American Presidents, Andrus, Baseball, Christie, Economy, FDR, Obama, Politics


When Its Lost Can it be Found Again?

I’ve had a good deal of fun over the last few weeks teaching a college-level political science course at Boise State University.

The course is built around the politics and policy of the New Deal period in the 1930’s and we focus a good deal on the leadership of Franklin D. Roosevelt (and others) as well as the lasting impact of those challenging and dramatic days on life here in the American West.

For a young adult in college today the 1930’s might as well be the 1730’s. It is ancient history, but considering the economic and political challenges we face today, I continue to be struck by the parallels between the political and policy discussion that took place in the 1930’s and the on-going debate we’re having in the country right now.

To prepare for a recent class, I went back and read and then listened to the very first Fireside Chat Franklin Roosevelt delivered in March of 1933. FDR, inaugurated eight days earlier, had closed the nation’s banks and gotten Congress to pass emergency banking legislation to facilitate the orderly re-opening of the nation’s financial institutions. He talked to the nation by radio on Sunday evening, March 12. The historic speech was a model of clarity, description and, most importantly, confidence building. If you have never read or heard the speech, it is worth your time. The brief talk stands the test of time as an example of the power and importance of effective political rhetoric.

Roosevelt patiently explained during his talk how banks work, why some banks had failed and why some Americans had made a run on banks to convert their deposits to currency or gold. He then explained what he had done and why and that Congress had supported his bold efforts to stabilize the banking system. He then explained how banks would begin to re-open.

Here is one of the more memorable sections of the speech:

“I hope you can see, my friends, from this essential recital of what your Government is doing that there is nothing complex, nothing radical in the process.

“We have had a bad banking situation. Some of our bankers had shown themselves either incompetent or dishonest in their handling of the people’s funds. They had used money entrusted to them in speculations and unwise loans. This was, of course, not true of the vast majority of our banks, but it was true in enough of them to shock the people of the United States, for a time, into a sense of insecurity and to put them into a frame of mind where they did not differentiate, but seemed to assume that the acts of a comparative few had tainted them all. And so it became the Government’s job to straighten out this situation and do it as quickly as possible. And that job is being performed.”

I thought of Roosevelt’s simple, elegant words as I listened to Barack Obama speak to Congress this week. In a fundamentally important way, Obama has the same challenge FDR faced during that banking crisis in 1933. He needs to begin to restore confidence – in himself, the government and in the country’s ability to move ahead.

It’s not at all clear he made much headway.

Obama did use his speech to educate, the approach FDR mastered. At one point, for example, he said in speaking of the reality of cutting spending:

“So here’s the truth.  Around two-thirds of our budget is spent on Medicare, Medicaid, Social Security, and national security.  Programs like unemployment insurance, student loans, veterans’ benefits, and tax credits for working families take up another 20%.  What’s left, after interest on the debt, is just 12 percent for everything else. That’s 12 percent for all of our other national priorities like education and clean energy; medical research and transportation; food safety and keeping our air and water clean.”

A good approach, I think, but maybe too late to be effective. I kept feeling that the President should have given this speech two years ago, or at the beginning of the mostly senseless recent debate over the debt ceiling. The words Obama spoke seem more directed at the Congress than at the American public and that comes as most Republicans, as the Washington Post’s Dana Milbank points out, no longer take Obama seriously. As for the public, the polls say they are losing or have lost confidence.

Credibility, confidence and competence are the Big Three of politics. Once the notion settles with voters that a politician lacks one or more of the Big Three, it’s pretty close to impossible for that person to get back in command. Just ask Jimmy Carter or Lyndon Johnson or George W. Bush during his last two years.

The brilliance of Franklin Roosevelt was contained in his ability to connect and explain and the abiding sense that he had confidence so the country could have confidence, too. He never lost the confidence of a sizable majority of the American people, so never had to try to regain it. Maybe that is the true measure of greatness in politics.


Baseball, Biomass, Christie, Climate Change, Economy, Energy, Kennan, Nebraska, North Dakota, Politics

Oil and Water

Very Strange Bedfellows

I don’t normally pay a great deal of attention to the political opinions of Hollywood personalities. So I confess I missed the initial news reports that the actress Daryl Hannah, perhaps best known for playing the mermaid in Ron Howard’s movie Splash, was arrested a few days back for protesting the proposed Keystone XL Pipeline from Canada to the Gulf of Mexico.

The lovely Ms. Hannah, talented too, for all I know, isn’t the real story here, however. The politics of jobs is at work. in this international pipeline.

The pipeline project is designed to carry oil recovered from the Alberta tar sands to refineries in Oklahoma and Texas and the pipeline, its purpose and route, has been increasingly in the news lately. The U.S. State Department recently released an environmental impact statement that said, in essence, the project could be completed without major environmental problems. Needless to say, not everyone, including Ms. Hannah, agrees.

Most major environmental groups have expressed disappointment that the Obama Administration seems on the verge of approving the pipeline. The President’s mostly natural allies in the environmental movement are also torqued that the administration recently and abruptly dropped new Environmental Protection Agency (EPA) rules related to smog. These two events, separate and linked at the same time, really constitute Exhibit A that the political imperative to grow the economy and create jobs, particularly during a period of prolonged economic turmoil, eventually trump most every other consideration.

My old boss former Idaho Gov. and Interior Secretary Cecil Andrus, no slouch when it comes to possessing an environmental ethic, used to say: “First, you must making a living and then you must have a living that is worthwhile.” That is just another way of saying that without a job you don’t have much time or ability to enjoy the great outdoors, clean air and water. Needless to say not everyone in public life agrees about the political priority of jobs first. For some being “pure” on the environment is simply a higher calling that transcends all else, including finding some way to jump start a stumbling economy.

Put former Vice President Al Gore in this category. Gore recently, and perhaps entirely predictably,  came out in opposition to the Canada to the Gulf pipeline. The motivations of the Republican Governor of Nebraska Dave Heineman, who says he also opposes the pipeline because of its route through Nebraksa, appear more interesting. Republicans don’t normally oppose pipelines.

Daryl Hannah may look better getting arrested, but Republican Heineman and Democrat Gore as an anti-pipeline dance team may have a lot more impact on this increasingly complex and contentious environmental issue.

Development of Canada’s oil sands resource has long be contentious. Gore, never bashful about hyperpole, calls it the dirtest energy on the planet. Heineman says his opposition is based on the pipeline’s threat to the huge Ogallala aquifer that lies deep below Nebraska and several other states. The route through Nebraska’s special Sand Hills country, where my grandfather homesteaded more than a hundred years ago, is also problematic according to Gov. Heineman.

In Idaho and Montana recently the long public debate and substantial opposition to huge shipments of oilfield gear from the Port of Lewiston to the Canadian fields has been much less about the articulated reasons of shipment opponents – safety, disruption of traffic, etc – than about the mostly unspoken reasons, a strategic desire by environmental groups to prevent, or at least delay, further tar sands development.

As is most often the case, the debate over the pipeline from the Great North is waged with soundbites from all sides that simplify the discussion to the point of distortion.  There is plenty of substance here on all sides, but we never hear much that isn’t the rhetorical equivilent to Daryl Hannah getting arrested in front of the White House.

For example, how many Americans know that we already import more oil from Canada than any other country, in fact, nearly twice as much as we import from Saudi Arabia and four times as much as we ship in from Iraq. What happens without the pipeline? What happens with it? Good luck getting those answers.

The pipeline debate, the fight over the smog rules and the future of nuclear power, just to name three energy issues of the moment, are all symptoms of a failure of national political leadership to confront the fundamentals of how we use energy and where it comes from.

Many on the left of our politics can hardly fathom a serious debate about how we actually might alter the nation’s energy consumption and mix of resources because they know – heck everyone knows – that it can’t be done overnight or without real pain and dislocation. These folks are increasingly locked into a short-term, tactical mindset that creates a environmental emergency about this pipeline or that power plant. Vast expansion of wind energy production in the American West is now seeing the predictable pushback from many of these folks. Real debate and establishment of priorities goes begging with such short-term thinking.

At the same time, the hard right of our political flank pays a premium to someone like Texas Gov. Rick Perry who rejects the notion, now the overwhelming consensus of the world’s scientic community, that climate charge is a real and urgent fact. Or, closer to home, the short-sighted bemoan the public subsidies “lavished” on public transportation, while completely ignoring that the American system of air service is built on truly vast public subsides for airports, facilities, personnel and equipment.

It’s increasingly hard to have a sensible discussion about public priorities in the United States because we can’t often agree on a common set of facts and assumptions. Is a pipeline from Canada to the Gulf an environmental disaster in the making or a critical piece of infrastructure that keeps the oil following from a nearby neighbor that we haven’t recently had a war with?

Is the delay of $90 billion in smog rules a cave in to the dirty air crowd or a prudent, temporary move that my help the economy get back on its feet?  Jobs versus the environment is a long-term reality of American political life – just not a very constructive debate.

I have this naive notion that the American public is really capable of grappling with the complexity and nuance of these kinds of issues. It’s just been so long since anyone talked to us about complexity and trade-offs that we are out of practice.

Maybe Daryl Hannah can explain.

American Presidents, Andrus, Baseball, Christie, Economy, FDR, Obama, Politics

Missing the Signs

What Not to Do to a Fragile Economy

It is not really true, as is often said, that history repeats. No historical analogy is ever 100 percent correct. What history does offer, if we’re smart enough to seek it, is a certain context for how decisions made long ago played out and that we might learn from those musty old facts.

As historian David M. Kennedy recounts in his masterful, Pulitzer Prize-winning book, Freedom from Fear, at the start of his second term in 1937, Franklin Roosevelt made a series of decisions about the fragile U.S. economy that with perfect hindsight – it was 74 years ago – look as though they could have been made in the frightfully dysfunctional Washington, D.C. of the summer of 2011. In the Roosevelt era, the result was “the Roosevelt Recession” or the “recession within the depression.”

As Kennedy points out, on the same day in the fall of 1937, Roosevelt told his advisors in the afternoon that, in light of a continuing slump in private investment and the lack of job creation, government stimulus spending must be maintained, and then later than night in a speech to a group of business leaders he said that the federal budget must be balanced.

The federal budget was a fraction in 1937 of what it is today, but FDR’s New Deal programs, aimed primarily at reducing unemployment, had overspent tax receipts by $4 billion, a sum nearly equal to the entire federal budget when Roosevelt became president. Sound familiar?

Still, even with all the accumulating red ink, then-Federal Reserve Board Chairman Marriner S. Eccles was astounded that the President had “assented to two contradictory policies” and he wondered if Roosevelt really “knew what the New Deal was.”

Roosevelt proceeded to dither for months while his administration tried to settle on a strategy of spending or cutting. In the end FDR did some of both, sending decidedly mixed signals to the markets, the public and, as the great Utahan who headed the Fed makes clear, his own advisers.

Only in 1938 did Roosevelt agree again to a relatively small stimulus effort that started to bring jobless rates back down, but even with those modest steps it wasn’t until 1941, with war production ramping up dramatically, that employment rates got back to where they had been in 1937.

Historian Kennedy offers the best explanation for FDR’s “weak and contradictory instruments of economic policy” when he says that Roosevelt may have “simply succumbed to the politician’s natural urge to do a little something for everybody.”

Fast forward to the summer of 2011. With the U.S. and global economy threatening to tank in 2008 fashion, with job creation, home construction and economic investment virtually flat, the Congress and the President have been locked in a protracted battle to cut spending as if the awful federal debt – and it is awful – was the pre-eminent economic concern. It’s not.

Like 1937, putting Americans to work is the real crisis confronting the country. Without a much higher percentage of Americans pulling down a paycheck, the country will limp along indefinitely in this wounded state of non-recovery. Yet, no one believes that there is any chance for more real spending to stimulate job creation. Major businesses meanwhile sit on huge piles of cash afraid to jump into a hiring mode for fear that the economy will get weaker before it gets better.

For his part, President Obama seems to send many of the conflicting messages FDR sent in the late 1930’s: control spending, increase jobs, make investments, raise taxes. No wonder the markets, not to mention voters, can’t make heads or tails of the direction.

Congressional Republicans, responding to the continual rightward drift of their party, have so far defined the economic problem as spending that has brought on the record deficits. Obama, meanwhile, has failed to offer his own compelling narrative for what happened to get the country – and the world – in this mess and, better yet, how to get us all out of the ditch.

Kennedy notes that FDR in 1938, thanks to high unemployment, his contradictory economy policies and a stumbling economy, was “a badly weakened leader, unable to summon the imagination or to secure the political strength to cure his own country’s apparently endless economic crisis.”

That, too, sounds familiar.


Baseball, Christie, Economy, Federal Budget, Immigration, Politics

The Deal

The System Worked…Barely

I predicted a week ago that the “sensible center” would ultimately behave like adults and avoid a federal government default, but by last weekend I’d revised my personal odds to 50-50 and raised my blood pressure to “unhealthy.” I just didn’t think they’d get so close to messing it all up.

The more sensible member of my household flatly predicted a deal at 8:30 pm (EDT) on Sunday. She was right, missing the President’s announcement of a bipartisan cease fire by an insignificant 10 minutes. So, disaster averted, but now what?

With the deal passed, signed and delivered, the post mortems are rolling in and it’s not very pretty. Wall Street turned on a dime once the deal was done and decided the underlying economy is still a mess. Those nations with decent economies, the countries that once quaked at the thought of American economic power, now shake their heads in disbelief that our political system came so close to going over the cliff of disaster. The political left labels “the socialist” president a sellout. Needing Tea Party support many Republicans now head home to, most likely, face more venom from those who think we can fix a decade of fiscal foolishness in one hot summer in Washington.

Utah’s Orrin Hatch, having it both ways and facing a primary challenge back home, praised the deal and then voted against it. Just for good measure virtually all the GOP presidential candidates now oppose the deal proving, as always, that the safest territory in politics is to be opposed to something while standing on the sidelines without responsibility.

Already the pundits predict a second major political meltdown when the Gang of 12 fails in their task to recommend the next major steps just as the holiday season descends on battle weary Americans who don’t seem to trust anyone on anything, especially when it comes to the economy and fiscal policy.

A new CNN/Opinion Research Corporation survey finds broad support – as in 77 percent support – for the notion that Washington’s leaders “acted like spoiled children” in reaching the deal on debt and deficits.

Trying to explain American politics to a British audience, historian Robert Dallek writes in the Daily Telegraph that, “something is at work here that makes you wonder if rational discourse is beyond the capacity of many American voters to understand.”

Dallek accurately describes a Democratic Party increasingly unhappy with Barack Obama, a Republican Party in the death grip of what that old curmudgeon John McCain calls “the hobbits” of the Tea Party movement and a media environment that simplifies and sensationalizes to the point of anger.

“The public,” Dallek writes, “is deeply cynical about politics and politicians. The Congress holds only a 17 percent approval rating and the President now has the approval of less than 50 percent of the public. Moreover, the latest polls show little enthusiasm for any of the potential Republican challengers. Neither Mitt Romney nor Tim Pawlenty nor Newt Gingrich nor Michelle Bachman nor any of the lesser-known names in the mix generate much excitement.”

So, other than that Mrs. Lincoln, how did we like this play? The best that can be said is that we dodged a big one, but in the dodging we displayed all the dysfunction, distrust and denial that got us into this mess in the first place.

Makes one wonder what will happen next time.


Baseball, Christie, Economy, Politics

No Crimes

The Vertiginous Tangle

As St. John’s University law professor Michael Perino explains in his superb book on the 1933 congressional investigation into the stock market crash and the following Great Depression; that highly charged and much publicized probe was essential to making sense of the country’s worst financial meltdown.

Without that investigation of earlier day Wall Street greed and corruption – the investigation pinpointed the lack of effective oversight and regulation of the economy – we might never have had an accounting of what went wrong and who was to blame. We also may not have seen the creation of the Securities and Exchange Commission, federal deposit insurance and banking regulation.

The hero of Perino’s book is a short, stocky, blunt spoken, cigar smoking Italian-American named Ferdinand Pecora. Dubbed The Hellhound of Wall Street – also the title of Perino’s book – for his tenacious pursuit of the truth about the events that precipitated the Great Depression, Pecora is the kind of investigator that has been unfortunately missing in the aftermath of the most recent economic meltdown.

The feisty little lawyer preferred simple, blunt questions and wouldn’t let witnesses retreat into the fog of insider language. He focused on right and wrong and making certain the public understood what the “respected” Wall Street figures had been up to in the pursuit of greed.

With no updated version of the tough, demanding investigation Pecora led during the Depression we may never have a complete accounting of what brought the U.S. economy to its knees in late 2008.

As Perino told NPR’s Robert Siegel last October, Pecora uncovered the scandalous practices of Wall Street bankers like Charles Mitchell, president of National City Bank, a financial institution we now know as Citibank.

Mitchell, in the wild pursuit of money for himself and profits for his bank, pushed ever riskier investments in the late 1920’s. Eventually Mitchell’s financial house of cards came tumbling down. Here’s part of the exchange between Perino and Siegel:

SIEGEL: You write in the book, that the officers of Citibank – this was how Pecora saw it – were paid potentially enormous amounts, only if they were able to sell vast amounts of securities. And since they did not bear the cost of securities that went down in value, they had incentives to sell as many securities as possible.

This sounds awfully familiar.

Prof. PERINO: It does sound awfully familiar. And if you read those hearing transcripts from 75 years ago, there’s an eerie ring to all of them.

Mitchell had built up a huge network for selling to middle-class securities. But with a huge network came a huge overhead. And he was constantly cajoling and berating his salesmen to make more securities. He actually said that the bank manufactured securities. And with Mitchell constantly at their backs, and the prospects for good securities sort of waning as time went by, they went and sold more and more shoddy securities; the bonds of sketchy South American countries and various other enterprises that were almost bound to fail.

SIEGEL: Very reminiscent of what happened in the mortgage market in recent years.

Prof. PERINO: Extremely reminiscent. I mean we have fancier terms for it now. We call them Collateralized Debt Obligations and other things, but basically it boils down to the same thing.

So…where is the Ferdinand Pecora of the 2008 meltdown? Why are most of the Wall Street banking titans who were on the job when the economy was, by many accounts, within hours of total collapse still on the job? Why have none of the speculators who helped create and profit from the “housing bubble” become the kind of notorious household name that Charles Mitchell became in 1933?

New York Times columnist David Brooks suggested a reason in a recent column. “Washington is home to a vertiginous tangle of industry associations, activist groups, think tanks and communications shops,” Brooks wrote. “These forces have overwhelmed the government that was originally conceived by the founders.

“The final message is that members of the leadership class have done nothing to police themselves. The Wall Street-Industry-Regulator-Lobbyist tangle is even more deeply enmeshed.”

Pulitzer Prize-winning reporter Gretchen Morgenson and financial analyst Joshua Rosner are even more pointed in their scathing indictment of the people behind the mortgage crisis. The American economy, they write in their book Reckless Endangerment, was “almost wrecked by a crowd of self-interested, politically influential and arrogant people who have not been held accountable for their actions.”

Meanwhile, as the Times recently reported, the banking regulation that was passed in the wake of the meltdown is mired in controversy with many rules required to implement the enormously complicated and, by many accounts, less-than-effective Dodd-Frank legislation still in limbo. The consumer protection agency created by that legislation remains leaderless.

Rather than chastened by the role the biggest of the big banks played in driving the economy into a ditch, celebrity bankers like JPMorgan Chase’s Jamie Dimon seem emboldened. Dimon recently got into a very public spat with Federal Reserve Board chairman Ben Bernacke when the Wall Street banker suggested that efforts to regulate big bank practices have gone too far. Dimon said because of the new regulations banks are reluctant to lend money and that may actually be hurting the economic recovery.

That sounds like the guy who killed his parents and seeks mercy from the court because he’s suddenly an orphan. Still, Dimon is, by most accounts, among the best, most ethical of the really big bank operators. And maybe he’s worth every penny of his compensation – nearly $21 million last year – but while the economy continues to struggle, he and the elite .01 percent of the U.S. economy continue to wallow along in the style in which they have become accustom.

At times it seems we haven’t learned anything at all from those wild days in late 2008 when John McCain was suspending his presidential campaign to deal with the financial crisis and then-Treasury Sec. Hank Paulson was getting down on one knee to beg Nancy Pelosi to pass bailout legislation. Paulson was so stressed about the fate of the economy during this period that he had to excuse himself from meetings to dry heave.

All that was less than three years ago, but eons in Beltway time and with distractions like Anthony Weiner and Sarah Palin why worry about really complicated, important stuff like the cause of the worst economic crisis since Charles Mitchell was scamming folks in the 1920’s?

Ferdinand Pecora took names and people went to jail as a result of his investigation in 1933. Most Washington politicians now couldn’t tell us what went wrong in ’08. They’re too balled up in the vertiginous tangle.

But, understandably perhaps, the ultra-rich Wall Street crowd needs a little diversion as the New York Times reported Sunday in a Style section piece on the latest, most exclusive Big Apple private club – The Core.

As Guy Trebay wrote, the club “is open to all — or at least, in an essential way, to all those in the top 1 percent of United States households: families with earnings the Tax Policy Center estimates will be $3,061,546 on average this year for a family of four, as well as those from an even more-elevated category that the nonpartisan, nonprofit group calls the ‘ultra rich.’

“The estimated income this year for households occupying that particular niche — a mere 0.1 percent of all United States households — will be $13,719,746, according to the Tax Policy Center.

“’The fat-cat hedge fund guys love the place,” said Richard David Story, the editor of Departures, the glossy travel magazine distributed to holders of American Express Platinum and Centurion cards. ‘These guys take their heartbeats per minute as seriously as they take their investment portfolios.’ As putative fat cats, the club’s members, of which there are now 1,500, are presumably undaunted by the club’s $50,000 initiation and $15,000 annual fees.”

When Ferdinand Pecora laid bare the abuses of Wall Street in the early 1930’s, the U.S. Senate paid him the princely sum of $255 a month for his efforts. His efforts brought down the men who broought down the U.S. economy and ushered in sensible regulation. What a wise investment that was.

As Perino notes in the conclusion of his book on the investigator and his investigation: “Nearly eighty years ago, in the depths of the worst economic crisis in the country’s history, Ferdinand Pecora showed what a well-run and well-researched Washington investigation could accomplish, and although congressional hearings often descend into bluster and posturing, the Pecora hearings remain a model to which future investigations can aspire. All they need is a Hellhound.”

 The similarities between the two financial meltdowns 80 years apart are striking. The contrast in how the political and economic elites have handled the two events is just as striking.  It’s almost enough to give you the dry heaves.


Christie, Economy, McGovern, Media

The Great Divide

An Uber Gilded Age

A friend of mine has always said he never feels more patriotic than on the day he files his tax return and most years ships off a check to Uncle Sam.

Most Americans, I suspect, consider the tax obligation a necessary duty of citizenship. They may not like it much, but financing our government – yours and mine – is a fundamental obligation of citizens in a democracy. We band together to do for ourselves the things we can’t do alone – national defense, highways, airports, education and care for the poor and lame. That’s government and taking care to maintain it is patriotic no matter what the tax protests say.

Where the social compact starts to fray, however, is at the point where you and I pay and someone else doesn’t. The Washington-based Tax Policy Center says nearly 50% of Americans pay no income tax at all. They either have too little income to qualify or they qualify in our ridiculously complicated tax system for enough exemptions, credits and deductions to avoid any liability.

Little wonder that taxes and sending spark such political outrage. Half of the country, understandably including the poorest Americans, paying no federal tax with increasingly a tiny handful of the richest citizens controlling an ever expanding share of the wealth and also paying little or no taxes.

As Catherine Rampell pointed out recently in a New York Times piece, “the top 1 percent of earners receive about a fifth of all American income; on the other hand, the top 1 percent of Americans by net worth hold about a third of American wealth.” During the so called Gilded Age of the 1890’s, wealth distribution in the United States was not as out of whack as it is today.

Writing in the May issue of Vanity Fair, Nobel Prize economist Joseph Stiglitz says: “In terms of income inequality, America lags behind any country in old Europe.  Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.”

Couple those statistics with the almost daily news that top corporate CEO’s, even in firms still struggling with the recession, are raking in big bonuses and pulling down big pay raises.

The only thing that seems to impact behavior at this rarified level is sunlight. After the outcry over the news that GE, with U.S. profits of $5.1 billion in 2010, paid no taxes, but rather received a $3.2 billion refund, the company has been forced to place further restrictions on the compensation of CEO Jeffrey Immelt.

In the now classic Hollywood portrayal of the ruthless characters on Wall Street, Michael Douglas, playing that Godfather of Greed Gordon Gekko is asked, “how much is enough?”

His answer: “It’s not a question of enough, pal. It’s a zero sum game, somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another.”

I really didn’t mind sending in the tax return (and the check). I just hope Gordon Gekko sent one, too.

But, then again, greed knows no shame, or it seems, any limits.

Baseball, Christie, Economy, Politics

Now We Know – Maybe

finance-crisis-photo1Legislate Then Investigate

The commission investigating the causes of the “worst economic crisis since the Great Depression” has issued its report and – big surprise – the group split along partisan lines. Democrats issued a majority report, while Republicans offered their own take on who and what was to blame for the Great Recession; the recession that is technically over, but still seems to hang around like a relative who just doesn’t know when to leave once the Thanksgiving dinner is over.

One of the better bits of analysis of the huge report is from former Bush speechwriter David Frum.

Frum writes: “The report…argues that everything that people needed to know was there to be known. The crisis was not a ‘hurricane’: It was more like a housefire in a home where people routinely smoked in bed.”

And there’s this: “Americans withdrew $2.0 trillion in home equity between 2000 and 2007. At a time of stagnating incomes for most Americans, the housing boom financed the appearance of economic progress – one reason government was so reluctant to act. Minus the housing bubble, I doubt very much that President Bush would have been re-elected in 2004.

If you really want to get into this analysis, here are some terrific charts that help to break up the hard facts into somewhat understandable chunks.

One of the striking conclusions you reach in reviewing this new report and in reading the mountain of writing that has been produced in books and articles is that many of the so called Titans of Wall Street had, at best, a weak grasp on the facts of the situation facing the economy, not to mention detailed knowledge of what was happening in their own institutions.

One juicy headline from the Commission’s work is the admission by Federal Reserve Chairman Ben Bernanke, an academic scholar of the Great Depression by the way, that 12 of the 13 major Wall Street financial firms were at the very brink of failure late in 2008.

Unfortunately the work of the Commission, tainted by the lack of political consensus, is likely to take us no where in particular. The hopes that a rational, coherent explanation of what cause the economic collapse would lead to a careful reassessment of whether more regulation is needed, whether the biggest of the big banks are too big, etc. just hasn’t happened.

In fact, unlike the justly celebrated Pecora Commission in the early 1930’s that lead to the creation of the Securities and Exchange Commission and the passage of banking regulation that, seems to me, served us pretty well for the rest of the century, Congress legislated before the Commission reported. Hope they got it right.

Here is some sobering news for the week just ending, the week that saw the Dow top 12,000 and in which it was reported that a Wall Street hedge fund manager personally made $5 billion in profits last year, “Our financial system is really not very different today in 2011 than it was in the run up to this crisis.”

That quote comes from one of the commission members, Byron Georgiou, who spent the last year trying to understand why we came so close to complete economic disaster; a disaster that has done so much short- and long-term damage to so many people.

Here’s hoping we aren’t setting ourselves up for an even more devastating Round Two.

American Presidents, Andrus, Basketball, Christie, Economy, FDR, Federal Budget, Immigration, Obama, Stimulus

Is 2010 Really 1938?

Getting an Economic Consensus

There are no perfect historical parallels. Nothing is ever precisely like it was in another time. At best, history can help illuminate the present and should, if we’re paying attention, help us avoid making the same mistakes over and over again. Take 1938, for example.

But, alas we are Americans. We can’t get agreement on how to crown a national college football champion, how can we possibly get consensus on what to do with the economy?

President Obama went to Cleveland this week to roll out a plan for more stimulus spending on infrastructure and small buisness tax cuts as a way to get people back to work. He was greeted by reactions ranging from ridicule to yawning. Meanwhile, House Speaker-in-Waiting John Boehner, developing economic policy while he measures the drapes, started dropping hints about what a Republican Congress would do with spending (cut it, including unspent stimulus dollars), the economy (grow it) and taxes (leave the Bush cuts in place). All the while leaving room for a few well placed subpoenas.

These two versions of economic policy couldn’t be more at odds. It does sound a good deal like 1937 and 1938.

As Franklin Roosevelt’s Democrats faced the mid-terms in his sixth year in office, the Great Depression was in its eighth year. Wall Street was restive. Labor unions were sitting down on the job. Democrats were frantic and the president’s counselors were divided. Should FDR double down on spending and fiscal policy aimed at reducing unemployment or should the administration send a message to the markets and business that it was determined to get a ballooning budget under control?

Confronted with what historian David Kennedy has described as, “repeated budget deficits, escalating regulatory burdens, threats of higher taxes, mounting labor costs, and, most important, persistent anxiety about what further provocations to business the New Deal had in store,” business confidence was sapped. “Capital,” Kennedy said, “was hibernating.” Sounds familiar, eh?

At a pivotal Cabinet meeting late in 1937, FDR fumed about his advisers constantly telling him about the sorry state of the economy, but “nobody suggests what I should do.” His economic and political advisers eventually won the debate. The president’s Treasury Secretary, Henry Morgenthau, a balanced budget advocate, put it succinctly.

“What business wants to know is: Are we headed toward state Socialism or are we going to continue on a capitalistic basis?”

FDR’s chief political lieutenant, Jim Farley, chimed in. “That’s what they want to know,” that the administration would reduce spending and balance the budget to reassure business and the markets.

“All right, Jim; I will turn on the old record,” Roosevelt responded. A new fiscal policy aimed at reducing spending and balancing the budget was ordered.

The New York Times’ Paul Krugman argues that FDR’s decision brought on the “Roosevelt Recession” of 1938, caused unemployment to top out at 20% and contributed to stunning Democratic losses – six Senate seats and 71 seats in the House – in the 1938 mid-terms. What’s more, Krugman asserts – and he’s critical of Obama from the left for being too timid with his stimulus efforts – the public in the late 1930’s took exactly the wrong lesson from FDR’s shift in policy. Americans became convinced that stimulus spending and job creation efforts hadn’t worked and wouldn’t work. That debate, check the morning paper, still rages.

I keep thinking there must be some middle ground somewhere in the current debate, but I’ve been wrong before. Couldn’t we get something approaching national consensus around two or three major issues?

One, Wall Street and investment banking excesses must be brought under control. Does anyone really think that what happened in the run up to the financial collapse shouldn’t be avoided in the future if at all possible? Regulating greed and excess is not a partisan issue.

Two, spending on well-conceived public works (OK, infrastructure) is both a good long-term investment and good short-term job stabilizer and, one hopes, job creator. The non-partisan Congressional Budget Office said recently that the stimulus has – big surprise – increased the deficit and reduced unemployment.

And, three, the deficit needs to come down, but maybe in a planned, systematic way. Maybe the timing on the expiration of those Bush-era tax cuts is really not very conducive to getting capital out of hibernation. Perhaps a compromise is in order?

Someone, the president or John Boehner or the ghost of Henry Morgenthau needs to find a way to knit all the pieces together into a 2010 whole cloth of economic growth, job creation and fiscal sanity. Not holding your breath? I understand.

There is a poem entitled “Nineteen-Thirty-Eight” by Andrea Hollander Budy. It’s about a young woman who lies about not graduating from high school in 1938:

yanked out
when her father lost his job.

Now it was her turn
to make herself useful, he told her.

Nineteen-Thirty-Eight was not a particularly good year and not one to repeat. That much history tells us very clearly.

Christie, Economy

Hoarding Cash

moneySo Much Cash, So Little Investment

You don’t have to read the Wall Street Journal every day to know that the economy is barely struggling out of the Great Recession. Unemployment bumps along at just under 10 percent and some in the Congress debate whether extending benefits to the job seekers might actually encourage the out of work to stay on the sofa. In Idaho, the governor tells state employees that they best keep their expectations in check. Better times aren’t around the corner anytime soon.

Yet, somebody is making out in this rotten economy. The federal pay czar – yes, we have one – recently called the $2 billion the biggest of the big banks paid in bonuses in late 2008 and 2009 “ill-advised,” but all he could do was hold a news conference and point that out. Reforming big bank incentives seems not to be in the cards. These same banks, most recipients of TARP funds we all provided, are still reluctant to lend significant money, but they seem to have no reluctance to make money, stack it up in the vault and hand it out in multi-million dollar bonuses.

Meantime, its estimated that Fortune 500 companies are sitting on something north of $1.8 trillion in cash. As Bruce Stokes pointed out recently in a piece for the National Journal, only corporate America has the financial wherewithal to get the fragile economy moving, yet the money seems to be going under the mattress and into obscene bonuses rather than into jobs, R&D and acquisitions. Stokes suggests taxing excess corporate cash. I’ll not hold my breath on that idea, but there is ample evidence the cash hoarding is hurting the recovery.

Economic analysts Yves Smith and Rob Parenteau contend part of the reason for the corporate cash accumulation is the short-term nature of corporate thinking. CEO’s and their boards have become obsessed with quarterly earnings reports and the fact that Wall Street analysts and big investors reward or punish those who hit or miss those every three month targets.

“To show short-term profits,” Smith and Parenteau wrote recently in a New York Times piece, “they avoid investing in future growth. To develop new products, buy new equipment or expand geographically, an enterprise has to spend money — on marketing research, product design, prototype development, legal expenses associated with patents, lining up contractors and so on.”

My thoughtful Montana friend, Pat Williams, the former Congressman who now teaches at the University of Montana, had a great piece last week that got me thinking about what only business can do in tough times like these.

Pat, recalling a tough 1950’s economic downturn when he was just a kid, remembered that his mother and dad actually made the decision to invest into a down economy on the main street of Butte, Montana.

In a piece that appeared in a number of Montana papers, Pat wrote: “I remember Dad telling our customers and insisting to his fellow small business friends along Park Street, ‘Now is the right time.’ His logic was that building contractors needed work, Butte’s people wanted jobs, the appearance of downtown was important, and, he insisted, interest rates were only going up. He firmly believed that one invested in one’s self by investing in your customers and your city.”

It may be the toughest thing to do in a tough economy to make an investment decision. The safe path is to keep the cash in the bank, avoid risk and ride it out. History rewards the successful risk taker, but then again why risk it?

The economy needs a positive jolt. It’s time to start investing for the long-term. Its time for a glass half full attitude. Henry Ford, Bill Gates and Hewlett and Packard did not built empires by not investing in their customers and cities.

When Pat Williams’ folks invested in the remodel of their Butte restaurant back in the 1950’s a curious thing happened.

“Following the completion of that new, expensive store front,” Williams wrote, “we had a significant increase in customers saying thanks by enjoying a steak dinner, buying a box of candy, or simply throwing a dime on the counter for an extra cup of coffee.”

Funny thing how the economy responds to the notion that things really can get better. Maybe it really is less about economic theory and more about human nature. It is time to take some measured risk. Goodness knows, there is a lot of room on the upside.

Christie, Economy

Back to the Future

glassIs it Time to Bring Back Glass-Steagall?

Carter Glass (left) developed an impressive resume during his nearly 50 years in public life – Congressman, Secretary of the Treasury under Woodrow Wilson, architect of the Federal Reserve System and U.S. Senator. If he’s remembered at all more than 60 years after his death it for the financial services regulation he authored – the Glass-Steagall Act – and pushed through the Senate in 1933.

A key provision of Glass-Steagall regulated for the first time the speculative activities of banks and mandated the eventual separation of commercial banking from investment banking. Bankers would have to chose under Glass’ legislation to accept deposits and make loans – commercial banking – or invest and trade in securities and other instruments – investment banking. There is general agreement that the legislation stablized banking in the 1930’s and provided a solid platform on which to build a strong and sustainable system for the rest of the 20th Century.

Wall Street was never satisfied, however, and after years of lobbying to end the separation and “reform” and modernize banking for the 21st Century, Congress repealed provisions of Glass-Steagall in 1999. President Bill Clinton signed the legislation.

The final Senate vote was a lopsided 90-8. Still, there were some voices back in 1999 expressing concern about doing away with the Depression-era legislation. When you go back and read the comments of North Dakota Senator Byron Dorgan, one of the no votes, you almost feel he had a crystal ball allowing a look into the future.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930’s is true in 2010.

”I wasn’t around during the 1930’s or the debate over Glass-Steagall,” Dorgan went on, “but I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

The late Sen. Paul Wellstone of Minnesota called Glass-Steagall a “stabilizer” during the Great Depression “designed to keep a similar tragedy from recurring.”

The fears were discounted by the proponents who, after all, had the votes. Then-Sen. Bob Kerrey of Nebraska said: ”The concerns that we will have a meltdown like 1929 are dramatically overblown.”

Now, in the wake of the greatest financial crisis since 1929, a host of people think the repeal was a bad idea and even some who originally supported it, like Arizona’s John McCain, are supporting a return of Glass-Steagall. Even an ex-Merrill Lynch executive said he regretted supporting repeal.

The great financial meltdown of 2008 had roots deep in the fertile soil of a wild and unsustainable real estate market, unregulated and unintelligible exotic investment tools and regulators at the federal level who were too often asleep at the switch. Someday we may know the full story that is still unfolding thanks primarily to good reporting and post-disaster analysis.

One could make the argument, and more and more are making it, that the great collapse really began when Washington wiped from the books a Depression-era law written by the long forgotten senator from Virginia – Carter Glass.