It’s the question that’s been on almost every political junky’s lips: Why has Obama failed to connect to parts of the electorate his candidacy promises to help the most?
“Obama proposes tax cuts that would benefit more people, but his message hasn’t ‘reached’ the middle class. Obama proposes public works and a federal investment program that harkens back to the time of Roosevelt, but workers that have lost jobs recently due to the emergence of new technologies still haven’t ‘heard’ the message. … The problem here in electoral terms, is that Obama’s detailed and well-formulated proposals don’t have the obvious ideological appeal that, perhaps, must be more easily understandable and acceptable to the electorate he has to win over. Ironically (or tragically, if you wish), what seems like a rationally crafted proposal lacks the easy “appeal” that the Republicans know how to exploit so well.”
Lilly Ledbetter is the latest addition to the list of speakers at the Democratic convention next week, and her appearance may possibly do Barack Obama as much good as Hillary Clinton’s.
In today’s Washington Post, Ruth Marcus explains: “Ledbetter was on the losing end of a Supreme Court case last year on equal pay. A manager at a Goodyear tire plant in Alabama, she consistently received smaller raises than her male counterparts. The Supreme Court threw out her suit because, the five-justice majority said, she waited too long to complain, even though she didn’t know about the pay difference earlier.
“Now, a bill to fix this equal pay Catch-22 is pending in Congress–and the Ledbetter case has emerged as a key piece of Obama’s effort to woo women. In particular, working women, less-educated women, older women. Women who voted for a certain woman and haven’t come around to the guy who defeated her.”
Obama is co-sponsoring legislation to reverse the result in the case. McCain opposes it. When Lilly Ledbetter takes the stage in Denver next week, her presence may make a stronger argument for the Democratic nominee than anything Hillary Clinton could possibly say.
For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”
Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.”
The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh. “This might be the beginning of the end of the American empire.”
Ben Stein, droll Renaissance man, said in a recent piece in the New York Times that he doesn’t like paying taxes. But the lawyer, actor, and one-time speech writer for two presidents (Richard Nixon and Gerald Ford) is unimpressed with the supply side economics of the two most recent two-term GOP presidents, Ronald Reagan and George W. Bush. He’s also unimpressed that presumptive Republican nominee John McCain intends to continue supply side policies if elected president in November, stating that at a time when revenues are stagnant, deficits and indebtedness to foreign lenders are exploding, and government is growing, he will not allow tax increases during his tenure. Some increases in spending are essential, Stein believes, especially in rebuilding the US military.
That means, Stein says, that McCain’s prescription is precisely wrong. Writes Stein:
…the unhappy fact is that it’s necessary to raise my taxes and the taxes of all upper-income Americans. (I do wish, however, that “upper income” started just a dollar above me.)
The sad truth of the last two two-term Republican presidents is that their economic premise, the key part of their economic game plan, simply has not done what it’s supposed to do.
That is, cutting taxes, especially on upper-income Americans, does not generate so much economic activity that it replaces all the lost I.R.S. take and then some. At least those have been the results so far. When Ronald Reagan lowered taxes, personal income tax revenue stagnated from 1982 to 1984. Now, you may say that revenue rose sharply after that. So maybe that was a mixed result.
But when President Bush drastically cut taxes after he was first elected, the I.R.S. take from individual income taxes fell and did not recover its 2001 level until 2006.A conservative purist might rejoin here that it would be fine if income tax receipts fell, because we would then have a smaller government and a freer society.
That would be nice, but far from true. Instead, government just keeps growing. Government spending grew dramatically under President Reagan, very nearly doubling, and leaving us with a federal deficit vastly bigger than the one he inherited. I know that a large chunk of that increase was to rebuild the military. I heartily approved of it.
But if you want to have a military buildup — and we need one now, desperately — that’s usually a reason to raise taxes, not cut them.
Under the current president, we have had the same story. As income tax receipts fell, military and other spending rose rapidly. Again, this spending was justified as far as I’m concerned. But we have been left with immense deficits and a doubled national debt as President Bush enters his final months in office.
Mr. McCain wants to extend many of President Bush’s income tax cuts and to reduce taxes on corporations. But the facts of life are that we have a large budget deficit, even though some other nations have even larger deficits as percentages of gross domestic product. We have to pay interest on it. As a people and a nation, we owe this money in large part to foreigners — and that can have political implications. The facts of life are that federal spending is almost all untouchable: the military, Social Security, Medicare, interest on the debt, pensions. The discretionary part is tiny.
What’s intriguing about Stein’s critique of McCain’s stated intention of making the Bush2 tax cuts permanent and to not raise taxes during his watch is that Ben Stein, the son of one time chair of the Council of Economic Advisers under President Nixon, Herb Stein, is a conservative Republican. It isn’t just in the realm of foreign policy that the neo-orthodoxies of postmodern conservatism are questioned by traditional conservative thinking. That can’t bode well for John McCain as he strives to knit a new Republican coalition this year.
Here in California we continue to experience the car wreck that is the annual budget process. Normally we will see a few idiots screwing things up while the rest simply sit around and watch but this year there seems to be some competition for who can do the stupidest or most irresponsible thing.
For those who don’t know the full story, California is supposed to have a budget passed on or before July 1st but it almost never does so. Usually the wrangling takes a few weeks and then we move on. But every once in a while we get into a real deadlock and it stretches (as it has this year) into August and even September.
When that happens we start to run into some legal and financial problems in that, without a budget, the state technically will run out of money. In past years this has led to the shutdown of various government offices and on a few occasions the involuntary unpaid vacations of some state workers.
But this year Governor Arnold Schwarzenegger has taken things to a new level and has made, in my opinion, a very stupid set of moves. His solution was to order the state to pay all employees the federal minimum wage until the new budget was passed and then they would get back pay.
There are several problems with this solution (aside from the fact that it is patently unfair to punish state workers for the idiots in the legislature failing to do their job). One problem is the logistics of the matter, it would take a lot of time to reprogram the computers to pay everyone minimum wage and even more time later to calculate the back pay that was due. Another problem is the massive cost of the project (paying the programmers to do all the work. And from a purely political standpoint it is a terrible idea (probably killing Arnold’s plan to run for Senate in 2010).
State Controller John Chiang has refused to implement the order citing the reasons above and this has resulted in Arnold filing a lawsuit, thus costing the people even more money and doing nothing to solve the problem. I have often praised the Governator but in this case is is massively and undeniably wrong.
At the same time, we cannot ignore the nonfeasance on the part of the state legislature. While I do not blame them for the stupid idea from the Governor, they are to blame for failing to pass a new budget. To be sure there are a lot of problems this year, most notably a $ 14-15 billion dollar deficit and a sagging economy. But this does not mean that they cannot work something out.
As discussed previously, the central issue is the failure of the legislature to compromise on everything. Democrats control about 60% of the seats in both houses of the body so in theory they have control over the process. But California law requires a 2/3rds majority to pass the budget and that means the GOP does have a little influence over the process. They have steadfastly refused to accept any tax increases and that has stalled things.
At the same time the Democrats have also refused to even consider any serious spending reductions, and the simple fact of the matter is that you are not going to cure a 15% budget deficit by raising taxes on ‘the rich’, especially when nearly half of your budget is locked in.
Labor unions, who control the Democrats in the legislature have pushed hard to make sure that there is not even any consideration of cuts in any of the areas that they have an interest in. They air commercials talking about how ‘the evil Republicans’ want to take little Jimmy’s favorite teacher away. The fact that there is considerable waste in education spending (I’ve got first hand experience at this) is ignored because that would take away some cushy jobs in administration that have nada to do with schools or classrooms.
What we really need is some actual leadership in both the legislature and the Governor’s office.
We need a legislature that will work together on a non partisan basis to balance both spending cuts and tax increases to get past the current crisis.
We need a Governor who will try to bring those sides together rather than punish state workers.
Once we get past this problem we need both groups to take a long hard look at the budget process for the future and evaluate what we can and cannot afford because the fact is we as long as spending goes up and revenues remain flat we are going to face this problem year after year.
– ‘his campaign’s lack of any tangible racially-based resentment.’
– ‘the fact that Reagan assured the United States a spectacular economic recovery, but nevertheless, paid for it with social inequalities that little-by-little have surpassed by way of inconvenience the advantages brought by free markets.’
– ‘the sometimes incredible stagnation of all public facilities in a country where the pressure for lower taxes has kept railroads, airports and sometimes roads at the technological level of the 1970s.’
– ‘the generation of children of humiliated communists and progressives, who are today rich and in power, and who are tempted to inflict a spectacular defeat on the American right.’
And what hope do U.S. Republicans have of beating Obama?
Read on at WORLDMEETS.US, along with continuing translated foreign press coverage of the U.S. election.
Stock markets have rallied this summer on falling crude oil prices. But is this a sane and sensible response to what these falling prices actually portend? The answer to this question is this: Only if you happen to be a Wall Street trader and playing with OPM—Other People’s Money, my money and yours in mutual and pension funds.
Crude prices are falling for two reasons: a weakening demand for oil and a rising US dollar. This weakening demand, however, is the result of faltering economies that don’t use as much oil. And the US dollar isn’t strengthening, it’s only rising in comparison to the Japanese yen, the British pound and West Europe’s euro, reflecting the fact that their economies are performing even worse than our own.
Pursuing current stock market logic, stock prices should really soar if we have a full-fledged depression because then demand for oil would plunge still more. And if it were a worldwide depression that would be also be really great for stock prices because other people in the world would be suffering even more than Americans.
Often, whom the gods would punish, they first make silly…
The Wall Street Journal’s Market Watch points out that the McCain meme “Is he ready to lead?” begs the question whether McCain is. Rex Nuttimg lists several reasons McCain would be a mediocre president. The quoted material which follows is all extracted from the Nutting piece, which provides quite the brutal reframing of McCain’s career. As Ron Beasley says at Newshoggers, it’s a sort of nutshell version of McCain. I’ve extracted the morsels that most interested me. Nutting’s conclusion:
His major accomplishment, in Vietnam and in the Senate, has been merely to survive…Just surviving doesn’t make you’re a hero, or a decent president. America needs to do more than survive the next four years.(MW)
His major accomplishment, in Vietnam and in the Senate, has been merely to survive…Just surviving doesn’t make you’re a hero, or a decent president. America needs to do more than survive the next four years.(MW)
Mark Kleiman points out that this isn’t quite fair. “[Nutting] neglects McCain’s really heroic work with John Kerry in bringing about reconciliation with Vietnam (taking on the powerful POW/MIA racket in the process).” I definitely agree with this—it’s one of the reasons I used to think I might be able to stomach a McCain presidency.
For months on end, hundreds of thousands of people across South Korea have mounted daily demonstrations, candlelight vigils, boycotts, and almost every form of protest up to and including setting themselves on fire - against American beef, the new conservative government, and George W.Bush. So why is it, exactly, that South Koreans are so angry?
“The Korean heart wants to afford people that kind of hospitality, so when Koreans tell someone they aren’t welcome, you have to ask why. … The way the United States treats Korea is not the only problem. Let’s set aside for a moment, the hypocrisy and ignorance of how the U.S. divides the world into good and evil and maintains a constant global tension, while making itself out to be an apostle of peace and justice. What’s really dangerous is that American capital considers the entire world its prey. In its arrogance over being on a throne of power, it won’t be satisfied until everything belongs to it. All of this and its habit of never hesitating to go to war for money are the greatest factors threatening world peace.”
David Brooks this week tried to explain the gap between social pressures and personal responsibility in “The Culture of Debt” by insisting that, in digging America out of its mountain of debt, “the important shifts will be private, as people and communities learn and adopt different social standards.
“After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.”
Brooks’ optimism about “a bit of sobriety” is a nice Conservative try to ease the pressure off the banks, credit card companies and sellers of stuff for the waves of debt that are now threatening to drown so many Americans. Why did all those irresponsible swimmers plunge so far out?
But he may want to look back at the early 1960s to an America wallowing in post-World War II prosperity when the poet-critic Randall Jarrell was warning in “A Sad Heart at the Supermarket” about a society that “needs for us to be buyers, consumers, beings who want much and will want more –who want consistently and insatiably,” in which “the product or services which seemed yesterday an unthinkable luxury is today an inexorable necessity.”
Bigger homes with zero down, newer cars with delayed payments, electronic gadgets galore, flying everywhere on impulse, credit cards for jobless new college graduates in a world of hyper-consumerism and retail therapy (”When the going gets tough, the tough go shopping”)…
If he were still alive, Randall Jarrell’s supermarket sadness would surely be deeper than ever, but then again what would a poet know about the real world?
July 22nd, 2008 by SWARAAJ CHAUHAN, International Columnist
Indian Prime Minister Manmohan Singh and US President George W. Bush have a reason to celebrate. In a way the triumphant nail-biting passage on Tuesday of the India-US Nuclear Deal in the Indian Parliament is their personal victory.
“The U.S. will urge other board members of the International Atomic Energy Agency to support an inspection plan tied to the accord during a meeting on Aug. 1,” State Department spokesman Gonzalo Gallegos said in Washington.
“The 2005 accord signed between Singh and Bush gives India access to fuel and nuclear reactors without joining the 1970 Nuclear Non-Proliferation Treaty. It would lift restrictions imposed on suppliers to provide India with atomic technologies since it tested a nuclear weapon in 1974 without being listed as an atomic weapons state.
“India can now seek the nuclear deal’s approval from the IAEA and the Nuclear Suppliers Group, a mandatory requirement before the U.S. Congress can ratify it. White House spokeswoman Dana Perino predicted approval in Congress should the plans succeed with the IAEA and the 45-nation suppliers group.” More here…
It was a tough battle for the Indian prime minister who staked his government’s survival on the parliamentary vote. And it was a close call. The Congress party-led government won with 275 lawmakers voting for it and 256 against. The number of abstentions was not immediately clear, although not all 543 members of Parliament’s lower house took part in the vote.
“The vote capped a week of intense politicking that saw the government rename an airport for a lawmaker’s father, promise a high-level job to another, and — rival politicians allege — hand out millions of dollars to many others in an effort to survive.” More here…
Although this landmark development is a major milestone in India-US economic and strategic relationship, nearly half the Indian lawmakers have opposed the deal in its present form. Meanwhile the ‘Marketing Guru of the World’ Dr. Jagdish Sheth, Professor of Marketing in the Goizueta Business School, Atlanta, USA, today asked India to look at issues in a “multi-centric” way instead of the present US-centric prism.
Sheth predicted that India and China, along with the United States, would form the “emerging geoeconomic triad” replacing the US-Canada, European Union and Japan triad. He said the 21st century would certainly belong to ‘Large Emerging Nations (LEN)’ as the 19th century belonged to America and 18th century to Europe. He said LEN would consist of India, China, Russia, Brazil and other emerging countries.
Author of the famous book ‘Chindia Rising: How China and India will benefit your business’, Dr Sheth predicted redefining of capitalism and democracy with compassionate capitalism, disciplined democracy and worldwide rise of spiritualism. More here…
July 20th, 2008 by SWARAAJ CHAUHAN, International Columnist
This question was raised by a reader in India who takes an avid interest in the American blogs/media. She marvels at the manner the media/blog pundits cling on to the statements issued by Iraqi Prime Minister Nuri al-Maliki. Who is this chap? Do the pundits need to be reminded that Mr Maliki is the creation of the present Bush administration?
The reader then reminds that Mr Maliki would become as irrelevant in a few months time as his mentor and master George W. Bush. Does it really matter whether Mr Maliki agrees with the proposed Barack Obama plan for withdrawal from Iraq or not? The reader wonders whether this approach of media/blogs is because of myopia, or ennui, or sheer laziness, or let-the-world-go-to-hell attitude. “Where are the fresh insights into complex issues?”
It also occurred to me that the pundits had already made up their minds that the White House “leaked” this news. No one is asking whether this could be an intentional leak. In any case aren’t there other issues to talk about? Do Mr Maliki’s routine flip-flops on this issue to be taken with such seriousness, and analysed so minutely, as if this was a new development or “Breaking News”? (See here..)
The reader adds: “So one is not sure whether the US presidential candidates’ views on important issues are being properly reported/reflected in the media/blogs. This hysterical approach has become typical of media/blogs trivializing important issues and then forgetting about them. The atmosphere thus created resembles that of a fish/vegetable market in an Asian or an African country.”
But then someone could say that at least those fish and vegetable-sellers are earning their bread by putting in hard work, and in an honest fashion!!! (The NYT opinion here…)
Dan Ariely thinks we’re paying paying too much attention to the price of gasoline. He says we can’t help it because the price is plastered on every street corner, reported in every newscast, and we stand there day in and day out filling up our cars while staring at the meter:
For the several minutes that I stand at the pump, all I do is stare at the growing total on the meter — there is nothing else to do. And I have time to remember how much it cost a year ago, two years ago and even six years ago. […]
While we concentrate our anger on gas prices, we are ignoring increases in electricity, food and health insurance — expenses that might actually have a greater effect on our budgets.
I’ve read news reports about people who drive 20 miles from California to Mexico just to buy cheaper gas, and about people who trade in the gas-guzzling S.U.V.’s that they bought only a year ago for more fuel-efficient cars… I wonder if the person driving to Mexico considers the cost of the entire trip, including his time and wear and tear on the car. And I wonder if the person who takes a $20,000 loss on his S.U.V. ends up paying more for the trade than he can possibly save at the pump.
Perhaps it would be better if gas station attendants filled the tank for us, as they used to, so we did not stand at the pump watching the rising price of our gasoline. Maybe it would help if gas pumps came with bigger hoses so that filling up would go faster and we’d spend less time watching the meter. Or maybe we should just learn to examine all our purchases and expenses more holistically so that we see where rising costs make the biggest difference.
Meanwhile, the NYTimes reports a rise in online shopping in response to gas prices:
The Web sites of Neiman Marcus, Saks, Nordstrom, Bloomingdale’s, Macy’s, Bon-Ton Stores, Aéropostale, American Eagle Outfitters, Target and Kmart were all offering a deal on shipping this week.
“With gas being such an issue, we know that mall traffic is down more than off-mall traffic,” said Mike Boylson, chief marketing officer for J. C. Penney, which had an 8.7 percent increase in Internet sales in the first quarter of this year.
That is in contrast to a 7.4 percent decrease in sales at stores open at least a year, known as same-store sales and a measure of retail health.
Hm. If they’re offering incentives, is it really gas prices that are driving those online sales?
July 18th, 2008 by DR. CLARISSA PINKOLA ESTÉS, TMV Columnist
More likely pushed out I imagine, and allowed to resign to save face.
What damage Phil Gramm did to Senator McCain’s campaign, with Gramm’s archaic and out of touch epithets about American families who struggle so with sudden and huge inflation regarding food, transportation, ARMs, health costs… a ‘perfect mess of an economic storm– while Gramm is a coddled multimillionaire and has NEVER gone without anything even remotely related to stapes and necessities. Never.
Gramm was both the co-chair of McCain’s campaign, as well as his “economics” adviser. Why or how Gramm put himself ahead of Senator McCain’s best interests by grandstanding last week and trying to shame and ridicule Americans who suffer… calling them ‘whiners– Why Gramm went on blathering like some doddering relic waving his cane and declaiming the recession was ‘all mental’ — we can only guess.
But it stands out in bright red that the ego inflation of a personality that does such things thoughtlessly when so very much is at stake, not only sees those who suffer as a joke, rather than as worthy human beings, but also that his impulse control was shot. Blurting out whatever he feels like saying seems Gramm’s highest priority, rather than protecting his candidate’s HONOR as a visionary and compassionate person who is currently being critically evaluated and judged by potential voters…
Senator McCain is already bucking a rain of arrows about being ‘old’ (he is older, but certainly not ‘old’…. and likely carries the kinds of wisdom that can only come from living long) and being old fashioned… (if having certain proprieties is old fashioned, that may be a good thing). He needs Phil Gramm like a duck needs a raincoat. He needs Gramm like St. Sebastian needs a few more arrows.
If Reverend Wright was Obama’s “crazy uncle,” for certain Gramm with his cross-eyed cannon volley straight through the side of Senator McCain’s ship of state, is McCain’s crazier uncle… crazy because Gramm purports to be a seasoned politician. But also, Gramm is way old enough to realize that his giant and self-referent loose lips can sink worthy ships.
Gramm is not ‘a distraction’ as he will attempt to spin this to hold to his own polluted opinions about Americans while pretending to ‘do the honorable thing.’ There is no honor in his resignation after he has made such a mess. But, Gramm’s archaic, intrusive, off the mark attitudes are a passe form of cadaverous politics. Gramm’s time is over. Dead over.
However, the damage is done. And unfortunately, some voters will wonder if Senator McCain really, at heart, shares Gramm’s Sadducean slanders of American people, otherwise why would McCain have hired Gramm on, and in such high position…
______
CODA
July 11, 2008 The Moderate Voice, dr.e: “Senator McCain, It’s Time to Dump Phil Gramm Before He Sinks You”
If you have a credit rating that’s not absolutely in the tank, you probably receive a regular flood of paper in your mailbox which gushingly declares that you are a wonderful person, trustworthy and responsible, and because of that you have been pre-approved (sound of horns blaring, balloons floating skyward and pigeons being released) for a credit card from their generous organization. These pre-approved, pre-screened or “firm” offers can arrive at a dizzying pace, and they likely wind up in your trash. If you happen to be the more paranoid type, (and remember: just because you’re paranoid doesn’t mean that they’re not out to get you) you may even spend the time to shred them all before discarding them.
You may be interested in avoiding all of this by simply stopping the flow, and there seems to be a way you can do this. You can check out optoutprescreen.com or call them at:
1-888-5-OPT-OUT.
By doing this you can make a choice to shut off your credit information from all three major credit reporting services to the companies who send out these offers and, in effect, put a “do not call” tag on your records. You can choose to do this for five years or permanently. Should you, at a future date, become unhappy with your current card and want to shop around, you can use the same site to “opt in” and provide that information to the credit card companies once again.
If you’re worried about the legitimacy of this service, it is endorsed by the Federal Trade Commission. This has been a public service to annoyed junk mail recipients from The Moderate Voice.
Trot out the clichés about closing the barn door for news today that the Federal Reserve is cracking down on shady lending practices to home buyers and President Bush is fighting high gas prices by lifting a ban on offshore drilling for oil.
As Americans drown in bad economic news, these daring rescue moves are the equivalent of throwing them concrete life preservers.
The Fed’s new rules to protect the public against predatory lenders of subprime mortgages are too little for future home buyers and too late for the millions who are losing their homes at the highest rate in history.
July 14th, 2008 by SWARAAJ CHAUHAN, International Columnist
Everything, it is said, is fair in love and war. Let’s admit it, we all are in love with “oil”. In the present long-drawn “war” we have allowed anything and everything to happen. In fact our “love” has turned into a naked “lust” for oil. And when “lust” takes hold of leaders and the public, they lose their sense of proportion and become virtually myopic (or blind) to the consequences of their actions.
So what can a Mc Cain or an Obama do under the circumstances? (Have a look here…) These thoughts occured to me when I recently went through a must-read book “Half Gone” by Jeremy Leggett. A powerful book that provides fascinating insight into the geology and politics of oil…and hope(?).
He writes: “Despite the defectors from the Empire of Oil, the growing dissent within it, little (has) changed. The Great Addiction remained…Barons of the Empire of Oil rode the planet in executive jets, more powerful than any president except perhaps the president of the Number One Nation State. But then he was one of them anyway.
“The most basic foundations of our assumptions of future economic wellbeing are rotten. Our society is in a state of collective denial that has no precendent in history, in terms of its scale and implications.
“Most US presidents since the Second World War have ordered military action of some sort in the Middle East. American leaders may dress their military entanglements east of Suez in the rhetroic of democracy building, but the long-running strategic theme is obvious. It was stated most clearly, paradoxically, by the most liberal of them.
“In 1980 Jimmy Carter declared access to the Persian Gulf a vital national interest to be proteced by ‘any means necessary, including military force.’ This the US has been doing ever since, clocking up a bill measured in the hundreds of billions of dollars, and counting. With such a strategy comes an increasingly disquieting descent into moral ambiguity, at least in the minds of something approaching half the country.
“The deeper the dependency on oil and oil money becomes, the worse the effects of the unforseen energy crisis will be when it hits, so the more America’s security is undermined, even as its government advances enhanced security as the rationale for the latest actions of the Pentagon’s global oil potection service.
(I see that Bridget Magnus has just posted a well-informed piece on the evolving crisis. You should most definitely read that first.)
Federal regulators seized IndyMac bank, a major player in the housing boom, on Friday (WSJ). Banking regulators are bracing themselves for ‘a slew’ of such failures (WSJ), which means that ordinary borrowers had better brace themselves as well.
‘The collapse is expected to cost the Federal Deposit Insurance Corp. between $4 billion and $8 billion, potentially wiping out more than 10% of the FDIC’s $53 billion deposit-insurance fund.’ (WSJ)
This morning I’d like to take a few minutes to talk about Fannie Mae, Freddie Mac, and IndyMac. Let’s start with a little background. Fannie and Freddie are federally chartered entities that buy mortgages from the banks and mortgage companies that write them. The original mortgage holder gets (most of) their money right away instead of waiting 30 years, so they have the money to lend to somebody else in a neighborhood like yours.
IndyMac is — was — a bank and “mortgage specialist”. They began as a subsidiary of Countrywide Mortgage, and it was designed to deal in “jumbo mortgages” too big for Fannie and Freddie to buy. CNN explains:
Its specialty was so-called Alt-A loans, those for which home buyers were asked to produce little or no evidence of income or assets other than the house they were buying.
While home prices climbed, Alt-A loans posed few problems for IndyMac. If a buyer wasn’t able to afford his payments, the bank got title to a home worth more than the amount owed. The bank was also able to find investors eager to buy pools of those mortgages that had been pulled together into securities backed by the future payments.
But when the housing bubble burst and prices began to fall, losses at IndyMac began to rise.
Yesterday, the FDIC took control of them. Like Bear Stearns, IndyMac unraveled very rapidly. They are now the 3rd biggest bank failure in American history, with $32 billion — $32 thousand million — in assets. About 10,000 people had deposits that exceed the FDIC insurance level of $100,000. For reference, there hasn’t been this big a bank failure since 1984, when George W. Bush’s dad was merely the Vice-President. The ensuing carnage may cost the FDIC between $4 billion and $8 billion.
The good news is that it isn’t taxpayer dollars. The money that the FDIC will use to pay the Joe and Jane Averages who put their paychecks in that bank and expect to pay their bills from that bank comes from premiums they charge banks, and interest off the bits of the national debt they own. And better yet, not a dime goes to the executives that put IndyMac in this mess. In fact, the FDIC has already fired the CEO.
Fannie and Freddie shouldn’t have anything to do with this mess, but they do. They do not because they actually purchased any of IndyMac’s bad loans, but because they purchased questionable loans from just about everybody. And that has many people worried. If Jim Cramer is right that almost every bank in the United States has solvency concerns, how can Freddie and Fannie not be a concern? Jim has made a whole lot of money owning large blocks of stock in small banks, so I am inclined to think he’s not nuts on this one. Some people think that Fannie and Freddie are part of the problem, and need some serious tough love to be part of the solution. Others argue — and have the figures to back themselves up — that it really isn’t that bad, and stop yelling about it.
IndyMac is gone. If you have deposits there, give the branch a call Monday morning. If you are expecting a mortgage through them, call a new mortgage broker.
As for Fannie and Freddie, they will live on. The question is what sort of intervention if any will be required.
You may recall that I am an unabashed Dan Ariely fan (see, for example, here, here, here, and here). It’s only fair that I give equal time to his critics.
Dan Ariely’s Predictably Irrational [link] is the latest book by a behavioral economist to hit the jackpot. The reason for its popularity is not hard to discover. The experiments that it describes are as titillating as they are ingenious. Here is one of them. People were asked some rather suggestive questions, such as whether they would find it exciting to spank their sexual partners or to be tied up by them during the sexual act. After their answers were duly recorded, they were asked if they would be willing to respond to the same questions, only this time at the height of sexual arousal produced by masturbation. It turns out that when we are aroused we are completely different than when we are not aroused: we are more hospitable to risk, more irresponsible, more emotional. Ariely therefore concludes that people who have no idea what they will think or do when aroused cannot know themselves very well, and the implications are dramatic: “Our models of human behavior need to be rethought. Perhaps there is no such thing as a fully integrated human being. We may, in fact, be an agglomeration of multiple selves.”
Before one concludes that behavioral economists are obsessed with sex, it should be pointed out that the masturbation experiment is the only one discussed by Ariely that requires this particular kind of self-help. The others are designed to show just how odd our behavior can be in the circumstances of everyday life. Ariely and his colleagues set up a stand and offer Lindt truffles for 15 cents and Hershey’s Kisses for a penny: 73 percent of their customers choose the former, 27 percent the latter. Then they lower the price of the truffle to 14 cents and offer the Hershey Kiss for free, and now 69 percent choose the Kiss and only 31 percent the truffle. Calculating utility cannot explain this result. In both cases, the cost difference is identical. So it seems that we attach an almost mystical meaning to the idea of getting something for nothing. Zero is not just another number. It plays tricks with our rational minds.
Unfortunately:
Ariely is obligated to remind his readers, most of whom are neither psychologists nor economists, of the problems of selection bias that follow from his over- reliance on students as subjects. But he fails to do so. In fact, he does the opposite: he generalizes from MIT classrooms to humankind as a whole, and with abandon. This might be called the technique of the Big Slip, gliding imperceptibly from a controlled and artificial experiment to breathtaking generalizations about matters that have puzzled philosophers and theologians through the ages. It makes for entertaining reading. Alas, it tells us little about the kind of creatures we are…. Read the rest of this entry »
He says we can’t help it because the price is plastered on every street corner, reported in every newscast, and we stand there day in and day out 
