Tuesday, May 31, 2011

Derivatives still unregulated

Mark Mobius, of Templeton Asset Management has said that another financial crisis is inevitable because the issues haven’t been resolved.

“Are the derivatives regulated?  No.  Are you still getting growth in derivatives?  Yes…The total value of derivatives in the world exceed the total global gross domestic product by a factor of 10... Are the banks bigger than they were before?  They’re bigger…too big to fail.”

These derivatives are the way the gigantic financial institutions gamble, and create enormous wealth for themselves by their trading activities.  I don’t care how wealthy anyone gets, if it is a legitimate way of doing business, but when the banks are risking the livelihoods of all of the rest of us, when the economies of America and the world are put at risk so they can make fortunes that will last for generations, I object.  

Monday, May 30, 2011

Give me liberty or give me death

It is Memorial Day, a day to remember our soldiers.  And I do, with gratitude.  Their service guarantees our freedoms. 

But, I want to look beyond our borders in a strange place to find the essence of Memorial Day - the Arab Spring.  I have read that the fundamental cry of the young in the Muslim world as they fight for their own freedom and self determination is "I am a man."  It is a response to decades, perhaps centuries, of being humiliated and being tyrannized.  

Back in February I read that another rallying cry in Egypt was "Give me liberty or give me death."  And, isn't that the essence of democracy?  Isn't that the essence of America?  Isn't the very founding of America based on that powerful ideal:  liberty? freedom?  The ability of people to create their own lives out of their own responsibility?  Isn't the push for liberty in the Muslim world a culmination of an over two hundred year world wide push first declared in America in 1776?  Isn't it time for all of the world to be free?

Although there are many reasons to be afraid of the progress toward freedom and democracy in the Middle East, I am fundamentally hopeful.  I don't believe that those who risked and lost their lives throwing off the ossified tyrants of the Middle East will allow their hard won freedoms be stolen from them by newly minted religious tyrants like the Taliban or al Qaeda.  I expect democracies in the Middle East to be unlike Western democracies, but I expect that they will adhere to the fundamental ideal of allowing greater self determination of its peoples.

Saturday, May 28, 2011

Palin's travelling side show

I guess Sarah Palin wants people to think she is running for president.  I think she is just another Trump – wanting to draw attention to herself because she has become addicted to the spotlight.  It’s heady stuff, I suppose, to be such a media draw, both lionized and condemned. 

But, I can’t see her doing anything more than trying to make a lot of money as a media star.  She is so unprepared to be president that even the Tea Party folks will turn away, I believe.  She hasn’t taken the last couple of years after her VP run to become more knowledgeable and expert at foreign and domestic affairs.  She just seems to think that all she has to be is spunky and cute and ride a wave of right wing anger at Big Government, and tada… she wins. To me, her new bus tour is little more than a travelling side show.  The problem is that her pandering to the hard right could push more reasonable candidates to the right in self defense.

Of course, the hard right wing wants a hard right winger to capture the Republican nomination because they are convinced that the way to win is to be a hard right winger.  But, that’s the same reasoning that the hard left wingers have – the way to win is to be a hard left winger. The extremes always think that the moment for the great political awakening of the populace is just around the corner: all they need is the right messenger and the country will be transformed into people just like themselves. 

I really don’t think that the Republicans will go for the extremists.  In 2008 Rush Limbaugh did everything he could to derail McCain, and he failed.  The extremists in the media get fine ratings, but they only sing to the choir.  Lots of noise, but I expect that even in the primaries, where the extremes have an oversized influence because they are more highly represented in the voting totals, the Republicans will choose someone more moderate than someone like Palin.  If not, they guarantee a humiliating loss in 2012 – think of McGovern in 1972.  

Monday, May 23, 2011

The middle of the road is good

When young, I had been a liberal (as I was supposed to be in college (’64 – ’68)) but then I had to rethink everything because of something I saw – the Vietnamese were risking their lives and dying to leave Vietnam after the communists won the war. 

If Communism was just an economic system, why were people dying to get away?  If Communism was some kind of idealistic dream of equality, how did you explain the Vietnamese, and the Soviet Gulags?

So, I read.  And I became conservative.  And I voted for Republicans, mostly, from Reagan to Bush 2.

But, then another strange thing happened.  I saw something else: the financial collapse of ’08.  And I am rethinking everything again.

If deregulated free markets are so wonderful, why was the government needed to keep the financial industry from self destructing?

If the most brilliant guys ended up on Wall Street, why were they such idiots?

I see it as the same problem as Liberalism with a Big L, the same problem as Communism: religious belief in an ideology will necessarily destroy people and itself given enough time.  Those trapped inside a religiously held belief – free market fundamentalism for example – can never see reality.  They are trapped inside a bubble where everything they see is a reflection of their own unshakable beliefs. 

And the rest of us suffer – Communism killed over a hundred million people, free market absolutism has unemployed and underemployed tens of millions in America alone.

So, my new attempt is to say no to both the right and the left ends of the political spectrum, to stay out of self-contained ideological bubbles that can’t see reality for what it is.  To be temperamentally as well as ideologically moderate. 

The only thing in the middle of the road is road-kill?  Maybe not, maybe that’s where the road is.  The edges on each side go off into the ditch.

It’s about values:  conservatives value freedom and opportunity the most, liberals value caring and compassion the most.  Both sets of values are needed.  And only in the middle can both be incorporated.

Friday, May 20, 2011

Extremists losing popularity

Not that it is much of a surprise, but some of the more extreme politicians are losing popularity.  John Avalon of the Daily Beast points out that a Democrat became the mayor of Jacksonville, a conservative stronghold, and the new Republican governor of Florida, Rick Scott, has driven his ratings down due to his confrontational assaults on government services.  Wisconsin's Scott Walker has been unnecessarily confrontational, as has Maine's Paul LePage, and also Ohio's John Kasich.  

It looks to me like each of these men, and the more extreme end of the conservative spectrum in general, have over-read their electoral victories.  They seem to think that the world finally has come to its senses and supports their ideological absolutism.  Their most fatal flaws seem to me to be their harshness of their approach, plus their compulsion to also enact social conservative agendas as well as fiscal.  

In fact, most election reversals are a reaction to the extremism or incompetence of their predecessors, not the joining of a different ideological extreme.

So, what to do about the crying need to reduce deficits?  Well, one thing is to keep your eye on the goal - i.e. to reduce deficits.  The hard right seems to be using disastrous deficits to promote their actual goal of reducing the size of government, especially its support of the lower classes.  I would be much more sympathetic to their efforts if they also proposed to raise revenues as well as cut spending.

Avalon's best point is that being fiscally responsible doesn't have to be polarizing.  I don't follow Andrew Cuomo, the new NY governor, but Avalon says that he closed a $10 billion budget deficit without new taxes, by cutting spending, and getting concessions from the public sector unions - and his approval ratings skyrocketed, rather than plummet like the ratings of the Republican governors listed above.  

Cooperation, respect, negotiation, compromise - the tools of governing rather than the tools of inciting radio and television audiences to build ratings.  Isn't it time for politicians to distinguish themselves from the media zealots and convince the voters that extremism itself is way to destroy the country we all love so much?

Tuesday, May 17, 2011

Schneiderman steps up to the banks

I am surprised and gratified that the New York Attorney General, Eric Schneiderman, has responded to the Senate’s report on the actions of the too-big-to-fail banks that caused the financial meltdown in 2008.  Yesterday, I had called for us to watch the U.S. and New York justice Departments in the aftermath of the Senate publication of a 650 page report labeled "Wall Street and the Financial Crisis:  Anatomy of a FInancial Collapse."  Would they act?  Would they take these giants to court?

Today, Schneierman’s office requested information from Bank of America, Goldman Sachs, and Morgan Stanley about their mortgage securities operations. 

At least one issue, in my mind, is defrauding their clients in order get rid of valueless Mortgage Backed Securities and other derivatives from their own books once they saw the housing bubble ready to collapse. 

In addition, I would expect an even bigger issue might be the investigation of fraud in creating these MBSs and CDOs and other nearly incomprehensible investment schemes in the first place, and getting them AAA ratings from the rating’s agencies.  A pretty large percentage of these securities were fraudulent from the outset.

I very much hope to see very large trials for some very large titans of the out of control financial industry. 

I compared today’s problem to the issue before Teddy Roosevelt over a hundred years ago, where he ended up being the great “Trust-buster”.  He ended up restoring competition in the markets by busting up the trusts which had robbed the system of competition.  I think the same needs to be done today to put competition back into our financial system by busting up the too-big-to-fail financial behomoths.

If the Obama and Holder don’t want to take on the oligarchy, perhaps New York can.

Sunday, May 15, 2011

Bust the bankers

The financial meltdown had many causes, but there is no doubt in my mind that chief amongst the guilty were the executives of the too-big-to-fail financial giants.  They took bad sub-prime mortgages and converted them into toxic assets and eventually dumped as much of this self-generated toxic waste onto their clients as the could by representing them as recommended investment opportunities - to suckers dumb enough to trust and believe them.  That is to say, they defrauded their clients.  Which is a felony.  And they should go to jail.

The regulators didn't regulate them, the politicians let them re-write the laws so they could be over-leveraged and be under-regulated, the government oversight institutions didn't believe in over-sight.  But, the ones who should go to jail are the ones who perjured themselves in Congressional hearings.  That would be Blankfein and other Goldman Sachs executives who did their best to say nothing when they were being grilled by the Levin-Coburn Senate hearings.  They just released a 650 page report labeled "Wall Street and the Financial Crisis:  Anatomy of a FInancial Collapse."  In it is ample evidence of Goldman and others defrauding their clients and perjuring themselves before Congress.

Where is Obama's Justice Department?  Where is Andrew Cuomo, or more to the point the New York Attorney General, Eric Schneiderman?  It will be worth watching these men respond to clear evidence of illegal activity by these financial titans.

It is easy for us to see that countries in the Middle East have been hijacked by tyrants:  Egypt had been hijacked by Mubarak, Libya has been hijacked by Qaddafi, Iran has been hijacked by Ayatollah Ali Khamenei, Iraq had been hijacked by Saddam Hussein, etc. But, it's harder for us to see the extent where America has been hijacked by Wall Street.  

The Rolling Stone's Matt Taiibi has an article that goes into some detail about the contents of this report: from disarming of the regulatory system to the perjury before Congress.  He makes a good case that these Financial titans will have the best legal defense that money can buy, but their Achilles heal will be their obvious, indefensible perjury before Congress.  Punishment is five years in federal prison.  

So far, these oligarchs, who essentially run this country for their own looting profit, have escaped with hardly a scratch.  It's time to scratch back.

After releasing his report, Senator Levin said "In my judgment, Goldman clearly misled their clients, and they misled the Congress."  These are federal offenses.  Send them to jail.

To quote Taiibi:  "For years, the soundness of America's financial system has been based on the proposition that it's a crime to lie in a prospectus..."  Goldman went way beyond lying in a prospectus.  It sought suckers, defrauded them, and are now congratulating themselves for being "smart" by seeing the collapse of the bubble before others did and getting rid of the toxins by finding those stupid enough to believe in their recommendations.  

To my mind, this is much more than punishing a few bad actors.  It is more than trying to reform the financial industry.  It is about saving the capitalist system and America itself from the oligarchs who have hijacked it.  Teddy Roosevelt busted the trusts over a hundred years ago, and in so doing he put competition back into the marketplace.  The same needs to be done today.  

Send the criminals to jail, break up the too-big-to-fail financial institutions, put teeth into the Consumer Protection Agency, take the country back from the oligarchs.

It seems like it is too late and that the oligarchs already won, but it's not over unless the fat ladies refuse to sing (i.e. the Justice Departments of Washington and New York fail to take these men to trial).

Monday, May 9, 2011

How to raise revenue

Even though Republicans seem to have taken some kind of blood oath not to raise taxes, it is obvious to me that in order to reduce the deficit and make the U S Government treasury bills a sound investment, and thus keep their interest rates low, the government needs to both cut spending and raise revenues. 

So, how to raise revenues?  It looks to me like there are three ways.

First, raise tax rates.  This might be the easiest solution politically, and the one that Obama supports.  Of course, he only wants to raise tax rates on the top 2%, and thinks he can sell that politically.  The trouble with that is that it doesn’t raise nearly enough revenue to make any real dent in the gigantic budget deficit; it raises about $36 billion per year, which is peanuts compared to a $1.6 trillion deficit.  The only way to get enough money though increased tax rates is to raise tax rates on the middle class as well as the super rich. 

Second, close the loopholes and deductions for individuals and corporations - otherwise discussed as eliminate tax earmarks.  This would have to fight every lobbying group in America.  I am all for it, but the voting population has to have a much more urgent sense of financial catastrophe before it demands such a move.  These tax expenditures cost $1.1 trillion per year, and eliminating all of them would go a long way toward getting our deficit down to a normal, acceptable size. 

The third possibility is to put a cap on the total reduction in taxes that individuals can get.  Martin Feldstein calculates that by limiting the maximum tax reduction to 2% of total adjusted gross income would raise tax revenues about $278 billion.  Still not nearly enough, but that amount would grow over time.  I would ask Mr. Feldstein to make the same calculation on setting a maximum reduction of taxes owed by corporations and businesses as a percentage of gross sales.  I would guess that these two tax reduction caps would go a long way toward dramatically lowering our deficit, and thus keep the credit ratings of the U S Government good enough to keep the interest rates on U S Treasuries low and the percentage of the budget needed to pay for the interest on the debt from skyrocketing.

Of course, none of this will happen without strong, persuasive leadership from the only person who can provide that leadership – the president.  The alternative will be for us all to wait until the financial catastrophe hits, and interest rates take off, and the interest on the debt eats up budget leaving no money for anything else.  By then, I don’t know if it would be possible for the government to act in a way that would bring the interest rates back down.  At least, not for quite a long time. 

Pro-active is better than reactive. 

Friday, May 6, 2011

Don't show a picture of a martyred bin Laden

People are wanting to see a photo of the dead bin Laden.  I think it is a terrible idea.  If you go into a Catholic church, or into many Catholic homes, what is front and center?  The crucifix, a sculpture of the martyred Jesus.

 I don’t know when the crucifix became the symbol of early Christianity, but I would guess that it was used as a symbol to help the Christians spread their faith in the face of persecution, oppression, and murder – i.e. to become martyrs to the faith and follow in the footsteps of Jesus to suffer and die if needed to save the world.

There could have been many symbols of Jesus that could have become his iconic image.  Why not symbols of miracles – fishes, wine, walking on water?  Why not his resurrection – rising from the ashes and reborn anew?  Why not love and healing – making the lame walk or curing lepers? 

I expect the choice of the crucifixion was a choice that did the most to encourage the faithful to keep going in the face of great odds, lions in the coliseum and other persecutions trying to stop the spread of a new religion.

The last thing Obama needs to give the world is a picture that could become a symbol of Jihadist martyrhood to incite the fanatical bloody jihadists.

Thursday, May 5, 2011

Syria trying to hold off the Arab Spring

Each of the Middle Eastern countries is unique and has to be understood individually, even though the Arab Spring continues to bloom and all of the Middle Eastern tyrannies are doomed, eventually, I believe. 

Syria is an especially nasty police state, it seems to me.  Assad continues to brutalize his population with impunity.  Apparently, Assad heads up an Alawite minority elite who understand that they must stick together in order to stay in power and rule over a largely Sunni majority country.  Assad and the Alawites control the military, and they have loyal connections to a Sunni Baathist political monopoly.  So, this situation is different than Egypt, where the military turned on Mubarak as a way to appease the population and protect their own hold on power at the same time.   The entrenched powers don’t want to turn on Assad because they will fall with him, and the surrounding states want to keep their own status quo so they don’t want to do much to destabilize the Syrian status quo.

So, there are many forces against the spread of the Arab Spring to Syria, but my money is on the passion for freedom arising in the Muslim world.  The fires of freedom have been kindled and feed upon themselves.  Qaddafi and Assad are doing their best to quench them, but I think the most they can do is delay them temporarily.

Monday, May 2, 2011

Bin Laden's death and the Arab Spring

It is certainly good news that the U.S. finally found and killed Osama Bin Laden. His messianic decision to change history by attacking the U.S. and the West to establish a new Islamist Caliphate has caused enormous pain and suffering in the world, mostly in the Islamic world.

But, I don't feel a great joy at the event.  I feel more sad than elated.  Sad that we live in a world where the death of someone is a good thing.  Certainly, Bin Laden is gone now as a strategist and leader of the Islamist jihad against the West, and that is good.  But, he will likely be viewed as a martyr by those who have dedicated their lives to bloody jihad, and I expect that they will continue their lethal fanaticism.

In a way, I think that the Arab Spring of revolutions across the Middle East is doing more to marginalize Al Quaeda than even Bin Laden's death.  The issue in the Arab world today is not the desire to drive out the infidels, but rather to drive out the corrupt tyrants that have been terrorizing their subjects for decades, even centuries.  I expect that those in the Islamic world who are bloody jihadists will want to use Bin Laden's death as a reason for revenge against the West, and the rest, who are the vast majority I believe, will note it in passing and return to the real work at hand for them - freedom.

Sunday, May 1, 2011

Baseball and the madness of greed

There were many villains in the financial meltdown of 2008, and millions around the world continue to suffer from the crisis.  But I say financiers behaved “naturally” in response to a force from outside of the financial industry (one of the villains) and from outside of government (another of the villains). 

That force is baseball: or more to the point, baseball salaries.  I have made this point as a joke in the past, but it turns our Malcolm Gladwell made the same point on Fareed Zakaria's show this morning.  His point was that in the '50s CEOs and corporate lawyers  and baseball stars didn't make much money because capital, the money men, had the power and they set the wages.  The top achievers earned more than the others, but the  differential was not enormous.  

But, all of that changed as the economy grew so dramatically from the '60s forward.  Suddenly there was plenty of capital to go around, and the top producers, the "talent", started to see themselves as indispensable with plenty of money men out there bid for their talents.  So, the power relationship shifted from capital dominating compensation to talent demanding capital. 

A few years pass, and baseball shifted from Mickey Mantle making $100,000 a year (a lot of money back then, but not astronomical) to modern salaries in baseball. You can see the same in salaries for the top  movie stars and music stars - they become mega-wealthy.

So, the point is, as long as A-Rod makes $33,000,000 per year, how can any self respecting mega-important titan of the financial industry, especially one who lives in New York, settle for anything less?  So, we had the financial industry set up compensation systems for themselves that gave them super-star compensation.  And, since these guys felt so important and so smart, they felt totally justified in those levels of income.  And, so did the rest of us out of deference to them, thinking that they were getting their wealth by being very smart at running the financial world.  

But a funny thing happened.  The financial world fell apart, and we started reading articles and books about these financial titans and we discovered that they had basically put together a system that siphoned billions of dollars from the middle classes and stuck it into their yachts, planes, and mansions, and trophy wives.  They weren't smart masters of the financial world, they were greedy charlatans creating legal ways to bilk the masses of their life savings.

I think the world is out of balance, and I think we will know that the world is back in balance when the top baseball player is paid about 20 to 30 times an average middle class salary in America – say about $2,000,000 tops.  That’s really a lot of money – in a world that is not addicted to hyperactive, egomaniacal spending and consuming – and it’s really enough for a superstar with a career that spans only about fifteen to twenty years.  Who says restaurants are supposed to charge $1000 for a night out? Or that homes should cost $20,000,000? Or that private grade schools should cost $30,000 per child?  When did all of this happen and why do we think it is OK? 

I say it all started when baseball superstars started making multi-millions.  End the madness. 

Get back Jo-Jo.