Allison Kilkenny: Unreported

Comrade Greenspan: Seize The Banks!

Posted in Economy by allisonkilkenny on February 18, 2009

FT.com

alan-greenspanThe US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

Mr Greenspan’s comments capped a frenetic day in which policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.

“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”

Speaking to the FT ahead of a speech to the Economic Club of New York on Tuesday, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.

The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”

But he cautioned that holders of senior debt – bonds that would be paid off before other claims – might have to be protected even in the event of nationalisation.

”You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks,” he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt.”

Mr Greenspan’s comments came as President Barack Obama signed into law the $787bn fiscal stimulus in Denver, Colorado. Mr Obama will announce on Wednesday a$50bn programme for home foreclosure relief in Phoenix, Arizona. Meanwhile, the White House was working last night on the latest phase of the bailout for two of the big three US carmakers.

In his speech after signing the stimulus, which he called the “most sweeping recovery package in our history”, Mr Obama set out a vertiginous timetable of federal decisions in the coming weeks that included fixing the US banking system, submission next week of the 2009 budget and a bipartisan White House meeting to address longer-term fiscal discipline.

“We need to end a culture where we ignore problems until they become full-blown crises,” said Mr Obama. “Today does not mark the end of our economic troubles… but it does mark the beginning of the end.”

Politico’s David Rogers Catches Republicans Lying About High-Speed Rail, Won’t Call Them Liars

Posted in Barack Obama, Economy, politics by allisonkilkenny on February 17, 2009

Matthew Yglesias

highspeedrail1_1David Rogers has a piece in Politico that offers a nice summary of the recovery plan’s actual high-speed rail provisions and the direct role of the White House in securing them:

The $787.2 billion economic recovery bill — to be signed by President Barack Obama on Tuesday — dedicates $8 billion to high-speed rail, most of which was added in the final closed-door bargaining at the instigation of White House chief of staff Rahm Emanuel. […] The same Maine and Pennsylvania Republican moderates who had criticized Obama’s school construction initiative were more accepting of the rail funds, since the Northeast corridor has a major stake in more improvements. To help pay for the added cost, a business tax break — providing a five-year carry back for net operating losses — was narrowed to keep the focus more on smaller firms with receipts of less than $15 million.

Needless to say, this reality is at odds with the made-up story conservatives have been telling all weekend about $8 billion being earmarked for a train to Las Vegas. And Rogers, as we’ll see, knows what the truth is, knows what conservatives have been saying, and knows that the two are different things, but he can’t quite seem to describe what’s happening with regular English words:

At the same time, conservative Republicans seemed almost blind to Obama’s role. Instead, in their campaign to find pork barrel projects in the stimulus bill, they painted the whole funding as a scheme by Senate Majority Leader Harry Reid on behalf of Las Vegas interests seeking a rail link to Los Angeles. “Sin City to Tomorrow Land” was one description.

Here is Rep. Candice S. Miller (R-Mich.) explaining her vote against the bill Friday despite the benefits to her home state: “Michigan is a state of about 10 million people, and we are the hardest hit, as I said, by this economy. And yet we are expected to get approximately $7 billion from this bill. And apparently the Senate majority leader has earmarked $8 billion for a rail system from Las Vegas to Los Angeles? You have got to be kidding. You have got to be kidding.”

Rep Miller wasn’t “explaining” anything, she was lying to her constituents. Nor were conservatives running a “campaign to find pork barrel projects int he stimulus bill” they were inventing fictional projects. Nor were obscure House backbenchers like Miller running a rogue operation here. House Minority Leader John Boehner led the charge on peddling this lie, and Senator Jim Demint was on the case as well.

Obama and Liberals: a Counter-Productive Relationship

Posted in Barack Obama, politics by allisonkilkenny on February 15, 2009

Note from Allison: For an excellent read on the dangers of party loyalty overcoming critical, independent thought, check out John R. MacArthur’s You Can’t Be President. The book is mainly about how you can never, ever, EVER become president (unless you completely sell-out and fellate Richard M. Daley and the boards of several major corporations.) But there’s also all kinds of goodies about the homogenization of political parties, and the suppression of  independent candidacies. 

Glenn Greenwald

3-1-obamaniaThe New Republic‘s John Judis today has an excellent analysis of the politics behind the stimulus package — one which applies equally to most other political controversies.  Judis argues that the stimulus package ended up being far inferior to what it could have been and points to this reason why that happened:

But I think the main reason that Obama is having trouble is that there is not a popular left movement that is agitating for him to go well beyond where he would even ideally like to go. Sure, there are leftwing intellectuals like Paul Krugman who are beating the drums for nationalizing the banks and for a $1 trillion-plus stimulus. But I am not referring to intellectuals, but to movements that stir up trouble among voters and get people really angry. Instead, what exists of a popular left is either incapable of action or in Obama’s pocket. . . .

A member of one liberal group, Campaign for America’s Future, pronounced the stimulus bill “a darn good first step.” MoveOn — as far as I can tell — has attacked conservative Republicans for opposing the bill, while lamely urging Democrats to back it. Of course, all these groups may have thought the stimulus bill and the bailout were ideal, but I doubt it. I bet they had the same criticisms of these measures that Krugman or The American Prospect’s Ezra Klein or my own colleagues had, but they made the mistake that political groups often make:  subordinating their concern about issues to their support for the party and its leading politician.

By extremely stark contrast, Paul Krugman today explains why Republicans are so unified in their opposition to this bill and their willingness to uphold the principles of their supporters:

One might have expected Republicans to act at least slightly chastened in these early days of the Obama administration, given both their drubbing in the last two elections and the economic debacle of the past eight years. But it’s now clear that the party’s commitment to deep voodoo — enforced, in part, by pressure groups that stand ready to run primary challengers against heretics — is as strong as ever.

[As an ancillary matter:  though I agree with Krugman’s principal point, I dislike his use of the word “heretics” here. It invokes one of the worst myths in our political discourse:  the idea that there’s something wrong, intolerant or “Stalinist” about pressuring or even campaigning against incumbents “from one’s own party” who advocate positions that you think are bad and wrong.  That activity happens to be the essence of democracy, and we need more, not less, of it.  If anything is Stalinist, it’s the sky-high incumbent re-election rates and the sense of entitlement in our political class that incumbents should not ever face primary challenges even if they support policies which the base of the party reviles.  Why shouldn’t GOP voters who love tax cuts and hate government domestic spending, regardless of whether they’re right or wrong,demand that their elected representatives support those views (in exactly the same way that Democratic incumbents who supported the Iraq war and/or Bush’s lawless surveillance state should have been targeted for defeat)?]

But Krugman’s larger point is correct:  Republican groups demand from politicians support for their beliefs.  By contrast, as Judis describes, Democratic groups — including (perhaps especially) liberal activist groups — now (with some exceptions) lend their allegiance to the party and its leader regardless of how faithful the party leadership is to their beliefs.  That disparity means that there is often great popular agitation and political pressure exerted from the Right, but almost none from the Left (I’m using the terms “Left” and “Right” here in their conventional sense:  “Right”  being the core of the GOP and “Left” being those who most consistently and vigorously opposed Bush’s foreign and domestic policies). 

During the 2008 election, Obama co-opted huge portions of the Left and its infrastructure so that their allegiance became devoted to him and not to any ideas.  Many online political and “news” outlets — including some liberal political blogs — discovered that the most reliable way to massively increase traffic was to capitalize on the pro-Obama fervor by turning themselves into pro-Obama cheerleading squads.  Grass-roots activist groups watched their dues-paying membership rolls explode the more they tapped into that same sentiment and turned themselves into Obama-supporting appendages.  Even labor unions and long-standing Beltway advocacy groups reaped substantial benefits by identifying themselves as loyal foot soldiers in the Obama movement.

The major problem now is that these entities — the ones that ought to be applying pressure on Obama from the Left and opposing him when he moves too far Right — are now completely boxed in.  They’ve lost — or, more accurately, voluntarily relinquished — their independence.  They know that criticizing — let alone opposing — Obama will mean that all those new readers they won last year will leave; that all those new dues-paying members will go join some other, more Obama-supportive organization; that they will prompt intense backlash and anger among the very people — their members, supporters and readers — on whom they have come to rely as the source of their support, strength, and numbers. 

As a result, there is very little political or media structure to Obama’s Left that can or will criticize him, even when he moves far to what the Beltway calls the “center” or even the Right (i.e., when he adopts large chunks of the GOP position).  That situation is extremely bad — both for the Left and for Obama.  It makes impossible what very well might be the apocryphal though still illuminating FDR anecdote:

FDR was, of course, a consummate political leader. In one situation, a group came to him urging specific actions in support of a cause in which they deeply believed. He replied: “I agree with you, I want to do it, now make me do it.”

As Judis points out, Obama, on some issues, might move to the Right because he wants to.  In other cases, he will do so because he perceives that he has to, because the combination of the GOP/Blue-Dog-following-caucus/Beltway-media-mob might force him to.  Regardless of Obama’s motives, the lack of a meaningful, potent movement on the Left to oppose that behavior ensures that it will continue without any resistance.  The lack of any independent political pressure from the Left ensures that Obama will be either content to ignore their views or will be forced to do so even when he doesn’t want to.

Prioritizing political allegiance to their leader was exactly the mistake the Right made for the first several years of the Bush presidency.  Even Bill Kristol admitted in The New York Times:  “Bush was the movement and the cause.”  An entire creepy cottage industry arose on the Right devoted to venerating George W. Bush.  And it wasn’t until well into his second term, when his popularity had already collapsed, that they began opposing him in a few isolated cases when he deviated from their beliefs — on immigration reform, the Harriet Miers nomination, Dubai ports, the TARP bailout and the like.  But, by then, it was too late:  Bush became synonymous with “conservatism” because the latter wasn’t really about anything other than supporting the President no matter what he did.  The ideological movement and their political leader had merged, and it was destructive for both of them.

Part of the political shrewdness of Obama has been that he’s been able to actually convince huge numbers of liberals that it’s a good thing when he ignores and even stomps on their political ideals, that it’s something they should celebrate and even be grateful for.  Hordes of Obama-loving liberals are still marching around paying homage to the empty mantras of “pragmatism” and “post-partisan harmony” — the terms used to justify and even glorify Obama’s repudiation of their own political values.  Talk Left’s Armando described the oddness of this mentality:

As I wrote earlier in a comment, “up yours” to the ACLU used to be known as “triangulation” when a certain William Jefferson Clinton did it. Today it is known as “11 dimensional chess.” Another episode today demonstrates the transformation of “triangulation” into “11 dimensional chess:”

Sen. Tom Harkin, a liberal Democrat from Iowa, said fellow Democrats had surrendered too much in a bid to appease three moderate Republicans who can ensure passage in the Senate.

“I think our side gave in too much in order to appease a few people,” he said in a hallway interview in the Capitol earlier on Wednesday. He said Democrats should have dared Republicans to filibuster and “see what the public outcry” would have been. “I think the people are getting shortchanged.”

Imagine if Bill Clinton had capitulated like this to a Republican Congress in 1995? Or said “up yours” to the ACLU the way Obama did? Do you think the cries of “sellout” would be hard to find today? Me neither.

Political ideas and values that have no meaningful pressure being exerted on their behalf will always be those that are most ignored.  That’s just the most basic rule of politics.  Last year, Accountability Now was created to provide exactly that pushback against political incumbents, and there will be a major announcement very soon along with its formal launch (an Executive Director has been hired and much of the infrastructure has been created and the groundwork laid).  For the moment, on one issue after the next, one can vividly observe the harm that comes from a political faction being beholden to a leader rather than to any actual ideas or political principles.

 

UPDATE:  Greg Sargent obtains a letter today from the Obama DOD regarding conditions at Guantanamo which nicely illustrates the need for ongoing, constant pressure on the administration — here.

And Matt Yglesias identifies another harm from having liberals defining themselves by “whatever Obama supports”:

If you succeed in muting all your critics to the left, all you do is create a situation where your program is defined in the press and the congress and the public imagination as the most-leftwing-possible proposal. And the furthest-left proposal can’t possibly win. It’s never helpful to have fratricidal warfare and battles to the death, but it’s necessary for there to be meaningful pressure to do more than is popular or possible or even necessary in order to lay the groundwork for accomplishing anything.

I wouldn’t quite put it this way, because I don’t believe that anyone should be advocating for positions to the Left of Obama simply as a tactic to make Obama’s policies seem more centrist and therefore more likely to be accepted.  But his general point is still true:  criticizing Obama from the Left (as, say, Paul Krugman has been doing in the stimulus debate) expands the scope of the debate in a very important way that can only advance the Left’s political goals and, incidentally, enable/force Obama to avoid the Center and Right.

Obama Goes To Bat For Banks

Posted in Barack Obama, Economy, politics by allisonkilkenny on January 25, 2009

Open Left

bankster-chessTen days ago, we reported on Open Left that bankruptcy “cram-down” mortgage relief would not appear in the stimulus, but would appear in a different piece of legislation later this year. Despite our reports, the fight over bankruptcy “cram-down” legislation in the stimulus did not actually end ten days ago. As recently as Thursday, House Democrats will still fighting in to include the measure in the stimulus, and Senator Dick Durbin, the leading proponent of the measure in the Senate, was denying that President Obama was opposed to including the measure in the stimulus.

However, any lingering doubt about the fate of bankruptcy “cram-down” reform in the stimulus can now be put to rest. Senator Durbin has confirmed that President Obama opposes including the measure in the stimulus, and favors including it in later legislation instead (more in the extended entry):

Chris Bowers :: Tough Road Ahead for Bankruptcy Reform

The key to passage of the bankruptcy bill is the Senate, where Democrats need 60 votes to stop a possible filibuster. Ten Democrats — all still in the Senate — would not back the plan in a vote a year ago.
Sen. Dick Durbin, D-Ill., the chief Senate sponsor of the bill, said Obama persuaded him in a White House meeting Friday to remove the bankruptcy proposal from an economic recovery package — to ensure it doesn’t jeopardize the stimulus bill. But Obama pledged his support for the bankruptcy solution, Durbin said.

Obama said he would work with Durbin to attach the proposal to other ”must pass” legislation — with the hope that supporters of the overall bill would not vote against it because of the bankruptcy provisions.

There will definitely be no cram-down in the stimulus now. Further, with ten Senate Democrats opposed to the measure last year, we can also expect a big fight over the measure when the home foreclosure mitigation bill comes up later this year. In fact, The ten Democrats in question are actually eleven, now that Lieberman is back in the caucus. Baucus (MT), Byrd (WV), Carper (DE), Johnson (SD), Landrieu (LA), Lieberman (CT), Lincoln (AR), McCaskill (MO), Nelson (NE), Pryor (AR) and Tester (MT). Without a single Republican defector, this will be a difficult bill to pass at any point.

However, there are rays of hope. First, the economic crisis might actually be changing votes. For example, Mike Thompson, one of the sixteen House Blue Dogs who in 2007 sent out a letter opposing cram-down legislation, offered a promising response to Open Left commenter kaleidescope when s/he called Thompson’s office about cram-down legislation in the stimulus:

I called my Representative, Mike Thompson (CA-1), a blue dog, about HR 225.  My experience is that you get better results if you call the local (as opposed to the D.C.) office.  You get to talk to a career staffer instead of an intern. Thompson’s Eureka staffer told me Thompson is starting to edge away from his blue dog affiliations.  She noted that he is fiscally conservative, but that “everything has changed in the economy” since 2007.

Second, there is always the hope of working a deal where the Democrats who are opposed agree to not filibuster, but then vote “no” on an up-or-down, simple majority vote for the legislation.

It is pretty sad that, even with the Democratic trifecta and even with the collapse of the credibility of the banking industry, that the banking lobby can still delay, and possibly even stop, good legislation like this. They can twist Congressional arms into forking over trillions of dollars on their behalf, all the while twisting those arms to make sure homeowners facing foreclosure get nothing. At least it makes it clear who is actually running the country.

“I won” — Barack Obama

Posted in Barack Obama, Democrats, Economy, politics, Republicans by allisonkilkenny on January 23, 2009

Good for him.

Talking Points Memo posted a story about Chuck Todd (the poor man’s Tim Russert) wringing his hands over the lack of bipartisan results in the stimulus bill currently sitting in committee.

We’re sitting here watching Robert Gibbs’ White House briefing. And there is a long string of questions about whether Obama can really working in a bipartisan manner if no Republicans are saying nice things about the stimulus bill or voting for the mark-ups out of committee. And Chuck Todd just asked whether Obama would veto a stimulus bill that came to his desk that hadn’t gotten Republican support.

That would be quite a moment.

And Obama’s response to more spineless, moderate Democrat whining?  

Politico

President Obama listened to Republican gripes about his stimulus package during a meeting with congressional leaders Friday morning – but he also left no doubt about who’s in charge of these negotiations. “I won,” Obama noted matter-of-factly, according to sources familiar with the conversation.  

Well, knock me over with a fucking feather. Was that tough talk from a Democrat? More, please.

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.