Well, unless something significant happens in the next few days, it looks like the Democrats are going to the convention. Neither Carter nor Kennedy nor Clinton had to wade through a contested conventions, and they were the only Democrats to win in the last sixty years. Disputed conventions in '68, '72, and '80 all yielded losses, big losses. Nineteen eighty-four was also somewhat in dispute and that was a landslide defeat for the Democrats. With the party screwed, it's time to look for external factors. The Democrats need either a bloodbath in Iraq or a complete economic collapse to win.
"Yes, she will" -- that's what they are saying at the Clinton rally. They are stealing the equally weak "Yes, we can'" from the Obama campaign. The Clinton campaign has been run ruthlessly, Karl Rove campaign, just like her husband did in '96 and '92. Rovian tactics didn't win on the Republican side; McCain beat out Romney and Huckabee, who each used pages out of that playbook. But, on the Democratic side, the Clinton campaigns loves the fight. I like fighting, but only if it is against corporations, capitalism, and war-mongering. Clinton, however, likes the politics of personal destruction.
Ultimately, Clinton is all about the personal, so is McCain. Obama, who seemingly is the personality candidate, is ironically not so. He is a movement campaign, about ideas. Clinton is about her and her husband, about her fight, her comeback. McCain is about he Hanoi Hilton and his supposedly impeccable ethics record. Obama is not really about him. (No one seems to know anything about him. They think he is all surface, when he is in fact the smartest candidate with the most innovative, though not always the best, agenda. They think he doesn't have any experience, but only because he's young. He has more legislative experience than Clinton and more time spent with working people. Oh, the ironies...) Obama's campaign is all about ideas. Not about empty terms such as change, but about the country reassessing itself. The campaign presents a communitarian ideal; what can we do for our country, a la Kennedy. (Clinton is all about what she can do for us, that is, give us this or that.) Obama, although not as dogmatic on the issues (sometimes to my chagrin), does have that spirit of Roosevelt, of radically changing thing. Clinton is all about incrimentalism. So, in the end, Obama is the new politics, not of "change" or "hope," but of the community, of the people, and of the larger world. (His speech tonight echoed that.) After so long of personality and individuals trumping ideas, we finally have someone to reverse but course. But the Clinton and their negative campaigning are going to cost us this possibility. President McCain awaits.
Obama lost Texas in four large counties in which Hispanics make up over 80% of the population: Webb, Cameron, Hidalgo, and El Paso. Clitnon netted 130,000 votes out of these counties; Obama lost by about 95,000 overall in the state. Hispanics killed Obama in Texas.
In regards to Ohio, either the exit polls in Ohio were fucked up or 100% of white people who did not finish high school voted for Clinton. While that latter is possible, it's unlikely. In either case, Clinton won Ohio by winning uneducated whites in Northeast part of the state, in cities like Youngstown and Akron. They provided half of Clinton's margin, but Obama only won four counties out of 88! Yikes! Pennsylvania is going to break similarly, if not worse.
"She was doing what George Bush does so well, which was going negative on your opponent but looking happy while doing it." - Mark Halperin on Hillary Clinton
Wednesday, March 05, 2008
Tuesday, January 15, 2008
Decided at the Convention: It Could Happen
If current trends continue, it seems to me that both the Democratic and Republican nominees will not be selected until or right before their respective conventions. That would mark the first time that this has happened in a while.
[In 1980, Ted Kennedy could have beat Carter at the convention if all the superdelegates went to him. Of course, against a sitting president, this was impossible and everyone knew it. I don't think that counts. Eight years earlier, Herbert Humphrey tried to challenge George McGovern's delegates in California. A final decision wasn't delivered until shortly before the convention, but most expected McGovern to get them all, as California law at the time stated. A similar scenario occurred in 1968, thanks to Kennedy's death. If we dismiss all of these, then 1956 was the last time. In that year, Adlai Stevenson was re-drafted to be the nominee over vote-winner Estes Kefauver.]
So, yes, a brokered convention (or two) might lie in the near future. For the Republicans, John McCain, Mike Huckabee, and Mitt Romney have all won initial contests. McCain is disliked by evangelicals and traditional, wealthy conservatives, but has good numbers among moderates/independents and pro-military types. The majority of Huckabee's following is among evangelicals/fundamentalists, the poorest Republicans, and Southerners. Romney, meanwhile, is the establishment Republican candidate of the rich, fiscal conservative and business types. He also a good following among Northerners and Westerners, especially Mormons. Basically, these three candidates have split the Republican party in thirds. On top of all of this division, Ron Paul is taking away about 5-10% of the party's strong libertarian faction. (I am fairly confident that he will run as the Libertarian candidate and win about 4% of the vote)
The two other significant Republican candidates are Fred Thompson and Rudy Guiliani. If Thompson does not win or come within three percentage points of winning South Carolina next week, he will drop out of the race. He is covering much of the same ground as Romney and his Southern support is being taken away by Huckabee. I think he's gone. Guiliani, meanwhile, could win Florida, though I don't think he will. He may come close, though, and stay in the race. If so, no single Republican will get more than 35% of the delegates on Super Tuesday. According to my math, if at least three Republicans stay in the race, then again no one will finish with enough delegates to be automatically selected the nominee. I'd even say that there is now a 30% chance that the Republicans could try to draft someone, with possibilities such as Newt Gingrich, Haley Barbour, or some other Republican governor.
On the Democratic side, Clinton looks like she will get the most delegates but not enough to clinch the nomination. Edwards' delegates or the super-delegates may be the deciding ones at the Democratic convention. (I am estimating the following delegate percentage breakdown, based solely on contests: Clinton - 46%, Obama - 38%, Edwards - 16%) Under such circumstances, the superdelegates (who are not chosen by primary voters or by caucuses, but who are mainly elected officials within the Democratic party) may decide to just crown Hillary the winner. Or they could split, leaving no clear winner. Especially if Obama's support remains strong, I think the latter will happen.
Whatever the case, though, it does appear that Clinton will ultimately end up with the nomination, though this could happen as late as the convention. What could prevent this inevitability? Obama would have to win Nevada by more than 5% and South Carolina by more than 10%. (I would not bet on either of these.) Clinton would also have to make some kind of obvious mistake over the next three weeks. Ultimately, Obama will probably end up winning white men, black men and women, those under 30, moderates, and the most left-leaning. Clinton will win white women (who vote in the heaviest numbers), those over 45, stalwart Democrats, and (significantly) Latinos. I would also say now (with about 70% certainly) that both the eventual president and v.p. nominees with be chosen from these three candidates.
Addendum: Shortly after writing this, I noticed this piece in the Washington Post.
[In 1980, Ted Kennedy could have beat Carter at the convention if all the superdelegates went to him. Of course, against a sitting president, this was impossible and everyone knew it. I don't think that counts. Eight years earlier, Herbert Humphrey tried to challenge George McGovern's delegates in California. A final decision wasn't delivered until shortly before the convention, but most expected McGovern to get them all, as California law at the time stated. A similar scenario occurred in 1968, thanks to Kennedy's death. If we dismiss all of these, then 1956 was the last time. In that year, Adlai Stevenson was re-drafted to be the nominee over vote-winner Estes Kefauver.]
So, yes, a brokered convention (or two) might lie in the near future. For the Republicans, John McCain, Mike Huckabee, and Mitt Romney have all won initial contests. McCain is disliked by evangelicals and traditional, wealthy conservatives, but has good numbers among moderates/independents and pro-military types. The majority of Huckabee's following is among evangelicals/fundamentalists, the poorest Republicans, and Southerners. Romney, meanwhile, is the establishment Republican candidate of the rich, fiscal conservative and business types. He also a good following among Northerners and Westerners, especially Mormons. Basically, these three candidates have split the Republican party in thirds. On top of all of this division, Ron Paul is taking away about 5-10% of the party's strong libertarian faction. (I am fairly confident that he will run as the Libertarian candidate and win about 4% of the vote)
The two other significant Republican candidates are Fred Thompson and Rudy Guiliani. If Thompson does not win or come within three percentage points of winning South Carolina next week, he will drop out of the race. He is covering much of the same ground as Romney and his Southern support is being taken away by Huckabee. I think he's gone. Guiliani, meanwhile, could win Florida, though I don't think he will. He may come close, though, and stay in the race. If so, no single Republican will get more than 35% of the delegates on Super Tuesday. According to my math, if at least three Republicans stay in the race, then again no one will finish with enough delegates to be automatically selected the nominee. I'd even say that there is now a 30% chance that the Republicans could try to draft someone, with possibilities such as Newt Gingrich, Haley Barbour, or some other Republican governor.
On the Democratic side, Clinton looks like she will get the most delegates but not enough to clinch the nomination. Edwards' delegates or the super-delegates may be the deciding ones at the Democratic convention. (I am estimating the following delegate percentage breakdown, based solely on contests: Clinton - 46%, Obama - 38%, Edwards - 16%) Under such circumstances, the superdelegates (who are not chosen by primary voters or by caucuses, but who are mainly elected officials within the Democratic party) may decide to just crown Hillary the winner. Or they could split, leaving no clear winner. Especially if Obama's support remains strong, I think the latter will happen.
Whatever the case, though, it does appear that Clinton will ultimately end up with the nomination, though this could happen as late as the convention. What could prevent this inevitability? Obama would have to win Nevada by more than 5% and South Carolina by more than 10%. (I would not bet on either of these.) Clinton would also have to make some kind of obvious mistake over the next three weeks. Ultimately, Obama will probably end up winning white men, black men and women, those under 30, moderates, and the most left-leaning. Clinton will win white women (who vote in the heaviest numbers), those over 45, stalwart Democrats, and (significantly) Latinos. I would also say now (with about 70% certainly) that both the eventual president and v.p. nominees with be chosen from these three candidates.
Addendum: Shortly after writing this, I noticed this piece in the Washington Post.
Sunday, September 02, 2007
The American Idea
Today, Roger Cohen on the International Herald Tribune wrote a column about the American idea. He quoted Brent Scowcroft as saying "Historically, the world has always given us the benefit of the doubt because it believed we meant well. It no longer does.” If the world no longer gives us the benefit of the doubt, then what has happened and will happen to the American idea?
The United States of America has always been as much of an idea as it as been a geographical entity. The small portion of the continent demarcated as the Thirteen Colonies in 1776 expanded by force over the next 150 years to encompass over a third of North America. Never during that time, however, did the country have any form of government other than upon that which it was founded. The United States was not only a burgeoning economic and industrial power during this period, but it was also an unique system of political organization. It was arguably the inspiration for the French Revolution and scores of others that followed. The idea of America was one of power dispersed among a larger populace. Even if this was solely white man landholders in the beginning, it still represented a radical departure from the monarchies and oligarchies of the past.
But, recognizing this basic premise, the idea of the USA has evolved constantly throughout its 231 year history. With new opportunities and struggles, the nation has found ways to transform this idea. Some sacrifices have been made, many of which have challenged even the core principles. I think of Lincoln's suspension of habeus corpus, the Sedition Acts of 1798 and 1918, and the internment of Japanese citizens during the Second World War. During the past six years, however, we have seen unique challenges from without and within. More dangerous are the latter, because they are self-inflicted wounds upon the country's great legacy.
Today, the American public is divided. One portion of the population holds that the actions of the US Government, especially those abroad, are inherently supportive and indicative of the American idea. As such, they see the occupation of Iraq, the detainment of enemy combatants, the increase in domestic surveillance, and the stifling of debate as extension of a country trying to defends its values. I greatly admire these individuals' faith in the goodness of our country. I too want to be proud of my country, but I find it impossible to share this faith. The idea of America is one that I want to maintain, but this is best accomplished not by preserving our security at any cost but by holding firm to our values with as little compromise as possible.
What are the values of the United States? For one, that the experiment is continued, that society and its government are consistently transformed to benefit these institutions. Surely, the writers and ratifiers of the Constitution wanted their version of the experiment to succeed. But the Declaration of Independence also states that it is "the Right of the People to alter or abolish [government]" if it becomes "destructive". In fact, the language of this document could easily be applied to some of the near "tyrannical" abuses of George W. Bush.
In an age when the American idea is vigorously debated, it is important to try our best to define it in the most positive, optimistic way. Over past years, threats have emerged. If these are able to reshape the American idea in a more pessimistic, restrictive, and violent way, then our enemies have won. But if America is able to reinvigorate and restore this concept of the American, then it can regain its important position in the world. Ultimately, America is about hope, but right now, at home and abroad, this sentiment is lacking.
The United States of America has always been as much of an idea as it as been a geographical entity. The small portion of the continent demarcated as the Thirteen Colonies in 1776 expanded by force over the next 150 years to encompass over a third of North America. Never during that time, however, did the country have any form of government other than upon that which it was founded. The United States was not only a burgeoning economic and industrial power during this period, but it was also an unique system of political organization. It was arguably the inspiration for the French Revolution and scores of others that followed. The idea of America was one of power dispersed among a larger populace. Even if this was solely white man landholders in the beginning, it still represented a radical departure from the monarchies and oligarchies of the past.
But, recognizing this basic premise, the idea of the USA has evolved constantly throughout its 231 year history. With new opportunities and struggles, the nation has found ways to transform this idea. Some sacrifices have been made, many of which have challenged even the core principles. I think of Lincoln's suspension of habeus corpus, the Sedition Acts of 1798 and 1918, and the internment of Japanese citizens during the Second World War. During the past six years, however, we have seen unique challenges from without and within. More dangerous are the latter, because they are self-inflicted wounds upon the country's great legacy.
Today, the American public is divided. One portion of the population holds that the actions of the US Government, especially those abroad, are inherently supportive and indicative of the American idea. As such, they see the occupation of Iraq, the detainment of enemy combatants, the increase in domestic surveillance, and the stifling of debate as extension of a country trying to defends its values. I greatly admire these individuals' faith in the goodness of our country. I too want to be proud of my country, but I find it impossible to share this faith. The idea of America is one that I want to maintain, but this is best accomplished not by preserving our security at any cost but by holding firm to our values with as little compromise as possible.
What are the values of the United States? For one, that the experiment is continued, that society and its government are consistently transformed to benefit these institutions. Surely, the writers and ratifiers of the Constitution wanted their version of the experiment to succeed. But the Declaration of Independence also states that it is "the Right of the People to alter or abolish [government]" if it becomes "destructive". In fact, the language of this document could easily be applied to some of the near "tyrannical" abuses of George W. Bush.
In an age when the American idea is vigorously debated, it is important to try our best to define it in the most positive, optimistic way. Over past years, threats have emerged. If these are able to reshape the American idea in a more pessimistic, restrictive, and violent way, then our enemies have won. But if America is able to reinvigorate and restore this concept of the American, then it can regain its important position in the world. Ultimately, America is about hope, but right now, at home and abroad, this sentiment is lacking.
Saturday, August 18, 2007
Real Lessons from the Sub-Prime Collapse
Who's to blame for the "sub-prime collapse"? The two competing narratives place reckless mortgage-borrowings and investors on one side while greedy, unethical mortgage companies and falsely secure funds are at the other end. The first emphasizes personal responsibility and is a Republican favorite. The second emphasizes the failure of business to act in a prudent manner and plays to the Democratic base. Yet, the lesson from the recent economic instability and the stark increase in foreclosures is not really about either. Although these remain problems, they are symptomatic of a much more significant, underlying trend.
Over the past thirty year, the medium wages for households have been stagnant. And, for males, they have noticeably decreased. With deregulation of industry in this period, as well as the decline in unions and shifting "market value" of formerly valuable skills, has caused the average American to benefit less and less from the general productivity increases in society. Thus, corporate profits increase but wages remain the same. But how does this connect to what we've seen recently?
For one, many families were unable to secure homes, thanks to loss jobs, poor credit (due to health expenses), or low wages. The savings rate has collapsed and with the ability of many to put down payments on homes. In response to a reduced client base, mortgage lenders developed new tactics to increase their bottom line; they offered to mortgages to people who could not afford them, and then quickly sold them to others for re-packaging into (inexplicably) AAA-rated securities. The first action was a response to dwindling returns, while the second was a chance to avoid the risk. But this risk was not diminished, just passed elsewhere.
This brings us to the other part of this story, the other underlying condition: our economy is in lousy shape. While I doubt any macro-economists or financial analysis will agree with that statement -- what with ExxonMobil taking in record profits and growth still at historically high levels -- this truth is evident from many snapshots of the economy. A simple look at the Dow shows that economy only began to significantly recover from the post-9/11 fall in April of 2003. To what does this month correspond? Well, the Iraq Invasion, of course. And the rapid rise of the equity market was catalyzed by the rise of deference contractor stocks. The military-industrial complex, therefore, brought the economy back from failed recovery. Would the economy have been revived if not for the war? The answer is a simple no. The government did not put policies in place -- mainly those that support government spending or tax cuts that disproportionately benefit the bottom third of the society -- necessary to create a sustained recovery. The "war" was an opportunity to jump start things.
And there is nothing inherently wrong with that -- except, of course, that the war was waged on bad intelligence and falsehoods purposefully presented to the American public and aided by the media. But all those "minor" concerns aside, wars have been used in the past to aid the economy; this can be seen in World War II, the Korean War, Vietnam, and the Cold War in general. The problem in this case is that the Iraq occupation was nothing more than a false economic catalyst. This war, although involving the loss of nearly 4,000 lives, has not required any economic sacrifice from the public nor has it bolstered any industries except those closely related to the continuing conflict. But rising equity markets, aided by the war, gave a sense of perpetuating positiveness. Meanwhile, the house bubble, blown up on bad loans and new collectivized securities, catalyzed this seeming economic "growth". And, in addition to this bubble, an excess of buy-outs, buy-backs, mergers, and hostile takeovers -- all aided by cheap credit, in turn connected to the mortgages -- fueled continued expansion. Without all of these economic tricks (a false complete war, a mortgage bubble, and creative leveraging), as much as half of our recent economic growth would not have occurred. So, what are we left with?
The United States economy faltered in the 1970s, due to expensive oil, increased international competition, and eroding government spending (thanks to lowered taxes). The response to the downturn of the "me" decade has only been illusive measures to temporary bolster the economy while ignoring long-term submerged problems. The excessive interest rates of the late '70s and early '80s may have tamed inflation but did nothing to deal with the decline in the value of wages in substance terms; it was all about exchange rates and the financial system. The Reagan tax cuts were used to compensate for the interest rate rises. And, throughout this period, deregulation guaranteed rising profit margins through mergers. As a result, we had the gains in the 80s. The success of the following decade was mainly due to the emergence of the internet and the false expectations for an unlimited rise. That partially collapsed. And, in this decade, the occupation of Iraq and creative accounting and investment techniques not seen since the 1920s have been responsible for much of the gains. Might we finally see the reckoning for all the knee-jerk policies of the past thirty years?
One example of this is the failures in New Orleans and in Minnesota. The infrastructure of the U.S. is severely weakened by a government which prefers pet projects and politically beneficial legislation (tax cuts, welfare reform, the Medicare subscription benefit) to any substantial investment in the future of America. Today, everything is about painless solutions to false problems, while real ones are ignored until disaster strikes.
The recent downturn in the stock market and the excess of foreclosures is not about individual actors in the economy. It is about the economy itself, and the economy is sick. But much like the uninsured or under-insured in this country, they cannot get better without breaking the bank. Because, as all of this transpired, taxes have been decreased to the lowest level since the 1920s, government spending has went disproportionately to boondoggles home and abroad, and the national and trade debt has increased to significant and historic levels, respectively.
The problem is not that people were pushed into financially-unfeasible loans, it's that mortgage-buyers were unable to buy homes in the first place. This is a fundamental indictment of a society that holds paramount the dream of homeownership. The tactics employed by mortgage lenders show their desperation with an untenable economic spectrum. The financial markets, meanwhile, demonstrate how capitalism requires persistent growth; and when such growth cannot be found, it is created through unique investment strategies, unnecessary cost-cutting, and malfeasance. Our society has become cutthroat not because we are inherently so, but because things are collapsing around us and we are fighting over the remnants.
But how can this be fixed? The solutions will be painful. The government needs to make a substantial investment in the bottom half of American society, through universal health care, better education funding, increased government assistance to the unemployed, greater employment, lowered taxes, and increased funding of infrastructure. This can be accomplished through significant tax increases on any income over $150,000 per year, either from corporations or individuals, and the elimination of many tax deductions and shelters. Right now, too much wealth is concentrated in too few hands, and those hands -- while sometimes doing a noble job of spreading the wealth -- are consuming and investing in ways that do not significantly help the real economy. It's time for the government to take it back and ensure it is used to enrich America not certain Americans. The government also needs to increase regulation, in order to ensure that the rights of workers and the average American is taken to greater account than the whims of aloof corporate officials or greedy shareholders.
Over the past thirty years, the United States have sacrificed constant growth that benefits of the majority for rapid growth that favors the few. Such economic policy has not led to rebellions like the French Revolution nor widespread strikes (these kinds of activities are not traditionally American), but it has led to significant cracks in the economic and physical infrastructure. The government operates in deficits and cuts non-security-related, discretionary domestic spending, while consumers max out their credit cards, deplete their savings, and too many lose their homes. The US policy over this period, much like that during the 1920s, has been a recipe for disaster. That the creativity of the finance class, the Federal Reserve, and Congress has kept things going over this time is not a cause for cheer. The inevitable remains.
Over the past thirty year, the medium wages for households have been stagnant. And, for males, they have noticeably decreased. With deregulation of industry in this period, as well as the decline in unions and shifting "market value" of formerly valuable skills, has caused the average American to benefit less and less from the general productivity increases in society. Thus, corporate profits increase but wages remain the same. But how does this connect to what we've seen recently?
For one, many families were unable to secure homes, thanks to loss jobs, poor credit (due to health expenses), or low wages. The savings rate has collapsed and with the ability of many to put down payments on homes. In response to a reduced client base, mortgage lenders developed new tactics to increase their bottom line; they offered to mortgages to people who could not afford them, and then quickly sold them to others for re-packaging into (inexplicably) AAA-rated securities. The first action was a response to dwindling returns, while the second was a chance to avoid the risk. But this risk was not diminished, just passed elsewhere.
This brings us to the other part of this story, the other underlying condition: our economy is in lousy shape. While I doubt any macro-economists or financial analysis will agree with that statement -- what with ExxonMobil taking in record profits and growth still at historically high levels -- this truth is evident from many snapshots of the economy. A simple look at the Dow shows that economy only began to significantly recover from the post-9/11 fall in April of 2003. To what does this month correspond? Well, the Iraq Invasion, of course. And the rapid rise of the equity market was catalyzed by the rise of deference contractor stocks. The military-industrial complex, therefore, brought the economy back from failed recovery. Would the economy have been revived if not for the war? The answer is a simple no. The government did not put policies in place -- mainly those that support government spending or tax cuts that disproportionately benefit the bottom third of the society -- necessary to create a sustained recovery. The "war" was an opportunity to jump start things.
And there is nothing inherently wrong with that -- except, of course, that the war was waged on bad intelligence and falsehoods purposefully presented to the American public and aided by the media. But all those "minor" concerns aside, wars have been used in the past to aid the economy; this can be seen in World War II, the Korean War, Vietnam, and the Cold War in general. The problem in this case is that the Iraq occupation was nothing more than a false economic catalyst. This war, although involving the loss of nearly 4,000 lives, has not required any economic sacrifice from the public nor has it bolstered any industries except those closely related to the continuing conflict. But rising equity markets, aided by the war, gave a sense of perpetuating positiveness. Meanwhile, the house bubble, blown up on bad loans and new collectivized securities, catalyzed this seeming economic "growth". And, in addition to this bubble, an excess of buy-outs, buy-backs, mergers, and hostile takeovers -- all aided by cheap credit, in turn connected to the mortgages -- fueled continued expansion. Without all of these economic tricks (a false complete war, a mortgage bubble, and creative leveraging), as much as half of our recent economic growth would not have occurred. So, what are we left with?
The United States economy faltered in the 1970s, due to expensive oil, increased international competition, and eroding government spending (thanks to lowered taxes). The response to the downturn of the "me" decade has only been illusive measures to temporary bolster the economy while ignoring long-term submerged problems. The excessive interest rates of the late '70s and early '80s may have tamed inflation but did nothing to deal with the decline in the value of wages in substance terms; it was all about exchange rates and the financial system. The Reagan tax cuts were used to compensate for the interest rate rises. And, throughout this period, deregulation guaranteed rising profit margins through mergers. As a result, we had the gains in the 80s. The success of the following decade was mainly due to the emergence of the internet and the false expectations for an unlimited rise. That partially collapsed. And, in this decade, the occupation of Iraq and creative accounting and investment techniques not seen since the 1920s have been responsible for much of the gains. Might we finally see the reckoning for all the knee-jerk policies of the past thirty years?
One example of this is the failures in New Orleans and in Minnesota. The infrastructure of the U.S. is severely weakened by a government which prefers pet projects and politically beneficial legislation (tax cuts, welfare reform, the Medicare subscription benefit) to any substantial investment in the future of America. Today, everything is about painless solutions to false problems, while real ones are ignored until disaster strikes.
The recent downturn in the stock market and the excess of foreclosures is not about individual actors in the economy. It is about the economy itself, and the economy is sick. But much like the uninsured or under-insured in this country, they cannot get better without breaking the bank. Because, as all of this transpired, taxes have been decreased to the lowest level since the 1920s, government spending has went disproportionately to boondoggles home and abroad, and the national and trade debt has increased to significant and historic levels, respectively.
The problem is not that people were pushed into financially-unfeasible loans, it's that mortgage-buyers were unable to buy homes in the first place. This is a fundamental indictment of a society that holds paramount the dream of homeownership. The tactics employed by mortgage lenders show their desperation with an untenable economic spectrum. The financial markets, meanwhile, demonstrate how capitalism requires persistent growth; and when such growth cannot be found, it is created through unique investment strategies, unnecessary cost-cutting, and malfeasance. Our society has become cutthroat not because we are inherently so, but because things are collapsing around us and we are fighting over the remnants.
But how can this be fixed? The solutions will be painful. The government needs to make a substantial investment in the bottom half of American society, through universal health care, better education funding, increased government assistance to the unemployed, greater employment, lowered taxes, and increased funding of infrastructure. This can be accomplished through significant tax increases on any income over $150,000 per year, either from corporations or individuals, and the elimination of many tax deductions and shelters. Right now, too much wealth is concentrated in too few hands, and those hands -- while sometimes doing a noble job of spreading the wealth -- are consuming and investing in ways that do not significantly help the real economy. It's time for the government to take it back and ensure it is used to enrich America not certain Americans. The government also needs to increase regulation, in order to ensure that the rights of workers and the average American is taken to greater account than the whims of aloof corporate officials or greedy shareholders.
Over the past thirty years, the United States have sacrificed constant growth that benefits of the majority for rapid growth that favors the few. Such economic policy has not led to rebellions like the French Revolution nor widespread strikes (these kinds of activities are not traditionally American), but it has led to significant cracks in the economic and physical infrastructure. The government operates in deficits and cuts non-security-related, discretionary domestic spending, while consumers max out their credit cards, deplete their savings, and too many lose their homes. The US policy over this period, much like that during the 1920s, has been a recipe for disaster. That the creativity of the finance class, the Federal Reserve, and Congress has kept things going over this time is not a cause for cheer. The inevitable remains.
Friday, August 10, 2007
Where Did All The Money Go?
With the collapse of sub-prime real estate market as well as some prominent hedge funds, traders have increased volatility in the market and necessitating constant dismissal of (legitimate) economic fears. All of these dismissals -- from the White House, the Fed, Goldman Sachs analysts -- only enhance these underlying fears. As Floyd Norris of the NY Times wrote in recent column, declarations of stability only serve to highlight the instability hiding just below the surface.
On Thursday, the key US indexes were down nearly 3% with the Dow experiencing a near 400 point drop. Today, the (inexplicable) optimists were celebrating a mere 30 point drop after a day that saw the index down over 200 at one point. But the celebration is premature. The volatility (and drops) in the equity markets are just a symptom of a much larger problem. In opposition to what many investment analysts are saying, nearly all equities are bloated. When it comes down to it, everything is over-leveraged. And the money, well, it just is not there.
But then where did it go? As always, market processed begin with real money. A wannabe homeowner takes out a $500,000 mortgage with a $10,000 down payment. This money has transferred to the home seller, and the new owner is indebted to the bank for that amount. But, in recent years, the bank has relinquished the risk by immediately selling the debt to third party. In most cases this sold mortgage is bundled with thousands others to create a CDU fund. This fund is then sold to investors -- hedge funds, pensions, rich people -- who often earn a nice return. But the real scandal, which has been much discussed, is how bundles of high-risk mortgages -- those taken out by individuals of dubious creditworthiness -- were consolidated into AAA, or seemingly low risk, funds. Thus, a pension manager looking for a high return would be ecstatic to invest in a low risk fund that may yield 11% or more. With many of these sub-prime loans set to see massive interest-rate increases, the yield could potentially be higher. But, if that seems to good to be true, it's because it is.
Those loans should never have been lent in the first place. And, instead of a windfall of high interest payments, investors are left with defaults. The pension that I gave as an example could lost all its investment. So much for that AAA rating.
But it is not just mortgages that are bundled and mislabeled in such ways. This practice is endemic in the marketplace. And the unfortunate part is that as the bluff is finally called, the withdrawals will only cause more withdrawals. The end result may very well be a run on these funds. With this, liquidity will dry up, as we have been made obvious by the Fed infusions today. The effects, however, will not as many believe be contained in narrow equity markets. The lack of liquid capital will cause a decline in mortgages, but also in much of the financial services activity (mergers and acquisitions, leveraged buy-outs, stock buybacks, and leveraged investments) that have made so many companies so profitable. The result here could be a decline in profits among numerous companies, mass layoffs, and general malaise in capital markets.
But it only gets worse from there. The policy measures that the Fed has at its disposal can only escaberate one side of the problem. Of course, any rate increase now could cause instant recession and perhaps worse. But a rate decrease and continued liquidity could potentially cause the dollar to collapse. And, the chief trade partner of the US, China has consistently unvalued its currently. The effect here is two-sided. A crashed dollar may no longer be seen as an effective investment for the Chinese and may shift to
(to be continued)
On Thursday, the key US indexes were down nearly 3% with the Dow experiencing a near 400 point drop. Today, the (inexplicable) optimists were celebrating a mere 30 point drop after a day that saw the index down over 200 at one point. But the celebration is premature. The volatility (and drops) in the equity markets are just a symptom of a much larger problem. In opposition to what many investment analysts are saying, nearly all equities are bloated. When it comes down to it, everything is over-leveraged. And the money, well, it just is not there.
But then where did it go? As always, market processed begin with real money. A wannabe homeowner takes out a $500,000 mortgage with a $10,000 down payment. This money has transferred to the home seller, and the new owner is indebted to the bank for that amount. But, in recent years, the bank has relinquished the risk by immediately selling the debt to third party. In most cases this sold mortgage is bundled with thousands others to create a CDU fund. This fund is then sold to investors -- hedge funds, pensions, rich people -- who often earn a nice return. But the real scandal, which has been much discussed, is how bundles of high-risk mortgages -- those taken out by individuals of dubious creditworthiness -- were consolidated into AAA, or seemingly low risk, funds. Thus, a pension manager looking for a high return would be ecstatic to invest in a low risk fund that may yield 11% or more. With many of these sub-prime loans set to see massive interest-rate increases, the yield could potentially be higher. But, if that seems to good to be true, it's because it is.
Those loans should never have been lent in the first place. And, instead of a windfall of high interest payments, investors are left with defaults. The pension that I gave as an example could lost all its investment. So much for that AAA rating.
But it is not just mortgages that are bundled and mislabeled in such ways. This practice is endemic in the marketplace. And the unfortunate part is that as the bluff is finally called, the withdrawals will only cause more withdrawals. The end result may very well be a run on these funds. With this, liquidity will dry up, as we have been made obvious by the Fed infusions today. The effects, however, will not as many believe be contained in narrow equity markets. The lack of liquid capital will cause a decline in mortgages, but also in much of the financial services activity (mergers and acquisitions, leveraged buy-outs, stock buybacks, and leveraged investments) that have made so many companies so profitable. The result here could be a decline in profits among numerous companies, mass layoffs, and general malaise in capital markets.
But it only gets worse from there. The policy measures that the Fed has at its disposal can only escaberate one side of the problem. Of course, any rate increase now could cause instant recession and perhaps worse. But a rate decrease and continued liquidity could potentially cause the dollar to collapse. And, the chief trade partner of the US, China has consistently unvalued its currently. The effect here is two-sided. A crashed dollar may no longer be seen as an effective investment for the Chinese and may shift to
(to be continued)
Monday, August 06, 2007
Jim Cramer Melts Down. Is the Economy Next?
If his fears turn out to be justified, this video may end up a classic.
Wednesday, February 21, 2007
A Real Mea Culpa
Dear American People,
I sorry and embarrassed. But most of all, I am deeply sorry.
The past six years were some of the worst in the US’s two- hundred-thirty year history. Following the 9/11 attacks, I subjected US citizens to unacceptable government intrusion, foreign wars, failed economic policies, and a poor response to the Katrina natural disaster. The climate of fear and my administration’s general incompetence disrupted our government from taking proper courses of action.
Words cannot express how truly sorry I am for the anxiety, frustration and inconvenience that I caused over this period. This is especially saddening because the US was founded on the promise of bolstering humanity and serving as an inspiration to the world. Over the course of my administration, I have failed to deliver on this promise.
I am committed to you, the American people, and am taking immediate corrective steps to regain your confidence in this administration. We have begun putting a comprehensive plan in place to provide greater transparency and also improve US policies to garner more widespread support among other nations. I am confident, as a result of these actions, that the US will emerge as a freer, more stable country that is widely admired, not despised, for its actions.
Most importantly, I have decided to finally abide by the US Constitution and the Bills of Rights—my official commitment to you of how we will handle government actions going forward—including the return of First and Fourth Amendment protections, as well as Congressional approval of all wars.
You deserved better—a lot better—from your president over these past years. Nothing is more important than regaining your trust and I hope you will give me this opportunity to give you back the great country that I, while at the helm, have diminished.
Sincerely,
George W. Bush
I sorry and embarrassed. But most of all, I am deeply sorry.
The past six years were some of the worst in the US’s two- hundred-thirty year history. Following the 9/11 attacks, I subjected US citizens to unacceptable government intrusion, foreign wars, failed economic policies, and a poor response to the Katrina natural disaster. The climate of fear and my administration’s general incompetence disrupted our government from taking proper courses of action.
Words cannot express how truly sorry I am for the anxiety, frustration and inconvenience that I caused over this period. This is especially saddening because the US was founded on the promise of bolstering humanity and serving as an inspiration to the world. Over the course of my administration, I have failed to deliver on this promise.
I am committed to you, the American people, and am taking immediate corrective steps to regain your confidence in this administration. We have begun putting a comprehensive plan in place to provide greater transparency and also improve US policies to garner more widespread support among other nations. I am confident, as a result of these actions, that the US will emerge as a freer, more stable country that is widely admired, not despised, for its actions.
Most importantly, I have decided to finally abide by the US Constitution and the Bills of Rights—my official commitment to you of how we will handle government actions going forward—including the return of First and Fourth Amendment protections, as well as Congressional approval of all wars.
You deserved better—a lot better—from your president over these past years. Nothing is more important than regaining your trust and I hope you will give me this opportunity to give you back the great country that I, while at the helm, have diminished.
Sincerely,
George W. Bush
Monday, June 12, 2006
The Lost Party (part 1)
Ah, the Democratic Party. Much is made about its prospects for a victory in Congress in November's election. Although many commentators make this seem iminent, such a goal still seems unlikely to me. Currently, the Democrats' 202 seats in the House is the second lowest in any Congress since 1930. The official 44 Democrats in the Senate (although Jim Jefford, the independent, votes with them) is also the lowest count since '30 as well. The party's at what could best be described as its nadir, and yet everyone is projecting its re-emergence. Such an event occurred between 1930 and 1932, when the Democrats shifted the balance in the House by 150 seats and 20 in the Senate. But we can thank the early years of the Great Depression for that. Why is everyone so optimistic? Is Iraq tantamount to that previous fiscal crisis?
In fact, the greatest hope for a Democratic party victory this year would be such an economic crisis. If the real estate market were to collapse, or if foreign lender-nations decided to sell their treasury bonds, then such a crisis may occur. (It might even occur if $100+ oil prices cripple the market.) Since the Democrats are linked with a robust economy (think Clinton, not Carter) and they poll better on that issue that anything else, such a turnaround could greatly benefit them. It may even throw the necessary seats their way.
But what if such a collapse fails to take place. What then do the Democrats do? One strategy is to rely on the poor numbers of the president. This theory states: if Bush is unpopular, the House Republicans will be too. History supports this assumption. Presidents with declining poll numbers (especially if they seep below 40%) lead their parties to massive losses in mid-term elections, especially in the middle of the second term (see '38, '58, and '86). Such indicators might suggest that were Bush to still be sub-40% come election day, the Republicans would lose at least 20 seats in the House. The Senate, however, is less affected, because the particular seats up in a given year can be very important. If 10 swing state seats were up this year, we could talk about strong possibility of the Democratic victory. This, however, is not the case, as only about 7 are really in contention. Thus, even if Bush's numbers remain poor, the Senate may be difficult for Democrats to wrest from Republican control.
Yet, can we truly say that relying on Bush's shortcomings is a valid strategy? I don't think we can. The larger picture suggests more obstacles for the party. The Democrats have been out of power on Capitol Hill for vitually all of the past twelve years. The party fares poorly in rural districts and, more generally, in the South and Mountain West. (One bright spot is the movement of libertarian Republicans toward the party, as a result of civil liberty crackdowns by the Bush administration. But the viability of these discontented rightists voting for a Democrat is in question.) The remnant Left of the Democrats, those for example who ersthwhile supported McGovern or Johnson's Great Society, have been almost completely neglected by the party. (Some don't think they even exist, because today such positions would be considered to the left of the Deaniacs.) New Dealism remains mostly in its regulatory legacies and desire of conservatives to retreat from it. The fact is that no mainstream politician in today's environment ever proposes the raising of taxes or increased regulation of energy or media. Just as the New Deal made Social Security and the minimum wage into accepted standards, the Reagan revolution has engrained tax cuts and deregulation into the mind of voters. As a result, the real Left is dead. The Democratic Party is controlled by the very organization, the DLC, that was once considered barely more than a joke. In that sense, we also live in the post-Clinton era, one where Democrats have to cater to business interests and eschew any notion of sacrifice for the common good. The party has losts both its voting base (especially whites) as well as its identity.
Yet, the party is somehow on the march. Today, the highlights of this (supposedly) emerging Democrat consensus include such things as the so-called liberal blogosphere. (Please don't count me within that bunch.) This blogosphere connects with 187 group websites, like MoveOn.org and others, to form the backbone of the grass-roots Left. Although they may feel that anti-Bush rhetoric and elitist, anti-elitist collectivism poses a great threat to the Right, they are mistaken. They may attract some passionate individuals to aid their cause, but all their hard work is often subverted by the candidates and party that they support. The new online Left may be the future, but they are hindered by the past. They exist in simplistic opposition to Bush while failing to eschew most of the legacies of the past two and a half decades. In this context, the push to defeat Lieberman in Connecticut is not a failure because it's an inquisition (as David Brooks suggests), but because it's a mere referendum on Bush. Lieberman is too close to this enemy for the bloggers to handle. While the result may not be that bad, the reasoning behind this challenge is simple-minded.
The Democrats must seek something beyond merely a attack, a single issue, or even a "vision". The party needs an institutional structure that will expand upon the old bread-and-butter issues. But, I do not intend to push the party toward the center, as many would have it. Instead, I feel that they should reshape the Left. To be sure, American is more prosperous than in the past and, on the whole, the average standard of living has increased. But the overall functioning of American society is highly problematic. Voters may not care about the U.S. trade imbalance or debtor culture, but they are important issues for our nation's future health. Voters, however, can understand such things as credit/loan re-regulation, increased wages, national savings plans, tiered taxes, and other economic policies that effect people's day to day lives. Today, corporations have a stranglehold over much of American society and, with this, investment culture has weakened the futures of many Americans.
In a word, the Democrats need to re-frame economic issues through the benefits that policy changes offer for a vast majority. Higher taxes brackets, assessing 50% rates on those who make over a million dollars a year for example, would affect only a tiny portion of the population and enable tax cuts for those on the bottom half of the income scale. Within this framework, the prosperity of corporate growth may spread to those who have not yet enjoyed the benefits of its security. A workable future for the Democrats exist. They just need to reframe the economy issue as a set of rights, not as a sacrifice. Tax relief for the middle class, college credits, or fuel efficiency rewards. If the party can appeal to the voters prurient interest in self-benefit, because it can pry them away from the Right.
Additionally, the Democrats need to regain kind of smart populism. Not one that attempts to vilify or mock (as many demagogues do), but one that sees an optimistic future that can be achieved through a change in priorities. The Left can never win an election on foreign policy, because they will always be perceived as weak and should be. (Sure, a candidate can lie like Kennedy about a false missile gap, but in the end, the Democrats are the party of a world reprieve after the Cuban Missile Crisis while the Republicans are the party of Iraq and the bombing of Cambodia.) The Democrats, due their consideration of issues and the failure to consider brute force as necessary, are the better party. But they do not make people feel safe. They need to focus on what they do best. I hate to use a cliched line, but it's still the economy stupid!
Additional articles on this topic will appear periodically in the lead up to the mid-term election.
In fact, the greatest hope for a Democratic party victory this year would be such an economic crisis. If the real estate market were to collapse, or if foreign lender-nations decided to sell their treasury bonds, then such a crisis may occur. (It might even occur if $100+ oil prices cripple the market.) Since the Democrats are linked with a robust economy (think Clinton, not Carter) and they poll better on that issue that anything else, such a turnaround could greatly benefit them. It may even throw the necessary seats their way.
But what if such a collapse fails to take place. What then do the Democrats do? One strategy is to rely on the poor numbers of the president. This theory states: if Bush is unpopular, the House Republicans will be too. History supports this assumption. Presidents with declining poll numbers (especially if they seep below 40%) lead their parties to massive losses in mid-term elections, especially in the middle of the second term (see '38, '58, and '86). Such indicators might suggest that were Bush to still be sub-40% come election day, the Republicans would lose at least 20 seats in the House. The Senate, however, is less affected, because the particular seats up in a given year can be very important. If 10 swing state seats were up this year, we could talk about strong possibility of the Democratic victory. This, however, is not the case, as only about 7 are really in contention. Thus, even if Bush's numbers remain poor, the Senate may be difficult for Democrats to wrest from Republican control.
Yet, can we truly say that relying on Bush's shortcomings is a valid strategy? I don't think we can. The larger picture suggests more obstacles for the party. The Democrats have been out of power on Capitol Hill for vitually all of the past twelve years. The party fares poorly in rural districts and, more generally, in the South and Mountain West. (One bright spot is the movement of libertarian Republicans toward the party, as a result of civil liberty crackdowns by the Bush administration. But the viability of these discontented rightists voting for a Democrat is in question.) The remnant Left of the Democrats, those for example who ersthwhile supported McGovern or Johnson's Great Society, have been almost completely neglected by the party. (Some don't think they even exist, because today such positions would be considered to the left of the Deaniacs.) New Dealism remains mostly in its regulatory legacies and desire of conservatives to retreat from it. The fact is that no mainstream politician in today's environment ever proposes the raising of taxes or increased regulation of energy or media. Just as the New Deal made Social Security and the minimum wage into accepted standards, the Reagan revolution has engrained tax cuts and deregulation into the mind of voters. As a result, the real Left is dead. The Democratic Party is controlled by the very organization, the DLC, that was once considered barely more than a joke. In that sense, we also live in the post-Clinton era, one where Democrats have to cater to business interests and eschew any notion of sacrifice for the common good. The party has losts both its voting base (especially whites) as well as its identity.
Yet, the party is somehow on the march. Today, the highlights of this (supposedly) emerging Democrat consensus include such things as the so-called liberal blogosphere. (Please don't count me within that bunch.) This blogosphere connects with 187 group websites, like MoveOn.org and others, to form the backbone of the grass-roots Left. Although they may feel that anti-Bush rhetoric and elitist, anti-elitist collectivism poses a great threat to the Right, they are mistaken. They may attract some passionate individuals to aid their cause, but all their hard work is often subverted by the candidates and party that they support. The new online Left may be the future, but they are hindered by the past. They exist in simplistic opposition to Bush while failing to eschew most of the legacies of the past two and a half decades. In this context, the push to defeat Lieberman in Connecticut is not a failure because it's an inquisition (as David Brooks suggests), but because it's a mere referendum on Bush. Lieberman is too close to this enemy for the bloggers to handle. While the result may not be that bad, the reasoning behind this challenge is simple-minded.
The Democrats must seek something beyond merely a attack, a single issue, or even a "vision". The party needs an institutional structure that will expand upon the old bread-and-butter issues. But, I do not intend to push the party toward the center, as many would have it. Instead, I feel that they should reshape the Left. To be sure, American is more prosperous than in the past and, on the whole, the average standard of living has increased. But the overall functioning of American society is highly problematic. Voters may not care about the U.S. trade imbalance or debtor culture, but they are important issues for our nation's future health. Voters, however, can understand such things as credit/loan re-regulation, increased wages, national savings plans, tiered taxes, and other economic policies that effect people's day to day lives. Today, corporations have a stranglehold over much of American society and, with this, investment culture has weakened the futures of many Americans.
In a word, the Democrats need to re-frame economic issues through the benefits that policy changes offer for a vast majority. Higher taxes brackets, assessing 50% rates on those who make over a million dollars a year for example, would affect only a tiny portion of the population and enable tax cuts for those on the bottom half of the income scale. Within this framework, the prosperity of corporate growth may spread to those who have not yet enjoyed the benefits of its security. A workable future for the Democrats exist. They just need to reframe the economy issue as a set of rights, not as a sacrifice. Tax relief for the middle class, college credits, or fuel efficiency rewards. If the party can appeal to the voters prurient interest in self-benefit, because it can pry them away from the Right.
Additionally, the Democrats need to regain kind of smart populism. Not one that attempts to vilify or mock (as many demagogues do), but one that sees an optimistic future that can be achieved through a change in priorities. The Left can never win an election on foreign policy, because they will always be perceived as weak and should be. (Sure, a candidate can lie like Kennedy about a false missile gap, but in the end, the Democrats are the party of a world reprieve after the Cuban Missile Crisis while the Republicans are the party of Iraq and the bombing of Cambodia.) The Democrats, due their consideration of issues and the failure to consider brute force as necessary, are the better party. But they do not make people feel safe. They need to focus on what they do best. I hate to use a cliched line, but it's still the economy stupid!
Additional articles on this topic will appear periodically in the lead up to the mid-term election.
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