(Please Note: Since first posting this piece, some claims asserted in the Ames/Levine post cited herein have been responded to in a way that makes my initial reading of that article less certain. To reflect that, I have revised the title to include a “?”, added an UPDATE section at the bottom of the post, and included in-line links to that update section where relevant. Some questions were answered, some new questions have emerged, and so the conversation has grown. –ed.)
Populist revolt against the U.S. government is all the rage in the Republican Party, these days. As they tell the story, the public is so outraged by the recovery and reinvestment efforts of the Obama administration that Americans everywhere are turning out to overthrow the tyrannical king of the federal government by re-enacting the Boston Tea Party.
Everything about this so called “Tea Party” movement was pre-planned–from the supposedly “spontaneous rant” of CNBC stock market reporter, Rick Santelli, to the presumed ground-level organizing of protests all over the country. Fake, fake, fake–like a product launch staged covertly to look like a spontaneous trend. (please UPDATE below)
What hasn’t been reported until now is evidence linking Santelli’s “tea party” rant with some very familiar names in the Republican rightwing machine, from PR operatives who specialize in imitation-grassroots PR campaigns (called “astroturfing”) to bigwig politicians and notorious billionaire funders. As veteran Russia reporters, both of us spent years watching the Kremlin use fake grassroots movements to influence and control the political landscape. To us, the uncanny speed and direction the movement took and the players involved in promoting it had a strangely forced quality to it. If it seemed scripted, that’s because it was.
What we discovered is that Santelli’s “rant” was not at all spontaneous as his alleged fans claim, but rather it was a carefully-planned trigger for the anti-Obama campaign. In PR terms, his February 19th call for a “Chicago Tea Party” was the launch event of a carefully organized and sophisticated PR campaign, one in which Santelli served as a frontman, using the CNBC airwaves for publicity, for the some of the craziest and sleaziest rightwing oligarch clans this country has ever produced. Namely, the Koch family, the multibilllionaire owners of the largest private corporation in America, and funders of scores of rightwing thinktanks and advocacy groups, from the Cato Institute and Reason Magazine to FreedomWorks. The scion of the Koch family, Fred Koch, was a co-founder of the notorious extremist-rightwing John Birch Society.
It helps, in other words, to have field experience ferreting out Soviet propaganda to understand how Rick Santelli suddenly became the figurehead of a right-wing “grassroots” revolt against the United States government. It is worth reading the entire post.
The next time you hear that the Tea Party Republican revolt is “grassroots,” “spontaneous,” and “populist,” just swap out those PR keywords for the more accurate terms: “planned,” “scripted,” “billionaire bigwigs.”
All of this makes sense, of course. Santelli’s philippic had all the hallmarks of a rehearsed piece of political theater–the pre-planned message launched of a viral marketing campaign. (please UPDATE below)
Not that any of this comes as a surprise, but…my goodness.
Even though the curtain has been pulled back on this astroturf marketing by GOP megabucks elite backers, it is important to keep in mind what the larger stakes are and how to respond.
Scripted or not–this Tea Party revolt needs to be treated as politically real. People engaged in this agitation will not acknowledge ever that it is scripted, because these folks sincerely think they are engaged in some kind of revolution against their own government. They really want the country to evaluate whether or not an elected President and Congress are the same as a tyrannical king and whether a tax by fiat from the 18c is the same as a legislature approved public investment program from the 21c. Those folks just want to make noise–lots of noise–to throw the debate off its tracks.
The big story to defend and advance, in other words, is a president advancing real solutions aimed at helping millions of Americans in serious economic trouble. The agitation against it, whether it is scripted or not, is designed to stop those solutions from being discussed seriously, from unfolding, and then to weaken the president making them happen. That is a basic confrontation between pragmatic action and ideological politics–between investment in people and inaction in the name of dogma.
In the end, then, we need to make themselves aware of the massive resources the right is spending to block any effort by the American people to work together to repair the damage to our economy and restore our national confidence. And after we have made ourselves aware of how far the opposition is willing to go, we need to get back to work making sure the debate states focused on the real issue at hand here: millions and millions families who need help right now, and the greatness of a nation that stands together in times of need to overcome seemingly impossible obstacles.
: This Story Has Grown (3.3.09)
Well, that was fast: this story, less than a week old, seems way out of date. Among other things, there have been lots of answers to the claims posed in the Ames/Levine piece that it warrants opening up my initial title to a bigger question about what exactly happened. First and foremost, I have added a question mark (“?”) to the end of the post title to reflect how this story has grown since I first posted about the Ames/Levine piece on Rick Santelli. Here is the list of events that I think are relevant for everyone to know:
1. Santelli finally made a statement about this whole thing here. This is his first paragraph:
First of all let me be clear that I have NO affiliation or association with any of the websites or related tea party movements that have popped up as a result of my comments on February 19th, or to the best of my knowledge any of the people who organized the websites or movements. By the way of background, I am not and never have been a stockbroker. Not that there is anything wrong with being a stockbroker. The home I have lived in for 20 years is a 2,500-square foot ranch. Not that there is anything wrong with owning a larger, grander house. I am currently an on air editor with CNBC. Prior to my 10 years in this capacity I was a member in good standing on both the Chicago Futures Exchanges. My career in the futures industry spanned 20 years.
Seems like an answer, although I wish he had not used the phrase ‘to the best of my knowledge’–which makes him sound like he talked to a lawyer first. When people deny that they knew someone or were involved in something ‘to the best of my knowledge,’ that typically means they are concerned about accidentally committing perjury if a fact comes out later that shows they were in fact involved. Does that mean Santelli might have been involved in something without knowing it? I have no idea; I am not an attorney. It could be that Santelli just adds that sentence as a routine part of insulating himself from accusations of financial conflicts of interests. Since he reports from a trading floor, that kind of legalese could just be routine. So, Santelli has spoken and that is where it ended up.
2. Whether or not CNBC actually asked Santelli if he was involved in any organizing is the obvious question. As a result of filing that exact query, the Columbia School of Journalism’s blog Full Court Press(FCP) posted the following exchange they had with CNBC spokesman Brian Steel:
All this led Mark Ames and Yasha Levine to speculate at playboy.com that Santelli’s fifteen minutes were actually part of a right-wing Republican disinformation campaign to undermine Obama’s efforts to rescue the economy. Asked about this charge by FCP, CNBC spokesman Brian Steel sent an e-mail saying, “Rick Santelli’s comment clearly struck a nerve among a large portion of American citizens and sparked a debate which is something Rick has done for more than a decade as a commentator on CNBC. To try to make anything more of his comment than that is ridiculous and without basis in fact.”
FCP e-mailed back, “On the record: was he asked by his bosses if he was part of a larger organized effort? What “news” purpose was served by repeating this rant over and over again on CNBC, and promoting him (and it) on the Today Show?”
“We don’t comment on internal CNBC discussions,” Steel replied. Then, although FCP had specified that it was only interested in an on-the-record response, he added: “Off the record it strikes me that my first answer is unquivocal [sic] and should answer all your questions. Also off the record I am curious as to why CJR has written about it at least three times particularly since each time your readers via the comments section of your website have overwhelming disgreed [sic] with your views. It seems as if you are both tone deaf and hypocritcal [sic].”
So much for asking follow-up questions in the world of cable news.
Once the accusations of ‘hypocrisy’ come out, that tends to be a sign that nobody wants to have a grown-up conversation anymore. Steel is clearly doing his job, which is to spread the chosen message that Santelli’s performance was consistent with his long history of making statements that spark widespread debate amongst American citizens. In all fairness to Steel trying to get out CNBC’s message, the only example of Santelli sparking debate I can think of is the time he called for ‘Tea Parties’ last week. So CNBC should probably issue a list of debates Santelli sparked if they want that message to take.
3. Playboy took down the Ames/Levine post (as of Mar 2, from what I can tell). They have not issued any kind of statement.
4. Ames and Levine are sticking by their story, following up with a not-so-subtle piece titled CNBC Bitch-Slaps Santelli Into Line, FreedomWorks Admits It Organized “Grassroots” Tea Parties, Jon Stewart Cancels Santelli & Megan McArdle Queefs On Our Founding Fathers.
5. Among other things, the Ames-Levine follow-up piece cites an AP article that they say backs up their initial claims. The provide a link to a Star-Tribune article titled CNBC Says Ranting Rick Santelli is not Affiliated with Political Site that Uses his Name (David Bauer, Mar 2, 2009). The article goes on to desccribe how the site reateaparty.com included enough references to Santelli for readers to conclue that Santelli was involved with the group–right up to an ‘About Rick Santelli’ page, but took down all the references when asked to do so by CNBC.
So, what can we conclude thus far? The Tea Party folks would have us conclude that anyone who asked these questions about Santelli (me, for example) is an idiot leftie. No surprise about that reaction, but there is more to be said.
In particular, I still wonder about two missing pieces of information: (1) why did Playboy take down the original post and (2) why did Santelli use the phrase ‘to the best of my knowledge’ in is rebuttal. It seems fair to wonder about those things, given that the debate supposedly sparked by all this has led to cries of anti-government revolution (no small thing).
To speculate on the first: Playboy probably took it down for fear of a boycott or of being sued or both. Despite the racy content of the magazine, Playboy is still a relative newcomer to the world of political blogging. They likely decided to just pull back and wait this thing out.
To speculate on the second: Santelli probably said ‘to the best of my knowledge’ because CNBC advised him to–which is perfectly legal, logical, reasonable, etc. And CNBC probably advised him to say it because they had not yet figured out if Santelli was really involved with any of the sites that seemed to claim him as a participant. CNBC then got to work examining all the free marketing they received as a result of Santelli’s performance, putting Santelli and their brand back in the bottle as much as they could (which is their legal right), and pushing back against questions from bloggers and journalists who were wondering (also fairly) about those connections.
And that brings us up to date.
KIEV, Ukraine — Steel and chemical factories, once the muscle of Ukraine’s economy, are dismissing thousands of workers. Cities have had days without heat or water because they cannot pay their bills, and Kiev’s subway service is being threatened. Lines are sprouting at banks, the currency is wilting and even a government default seems possible.
Ukraine, once considered a worldwide symbol of an emerging, free-market democracy that had cast off authoritarianism, is teetering. And its predicament poses a real threat for other European economies and former Soviet republics.
The sudden, violent protests that have erupted elsewhere in Eastern Europe seem imminent here now, too. Across Kiev last week, people spoke of rising anger about the crisis and resentment toward a government that they said was more preoccupied with squabbling than with rallying the country.
The sign held by Vasily Kirilyuk, an unemployed plumber camped out with other antigovernment demonstrators here in the past week, summed up the pervasive frustration: “Get rid of them all,” it said.
Mr. Kirilyuk did not hesitate to take that further. “There will be a revolt,” he said. “And people will come because they are just fed up.”
Mr. Kirilyuk, 29, was standing in the same central square where throngs in 2004 carried out the Orange Revolution, a seminal event that brought to power a pro-Western government in Ukraine. He said he was a fervent supporter then of the protesters, but now he and a few dozen others who have set up tents here are demanding that the heroes of that revolution step down.
It is not hard to understand why world leaders are increasingly worried about the discontent and the financial crisis in Ukraine, which has 46 million people and a highly strategic location. A small country like Latvia or Iceland is one thing, but a collapse in Ukraine could wreck what little investor confidence is left in Eastern Europe, whose formerly robust economies are being badly strained.
It could also cause neighboring Russia, which has close ethnic and linguistic ties to eastern and southern Ukraine, to try to inject itself into the country’s affairs. What is more, the Kremlin would be able to hold up Ukraine as an example of what happens when former Soviet republics follow a Western model of free-market democracy.
“Ukraine is a linchpin for stability in Europe,” said Olexiy Haran, a professor of comparative politics at Kiev Mohyla University. “It is a key player between the expanding European Union and Russia. To use an alarmist scenario, you could imagine a situation in Ukraine that Russia tried to exploit in order to dominate Ukraine. That would make for a very explosive situation on the border of the European Union.”
That Ukraine can cause problems for Europe was highlighted in January when Ukraine engaged in a dispute with Russia over how much it would pay Russia for natural gas, as well as over gas transport to the rest of Europe. The Kremlin shut off the gas for several days, and some European countries went without heat. The Kremlin also shut off gas to Ukraine in 2006 in a pricing dispute.
While Ukraine’s economy is dependent on exports of steel and chemicals, which have plummeted, the crisis has cut deeply because people are disillusioned with the government.
President Viktor A. Yushchenko, a leader of the Orange Revolution, who garnered attention around the world in 2004 when his face was scarred in a poisoning episode, is so widely scorned that a recent poll found that 57 percent of people wanted him to resign.
His rivals have also lost popularity, as the public has become exasperated by years of political bickering. In February, the International Monetary Fund refused to release the next installment of a $16.4 billion rescue loan to Ukraine because the government would not adhere to an earlier agreement to pare its budget.
Around the same time, Ukraine’s finance minister resigned, saying that the job had been “hostage to politics.”
On Friday, the monetary fund projected that Ukraine’s economy would shrink by 6 percent this year, and said that it was continuing to work with the government to find a way to disburse the rest of the rescue loan.
A presidential election is coming, probably to be held next January, and this prospect is making politicians, especially Prime Minister Yulia V. Tymoshenko, reluctant to adopt an austerity program that might alienate voters.
Mr. Yushchenko and Ms. Tymoshenko were pro-Western allies during the Orange Revolution, but have bitterly feuded since then, and he fired her once. A third rival, Viktor F. Yanukovich, a former prime minister who heads an opposition party that favors closer ties with Russia, also wants to be president.
On Friday, Mr. Yushchenko and Ms. Tymoshenko held a public meeting in an effort to demonstrate that they were working together. Mr. Yushchenko said he wanted “to show the readiness of all sides to take political responsibility for decisions which today are not easy.”
Even so, the two did not announce further anticrisis measures.
All over Kiev have been signs that tensions are building.
On the city’s outskirts, more than 200 tractor-trailer rigs were parked Thursday, their drivers threatening to block roads if the government did not help them with their debts, which they said were caused in part by the drop in the value of Ukraine’s currency, the hryvnia.
The truckers dispersed Friday, only after the government said it would try to address their demands, but they said they would be back soon if they were ignored.
“The government is to blame for all this,” said a trucker, Viktor V. Zarichnyuk, 26, who had been at the protest for 12 days. “We want the government and the national bank to agree that the money allocated by the International Monetary Fund, at least part of it, should go to regular people.”
At a branch of the Rodovid Bank across town, a tense crowd gathered Friday morning. The bank, close to failing, was allowing withdrawals of only $35 a day. And so people, some of them pensioners fearful for their life savings, have been trooping each day, ever more aggravated, to try to get what they can.
“Every day we come here — it’s insulting — in the cold and line up,” said Alevtina A. Antonyuk, 58, an engineer. “They are nothing at this bank but a bunch of thieves.”
Who is to blame, she was asked. Before she could answer, Dmitri I. Havrilkiv, 78, a retired crane operator, interrupted.
“The government has to be replaced,” he shouted. “They just can’t handle it!”
Yalman Onaran and Michael McKee, Bloomberg News
It was 2004 and Tim Geithner, president of the Federal Reserve Bank of New York, had a message for the Federal Open Market Committee in Washington. He told his 18 colleagues gathered around the long mahogany table that a clearinghouse was needed to monitor risks in the burgeoning $5 trillion market for credit-default swaps — the over-the-counter derivatives that would later spin out of control and help take down Wall Street.
In a move that may have foreshadowed his role as President Barack Obama’s Treasury secretary, Geithner over the next two years nudged financial firms to voluntarily clear a backlog of swap trades. They stopped short of creating a clearinghouse to bring more transparency to the market.
“Geithner was making noise on reining in derivatives, but he didn’t push hard enough,” says Jane D’Arista, a former economist at the Congressional Budget Office in Washington and a longtime Fed observer. “Maybe he’ll be more forceful now that he’s in a position with real power. But I’m not so sure.”
From his years as a Dartmouth College student and mid-level Treasury official through his stint at the New York Fed, Geithner, 47, has thrived as a backroom negotiator and conciliator. Now, as he struggles to rescue Wall Street from a crisis that happened on his regulatory watch, investors and economists question whether the 75th Treasury secretary can transform himself into a bold leader equal to the challenges ahead.
Wall Street executives have cheered Geithner’s nomination.
“Treasury Secretary Geithner possesses the intelligence and experience needed to partner with President Obama and his economic team to lead us to a recovery,” says Robert Wolf, head of UBS AG’s Americas unit based in Stamford, Connecticut.
The rookie secretary has already learned that the honeymoon won’t last long. After Geithner presented a $2.5 trillion financial rescue plan on Feb. 10, the Dow Jones Industrials tumbled 4.6 percent because investors found it bereft of details. Geithner also gave no indication that he would act quickly to dismantle the weakest of the banks, a move that Joseph Mason, a former bank regulator who teaches finance at Louisiana State University, says he should take now.
Japan prolonged its credit crunch and recession for almost a decade before it finally nationalized two of its biggest banks, the Long-Term Credit Bank of Japan and Nippon Credit Bank, in 1998.
“The key to all our problems is the zombie banks,” Mason says. “We’re giving them money, which is not going to solve anything. We’re repeating the mistakes of Japan, which wasted a decade by not moving decisively against its zombie banks.”
No Treasury secretary since Henry Morgenthau, who served from 1934 to ‘45 under President Franklin D. Roosevelt, has faced so many crises at once. After receiving $800 billion in loans, guarantees and capital injections since October, the financial industry is still hunkered down, unwilling or unable to put the wind back into the sails of capitalism. Geithner played a role in shaping the $787 billion stimulus plan, and now he and Lawrence Summers, head of the National Economic Council, must recommend to President Obama whether to give General Motors Corp. and Chrysler LLC an additional $14 billion in loans on top of the $17.4 billion Bush administration bailout or force them into bankruptcy. At the White House, the new Treasury secretary may have to compete for the president’s attention with Summers, his former mentor, and Paul Volcker, who has been clamoring for more power as chairman of the Economic Recovery Advisory Board.
Geithner’s strengths — his methodical style and bureaucratic savvy — were honed over 21 years in government, as he dealt with crises from Asia to New York.
“He really understands process and decision making and how to advance an agenda,” says Michael Froman, who was former Treasury Secretary Robert Rubin’s chief of staff. “Some people are just better at it than others, not just having the big idea but breaking it down into the several dozen steps that need to make it work. That’s Tim.”
The Treasury secretary’s experience at the New York Fed from 2003 to ‘08 gave him an inside view of Wall Street that will help him choose the best remedies for today’s crisis, says Alex Pollock, resident fellow at the American Enterprise Institute in Washington and a former president of the Chicago Federal Home Loan Bank. “He’s very well qualified,” Pollock says.
‘He’s Not Change’
Frank Rich, NYT
BARACK OBAMA must savor the moment while he can. It may never get better than this.#mce_temp_url#
As he stood before Congress on Tuesday night, the new president was armed with new job approval percentages in the 60s. After his speech, the numbers hit the stratosphere: CBS News found that support for his economic plans spiked from 63 percent to 80. Had more viewers hung on for the Republican response from Bobby Jindal, the unintentionally farcical governor of Louisiana, Obama might have aced a near-perfect score.
His address was riveting because it delivered on the vision he had promised a battered populace during the campaign: Government must step in boldly when free markets run amok and when national crises fester unaddressed for decades. For all the echoes of F.D.R.’s first fireside chat, he also evoked his own memorably adult speech on race. Once again he walked us through a lucid step-by-step mini-lecture on “how we arrived” at an impasse that’s threatening America’s ability to move forward.
Obama’s race speech may have saved his campaign. His first Congressional address won’t rescue the economy. But it brings him to a significant early crossroads in his presidency — one full of perils as well as great opportunities. To get the full political picture, look beyond Obama’s popularity in last week’s polls to the two groups of Americans whose approval numbers are in the toilet. There is good news for Obama in these findings, but there’s also a stark indication of the unchecked populist rage that could still overrun his ambitious plans.
The first group in national disfavor is the G.O.P. In the latest New York Times/CBS News survey, 63 percent said that Congressional Republicans opposed the stimulus package mostly for political reasons; only 17 percent felt that the Republicans should stick with their own policies rather than cooperate with Obama and the Democrats. The second group of national villains is corporate recipients of taxpayer money: only 39 percent approve of a further bailout for banks, and only 22 percent want more money going to Detroit’s Big Three.
The good news for Obama is that he needn’t worry about the Republicans. They’re committing suicide. The morning-after conservative rationalization of Jindal’s flop was that his adenoidal delivery, not his words, did him in, and that media coaching could banish his resemblance to Kenneth the Page of “30 Rock.” That’s denial. For Jindal no less than Obama, form followed content.
The Louisiana governor, alternately smug and jejune, articulated precisely the ideology — those G.O.P. “policies” in the Times/CBS poll — that Americans reject: the conviction that government is useless and has no role in an emergency. Given that the most mismanaged federal operation in modern memory was inflicted by a Republican White House on Jindal’s own state, you’d think he’d change the subject altogether.
But like all zealots, Jindal is oblivious to how nonzealots see him. Pleading “principle,” he has actually turned down some $100 million in stimulus money for Louisiana. And, as he proudly explained on “Meet the Press” last weekend, he can’t wait to be judged on “the results” of his heroic frugality.
Good luck with that. He’s rejecting aid for a state that ranks fourth in children living below the poverty line and 46th in high school graduation rates, while struggling with a projected budget shortfall of more than $1.7 billion.
If you’re baffled why the G.O.P. would thrust Jindal into prime time, the answer is desperation. Eager to update its image without changing its antediluvian (or antebellum) substance, the party is trying to lock down its white country-club blowhards. The only other nonwhite face on tap, alas, is the unguided missile Michael Steele, its new national chairman. Steele has of late been busy promising to revive his party with an “off-the-hook” hip-hop P.R. campaign, presumably with the perennially tan House leader John Boehner leading the posse.
At least the G.O.P.’s newfound racial sensitivity saved it from choosing the white Southern governor often bracketed with Jindal as a rising “star,” Mark Sanford of South Carolina. That would have been an even bigger fiasco, for Sanford is from the same state as Ty’Sheoma Bethea, the junior high school student who sat in Michelle Obama’s box on Tuesday night and whose impassioned letter to Congresswas quoted by the president.
In her plea, the teenager begged for aid to her substandard rural school. Without basic tools, she poignantly wrote, she and her peers cannot “prove to the world” that they too might succeed at becoming “lawyers, doctors, congressmen like yourself and one day president.”
Her school is in Dillon, where the Federal Reserve chairman, Ben Bernanke, grew up. The school’s auditorium, now condemned, was the site of Bernanke’s high school graduation. Dillon is now so destitute that Bernanke’s middle-class childhood home was just auctioned off in a foreclosure sale. Unemployment is at 14.2 percent.
Governor Sanford’s response to such hardship — his state over all has the nation’s third-highest unemployment rate — was not merely a threat to turn down federal funds but a trip to Washington to actively lobby against the stimulus bill. He accused the three Republican senators who voted for it of sabotaging “the future of our civilization.” In his mind the future of civilization has little to do with the future of students like Ty’Sheoma Bethea.
What such G.O.P. “stars” as Sanford and Jindal have in common, besides their callous neo-Hoover ideology, are their phony efforts to portray themselves as populist heroes. Their role model is W., that brush-clearing “rancher” by way of Andover, Yale and Harvard. Listening to Jindal talk Tuesday night about his immigrant father’s inability to pay for an obstetrician, you’d never guess that at the time his father was an engineer and his mother an L.S.U. doctoral candidate in nuclear physics. Sanford’s first political ad in 2002 told of how growing up on his “family’s farm” taught him “about hard work and responsibility.” That “farm,” the Charlotte Observer reported, was a historic plantation appraised at $1.5 million in the early 1980s. From that hardscrabble background, he struggled on to an internship at Goldman Sachs.
G.O.P. pseudopopulism ran riot last week as right-wing troops rallied around their latest Joe the Plumber: Rick Santelli, the ranting CNBC foe of Obama’s mortgage rescue program. Ann Coulter proposed a Santelli run for president, and Twitterers organized national “tea parties” to fuel his taxpayers’ revolt. Even with a boost from NBC, whose networks seized a promotional opening by incessantly recycling the Santelli “controversy,” the bonfire fizzled. It did so because — as last week’s polls also revealed — the mortgage bailout, with a 60-plus percent approval rating, is nearly as popular as Obama.
The Santelli revolution’s flameout was just another confirmation that hard-core Republican radicals are now the G.O.P.’s problem, not the president’s. Rahm Emanuel has it right when he says the administration must try bipartisanship, but it doesn’t have to succeed. Voters give Obama credit for trying, and he can even claim success with many Republican governors, from Schwarzenegger to Crist. Now he can move on and let his childish adversaries fight among themselves, with Rush Limbaugh as the arbitrating babysitter. (Last week he gave Jindal a thumb’s up.)
But that good news for Obama is countered by the bad. The genuine populist rage in the country — aimed at greedy C.E.O.’s, not at the busted homeowners mocked as “losers” by Santelli — cannot be ignored or finessed. Though Obama was crystal clear on Tuesday that there can be “no real recovery unless we clean up the credit crisis,” it was telling that he got fuzzy when he came to what he might do about it. He waited two days to drop that shoe in his budget: a potential $750 billion in banking “asset purchases” on top of the previous $700 billion bailout.
Therein lies the Catch-22 that could bring the recovery down. As Obama said, we can’t move forward without a functioning financial system. But voters of both parties will demand that their congressmen reject another costly rescue of it. Americans still don’t understand why many Wall Street malefactors remain in place or why the administration’s dithering banking policy lacks the boldness and clarity of Obama’s rhetoric.
Nor can a further bailout be easily sold by a Treasury secretary, Timothy Geithner, whose lax oversight of the guilty banks while at the New York Fed remains a subject of journalistic inquiry. In a damning 5,600-word article from Bloomberg last week, he is portrayed as a second banana, a timid protégé of the old boys who got us into this disaster. Everyone testifies to Geithner’s brilliance, but Jindal, a Rhodes scholar, was similarly hyped. Like the Louisiana governor, the Treasury secretary is a weak public speaker not because he lacks brains or vocal training but because his message doesn’t fly.
Among the highlights of Obama’s triumphant speech was his own populist jeremiad about the “fancy drapes” and private jets of Wall Street. But talk is not action. Two days later, as ABC News reported, the president of taxpayer- supported Bank of America took a private jet to New York to stonewall Andrew Cuomo’s inquest into $3.6 billion of suspect bonuses.
Handing more public money to the reckless banks that invented this culture and stuck us with the wreckage is the new third rail of American politics. If Obama doesn’t forge a better plan, neither his immense popularity nor even political foes as laughable as Jindal can insulate him from getting burned.
Note from Allison: This is Joseph Stiglitz. He’s the most cited economist in the world, a Nobel Laureate, and the guy who first price-tagged the Iraq war at $3 trillion. As you’ve probably already gathered, he’s a genius. Also, he’s smart, which is different than genius because it means he possesses the gift of “breakin’ it down,” and speaking simply so we mortals can understand him.
He very clearly explains why Obama has devised a plan to help the banks, and not the bankers, and he also details what we need to do in order to change our financial system. Well worth the watching.
Watch the videos here.
In his 11 years in the Washington Legislature, Representative Mark Miloscia says he has supported all manner of methods to fill the state’s coffers, including increasing fees on property owners to help the homeless and taxes on alcohol and cigarettes, most of which, he said, passed “without a peep.”
And so it was last month that Mr. Miloscia, a Democrat, decided he might try to “find a new tax source” — pornography.
The response, however, was a turn-off.
“People came down on me like a ton of bricks,” said Mr. Miloscia, who proposed an 18.5 percent sales tax on items like sex toys and adult magazines. “I didn’t quite understand. Apparently porn is right up there with Mom and apple pie.”
Mr. Miloscia’s proposal died at the committee level, but he is far from the only legislator floating unorthodox ideas as more than two-thirds of the states face budget shortfalls.
“The most common phrase you hear from the states is ‘Everything is on the table,’ ” said Arturo Perez, a fiscal analyst with National Conference of State Legislatures, who predicted the worst financial year for states since the end of World War II.
Nowhere is that more true than California, where Assemblyman Tom Ammiano, a freshman from San Francisco, made a proposal intended to increase revenue, and, no doubt, appetite: legalizing and taxing marijuana, a major — if technically illegal — crop in the state.
“We’re all jonesing now for money,” Mr. Ammiano said. “And there’s this enormous industry out there.”
In Nevada, State Senator Bob Coffin said he would introduce legislation to tax the state’s legal brothels, a fee that would be “based on the amount of activities.” And unlike the Washington porn proposal, which drew the ire of the adult entertainment industry, Mr. Coffin’s plan has the backing of the potential taxpayers, in this case brothel owners who employ women as independent contractors.
“I think they figure if they become part of the tax stream, the less vulnerable they will be to some shift in mores,” he said.
Hawaiian legislators were also considering capitalizing on another potential shift in public attitudes when they proposed legalizing same-sex unions, which supporters say could help the slumping tourism trade.
In Massachusetts, meanwhile, state legislators have introduced a proposal to build two resort-style casinos, including one in Boston. A similar push died last year in the State House of Representatives. But Representative Martin J. Walsh, a Dorchester Democrat and co-author of the new casino bill, said a $2 billion budget deficit might have changed some minds.
“Every state in the nation, including Massachusetts, needs to figure out a way of raising revenues,” Mr. Walsh said. “So we need to be creative.”
Scott Pattison, executive director of the National Association of State Budget Officers, said many lawmakers were loath to tap more traditional tax sources during a downturn.
“What’s pushing it is this incredible desire to raise revenue,” he said. “But it’s coupled with the desire not to raise the general and sales and income taxes.”
Whether such proposals can pass is another issue, though each idea has its supporters. Betty Yee, chairwoman of the California Board of Equalization, the state’s tax collector, said that legal marijuana could raise nearly $1 billion per year via a $50-per-ounce fee charged to retailers. An additional $400 million could be raised through sales tax on marijuana sold to buyers.
The law would also establish a smoking age — 21 — effectively putting marijuana in a similar regulatory class as alcohol or tobacco. Marijuana advocates argue that legalization could also decrease pressure on the state’s overburdened prison system and law enforcement officers.
All of which, Ms. Yee said, at least makes the proposal worth talking about in a state with chronic budget problems and a law already on the books allowing the medical use of the drug.
“We know the product is out there, and we know marijuana is available to young people as well, but there’s no regulatory structure in place,” Ms. Yee said. “I think it’s an opportunity to begin the debate.”
Such a debate, of course, does not always favor tax innovators, and several law enforcement groups have already objected to the idea of legal marijuana, which would conflict with federal law.
John Lovell, a lobbyist for several groups of California law enforcement officials, said the plan would create a large, illicit — and thus untaxed — black market, in addition to magnifying substance abuse problems. “The last thing we need is yet another legal substance that is mind-altering,” he said.
Having taxes on illegal activities — like a seldom-collected tax on marijuana sales in Nevada — also has its drawbacks, said Robert MacCoun, a professor of law and public policy at the University of California, Berkeley, who has researched drug policy.
“It is very hard to tax illegal vices unless one is comfortable with contradiction,” Mr. MacCoun said. “How can you collect the taxes without documenting the behavior? And how can you document the behavior without making an arrest?”
In Washington State, Mr. Miloscia said he had also received criticism from an array of residents and business owners, who accused him of attacking the First Amendment and other sacred institutions with his porn proposal.
“I had people call up saying their marriages would fall apart,” said Mr. Miloscia, who represents a suburban district between Tacoma and Seattle. “I didn’t know how passionate people are about this stuff.”
CIA director Leon Panetta has revealed the global financial crisis is now being tracked in the daily intelligence briefing prepared for President Obama. In his first news conference, Panetta said Obama is being briefed on how the financial crisis is unfolding and its effect on the stability of countries worldwide. Earlier this month, National Intelligence Director Dennis Blair said economic troubles have surpassed terrorism as the nation’s top security threat. Panetta also says Latin American intelligence officials have warned the US of a crisis spreading through the hemisphere. The officials highlighted developments in Argentina, Ecuador and Venezuela, Panetta said.
The employment situation in the U.S. is, if anything, worse than most people realize. And huge numbers of young people, ages 16 to 30, are being beaten down in ways that could leave scars for a lifetime.
Much of the attention in this economic downturn has focused on the growing legions of men and women who are officially counted as unemployed. There are now more than 11 million of them.
But a better picture of the economic distress related to employment emerges when the number of jobless Americans is combined with two other categories of workers: the underemployed (those who are working part time, for example, because they can’t find full-time work) and the so-called labor force reserve, workers who have abandoned their job searches but who would work if employment became available.
This total pool of underutilized labor has now risen above 24 million, according to researchers at the Center for Labor Market Studies at Northeastern University in Boston. That total will only grow in the coming months.
The Obama administration has more than enough on its plate at the moment, but before long it will likely have to consider a range of additional strategies, beyond the recently passed stimulus package, for putting jobless Americans to work.
A comparison of the number of people being thrown out of work in this recession with that of the severe recession of 1981-82 will indicate why. The peak unemployment rate was higher in that earlier recession than today’s 7.6 percent, largely because the last big wave of the baby-boom generation was entering the job market in the early ’80s. Those boomers who couldn’t find work were officially counted as unemployed.
What is different and more frightening about the current downturn is the number of people actually losing their jobs — being laid off or fired. That number is dramatically, dangerously higher.
The government uses two different surveys to gauge employment data. The household survey, based on telephone interviews, showed that job losses in the 13 months that followed the beginning of the 1981-82 recession reached 1.53 million. In the first 13 months of this recession, the number of jobs lost, according to the household survey, has been a staggering 4 million.
The payroll survey, which is based on employment records, showed job losses of 1.7 million in the first 13 months of the earlier downturn compared with 3.5 million in the current recession.
Pick your poison. This is not the kind of downturn Americans are used to.
The ones who are being hit the hardest and will have the most difficult time recovering are America’s young workers. Nearly 2.2 million young people, ages 16 through 29, have already lost their jobs in this recession. This follows an already steep decline in employment opportunities for young workers over the past several years.
Good jobs were hard to find for most categories of workers during that period. One of the results has been that older men and women have been taking and holding onto jobs that in prior eras would have gone to young people.
“What we’ve seen over the past eight years, for young people under 30, is the largest age reversal with regard to jobs that we’ve ever had in our history,” said Andrew Sum, the director of the Center for Labor Market Studies. “The younger you are, the more you got pushed out of this labor market.”
There were not enough jobs to go around before the recession took hold. So the young, the poor and the poorly educated were already suffering. Now that pool of suffering is rapidly expanding.
This has ominous long-term implications for the country. The economy cannot perform well with such a large cohort of young people condemned to marginal economic status.
Young men and women who remain unemployed for substantial periods of time find it very difficult to make up that ground. They lose the experience and training they would have gained by working. Even if they eventually find employment, they tend to lag behind their peers when it comes to wages, promotions and job security.
Moreover, as the economy worsens, even the college educated are feeling the crunch.
According to a report by researchers working with Mr. Sum: “While young college graduates have fared the best in maintaining some type of employment, a growing fraction of them are becoming mal-employed, holding jobs in occupations that do not require much schooling beyond high school, often displacing their less-educated peers.”
Employment problems have festered in the United States for decades. The economy will never be brought to a state of health until those problems are more thoughtfully and more directly engaged. This will become more and more clear with each passing month of this hideous recession.
President Obama delivered a fantastic speech Tuesday night. It’s tone alone will go a long way toward reassuring a nation mired in economic crisis.
And amazingly, there were many moments of bipartisan applause, like when Obama tackled corporate greed: “I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.”
This was music to my ears, but as Robert Scheer astutely pointed out at The Nation, the problem Obama had in discussing regulation to fix our financial woes is that many of his top economic advisors, including Lawrence Summers, were responsible for gutting the regulatory system that helped cause this mess in the first place.
Don’t get me wrong, Obama’s speech was strong, and hopefully it will symbolize a fundamental change in thinking from his economic team. But I’m just glad we have someone like Sen. Bernie Sanders, I-Vt., to help Obama make good on his demagoguery.
The independent senator from Vermont says we need a new Wall Street. He wants to confront the culture of greed head on, get rid of the CEOs of these corrupt financial institutions and establish a much stricter regulatory process.
Sanders has been a vocal critic of TARP spending from the beginning, and last month he called for the congressional TARP Oversight Panelto expand its focus and dig into the causes of the financial crisis, using subpoena power to expose the roots.
Sanders’ vigilance and frankness, coupled with Obama’s rhetoric Tuesday night, gives me hope.
ZP Heller is the editorial director of Brave New Films. He has written for The American Prospect, AlterNet, The Philadelphia Inquirer, and The Huffington Post, covering everything from politics to pop culture.
The Treasury Department reached a deal late Thursday to take a stake of 30 to 40 percent in Citigroup as part of a third bailout of the embattled bank, according to several people close to the deal.
Vikram S. Pandit, the chief executive, will remain at the helm, but Citigroup will have to shake up its board so that it has a majority of independent directors, a move that federal regulators had already been pursuing.
Under the terms of the deal, the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock.
It will convert its stake to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so alongside the government, two people close to the deal said.
The Treasury Department will match the private investors’ conversions dollar-for-dollar. That accounts for uncertainty in how big the government’s stake will be.
Citigroup and Treasury officials reached an agreement late Thursday night, but final details were still being worked out. The deal is expected to be announced Friday.
A Treasury spokeswoman did not return a phone call seeking comment. A Citigroup spokesman declined to comment.
The Obama administration deliberately stopped short of securing a majority or controlling interest in Citigroup, but will probably come under intense pressure to take a much larger role in shaping the bank’s direction. Taxpayers, after pumping more than $45 billion into the bank, have become Citigroup’s single largest shareholder. The government will not put in any additional money for now, but some analysts believe Citigroup may require more down the road.
The move is one of the most drastic steps federal officials have taken to prevent the collapse of an institution deemed “too big too fail,” as its downfall could send shockwaves through the global markets. The government also took a major ownership stake in the American International Group, and seized control of Fannie Mae and Freddie Mac in September. So far, none of those deals have turned out well.
The Obama administration has tried to keep the banks in private hands and tried to stamp out talk of nationalization. But Citigroup’s plunging share price and its deteriorating financial condition made it almost inevitable the government would have to convert its stake.
The deal is expected to serve as a model for other financial institutions. Other major banks could find themselves in a similar position in the coming weeks if a new “stress test” that examines their ability to cope with rising losses shows they do not have sufficient capital, or the right amount of common stock, to appease regulators. Administration officials say they will convert the government’s existing preferred stock investments into common shares and, if necessary, make additional investments to stabilize the banks.
The Citigroup deal tries to address a potential shortfall of common stock, which investors and regulators now demand. Details remain murky, but the government has agreed to convert its investment at a price of as much as $5 a share, more than twice the value of Citigroup’s $2.46 closing share price on Thursday. That means the government’s stake could rise to as much as 40 percent, from 8 percent, giving taxpayers more risk, but more potential for profit if the company recovers.
Still it will severely dilute Citigroup’s existing shareholders. Those shareholders include longtime investors like Saudi Prince Walid bin Talal and Sanford I. Weill, its former chairman, and many large asset management and pension funds that manage money for ordinary investors.
Citigroup has been pursuing a similar conversion plan with several big preferred stock investors, including several government investment funds like the Abu Dhabi Investment Authority and the Kuwait Investment Authority, as part of a broader financial restructuring.
By retiring the debt and issuing new shares of common stock, Citigroup can bolster it common equity position. So far, no preferred shareholders have agreed to swap their shares. And without the government alongside them, it is an even tougher sell because of fear their positions might be wiped out.
Citigroup officials hope the government’s additional support bolsters confidence and helps revive the company’s sunken stock price. The deal also frees up some several billion a year in additional capital because it no longer has to pay out the dividend to preferred stockholders.
But it does little to address the bank’s underlying problem: Citigroup may not have the earnings power to weather the tsunami of consumer losses expected over the next several quarters. That is because tens of billions of toxic mortgage-related assets remain stuck on its balance sheet. Until they are removed, few private investors will be willing to pour new capital into the bank.