 2007], Iraq was a central issue. But the economy appeared on the surface to still be relatively strong. There were underlying problems that I was seeing with health care for families and our education system and college affordability and so forth, but obviously, I didn't anticipate the worst economic crisis since the Great Depression.

I find this admission galling. It's hard to accept from an editor of the Harvard Law Review and a U.S Senator, surrounded by brilliant people, who reads a lot and can actually think straight. It's as if the Ivy League, Wall Street and the D.C. beltway suddenly sealed themselves off what by December 2007 was obvious to a lot of people. In late 2007 I myself knew fellow Realtors and loan officers here in Glenview, north of Chicago - who knew something terrible was bound to hapen - we just couldn't tell when it would hit. We saw it coming in our business and in alarm signals that were being sounded loud and clear in the financial media: Yves Smith, Felix Salmon, goldbugs like Jim Willie and Martin Wolf and John Authers of the Financial Times, for Pete's sake!How on earth could Obama and advisors like Austin Goolsbie have missed what was staring us in the face?

Yves Smith is one of many finance bloggers who could have saved America and the world endless grief had the Obama team read her posts in 2007. So are Obama's people reading her today? They sure should - her website has 25,000 hits a day. Here she dissects the flaws of Obama's finance team in a painstaking analysis of the New York Times' surprisingly harsh April 26 story about Tim Geithner. Her analysis prompted one commenter to say

I cried when Obama made these appointments. Summers, Geithner and keeping Bernanke. I knew all was lost. And now I watch as the whole thing falls apart.

Larry Summers, the ringleader of the Obama economic team, strikes me as a brilliant careerist in the mold of Henry Kissinger: a first rate self-promoter and a second-rate "realpolitik" thinker. To me, he's in denial about what first-rate thinkers like Steve Waldman are saying about the need for economic models grounded in a new understanding of sustainable wealth and wealth creation - a topic I discuss here. Summers and Co. are all the kings men trying to put Humpty Dumpty (American hegemony) back together again. It just won't work. (The Times article suggests that Summers, a big man at the White House, may be lobbying to replace the unpopular Geithner with a loyal fresh face. In other words, nothing will change.)

In his recent "100 days" press conference, President Obama named the economists he follows (scroll to "Where the economists are coming from"). The central debate in his mind, he said, is between Wall Streeter Robert Rubin and realative main streeter Robert Reich, with attention to corporate globalism critic Joseph Stiglitz and inflation-breaking Paul Volcker. And he sums up his philosophy nicely: "The truth is," Obama says, "that what I’ve been constantly searching for is a ruthless pragmatism when it comes to economic policy." And: "The touchstone for economic policy is, does it allow the average American to find good employment and see their incomes rise." Sounds OK, but can Obama's "ruthless pragmatism" put America's financial system on a sound and durable footing? Pragmatists lack vision. Their ideas work short term, not long. The President needs pragmatisim and vision. Is he listening to people like these:

Charles R. Morris, author of The Trillion Dollar Meltdown, argues in a brief but prescient column that "Merrill Makes the Case for Nationalization" (1/29).
Henry Kaufman, for decades a leading Wall Street insider, argues here that "We should, therefore, fundamentally re-examine the role of the Fed and the supervision of our financial institutions." He discusses the rise of a "social milieu [of policy makers that] encouraged financial decision makers to cherry-pick the theories that supported excessive risk taking. It discouraged whistle-blowing, not just by risk-management officers in large financial institutions, but also by the economists whose scholarship provided intellectual justification for the financial institutions’ decisions. The consequence was that scholarship that warned of potential disaster was ignored. And the result was global economic calamity on a scale not seen for four generations. (Financial Times 4/28)
Steve Waldman: "If you believe, as I do, that we need a root-and-branch reorganization of the financial system, which must necessarily involve the dismemberment and intrusive restraint of deeply entrenched institutions . . ." (4/27)
Barry Eichengren of the U.C. Berkeley Dept. of Economics argues that "The Great Credit Crisis has cast into doubt much of what we thought we knew about economics". (National Interest 4/30)
Charlie Munger of Berkshire Hathaway says banks will use their “enormous political power” to prevent changes to the industry that would benefit society. (Bloomberg, 5/2)Univ. of Chicago Economist Anna Schwartz, a Friedman/Volcker pure monetarist, says the Bernanke Fed has misjudged the financial crisis (City Journal, Spring '09)
Martin Wolf of the Financial Times says "The world economy cannot go back to where it was before the crisis, because that was demonstrably unsustainable. It is at the early stages of a long and painful deleveraging and restructuring. Fortunately, policymakers have eliminated the worst possible outcomes. But there is much more yet to be done before fragile shoots become healthy plants (4/21)
Martin Wolf says that "Those who hope for a swift return to what they thought normal two years ago are deluded" (FT 4/28).
Joseph Stiglitz (whom Obama follows) here calls for something Wall Street does NOT want: a new global reserve currency (3/26). The findings of the UN panel that Stiglitz chaired are described here (3/26). In this article in the South China Morning Post James Dorn (Cato Institute) challenges Stiglitz. Here the Wall Street Journal is defensively on China's call for a new global reserve currency. (American financial media largely overlooked or suppressed the Stiglitz story and are covering this issue poorly if at all. Shame on us.)
Matthew Richardson and Nouriel Roubini punch holes in the Obama administration's case for progress towards restoring banks to solvency (WSJ 5/5).
In her post on "The Banks and Orwell," finance blogger Yves Smith isolates some of the doublespeak that Wall Street chieftains are using to resist real regulation. She says that "M. Rodgin Cohen [managing partner of Sullivan & Cromwell] is already leading the fightback [against hostile public opinion]. Yesterday, he even had the gall to say that the system as currently constituted was fundamentally sound. Yes, for him and a handful of Goldman partners, I'm sure that's true, but on planet earth, it's a bit of a different picture." (5/9)

Misjudging Motives: Why Bernanke (and Geithner and Summers) Are the Wrong People for Their Jobs

2009-04-18T08:46:00.062-05:00

I wonder what President Obama would say to this post. Reading and re-reading the first two quoted passages below, I find myself thinking that America will never - not ever - recover from its financial crisis until its President has in place a financial team that carefully assesses the motives of the Wall Street elite whose "risk-free" financial innovations ran the world's economies into the ground. Of course Wall Street never intended for its innovations to backfire as they did - clearly it intended to do something else. But what? And more to the point of motive, why? Answers given in the two revealing passages below, both from mid-2006, could hardly be more disparate. Which comes closer to unearthing the truth? Here's my take. Judge for yourself .

In June of 2006, Ben Bernanke concluded his speech on "Modern Risk Management and Banking Supervision" by voicing confidence in the ability of banking organizations and banking agencies - Fedspeak for private banks and government regulators - working in tandem, to eliminate the possibility of systemic risk:

We expect that risk management and banking supervision will continue to develop along parallel tracks. The Basel II framework [the latest recommendations on banking laws and regulations issued by the senior representatives of the ten Western central banks who form the Basel Committee on Banking Supervision] represents an important effort by supervisors to integrate leading-edge risk management practices with the calculation of regulatory capital requirements. The ongoing work on this framework has already led large, complex banking organizations to improve their systems for identifying, measuring, and managing their risks. Indeed, banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks. The banking agencies will continue to promote supervisory approaches that complement and support banks' own efforts to enhance their risk-management capabilities.

Ben Bernanke strikes me as a decent man. Yet his blind faith in the status quo - his assertion that "substantial strides" had been made towards managing risks - tells me not just that he was oblivious to immanent disaster but that he was so because he had fallen in the wrong crowd. As we now know, this crowd was doing more to abet than to curb the excesses of America's financial elite.

The right crowd? It was a group of economists, finance writers and businessmen - a fairly large group - that was willing to examine and discuss, with due scepticism, the likely effects of the innovations of this elite and the wellspring of their motives as well. (Their findings were by no means identical.) The paragraphs below, written by one of this group, appeared in May, 2006, a month before Bernanke's speech:

Free markets are based on choice. But more and more homeowners are discovering that what they got for their money is fewer and fewer choices. A real estate boom that began with the promise of “economic freedom” almost certainly will end with a growing number of workers locked in to a lifetime of debt service that absorbs every spare penny. Indeed, a study by The Conference Board found that the proportion of households with any discretionary income whatsoever had already declined between 1997 and 2002, from 53 percent to 52 percent. Rising interest rates, rising fuel costs,
and declining wages will only tighten the squeeze on debtors.

But homeowners are not the only ones who will pay. The overall economy likely will shrink as well. That $200 billion that flowed into the “real”economy in 2004 is already spent, with no future capital gains in the works to fuel more such easy money. Rising debt-service payments will further divert income from new consumer spending. Taken together, these factors will further shrink the “real” economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagnation or worse. Then only the debt itself will remain, a bitter monument to our love of easy freedom.

So said University of Missouri/St. Louis economist Michael Hudson, whose "Illustrated G uid e to the Coming Housing Collapse" is a core text for me. Now what's the difference between Bernanke and Hudson? How could one professional economist be so blind to immanent disaster and the other so prescient? President Obama is a smart man. Has he ever asked himself this question? If he's going to serve America well as president, shouldn't he?

If he does, the answer is plain to see. The difference is partly one of perspective: of the economy as seen from the contrasting vantage points of the Wall Street lender and the American borrower. But the main difference is one of motive. Bernanke, on one hand, presumably sees Wall Street's "leading-edge risk management practices" as motivated by a benign desire to realize a fair profit while helping borrowers realize the American dream. Hudson, on the other, sees these same practices darkly, as intended to subjugate borrowers to lenders in a manner more appropriate to a feudalistic society than a democracy. And he sees them as motivated by a desire for absolute control and power.

This, granted, is an extreme assertion. Many will question it. But from what we know today about the effects of sub-prime lending and the motives of Wall Street and the Federal Government - far less pure than pure, at a minimum - Hudson's account has to be much closer to the truth than Bernanke's.

I therefore find myself, on balance, asking how Ben Bernanke can serve effectively at the Fed. Removing him, Larry Summers and Tim Geithner is impracticable at the moment, even unthinkable. But sometimes it's important to think the unthinkable. Simon Johnson does so. He's an M.I.T. economist and past chief economist for the International Monetary Fund. In "The Quiet Coup," appearing in the latest Atlantic Monthly, he argues that Wall Street's wildly innovative financial practices were nothing short of oligarchical. Here's a summary:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

How would recovery occur once America's financial oligarchy was broken? Who would replace President Obama's current financial team? I'll be looking for answers at The Baseline Scenario, Simon Johnson's problem-solving site. I wonder if the White House is following it. Here Terry Gross of NPE interviews Simon Johnson - for 44 minutes!

Let's take another break

2009-04-17T07:56:00.006-05:00

A musical one this time that Georgi, a student in my writing class at Oakton Community College, just posted at our class Ning site. And here's another if you like musical underdogs. And here's one more to see how the underdog compares with the top dog.

Let's Take a Break for a Sec

2009-04-16T08:23:00.012-05:00

Two students in a class I'm teaching are writing papers on the financial crisis. After doing some research on their own, they asked me for some articles. I gave them two:

Michael Hudson's May, 2006 Harper's Magazine prediction of the housing crisis
"Quants Gone Wild," a little-known piece by William Bodine and Christopher Nagel of the business faculty at Concordia C0llege-New York. It deserves a wide readership for three reasons. It traces the origins of today's credit crisis back to new valuation methods developed on Wall Street in the 1970's, with J. P. Morgan leading the way. It faults hopelessly complex computer-driven risk models that were simply beyond human understanding, including that of the Wall Street CEO'S who profited most from their use. Finally, it ends magnificently, with a touch of zen (or whatever):
A couple closing thoughts: don’t run with the lemmings; don’t be overly impressed with things you don’t understand; drink some green tea and take time to write a Haiku as we witness a staggering capital meltdown from the consequences of uncontrolled financial engineering in derivatives currently estimated at US $500 trillion globally.

Wells Fargo Quarterly Results Boost the Dow 247 points to 8038!

2009-04-11T07:10:00.022-05:00

The Obama Spring rally found a second wind today thanks to a Wells Fargo earnings report that benefited the big financial stocks. With the spring rally is now in its fifth straight week, even the Financial Times front-paged President Obama talking about "glimmers of hope." Yet I wondered: how could Wells Fargo, in this terrible economy, announce a record high quarterly profit of $3 billion? By borrowing at zero per cent and doling out refi's at five? That's a ton of refi's. I didn't get it. Then I stumbled on this post by a guy I don't know - well, he's a goldbug - who knows more about finance than I do and puts questions I'd like to see put to Fargo's Howard Atkins (minus the vitriol):

DaveInDenver said:
This is beyond belief. Wells Fargo's 1st quarter profit forecast goes way beyond any fairy tale ever written in history. Here's what they say: Chief Financial Officer Howard Atkins says the results "reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results." Mr. Atkins, you are an outright liar and fraud.

Hmmm..."strength in traditional banking?" Who is borrowing that money and making their interest and principal payments on time? Has there been a bunch of businesses started no one is aware of yet? Are existing businesses expanding? You've got to be kidding me.

"strong capital markets activities." Where is this revenue coming from? Any big equity IPO's during Q1 that we missed? Corporate debt issuance was occurring, but at a very low rate and Wells Fargo is not a real player in that business. Mortgage securitizaton? I'm not aware of any. Please explain to me, Mr. Atkins, the source of your "strong capital markets acitivities."

"exceptionally strong mortgage banking results." This one is the most puzzling and troubling to me. We know, with hard data and facts, that home sales and mortgage issuance is plummeting every day. Where are the revenues coming from in this area? Mr. Marks goes on to cite that WFC's acquisition of Wachovia boosted their results. How on Earth can this be? Wachovia's balance sheet is mostly the kinds of subprime mortgage assets that are melting down to zero.

The only possible source of extraordinary revenues I can think of for WFC during Q1 would have been WFC's use of the massive amount of Treasury and Fed money extended to banks at little or no cost and being put to work in Treasury bonds and WFC earning the positive interest carry.

In fact, we know from hard data released every week that the very business activities that Wells says are creating massive profits are, in fact, melting down quickly in every corner of the U.S. and global economy.

For WFC to come out and make those claims is beyond fairy tale - it's outright fraud. And lest we forget, the beloved Warren Buffet owns over 10% of WFC, and thus de facto is standing behind this massive fraud. George Orwell is laughing uncontrollably in his grave now.

Thanks, Dave. Is anyone asking these questions? Is Fargo answering them? Here's one answer:

Wells Fargo’s revenue was boosted by its mortgage banking operations, as the company received about $190 billion in mortgage applications, a 64 percent jump from the fourth quarter. Roughly $83 billion of that volume came in March, when announced governmental programming sent interest rates tumbling. The majority of that was refinance applications with roughly 25 percent coming from home purchases.

And here's another:

Wells Fargo attributed the strong results to healthy lending margins driven by lower interest rates, fewer additional costs related to its purchase of Wachovia and a boom in mortgage activity.

Do these accounts satisfy anyone?

BTW, George Orwell's essay on Politics and the English Language is as timely today as when he wrote it in 1946. Dave may be thinking of Orwell's warning against the "invasion of one's mind by ready-made phrases (lay the foundations, achieve a radical transformation)" that "anaesthetize a portion of one's brain."

DaveInDenver was responding to Henry Blodget's article about why Dylan Ratigan left CNBC. Ratigan, the able host of CNBC's hot "Fast Money" show, says he left because

When you're dealing with systemic policy failures that have rendered a catastrophe the likes of which we've really never seen, the role of journalism is to ask questions of money and power from the broadest possible platform.

Ratigan has anti-fans who doubt his credentials as a journalist - see the other responses to Blodget's article - but for months he has been targeting bailouts that seemingly pick t he pockets of taxpayers to benefit big bankers. This alone doesn't make him golden in my book, but I look forward to seeing what he does next.

Larry Summers: Maximizing Wealth with "One of the "Greatest Minds of the Past 500 Years"

2009-04-10T13:37:00.031-05:00

Of the past 500 years? Really? Maximizing wealth? Whose? We'll get to all that. But first, will someone kindly send me something about Larry Summers that shows him in a better light than this godawful tedious CNBC clip of him fielding soft grounders about the economy before the Economic Club (of New York, I think) on 4/9. It SO reminds me of my undergrad days at Harvard in the 1960's and the smoke and mirrors political discussions that routinely marginalized outsider views as "generating more heat than light". (Anyone else remember this phrase?) This cozy CNBC clip suggests that the old boys' network is still in fine working order today, its nexus having merely migrated northwards to Cambridge from New Haven, from whence an unbroken string of Yale graduates (Bush/Clinton/Bush) had occupied the White House for an unprecedented 20 years. (My take on the historic "Yale succession" of U.S. Presidents is here, here, here and here.)

Well, I'm getting carried away. But seriously: are video clips like this one the best that CNBC - and Summers himself - can give the American people at this critical juncture in our history?

Well I gotta rant a bit more. Just listen to the long-winded introduction (suckup?) that consumes the first two minutes of this nine-minute clip, including the moderator's paean to Summer's astounding skills as a tennis player - "his greatest talent," says the host, confessing his own need for professional training in order to beat Summers - "barely" - on a doubles court. Please. This idle talk only assures Summers that he is among friends and will not be asked any hard questions (say, about bank solvency or bank spending of government bailout money). And the warm audience response to his not-so-witty dismissal of any claim to certainty in the making of economic forecasts confirms that none are expected. I decided to scout the web a bit on this man, focusing on his ties to Wall Street. It didn't take to find a couple interesting items:

At Econospeak (via Naked Capitalism) I found this glowing account of Summers' "stadium rock concert" and "performance art" presentation last year to Goldman Sachs. Smoke and Mirrors? For sure, it was patently a magic show. Genius? One of the greatest minds of the past 500 years? That was the take of one Monique, a Goldman employee who says “It was his entertainment that opened me up and made me receptive, but the economic vision was irreplaceable. I thought I was maximizing wealth before I heard Larry, but I didn’t know the half of it.” Maximizing wealth, huh? Whose? (4/4)

Well, consider this. The New York Times reports that "Lawrence H. Summers, the top economic adviser to President Obama, earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money, the White House disclosed Friday in releasing financial information about top officials." OK, so Summers, as Treasury Secretary, isn't pulling in the big bucks from Wall Street. But whose wealth he is maximizing? And who is benefitting from his great wisdom? So far, it's still going to Wall Street while the Americian people, on CNBS, get jargon. (4/3)

OK already, enough ranting. Here's a challenge, stemming from the 2nd sentence of the 2nd paragraph of the New York Times' brief bio of Larry Summers, which celebrates his "deep understanding of global economic issues, at a time when the American mortgage crisis has leaped borders to become a worldwide contagion." Whoah, hold it. Can anyone show that Summers had any prior understanding of this crisis before it hit full force in 2008? What was one the greatest minds of the past 500 years saying about it in 2006 and 2007?

CNBC's Rick Santelli Fires off on the Solvency/Liquidity Issue

2009-04-09T08:07:00.021-05:00

A good moment yesterday morning for the Great Santelli on CNBC's Squawkbox. Here it is. At 1:40 of the segment, which opens with Carl Quintanilla interviewing Umrai Gill, Santelli waves a paper and says he wants to take note of a recent white paper written by Harvard and Princeton economists Joshua Coval, Jakub Jurek and Erik Stafford. The conclusion he reads, however, is not from the Coval/Jurek/Stafford paper. It's from an article about the paper by John Carney of Business Insider. Carney writes (and Rick reads, revising the last sentence):

In short, the government cannot save the banks by improving liquidity or changing mark to market rules because the problem isn't illiquidity or accounting. The problem is that highly leveraged financial firms own assets that are worth far less than they thought they would be, and the firms are insolvent as a result. This is why the latest bailout plans secretly give huge subsidies to banks--because the only way to keep the insolvent zombies afloat is to transfer billions of dollars to banks, bank stockholders, and bank creditors.

This caught my attention. Umrai Gill's rejoinder to Santelli did too.

Is Massive, truly MASSIVE, Bank Fraud going Unpunished and Unregulated?

2009-04-04T06:50:00.021-05:00

Is America ignoring bank fraud on an unprecedented scale in its haste to bail out its apparently insolvent banks? This 20 minute Bill Moyers Journal video makes a strong case for the affirmative. Moyers interviews William K. Black, a senior regulator during the Savings and Loan Crisis of the 1990's. Black's take on the decay of American finance over the past 20 years reminds me of David Cay Johnston's take on the decay of the IRS since 1980. Two straight shooters. Black is hard on Geithner and Summers and on President Obama too. A key passage:

The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn't let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.

So what needs to be done? Here's Black's 9/08 Nation article co-authored with economist James K. Galbraith. Here are some related links:

Tim Geithner outlines his regulatory plan before the House Committee on Financial Regulation (3/??)
President Obama backs up Geithner's plan (3/24)
The Economist says "The rich are an easy target. But when you try to bash them, you usually end up punching yourself in the nose." Seems to me this caution against political retribution skirts the hard issues of legal accountability and regulatory reform. (4/2)
Meredith Whitney says that the country's biggest banks, still undercapitalized despite government efforts to refloat them, are reducing credit card lines and thereby "sucking liquidity out of consumer wallets." How much? "In the fourth quarter alone," she says, "half a trillion dollars of lines were cut from the consumer--half a trillion." (4/6)
Mike Mayo's "Seven Deadly Sins of Banking" is out today - David Faber and others at CNBC blame today's down market (Dow -114 several hours before the close) in part on Mayo's report.
William D Cohan on how Goldman Sachs emerged as the king of financial institutions (NYT op ed. Not fraud, but sleight of hand ( 4/15)

CNBC Highlights London Public Protests

2009-04-01T08:21:00.007-05:00

It sure isn't civic media - it's not giving the public anything like a direct and informed voice in defining and solving the world's financial woes - but CNBC videos are giving the public a powerful voice of sorts as the G20 summit prepares to open in London. We'll be seeing these videos all day long. We haven't seen videos like this since the 1999 WTO Protests in Seattle. These protests has a positive outcome: they helped empower underdeveloped nations worldwide to find alternatives to the counterproductive programs of the International Monetary Fund. On the other hand, these videos can backfire. Recall network TV coverage of the 1968 Democratic National Convention riots in Chicago and the resulting voter backlash against the "hippy" student protesters. This backlash plucked the presidency from the grasp of Hubert Humphrey and handed it to Richard Nixon. Recall also the riots in 110 American cities following the assassination of Rev. King.

Are street protests the best or only way for Americans to let off steam or outrage? Why aren't American media doing a better job of helping the American people think as a nation? That's what a true civic media can do.

Geithner Releases Public/Private Investment Partnership, Dow Soars 497

2009-03-23T15:21:00.100-05:00

Feels like springtime in Obamaland today! Markets worldwide responded favorably to the Tim Geithner's Public/Private Investment Partnership to restore solvency in America's too-big-to-fail banks. But will his plan, in its author's words, get "our financial system back to the business of providing credit to working families and viable businesses, and help prevent future crises?" Here's a running list of responses PRO, CON and NEUTRAL

John Authers asks an underlieing question about bank solvency (3/23)

Bill Gross buys in (3/23 CNBC video)

Paul Krugman all but despairs over the Geithner plan (3/23)

Clive Crook asks Krugman to think twice (3/23)

Tim Geithner argues that his plan is "part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. " (3/23)

Yves Smith, riffing off a WSJ editorial, talks about Fed rescue plan exit strategies (3/23)

Mike Whitney protests the Geithner plan's 5%/95% public/private investor ratio (3/23)

Felix Salmon warns that the plan is yet another "thing-that-has-to-go right in order . . . to work." (3/23)

Wall Street Journal says the plan "isn't the worst idea the federal government has ever had" (3/24)

"NYT "Opinionator" quotes from five mainstream media takes on the plan (3/24)

NYT "Room For Debate" compares responses to the Geithner plan of Krugman, Simon Johnson, Brad DeLong, Mark Thoma (3/24)

Mike Hudson takes a broad 3,000 year view to today's financial crisis in this 10 minute video (2/20). Here's his indispensable 2006 Harper's cover story, "The New Road to Serfdom: an Illustrated Guide to the Coming Real Estate Collapse"

New York Times voices doubts about the Geithner plan (3/24)

Joseph Stiglitz says the plan robs the taxpayer (3/24)

Martin Wolf says an adequate rescue plan is still far away (3/24)

Czech President of the European Union calls the plan "A way to hell". Also, Financial Times (3/25)

Rick Santelli of CNBC asks protests "two years" of government neglect of Nouriel Roubini's warnings about dangers of government exacerbation/funding of the credit bubble. (Go to 7:30 of this 10 minute February Durable Goods Report (Alt. link: http://www.cnbc.com/id/15840232?video=1072009974&play=1. s ) (3/25)

London Economist sits on the fence (3/25)

Nouriel Roubini, "Dr. Doom," sees POSITIVES in the plan! (3/25)

Lee Brodie, of CNBC's Fast Money crew, says Geithner may have rescued America (3/25)

New York Post reporter Mark DeCambre says Geithner plan lets City and B of A "buy back laundered loans at lower rates" (3/25)

Yves Smith, finance blogger, approves Willem Buiter of F.T. taking "Fed and Treasury to Task" (3/26)

Steve Waldman, finance writer, critique New Yorker finance writer James Surowiecki (scroll down to 3/25)

Investor's Business Daily, citing Friedrich Hayek, warns against government (bureaucrat) control of the economy (3/27)

Nouriel Roubini in this 20 min. Bloomberg TV interview says the plan "won't stop bank nationalizations" (3/28)

Newsweek article says Treasury Secretary Geithner is "hitting his stride" (3/28)

Newsweek Cover Story says the White House is ignoring Paul Krugman's criticisms of the Geithner plan (3/28)

Jeffrey Sachs, Yale economist, asks "Will Geithner and Summers Succeed in Raiding the FDIC and Fed?"

Mike Whitney, finance writer, citing DeCambre, Sachs and Stiglitz says "the country will undergo the greatest period of bank consolidation in its 230 year history."

New York Times charges Congress with "bipartisan resistance to a thorough investigation of what caused the collapse" (3/29)

Richard Posner, U.C. Law and jurist, says the Geithner plan "will simplify the banks' balance sheets by removing assets of uncertain value and replacing them with cash (3/29)

Gary Becker, U.C economist and Nobelist, says "it is a strange program indeed where banks get subsidized in proportion to how many 'bad' assets they hold." (3/31)

Joseph Stiglitz, Nobelist, says government overleveraging replicates the bank overleveraging that caused the meltdown.(4/1)

Jonathan Weil , Bloomberg, "Obama Stakes His Fortunes on Failed Banksters" (4/9)

Mike Whitney examines the recent report on the Geithner bank rescue plan released by the Congressional Oversight Committee chaired by Elizabeth Warren.(4/11)

Jeff Cox at CNBC.com says "Flood of US Debt Threatens To 'Crowd Out' Other Borrowers" (4/13)

Financial Times Tarp investigator seeks evidence of book fiddling (4/13)

Nouriel Roubini coming on strong for the first time in several weeks, says "Testing the Stress Test Scenarios: Actual Macro Data Are Already Worse than the More Adverse Scenario for 2009 in the Stress Tests. So the Stress Tests Fail the Basic Criterion of Reality Check Even Before They Are Concluded" (4/13)

Elizabeth Warren, Harvard Professor and Chair of the Congressional Oversight Committee, is interviewed by John Daley at Comedy Central (4/15)

Simon Johnson, MIT economist and former chief economist for the International Monetary Fund, argues in the Atlantic Monthly that "the financial industry has effectively captured our government" and that "recovery will fail unless we break the financial oligarchy that is blocking essential reform" (5/09)

Geithner Testimony arguing for bank stability sparks Wall Street rally (4/21).

Wow. China, Backing Russia in Advance of G20 Summit, Calls for Replacement of Dollar as Global Reserve Currency

2009-03-23T09:37:00.034-05:00

Doubtless in anticipation of the April 2 G20 meeting in London, China today joined Russia in calling for the dollar to be replaced as the world's global reserve currency by a basket of currencies managed by the I.M.F. Here's the story in the Financial Times, the International Herald Tribune, Agence France Presse and the Prudent Investor. (Question: did Nouriel Roubini see this coming? He's been saying that even though "the American Empire" is on the decline, the dollar, despite rough spots, looks secure as the global reserve currency over the next twenty years.)

The news from China strikes me as a game-changer. (My buddy Big Bill says it's just sabre-rattling.) But I don't see it mentioned on the New York Times or Wall Street Journal. Or CNBC. U.S. markets seem unperturbed. In fact, the Dow is up 300 points at the moment on the strength of a surprisingly strong housing report and positive response (including from global markets) to the Obama administration's release this morning of its $1 trillion private-public plan to save America's financial system without nationalizing the big banks. On CNBC, guest host lefty Democrat Howard Dean supported the Treasury plan in several clips and righty Republican Dick Armey opposed it one clip. While Dean is an able advocate, and although I've felt the Armey is a blowhard, I find myself feeling sympathy towards Armey's assertion that he has never thought any bank as "too big to fail". Interesting to compare his take on the Fed with those of lefty Fed critics like Matt Taibbi and Mike Whitney. Interesting similarities. Also worth reading is Mike Hudson's critique of the "house burning down" metaphor used by Ben Bernanke in his "60 Minutes" interview March 15 (at Mike's site, scroll down to "Articles").

Jim Willie, an avowed friend of gold and foe of the dollar, reading Asia News, says the Chinese are planning to replace the dollar with the yuan as global reserve currency (3/27)
Asia Times - good source for news and commentary on the yuan/dollar story
Celestine Bohlen at Bloomberg says the time has not yet come for the dollar's replacement as global currency (3/31)
This three part video interview of economist Anantha Nageswaran in the Financial Times argues that the dollar's days are numbered (3/31) Here's Nageswaran's Blog
"New York Stock Exchange Runs out of Gold Bars: What Happens Next? (Market Sceptic, 3/31/09)
Paul Krugman says that China’s call for a new “super-sovereign reserve currency” is a sign of troubles ahead for a global economic recovery (4/3)
John Tamny of RealClearMarkets argues for the universal benefit (including to the U.S.) of a new global reserve currency that he says will brings a stability the dollar can no longer provide (4/7)
"China Slows Purchases of U.S. and Other Bonds" (NYT 4/12)
Economist Andy Xie argues "If China loses faith the dollar will collapse" (FT 5/5)
Gwen Robinson of FT gives the views of investor Jim Rogers, Black Swan auther Nassim Taleb, and three other analysts on the possibility of a dollar collapse (ft.com/alphaville 5/12)
America’s triple A rating is at risk U.S. financial media ignored story that was front-aged in FT. The gist: "Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit." (FT 5/13)
Nouriel Roubini discusses the possibility of an "Almighty Reminbi" and says the US must invest "in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation [in order to] "slow down the decline of the dollar, and sustain our influence in global affairs (NYT 5/14)
The Economist concedes that the world's new economic order "is more likely to be made in Beijing" than in the West, given the sway of creditor nations (5/14)
Investor Sahm Adrangi, in a thoughtful review of Richard Duncan's "The Dollar Crisis," predicts "that the dollar will collapse, and its ramifications could be as violent as when the credit markets cracked in July 2007." (Clusterstock via John Carney and Hunter at Distressed Debt Investing" 5/18)

If this happens, how about the chinese word for harmony - tao or tiao - as the name for the world's new global currency?

President Obama and the "Obama spring rally:" Standing here. wondering, which way to go . . .

2009-03-20T06:58:00.039-05:00

Well that's how markets seem to feel in flat early morning trading today. That's also the first line of a gospel song by Thomas A. Dorsey, who wrote Precious Lord, beloved by Rev. King. Here it's sung by Mahalia. And really sung by Marion Williams.

I myself am standing here wondering, scratching my head at the morning's headlines and op ed pieces. The President may well feel the same way ("Stunned," he told Jay Leno, is how he feels about the AIG Bailouts that have sparked national outrage.) The headlines are conflicted even polarized. Something is happening, a groundswell of hostility towards the likes of AIG and it's hardly conducive to generating anything like an informed consensus on the future of the American economy.

The polarizing headlines include the dollar plummeting in the face of global doubts about Treasury Secretary's Geithner's shock stimulus plan announced Monday. Yet what's obsessing most Americans? Geithner's supposed foreknowledge of the AIG bailouts. Yet Alan Greenspan is now coming close to seconding Nouriel Roubini's call to nationalize (put in receivership) the supposedly too-big to fail "zombie banks" - the very banks that the Obama administration has committed itself, irrevocably it seems, to bailing out at a cost of trillions.

On the op ed front, William Greider says that "Obama Told Us to Speak Out" but asks "Is He Listening"? Good question, but shouldn't Greider be asking if the nation's media are making it possible for the president to hear anything but outrage, whether populist or elitist? A friend just sent me Michael Wolff's Huff Post thrashing of Obama's Jay Leno appearance last night. Wolff says Obama is like Jimmy Carter: ineffective. I have my doubts about our President, but aren't there better ways for smart people to use their ink than this?

For substantive critiques of the Obama administration, read Mike Whitney's "Bernanke's Witness Protection Program." For more than a year, Whitney has been writing presciently about the magnitude of present crisis. Here's the kind of discourse that Obama and the American people need to hear and process:

Last week, investors backed away from Bernanke's TALF, even though the Fed promised to provide up to 95 percent of the funding (through low interest loans) to investors willing to buy distressed assets backed by student loans, car loans and credit card debt. The potential investors "objected to the level of scrutiny that dealers would have over their books, arguing that the dealers' rules attached too many strings. Dealers were saying they take plenty of risk to facilitate the program and need to be protected in situations where the collateral or the client made mistakes or wound up ineligible." (Wall Street Journal)

7 PM CST. Is talk like this too risky for prime time TV? Hell no. The Fast Money crew on CNBC made these very points today. If clarity and transparency are important to economic recovery, surely the American people are entitled to hear too.

Standing here wondering, which way to go / So much confusion down here below . . .

Today, launching its "Future of Capitalism" Series, The Financial Times says that "The credit crunch has destroyed faith in the free market ideology that has dominated Western economic thinking for a generation. But what can – and should – replace it?"

9PM CST. The Dow closed down 122 today at 7,278, a bit shy of 300 points below its March 18 Obama/Spring market rally high of 7554. On the positive side, the lead story at the CNBC website says that "Home Sellers May Flood the Market Soon" now that the rate for a 30 year fixed loan, thanks to Geithner's shock stimulus, has fallen to 4.25% (I'm hearing 4.75% here in Glenview). BTW Martin Wolf of the Financial Times here discusses the stronger/weaker stimulus debate going on between, respectively, the US (Geithner) and Germany. And he sides with Geithner's strong stimulus position. Geithner will need all the help he can get if Mike Whitney reads the tea leaves right:

The TALF and the "Public-Private Partnership" are another slap in the face of the international community. They violate the spirit and the letter of the G-20 communique. It will be interesting to see if foreign holders of US Treasurys endure this latest insult in silence or if there's a sudden stampede for the exits. There's a sense that the world is getting fed up with the Fed's financial chicanery and would like to chart a different course. Enough is enough.

Definitely not want the world wants to hear before the big April 2 G-20 summit in London. What's more, most Americans are oblivious to this meeting's importance. Background is here, here, here, and here. As a nation, we have our heads in the sand, do we not? A correctable problem, to be sure, but only, as I keep saying, with the aid of a compelling, prime-time civic media.

Standing here wondering, which way to go / So much confusion down here below . . .

What's confusing me now is NOT these problems, but how hard it is to find a way to win support for a media that will enable America to solve them, as a people. A unifying media that will help 300 million people think (more or less) with one mind. Isn't it time we got to work on this? Maybe, I hear a voice saying, after the NCAA. Myself, I hear the President, while defending his embattled Treasury Secretary, saying "I don't want to quell anger, what I want to do is channel anger in a constructive way." This is not a task for the pundits on Meet the Press or Face the nation on Sunday mornings. It's not a task for the nation's (mostly failing newspapers.) It is, rather, a task for all print and electronic media. It's time for the media to channel this anger constructively on intelligent prime time reality TV. That, in a word, is the business model that the nation's media and the nation itself are looking for. In an age of convergence like the present, these two are inseparable. So far, if I had to pick a success story, I'd say CNBC, for all its faults, is coming closest to doing the job of being a mediating media right.

The Obama spring rally pauses as Bernanke and 60 Minutes skirt the bank solvency issue

2009-03-16T09:10:00.052-05:00

Nouriel Roubini doesn't mince words. His March 14 post speaks of a "dead cat bounce" and a "bear market suckers rally". And of "a Ground Hog Day movie that we've seen at least six times . . . in the past year or so." Gotta say I love Nouriel even though one of my less enlightened friends jokes that I've become part of his terrorist network. But to show I haven't lost control of my affections, here's a comparison of Nouriel and Warren Buffet on the topic of bank insolvency that gives the laurel to Buffet. Then again, Kansas City Fed president Tom Hoenig here condemns Fed bailouts and calls for big banks to be "resolved [shut down] the old fashioned way."

The Dow closed down a bit today at 7,216. Yet it was fast off the blocks in early trading, up 150 points on news that Fed Chairman Ben Bernanke's comments on CBS' "60 Minutes" last night were driving gains in early trading on the Dow. So this rally isn't just a "spring rally", it's an Obama rally fueled in part by the President's concerted efforts to boost investor confidence by putting an end to fear itself. Wow. Stakes are high. There will will be much egg on many faces - and a hard fall, I should think - if this rally fails.

CBS boasted last night that no Fed Chairman had ever granted an interview like its "60 Minutes" interview with Bernanke. For the first time ever, Bernanke gave the viewing public inside glimpses into the heretofore sacrosanct Federal Reserve system: we saw the Fed Governors' 30 foot-ceiling, marble walled meeting room and a football-field sized underground vault where robot forklifts shuffled around shrink-wrapped pallets of paper money valued at $64 million each - too much for human hands to touch.

Well la di da. A key question, only glancingly addressed in the interview, was on bank solvency. CBS' Scott Pelle puts it to Bernanke at 11:35 into the interview:

Pelle: Are all the banks that you regulate solvent?

Bernanke: I believe they are, yes, but we are doing a, um, a stress test right now, where we're looking at . . .

Question: why Bernanke change the topic from solvency at present to solvency under the harsh hypothetical conditions of the stress tests? Why didn't Pelle press Bernanke on the solvency issue, which is critical not only for Nouriel and his "zombie banks" but for mainstream Republicans like Senator Richard Shelby and John McCain. What exactly is the basis for Bernanke's belief that the banks are solvent NOW? If they're solvent, wouldn't everyone benefit from knowing so now? To me, either Pelle dropped the ball or real doubts about bank solvency are keeping Bernanke (and CBS) from discussing this topic publicly.

The flipside of this question is to ask Nouriel, Shelby & McCain how they know the banks are insolvent. I'd also ask Nouriel to what extent his case for a bear market hinges on the matter of bank insolvency? If restored to solvency, could the banks lessen or possibly even resolve the problems he predicts in his March 2 post:

Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract. But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months.

Nouriel speaks of imbalances. Does this mean solvency? Ouch! Questions, questions, questions, they keep popping up, gotta get outside for some exercise or I'll go nuts, thank goodness spring has finally hit the Midwest (where it's best).

HEAD FAKE?

2009-03-14T09:02:00.046-05:00

The Dow rallies. The Obama administration juices the rally. Jon Stewart thrashes Jim Cramer, as discussed below. Is anyone orchestrating these events? Blog comments I've seen charge that Stewart, a big time Obama supporter, went after Cramer on March 12 only because Cramer had assailed the Obama recovery program on March 9 and March 11.

Hmmm. Let's see. First, some background. The Dow has rallied sharply from its March 9 multi-year low of 6,547 to its March 13 close of 7,223. On March 2, with a sinking Dow closing at 6,726, President Obama made some cautiously bullish comments about investing. These struck one veteran observer as a risky case of presidential market timing. Indeed, they were widely seen as a buy sign. Still, the market continued to fall for a few days until hitting its multiyear low on March 9 and then beginning its "Spring rally", as CNBC fondly calls it.

Yesterday, on March 13, the Dow closed at 7,223 thanks in part to a rosy assessment of the economy from Obama adviser Lawrence H. Summers. It seems clear that the Obama administration, after months of saying "things will get worse before they get better," felt the need to change its tune and put a cap on fear itself. It's now playing a risky game of emotions focused on the stock market. (Summers, in his so-called "excess of fear" speech at the Brookings Institute, called for strong federal action in the Keynesian mold to break "the excess of fear" which he said follows market bubbles fueled by an "excess of greed [and] an absence of fear".)

So how might the Stewart/Cramer tussle fit in with all of this? Could it be that the seemingly defenseless Cramer simply threw the fight, a media-hyped event witnessed by 2.3 million viewers? Did Stewart notice that on the very next day, March 13, Cramer was back in the saddle doing precisely what Stewart charged him with doing: pumping up individuals to "Buy buy buy!" On Friday Cramer predicted that the Dow may hit Dow 8,000 - much as the Obama administration would love for him to do - but we're already half way there at 7,200 so even by Cramer's account this rally doesn't have that far to go. On Friday, Cramer also pretended, almost poetically - by alluding to his favorite fairy tales and TV sitcoms - that the dreaded evil short-selling hedge funds are motivated not by insights into financial realities but by sheer ill will alone. He even charged the shorts with being "anti-Ecclesiastes" (at 7:44 ) in wanting only a "time to kill" and never "a time to heal".

To bullish investors, Cramer's ebullience and the Dow's rally may feel good. But how will America feel if the Dow hits Cramer's target of 8,000? If the Dow can hold at this level, we'll all be happy. But if it collapses, as happens so often in bear markets, then Jim Cramer, wittingly or otherwise, and the Obama administration as well, will have used emotions to deliver hopeful investors and the market itself into the hands of Cramer's declared mortal enemies: the hedge fund shorts.

Stewart's mistake, in taking down Jim Cramer, was to zero in only on the man's past excesses. He never once sought Cramer's view on markets today - or his present bullishness.

Head fake? For my money, that's not the issue. Bottom line, it's a red herring, the wrong question to ask. So what's the right question? If the above thoughts make sense, they suggest that CNBC - America - could use better prime-time finance TV shows. Why don't we have them when we need them most? How ironic, some are complaining, that we have to look to Comedy Central for hard-hitting economic commentary. These folks are right. It's time for America to have financial programming that puts taxpayers, investors, financiers and politicians on the same page in resolving the financial crisis.

I'm working on that. In the next post, I'll identify issues that all Americans should be talking about. Can't wait? Browse the links on the left and you'll find plenty of them.

Cramer versus Stewart: CNBC on trial

2009-03-13T20:00:00.019-05:00

I was surprised. Down, down, down he went, almost without a fight, CNBC's voluble Jim Cramer, with his credibility at stake and maybe CNBC's as well. There the man sat, hands folded, taking the scolding, often repentent, promising to do better next time, as Jon Stewart of The Daily Show kept piling it on. Quite a sight. Some financial media are seizing on this interview as an indicator of the state of financial reporting today. Check out coverage at Calculated Risk, Felix Salmon, Huff Post, The Wall Street Journal, The New York Times, Fortune, Business We ek, the Financial Times and Yves Smith at Naked Capitalism. Even John Authers writing from London mentioned it.

And near the end of an interview in April Yale Alumni Magazine, Yale endowment manager David Swenson makes some pointed comments on Cramer.

Roubini goes after Cramer too (4/8)

Civic Media or Civil Disorder?

2009-03-07T07:23:00.019-06:00

It's a long shot, to say the least, to speak of the inevitability of civic media in resolving the global economic crisis. Long, perhaps, to the point of whistling in the wind or tilting at windmills. Yet there are reasons, strong ones, to do so. Here are some.

First let's consider two factors, one positive, the other negative. On the positive side is President Obama's campaign promise of an era of responsible citizens: his promise to listen to and work with liberals and conservatives in order to shape a viable future for the nation. (Senator McCain made similar promises.) On the negative side are two facts, as the public sees them now: the uncertain status of Obama's promise today and also his halting early steps in managing the worsening global crisis as described here and here.

Now consider a third factor: the Federal government, under the Bush and presumably Obama administrations, is taking definite steps - military ones - to keep public impatience from mushrooming to civil disorder. "Impatience" is too soft a word to describe the public mood today. "Economic deprivation and pent-up outrage," as expressed here, here and here, more accurately describes it. As the Dow sinks to new lows, as unemployment soars past 8% and as 20% of all U.S. homes fall underwater, Americans are witnessing the draining of nation's treasury in order to prop up the insolvent "zombie" banks that caused the crisis in the first place.

If the Obama administration's bank-bailout strategy fails to turn economy around, citizen outrage could harden into civil disorder. In that case, America might well find itself asking what's best for the nation: civic media or civil disorder? Democracy or autocracy? And it might be too late to ask that question: the situation by then would be out of hand.

The obvious counter to this alarmist view is that the situation is less dire than I maintain. I'll post some credible proponents of this view, which, as I see them now, hinge on the claim that massive T.A.R.P and T.A.R.F infusions into the banking system will produce positive results in coming months. (Rumor has it that a third infusion, the Borrowed Assets Relief Program - B.A.R.F - is also in the works.)

Thought for the Day

2009-03-05T06:38:00.019-06:00

Perhaps the most important ideas of all are . . . ideas about how to support the production and transmission of other ideas

What a beautiful thought. It perfectly articulates the central challenge to modern communications technologies. But that's not its original context. The thought is from Paul Romer's entry on Economic Growth in the 2007 edition of The Concise Encyclopedia of Economics. Romer goes on to talk about the modern research university as a generator of important ideas, predicting that

the country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the public sector.

Correction: Romer doesn't say public. He says private. I made the change. I want suggest that what our country needs now - Romer's most important idea - is an idea-generating and processing mass media. Dear reader, be not baffled, annoyed or angry. Is it not time to look past the mindset that for that past two generations has equated the value of the research university with its value to business and the economy, as Romer appears to do here? In the future, in an age of information and given the financial storm we are weathering, must not the value of the research university be equally a function of its value to the public and the public interest?

Why, you ask, would the twenty-first century belong to nations that embrace this civic valuation? Because the alternative - the neglect of the public interest in favor of research programs that advance the business economy (not to mention the interests of our cash-rich universities themselves) - has failed to develop America's most powerful creative and co-operative energies: those of its people, considered as a people. America today is a nation polarized into extremes of (educated) rich and (undereducated) poor unknown in America since the Gilded Age of the 1870's to 1900. This division contributed to the financial crisis. And this crisis, even if resolved, will soon repeat itself if America fails to close this division.

Think of it this way. No nation can forever hope to use the disruptive, profoundly democratizing Internet in order to maintain the top-down, hierarchical social order that preceded it. The Internet by its nature forces nations to choose between democracy and autocracy as their preferred form of government. America's heavily commercial use of the Internet, to the near exclusion of civic uses, has greatly weakened it. This dollar-driven use has also contributed to the global economic crisis. To strengthen the nation and to resolve the global crisis democratically, the Internet and other media must give Americans (and people worldwide) an informed voice in the political and economic decisions that affect their lives.

That's enough thought for one day.

"Bailing the Ailing" - Nasdaq's Bailout Index

2009-03-04T10:14:00.013-06:00

Found this revealing chart (and article) not in any American financial medium but in the London Economist. I wonder why. Is it too scary for CNBC, where a search for "Nasdaq bailout index" yields nothing? It sure isn't pretty, and won't help narrow the gap between supporters and opponents of the U.S. government's stimulus/bailout programs.

Sadly, America at the moment is so caught up in this debate that it can't hear the world's urgent calls for American leadership to resolve the global crisis. Any doubts on this? Read Martin Wolf. In a March 5, the New York Times editorializes that

The economic news is so frighteningly bad here, it has all but squeezed out reports of the turmoil wrecking the developing world. The news there, if possible, is even more frightening.

Not auspicious. The other day a CNBC guest said it would be calamitous for the US to lose both its triple A credit rating and the U.S. dollar's status as the global reserve currency. I thought he had his head in the sand. And again, I wondered. Would it be impossible for the US to retain its AAA credit rating while working with other nations to develop a new global reserve currency? The idea would be for the U.S. a) to pay a fair penalty for U.S. government miscalculations and Wall Street misdeeds in causing the crisis and b) to help itself and the world weather the storm of hyperinflation that seems likely to result from the trillions of dollars spent on government bailouts and stimuli.

Just a thought. But if a contestant on my (imagined) financial crisis reality TV show were to advance such a position, I would likely vote for him, at least until someone pulled the wool off my eyes. Nouriel Rubini might do so - he said several months ago that the dollar is likely to remain the world's global reserve currency "for the forseeable future." (Am looking for the link).

Steve Randy Waldman on the Link between the Financial Crisis and Open Democracy

2009-03-02T08:33:00.013-06:00

Over the weekend I came up an idea as to how civic media can help resolve the worsening global financial crisis. A format idea. I mulled it over and now it's a bud about to bloom. And today along comes Steve Randy Waldman with a post that fertilizes it:

I've just listened to NPR's recent interview of Timothy Geithner. Adam Davidson did a great job of trying to get answers from Mr. Geithner. I felt sorry, at a personal level, for our Treasury Secretary, a very smart man imprisoned in a series of talking points, desperately afraid of the consequences of holding an honest conversation.

As an aside, we've come to take it for granted that policymakers ought to be circumspect for fear of provoking traumatic moves in the markets. But isn't that dumb? Markets are supposed to be about aggregating and revealing information. In what sense is it "more responsible" to hide information or ideas so that markets do not move on them? And if markets do misbehave so wildly that public officials can no longer afford to be candid because of market consequences, does that suggest an incompatibility between the kind of financial markets we have and open democracy? [my italics]

Waldman has the respect of other finance bloggers. And my format idea addresses the incompatibility he speaks of. Here it is. It's a windfall for CNBC, if they have the wits to run with it. Just remember where you saw it first. Alternatively, it can be done on the Internet. Anyone want to make it happen?

Imagine an American Idol-type reality TV contest of from eight to as many as sixteen rival solutions, presented by small groups of from one to four individuals competing for the prize of Best Solution to the Global Financial Crisis. Imagine this contest aired over a period of weeks or months primetime evenings on CNBC. Half the contestants might come from CNBC's existing on-air team and half from elsewhere and indeed anywhere: they could be finance writers and bloggers, Bloomberg reporters, financial institutions, universities here and abroad, and Vii's (Very intelligent individuals) with few credentials but great ideas.

Now imagine an on-air selection process, open to anyone, that winnows down hundreds of aspiring contestants to a field of eight or sixteen finalists, as happens in the first phase of American Idol. Finally, imagine the finalists advancing their solutions by interviewing anyone and everyone connected with the financial crisis, including even, conceivably, Timothy Geithner. Who could judge the contest? Who would govern it? How would contestants be selected? How would the government be involved at local, state and national levels? How would winners be rewarded? I have answers for questions these and other questions.

Read the rest of Steve Waldman's post - he would be one terrific contestant for this show.

What is "The Economy"?

2009-02-22T07:39:00.034-06:00

In times of economic recession or depression, if we're going to fix it, or save it, or renew it, or let it heal itself - wouldn't it make sense to know what economy means?

Let's look at two definitions. The Oxford English Dictionary, in the first of many meanings, defines "economy" as "The way in which something is managed; the management of resources; household management.." I like this one. It points, I think, to the economics of the future. For two reasons. First, where people commonly think the of "the economy" rather passively - in terms of the health of markets - this definition speaks of economy in terms of the active role of managers in managing and regulating markets. In this definition, economy is not something that happens, but something that people make happen. The global financial crisis (and globalism itself) is forcing nations (central bankers) everywhere to accept, and accept in concert, this more active definition of economy. Especially with respect to regulation, centrals bankers can no longer afford to be mere spectators of sophisticated yet unregulated financial entities or practices.

Adam Smith spoke of the invisible hand that causes an individual as he advances his own self-interest to advance, invisibly, the well-being of his community as a whole as well. But the global financial crisis has made visible, has it not, the crude hand (pictured here) of those who turned markets worldwide into a giant Ponzi scheme. This brings home an obvious but neglected truth. While Mother Nature makes the weather, markets (while impacted by the weather) are the creation of human beings. To function, markets must be trustworthy: they cannot be rigged. More than this, given the environmental and education challenges confronting the world today, the markets of the future - the economy of the future - will perforce serve the public interest.

I like the OED definition of economy, secondly, because I believe the "resources" mentioned in it will in time include not just the labor and capital resources that have marked economics since the days of David Ricardo and Adam Smith, but also cultural and even spiritual resources as well. Enough said on this point for now.

Now let's look at a second definition. Wikipedia defines economy as "the realized social system of production, exchange, distribution, and consumption of goods and services of a country or other area." Note that apart from its cloudy reference to a "realized system" - to the thing managed and not its managers - this definition is silent on the function of management. It's vulnerable to the notion that economies, in their totality, take shape on their own, without human management. (OK, given the failure of central bankers worldwide to anticipate the current financial meltdown, this reading seems fair enough - but can the world allow this meltdown to occur again?)

Stepping back to look at world's plight today, I see the need for two kinds of leadership. First is the need for top-down, short-term triage stabilization of a broken financial system. But this top-down leadership, even as it repairs what's broken, can do so effectively only if it has a new financial system in mind, one that can be shared with and approved by the general public. I will go farther and say that the new system will necessarily draw its vital energies as much from ordinary citizens as from large corporations and investors.

This is saying a lot, I know. But democracy is a system of check and balances. And the "Great Disruption, as Thomas Friedman is calling the events of 2008, shows us that the direct involvement of ordinary citizens, will in the future be the only possible check on the tendency of financiers, when given the chance, to take not only finance but government itself into their own hands for their own benefit.

Does all this sound far-fetched? It should not to those who have a modicum of faith in the good sense of the American people. Recently Rick Santelli's "Shout heard round the world" jolted CNBC viewers and caught attention of President Obama. But in his follow comments, Santelli insists that it's high time our leaders listened to ALL the people in shaping America's economic future. In this exchange with Peter McCulley of Pimco, for instance, Santelli and McCulley agree on the need for citizens/government dialog, with Santelli calling it "pretty darned American."

A civic media message. (BTW, Santelli has consistently been against ALL government bailouts whether for Wall Street fat cats, automakers or distressed homebuyers. CNBC's Larry Kudlow, by contrast, strikes me as being against bailouts only for the last two.)

Santelli likely understands, as George Gilder predicted in 1988, that America's once-elite economic playing field is being levelled - flattened, democratized, changed forever - by the bottom-up digital Internet's disruption of the top-down analog media that corporate America's stranglehold on the economy for decades. Economics in the future will be as much a matter of public communication as anything else. Successful economies will be those that widely distribute the most vital information. For an open, 'digital', global-network economics to replace the closed, 'analog', old-boy network economics, central planners will include in their idea of economic resources the cultural and even spiritual resources that comprise the totality of human experience. They must also learn to follow the leadership of all members of the interconnected global household. That, more or less, is what President Obama has promised us. Can't say, though, that I see him following through yet. And as I said here (scroll down to Road to Recovery Part I), it's what John Chambers has been doing at CISCO.

The essential problem with the global economy is not so much the lack of leadership in a traditional, top-down sense of the word. It is the feeling and the fact of disconnectedness that pervades the world despite the presence of modern interactive communications technologies. We are not using these technologies effectively. If I am right on this point, it follows that the global economy will not improve until people everywhere feel and are connected. Culturally and spiritually as well as financially.

These connections must occur at local, state, national and international levels. I would stress the bottom-up, local level because the fatal flaw of yesterday's supercapitalism, demonstrated by the global financial meltdown, was its assumption that the top-down management it had imposed on the world since the end of World War II. In a digital age, this assumption becomes illusory.

Interactive media connect people. This site maintains that productive connections are essential to a viable democracy. And the responsibility of ensuring that connections are productive and not destructive lies equally with citizens and government.

Lead by following, we say here, lead by connecting, lead by co-operating. Big task, but for the first time in history we have the tools, talent and technologies to complete it. Let's get going!

(How) Can the New York Times Save Itself?

2009-02-20T08:04:00.000-06:00

Feb 20, 2009. With a stock price now sitting at around $4.00, the Times is surely wondering. The answer: the Old Gray Lady must shed her elitism and enlarge her readership so as to expand her ad base beyond the Tiffany/Rolex set. For details, here's my comment to Paul Krugman's column in today's NYT, which cites a pessimistic Federal Reserve reading of the nation's economic prospects. A worried Krugman then asks, "What’s supposed to end this slump? No doubt this, too, shall pass — but how, and when?"

Here's a way out of the crisis, personalized at the end to help the Old Gray Lady.

February 20, 2009 9:00 am

Looking far ahead, my concern about the current recession or depression is that, once cured or endured, it will only repeat itself, and quickly, given the nanosecond speed of modern finance. It would be bad to see lenders lending and people spending like crazy again.

How can this outcome be avoided? The best way is to make citizens and government RESPONSIVE and ACCOUNTABLE to each other in the formulation and execution of economic policy. This is a task for the nation's interactive mass media, which historically have been used more for political than civic purposes.

The vast majority of Americans, when informed, are capable of understanding the political and economic forces that affect their lives. The trick is to invent lively, creative media formats - civic dialogs - that give citizens an informed voice on the issues that affect their lives.

Such programming of course will entail a sea change in the attitudes of America's governing class towards the governed. Poll after poll confirms that this attitude in recent years has been one of contempt. This change will entail dissipating the last and deepest bias in America's long march to equality: the denial of the native intelligence of human beings and, in our time, a subversion of the Jeffersonian conviction that "I know of no safe depository of the ultimate powers of society but the people themselves."

So where does all this leave the Times? It leaves it free to break the elitist shackles that keep it from teaming up with other media to reach all Americans. Intelligently.

— steve sewall, Chicago

Folks, I confess I still feel way of ahead of the curve on these matters - still a voice crying out in the wilderness - but as the world edges towards depression and as interactive media transform politics worldwide, may I say I do see events catching up real quick with the ideas I've picked up over the years from Jefferson, the Platonic Socrates, Marshall McLuhan, Henry Fielding, W. Edwards Deming, George Gilder, Shelly Palmer and, most recently, John Chambers of CISCO. And from my buddy Rich, despite his being somewhat behind the curve. And from my students at elementary, high school and college levels.

Elizabeth Kubler-Ross Redux

2009-01-31T10:36:00.001-06:00

January 31, 2009 The "Death-and-Dying Lady" lives on. Financial correspondent Floyd Norris of the New York Times writes about a Columbia University researcher whose seven-stage theory about how industries recover from traumatic change derives from Elizabeth's five-stage theory about how terminally ill patients confront the prospect of death:

FROM SHOCK TO ACTION

Industries facing severe structural change go through a seven-step progression before they manage to deal with it, said Rita McGrath, an associate professor at Columbia Business School.

1. Shock.
2. Denial. “This can’t be happening to me.”
3. Sadness. “This is awful.”
4. Anger. “I don’t deserve this.”
5. Bargaining.
6. Acceptance.
7. Renegotiation. It is then that companies find ways to change their business model to survive.

Comments are invited to discuss where in this progression various industries are now, and what they should do. Possible industries for comment are banks, autos and newspapers.

MY COMMENT (embellished from the printed version): How shocked would former University of Chicago psychologist Elizabeth Kubler-Ross be, were she with us today, to see her five-phase model for process of grief in terminally-ill individuals plucked up from the realm of the human psyche, transported to the realm of human commerce and metamorphosed there into a seven-stage model for the recovery of cyclically-afflicted industries!

That said, the seven-step model is useful and invites comment on newspapers in particular. Most papers are hopelessly stuck in step one or two, shock and denial, and are sinking fast, unable to facilitate or even acknowledge the dominant trend of the digital age: the emergence of an increasingly articulate PUBLIC MIND of ALL citizens fueled by massive demand for interactive media experiences and, in politics, by the demand for interactive politics that led to the election of Barack Obama.

The New York Times, whose stock can now be bought for under $5 a share, remains beholden both to its traditional elite Tiffany/Rolex advertising base and to an editorial outlook that seems to want no part of the inclusiveness that marks this developing public mind. I'm no fan of Rupert Murdoch, but the Times' elitist outlook strikes me as arrogant.

In the future, profitable media (including newspapers) will find ways to mediate the disparate elements of this developing public mind, including ways of generating intelligent discourse between intellectuals and non-intellectuals. Economically speaking, they will mediate differences among of America's lower, middle and upper classes. In politics, this mediating media will make citizens and government responsive and accountable to each other in solving the nation’s problems and maximizing its opportunities.

In the last paragraph of his important Feb. 3 column, Martin Wolf of the Financial Times writes that "we are living on the cusp of history." Indeed we are, and in more ways than one. For first time in human history, human beings have the chance to use interactive media technologies to resolve a single critical problem – the collapse of the global financial system – not by military force but by human reason, as President Obama keeps telling us. In this new era, profitable media will find novel and compelling ways to tap the presently untapped Market of the Whole - in America, of all 300 million Americans - that constitutes this emerging, interactive public mind. Only when this public mind is communicating substantively with America's political leaders will America develop the informed consensus that will enable it - and the world (read Martin Wolf) - to survive the economic maelstrom in which all of us swirl today.