Dec 29

Where We Stand On Gun Violence After Newtown

Kent State: 1970

With the New Year quickly approaching, and following a long hiatus from us here at, I thought it apt to provide a short summary of where we stand as a gun loving republic heading into 2013.

Following another horrific yet utterly predictable school shooting, this time on the East Coast, we are again embroiled in what will almost certainly be a short and unproductive national discourse concerning “gun control.” Immediately following the event, the nation mourned both publicly and privately. Candlelight vigils and prayer services dotted the land. The conversations, disagreements, and arguments mirrored that of the abortion debate, with neither side able to see the logic of the opponent’s point of view. Legislation banning certain assault weapons and high capacity magazines will be introduced, again, and may actually find some traction in Congress. The NRA, the one-time recreational, hunting, and sports shooting advocacy group provided a tone deaf response to the Newtown incident that evidenced finally, and without question, that the organization receives its marching orders not from its hunting and sporting membership, but from firearm manufacturers and sellers. The NRA now receives less than half of its funding from dues paying members.

What can be done to prevent needless firearm deaths in the future? This is a complicated issue that must be attacked on many fronts. First and foremost we must have a uniform system of law that provides for a minimum regulatory regime across all states. All firearms must be registered and all sales must be recorded in a national database, closing the so-called gun show loophole and requiring recordation of each private sale. Once this is accomplished, or before, certain states will almost certainly lead the way in restricting firearm sales and possession further, and these states must stand firm and allocate appropriate resources to fighting the law suits that will almost certainly follow. Next, we must increase significantly the punishment doled out to firearm offenders, enhancing prison terms and building extraordinary deterrents into the criminal justice system. The recent shooting in Upstate New York, during which a gentleman who himself was prohibited from purchasing firearms opened fire on several firefighters and police, had the assault rifle used in the attack purchased for him unlawfully by a female neighbor. The punishment for her crime is a maximum of ten years in prison; however the vast majority of sentences for such an offense receive little or no prison time. Would this neighbor have been willing to accompany the shooter to the sporting goods store if she knew the minimum sentence for doing so was fifteen or twenty years in prison? Would the vast majority of criminals continue to use firearms during the commission of a felony if they knew that they would receive twenty-five to life sentences for doing so? Our relatively lax sentencing guidelines for firearm crimes are starkly at odds with the percentage of violent crimes involving a gun, yet acutely in line with our collective impression of guns. This has to change.

We must also attack the issue of gun violence on the mental health front. This is certainly the most complicated and subjective element of gun violence, but can’t be ignored. Unlike the NRA, the mental health community understands that while depression, anxiety and a host of other disorders are more “closely linked” to criminality, only 5% of all violent crimes are committed by those with a mental disorder. In attempting to ameliorate the number of crimes committed by the mentally ill it is imperative that we as a society expand accessibility to mental health services. We must provide adequate care in our schools and universities. We must shun those who seek to straw-man the autistic and similarly affected.  We must provide mental health services as part of health programs for the poor and elderly, such as Medicaid, Medicare, and municipal health programs. We must require that private health insurers provide access to mental health services in each and every plan, even if it requires a public subsidy. Limiting access to firearms in conjunction with increased mental health services will not eliminate crimes and suicides among the mentally ill, but it make these crimes less frequent and perhaps less horrific.

We must also address this issue as a society, as a collective of people with a common goal in mind. Guns, assault weapons, high-capacity magazines, and access to these items does not tell the entire story. Murder rates have declined in the United States precipitously over the past few decades after reaching its pinnacle in the 1980s, even as raw firearm numbers, and access to more advanced assault weapons and high-capacity magazines has increased. While a national assault weapons ban was in place from 1994-2004, murder rates had already begun to show decline, and have continued to decrease since 2004. Should we ban assault weapons? Almost certainly. However, not because the weapons themselves necessarily lead to higher murder rates, but because these weapons reinforce an ever growing national ideology of violence. Banning these weapons will undoubtedly make crimes such as Columbine and Newtown less common, but the goal is to curtail gun violence nationally, not to stamp out the most abhorrent events while the larger problem propagates out of sight in our inner cities. No matter how horrific the events of Newtown were, the murders represent a tiny fraction of the gun related deaths that take place every day in the United States. Why do we as a society gather in prayer vigils and sign countless petitions when children and young adults are murdered in our schools, yet we do not do the same for the tens of people murdered every single day? Uncovering why we as a society can’t seem to see past the rhetoric and recognize the statistics and science that explain why so many of the claims of gun rights advocates are outright falsehoods is the key that unlocks the door to a brighter future. Failing to do so will doom us to more of the same, no matter what legislation is able to meander its way through the Capitol.



In the context of a new book to be released revealing an insider’s account of the bungling of the TARP program, a guest writer over at Naked Capitalism does a great job of describing and calling for a third narrative to emerge that will honestly describe the policies of President Barack Obama. Read the piece here.

But there are a few brave souls who are speaking truth, and the information about who Obama is and what he has done is slowly coming out. Charles Ferguson’s excellent new book, Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America, is the first post-mortem of the financial crisis in which the lens is political corruption in both parties and in economics. Ferguson, who made the Academy Award documentary Inside Job, sees the financial crisis first and foremost as a political problem, of oligarchy and a captured political system. The technical details – Volcker Rule, Dodd-Frank, etc – are just that. Ferguson isn’t dancing around the problem, either. He puts the blame on, among other people, Bill Clinton and Barack Obama. I’ll have more on this book.

May 24

The Fiscal Cliff: You Must be this Intransigent to Board this Ride, Let’s Go!

DivingIf you’re like me, you love roller coasters, most notably the incarnations that retain the preliminary long steep climb accompanied by the ominous clickity clack of the chain and track below the car until the pinnacle is reached. At the apex, all is silent, and just as you can see nothing but sky before you and the tiny heads of fellow park visitors hundreds of feet below you, the car proceeds downward at a ridiculous speed sucking the breath from your lungs. It’s exhilarating fun, and generally lasts no more than a minute or two. At this very moment, the United States is scaling hill number one while frantically ensuring that the lap bar has engaged properly. On December 31, 2012, a series of economic events are scheduled to take place that many are referring to as the “fiscal cliff.”

The Bush tax cuts enacted in 2001 and 2003, and extended through 2012 by President Obama in a December 2010 agreement, are set to expire. The expiration would adjust marginal tax rates upward across all income brackets and modestly raise the tax on capital gains–income earned from investments–from 15% to 20%. The expiration will also remove qualified dividends from special tax treatment, and undo a temporary patch to the Alternative Minimum Tax, among other smaller changes. Additionally, as part of the deal to raise the debt ceiling in 2011, Democrats and Republicans agreed to automatic across the board spending cuts of $1.2 trillion over the next ten years. The cuts are part of a sequester agreed to by both parties which will go into effect because the two sides could not agree on an alternative as required by the original pact. While certain mandatory outlays are exempted from the spending reductions, the total amount will be split roughly 50/50 between discretionary and defense spending unless consensus is reached before or sometime shortly after January 1, 2013. The federal unemployment extension and temporary 2% payroll tax reduction would also expire at years end. If Republicans are not willing to move into a position of rationality and responsibility, my position is that we should all buckle up and see where the ride takes us, rather than concede to incoherent demands in order to to avert a greater short term disaster. Continue reading

May 22

Occupy Debate: It Isn’t Just about Electoral Politics and Third Parties


Occupy Wall Street protestors march down Fifth Avenue towards Union Square during a May Day rally in New York City. Photograph: Monika Graff/Getty Images

In an interview with The Real News Network, Jeff Cohen, the director of the Park Center for Independent Media at Ithaca College, the founder of the media watchdog FAIR, and the co-founder of, argued that the Occupy movement–as well as the rest of us–must dismiss third parties and its contempt for the political process outright, and instead focus on fielding and supporting Democratic challengers in primary races across the country. Writer for the Washington Post, Jonathan Capehart penned a blog post for the paper in which he essentially mirrored Cohen’s position. Both men held out conservative movements, most recently the so-called Tea Party, as examples of right-wing groups who have succeeded where Occupy falls short.

There is certainly no arguing with the recent Tea Party-Republican-Koch Brothers, et al.’s achievements, as Cohen properly points out.

But the next question—and you raised it—is, if you’re going to also—instead of—you know, you can’t forever be a protest movement. At a certain point, the whole idea is to take some power, to not just protest power, but take power. And when we look at the recent history of our country, like the last 35 years, we see that right-wing social movements, sometimes with corporate money behind them and sometimes not, have seized one of the major parties, the Republican Party. And when we look around us and we see that the military budget is through the roof, wealth disparities are through the roof, battles we thought we’d won years ago, like reproductive rights, separation of church and state, we’re having to refight all that. The reason that the progressives are on the defensive, whether they’re out in the streets protesting or they’re trying to figure out an electoral strategy, we’re on the defensive because right-wing social movements have seized one of the two major political parties and used that power, by controlling the Republican Party, to continually dominate the American debate and move the debate rightward. So while I agree the most important thing is to build independent social movements, I also believe one needs an electoral strategy, and in that electoral strategy I think the right wing has basically shown the way.

Continue reading

May 17

It’s Not Enough to Blame Republicans

Obama - BoehnerIt’s an election year and the Democratic machine is in full-court-press rallying its troops. Criticisms of Barack Obama that were once greeted by spirited debate and congeniality are now met with vitriol and anger. The mantra goes something like this: It’s an election year and we have a choice to make between two candidates, Romney will be much worse on the whole, so you better get on board with Obama 2012, or else! Certainly a Mitt Romney presidency is more likely than not to benefit the wealthy and powerful at the expense of the rest of us than that of a second term of Barack Obama. Only the unabashedly disingenuous could argue otherwise. However, it is not enough to stand back and hurl epithets and blame at the Republican Party alone. I get it, I don’t believe a word that the Republican leadership utters on policy. The reason for that is simple, none of it jives with economics, science, or morality. I know who they are, and it doesn’t naturally extend that I support them simply because I criticize the President. The Democratic Party on the other hand owns much of the blame for losing the support of progressive minded folks like me, and it did not have to be that way. We never expected political capital to be expended on each and every issue of import to us, but we did expect lines to be drawn where appropriate.

The Democratic Party diverges from the Republican Party in many respects. It is a diverse party with many distinct points of view on issues across the political, environmental, economic, and social spectrum. The Republican Party–since the mid-1980′s at least–walks in lockstep. As it’s positions on issues change, its elected officials and its base follow blindly and obediently. Obviously, if given a choice between only the two governing ideologies, no sane human being would support the Republican Party. Yet, rather than take a stand on any of the core principles to which the Democratic Party is moored, it either overtly acts in direct conflict with those principles, or it capitulates and “compromises” in the name of political expediency. Governing and legislating is a messy process. I do not harbor any illusions about that. I understand that Barack Obama and the Democrats can not wave a magic wand and implement a progressive agenda and rest on the seventh day. I also do not ignore many of the positive regulatory and legislative changes that have taken place on Obama’s watch.

It is a common and by now expected line of attack. Nothing that the Republicans do makes any sense, so all of our problems and each of the failed efforts to enact reasonable legislation or regulation  is not the Democrat’s fault. The media plays along by fashioning a narrative of “gridlock,” blaming each party equally. While there is no shortage of evidence to support the Democratic minions’ position that nothing is their fault, it isn’t an appropriate response to hold your nose and take whatever is offered by the crazies in the GOP. It also is not genuine or helpful to romanticize the bygone days of compromise and moderation.

Since the 1980′s, the Republican Party has employed a strategy of extreme ideology and intransigence in an effort to solidify its power. Newt Gingrich hatched a plan early on in his congressional career to berate and intimidate Democrats in Congress in order to force them into poor decisions. He also corralled his caucus into uniformity with never before seen effectiveness. He exploited every Democratic scandal far out of proportion to the actual dalliance. He drafted trite yet impossible to argue against lists of items he promised to accomplish. He then took his case to the public, promising to restore efficacy and responsibility to the legislative body if only the voters would send Democratic incumbents packing. It worked. It worked not because Newt Gingrich is brilliant, but because the American voter is not. Advertising wouldn’t be nearly a trillion dollar industry if people didn’t fall for preposterous claims.

Enter the marriage of the Republican Party to the likes of Grover Norquist and various other right wing and evangelical groups. The groups promised financial support and an unprecedented get-out-the-vote effort on behalf of Republicans. In return, the Republicans were only asked to champion, and more importantly, to never deviate from the political policy positions held by the groups. In Norquist’s case, he cleverly cajoled Republicans into signing a contract–called a pledge–memorializing their allegiance. Americans for Tax Reform, Norquist’s front group, has been able to recruit nearly every Republican member of Congress. If a Republican failed or fails to hold up his or her end of the bargain, all support disappears. In more drastic cases, a Republican challenger is knighted to take over the seat, no matter the tenure or leadership positions held by the traitor. It is a terribly irresponsible way to manage a major political party. Moreover, it lends itself to ultimate marginalization as greater society moves further and further from its political posture. However, at the end of the day it is the Republicans who have made a conscious decision to carry on down this path. It is really of no consequence to the Democrats.

Rather than use this radicalization to its benefit, the Democratic Party has instead chosen to capitulate to the very same individuals and groups to to which the Republicans are beholden. Democrats falsely believe all sorts of things these days. Democrats are so fearful of attracting an even harsher attack from Republicans, that they have bended to Republican will on several important issues. It is why the party will not support the legalization of medical marijuana notwithstanding the fact that nearly 74% of Americans support it. It is why the President did not close down the prison at Guantanamo Bay. It is the reason that the President has chosen to renew the Patriot Act. It is the reason that Democrats supported the JOBS Act. It is why the the United States military still holds sham trials of suspected terrorists and hands down unequal justice in secret proceedings. It is why the President condones domestic wiretapping and the mining of Americans’ private electronic communications. Democrats will tell you that they did not want to be cast as weak on terrorism or the economy, but the fact of the matter is that they fear attacks more than they relish defending such attacks with common sense and principled policy positions. They have in effect adopted for themselves a pledge of sorts, a pledge to move further enough right so as not to attract too much attention. They have done this notwithstanding the fact that history and common sense are on their side on each and every issue.

Let’s look at an example. At the end of 2010 the Bush tax cuts were set to expire. The President and the Democrats in Congress initially refused to allow the tax cuts for the wealthy to continue. It was shouted far and wide that no one making more than $250,000 would be receiving a tax beak on their watch. Republicans shot back with claims that the Democrats were hell bent on killing jobs, that they were beholden to unions and the labor movement, and that they hated small businesspeople. Republicans refused to negotiate on the Bush tax cuts if the tax rates on the wealthy would be raised, and further they demanded an end to the Making Work Pay tax credit, a tax credit that assisted poor families. The Republicans accused the Democrats of stifling the economy and worsening the deficit. While Obama did propose an alternative which held many of the middle income tax rates at the lower levels and marginally raised taxes on higher earners, bipartisan investigation revealed that Republican claims concerning the effect on small businesses were false. Democrats also proposed a dangerous 2% reduction in the Social Security withholding. While a laudable attempt to secure some relief for the middle class, a Democratic administration should at no point tinker with the funding mechanisms of Social Security. Quite frankly, I abandoned the President at least temporarily over this issue. More importantly however, the Republicans also demanded capitulation from Democrats if unemployment insurance was to be extended. This strategy was reprehensible at best, and downright hateful at worst.

What the Democrats could not do however, was to call the Republicans’ bluff. The Democrats agreed to maintain the Bush income and capital gains tax rates as is in exchange for a one year extension of unemployment benefits and a horribly irresponsible payroll tax cut for the middle class. If the Republicans wished to be responsible for a failure to extend unemployment benefits and an across the board increase on the middle class, the Democrats should have allowed them to have their way. You simply can not allow yourself to be bullied and not design a plan to wrangle the bully. Throughout the tax cut debate the Republicans were loudly echoing the Tea Party concerns over the deficit and the national debt. In refusing to allow the Bush tax cuts to expire in the face of Republican intransigence, the Democrats all but guaranteed that the national debt would grow as government revenues failed to keep up with expenditures. It was a horribly naive political calculation. The fruits of the miscalculation are before us this very instant, as renewed debate is unfolding surrounding the tax and spending adjustments that the nation faces at the end of 2012.

The Democrats solved nothing in 2010. The Party accomplished nothing of note for its constituency, and it guaranteed that it would become fully embroiled in the identical debate two years later, during a hotly contested election. If the Bush tax cuts had expired, the arguments and name-calling would be a distant memory by now. Instead, the Democrats will be forced into a position of renewing the cuts yet again at the end of 2012 in the face of threats of economic catastrophe. In fact, in 2011 when the one year extension of unemployment benefits negotiated in 2010 was set to expire, the President and Democrats did in fact call the Republicans bluff. And you know what, it worked. The Republicans did not want to be accused of allowing millions to be removed from the unemployment rolls and cast out into the street, so they negotiated another extension. They would have extended unemployment benefits alone in 2010 had the Democrats stood firm on taxes and allowed the Bush cuts to expire. The result would have been a reversion to Clinton era tax rates, hardly the worst possible outcome, rather, at the end of the day the most responsible outcome.

Yet here we stand again, having the same debate. During the debt ceiling fight in 2012, Republicans threatened to play chicken with the full faith and credit of the entire government if the Democrats didn’t agree to hatchet Medicare, Medicaid, and social spending. Democrats failed again to stand firm against ridiculous and outlandish requests. Instead, the two parties agreed to form a bipartisan Superfriends Supercommittee in order to draw up a plan for cutting an arbitrary amount of money from federal spending. No one in Washington held out any hope that the committee would actually reach an agreement, so as an incentive, the parties agreed to automatic idiotic and random cuts from defense and domestic spending if the committee failed in its efforts. This is the world famous “sequester” that House Republicans now illegally refuse to honor. The combination of the Democratic failures to stand firm in 2010 and 2012 have been referred to as 2013′s “fiscal cliff,” when the Bush tax cuts expire and the automatic spending cuts go into effect. Already Republicans are threatening Democrats that if they do not agree to cuts to offset the increase in the debt ceiling next year when an increase will again be required, that no deal will be reached. Obama and the Democrats, should they win re-election, must allow the Republicans to make good on their promise or force a compromise. Threats of a United States credit downgrade should not deter Democrats from preventing a dismantling of Medicare, Medicaid, and other programs. Bring the fight to them and let the American people decide.

It is without doubt a lugubrious fact that the Republican Party is no longer capable of taking part in a functioning democracy. There is no question that a greater degree of dysfunction exists in Washington D.C. and in state legislatures than at any period in the recent past. It is also unquestionable that the Republicans bear a greater degree of the blame for the current state of affairs than the Democrats. However, the Democratic response can not be to throw up its hands and accept the status quo. The party can not allow itself to be bullied time and time again into short term fixes that are not only poorly constructed, but also assure a similar battle into the indefinite future. It is not responsible for the party that holds itself out as the embodiment of the hopes and dreams of the middle class, the poor, the disabled, the oppressed, and the disenfranchised to allow those interests to be trampled upon over the long term in exchange for short term trinkets. It is not admirable to allow widely accepted economic realties to be cast aside and replaced by platitudes and failed policies.

It is always best to be on the right side of the historical record. If Obama is able to win re-election this November, the political calculations must give way to ideological concerns. As a self described non-ideologue, he must set aside his inherent belief in compromise and focus instead on right versus wrong. Compromise is not a victory in and of itself. It must include a degree of sound economics, and a heavy dose of morality. This is after all what the Democrats stand for, or stood for. The Republicans must not be permitted to drive policy decisions based on nothing more than the lunacy of a few insane and sociopathic contributors. If the full faith and credit of the United States is compromised for some short period as a result, so be it. If taxes must be raised across the board in order to force the wealthy to pay a larger share in order to stabilize the treasury, so be it. To accept pebbles in exchange for gold under threat of murder is no way to to negotiate.

It is time to set aside the op-eds and the punditry pushing the theme of Republican consternation as the foundation of all that ails our government and its ability to function. It is time to stand in front of the tank as it rolls down Pennsylvania Avenue and say no, we won’t take it anymore.

May 16

What Barack Obama and Mitt Romney’s Investments Say About Them

Obama RomneyBarack Obama and Mitt Romney both filed their Executive Branch Personnel Public Financial Disclosure Reports as required in order to seek the office of the Presidency in 2011. I have previously described the two men as Pragmatist and Opportunist, respectively, and the financial disclosures further buttress my position. Barack Obama’s investment disclosure (Schedule A) is a mere three pages in length, while Mitt Romney’s disclosure runs a staggering eight pages, with an additional four pages of detailed investments managed in tax-sheltered private accounts. Barack Obama’s investments read like the embodiment of the conservative investment strategies championed by Vanguard’s founder John C. Bogle and investment adviser and author Dan Solin, while Mitt Romney’s portfolio appears to be right at home with noted investment televangelist fraud Jim Cramer’s Lightning Round, during which the shyster offers up investment buy or sell recommendations at breakneck pace out of thin air.

Barack Obama’s largest asset is a diversified group of long term and short term treasury obligations. The bonds and notes are generally regarded as risk-free investments delivering modest returns, even more modest in the current low interest rate environment. Mr. Obama’s personal stock holdings are limited to three retirement accounts, all invested in the Vanguard 500 Index Fund. The fund is not actively managed nor speculative. It simply tracks the performance of the S&P 500 Index, nothing tricky or fancy, or creative. Mitt Romney on the other hand holds pages and pages of individual equities, individual corporate bonds, foreign securities and actively managed mutual funds, many of which are managed in so-called blind trusts. Romney does have significant assets in market tracking index funds as well, but he also has upwards of $500,000 in gold, perhaps the most speculative of all possible investments. While the two men offer very similar policies for Wall Street, the two banal baby-kissers could not be more contrasting in their handling of their own personal fortunes.

So, what does this say about the two men? It has been widely reported that President Obama harbors no adulation for Wall Street, but rather coddles and serves it out of a fear of the political consequences of not doing so. Whether Obama has made a poor political calculation in this regard is a subject for another day. However, Obama apparently views the endeavor of those who have chosen “finance” as their career as facile and uncreative, adding little of real value to society. In fact, during a meeting between Obama’s campaign director and Wall Street heavies, the executives pulled no punches, even demanding that the President apologize to Wall Street publicly.

One of the guests raised his hand; he knew how to solve the problem. The president had won plaudits for his speech on race during the last campaign, the guest noted. It was a soaring address that acknowledged white resentment and urged national unity. What if Obama gave a similarly healing speech about class and inequality? What if he urged an end to attacks on the rich? Around the table, some people shook their heads in disbelief.

“Most people in the financial world,” a top Obama donor later told me, “do not understand how most of America feels about them.” But they think they understand how the president’s inner circle feels about them. “This administration has a more contemptuous view of big money and of Wall Street than any administration in 40 years,” the donor said. “And it shows.”

Mitt Romney on the other hand embraces the myth of creative finance and wealth creation wholeheartedly. Even given his advanced age of sixty-five–by age-based investment strategies at least–he is far too heavily invested in individual equities, individual corporate bonds, and active managed mutual funds. Most responsible fee only investment advisers would counsel the GOP candidate to sell off much of his equity stake in lieu of safer fixed income investments. Mitt Romney however will apparently hear none of that. His investments evidence a heartfelt belief  in the soundness of the American financial system directly in line with his political rhetoric and hyperbole.

Most of us spend decades believing the hype surrounding individual stocks and pimply-faced mutual fund managers fresh from Harvard Business School notwithstanding the mountain of empirical data to the contrary. We call our brokers and financial advisers seeking the next hot tip. After all, they know what they’re doing, right? Study after study reports the ineffectiveness of actively managed mutual funds and investing upon the advice of brokers and commissioned advisers. It is not until we actually sit down and research the subject, or remove our head from Wall Street’s all-encompassing allegory surrounding its brilliance for long enough to pay close attention to someone who actually knows what he or she is talking about, that we adjust our strategy. President Obama, a self described pragmatist, must have undertaken this analysis years ago. He understands that no matter how rosy the claims or how flashy the public relations campaign, that those peddling financial stock-picking advice have a downright pitiful track record. He also understands that to truly reap extraordinary gains from the stock market over time, you must either risk losing your entire fortune on risky bets, or you must be privy to inside and often illegal information. Neither of the preceding two courses of action is particularly appealing to an individual aspiring to the highest office in the land, so hum drum practicality it has been for the Commander in Chief.

President Obama’s changeable challenger is the consummate opportunist. He believes that actively managed funds offer superior returns to stock index funds and bond index funds. He believes that those Wall Street boys clad in $5,000 suits while extracting 2% or more of the wealth of their clients in return for poor advice actually enjoy some level of expertise. It is not all that surprising in that Romney himself spent much of his career surrounded by folks who made their livings bilking people of onerous fees by touting “exclusive” yet utterly perfunctory “proprietary analysis” while poorly managing their investments. The crowd in which Romney moves honestly believes its own claims of brilliance. In contrast to the con-man who knows precisely how valueless his products are, the Romney’s of the world believe their advice and knowledge has some real value. They are, in a essence, delusional borderline sociopaths. Some have opined that Romney’s portfolio is overly conservative and carefully crafted to avoid any political pitfalls. This analysis only makes sense if the author continues to himself or herself subscribe to the long-since-discredited strategy of actively managing investments. Even in 2012, those who advocate for a strategy based upon empirical data and sound experiential reports continue to swim upstream. A testament to the depth and reach of the myth of the stock-picker.

I believe that the duo’s investments speak volumes concerning each man’s approach to governance. Obama almost certainly charges his staff and advisers with the responsibility of researching each and every social issue or economic policy question inside, up, out, and down, leaving no stone unturned. It is in his nature to do so. He is then presented with each and every data set and potential effect prior to his coming to a practical and pragmatic conclusion. That very conclusion is then simmered on low heat through a Bearnaise sauce of political consequences and an ultimate decision is reached. This is precisely how Obama handled the gay marriage debate. He understands that practically speaking gay marriage is of no consequence to him, his marriage, or the orderly functioning of society or government. He has no moral objections to the idea. He has said as much in the past. However, once placed upon the hot stove of electoral politics, he made a poor decision, and his statements on the issue during the 2008 campaign were overly-complicated, forced, and disingenuous. This is almost certainly how he has approached the closing of Guantanamo Bay Prison since being elected, among a whole host of other issues and questions that have but one clear and obvious practical solution.

Mr. Romney in part still believes in  making “gut” decisions. It would be unfair to cast him among the same ilk as George W. Bush and his nearly unexpurgated lack of reliance on data and practical effect, as Romney can indeed be a thoughtful and realistic man. However, having no occasion in his life to doubt the efficacy of efficient markets, Mr. Romney is almost certain to believe much of what he spews on the campaign trail. I am unquestionably confident that he believes that tax cuts spur economic growth and lead to job creation in the face of reams of data to the contrary. He almost assuredly believes that  military power can be used to solve centuries old civil and religious conflicts and restore peace. He without question holds the position that income inequality will not eventually erode society as a whole. If he is elected it is likely that Mr. Romney will make many poor decisions based upon an honest belief that he is correct notwithstanding opposing information. However, he will also make his share of practical decisions. The question is which of the two categories will be out of balance.

In 2012 we do not have to chose between an ideologue and a pragmatist, or a true believer and a statistician–assuming a vote for either of the two mega-parties. Neither of the major candidates ultimately believes in anything strongly enough to be swayed by ideology or morality alone. Each man can be swayed from a practical common sense solution by politics, so both men are inherently dangerous. One need only look to Obama’s treatment of Wall Street and Romney’s continual conversion on policy for evidence. It is ultimately irrelevant how thoughtful and pragmatic a leader may be at his or her core if practical considerations have no place at the policy table. In analyzing the two men’s investments, it is clear that one man is a practical sound decision-maker at his essence, and one man is practical yet inclined to surrender to his belief in the advantage of risk and reward. Whether it is more desirable for a leader to make poor decisions based upon an honest yet misguided belief in the anticipated results, or to make poor decisions based upon a political calculation in the face of a deep understanding of information to the contrary is a choice that each of you will have to make on your own. I however would like a third choice.

May 15

No Separation – No Peace

Jamie DimonEven if your only source of news is FOX and Friends, you must certainly have heard by now that the nation’s largest bank, JP Morgan Chase, suffered a loss of at least $2 billion–and likely much more–in a botched credit derivatives trade. The trade, which spurred an all but dog-and-pony show investigation by the FBI and renewed lip-service on Capitol Hill for strengthening Dodd-Frank‘s Volcker Rule and swaps regulations, involved a corporate bond hedging strategy gone horribly wrong. A London based trader for JP Morgan assembled a huge portfolio of derivative credit default swaps and sold them off to investors based upon the trader’s wrong-headed belief that corporate bonds owned by JP Morgan would perform well. The market believed otherwise, and the once “well-intentioned” hedging strategy blew up in the face of JP Morgan chief Jamie Dimon and the rest of the masterly minds who also carry keys to the executive washroom. Losses began to mount, and rather than accept the losses commensurate with the oft-cited free market’s value of the underlying assets and derivatives, Dimon chose instead to attempt to call off the dogs by whining to the federal government yet again. Dimon, long the golden-boy of Wall Street for his perceived risk management acumen, suffered a scathing blow to his egregious ego.

Barack Obama is fond of referring to Dimon as one of Wall Street’s best and brightest.

JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.

I don’t know which claim in this sentence is the most absurd. First, if Jamie Dimon is one of the smartest bankers we’ve got, who is the worst? Good grief. If you have a potential loss looming into the many billions of dollars on a unnecessary and risky bet that was permitted to spiral out of control on your watch, you’re not a genius. If you beg Congress to limit the rules that could potentially prevent the loss from taking place in the first place, you’re an idiot whose hubris has digested whatever tiny amount of good sense you had remaining. You are by no stretch of the imagination to be held out as some captain of finance worthy of the respect of the common man and bankers alike. If you insult those who are attempting to promulgate rules to prevent you–yes you–from destroying the economy and sending millions back to the unemployment lines and soup kitchens, you are a sociopath incapable of understanding the profound effect your actions have on other human beings. You’re just another banker Mr. Dimon, and there are hundreds of thousands of people within fifty miles of Wall Street capable of stepping into your shoes and replicating your results in an instant. I only wish Barack Obama understood that simple fact. Let me backpedal a bit. In fairness, I am sure that he does understand, he just isn’t willing to act upon this knowledge. Continue reading

May 14

Not Your Grandfather’s Government – The Public Sector Needs You

Unless you live in California, you may not have heard the announcement today that the state is currently facing a $16 billion shortfall in revenues for the next fiscal year. Tax revenues fell short of rosy politically motivated estimates, and spending has increased above expectations. The budget deadline is in June, and several of the Governor’s proposals to cut spending have been thwarted by fellow Democrats in the state legislature, while proposals to increase taxes have been lampooned by Republicans and money flowing in from right wing groups. A similar story is playing out across this great land of ours. The failure of the people to accept tax increases, corporate defiance to invest capital, government’s rejection of job training efforts, and the petulant reluctance of the Congress to step in and buoy state coffers is causing massive layoffs and reductions in public services.

Unlike the New Deal programs that followed the Great Depression, during this period of extreme economic trauma, both the federal government and the states have instead reacted to shrinking tax revenues and mass unemployment by shrinking government programs and firing workers. At the federal level, the appetite for renewed borrowing to fund programs, assist states, and help the middle class and the poor is minuscule. At the state level, due to requirements of budgetary balance, massive layoffs have accompanied drastic cuts in public services. Parks have closed. Hospitals have closed. Transportation, improvement, and infrastructure projects have been canceled altogether or have been substituted with patchwork fixes and band-aid repairs. Public sentiment is perceived by Washington to favor deep cuts and curtailments in borrowing and spending. Not only is Washington wrong on the policy, it is wrong on its taking of the pulse of Americans.

It was recently revealed that another 15,000 public sector jobs were lost in April 2012. Since the depression began in 2008, the public sector has lost–conservatively–more than 600,000 jobs. 600,000 folks who once provided you with the services that you took for granted as a birthright. People who educated your children, removed your trash, maintained your public spaces, filed your deed transfers, inspected your homes, monitored clean air and clean water standards, and on and on. Democrats and Republicans each favor varying degrees of continued austerity, with Democrats favoring small tax increases on the wealthy and corporations, and fewer cuts to government programs, and Republicans favoring huge tax cuts for the wealthy and corporations, with massive cuts to spending, defense outlays left untouched.

To listen to stump speeches and congressional soliloquies, one might come away with the impression that the public favors some mixture of the two approaches, with wide agreement that taxes should be kept in check and government spending cuts imperative. The data suggests that neither side is properly reflecting the position of the vast majority of Americans. For example, 56% of Americans believe that higher taxes and increased spending is needed to remedy our faltering economy. 68% of Americans believe that the current tax system benefits the wealthy at the expense of the rest of us, and a majority of Americans would be willing to pay more taxes to maintain Social Security and Medicare, as well as government programs that assist the poor.

As stimulus monies run dry, it is nearly impossible to open a local paper anywhere in the nation and not find a story or two concerning budget shortfalls and potential layoffs. School Board meetings far and wide have become contentious events. Property owners have been asked to pay more to support local schools, yet staff reductions and benefit give-backs remain unavoidable. Teachers are slated to be laid off, municipal services are being scaled back, and programs that offer help to young children and the poor are being eliminated altogether. State programs to offer incentives to people to install energy reducing technologies are being dispensed with, and along with the incentives, the jobs of those who install solar panels, geothermal systems, and energy efficient building materials and upgrades are lost. With each unnecessary cut, the ripple effects are felt beyond the public sector.

With budget cuts to education, we are destroying our own future. Enrollment is down at some of our most prestigious public university systems in response to higher out-of-pocket costs and staffing restrictions. At a time when technical education is becoming the very key to obtaining a good paying job, we are making it increasingly difficult to obtain, even for those who have excelled academically. This is a recipe for disaster. Last year alone, the federal government cut more than $5 billion in funding from education programs, the bulk of which was slated to pay for state programs and direct state grants. As the states struggle to balance budgets, education becomes a large juicy target. New York State alone will be eliminating more than 5,000 teaching positions, even after increasing tax levies.

As federal money fails to reach states, so too does state money fail to reach localities. These localities are forced to cut back on services such as fire and rescue, as well as police. Local government offices cut back on building inspections, shrink hours of operation, close public libraries, and even darken street lights. The Federal Reserve Bank of San Francisco, hardly an arm of the socialist movement, has predicted lasting consequences should the economy remain stagnant and federal aid to states remain damned. Because state governments are constrained by a requirement to balance their budgets, revenue shortfalls require offsetting cuts and debt offerings. Many states are already burdened by high debt loads and are loathed to increase bond offerings for fears of credit downgrades that increase borrowing costs. The states are left with the option of cutting spending and increasing taxes. Increasing taxes–while necessary–is politically unappealing during an economic recession, therefore most states opt for spending and services cuts.

The only entity available to step in and curtail the bloodletting of state and municipal jobs and cuts to public services is the federal government. Unfortunately, President Obama has not been willing to expend any political capital on efforts to assist the states, and Republicans are hell bent on ensuring that the economic emergency continue through election day. This situation creates immeasurable suffering in local communities. Taxpayers are asked to bear the burden of funding depleted schools and local services at increasingly unsustainable levels. Many people have lost their homes over an inability to meet property tax and other municipal burdens. Allowing this to continue during a period of high unemployment is particularly devastating, and sets in motion a cavalcade of events that only drags the local economy down further.

It is time for the federal government to step up and offer assistance to states and localities in order to maintain a basic level of public services and avert further layoffs of public employees. While the private sector continues to report modest job creation in 2012, the public sector continues to lose jobs. Lost in the debate over funding of government and government services is the fact that it is the public sector that allows the private sector to flourish, and it has done so since WWII. The public sector helps educate its employees, it maintains the bridges and roads on which the private sector transports its goods and personnel, it maintains the safety of air travel so that the private sector may travel to meetings and business events, it oversees the ports through which the private sector exports its goods and imports its supplies, it manages the tax boards and the IRS, it provides fire, police, and ambulance services to private sector business and its employees, it pumps clean water in and carries sewage and waste water out of private sector facilities, it has ensured efficient markets and regulation that has allowed private sector American business to attract capital from around the globe and enjoy some of the largest stock trading premiums in the modern world, it administers the courts through which the private sector settles its disputes, it handles patents, copyrights, and trademarks in order to allow private business to profit from its own creative product free of exploitation and theft. Essentially, without a robust and functional public sector, the United States of America and its business and financial dominance would not exist.

It is time to provide the public sector with the short term assistance it needs in order to ensure our collective long term survival. Teachers and public employees are not the reason that the government is broke–wage inequality, poor and dis-courageous governance, and corporate greed is. Please join us in focusing the anger, vitriol, and more importantly the constructive solutions, on those actually to blame for the current circumstances of state and municipal budgets. Those who provide us with the invaluable services that distinguish a modern functional society from one of chaos and dysfunction in return for substandard wages and a secure retirement are not the enemy. Don’t allow yourself to be convinced otherwise.

May 04

Occupy Debate: Let’s Meet in the Middle

OccupyIt is certainly a rare situation where I find myself in the middle on an issue, nearly inconceivable in questions of politics. However, in a recent debate I found myself square on the fence. In competing articles this past week, Josh Harkinson of Mother Jones and Max Berger of Occupy Wall Street penned pieces debating the various positives and negatives of the Occupy movement transitioning itself into a movement focused on electoral politics, much like the right wing Tea Party. Harkinson, who has reported on the Occupy movement for the better part of a year, opined that Occupy’s stated goal: “the toppling of a corrupt political system under the sheer weight of its own repression,” could not be accomplished unless the movement makes a concerted effort shift its efforts and attempt to influence individual political races across the country. Berger on the other hand took a more balanced approach, advocating for continued mass pressure upon the political structures in the United States as it challenges efforts to transform it into another, while also paying close attention to electoral politics. Harkinson cites previous left-leaning electoral successes such as Lyndon Johnson and his signing of civil rights legislation as examples of electoral victories.

Harkinson takes some umbrage with the Occupy movement and its posture toward an electoral-centric approach.

Occupy activists, many of whom don’t have a lot of experience with politics, seem to think that MoveOn is taking its orders from the White House. In reality, MoveOn polls its 7 million members on which candidates to support, and it often runs campaigns to unseat Blue Dog Democrats when it thinks a more progressive candidate has a shot at winning. But whatever. What Occupy really ought to do if it intends to live on is plunge directly into electoral politics on the local, state, and congressional level. It ought to co-opt the Democratic Party.

Though Occupy could support many sympathetic candidates in Democratic primaries, some pundits haven’t pushed the idea because they worry about a tea party effect on the left, with liberal Democrats losing to Republicans in the general election. Yet other than a third-party bid, with its potential for another Nader debacle, this may be the only way to command Washington’s attention. Many occupiers believe it’s futile, however, because they’d never win against an avalanche of unregulated corporate political spending.

Berger articulates Occupy’s reticence to simply sign on as another left-leaning non-profit.

If Occupy tried to start a left Tea Party, we would be following in the footsteps of several progressive movement efforts that came up short. Howard Dean’s presidential campaign turned into Democracy for America to reclaim the “Democratic wing of the Democratic Party,” the Progressive Change Campaign Committee explicitly references the DCCC, and Rebuild the Dream originally billed itself as the progressive Tea Party. I have worked for each of these organizations and have lots of respect for their work. But unfortunately, none of these projects, despite their many successes, have managed to mount a serious national effort to take out bad Democrats and replace them with good ones. They are constrained by the lack of a grassroots base in many congressional districts and big donors reluctance to fund challenges to Democrats. Even big, collaborative efforts to take out bad Democrats have a relatively poor record (See Sheyman, Ilya; Halter, Bill; or Lamont, Ned).

While I am sympathetic to both positions, and I do believe both men share the same ultimate goal, I believe the answer lies somewhere in between. Harkinson, who too his credit has been one of the few reporters covering the Occupy movement in-depth, misses the ultimate binding strength of the Occupy movement: its members don’t desire to be part of the establishment as is, and fail to see a means of change from within. Rather they view extraordinary pressure from without as a more formidable force for change. Even as he cites Lyndon Johnson as an electoral success, he must also admit that outside pressures exerted upon the Congress and the presidency moved civil rights legislation forward. Johnson himself had made no grand promises as vice president or as a candidate for president in 1964. Much like Franklin Roosevelt so famously called upon those in the progressive movement to take to the streets and rally the masses if the movement sought to see its agenda signed into law. While many of the immediate economic and relief measures passed during the first tranche of the New Deal passed easily, none of the second tranche of New Deal programs–many of which faced opposition from the business community and conservative Democrats–would have been possible without the robust pressure thrust upon Congress by the public. Much of which was drummed up through grass-roots organizing rather than organized efforts to elect individual candidates. Continue reading

May 02

Apologize or Else

MarketApparently Wall Street and the wealthy generally are so incensed with President Obama that they have demanded a national apology in the form of a televised speech for what they regard as the unfair demonization of the rich by the administration. The demand  reportedly took place during a New York  meeting between Obama campaign manager Jim Messina and Wall Street political contributors.

For the next hour, the donors relayed to Messina what their friends had been saying. They felt unfairly demonized for being wealthy. They felt scapegoated for the recession…

One of the guests raised his hand; he knew how to solve the problem. The president had won plaudits for his speech on race during the last campaign, the guest noted. It was a soaring address that acknowledged white resentment and urged national unity. What if Obama gave a similarly healing speech about class and inequality? What if he urged an end to attacks on the rich? Around the table, some people shook their heads in disbelief….

“This administration has a more contemptuous view of big money and of Wall Street than any administration in 40 years,” [one] donor said. “And it shows.”

Much has been written about the vitriol felt by the wealthy and Wall Street toward Obama. It has been opined that the explanation for the hatred is rooted in his rhetoric concerning the wealthy and their need to pay their fair share of taxes. Obama has indeed been fond of touting the virtues of bottom-up economic growth rather than trickle-down. Another theory is that Wall Street is incensed by Obama’s attempts to promulgate new regulation following the financial collapse brought about by the very same folks now demanding an apology. The most simple explanation recently offered for the consternation of Obama claims simply that Wall Street insiders are nothing more than spoiled brats who whine when any barrier is placed between them and stealing the hard-earned money of every day Americans.

This episode if particularly sad because the current administration has done nothing but accommodate Wall Street at every turn. It refused to break up any of the large banks once it became clear that many in the group were no longer financially solvent. It refused to offer homeowners any real relief if any share of that relief would come from the hide of Wall Street. It capitulated to Wall Street in maintaining extraordinary capital inflows of taxpayer funds into the large banks for what has now been nearly four years. It has negotiated widespread immunity from civil action on behalf of Wall Street with all but one of the states’ Attorneys General in exchange for chump change. It has paid only lip service to any real attempt to reduce the principal owed on tens of millions of underwater homes. The list of charity provided to Wall Street is indeed lengthy and diffuse.

Back in April of 2009, Obama famously said that “My administration is the only thing between you and the pitchforks.”  He could not have been more accurate in his description. Yet, at this watershed moment, when it should have been abundantly clear to Obama that no amount of largess would satisfy them, he chose to play the role of referee rather than to pick up the ball and dunk it on behalf of the American people. The period since has been littered with obfuscation and outright malice toward Obama from Wall Street. Once it became obvious to Wall Street that Obama was going to pursue a course of mild regulation, wealthy power brokers all but cast aside any plans they had to support the President’s reelection efforts. This has borne itself out, as Wall Street has donated exponentially more money to Romney than to Obama. Wall Street hasn’t maintained its status-quo methodology of hedging its bets, rather it has gone all-in on the Republican candidate. As recently as 2008, Wall Street was goo goo for Obama, donating nearly 50% more to him than rival John McCain. This time around anger has translated to a windfall for Romney.

And in this election cycle, Wall Streeters didn’t have to look far for a more natural fit. Mitt Romney founded a leading private-equity firm, Bain Capital, and he promised to repeal Dodd-Frank altogether. By late fall, invitations to some of Romney’s New York fund-raisers were carrying the names of dozens of financial executives, many of whom knew Romney personally or had closed deals with him during his years at Bain. Some Romney donors started asking their Obama-supporting colleagues to Romney events just to tweak them.

Wall Street donors were also emerging as the financial engine behind Restore Our Future, a super PAC founded by former Romney aides. Even as Obama outpaced Romney in traditional fund-raising, Restore Our Future, exploiting the Supreme Court’s Citizens United decision and subsequent rulings and regulations, was bringing in millions of dollars in unlimited checks from hedge-fund and private-equity magnates.

By the end of February, the group had raised more than $43 million, almost half of it from Wall Street — more money than Obama raised from the industry during the entire 2008 campaign. Paul Tudor Jones was among the group’s donors, cutting Restore Our Future a $200,000 check in December. At the same time, a super PAC founded by former Obama aides, Priorities USA Action, was struggling, raising less than $5 million, much of it from Hollywood and unions. The Democratic group faced a particularly cold reception among Wall Street Democrats, some of whom feared any money they gave would be used to finance attacks on their own industry.

With the passage of the 850 page Dodd-Frank Act and the thousands of pages of analysis required by the act, Wall Street abandoned Obama entirely.

“I think it’s an unfixable relationship,” one Democrat involved in planning the March 1 fund-raisers told me this spring. “They hate him. They really, really do. They hate all the Democrats.”

Notwithstanding the meager reforms included in the legislation, Wall Street viewed it as a direct assault to their bow, and has fought back by bankrolling conservative candidates. Ultimately, the reform serves in some measure to prevent Wall Street from imploding itself or the larger economy. However, when a sector of the economy has an overt guarantee from the government to be rescued should it become unstable, no regulation is seen as responsible or necessary.

Obama does have the right instincts. It has been widely reported that he and his inner circle have not been willing to coddle and cavort with business power brokers as the Clinton’s had. He apparently is uncomfortable in small fundraising groups of Wall Street executives. He’s right to feel as he does. Wall Street and business executives don’t need his help. They don’t need him at all, they want nothing more than guarantees that he won’t overly restrict their efforts to continue to extract wealth from the economy for themselves. However, beginning in 2009 and continuing to this day, he has made poor decisions regarding which side to support in the war between banks and Wall Street and the American people. His rhetoric falls flat on many as it has become obvious that it will not be backed-up by policy initiatives. The administration has continued to funnel trillions of dollars though Wall Street in hopes that some measure of the riches would find its way to Main Street. It hasn’t happened.

Yet Wall Street despises him nonetheless. Had the President made the decision to allow several of the large banks to be broken apart, forced lenders to cram-down mortgage debt, and prosecuted those responsible for much of the fraud that caused the collapse, Wall Street would rightfully abhor him, but he would have the support of the people. In choosing  to capitulate to Wall Street from the very beginning, he has the excited support of neither.While it is unlikely that Obama will deliver a national save-the-rich speech anytime soon, he is almost certain to strike some deal with Wall Street that calls off the dogs.

May 01

Pragmatist or Opportunist?

Obama-RomneyEssentially the voters in 2012 will have a very simple choice to make, whether to elect a political pragmatist or a political opportunist. On the one side is President Barack Obama, who by all accounts holds very few, if any, ideological convictions. In fairness, he does lean just left of center, but rather than having a belief system rooted in progressive ideals, it appears that his belief system has been fashioned by his personal experiences and educational training alone. He is a no nonsense analytical thinker. He looks plainly at a situation and determines what can be accomplished. He then moves further away from his original position expecting that his opponents will do likewise, and embraces a series of compromises until some agreement is reached, however distant from his original position. While this jumping-off point normally lends itself to practical common sense solutions, it has failed to hold true in his case. However polarized the other side, he is determined to come away with something. Mitt Romney on the other hand also appears to lack any foundational ideology, while leaning marginally right. His early political career appears to have been fashioned by his experience at the feet of his father, the one time chief of American Motors and Governor of Michigan. His father is widely regarded as a right-leaning moderate. He has spent much of his adult life surrounded by business elites, and will advocate on their behalf so long as in doing so he treads upon the path of least resistance. He too seeks out practical solutions to the problem at hand, but he allows the political winds rather than any firmly held position to determine what is in fact practical. So, the question is whether it is better to elect an individual who refuses to bend when the longer term practical political consequences may be deleterious, or someone who will bend facilely.

Looking at some examples from Obama’s first term we can see the limits of political pragmatism and general rigidity. The most glaring example is his reaction to the financial crisis. His policy decisions following inauguration through today are generally accepted by his progressive base, as well as most rank and file Democrats, as being far too friendly to Wall Street and the financial sector generally. Much time and effort has been spent ensuring the solvency of the banking sector, while little or no help has been offered to those most affected by the crisis. Experts have opined that it is precisely the President’s pragmatic rigidity that has contributed to his failure to move toward a more progressive fair approach in addressing the depression. Interestingly, while disappointed, neither the Democratic base or independents have been willing to take Obama to task over his  continued willingness to assist Wall Street. Even while Obama has been reported to have a great degree of contempt for Wall Street and apparently views the fruits of its labor generally valueless, he has bent over backwards to help it. Even when pushed by the public and Congress to pass some sort of financial reform package, the result was an impotent regulatory regime in the name of Dodd-Frank, and facially attractive but only marginally  protective credit card and other consumer protection reforms. Yet Wall Street still views him with extreme and venomous derision. Continue reading

Apr 30

IMF Chief Calls for Mortgage Principle Forgiveness in U.S.

International Monetary Fund Chief Christine Legarde has added her voice to the growing chorus of economists not bought and and paid for by the banking sector in calling for the United States to begin to reduce the principal on underwater mortgages purchased during the fraudulent run-up in housing prices between 2002 and 2008. She recommends doing so in order to stimulate growth across the globe, but doing so would also significantly impact the economy at home.

She called upon Fannie Mae and Freddie Mac, both of which are overseen by the Federal Housing Finance Agency, to reduce the principal owed on homes, whether the homeowner is in arrears on payments or simply underwater and current in their obligations. Unfortunately, FHFA boss Edward DeMarco has steadfastly maintained that he will not support policies that allow for widespread mortgage write-downs. Mr. DeMarco was to make a decision by April 30, 2012 whether or not he would move forward on a plan under Obama’s HAMP program to allow principal reductions on properties backed by Fannie Mae and Freddie Mac where the mortgage holder is seriously delinquent. Unfortunately Mr. DeMarco recently announced that he would ignore the deadline, imposed by Congress, and continue to study the problem.

The HAMP program reductions that are under consideration by Mr. DeMarco would only affect about 10% of all underwater mortgages backed by Fannie Mae and Freddie Mac because homeowners who are underwater but continuing to make timely payments are not eligible for reductions. Mr. DeMarco has said in the past that he fears mass purposeful mortgage delinquencies if the program is permitted to move forward, a prospect that has not been supported by evidence. The likelihood of damaging ones credit rating and potentially losing a home in exchange for a principal reduction that may or may not come at all has not convinced any significant number of borrowers to stop making their mortgage payments.

The Obama administration has been reported as putting pressure on Mr. DeMarco to make a decision allowing the contemplated principal reductions to move forward, but I am dubious as to how extraordinary the insistence has truly been from the White House. The administration has offered a deluge of failed and ill-conceived fixes to the mortgage mess since 2008, none of which truly aimed at forcing the banks and Fannie Mae and Freddie Mac to allow principal write-downs of underwater properties. A wisely constructed plan by the FHFA and the administration could easily limit any reductions to those homes actually purchased during the fraudulent run-up in home prices, and those homes who value exceeds that of the original mortgage, excluding refinancing undertaken to make additional unnecessary purchases. Configuring a program to address this problem and stimulate the economy would not be a herculean task.

It is wholly objectionable that the already incommensurate principal reductions proposed by Congress and the President are being insubordinately rejected. However, it should come as no surprise to anyone given the administration’s posture concerning this problem from the very beginning. Setting aside the earlier mentioned waterfall of half-assed programs previously concocted, the furthest the President has been willing to travel down the write-down road has been to propose federally assisted and voluntary refinancing of a small number of homes under lower interest rates. Not a single legitimate attempt has been made to reduce the principal of homes currently in repayment and dramatically underwater. Offering a homeowner the ability to pay twice the value of a home under a lower interest rate is no program at all. It is an insult to each American who had their tax dollars spent drowning large banks and mortgage institutions in liquidity in order to ensure their solvency.

So, Mr. DeMarco, no one is surprised by your decision. Further, only a fool should be surprised by the administration’s lack of movement on this issue. You’re a homeowner, not a bank, and as such, you don’t matter. The most logical course of action is to walk away from any home that is seriously underwater, because help is not coming.

Christine Legarde was right to call upon the American government to offer significant principal reductions to underwater homeowners. She is right because it will boost the American economy, setting free cash to be spent consuming goods and services and alleviating business and personal uncertainty. She is right because it will boost the world economy. She is right because it represents remuneration for the fraud perpetrated upon the people. She is right, quite simply, because it is the moral thing to do.

Apr 30

Wages, Productivity, and You

Assembly LilePerhaps the most underreported aspect of the past few decades, specifically the aftermath of the financial collapse, has been the extraordinary increases in worker productivity and the accompanying stagnation of wages. Whatever the profession or occupation, employers have been demanding more and more from employees and failing to compensate them for the increased output. The phenomenon is referred to as a “speedup.” Rather than hiring additional workers, employers have been capitalizing on workers’ fears of unemployment by requiring that they do more for less. Ultimately it is a case of supply and demand. A greater supply of applicants than open positions to be filled has allowed bosses young and old to pad their own purses at the expense of employees. It has represented a  near complete break from basic morality.

This is nothing short of a sea change. As University of California-Berkeley economist Brad DeLong notes, until not long ago, “businesses would hold on to workers in downturns even when there wasn’t enough for them to do—would put them to work painting the factory—because businesses did not want to see their skilled, experienced workers drift away and then have to go through the expense and loss of training new ones. That era is over. These days firms take advantage of downturns in demand to rationalize operations and increase labor productivity, pleading business necessity to their workers.”

Real wages and total compensation have also eked along just barely keeping pace with inflation recently, continuing a long term trend that has continued since the 1970′s. While it is true that when total compensation–wages plus benefits–is measured and adjusted for inflation, workers compensation has indeed grown more quickly than inflation, the ultimate effect is less money in the pockets of workers, fewer retirement options, greater debt, increasing number of multi-generational households, and a lower standard of living generally. It is also true that the employer foots the bill for much of the benefit cost, but the added investment ultimately benefits neither the employee or the employer.

Productivity has vastly outpaced real wage growth over the past two decades and the prediction going forward is that the downward pressure on wages will continue.

The income story in America is deeply troubling. Inflation-adjusted average hourly earnings for production and nonsupervisory workers (a category that encompasses 80% of the workforce and leaves out higher-paid managers and supervisors) rose by an anemic 0.1% a year from 1979 to 2007, according to the EPI. A potent combination of economic and social forces has conspired to keep wages down for most workers with the exception of a brief period of white-hot economic growth in 1995-2000. Private-sector unions have largely disappeared. Companies have outsourced all kinds of tasks to cheaper places overseas and low-cost contractors at home. The upward spiral in health-care costs has eroded wages.

What the downward spiral of real wage growth means for the economy is simple–stagnant growth. With less real buying power remaining after fixed costs, retirement savings, and debt service have been factored in, workers will not be able to purchase the necessary goods and services in order to sustain growth in the larger economy. The economy has shown evidence of this recently, with orders for durable goods down and recent manufacturing spurred by a short term need to increase inventories also now trending downward.

I do maintain a certain level of sympathy for employers however, as costs to provide medical insurance continue to outpace inflation by nearly 7% on average. Each dollar spent on inefficient and expensive health care plans is a dollar necessarily unable to be spent on wages employer sponsored retirement plans. While there is no guarantee that employers would pass along any health care savings to the employees should costs somehow be reined in, under the current system employers have not been provided with that option. Obviously, as labor supply outstrips labor demand, employers lack any real incentive to do so even if given the choice, but at some point the labor supply will more evenly mirror demand, yet it is unlikely that reductions in health care costs will have come to pass in the interim.

If you are like me you have a twitter account. If you are are interested in finance you probably also follow several respected economists using that very same twitter account. If you take the time to track back and read the vast majority of posts and links to all of the mind-numbingly dense economic data–charts, charts of charts, charts within charts clarifying other charts, bar charts, line graph charts, area charts, government labor data, Federal Reserve data, Census data, articles, studies, blogs, scholarly publications, and on and on–you will find a dearth of discussion concering real wage growth and inflation. You will be peppered with astonishing amounts of information concerning inflation, unemployment, productivity, compensation costs, among other data sets, but you will not find a bona fide widespread discussion among mainstream economists surrounding real wages and productivity.

Unfortunately the trend should surprise no one. It is a consequence of decades of deregulation, attacks on public sector workers, attacks on labor unions,  and above all an intense campaign by corporate American to manitain the myth of Horatio Alger and the American Dream. Look, I even capitalized it, “American Dream.” I am not certain that it is required, but my very first instinct was to make sure that everyone is able to distinguish the idea from each of the other meaningless words surrounding it. The fact of the matter is that as worker productivity has increases and wages have stagnated, the profits of the employers have not showed a correlative decrease. In fact, profits have increased, as has executive pay and compensation. In other words, corporate America has used your otherwise laudable American work ethic to pound you into dust.

You know the feeling–guilt for not completing a task or set of tasks, no matter how unreasonable. The feeling of anguish at the thought of calling in sick. The overwhelming barrage of conflicting information you are faced with when you dare demand to have a modicum of work-life balance. The idea that working two, three, or four jobs is admirable and worthy of respect and recognition. You’re a hero, because that is what Americans do–we get up every day to make someone else filthy rich and we’re damn proud of it. It has all been orchestrated to brainwash you into believing that you are a failure if you do not do whatever is required of you by your employer. Astonishingly, corporate America has been able to maintain this myth even as it demanded more and more from you for less and less in return. It’s wrong and it has to stop.

Apr 26

Bill Clinton Part II – Starring Barack Obama

Obama and ClintonWe all remember the wonderful carefree days of the Clinton Administration, notably the second lame-duck term during which much was accomplished, for good and for bad. The economy was growing, unemployment was low, and the stock market performed swimmingly. Congress impeached the President, but most of the balding white men involved in the Broadway production secretly played intern with their Bill Clinton action figures. President Clinton did not embroil us in some meaningless conflict murdering innocent civilians and upending an entire civilization for no good reason. Instead, although late and saturated with poor political and policy decisions, he brought an end to the bloody and disturbing conflict in former Yugoslavia.  With this and other foreign policy successes and a humming economy, it was peaches and cream in the United States. At least we thought it was.

What was overlooked  at the time was the legislative unraveling of significant and efficacious financial regulation that took place in the final years of the Clinton Presidency. Following a decade of banking deregulation, Glass-Steagall was demolished by the Gramm–Leach–Bliley Act, the depression era law that had kept banks and investment houses separate entities, and ensured that bank deposits were not ultra-leveraged and gambled with on risky Frankensteinesque financial products cooked up by some MIT graduate using complicated algorithms. The benign sounding and exceptionally complex Commodity Futures Modernization Act of 2000 also passed and was signed into law by President Clinton. The law ensured that over-the-counter derivatives, you know, those adorable little weapons of mass financial destruction that helped fuel the financial crisis and sank AIG into bankruptcy, would not be regulated by the SEC or the CFTC, or by anyone else for that matter. Each of these laws was boosted by Republican lawmakers, specifically Senator Phil Gramm, and his financial backers. Unfortunately, the economic and financial markets advisers that held Clinton’s ear signed on to the right wing plan willingly as well.

Times were great, and after more than a decade of lesser financial regulation, the conventional wisdom was that more regulatory downsizing would ultimately juice the system to yet new highs, lifting all ships and dominating the world’s financial system. Nothing could go wrong, well, at least that’s what President Clinton’s advisers counseled, notably Larry Summers, Alan Greenspan, Arthur Levitt, and William J. Rainer. Each man an imbecile in his own unique way. The first signs that the The Commodity Futures Modernization Act was a flop came not one year later when Enron Corporation crashed due to the collapse of unregulated single-stock futures and over-the-counter energy futures given the stamp of approval by the act. Continue reading

Apr 25

Obama and Department of Education Outsourcing Student Loan Servicing

On April 15, 2012 I received a letter in the mail from EdFinancial, a so called “nonprofit” financial services company, informing me that it would be taking over the serving of my William D. Ford direct consolidation loan, effective April 5, 2012. First and most obviously, the letter was postmarked seven days after the effective date. Most upsetting, the notice arrived just three days prior to my payment being due. I received no contact from the Department of Education, who had been servicing my loans since I graduated from Law School. So, I was left with only a small window of time in order to determine on my own if the letter was legitimate, and then register on the new website and adjust my automatic payments accordingly.

The federal government through the Department of Education has been has been transferring large tranches of federal student loans to new loan-servicing companies for some time now. It has plans to continue to do so through the end of 2012 and beyond.

As our federally-owned loan portfolio continues to grow, we are ready to move to the next step in ensuring an efficient and effective multi-servicer, borrower-centric approach to servicing.  We will further expand our federal loan servicer team through contracts awarded under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.  This solicitation offered NFP entities the opportunity to submit proposals individually or in teams for servicing borrower accounts on our behalf.  Whether individual or team award, our customers will know and face one servicer.  The Department will annually measure each servicer’s performance in the areas of borrower satisfaction and default management and use the results to assign additional volume when applicable.

I am left only to assume that not directly informing borrowers in advance that hundreds of billions of dollars in student debt will be transferred to private entities is an indispensable element of this new “borrower-centric” approach. I also assume that not informing me in a timely fashion of the transfer carries no penalty. I should say loudly that I was very happy with the past service provided by the Department of Education and found its staff to be knowledgeable, helpful, and responsive. Over the years I have had several questions and need for assistance, and each request was handled professionally. I have no doubt that the level of service provided previously will not be duplicated by the private entities paying lower wages and benefits, and providing no job security to its collection agents and staff.

The change was pushed by several nonprofit student loan corporations and their trade groups, including the Education Finance Council, during the health care debate in 2009 and 2010. The rule change was hidden away nicely as part of legislation passed concurrently with the Affordable Care Act. As has been true often during Obama’s tenure, an idea first floated to enable common sense reform, has been bastardized by moneyed interests. The motivation for the law was primarily to allow the government to break from guaranteeing loans offered through banks and credit unions and to begin lending directly to the public. The change made sense, and it has saved the federal government from having to pay fees to the large banks to originate and service the loans. It has also meant that the federal government would be forced into servicing a larger number of loans. However, the apparently influential nonprofit collection servicing business groups won a provision which guaranteed that its members would be granted the rights to service the loans.

As a consequence of the right hand helping while the left hand pummels, many borrowers have suffered problems during the transition. Many borrowers’ payments have been adjusted upwards or downwards without explanation. The vast majority of these same borrowers have since provided the new servicer with the requested information needed to correct the issue, but have not found a resolution. In my case I was simply notified in an unprofessional and untimely manner, although I am certain that additional problems will arise in the future.

I have some initial questions for the Department of Education. For example, how will loan forgiveness procedures be handled? Who will make decisions regarding public service loan forgiveness? How will borrowers’ payments be tracked for purposes of forgiving loan balances once the loans become eligible under the 25 or 20 year provisions? Are we to trust these private companies to keep accurate records and base decisions on government policies and interpret those policies accurately? What new collection rights, if any, will the servicers enjoy that the federal government did not? Will there be an oversight board set up to handle complaints from borrowers when these servicers ultimately engage in fraudulent behavior? Who will punish these entities if they begin to intimidate borrowers? At least six of the servicers that Uncle Sam has negoitiated these no-bid contracts with with have been involved in scandals in the past. How are we borrowers to have any confidence in this process?

The fact of the matter is that this type of government outsourcing never functions as planned. Just ask anyone who has run afoul of parking regulations in Chicago, or the folks who were recently renumerated for fraudulent fines and penalties paid to private operators of toll roads in California. This loan servicing outsourcing was a terrible idea and it will have terrible consequences. Unfortunately, it will be nearly impossible to unwind it.

It is a despairing situation because the President, I believe, had no intention of placing student borrowers into a precarious situation. In attempts to streamline the process he simply traveled down the path of least resistance, likely believing that the servicers’ nonprofit status would in some way shield borrowers from the type or predatory behavior that they had been subjected to by the large banks and private collection companies. In return, he was able to carve out a change that removed billions in fees from the large banks as the government became a direct lender to students. As I write this, the President is traveling around the country attempting to rally support for an extension of lower interest rates for student loan borrowers, and I believe he intimately understands the harm that will be caused by failure. However, outsourcing nearly a trillion dollars in student loan debt to ill-trained, ill-informed, ill-motivated private entities was a poor decision, and one that will likely adversely affect borrowers for decades.