The Blog

Samuel H. Williamson: Dealing With America's Fiscal Hole

2009-11-26T03:21:02Z

A recent piece in The Economist titled "Dealing with America's fiscal hole" says nothing new and gives no insight as to how to deal with the current economic problems.

The first thing that bothers me is the statement that "Raising the retirement age for Social Security and Medicare would save money while encouraging Americans to work longer, thereby expanding economic potential."

Right now we have over 14 million people looking for a job and The Economist wants to discourage retirement of those in their 60s. We should be looking for ways to help people afford to retire so younger people can move into their jobs. Also it is debatable as to how many more people would not retire if the retirement age for Social Security were raised compared to those who would still retire at 62 but at even lower benefits. There are other ways to make Social Security fiscally stable. And what are they thinking about it when suggest raising the age for Medicare? Do they want more people without heath insurance?

The other thing that bothers me is that there is no discussion about what the government deficits are financing. Governments spend on consumption and gross investment. If we have an increase in the deficit to finance more investment, the economy may be better off.

For example, suppose there is a billion dollars to be invested in a highway or a private factory. If it is determined that the economy will grow 5% with the new highway and 2% with the new factory, then society is better off that a billion dollars is loaned to the government and not the owners of the factory. Government investment is what much of stimulus money is spent on and we could use another one.

I know there are those who think the government cannot spend any money that would help the economy grow faster than a private sector investment, but I would point out that the state of Michigan, where I live, would have probably have been better off if we had invested more in our schools and crumbling highways and bridges than having GM build factories to produce Hummers.

Patricia Handschiegel: The New Power Girls: Women Entrepreneurs On Acknowledging The Small Wins - And Being Thankful For Them

2009-11-26T02:40:42Z

Boston's Liberty Hotel sits just a few blocks from John Kerry's house in Beacon Hill, an area that's known for its historical brick streets and heritage that dates back to the days of early America. The vibe is cool and chic, east coast sophisticate ranging from early 20s to 40s and 50s. The hotel's lobby is one of the city's top hot spots for locals, with rumored lines out the door waiting to get in many nights of the week, in addition to being one of the premiere spots for business guests. When I arrive for an overnight while in town to speak at the MIT Futures of Entertainment 4 conference, the end of the workday is nearing.

Evening light cascades into the lobby, which is already filled with men in dress suits and shirts either sitting in groups coworking or mingling quietly over drinks. Women are equally in the mix, most in work appropriate fashions in cool, modern cuts. Downstairs, a sample sale is being held with one of Boston's hottest local designers, who'll host a fashion show later. By the time we're noshing on fresh baked signature bread and sipping wine at Scampo, it's well into the early evening. The lobby upstairs is now pumping. Nightlife attire starts to mix in as Bostonians duck into Clink and the night gets started.

As I take a seat on the MIT panel the following morning, I'm reminded of the days long ago when I was still in a corporate job, wishing I could do something bigger. The very next thought that comes to mind is how thankful I am that I'm doing it. It's one of those many times as a founder, male or female, that you look back a little and recognize all the little steps, experiences and wins along the way. Most days start early and move at a breakneck pace when you run a company. It's always wonderful when those moments come where you're reminded of what it's taken to get there. Not only is it good for the spirit, it may also be good for business.

"Looking back at my accomplishments, specifically over the past three years, has helped me tremendously in pushing forward of running my business full-time," said Jaime Derringer of Design Milk, a digital magazine on all things design that nabs a rumored 60k visitors a day. "Since I just achieved it not too long ago, I have been reflecting on it often."

It's a conversation I have had with many of the women founders I've met and know. Being ambitious and owning a company keeps most entrepreneurs tightly fixed on what's ahead, but oddly remembering where you've been can have equal benefit. It goes beyond just giving thanks to yourself, God, family, employees, etc. to also appreciating yourself and the tiny accomplishments that stitch together the bigger achievement that took your business where you envisioned it. While your racing around to make your work a go, don't forget to take a minute and notice where you are and what it took for you to get there. Not only will it remind you of all you have, but of the strong, driven, passionate entrepreneur that helped push you to it.

Power Girls use the past to drive their steps into the future.

See what New Power Girls co-creator Meghan and I have to say about this week's topic on NPGDaily.com

Andy Stern: Lloyd Blankfein Gives Thanks

2009-11-25T22:58:36Z

Goldman Sachs CEO Lloyd Blankfein has a lot to be thankful for this year...

His turkey dinner with all the trimmings at his 27 million Central Park suite.
The 63.6 billion in bailouts and backstops Goldman Sachs has collected from taxpayers since the crash--most of which Goldman need never pay back.
The record 23 billion in compensation and bonuses Goldman will dole out this year.
The peace of mind offered by the "Too Big to Fail Doctrine" suggesting that taxpayers will always come to Goldman's rescue.
The record breaking100 million trading days Goldman is enjoying thanks to the "Wall Street innovation" that has allowed them to return to the same risky and reckless practices that crashed the economy. .
The top corporate lobbyists on Goldman's payroll who work day and night to keep Wall Street unrestrained and unregulated.

But Lloyd Blankfein and the rest of the Wall Street CEOs don't seem to be very thankful for the American people. We stepped in to rescue the big banks in their time of need. Now the American people need assistance and they're nowhere to be found.

They refuse to help people like Maria Guerra. Maria, who helped her brother buy his first home, thought her family had achieved the American Dream. That dream quickly turned into a nightmare when Maria's brother was laid off and he fell behind on his mortgage payments. Maria and her brother had to sign his home over to the bank a few weeks ago, and now thanks to the struggling economy and her efforts to support her extended family, Maria is worried about losing her home too.

And what about the 150 workers at the Stella D'Oro cookie factory in the Bronx? They lost their jobs and their healthcare when a company owned in part by Goldman Sachs bought Stella D'Oro and closed the factory down.

What about the more than 1.5 million Americans who've already lost their homes this year? The more than 5.3 million workers who have lost their jobs since the economy crashed? The 14,000 Americans who lose their health insurance each day? The 17,000 forced into personal bankruptcy each week because of their medical debts?

What is Wall Street doing to help the rest of America recover?

Lloyd Blankfein and the rest of the Wall Street barons need to realize that all of their profits and all of their power don't mean a thing if they continue to put their company ahead of the greater good of our country.

Wall Street wealth is meaningless if Americans don't have jobs, if more than 10,000 people a day continue to get foreclosure notices, and if small businesses continue to go dark.

Wall Street wealth is meaningless when the American Dream continues to slip further and further out of reach for more and more of us.

Last week I joined hundreds of other Americans outside Goldman Sachs' Washington, D.C. headquarters. We had a simple demand for Blankfein: Donate your $23 billion bonus pool and stop all foreclosures for the next year.

Goldman's response? A shallow apology for bringing our economy to its knees and a paltry donation to small businesses equal to just two percent of the bonus money they're expected to pay out this year.

Meanwhile, more than 90,000 Americans now face a similar fate to Maria and her brother.

It's time to do away with the Goldman rule--that those who have the gold make the rules.

Lloyd Blankfein can start today by accepting our challenge. He can announce today that Goldman will use its $23 billion bonus pool to help Americans keep their homes.

That would be something we could all be thankful for.

Eric C. Anderson: Beijing Quietly Signaling Intent To Flee U.S. Debt

2009-11-25T19:15:49Z

It now appears China's leaders are acting upon their frequently expressed concerns about the continuing viability of the U.S. dollar. On 23 November 2009, the Economic Observer News, an independent weekly newspaper distributed in major cities throughout China, published a story suggesting Beijing's sovereign wealth fund is preparing to almost double in size. According to the Economic Observer News, the China Investment Corporation (CIC) is rumored to be preparing a request for an infusion of an additional $200 billion. The money would be shifted from China's ever-expanding foreign exchange reserves ($2.27 trillion as of September) into the hands of investors charged with earning a maximum return on the Chinese taxpayers' hard won gains.

This is great news for the Chinese citizenry...the purported "victims" of Beijing's strict monetary policies...and bad news for the average American. Allow me to explain this conclusion by running a few numbers by the reader. I'll start with the official Treasury figures for China's ownership of our growing national debt. On 17 November, Washington released its latest report on "Major Foreign Holders of Treasury Securities." Here's what the U.S. Treasury has to say about Beijing's spending habits over the last seven months. In March 2009, China held $767.9 billion in U.S. Treasury securities. In April that figure was $763.5 billion. In May it was $801.5 billion. In June, $776.4 billion. In July, $800.5 billion. In August, 797.1 billion. And in September--the last month for which data is available--$798.9 billion. Quite simply, over the last seven months China's investment in our debt has been essentially static.

Now let's turn to China's foreign exchange reserves over the same time period. According to Chinabilty, a website that has reliably provided the most current news and statistics on China's economy, in March 2009 Beijing's foreign exchange reserves stood at $1,952.7 trillion. In April that figure was $2,008.9 trillion. In May, $2,089.5 trillion. In June, $2,131.6 trillion. In July, $2,174.6 trillion. In August, $2,210.8 trillion. And in September, $2,272.6 trillion. My point in reciting this data--during the same period that China's foreign exchange reserves grew by approximately $320 billion, Beijing's interest in funding Washington's extravagance flat-lined.

Please note, I am not arguing that the Chinese are preparing to flee U.S. Treasury securities. Such a move would be devastating for Beijing and Washington. Rather, I am increasingly convinced the evidence points to a Chinese decision to diversify their holdings. A logical move--and one we can actually track by monitoring the China Investment Corporation.

Officially established in September 2007, the China Investment Corporation is responsible for managing Beijing's official sovereign wealth fund. (The U.S. Treasury defines a sovereign wealth fund as a government investment account, typically established using foreign currency reserves, but managed separately from those reserves.) Initially provided a pool of $200 billion, CIC was tasked with supporting the rise of China's largest banks and seeking off-shore opportunities. The approximately $100 billion CIC's managers allocated for the first task has paid significant dividends--as of August 2009 this investment has risen in value by an estimated $98 billion. The initial offshore investments were not so lucrative. In fact, the China Investment Corporation took significant hits on forays into Morgan Stanley and Blackstone.

These losses were an object lesson for Beijing. Unlike Washington--where bailing out the bankers and large insurance firms became a mantra of the moment--Beijing decided its taxpayers' funds were best kept locked up at home. This caution is now to be lauded. As a result of keeping 87.4% of its holdings in cash and only risking 3.2% in equities and 9% in fixed-income securities, CIC lost a scant 2.1% of its value in 2008. During the same time period Harvard and Yale's endowment funds--the reputed investment champions--declined in value by 22% and 13%, respectively.

Guess what, the Chinese are now ready to invest...in apparently anything but more U.S. T-notes. In March 2009, the China Investment Corporation deputy general manager declared "the current international situation gives the CIC a good opportunity." (OK, now go back and look at when China's interest in U.S. Treasury securities essentially flat lined...I'm thinking this is not coincidental.) So where is the money going? To long term investments that serve Beijing's national interests--read, economic growth--and earn a respectable return for the Chinese taxpayer.

A case in point, commodities. In July 2009, CIC announced its first foray into the natural resources sector--a 17.2% stake in the Canadian mining company Teck Resources Limited. The purchase price--$1.5 billion. In September, CIC bought an 11% stake in Kazakhstan's state-run energy company for $939 million. This move came only a week after CIC purchased $1.9 billion in debt from Indonesia's biggest coal producer. In October, CIC spent $700 million on a Mongolia-focused mining firm. And in November the China Investment Corporation sunk $400 million in China's largest wind-power producer and $1.58 in a Virginia-based power-plant developer. All told, over $5 billion now spent on energy and resource industries in less than 6 months.

The story does not stop there. In August, CIC bailed out the heavily indebted majority owner of London's Canary Wharf real estate development--taking a 19% share in the British firm. In September, China Investment Corporation mangers began talking with private-equity funds in the U.S. about acquiring distressed real estate assets--including mortgages and physical property--in the United States.

Has CIC been successful? Beijing seems to think so. The Economic Observer News reports the China Investment Corporation has now reached an agreement with the Chinese Communist Party such that it no longer has to treat its original $200 billion allotment as a debt, but rather as an asset. This means CIC will no longer have to make scheduled interest payments to the Ministry of Finance. Instead, CIC will now pay the state--Chinese taxpayers--dividends. This is a development policy makers in Washington can only dream about. I, for one, am certainly not expecting a similar outcome with our "investment" in AIG or GM.

My bottom line, Beijing has seen the light--further investment in Washington's debt does not appear a wise expenditure of Chinese taxpayers' money. We can speculate what this might mean in the long run...an even weaker dollar and higher interest rates...but should be more concerned about ensuring Mr. Geithner and company get the message. Rather than speculating on the potential of a brighter tomorrow, Washington needs to talk about taking fiscal responsibility seriously, today. The Chinese are not going to be impressed with a blue-ribbon panel that banally offers platitudes concerning the scope of our financial problems. Beijing is only going to be assuaged when Capitol Hill decides it too should be looking to this nation's long-term best interests. Until that happens I suspect the best gauge of Beijing's faith in the dollar's prospects will be measured by where the China Investment Corporation turns next.

Bob Berkowitz: The Power Of Empathy

2009-11-25T16:27:27Z

Empathy--"The ability to share in another's emotions, thoughts or feelings." -- Webster's New World Dictionary

If you want to persuade and influence people to buy into your idea, product, or service, you must first understand them. You must learn everything you can about them. Who are they? What are their dreams, aspirations and fears?

Nelson Mandela valued the power of understanding others, including his enemies. Richard Shell and Mario Moussa, in The Art of the Woo, tell how Mandela wanted to persuade his jailers to improve treatment for all of the inmates in Robbins Island prison, where they were held captive.

A major part of his strategy was to get inside the minds of his captors. To that end, he taught himself to speak and comprehend Afrikaans, and learned the history, culture and values of the Afrikaaners. In order to best communicate what he wanted, he needed to truly know where his adversaries were coming from. Or as Mandela put it: "You must understand the mind of the opposing commander...you can't understand him unless you understand his literature and his language." This empathetic comprehension of those who were guarding him and his fellow inmates led to better conditions in an otherwise oppressive jail.

In dealing with clients, you probably won't have to learn a foreign language, but you do need to understand what words, phrases and vocabulary will resonate. When I worked for Roger Ailes at CNBC, he told me that if the person on the receiving end of your communication doesn't get what you're talking about, it's your responsibility to figure out how to say it so she does.

Many years ago, I took acting lessons just for the fun of it. I learned a very valuable lesson from the teacher. When you play a part you must view the world from the perspective of your character. Your interpretation of the role depends upon it. It's no different in business. Adapting your message means knowing your audience, not just the facts about them, but their feelings and attitudes as well.

Barbara Walters tells this story about Roone Arledge, who was my boss when I was a correspondent at ABC News. If she invited him to a dinner party, he would ask for the bio of everyone who was going to be there. Maybe Arledge was socially anxious and looking for some way to make small talk, but I don't believe that was the case. I think he wanted to have a little background information of where they were coming from to communicate with them better and make it a more fruitful evening.

This empathetic connection to others goes well beyond business. Michael Eisner, the former chairman of Disney, thinks people have it all wrong when they insist that the ability to say "I'm sorry" is the most important communication skill in a marriage. He states that understanding your spouse's point of view is really the gold in a valued connection, and I concur.

Simply put, the power of empathy is putting yourself in the other person's place, and then choosing the right words to connect to what he wants and needs.

Pavlina R. Tcherneva: Navigating the Jobs Crisis: Direct Job Creation - Lessons from Argentina

2009-11-25T14:40:24Z

As part of the Roosevelt Institute's 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-27, I was asked to reflect on what can be done to get Americans working again. Here's my take.

What has now become the standard government response to a recession -- pump priming -- is a gamble, and it is time to abandon it as a tool for economic recovery and job growth. It takes too long to produce results and one never knows how much demand the government must pour down a leaky economy to turn it around. It is a risky strategy, which is why President Obama reminded us again on a few days ago that unemployment is a lagging indicator. Yet, there are no good reasons for putting up with high unemployment when we have an effective solution at hand. This is why I add my support to the growing list of those calling for direct job-creation programs.

While policy-makers cling to the astounding belief that the government can neither create jobs nor find enough useful things for the unemployed to do, a much poorer country with presumably fewer resources and less effective government was able to do it just a few years ago. The country is Argentina, which did not settle for a jobless recovery when its economy plunged in its worst post-War recession; instead, it immediately launched a public employment program, known as the Jefes Plan to deal with the crisis.

Just like the New Deal in the 30s, the Jefes plan was up and running in only a few months. In January 2002, the jobs program was signed into law as an emergency measure and five months later it began putting 500,000 people to work. Twelve months after that, it had employed 2 million people, or 13% of the labor force. The program offered a part-time, minimum wage public sector job to any unemployed head of household willing to work in a community project. The price tag of the Jefes plan was less than 1% of GDP.

Unemployment did not wait for the economy to recover to start falling. Instead, even before GDP posted its first positive growth numbers, the unemployment rate had already fallen by 25% -- from its peak of 24% in mid-2002 to 18% a year later. It continued falling precipitously as the economy recovered to move into single-digit territory three years after that. This is a dramatic and expedient reduction in the jobless numbers, given their extraordinary levels -- a decline only possible with direct job creation. And the Jefes Plan, by most measures, created much needed and useful work.

In a matter of months, Argentina had organized projects at the federal, state, and local levels. These included large-scale infrastructure investments and massive recycling initiatives, water irrigation and soil renewal projects, health care and daycare centers, food kitchens and homeless shelters, public libraries and recreational programs, subsistence farming and elderly care programs, family violence attention centers and many others. Public sector jobs provided employment, income, on-the-job training, and education to participants. Projects transformed communities and had a positive impact on women and children. Parents who took the Jefes jobs enrolled their kids in school and took them for routine health checkups and vaccinations, as per program requirements. Women turned up for work in large numbers as heads of households and produced useful output, participated in community rebuilding, and took leadership roles in the organization of these projects. Jefes spurred private-sector job creation as well (estimates place the multiplier effect of the program at 2.57), and many workers transitioned from their public Jefes jobs to better-paid private sector employment.

While in the U.S. Congress keeps extending unemployment benefits, the Argentine government chose to put the unemployed to work. When our politicians forecast a jobless recovery ahead, policy makers south of the equator speak of reaching full employment by creating and safeguarding jobs by private and public means.

It is no coincidence that macroeconomic stabilization programs that contain an explicit direct job creation package produce robust job creation and economic growth more quickly and vigorously than the unreliable and inefficient pump-priming approach.

If the U.S. government creates a permanent, voluntary public employment program that offers a living-wage job to anyone ready, willing, and able to work in a public service project, unemployment will be addressed directly as it develops during recessions. And this very same program will serve to turn the economy around. Such a program will fluctuate counter-cyclically with the business cycle, and unemployment will no longer be a lagging indicator. As the economy recovers, public service workers can move back into private-sector jobs.

If Argentina was able to find productive work for its unemployed, surely the U.S. could do it too. It is time to abandon the wasteful pump-priming model along with defeatist attitudes about government job creation. It's time for a Rooseveltian resolve.

This post originally appeared on New Deal 2.0.

Al Norman: How Steve Forbes Will Save Us

2009-11-25T13:56:51Z

When I look at a downtown devastated by empty storefronts and For Sale signs, I see lost jobs, reduced property and sales taxes, and deteriorating infrastructure.

But when erstwhile presidential contender Steve Forbes looks at the same downtown, he sees the churning forces of the Free Market at work.

This is the economic version of a Rashomon experience -- where several people view what happened to this downtown with different eyes.

In his latest book, How Capitalism Will Save Us, Steve Forbes and co-author Elizabeth Ames rationalize the corrosive effect of stores like Wal-Mart on the rest of the retail sector by falling back on a theory first advanced nearly 60 years ago by an Austrian economist.

Joseph A. Schumpeter, who died in 1950 (the same year Rashomon premiered), published his Capitalism, Socialism and Democracy eight years before his death. His theory of the "creative destruction" at the core of capitalism has been used by every right-wing economist and politician since as a way of excusing the enormous wastefulness inherent in the Free Market system. Schumpeter described the "process of industrial mutation -- if I may use that biological term -- that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism."

Wal-Mart is the essence of retail mutation, incessantly destroying the existing merchants class -- firms both large and small. To Steve Forbes, this destruction "may have hurt some businesses, but it has created opportunities for other entrepreneurs, in addition to lowering costs for consumers" -- except for those millions of American consumers in manufacturing and retail who lost their jobs as a result of Wal-Mart's "creative destruction" of their livelihood. I can picture a textile worker in North Carolina telling his family that he lost his job at the mills because of the industrial mutation of capitalism.

In a recent Forbes magazine article adapted from his new book, Steve Forbes describes me as "one of (Wal-Mart's) most vocal opponents," and quotes me as saying in a Huffington Post story that local citizen's groups have killed many chain store developments. "Norman and others may be patting themselves on the back for helping to protect America's mom-and-pop businesses from the giant retailer," Forbes writes. "The problem is that America's small businesses did not need their 'help.'"

As proof of the positive effects of Wal-Mart, Forbes asserts that when Wal-Mart comes to town, nothing bad happens. He cites an anecdotal report from two researchers in Morgantown, West Virginia, who watched as their "popular downtown area was wrought with empty storefronts." The researchers observed that these vacant stores eventually were filled by new businesses, "such as coffee shops, art galleries and law firms." "This process of creative destruction is able to increase economic efficiency by the reallocation of resources," the researchers claim. The anecdote shows how little they--and Forbes--understand the retail sector.

What happened in Morgantown is not unusual. Many downtowns today have been converted from destination points for basic community commerce, such as grocery stores, hardware stores, and department stores, to a random collection of boutique stores and professional offices. This is a major 'trading down' of retail activity, an enormous loss of vitality for these core commercial areas. There is no net gain in this "creation" of niche businesses.

Wal-Mart has been compared to a retail plague: it makes every business sick, and kills off the weak. The exchange of a grocery store for a law firm or an art gallery is not an equal trade -- it is a net loss on many levels for a commercial area. This phenomenon has been reported in many studies about big box stores over the past twenty five years. Most recently, a 2007 study by an MIT researcher (What Happens When Wal-Mart Comes To Town) concluded that "Wal-Mart expansion from the late 1980s to the late 1990s explains about 40% to 50% of the net change in the number of small discount retailers, and a similar percentage for all other discount stores."

A similar study in 2003 by the group Retail Forward concluded that "for every Wal-Mart supercenter that opens in the next 5 years, 2 supermarkets will close their doors." And a research brief from the UC Berkeley Center for Labor Research in 2007 found that "Wal-Mart store openings lead to the replacement of better paying jobs with jobs that pay less. Wal-Mart's entry also drives wages down for workers in competing industry segments such a grocery stores."

Steve Forbes says that "markets are spontaneous 'ecosystems,' creation and destruction can occur in ways -- and in sectors -- that people can't anticipate." Many city and town officials certainly did not anticipate the destruction of their downtowns by big box chains -- but now that it has happened, the laboratory theories of Joseph A. Schumpeter are of little consolation to them.

The real world economic lesson is that Wal-Mart cannot save us, and neither can its apologists like Steve Forbes.

Al Norman is the founder of Sprawl-Busters. He has been helping communities fight big box sprawl for 16 years. His books include "Slam Dunking Wal-Mart" and "The Case Against Wal-Mart."

Robert L. Borosage: In The Fed We Trust? Will The Senate Reward The Architect Of The Wall Street Bailout?

2009-11-25T13:31:41Z

Will the Senate vote another term for Ben Bernanke as head of the Federal Reserve? Should it?

Two months ago, Bernanke looked like a lock. But now unemployment is over 10% and rising, while Wall Street bankers are stocking up on vintage champagne, ready to celebrate the highest bonuses in history. As head of the Fed, Bernanke committed trillions to bail out the banks while Main Street got left behind. Should the Senate vote to reward him with another term?

Many in the financial press consider Bernanke a hero in the piece. (See for example, the laudatory book by Wall Street Journal's David Wessel, In Fed We Trust). He's the button-down academic, calm in the midst of the tempests, who -- once he (belatedly) figured out that the financial system was headed over the cliff -- worked creatively, ceaselessly, making it up as he went along, doing "whatever it takes" to save the day. Denying him another term would seem a good case of no good deed goes unpunished. Moreover, with the dollar already shaky, Bernanke is one of the few financial stewards that global investors might trust to sell off the billions in junk that the Fed put on its balance sheet without once more throwing the economy over the cliff. If his nomination is questioned, financial barons from London to Shanghai will start rending their garments, and issuing jeremiads about impending doom.

But take another look. In the lead up to the financial crisis, Bernanke was Sancho Panza to Greenspan's Quixote, gleefully touting banking deregulation while blind to the dangers of an $8 trillion dollar housing bubble. He celebrated an economy where incomes of most Americans were declining, household debt was soaring, and inequality reached Gilded Age extremes. Once named Fed Chair, he chose not to exercise the regulatory powers he had to curb predatory lending, police the Wall Street casino, or crack down on the derivatives that Warren Buffett among others warned were financial weapons of mass destruction. Instead he scorned the worriers, and predicted steady growth -- even after the recession began.

When the bubble began to burst, Bernanke was late to recognize it, consistently underestimated its impact, and failed repeatedly to get ahead of the crisis.

It was only when he finally woke up to the spreading panic that Bernanke threw literally trillions into bailing out the banks -- but without restructuring them, without replacing many of the folks that caused the mess, without requiring that they lend to Main Street or renegotiate mortgages. Bernanke and Treasury Secretaries Hank Paulson and Tim Geithner were the creative architects of a bailout that has resulted in a far more concentrated financial sector, with major financial houses enjoying an explicit guarantee that they are too big to fail, even as they reopen the casino, start up the same games again, and mobilize to fend off any serious regulatory reform.

The Federal Reserve is charged with pursuing price stability and maximum employment. Now we're experiencing the highest levels of unemployment in over a quarter century, and the dollar is in decline. Foreclosures continue, and one in four mortgage holders owe more than they own. Bernanke and Geithner et al may have staved off a Depression, but we sure aren't ending up where anyone would want to be.

Worse, Bernanke opposes letting Congress or the public know what he did with the trillions in commitments he made to private companies and foreign central banks. The Federal Reserve added over $1.2 trillion to its balance sheet, while taking on trillions more in credit risks off its balance sheet. Who got the money? On what terms? Why did Bear Sterns get saved and Lehman get the shaft? Why take over an essentially bankrupt AIG and pay Goldman Sachs and others full price for the bad bets they made? Why take on $230 billion in toxic Citibank liabilities with no upside for taxpayers?

It is simply inconceivable that in a constitutional Republic, the Federal Reserve can commit trillions of dollars to private companies with no vote of the Congress, no review, no audit, no accountability. How can the Senate even judge whether Bernanke merits reappointment without being able to look at his books? That would be like promoting someone with a four year hole in his resume during which he secretly committed a good portion of the company's capital. Are the Senators supposed to vote for Bernanke simply because Wall Street's bankers are pricing yachts again?

Bernanke argues that auditing the Fed's books would represent a "takeover of monetary policy." Since the Fed is supposed to be the sober chaperone that "takes away the punch bowl when the party gets overheated," its independence is highly valued. But Greenspan and Bernanke's Federal Reserve not only didn't take away the punch bowl, it spiked the punch and joined the party. And then in the crisis, Bernanke took the Fed far beyond monetary policy in bailing out private sector companies -- big banks, insurance companies and the like. This may have been heroic, but it can't remain secret. Congress would be utterly irresponsible if it didn't demand an accounting on who got what and why.

Will Congress Demand an Accounting?

But Congress was ready to be just that irresponsible until the last few weeks when the legislators finally got a whiff of just how blind angry their constituents are at a bailout that saved the bankers that caused the mess while working families are still drowning. The first sign of the wakeup came when Democratic leaders began calling for a jobs program to put people back to work. Then the House Financial Committee shocked Washington by passing the Grayson-Paul amendment calling for auditing the Fed.

The House Financial Services Committee has 71 members. Both parties stock it with vulnerable freshmen and sophomore members who can use the post to rake in contributions from the banks, and thus be in a better position to defend their seats. Yet, in this vote, it was the vulnerable legislators who voted to audit the Fed, while the more secure veterans -- including progressives like Maxine Waters and Keith Ellison -- stood with the Federal Reserve against the bill. The vulnerable realized they didn't want to have to defend a vote for keeping the bank bailout secret.

For Senators, Bernanke's nomination poses a stark test. Most Republicans are likely to vote against him since they want to pin the financial collapse and the bailout on Obama -- air brushing the Bush years out of the historical picture. For Democrats, headed into an election with double digit unemployment, million dollar bonuses on Wall Street and record deficits, the Bernanke nomination is a last chance to express their constituents' fury -- or be forced to own a bailout that isn't working very well outside of Manhattan.

The Senate Hearings

The hearing on the Bernanke nomination - now scheduled for Thursday, December 3, ironically the same day as the president's job summit - can't be perfunctory. Senators must pose tough questions about what Bernanke has learned from the profound errors made when the bubble was building and after it burst. And surely Senate Finance Chair Chris Dodd will find it hard to move the nomination until Bernanke agrees to let the Federal Reserve's books be audited, and responds to a serious probe about the commitments made with literally trillions of dollars.

Questions for Ben Bernanke?

The Senate Finance Committee hearings come a week after Thanksgiving. The Senators, of course, are tied in knots about health care and have to get up to speed on jobs quickly. So let's help them and their beleaguered staffs out with questions that they might ask Ben Bernanke at his hearing.

Those questions might include some of the following:

In 1999, you argued that the Federal Reserve cannot identify asset bubbles and should not use interest rates to burst them. As the housing bubble built, the Federal Reserve chose not to use its regulatory powers to limit predatory lending, or demand tighter rating standards on mortgage backed securities. You supported the strategy of "mopping up after" the bubble burst. Do you still think that strategy is sound? How would you act differently in the future?

When AIG was taken over, the Inspector General of the TARP argues that you needlessly chose to pay off Goldman Sachs and others the full price for the credit default swaps guaranteed by AIG. Yet you defended not regulating derivatives on the ground that they were used only by experienced investors who knew the risks involved and could take the losses. Goldman claims it was fully hedged against its AIG holdings. Why bail out Goldman?

An institution that is too big to fail is -- under any theory of a market economy -- either a government entity, an entirely regulated utility or too big to exist. Now virtually every major financial institution has a virtually explicit public guarantee against failure. You argue that the Federal Reserve should have the power to monitor institutions that are too big to fail rather than breaking them up. Given the Fed's regulatory record leading into this crisis, why should we have any faith in that notion?

You've expanded the Federal Reserve's balance sheet by $1.2 trillion. You've lent vast sums to private financial institutions against what you knew was dubious collateral. Others were turned away at the door. You claim that revealing who got what, why, on what terms would constitute a "takeover of monetary policy." What does this have to do with monetary policy? How do you reconcile the Fed's secrecy and powers with the Constitution?

Here's one from the conservative at The Cunning Realist:

Forecasts are an important part of the Fed's work,... making predictive ability an essential part of the job description for any Fed chairman. Yet your record of predictions... is questionable at best. Some examples:

March 28, 2007: "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

May 17, 2007: "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

Feb. 28, 2008, on the potential for bank failures: "Among the largest banks, the capital ratios remain good and I don't expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system."

June 9, 2008: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."

July 16, 2008: Fannie Mae and Freddie Mac are "adequately capitalized" and "in no danger of failing."

Explain this pattern of terrible predictions and forecasts. What do they imply about your ability to conduct policy going forward? Is there some fatal flaw in your economic models or forecasting tools? Are you just winging it?

If you have questions, you'd like Mr. Bernanke to answer, post them here. We'll put them before Senators on the committee.

Jill Schlesinger: Double Dip Recession?

2009-11-25T12:46:50Z

I always get nervous when three or more people who don't study the economy or financial markets say exactly the same thing. This past weekend, it was a teacher, a lawyer and a doctor, all of whom proclaimed: "we're definitely headed for a double-dip recession!"

Every time someone says "double dip" I can't help think of a soft serve ice cream cone plunging into that delicious chocolate coating not once, but twice. That said, are fears of a double dip warranted?

One would have to be brain-dead to not consider the possibility of something bad--really bad, derailing the progress that has occurred since the beginning of this fiasco. Here's a just a few ideas to get you started: a commercial real estate collapse could make the residential market look like a walk in the park; unemployment could get much worse; a large multi-national bank bites the bullet; the Fed blows it; and the weekend favorite, this whole recovery is in your head.

Still, when lots of different kinds of people are talking about double-dips, or bubbles for that matter, those events don't usually occur. It's actually the opposite--when these same people are saying "it's different this time," or "we now understand how to better manage risk," or my favorite, "Jill, you're just too much of a bear to see the opportunity," that's when I start to really worry.

There are lots of reasons to expect that we're entering a slow growth economic phase, but I'm waiting for my three pals to tell me that the risk of double dip is nowhere on the horizon before I fully buy into the concept.

Image by Flickr User avlxyz, CC 2.0

Les Leopold: Stop Socialism for the Rich: Nationalize Wall Street

2009-11-25T12:36:39Z

Joe Biden's father had it right: "It's socialism for the rich and capitalism for the poor." How did we get here?

More than thirty years ago we embarked on a grand deregulatory experiment. The financial sector was unleashed from New Deal-era controls. We were told this would lead to great prosperity and that free free-markets would police themselves.

The experiment failed.

Instead, the big banks constructed the wildest casino in history, gambled with other peoples' money, walked off with fabulous riches, and pawned the losses on us. Not exactly Adam Smith's definition of capitalism.

The nineteen largest banks (which represent more than sixty percent of our banking system) wrecked our economy. They still are wrecking it. During the worst financial crash since 1929, many of them are recording record profits. With no sense of shame or even irony, they soon will dole out record bonuses while the BLS jobless rate (U6) hits 17.5 percent (the highest since the 1930s), and while 49 million Americans are skipping meals during this holiday season.

Wall Street created a series of (barely) lawful Ponzi schemes that stacked bets upon bets with no real assets in sight. Profits ran wild as phony assets inflated in value. The too-complex-to-understand financial innovations turned out to be toxic. When they burst, the real economy, the one most of us work and live in, was crushed. (See "Executives Kept Wealth as Firms Failed," New York Times )

Our elite banks still are not lending to job-creating businesses even after taking taxpayer bailouts valued somewhere between $1 trillion to $13 trillion in cash, loans, liquidity programs and asset guarantees. As Fed Chairman Ben Bernanke admitted, the largest banks are causing unemployment to rise by not lending out the capital we provided. We've had jobless recoveries before, but this our first jobloss recovery.

Instead, the largest financial institutions are playing the markets with our bailout funds and liquidity programs. They are gambling yet again by marketing high risk, high-fee securities. They also have a new toy: high speed trading. Each time, you or I buy or sell a stock, a big bank predator computer system is going to come in a nanosecond before our trade is completed to get a better price -- for the bank, not us. This creates zero economic value. It just transfers money from us to them in exchange for ... nothing.

Solutions?

When writing The Looting of America last fall I had offered a series of plausible reforms that I knew Wall Street would detest. But the crisis was so severe that for a moment it looked as if Congress and the administration would do the obvious: Install a sector-wide wage cap on financial salaries until unemployment went below 5 percent; Set a Tobin tax on speculative transactions; Place bans on derivatives that were too complicated to understand; End predatory mortgages; and Reinstate credit card interest rate ceilings to stop bank usury. I was naïve.

Instead, we have a Pay Czar who ignores the obscene bonus pools of Goldman Sachs, JP Morgan Chase and Morgan Stanley. Barney Frank refuses to ban complex, highly profitable, specialty derivatives. The Financial Consumer Protection Agency bill is being watered down, if not totally drowned, by bank lobbyists who are funded with our own TARP dollars. And the White House no longer even jaw-bones Wall Street's excesses. "Change we can believe in" has turned into "All retreat, All surrender."

Former Fed chief Paul Volker, however, won't quit. He is calling for the breakup of institutions that are too big to fail. Even Alan Greenspan agrees. While it would be enormously satisfying to bust up the big boys, it's not a panacea. As long as gambling is the bankers' way of life, a hundred smaller banks will continue the game as vigorously as nineteen large ones. As long as you can make more money by gambling than you can from loaning money to jobs-creating businesses, the net results will be the same.

Also smaller banks won't change the financial distortions of our economy. The financial sector as a whole is much too large and siphons off too much of our wealth, even when its bubbles aren't bursting. The entire sector is too big to fail and too big for the rest of us to succeed.

Decades ago, economists John Maynard Keynes and Hyman Minsky worried that large-scale private sector banking was inherently unstable -- that it would return to speculative activities as soon as the threat of collapse had passed. They wondered whether capitalism would have far fewer crises if the largest financial institutions were permanently nationalized.

They're winning me over. I no longer believe we can regulate our way out of this mess. I keep wondering how $100,000 a year civil servants are going to keep up with a $100 million dollar a year bankers, It's not going to happen. The bankers will use their army of financial engineers to outmaneuver the public regulators. Any regulator who can keep up with them will be sorely tempted to reach for the gold and jump ship. And this assumes that the regulations are tight, which they won't be because of the power and wealth of the bank lobby.

Instead, we should give strong consideration to nationalizing the nineteen largest banks in order to run them like public utilities. They could be modeled after non-profit credit unions and the few remaining state and regional banks. After nationalization, we also should consider placing banking employees into the civil service system in order to end the ridiculous wage distortions: Wall Street speculators should not earn one hundred times more than neurosurgeons.

Stable credit unions and regional banks could do an excellent job of moving savings to investment. It's painstaking, boring work and it will never produce super-profits. We don't need high stakes gambling. We don't need usurious credit card scams. We don't need subprime securitization and the stacks of bets upon them. We don't need high speed speculative trading activity that is just another form of outright cheating. And certainly, we don't need sky-high salaries for the croupiers.

(If you're worried that Wall Street would go in the red like the Post Office or Amtrak, do the math: It would take about a millennium of their red ink to add up to the trillions lost through the current banking crisis.)

Isn't this socialism? We've already established socialism for Wall Street's wealthy. We've allowed them to profit wildly from their fantasy finance bubble. We bailed them out when it burst. And after we emptied the treasury for their rescue, they are profiting wildly again. Is that capitalism?

We have to put our people to work. It's not going to happen through our Rube Goldberg regulatory contraptions now ricocheting through Congress. If we want to avoid a long, dark decade of joblessness, hunger and despair, we will need a renewed dialogue about what banks really are for, and how we get them to function for the pubic good.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
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Robert Scheer: Still Doing God's Work On Wall Street

2009-11-25T09:11:17Z

Jail, anyone? Perhaps that's too harsh, and at any rate premature, but is anyone ever going to be held accountable for the behind-the-scenes sweetheart deals that passed tens of billions of taxpayer dollars through the AIG shell game to the very banks that caused the financial meltdown? Or for the many other acts of double-dealing that left one out of three American homeowners owing much more than their houses were worth while the folks who swindled them were rewarded with hundreds of billions in public money?

Undoubtedly not, since the same folks who are most culpable wrote the laws that made this, and the other scams at the heart of the banking collapse, perfectly legal. And guess what? They're back at work in the government, writing the new laws that will, they claim, prevent us from being had once again. As a telling example of that process at work, check the official response of the Department of Treasury to the devastating report by the special inspector general for the Troubled Asset Relief Program (TARP), Neil M. Barofsky, titled "Factors Affecting Efforts to Limit Payments to AIG Counterparties." The main factor was that Timothy Geithner followed the lead of Goldman Sachs CEO Lloyd "I'm Doing God's Work" Blankfein in crowding the lifeboats with bankers.

Geithner, now treasury secretary, was previously the president of the Federal Reserve Bank of New York (FRBNY), where he negotiated the deal to pay Goldman Sachs and the other top banks in full to cover their bad bets on securitized mortgages. Barofsky's report concluded that Geithner's scheme represented a "backdoor bailout" for the financial hustlers at the center of the market fiasco. Noting that Geithner denies that was his intention, the report states, "Irrespective of their stated intent, however, there is no question that the effect of FRBNY's decisions -- indeed, the very design of the federal assistance to AIG -- was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG's counterparties."

Not surprisingly, the Treasury Department that Geithner now heads defended his actions in not forcing "haircuts" on the full dollar-for-dollar payoff by AIG to the banks while he was at the New York Fed: "The government could not unilaterally impose haircuts on creditors, and it would not have been appropriate for the government to pressure counterparties to accept haircuts by threatening to retaliate in some way through its regulatory power."

Nonsense, argues Eliot Spitzer, who as New York attorney general was way ahead of the curve in challenging Wall Street arrogance. Writing in Slate on Monday, Spitzer points out: "Pressuring Goldman and the other counterparties to offer concessions would have forced them to absorb the consequences of making suspect deals with an insurance company that was essentially a Ponzi scheme."

The Ponzi scheme was based on the collateralized debt obligations (CDOs) in which the bankers traded and which AIG had insured with the credit default swaps (CDSs) that they sold but failed to back with adequate funding. Now Geithner's Treasury concedes that AIG "should never have been allowed to escape tough, consolidated supervision." But none of AIG's scams were regulated, nor were any of the others at the center of the larger financial debacle, because of laws pushed through Congress by Geithner's boss, Lawrence Summers, when they both were in the Clinton administration. Specifically, they prevented regulation of those opaque CDOs and CDSs that would come to derail the world's economy.

As the inspector general's report stated: "In 2000, the [Clinton administration-backed] Commodity Futures Modernization Act (CFMA) ... barred the regulation of credit default swaps and other derivatives." Why did the financial geniuses of the Clinton administration seek to prevent that obviously needed regulation? Because the Clintonistas believed the Wall Street guys knew what they were doing and that what was good for them was good for us lesser folk. As Summers, who is the top economic adviser in the Obama White House, put it in congressional testimony back then: "The parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies."

Sounds nonsensical today: The inspector general's report notes that AIG, because of the deregulatory law that Summers and Geithner pushed through, was "able to sell swaps on $72 billion worth of CDOs to counterparties without holding reserves that a regulated insurance company would be required to maintain." But why, then, is Summers once again running the show with Geithner when both have made careers of exhibiting total contempt for the public interest? Because there is no accountability for the high rollers of finance, no matter who happens to be president.

Ann Pettifor: Strengthening The Levees Against Unemployment And Rising Debt

2009-11-25T02:22:13Z

Some may wonder why I cheered when White House Chief of Staff Rahm Emanuel announced that the president plans to cut the deficit, because he "does not want to keep on adding to the debt."

It's no secret that conservative economists believe that the way to cut the deficit is to cut government spending. In other words, government must manage the federal budget in the same way that you manage your household budget.

But in truth, the president must do the opposite.

To strengthen the levees against the rising tide of debt and the "hurricane of unemployment," the president must both spend down the debt with a bigger fiscal stimulus, and also get a grip on monetary policy -- regulating lending and keeping interest rates low for all of us, not just the banks.

Third, the administration must manage government debt effectively and not leave it to the self-serving and private financial markets.

I am surprised at how often I have to explain why the fiscal stimulus is so important. But because fiscal conservatives just don't get it, they must be reminded of the well documented evidence again and again.

Government spending, unlike private spending, will pay down the debt by generating income, including tax revenues, and by reducing welfare payments. For unlike private households, governments generate revenues when they spend or invest, particularly on projects at home.

When a household spends its savings on say, a new wind turbine, solar panels for the roof, or insulation, money drains away from the household bank account. The engineers, builders and laborers that construct the turbine don't pay money back into the householder's bank account -- regrettably.

By contrast, when the federal government invests in jobs that can't be exported to China, the engineers, builders and laborers employed pay taxes back into the government's account. They then spend the balance of their incomes in shops and businesses, and these pay taxes too. Indeed the spending might stimulate a small business to invest and hire, adding even more taxpayers paying back into the government's account.

It's called the multiplier effect because guess what? It multiplies government revenues. The evidence shows that the increase in revenues outweighs the spending and thus helps cut government debt.

However, it's not enough to spend away government debt. More must be done, (and this is where Paul Krugman and I part company).

If the president is really determined to not "keep on adding to the debt," then he must tackle monetary as well as fiscal policy. As John Maynard Keynes repeatedly emphasized, monetary policy must always precede and underpin fiscal policy. They go together like a horse and carriage -- you can't have one without the other.

It is not enough to use public funds to bail out the economy, while at the same time allowing the private banking sector to arbitrarily raise interest rates for government, commercial and household borrowing.

It's particularly not fair -- indeed it's downright immoral -- that the private banking sector is reaping such rich pickings from low rates set by the Federal Reserve; from the struggling body that is the US economy, and from government borrowing.

For proof of the bankers' rich pickings, study the chart below from the International Monetary Fund. It shows (in pink) the low rates of interest paid by banks to the Fed and other central banks, in contrast to the rates of interest (in green) that the banks then charge to companies, households and individuals.

Note how the rates for those of us active in the real economy are always higher than they are for bankers borrowing direct from the Fed and/or central banks.

Then note how much they diverge after 2008. Bank borrowing costs fall to nothing, while private borrowing costs soar. No wonder bank profits are ballooning.

(The chart is from the IMF's October 2009 Global Financial Stability Report. The composite real private borrowing rate [RPBR] is a GDP-weighted average of the U.S., Japan, euro area, and U.K. RPBRs.)

The Treasury must get a grip on high rates of interest -- rates bankrupting businesses and homeowners, causing foreclosures and unemployment to rise -- all "adding to the government debt" by increasing welfare spending.

The administration (through the Treasury, the Fed and the banking system) must adopt policies to force down rates across the spectrum, for government and the private sector; for the commercial and household sector as well as banks; all loans, short-term and long-term, safe and risky.

To stop "adding to the debt" it is vital to keep interest rates very low -- while ensuring that lending is 'tight' -- i.e. well regulated. Today, in the midst of the crisis, money is tight, and it is expensive.

Above all the Treasury must get a grip on its own debt management -- and not leave that to the private, self-interested finance markets.

Because after all, bankers have one great way of making capital gains: by "adding to the debt."

Nelson Davis: The Call to Service

2009-11-25T01:39:50Z

Business owners and entrepreneurs are very proactive people, which is one of the critical keys for a high level of success. Conversely, I believe that career politicians are tragically reactive, and that kind of behavior has left us in a mess. There was a time when their calling cards said that they specialized in fixing the messes, but today, the problems loom larger, and their abilities seem to have shrunk. These are times in which being only reactive is a very poor strategy and can be dangerous to an entire nation's future. With our cities, states, and indeed the entire country in some level of crisis right now, I feel that the call must go out to seasoned business leaders who have a new and critically necessary role to play. I want those men and women to recognize our present difficulties as a loud and irresistible call to service.

In the late 19th century and throughout the 20th century, when we found ourselves up the mythical creek without a paddle, it has been the private sector forming a posse to rescue the politicians, not the reverse. Whether it is the dysfunctional legislature in California or the dollar damaging spending in Washington, we really are a country searching for capable leadership and a way forward.

As a business owner, I believe that clear goals provide the road map for any successful venture. Right now America needs some clearly articulated goals infused with inspired leadership. Have you recently heard any senior level politician lay out a list of real goals and strategies for us? What do we stand for, and what do we need to do to bring benefits to our country and the world? Even the smallest of businesses have to answer those questions if long term survival and prosperity is to be theirs. The natural laws of the universe apply equally to individuals, enterprises, and countries.

When America was born, most of the founding fathers were business owners operating enterprises such as farming, import-export, and manufacturing. They learned hard and practical lessons in self reliance without the benefit of safety nets. These were the people who signed the declaration of independence and formed the scraggly legislative body that battled over where to establish our national capitol. Because they had businesses to run, hammering out legislation in Washington was a part time job. They took the lessons of business to Washington and the lessons of the capitol back home to their civic and business lives. The fact that we still exist as a nation lets us know it worked pretty well that way.

I think the simmering anger and disappointment that seems pervasive in our country today can be traced back to an acute leadership vacuum. We have a surplus of politicians but a shortage of leaders who can get the necessary things done. In these confusing times I'm thrilled to see people of proven business abilities throwing themselves into the hurricane that running for office has become. A few weeks ago, while in New York, I saw Mayor Michael Bloomberg campaigning in the city's Columbus Day parade and was reminded that he's perhaps the most visible example of what I hope is a new movement: successful entrepreneurs who want to serve in elected office and relish the idea of tackling the big problems, those that have politicians cowering and dithering.

The financial crises at all levels of government are revealing a horror list of just how poorly the pure politicians have done by failing to develop any long term strategy and hiding from hard decisions. Here in the tarnished golden state, ex business executives Meg Whitman and Carly Fiorina have slipped on their pumps and begun running for office. I'm impressed not by their particular party affiliations, but by the fact that they don't really need the job, and yet they are willing to trod the grueling path to elective office anyway. Surely there are other smart, capable, and accomplished entrepreneurs and senior executives around the country who care enough to make the Power Point pitch of their lives seeking to be elected! To me that is one of the highest forms of public service.

Years ago I met Canadian Prime Minister Pierre Elliot Trudeau and instantly liked him a lot. I discovered that he was independently wealthy and that fact seemed to free him to make key decisions and lead without reading political polling data first. He showed no fear in taking on unions and other entrenched groups. That was a light bulb turning on for me. I'm reminded of historic notes on how America was able to mount a supreme effort during World War II when our armed forces and those of our allies simply didn't have the equipment to win. The much revered President Roosevelt called upon industrialists such as Henry J. Kaiser, Henry Ford, and others to quickly turn their factories to shipbuilding and manufacturing tanks for the war effort. He knew they could reduce mountainous obstacles to mere nuisances. Kaiser created an unprecedented assembly line whereby ships could be constructed in less than five days. With Ford's help the USA produced more tanks in WW2 than any other country, 60973; Russia, 54500; UK, 23202; Germany, 19926. These business owners changed much about America in less than two years. It wasn't the legislative bodies.

Right now key infrastructures such as air traffic control are shaky and crumbling, social services programs are basically broke, and we have young men and women in distant lands fighting undefined wars. Add to that the decline of the American dollar, banks that are "too big to fail," and the very long list feels punishing. Doesn't this all point to the need for a corps of experienced, butt kicking practical business people who know that getting it done is the only route to survival? The entrepreneurial spirit that brought us greatness in the first place can still be found across the country. It is time to harness that force to recalibrate large chunks of our present life. President John F. Kennedy got it right when he threw down the ultimate call to service. "And so, my fellow Americans: ask not what your country can do for you - ask what you can do for your country. My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man."

For more small business resources and to view past blogs, visit www.MakingItTV.com.

Dan Solin: Does "Dr. Doom" Believe His Own Press?

2009-11-25T00:37:48Z

I give great credit to NYU economics professor Nouriel Roubini. Unless you reside on another planet, you know that he correctly predicted the mortgage-related crash.

Recently, "Dr. Doom" warned about a coming market correction. He believes "markets have gone up too much, too soon, too fast."

Should investors rely on Professor Roubini's crystal ball?

In its December 11, 2008 issue, Fortune Magazine featured a story entitled: "8 really, really scary predictions."

Titles that inspire fear and panic sell magazines. This fact is not lost on Fortune and others in the financial media.

Here is Professor Roubini's prediction for 2009:

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.

Year to date, the S&P 500 is up 23.99%; the Dow is up 17.73% and the Nasdaq is up a whopping 36.76%.

The S&P GSCI index, which benchmarks investment performance in the commodity markets, is up 11.65%. Industrial metals are up 68.87%.

In stark contrast, 12 month U.S. Treasuries are yielding 0.26%. Longer term (10 year) Treasuries are yielding 3.37%.

Clearly, Professor Roubini was right about 2008, but he was dead wrong about 2009.

As I indicated in last week's blog, his equally well credentialed colleague, Wharton professor and author, Jeremy Siegel, was shockingly wide of the mark with his 2008 stock market predictions.

Of course, professors, economists and others have a right to make predictions. The financial media has every right to print them. The problem is that so many investors rely on them, when they are nothing more than voodoo science.

That's really, really scary!

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.

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Danny Schechter: Will Black Friday Shopping Save Us?

2009-11-24T21:42:53Z

Funny how, back in 1929, we had black Thursday and then Black Friday as the market crashed, plunging the country into a depression. Now we have every retailer in every mall in America on their knees praying for a prosperous black Friday this week.

Here's the scenario as Thanksgiving rolls around.

TV advertising spikes. Local TV channels start hyping the action at the local malls announcing plans to "go live" without mentioning that they are doing it to attract more advertising, or as part of the deal they already have with sponsors.

If the past is any guide, we will be told how packed the parking lots are -- and they will, thanks to the hype, probably be packed. Part of the reason is the deep discounting and special sales -- what are called "lost leaders" to get customers into the store even if you have to bribe them to come.

What happened last year was that most consumers only bought the sales items and left most of the other goods untouched. No wonder, a number of malls are now in foreclosure.

At the same time, all we hear from business is optimism, including the use of the term "surge" that has been used so deceptively in Iraq and Afghanistan.

Example: "Some e-retailers expect a strong surge in Thanksgiving weekend sales"

"Having already unleashed a flurry of deals, discounts and other incentives, web retailers are looking for strong sales the day after Thanksgiving, one of the busiest online shopping days of the year. And unlike last year, when the tough economy reined in spending, many retailers believe this Friday after Thanksgiving, often referred to as Black Friday, will deliver significantly higher web sales."

Higher until the credit card bills come and the returns start when folks realize they can't afford what they bought, Almost every year, after Christmas, the credit card companies report sales that looked at the time as so "disappointing" or didn't "didn't live up to expectations,"

At the same time, conservative bloggers like Andrew Breibart say:

"Black Friday predictions run from pessimistic to disastrous, negative interest rates worry the markets, and the New York Times makes ridiculous claims about the success of the stimulus."

Reuters is cautious too: "Stocks could sputter this week as volumes dry up in holiday-shortened trading and with a slew of economic reports likely to illustrate the recovery is still fragile.

Investors will also get a glimpse of how holiday shopping could shape up with "Black Friday," which traditionally marks the start of the season as retailers slash prices. It will be difficult for the economic recovery to make much headway without a pick-up in consumer spending as it accounts for two-thirds of the economy."

Underscore that: "two thirds of the economy!" Can that be true? If so, it's a reflection of the shift from an economy based on production to one reliant on consumption.

But consumption requires people with money to spend or with credit cards that are not tapped out. This is no longer a sure thing.

The reason: unemployment is still growing along with foreclosures and bankruptcies.

The banks are not out of the financial woods either, as the Financial Times notes:

"A study by Standard & Poor's, one of the world's leading credit rating agencies, has raised questions over the financial strength of some of the biggest banks ahead of new rules that could require them to raise more funds."

The economic "rebound" -- the highly vaunted "recovery" is a statistical joke. AP notes:
"A government report due out Tuesday morning is expected to show that the economy expanded at a pace of 2.9 percent from July through September, according to Wall Street economists surveyed by Thomson Reuters. If they are right, it would mark a slower expansion than the 3.5 percent pace reported a month ago. Most of that rebound reflected federal support for spending on homes and cars."

The market may be hot -- but for whom? All the business reports acknowledge, ordinary investors are not reaping the benefits of the rally.  

Why is this happening? Paul Farrell offers 15 reasons on Marketwatch about how the people behind the economic collapse continue to get away with it.

Here are 5 of them.

1. Gross denial of any moral damage caused by their rampant greed

2. Narcissistic egomaniacs with secret 'God complexes'

Today, all of Wall Street is dual diagnosed: They're morally blind money addicts who believe they're "God's chosen." AA would say: They haven't "bottomed," won't recover from their disease till a disaster hits, with another market meltdown and the "Great Depression 2." Then maybe they'll "quit playing God."

3. Paranoid obsessives about secrecy, guilt and non-disclosure

4. Power-hungry need to control government using Trojan Horses

5. Borderline personalities who regularly ignore conflicts of interest"

He goes on with an indictment that clearly suggests nothing has really changed when it comes to the folks who are making money when others aren't.

So we go back to square one: A distorted and troubled economy. A population addicted to buying things. A manipulated media. And, many signs of deeper trouble ahead as wars are escalated and Congress is paralyzed along parochial and partisan lines.

Unfortunately, a feast followed by a shop till we drop orgy will not change any of this, and remember, if you will, the price our first Americans paid so that we could stuff ourselves on the road to national obesity.

Happy Thanksgiving.

News Dissector Danny Schechter blogs for Mediachannel.org. His new book (and film) on the Crime Of Our Time treats the ongoing financial crisis as a crime story. (Plunderthecrimeofourtime.com) Comments to dissector@mediachannel.org