Allison Kilkenny: Unreported

DeMint: The Richest 0.7 Percent of the Population is “Lots of People”

Posted in class divide, Economy, politics, wealth divide by allisonkilkenny on February 25, 2009

Matthew Yglesias

The right-wing is flinging smokescreen rhetoric about income taxes and small businesses so quickly that it’s difficult to keep track of what they’re saying. But the important things to recall are that very few people find themselves in the top two tax brackets, and that though some of these people are small businessmen they’re paying taxes on net income. These are brackets for a small number of unusually prosperous people. For example, here’s Jim Demint:

It looks like he’s gonna try to get a lot of that revenue from raising payroll taxes on upper income and that sounds good but basically that affects small businesses and their ability to hire people. So I just think it shows a lack of understanding of the private sector. A lot of people make — who are reporting a quarter million dollars — you know, I’ve done that before in my small business, and I was actually taking home like 50 or 40.

In fact, about 0.7 percent of households file in the top two brackets: 

taxes.png 

Meanwhile, I don’t know why DeMint thinks people who are only taking home $40k or $50k would be filing as people who earn $250,000. I think he wants people to think that the government is taxing gross business receipts, so that if I spend $230,000 on my business to earn $300,000 in revenue, that I’m taxed on all $300,000. But that’s not how it works at all. You deduct business expenses and pay taxes on your net income. Any small businessman who’s earning a middle class income isn’t paying in the top two brackets, just as any salaried employee who’s earning a middle class income isn’t paying in the top two brackets.

Watch the Demint video here.

(more…)

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover

Posted in Economy, politics by allisonkilkenny on February 25, 2009
51i9nr8hofl_bo2204203200_pisitb-sticker-arrow-clicktopright35-76_aa240_sh20_ou01_

Click here to purchase the book!

The Nation was kind enough to include one of my essays in their latest book, Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover. Obviously, the book is extremely timely and the other essays are awesome, so I highly recommend you purchase it. The Nation is a rare jewel: a highly-regarded, liberal source of news that pays freelancers well, and doesn’t shy away from provocative thoughts and sometimes naughty language (meaning my writing style).

My essay is called “Youth Surviving Subprime,” and it addresses how the subprime crisis is affecting our country’s youths, and how the shady lending practices resemble predatory tuition loans sometimes issued to students. The subprime mess is a generational problem, and I felt youths were underrepresented in the media’s discussion of the crisis. Hence, the article.

Support The Nation and independent media, and purchase this excellent book.

Amazon

America’s economy is in meltdown. Banks have failed, foreclosures are sweeping the housing market, and stocks have suffered their worst losses since the Great Depression. Faced with a complex and spiraling crisis, the government has poured billions of taxpayer cash into a bailout with no end in sight.At every step of the way, The Nation, America’s oldest weekly magazine, has tackled the most urgent questions facing the nation’s leaders and its citizens with clarity and insight. Meltdown draws together nearly twenty years of the best of their coverage of the financial crisis and explores what steps President Obama and his new administration must take to ensure a more secure future for everyone.

Other contributors include:

  • William Greider on Alan Greenspan’s flawed ideology
  • Robert Sherrill on why the bubble popped
  • Thomas Frank on the rise of market populism
  • Christopher Hayes on the coming foreclosure tsunami
  • Barbara Ehrenreich on the implosion of capitalism
  • Kai Wright on how the subprime crisis is bankrupting black America
  • Naomi Klein on Bush’s final pillage
  • Joseph E. Stiglitz on Henry Paulson’s shell game
  • Jesse Jackson on trickle-down economics
  • Katrina vanden Heuvel and Eric Schlosser on why America needs a New New Deal

That Can’t-Do Spirit

Posted in Barack Obama, Economy, politics by allisonkilkenny on February 24, 2009

Bob Herbert

982648683_79c561cb31_oIn his first Inaugural Address, with the U.S. all but paralyzed by the Depression, Franklin Roosevelt declared that the nation’s greatest task was “to put people to work.”

Three-quarters of a century later, in the midst of perhaps the worst downturn since the Depression, that remains the biggest challenge.

The U.S. economy cannot work if ordinary men and women cannot find work. Let’s forget for a moment all the ritualized lingo about tax cuts, all the easy but uninformed talk about entitlement reform and all the empty rhetoric about balancing budgets that will never be truly balanced in our lifetimes.

What Americans need is new employment on a massive scale, and one of the most effective ways to get that started is to invest extraordinary amounts in the nation’s infrastructure, to rebuild America in a way that creates a world-class platform for a sustainable 21st-century economy.

President Obama’s stimulus package is just a first step in the government’s effort to stabilizing the hemorrhaging economy. It contains infrastructure spending, but nothing comparable to the vast amounts it will take to make the desperately needed improvements.

Funds spent on those improvements, which will have to be made sooner or later, are also cracker-jack investments in putting people to work. The idea that the government is spending trillions on wars, bank bailouts, tax cuts, and so on, while still neglecting its infrastructure needs — and at a time when Americans are desperate for jobs — is mind-boggling.

The financier Felix Rohatyn has been carrying the banner for infrastructure spending for the longest time. During an address in Washington over the weekend to a meeting of the National Governors Association, he emphasized the importance and long tradition of investing government revenue, with an eye to returns in the long run.

“From the Louisiana Purchase and the Erie Canal, through the creation of the Land Grant colleges, to the interstate highways and the G.I. Bill, government investment was pivotal,” he said.

His new book, “Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now,” opens with the stark phrase: “The nation is falling apart.”

Mr. Rohatyn goes on to write: “Three-quarters of the country’s public school buildings are outdated and inadequate. More than a quarter of the nation’s bridges are obsolete or deficient. It will take $11 billionannually to replace aging drinking water facilities. Half the locks on more than 12,000 miles of inland waterways are functionally obsolete.”

According to the American Society of Civil Engineers, an investment of $2.2 trillion from all sources over five years would be required to get the nation’s infrastructure into decent shape.

You might ask where that money would come from. Great question. How about an infrastructure bank?

The current economic crisis is the perfect time to decide that we need to change some of the tired old ways of doing the people’s business. Senator Chris Dodd of Connecticut has offered a bill that would create an infrastructure bank. It would be a bipartisan entity that would streamline the process of reviewing and authorizing major projects. It would provide federal investment capital for approved projects and use that money to leverage private investment.

President Obama supports the establishment of such a bank. When I asked him about it in an interview, he said, “The idea of an infrastructure bank, I think, makes sense.” But he suggested that there would be stiff resistance from lawmakers in both parties who are reluctant to give up their considerable influence over the selection and financing of lucrative infrastructure projects.

The president seemed optimistic about the prospects of moving ahead with some additional infrastructure spending, and he said he “would like to see some long-term reforms” in the way transportation money is spent. He acknowledged that the nation’s infrastructure “needs are massive, and we can’t do everything.”

But we could do a lot more. There is something weirdly self-defeating about having a need as clear-cut as the need to move beyond a deteriorating 20th-century physical plant, and being unable to do it because of the wasteful, inefficient and outmoded 20th-century way of doing politics and government.

In his address to the governors, Mr. Rohatyn noted that President Obama had asked Transportation Secretary Ray LaHood to come up with a plan for financing high-speed rail projects. He said he hoped that that would be a step toward the eventual establishment of an infrastructure bank.

Speaking about America’s competitors in the global economy, Mr. Rohatyn noted, among other things, that China was building 100 new airports and that Spanish trains traveling between Madrid and Barcelona can reach speeds of 300 miles per hour.

“We are falling behind on too many fronts,” he said.

Does Bipartisanship Matter?

Posted in Barack Obama, Economy, politics by allisonkilkenny on February 23, 2009

New York Times

kickme_500During the stimulus debate, President Obama made several overtures to the Republicans, hoping to bring them on board with his plan, to little avail. Not one House Republican voted for the package, and only three moderate Republicans voted with the Democrats in the Senate.

Given that decidedly partisan outcome, should President Obama continue to aim for bipartisanship in carrying out his broader agenda?


Our Leaders, Surprise, Have Strong Views

Larry Sabato

Larry Sabato is director of the Center for Politics, and Robert Kent Gooch Professor and University Professor of Politics at the University of Virginia.

Americans love bipartisanship, and it’s easy to understand why. All of us were raised to believe that we should “play nice” and “disagree without being disagreeable.” Also, most of us are inherently suspicious of politics, parties and politicians. While more than 80 percent of Americans have some partisan identification with either the Democrats or the Republicans, just over a third have a strong attachment to one of the parties. The other two-thirds don’t like to be fenced in by a label.

And fairly or unfairly, people despise watching politicians squabble. The assumption is that they are doing so more out of arrogance, entitlement and ego than any real sense of the public good. I have heard hundreds of citizens ask why can’t the politicians just sit down, talk over their differences, and arrive at a reasonable compromise like adults?

If only it were that straightforward and effortless. The two major political parties have fundamental disagreements about a wide variety of economic, social, and foreign policy issues. They are supposed to have them. The men and women who represent the parties in Congress and the executive branch are not average individuals with unformed opinions on many topics, but rather strong partisans who have carefully thought out their world views for decades.

The American system does not lend itself to ‘national unity’ governments like those sometimes formed in parliamentary systems. 

They got where they are because they were activists, motivated to make sacrifices of time and money for their principles. Most do not bend easily, and after all, the voters have elected them on the basis of their platforms and beliefs. Elections matter enormously in any democracy.

In addition, the American system does not lend itself to “national unity” governments like those sometimes formed in parliamentary systems — governments that combine the executive and legislative functions into a single dominant elective chamber. The theory that underpins a two-party system in a separation-of-powers arrangement like ours is that the parties turn their principles into practical choices on the great issues of the day.

The electorate considers those distinct options, and picks one at election time. Yes, sometimes one party wins the Presidency and the other party wins Congress — and either compromise or stalemate results. (Usually it is some of both.)

But in other elections, the people decide to put the same party in power in both elective branches. That is what happened in November 2008. The Democrats have a mandate to govern, and the Republicans have the job of suggesting alternatives and preparing to contest the next elections in 2010 and 2012 on the basis of their distinct ideas.

Every system is imperfect. Every system has flaws that reduce efficiency and effectiveness. But over time, the American system has proved itself. Civility and consultation are always welcome, and smart leaders use these courtesies to accomplish their goals. But two parties were not elected to govern in 2008, and it really is that simple.


Steamrolling the Opposition Won’t Work

Steven Calabresi

Steven G. Calabresi, a co-founder of the Federalist Society, is the George C. Dix Professor of Constitutional Law at Northwestern University.

President Obama reached out in his campaign and in his transition to Republicans, and he said that bipartisanship in solving our problems would be a hall mark of the change he wanted to bring to America. The President’s desire for bipartisanship is to be applauded, and it stands in sharp contrast with the behavior of House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid who steamrolled over the Republicans in writing the stimulus bill.

Education and health care reform will need the bipartisan solution of free-market socialism. 

I do not blame the president for Speaker Pelosi’s and Senator Reid’s behavior nor do I think it is what he wants to see repeated. We need bipartisanship in many areas, but let me mention two that especially stand out.

In education, we need to move toward a system where public schools are funded out of taxes collected statewide or federally rather than through highly unequal residential property taxes. We also need many, many more charter schools and vouchers for education. The bipartisan solution to our education problems is to reform both the way we fund public schools and the degree to which they compete.

The same thing applies for health care reform. We need to provide funding for private individuals who do not have and cannot afford health insurance to buy it on the private market. To do this, we need gradually to eliminate the tax deductability of employer-provided health care plans to fund health care tax credits. This will sever the current link between having a job and having health care. It will also lead to control of health care prices because upper income consumers of health care will watch their health care expenses more carefully if they have to pay for them with after tax income rather than with before tax employer provided benefits which are seen as being a freebie.

One bipartisan solution to education and health care policy is for government to, in effect, give all citizens an education or health care credit or voucher and then let them buy education or health care from the provider they like the most. This is the essence of free-market socialism, which is what I think President Obama wants.


Going Along With the G.O.P.

Glenn Greenwald

Glenn Greenwald, a former constitutional lawyer, is a columnist at Salon.com and the author, most recently, of “Great American Hypocrites: Toppling the Big Myths of Republican Politics.”

The long-standing Beltway cliché is that there is something inherently superior about “bipartisanship” and “centrism.” Those terms are such platitudes that they now lack any real meaning. But in their common usage, they typically designate whatever views happen to appeal to the base of the Republican Party and enough “conservative” Democrats to form a majority.

‘Bipartisanship’ has meant all Republicans joining a minority of Democrats to enact Republican policies. 

Over the last eight years, virtually every new law hailed as a shining example of “bipartisanship” has involved all Republicans joining with a substantial minority of Democrats to provide majoritarian support. — i.e., it’s been a mechanism for enacting Republican policies.

A list of the most significant acts of “bipartisan” votes during the Bush presidency compellingly demonstrates how that term is typically employed. It’s a way of eliminating the few differences between the parties and forcing Democrats, even when they are in power, to continue to embrace Republican governing approaches.

In 2006, the Democrats ran on a platform of opposing — not embracing — the Republican agenda, and American voters handed them a resounding, even crushing, victory. In 2008, much the same thing happened: Democrats ran on platform of “change” from the Republican approach to governance — not replicating it — and resoundingly won again.

What possible reason is there, then, to argue that Democrats ought to adopt Republican ideas — regardless of what those ideas are — simply for the sake of “bipartisanship”? Americans elected Democrats to implement Democratic ideas and will hold Democrats responsible for the success or failure of their policies. Democrats should therefore use their majority power to carry out the polices that they think are the best ones for the country, not dilute those ideas and incorporate discredited Republican approaches in order to fulfill some vague bipartisan ideal.

Besides, Republicans have made clear that they consider themselves an opposition party. They don’t want to give President Obama and Democrats political cover by allowing policies to be depicted as the consensus of both parties. Republicans represent millions of Americans who disagree with the Democratic approach and it is more democratic of them to represent those views by operating as an opposition party.

Of course, no party has a monopoly on good ideas and there’s nothing wrong with compromising with the other party when doing so yields superior policies. But bipartisanship for its own sake elevates process over substance, and does nothing but further erode the very few genuine differences that still exist between the two parties.


Tough Issues Require Bipartisan Cover

Ramesh Ponnuru

Ramesh Ponnuru is a senior editor for National Review.

Whether and how President Obama reaches out to Republicans depends on what he wants to accomplish. If his agenda centers on legislation that poses few political risks, then he can afford to pass bills on party-line votes. He would lose some of the aura of a president who wants to move past old divisions, but that aura will probably wane anyway as he comes to be seen more and more as an incumbent.

On issues like entitlement reform and global warming, congressional Democrats may not want to bear the political risks alone. 

The stimulus bill was, as legislation goes, low-risk. It has been a long time since anybody has lost a congressional or presidential election for spending or cutting taxes too much. But there are signs that Mr. Obama wants to move in areas that pose greater political risks, and it is hard to imagine that congressional Democrats will want to bear those risks alone.

Health-care reform would almost certainly involve threatening some Americans’ existing arrangements. Entitlement reform would involve either raising taxes, cutting future benefits, or both. Action on global warming could raise energy prices. Tax reform would anger many groups. Would Obama be able to keep his party unified on these issues? If not, he will need to have more than a handful of Republicans on his side. And to get the requisite numbers, he will have to let Republicans have meaningful input in the legislation.

In my view, President Obama could do himself and the country a lot of good by moving early on a bipartisan reform of Social Security. In deciding how much to reach out to Republicans, he will not merely be making a stylistic or tactical choice. He will be figuring out what kind of president he wants to be.


An Empty Fantasy

, a senior editor at National Review, is the author of “George Washington on Leadership” and the forthcoming “Right Time, Right Place: Coming of Age with William F. Buckley Jr. and the Conservative Movement.”

Political parties are the bastard children of the founding fathers. They hoped to have a non-partisan political order: George Washington attacked parties in his Farewell Address, and James Madison wrote of them in the Federalist Papers as factions, political bacilli. Yet all the founders quickly involved themselves in the first American party system, Federalists vs. Republicans (ancestor of today’s Democrats).

Nostalgia for prelapsarian non-partisan innocence is always with us, though. In moments of great stress it can take concrete form. Franklin Roosevelt picked two Republicans, Henry Stimson and Frank Knox, to be Secretaries of War and the Navy in 1940, in the early days of World War II. Lincoln tapped the Unionist Democrat Andrew Johnson to be his running mate when he ran for re-election in 1864. Stimson and Knox performed well; Johnson, who became president after Lincoln’s murder, was a catastrophe.

Short of a world war or a civil war, bipartisanship is an empty fantasy. Parties exist for reasons — they express clashing ideas and interests in society. I imagine President Obama knew this all along. He won the White House, and the Democrats control both houses of Congress. They asked for these jobs; let’s see their stuff.

Citigroup’s Clever Plan to Screw Taxpayers Again

Posted in business, Economy by allisonkilkenny on February 23, 2009

The Business Insider

citigroup-ecoSo Citigroup (C) has proposed that the US taxpayer and other preferred shareholders convert up to $75 billion of preferred stock into common stock, thus bolstering the company’s tangible equity and putting it in less desperate need of a complete takeover.

And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports.  The reports add that Citigroup’s goal here is to keep the US’s ownership under 50%, so this won’t be a de facto nationalization.

Well, that’s nice for Citigroup…and another ream-job for taxpayers.

Citigroup’s common equity is currently worth $10 billion.  If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%. 

For the US to convert $45 billion of preferred to common and only get 40% of the company, Citigroup’s existing common equity would have to be valued at $65 billion, not $10 billion, and the conversion price would have to be about $10 a share. Or the US would only be able to convert $4 billion of its $45 billion, which wouldn’t help Citigroup’s tangible equity ratio much.

So is that what Citigroup is trying to do here?  Persuade the US goverment to convert to common stock at a price miles above the current trading price, screwing the US taxpayer yet again?

Or does Citigroup have some other secret plan up its sleeve whereby it can take up to $75 billion of debt (preferred stock) off its books and not end up diluting its current shareholders 90%?

Banking on the Brink

Posted in Economy by allisonkilkenny on February 23, 2009

Paul Krugman

Comrade Greenspan wants us to seize the economy’s commanding heights.

O.K., not exactly. What Alan Greenspan, the former Federal Reserve chairman — and a staunch defender of free markets — actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.

The case for nationalization rests on three observations.

First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

Let’s be concrete here. There’s a reasonable chance — not a certainty — that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn’t remotely large enough to cover those potential losses.

Arguably, the only reason they haven’t already failed is that the government is acting as a backstop, implicitly guaranteeing their obligations. But they’re zombie banks, unable to supply the credit the economy needs.

To end their zombiehood the banks need more capital. But they can’t raise more capital from private investors. So the government has to supply the necessary funds.

But here’s the thing: the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it’s basically putting up all the money, the government should get ownership in return.

Still, isn’t nationalization un-American? No, it’s as American as apple pie.

Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank’s bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that’s exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent.

The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.

For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.

Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.

Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.

How would nationalization take place? All the administration has to do is take its own planned “stress test” for major banks seriously, and not hide the results when a bank fails the test, making a takeover necessary. Yes, the whole thing would have a Claude Rains feel to it, as a government that has been propping up banks for months declares itself shocked, shocked at the miserable state of their balance sheets. But that’s O.K.

And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”

The Obama administration, says Robert Gibbs, the White House spokesman, believes “that a privately held banking system is the correct way to go.” So do we all. But what we have now isn’t private enterprise, it’s lemon socialism: banks get the upside but taxpayers bear the risks. And it’s perpetuating zombie banks, blocking economic recovery.

What we want is a system in which banks own the downs as well as the ups. And the road to that system runs through nationalization.

What We Don’t Know Will Hurt Us

Posted in Barack Obama, Economy, media, politics, torture by allisonkilkenny on February 22, 2009

Frank Rich

self-denialAND so on the 29th day of his presidency, Barack Obama signed the stimulus bill. But the earth did not move. The Dow Jones fell almost 300 points. G.M. and Chrysler together asked taxpayers for another $21.6 billion and announcedanother 50,000 layoffs. The latest alleged mini-Madoff, R. Allen Stanford, was accused of an $8 billion fraud with 50,000 victims.

“I don’t want to pretend that today marks the end of our economic problems,” the president said on Tuesday at the signing ceremony in Denver. He added, hopefully: “But today does mark the beginning of the end.”

Does it?

No one knows, of course, but a bigger question may be whether we really want to know. One of the most persistent cultural tics of the early 21st century is Americans’ reluctance to absorb, let alone prepare for, bad news. We are plugged into more information sources than anyone could have imagined even 15 years ago. The cruel ambush of 9/11 supposedly “changed everything,” slapping us back to reality. Yet we are constantly shocked, shocked by the foreseeable. Obama’s toughest political problem may not be coping with the increasingly marginalized G.O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.

This phenomenon could be seen in two TV exposés of the mortgage crisis broadcast on the eve of the stimulus signing. On Sunday, “60 Minutes” focused on the tawdry lending practices of Golden West Financial, built by Herb and Marion Sandler. On Monday, the CNBC documentary “House of Cards” served up another tranche of the subprime culture, typified by the now defunct company Quick Loan Funding and its huckster-in-chief, Daniel Sadek. Both reports were superbly done, but both could have been reruns.

The Sandlers and Sadek have been recurrently whipped at length in print and on television, as far back as 2007 in Sadek’s case (by Bloomberg); the Sandlers were even vilified in a “Saturday Night Live” sketch last October. But still the larger message may not be entirely sinking in. “House of Cards” was littered with come-on commercials, including one hawking “risk-free” foreign-currency trading — yet another variation on Quick Loan Funding, promising credulous Americans something for nothing.

This cultural pattern of denial is hardly limited to the economic crisis. Anyone with eyes could have seen that Sammy Sosa and Mark McGwire resembled Macy’s parade balloons in their 1998 home-run derby, but it took years for many fans (not to mention Major League Baseball) to accept the sorry truth. It wasn’t until the Joseph Wilson-Valerie Plame saga caught fire in summer 2003, months after “Mission Accomplished,” that we began to confront the reality that we had gone to war in Iraq over imaginary W.M.D. Weapons inspectors and even some journalists (especially at Knight-Ridder newspapers) had been telling us exactly that for almost a year.

The writer Mark Danner, who early on chronicled the Bush administration’s practice of torture for The New York Review of Books, reminded me last week that that story first began to emerge in December 2002. That’s when The Washington Post reported on the “stress and duress” tactics used to interrogate terrorism suspects. But while similar reports followed, the notion that torture was official American policy didn’t start to sink in until after the Abu Ghraib photos emerged in April 2004. Torture wasn’t routinely called “torture” in Beltway debate until late 2005, when John McCain began to press for legislation banning it.

Steroids, torture, lies from the White House, civil war in Iraq, even recession: that’s just a partial glossary of the bad-news vocabulary that some of the country, sometimes in tandem with a passive news media, resisted for months on end before bowing to the obvious or the inevitable. “The needle,” as Danner put it, gets “stuck in the groove.”

For all the gloomy headlines we’ve absorbed since the fall, we still can’t quite accept the full depth of our economic abyss either. Nicole Gelinas, a financial analyst at the conservative Manhattan Institute, sees denial at play over a wide swath of America, reaching from the loftiest economic strata of Wall Street to the foreclosure-decimated boom developments in the Sun Belt.

When we spoke last week, she talked of would-be bankers who, upon graduating, plan “to travel in Asia and teach English for a year” and then pick up where they left off. Such graduates are dreaming, Gelinas says, because the over-the-top Wall Street money culture of the credit bubble isn’t coming back for a very long time, if ever. As she observes, it took decades after the Great Depression — until the 1980s — for Wall Street to fully reclaim its old swagger. Not until then was there “a new group of people without massive psychological scarring” from the 1929 crash.

In states like Nevada, Florida and Arizona, Gelinas sees “huge neighborhoods that will become ghettos” as half their populations lose or abandon their homes, with an attendant collapse of public services and social order. “It will be like after Katrina,” she says, “but it’s no longer just the Lower Ninth Ward’s problem.” Writing in the current issue of The Atlantic, the urban theorist Richard Florida suggests we could be seeing “the end of a whole way of life.” The link between the American dream and home ownership, fostered by years of bipartisan public policy, may be irreparably broken.

Pity our new president. As he rolls out one recovery package after another, he can’t know for sure what will work. If he tells the whole story of what might be around the corner, he risks instilling fear itself among Americans who are already panicked. (Half the country, according to a new Associated Press poll, now fears unemployment.) But if the president airbrushes the picture too much, the country could be as angry about ensuing calamities as it was when the Bush administration’s repeated assertion of “success” in Iraq proved a sham. Managing America’s future shock is a task that will call for every last ounce of Obama’s brains, temperament and oratorical gifts.

The difficulty of walking this fine line can be seen in the drama surrounding the latest forbidden word to creep around the shadows for months before finally leaping into the open: nationalization. Until he started hedging a little last weekend, the president has pointedly said that nationalizing banks, while fine for Sweden, wouldn’t do in America, with its “different” (i.e., non-socialistic) culture and traditions. But the word nationalization, once mostly whispered by liberal economists, is now even being tossed around by Lindsey Graham and Alan Greenspan. It’s a clear indication that no one has a better idea.

The Obama White House may come up with euphemisms for nationalization (temporary receivership, anyone?). But whatever it’s called, what will it mean? The reason why the White House has been punting on the new installment of the bank rescue is not that the much-maligned Treasury secretary, Timothy Geithner, is incapable of getting his act together. What’s slowing the works are the huge political questions at stake, many of them with consequences potentially as toxic as the banks’ assets.

Will Obama concede aloud that some of our “too big to fail” banks have, in essence, already failed? If so, what will he do about it? What will it cost? And, most important, who will pay? No one knows the sum of the American banks’ losses, but the economist Nouriel Roubini, who has gotten much right about this crash, puts it at $1.8 trillion. That doesn’t count any defaults still to come on what had been considered “good” mortgages and myriad other debt, whether from auto loans or credit cards.

Americans are right to wonder why there has been scant punishment for the management and boards of bailed-out banks that recklessly sliced and diced all this debt into worthless gambling chips. They are also right to wonder why there is still little transparency in how TARP funds have been spent by these teetering institutions. If a CNBC commentator can stir up a populist dust storm by ranting that Obama’s new mortgage program (priced at $75 billion to $275 billion) is “promoting bad behavior,” imagine the tornado that would greet an even bigger bank bailout on top of the $700 billion already down the TARP drain.

Nationalization would likely mean wiping out the big banks’ managements and shareholders. It’s because that reckoning has mostly been avoided so far that those bankers may be the Americans in the greatest denial of all. Wall Street’s last barons still seem to believe that they can hang on to their old culture by scuttling corporate jets, rejecting bonuses or sounding contrite in public. Ask the former Citigroup wise man Robert Rubin how that strategy worked out.

We are now waiting to learn if Obama’s economic team, much of it drawn from the Wonderful World of Citi and Goldman Sachs, will have the will to make its own former cohort face the truth. But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word — depression — is next on America’s list to avoid.

VIDEO: Buy A Car, Return It When You Lose Your Job

Posted in Economy by allisonkilkenny on February 19, 2009

2454497289_e942db4d65Hyundai Assurance Protection: Buy any new Hyundai and in the next year if you lose your income, we’ll let you return it.

Taste the recession.

Not a shot at Hyundai. This is just yet another sign of the hard times.

Watch the video here.

(more…)

GM: Twittering ‘Til The Bitter End

Posted in Economy by allisonkilkenny on February 19, 2009

General Motors and Chrysler’s requests for $21.6 billion in federal loans have a lot of citizens up in arms. GM has already asked for (and received) $13.4 billion in loans under the auto industry bailout, and the company claims it would need another $100 billion in government financing if it goes bankrupt.

But the good news is that the auto giant has a comprehensive, full-proof business model to confront the worsening recession:

1. Cut 47,000 American jobs

2. Close five North American plants

3. Drop several brands, including the lightweight, more fuel-efficient Saturn, and to counterbalance that, the “Why Jesus?!” Hummer brand

4. Hope the UAW doesn’t raise too much hell over GM’s inability to pay retirees’ health care costs

5. Twitter

I learned of step five in GM’s Vision of the Future when I twittered the following innocuous (or so I thought) comment:

allisonkilkenny: sees GM is phasing out the small, fuel efficient Saturn. Oil companies: 1, Earth: 0.

Seconds later, I received a reply tweet from something called GMBlogs:

@allisonkilkenny we don’t have indiv trash cans at ofc cubes at hq, just an ex, not sure total $ saved from small ideas, but likely large

picture-1In other words, GM is still environmentally-friendly because interns have to share trash cans. Shaky reasoning aside, I was surprised that I had popped onto the radar of GM with my casual mention of their brand, especially when the company should theoretically be preoccupied with, ya know’, going out of business.

I contacted Christopher Barger, GM Director of Global Communications Technology, about this weird prioritizing. Barger quickly responded to my questions, and he explained that GM is using TweetDeck to just search for mentions of GM, as well as interacting with the people who were already following the company. It’s not unusual for a corporation to use Twitter to monitor customer reactions to its products, and Barger equated the practice to customer service, though he seemed to take offense when I pointed out the slim differences between corporate acts of “good will” and propaganda.

I responded that, unlike customer service, I didn’t approach GM with a question or complaint. They specifically searched Twitter for mention of their product and then sent a messenger my way to post some talking points about The Corporation. 

An entire department devoted to the cause of Tweeting and blogging may seem like a strange choice for budget allocation considering their economic turmoil, but GM has burst onto the technological scene with great gusto. GM is quick to rationalize, claiming this is totally 100% normal because corporations need to keep their fingers on the pulses of clients and customers, and GM is hardly the only corporation to engage in the magic world of Twitter.

“We knew that when [the loan request] was submitted last night, there would be a lot of people reacting to it — on Twitter, on Facebook, in the blogs.  We wanted to be out there answering as many questions as possible about the viability plan itself, the progress we’ve made in its execution since December 2, the impact of the restructuring on our brands and upcoming vehicles, trying to let people know that Saturn still may have life after GM, trying to gauge how people were reacting to the plan,” said Berger.

Of course, gauging customer reaction shouldn’t take a back seat to providing actual products and services, say cars and health care. If GM is looking for a reaction from American citizens about their billions of dollars in requested loans and mistreatment of their employees, I can save them a lot of time and Tweeting:

It’s not good. It’s very bad. Less people want to buy your heavy, fuel-inefficient cars, and almost no one is thrilled that taxpayers are paying you billions of dollars to close domestic plants and ship jobs across our borders. Few people like that you mistreat unions. No one likes that in your rush to modernize and embrace the technology of the internet (complete with Twitter experts,) you forgot how to compete with foreign car companies.

It is possible to make tweets private and avoid the watchful eye of corporations, though that protection has already been hacked. For now, know that while you may never again own a good American car, you’re sure to get a prompt reply whenever you Twitter about GM.

Obama’s Economic Plan Is Not Going to Save Us

Posted in Barack Obama, Economy, politics by allisonkilkenny on January 22, 2009

The Nation

china_shanghai_stock_market_crash_recessionThe nation’s fast-darkening circumstances define the essential dilemma of Barack Obama’s presidency. His instinct is to govern by consensus, in the moderate middle ground of politics. Yet dire events are pushing the new president toward solutions more fundamental than those he had intended. The longer he resists taking more forceful action, the more likely it is that he will be overwhelmed by the gathering adversities.

Three large obstacles are blocking Obama’s path. The first is one of scale: his nearly $800 billion recovery package sounds huge, but it is perhaps two or three times too small to produce a turnaround. The second is that the financial system–still dysfunctional despite the bailouts–requires much more than fiscal stimulus and bailout: the government must nationalize and supervise the banks to ensure that they carry out the lending and investing needed for recovery. This means liquidating some famous nameplates–led by Citigroup–that are spiraling toward insolvency. The third is that the crisis is global: the US economy cannot return to normal unless the unbalanced world trading system is simultaneously reformed. Globalization has vastly undermined US productive strength, as trade deficits have led the nation into deepening debtor dependence.

While Washington debates the terms of Obama’s stimulus package, others see disappointment ahead. The Levy Economics Institute of Bard College, an outpost of Keynesian thinking, expresses its doubts in emotional language that professional economists seldom use. “The prospects for the US economy have become uniquely dreadful, if not frightening,” Levy analysts reported. The institute’s updated strategic analysis warns that the magnitude of negative forces–the virtual collapse of bank lending, private spending, consumer incomes and demand–“will make it impossible for US authorities to apply a fiscal and monetary stimulus large enough to return output and unemployment to tolerable levels within the next two years.” Instead, the unemployment rate is likely to rise to 10 percent by 2010. Obama’s package amounts only to around 3 percent, annually, of GDP in a $13 trillion economy. Levy’s analysis calculates that it would require federal deficits of 8 to 10 percent of GDP–$2 trillion or more–to reverse the economic contraction. And yet, the institute observed, it is inconceivable that this level “could be tolerated for purely political reasons” or that the United States could sustain the rising indebtedness without terrifying our leading creditors, like China.

Stimulus alone by a single nation will not work, in other words, given the distorted economic system that Obama has inherited. The stern warning from the Levy analysts and other skeptical experts is that the United States has no choice but to undertake deeper systemic reforms right now, rather than wait for recovery. Will Obama have the nerve to tackle these fundamentals? To do so he would have to abandon some orthodox assumptions about free trade and private finance that he shares with his economic advisers.

The most obvious and immediate obstacle to systemic change is the dysfunctional financial system. It remains inert and hunkered down in self-protection, despite the vast billions in public money distributed so freely, no strings attached, in the last days of the Bush administration. We will learn soon enough whether Obama intends to start over with a more forceful approach. Obama and his advisers are eager to get another $350 billion in bailout funds, but they have remained silent on whether this will finance a government takeover of the system. Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return.

The most complex barrier to recovery is globalization and its negative impact on the economy. Given our grossly unbalanced trade, we have kept the system going by playing buyer of last resort–absorbing mountainous trade deficits and accumulating more than $5 trillion in capital debt to pay for swollen imports, while our domestic economy steadily loses jobs and production to other nations. Renewed consumer demand at home will automatically “leak” to rival economies and trading partners by boosting their exports to the US market–which subtracts directly from our GDP. This is the trap the lopsided trading system has created for recovery plans, and it cannot be escaped without fundamental reform.

To put it crudely, Obama’s stimulus program might restart factories in China while leaving US unemployment painfully high. In fact, some leakage may occur via the very banks or industrial corporations that taxpayers have generously assisted. What prevents Citigroup and General Motors from using their fresh capital to enhance overseas operations rather than investing at home? The new administration will therefore have to rethink the terms of globalization before its domestic initiatives can succeed.

A global recovery compact would require extremely difficult diplomacy but could be possible because it is in everyone’s self-interest. The United States could propose the outlines with one crucial condition: if the trading partners are unwilling to act jointly, Washington will have to proceed unilaterally. A grand bargain could start with US agreement to serve once again as the main engine that pulls the global economy out of the ditch. That is, the United States will have to continue as the buyer of last resort for the next few years, and China and other nations will have to bail us out with still more lending. In the short run, this would dig us into a deeper hole, but the United States could insist on a genuinely reformed system and mutually agreed return to balanced trade, once global recovery is under way.

Congress can enact the terms now–a ceiling on US trade deficits that will decline steadily to tolerable levels, as well as new rules for US multinational enterprises that redefine their obligations to the home economy. Unlike in other advanced nations, US companies get a free ride from their home government when they relocate production abroad. That has to change if the United States is to reverse its weakening world position. Tax penalties plus national economic policy can drive US multinationals to keep more of their value-added production at home. These measures can be enforced through the tax code and, if necessary, a general tariff that puts a cap on imports. Formulating these provisions now for application later, once the worst of the crisis is over, would give every player the time to adjust investment strategies gradually.

President Obama and his team may at first scorn the notion of saving the world while negotiating a bailout for the United States. They will be reluctant to talk about reforming the global system by threatening to invoke emergency tariffs. But we are in uncharted waters. Impossible ideas abruptly begin to seem plausible. Six months from now, if the Obama recovery does not materialize, the president may discover he has to reinvent himself.

William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and–due out in February from Rodale–Come Home, America.