HEAD FAKE?

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

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 Week, 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?

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

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

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

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"?

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?

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.