2009/03/31

The Great Recession

I was communicating with a conservative in an online forum and he said: "...common sense and growing numbers of people around the world are basically saying that Obama's policies are throwing gas on the fire. Nobody, no country has ever spent it's way out of debt!" Well, that may be true (Though it seems to me that spending on solid, serious investments would indeed get a country out of debt as a positive side effect of growing the economy) but that's not relevant to the economic crisis that the US finds itself in today. The crisis is more accurately described by Simon Johnson, who used to be the chief economist for the International Monetary Fund and speaks of countries that find themselves needing assistance:

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

Just as with the S&L crisis of the mid-1980s to the early 1990s, where 747 Savings & Loans collapsed at the cost to the Federal Government of a little over $160 billion, private investors took increasingly risky gambles with their money in the (justified) confidence that the government would bail them out. The group Wall Street Watch put together a 231 page PDF detailing just why the current crisis occurred. Following are their 12 main reasons:

  1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
  2. Regulatory rules permitted off-balance sheet accounting — tricks that enabled banks to hide their liabilities.
  3. The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives — which became the basis for massive speculation.
  4. Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
  5. The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
  6. Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal “risk-assessment models.”
  7. Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
  8. Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
  9. Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
  10. Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
  11. The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
  12. Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.
No, Republicans are not entirely to blame. Yes the roots of the crisis began on Bill Clinton's watch, but note that deregulation is a Republican specialty. Democrats usually prefer more regulation and trust businespeople less than their friends across the aisle do. Does the Republican Party have any idea how to fix the mess? Well currently, they can't even produce a competing budget blueprint. Republican Party leaders claim that the Democrats didn't produce a competing budget in 2005 & 2006. True, but there was no apparent crisis back then, so that criticism is beside the point.

Does the Obama Administration appear to have things under control? Paul Krugman looks at the plans to spend multiple hundreds of billions of dollars and how it will impact "Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010." Krugman states: "It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies." Krugman's worry is just that the stimulus is too small, that Obama doesn't plan to spend enough to offset the jobs that have already been lost. So there are certainly problems, but it appears that our government is at least headed in the right direction.

The economist Dean Baker agrees that the stimulus plan is a good one, but that a third stimulus is needed. Baker is the fellow whose constant refrain, whenever the traditional media touts a "mainstream" economist, is to point out that the particular economist "Didn't see an $8 trillion housing bubble developing (And in many cases, they still haven't acknowledged that the bubble ever existed in the first place)!" Baker adds (PDF) that the insistence of many Administration economists that they encourage the payment of bubble-inflated prices for housing continues to complicate the picture.

The problem with American auto companies is also quite serious, but various bloggers seem pretty happy about the Administration's response. Yes, the Administration is being tougher on the auto companies than on the bankers and financial companies, but there doesn't appear to have been much choice in the matter.

The one really sour, disappointing, hugely frustrating part of the picture has been the response of the traditional media. Relentlessly concerned with trivia, focused on personalities and not upon policy, the media seems determined to not finger the last Administration as being in any way responsible for anything.

The media's refusal to involve the Bush administration in any of a wide array of stories about the economy deprives their consumers of the very analysis of policies that would help them understand and evaluate proposals to address the crisis.

If you don't know where you came from, how are you supposed to know where you're going?

UFPJ-DVN's economics blog

2009/03/21

President Obama reaches out to Iran

President Obama reached out to Iran on the 20th of March with a video message where he made it clear that the US was knowledgeable of, and respected, Iran's people and culture. He offered Iran the chance for the "Islamic Republic of Iran to take its rightful place in the community of nations" and offered some conditions for that to happen. Basically, Iran must be a responsible world citizen. WorldTribune.com says "Israel has sought a U.S. commitment to limit its dialogue with Iran" but that the "White House and the senior echelon of the Obama administration have refused a dialogue with Israel on the Iranian threat."

Israeli Chief of Staff Lt. Gen. Gabi Ashkenazi had no difficulty getting access to all manner of US officials upon his visit last year with the Bush Administration, but didn't find his reception very warm with the Obama Administration. He was able to get a meeting with only National Security Advisor James Jones and Jones only wanted to discuss Israeli relations with the West Bank and Gaza Strip. The Obama Administration refused to "make it clear that the military option against Iran's nuclear program exists."

The Wall Street Journal makes it clear that conservative pro-Israelis have something to worry about.

The Obama administration is considering lifting a ban on regular diplomatic contacts with Iran and looking at ways to develop a direct line of communication to Supreme Leader Ali Khamenei, said officials briefed on the deliberations.

It was wryly noted that the competition was hot and heavy, but Robert Spencer of "Jihad Watch" was the first right-wing blogger "out of the gate" to deploy words like "appeasement" and "aggression." And the Rosett Report of Pajamas Media was the first to bring up Neville Chamberlain and Munich in 1938. Trita Parsi, president of the National Iranian American Council, a group that supports U.S. engagement with Tehran, notes that: "[Obama is] signaling he’s not looking for regime change; he’s recognizing Iran’s system." That's a pretty darn huge difference between this president and the last one.

Karim Sadjadpour of the Carnegie Endowment evaluates Obama's efforts in the following way:

Ultimately it takes two to tango, and at the moment, hardliners in Tehran who are not interested in having an amicable relationship with the United States have an inordinate amount of influence.
Rather than strengthen these hardliners, Obama’s overtures will put pressure on them to justify their often gratuitous enmity toward the United States. Most Iranians recognize that, in 2009, the “death to America” culture of 1979 is obsolete—it only prevents the country from fulfilling its enormous potential.
Whereas the Bush administration united Iran’s disparate political actors against a common external threat, the Obama administration, I believe, is going to deepen the divisions and incongruities among Iran’s political elites.

Iranian Supreme Leader Ali Khamenei sounds very unimpressed with Obama's overture, showing that it's far too early to judge the results.

2009/03/13

Glenn Beck becoming increasingly unstable

Okay, Glenn Beck brings up what appears to be a reasonable point: "If you're a conservative, you're called a racist. You want to starve children."

Now, the Governor of South Carolina is Mark Sanford and he wants to reject (On behalf of SC) $700 million is stimulus money from the Federal Government. The youngster Ty'Sheoma Bethea wrote a letter to the President asking for money for South Carolina's schools. Well, the money from the AR&R Act would do precisely that, it would pay to keep 7500 teachers on the job and cover new construction.

Beck is not precisely correct, people aren't saying conservatives want people to starve (Though one has to wonder what Limbaugh meant when he said he wants our president to fail), but to not want South Carolina schools to stay in operation, that sounds an awful lot like a distinction without a difference.

Yet, Beck says that "the American people...feel disenfranchised right now. That feel like nobody's hearing their voice. The government isn't hearing their voice. Even if you call, they don't listen to you on both sides."

But one of those "sides" appears to be completely deranged! One of those "sides" seems to hate the American citizenry!

Beck goes on: "And every time they do speak out, they're shut down by political correctness. How do you not have those people turn into [Michael McLendon, the killer of 10 people in Alabama]?"

Glenn Beck appears to be going further and further away from reality and further towards justifying violence carried out on a mass scale.

Fox News is becoming increasingly irresponsible by allowing this lunatic a public platform. Fox really needs to fire this guy.

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2009/03/11

The sad case of the WaPo media critic

And then we have the very sad case of the WaPo media critic Howard Kurtz not understanding a really basic, fundamental issue concerning the media. Radio ratings technology is stuck back in the 1960s, with really outdated methods and technology. There's simply no way to accurately measure a radio hosts' audience. This problem could be solved with enough money, but there's no motivation for anyone to spend that money as advertisers really aren't all that concerned with exact audience figures and no one else really cares very much at all.
So when Kurtz claimed that Rush Limbaugh's ratings had doubled since January, he really wasn't basing that claim on anything more than guesswork. Neither Limbaugh nor the Limbaugh-backer who provided the original guesstimate would go on record to say that the claim that Kurtz quoted was anything more than a wild guess.
The suggestion has been made that Limbaugh's audience is probably comparable to that of Rachel Maddow's show on MSNBC. That would make sense as that would be consistent with "Bell Curve" theory, which holds that the audience for the extremes on the political spectrum would be about the same. That's not to say that the hosts are at all alike. Maddow is a cheerful, polite, humorous and well-spoken host. It appears that Limbaugh similarly appeals to the base of his party.
The traditional media sticks with the figure of 20 million for Limbaugh's audience because Limbaugh put that figure out many years ago and no one has spent the money necessary to authoritatively say otherwise. Maddow and Keith Olbermann both get about 1.4 million viewers for an average show. So instead of Limbaugh's audience jumping from 20 million to 40 million as Kurtz suggests, it's more likely to have jumped from 1.4 million to something short of 3 million. Of course, the very high probability is that it only jumped to 1.6 or 1.7 million.
Sadly Kurtz, who again is a media critic, is still defending his original estimate. So I guess we need a media critic to keep an eye on the media critic.

2009/03/07

Sanity returns to US-Russia relations

Six months ago, the US confronted Russia over the much smaller state of Georgia in the South Ossetian War. The US Establishment was trying to present the war as an heroic "David vs Goliath" tale of the brave and noble Georgians standing up to their much bigger and stronger neighbor, Russia. The liberal blogger Juan Cole caught Fox News in a D'oh! moment when Fox interviewed "an Ossetian-American 12-year-old girl who thanks Russian troops for saving her from Georgian aggression." As Georgia had indeed started the war, the Fox News people frowned and sputtered and fumed, but couldn't come out and flatly contradict the girl.

The US had been supporting Georgia in the years before that to such an extent that the Georgian President Mikheil Saakashvili felt confident that if he attacked the ethnic Russian citizens of the Georgian province of South Ossetia, that the US would come to his rescue. Oops! The US promptly demonstrated that it was a paper tiger that was completely incapable of coming to the aid of an alleged ally.

Now it appears, the US has thought better of its earlier stance. The US Secretary of State Hillary Clinton, didn't completely ignore Georgia, but said:

"We can and must find ways to work constructively with Russia where we share areas of common interest, including helping the people of Afghanistan," said Mrs Clinton.

The BBC adds:

US foreign policy is now very much a team game and US Vice-President Joe Biden will be in Brussels next Tuesday for a more detailed exchange of views on Afghanistan.

And that:

Mrs Clinton added that Nato "should continue to open Nato's door to European countries such as Georgia and Ukraine and help them meet Nato standards".

So Georgia is not entirely kicked to the curb but it's quite clear that good relations with Russia have taken priority over the previous, untenable, relationship with Georgia. Cole suggests that helping Afghanistan while maintaining hostility towards Russia was simply not a realistic option.

A member of the local NorthWest Greens, Arn Specter, has been documenting relations between Russia and the US, looking at the relationship through the view that "neo-cons aim to achieve full military domination over the rest of the world" via building a Missile Defense system and just generally taking a very hostile view of pretty much everything that Russia does. Of course, it's possible that a major reason that the Obama Administration has been unenthusiastic about neo-con ideas is that Missile Defense is a complete turkey of a system. It does the job of funneling billions in taxpayer dollars to defense contractors, but never did and probably never will actually defend America.

So, brava to Mrs Clinton! Pursuing better relations with Russia is the practical and sane thing to do.

2009/03/05

Letter to Inky on newspaper bureaus

I agree with Trudy Rubin that newspaper bureaus are a very good thing. What does a newspaper provide for reporters that they can't get through the blogging experience? Well clearly, as Media Matters has been documenting in the case of George Will and the global warming issue, the editorial "layers of management" have been pretty useless when it comes to correcting a "star" writer with decades of experience.
Will and some junior "go-fer" editor disagree on some point and it's pretty clear that the star will prevail. Officially, technically, during the first years of the Bush Administration, Condoleezza Rice was the boss of Donald Rumsfeld, but looking back at how the National Security Advisor "managed" the Secretary of Defense, it's not at all clear that she ever did more than make a few meek and mild suggestions every now and then. Seems to me that Will and the layers of management at the Washington Post have a relationship similar to that of Rumsfeld and Rice.
I think, to use the economists' term, there's a definite "diminishing marginal utility" to being in a large news-gathering bureau. Resources spent on allowing a reporter the time, the travel and telephone expenses, the use of things like the LexisNexis service and the sheer utility of being able to tell a potential interview subject "Hi! I'm from the Daily Tribune of Oshkosh and we'd like to get your views on..." all have an upper limit beyond which adding resources is not very useful.
Still, those are all resources that aren't available to your average blogger. The Washington Post story on the Walter Reed Hospital and how wounded soldiers were being carelessly warehoused was clearly a story that required time and resources to collect. It also helped the cause of better care for those soldiers that a high-profile publication was able to use its megaphone to force changes in the system.
So yes, Rubin is correct. With the qualifications I've pointed out, newspapers are valuable institutions that should be preserved.

2009/03/02

Is the Iraq War on a path to ending?

There was the guy at the Bureau of Indian Affairs who was found sobbing at his desk. What's the trouble? He raised his head. "My Indian died."

Ronald Reagan joke as related by Peggy Noonan

When we on the left comment on President Obama's speech concerning the winding down of the Iraq War, it's been a real fear of mine that we would be seen as defending our own interests by saying that nothing has changed and that the war continues. In the joke above, the bureaucrat at the BIA had a job for as long as a particular Native American remained alive. The bureaucrat was crying for himself because when the Native American perished, the bureaucrat had to go out, in Reagan's thinking, into the "real world" and find himself a "real job," he couldn't depend on some "cushy, taxpayer-funded job" anymore. Of course, the two situations are not the same in that being a member of the anti-war movement is not a job that pays anything. I listened to lots of accusations back before the war started that communists and/or foreigners were funding the anti-war movement.

Being unemployed at the time, I assured the accusers that if there was any money to be made in opposing the war, I would have found a way to make some.

In any event, I don't want us in the anti-war movement to be seen as defending "our turf" by saying "The war continues." The President certainly doesn't try to make it sound as though everything is peachy-keen and that the US can start drawdowns with ease or that all is smooth sailing ahead:

"But let there be no doubt: Iraq is not yet secure, and there will be difficult days ahead. Violence will continue to be a part of life in Iraq. Too many fundamental political questions about Iraq’s future remain unresolved. Too many Iraqis are still displaced or destitute. Declining oil revenues will put an added strain on a government that has had difficulty delivering basic services. Not all of Iraq’s neighbors are contributing to its security. Some are working at times to undermine it. And even as Iraq’s government is on a surer footing, it is not yet a full partner – politically and economically – in the region, or with the international community."

As a veteran, I appreciated his words for the troops:

"For the men and women of America’s armed forces – and for your families – this war has been one of the most extraordinary chapters of service in the history of our nation. You have endured tour after tour after tour of duty. You have known the dangers of combat and the lonely distance of loved ones. You have fought against tyranny and disorder. You have bled for your best friends and for unknown Iraqis. And you have borne an enormous burden for your fellow citizens, while extending a precious opportunity to the people of Iraq. Under tough circumstances, the men and women of the United States military have served with honor, and succeeded beyond any expectation."

The drawdown is clearly split up into two distinct pieces, and after 31 August 2010, we'll get to the second part of it:

"After we remove our combat brigades, our mission will change from combat to supporting the Iraqi government and its Security Forces as they take the absolute lead in securing their country. As I have long said, we will retain a transitional force to carry out three distinct functions: training, equipping, and advising Iraqi Security Forces as long as they remain non-sectarian; conducting targeted counter-terrorism missions; and protecting our ongoing civilian and military efforts within Iraq. Initially, this force will likely be made up of 35-50,000 U.S. troops."

Obama promises to work with the region as a whole, including Iran and Syria.

"This reflects a fundamental truth: we can no longer deal with regional challenges in isolation – we need a smarter, more sustainable and comprehensive approach. That is why we are renewing our diplomacy, while relieving the burden on our military. That is why we are refocusing on al Qaeda in Afghanistan and Pakistan; developing a strategy to use all elements of American power to prevent Iran from developing a nuclear weapon; and actively seeking a lasting peace between Israel and the Arab world."

Concerns here, but a generally sound and sensible policy. And yes, this speech is absolute music to my ears after Bush's lies and nonsense and straw-man arguments and simplistic verities. The liberal blogger Juan Cole asks: "So has Obama been reduced to 'Bush Lite' on the Tigris?" commenting that Obama "has made the left of his party as nervous as a vegan in a butcher shop." Cole points out that producing a navy and an air force are developments that will take an independent Iraq many, many years to accomplish, so we shouldn't expect any quick drawdown of either. Cole swats aside the claim that Bush's policies prepared the way for Obama to achieve such a success. He makes it clear that staying out of Iraq to begin with would have been the better, less destructive policy.

John McCain, like an Arizonan Cassandra, harped on the small terrorist movement that styled itself "al-Qaida in Mesopotamia," and predicted that "If we leave Iraq there will be chaos, there will be genocide, and they will follow us home." Obama's compromise decisively rejects McCain-style fear-mongering and his quixotic quest for long-term bases.
The new president forcefully rejected Bushian mission creep. Obama admitted, "We cannot rid Iraq of all who oppose America or sympathize with our adversaries. We cannot police Iraq's streets until they are completely safe, nor stay until Iraq's union is perfected." In other words, he is prepared to depart Iraq even if it remains somewhat divided, even if a drumbeat of subdued violence continues in its cities, and even if anti-Americanism retains a certain purchase on the population.

Congressman Dennis Kucinich (D-OH) feels that as the US has been training Iraqis since the war began, then there's really very little hope that their training will be completed any time soon. The interviewer pointed that he called Obama's speech a "step in the right direction" four times in four minutes. Siun of firedoglake points out that:

At the same time, the level of control Obama has granted the Petraues/Odierno team over the withdrawal is worrying– in particular, his willingness to allow them to keep the bulk of US forces in Iraq through the next election – and then some.
Here’s why:
Nowhere in the speech (nor in the various commentaries) have I seen a mention of our plans for withdrawing US forces to bases this June as required by the SOFA. This requirement - meant to get US forces out of the day to day active involvement in Iraq security seems to be forgotten – and given Odierno’s statements even as the SOFA was being signed that we could ignore that requirement – why not?
 
The SOFA is the Status Of Forces Agreement that Iraqi Prime Minister Nouri Al-Maliki insisted that President Bush agree to. Bush clearly agreed because he saw no alternative.

Askari said the United States didn't give in to Iraqi demands for the power to prosecute American soldiers but that Maliki decided this was the best deal Iraq could get.

Maliki may have felt that he had to settle for the details of the final deal, but clearly, the deal was not simply dictated by the US. It was the result of intense bargaining between the US and Iraq.

It's troubling that the SOFA was not spoken of as the final word on the deal. Cole agrees that large-scale troop withdrawals might have to wait until after the Parliamentary elections of December 2009. March to December is an awfully long time to wait and still keep up political pressure to see to it that withdrawals happen on schedule.

It's also troubling that there appears to be some mission creep going on.

"But I think that we can say without equivocation that our military was successful, and if we get it right over the next few months and years, that there is the strong possibility that we can leave Iraq as a stable, peaceful partner in the region."

If this is indeed a redefinition of the mission, then it could turn out to cause very major problems down the road. If the US is determined to withdraw, period, that's one thing. If the country adopts the goal of leaving Iraq in a particular shape, then it's very hard to say when, or even if, we'll see a withdrawal occur.

And it's not like things will be quiet here on the domestic front until after the Parliamentary elections in Iraq. Obama seems to be taking a seriously positive, progressive approach to the economic mess that the last president left us. NY Times columnist and economist Paul Krugman explains how the housing crisis happened. And concerning the televised rant on the Chicago trading floor a little while ago:

Commodity trader Rick Santelli made himself into a national hero of sorts with his televised diatribe about being forced to pay the mortgages of "losers" who could not afford, or would not pay, the full cost of their mortgage. Santelli apparently hit a chord among those who want to blame deadbeat homeowners for the country's economic woes.

Was his rant a hit among "The Village," the Washington DC-based press corps? Oh my, yes!

In terms of revealing deep truths about the corporate media, I'd suggest Santelli's off-kilter tirade, followed by his puffed-up prancing around, and the press corps that cheered him on, told us a helluva lot more abut the press than did Matthews' split-second "Oh God" utterance.

The historical parallel appears to be that of Lyndon Johnson trying to have both guns and butter and ultimately having to "go all in" on Vietnam. Obama has proven himself to be a very smart fellow, see his proposed approach to handling further Republican obstructionism on the budget (He's threatening to use the budget reconciliation process to make the 60-vote margin for Senate votes irrelevant) and I'm unwilling to say flat-out that he'll end up as badly as Johnson did.

Progressives on the left can certainly make a convincing case that Obama intends to allow the Iraq War to continue, but it's certainly a harder sell than it was under Bush.There are many open questions and Obama's a lot smarter than the last guy was.