Alan Greenspan on The Huffington Post

Federal Reserve Chairmen Never Learn: Calculated Risk

2009-12-04T08:18:06Z

In his 2001 testimony, Fed Chairman Alan Greenspan testified before the House Committee on the Budget, and while offering his usual cautions and caveats, Greenspan talked of surpluses for the foreseeable future.

Georges Ugeux: Why Ben Bernanke Should Not be Confirmed, and the Fed Should Keep its Autonomy

2009-12-01T10:05:30Z

The debate about the Federal Reserve hides an issue of leadership and management that needs to be tackled.

With the approval of Sen. Ron Paul and amendments requiring increased Congressional oversight of the Federal Reserve System, we run the risk of destroying a key element of the monetary policy of the country and its influence around the world. Only Members of Congress believe that they might actually do a better job than the Fed. They seem to relish the relative impunity for their absence of leadership and their own inability to protect the United States from a catastrophic scenario.

Not everybody forgot that it took $150 billion in "bribes" to Republican and Democrat leadership to get the TARP $750 billion Act voted by the House. The inability of Congress to agree on anything has paralyzed the country. While Congress was arguing, the Federal Reserve avoided a collapse of the financial system. Let's keep the score straight. In the match between Congress and The Federal Reserve, it is clearly 0-1.

However, Ben Bernanke, for all his courage, failed to see the iceberg in front of him: in 2007 he said "the impact of the problems in the subprime markets seems likely to be contained". He denied the fact that the country was in recession waiting for the National Economic Bureau to acknowledge the recession. One year after it started. But what is more worrisome, is that in front of a $ 1,700 billion refinancing risk for commercial real estate, consumer confidence tanking and 10% unemployment, he believes that we will cut unemployment in half within two years. Responding to criticisms from foreign governments and central banks regarding financial markets, Federal Reserve Chairman Ben Bernanke said Monday, that the issue of asset market bubbles remains one of the biggest challenges facing policy makers, though he added that he does not see anything in the U.S. markets right now that concerns him.

One of the casualties of this crisis is the capacity of economists to read the signs and launch warning signals. While Ben Bernanke understands economics and numbers, he lacks the great capacity of Alan Greenspan and Paul Volcker: the ability to read the indicators and have instincts that will allow him to prevent a further crisis.

He has lost the confidence of the American people. President Obama was right to confirm him in the middle of the crisis. This was not the time to change the captain of a sinking ship. But the man is in denial: he believes in numbers, and does not see that 2010 will be dangerous to navigate. And the resonance of his recent statement to the Economic Club is a frightening reminder that he did not see the tsunami approaching.

How can we trust that he will be able to anticipate future adversities? Should the country's current "crisis manager" become the next Fed President? I think not.

It seems to me that we need someone with not only a great intellect, but someone with sensitivity to the evolution of the market, as well as the foresight to predict what will rock the ship in the coming months and years.

We cannot afford to employ a captain who did not see the approaching iceberg and who lost the confidence of his crew to protect the ship from the next one.

Robert Auerbach: The Seventeen-Year Lie

2009-11-30T10:04:20Z

The following is an exclusive adaptation from Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank

The Senate Banking Committee has a unique opportunity on Thursday to get real answers from Federal Reserve Chairman Ben Bernanke. He'll be testifying for his job, after all. Here's one query that ought to come his way: When will the Fed stop shredding the unedited source transcripts of their policy making committee’s meetings they had sent to the National Archives and Records Administration?

Vice Chairman Donald Kohn informed me they had begun destroying these records in 1994 and planned to continue. My investigation of this particular travesty is one problem described in Chapter 6 shown here, “The 17-Year Lie,” of my book, “Deception and Abuse at the Fed.” I assisted former House Financial Services Committee Chairman/Ranking Member Henry Gonzalez in investigations of the Fed while the institution was lying, year in and year out, to Congress.

What would happen to unelected officials in a governmental bureaucracy with immense economic powers, which include controlling the country's money supply, regulating large parts of the financial system, and making loans to foreign countries, if they perpetuated a lie for seventeen years about the existence of records of their deliberations? What would happen if, when the lie was finally uncovered, they began destroying their source records? The press and the public would be outraged and would demand that these unelected officials, who have violated the public trust in a great democracy, be, at the very least, fired. They would demand an end to all these practices.

That did not happen at the Federal Open Market Committee (FOMC). When Gonzalez invited Fed officials to testify about their records in 1993, Greenspan and some Fed officials planned and participated in diversionary tactics, even if that meant misleading Congress about seventeen years' worth of secret Fed transcripts. In some cases, the statements that officials sent Congress for insertion in the hearing record were false, and they knew this before they testified.

When Gonzalez uncovered the seventeen-year lie, it drew a few press stories but no sustained coverage. The endless stream of superlatives for Greenspan continued. For seventeen years the Fed had lied, but its chairman remained deified.

Early Revelations of the Secret Transcripts

The Fed began preparing paraphrased transcripts of FOMC meetings in 1936 for internal use. Each was called a "Memorandum of Discussion" (MOD). Fed chairman William McChesney Martin threatened to end this practice in 1964. He threatened the wrong congressmen: two outspoken Democrats who would later become chairmen of the House Banking Committee. Wright Patman and Henry Reuss did not blink when confronted with this threat. The House Banking subcommittee chaired by Patman voted (6 yes, 1 no, and 1 present) to demand the verbatim transcripts for 1960, 1961, 1962, and 1963. The Fed sent Congress these records and began issuing paraphrased transcripts they called the MODs, with a five-year lag. Milton Friedman and his coauthor Anna J. Schwartz believed that the publication of their classic history of U.S. monetary policy in 1963, which was very critical of the Fed, along with the congressional requests for FOMC records, induced the Fed to begin publicly issuing the MODs in 1965.

Valuable information was obtained from these records, since all statements were attributed to specific individuals. An example is the questionable legality and propriety of beginning a so-called "swap" facility in 1962 by which the Fed gave itself the power to make loans to foreign governments without congressional authorization.

Fighting for Longer Delays and Less Sunshine

Fourteen years later, in 1976, two attacks on Fed secrecy created high anxiety at the Fed. First, David Merrill, a law student at Georgetown University, brought a legal action challenging the forty-five-day delay in releasing the "Directive" on monetary policy. It is a short report on policy actions authorized at an FOMC meeting.5 The federal district court agreed with Merrill. The Fed appealed up to the Supreme Court, which remanded it back to the district court. Lacking funds for further extensive adjudication, Merrill could not pursue the case. The Fed has more than all the money it needs--an "unlimited purse"--to hire private law firms and fight any legal action for a long time. Adjudication of charges of alleged racial discrimination at the Board of Governors (described in Chapter 8) had been in a federal court for a decade in 2007.

The second attack on the Fed's secrecy came from the Government in the Sunshine Act, which was signed into law September 13, 1976. According to the statute: "The agency shall make promptly available to the public, in a place easily accessible to the public, the transcript, electronic recording or minutes . . . of the discussion of any item on the agenda." (In this case, "agency" refers to any body in which most of the members are appointed by the president and confirmed by the Senate--like the Fed Board of Governors.) The Fed frantically tried to protect itself from such transparency and individual accountability. FOMC meeting transcripts from 1976 and other documents reveal that Fed officials devoted considerable time to preparing memoranda and discussing the dreaded timely release of their FOMC deliberations to the public. The staff reported on April 7, 1976, that they could be subject to a court order to produce part of the MODs: "Second, it is becoming increasingly evident that, so long as the memorandum of discussion exists, many of us will have to spend a large amount of time in the effort to comply with Court orders to make portions public."

The Mock Funeral

The seventeen-year lie began. Fed chairman Arthur Burns notified House Banking chairman Wright Patman in 1974 that he could not give Congress the FOMC transcripts because "they are routinely disposed of after the Committee has formally accepted the memorandum of discussion for the meeting in question," adding, "currently we are employing a combination of note-taking and tape recording. In any event, the materials are disposed of when they have served their purpose, as noted above." Three years later, in testimony before the House Banking Committee, Burns maintained the fabrication: "In the absence of express statutory protection against premature disclosure of the memorandum, we would feel compelled to object to a proposal of returning to the practice of keeping extensively detailed minutes of FOMC meetings."

The FOMC voted 10-1 to discontinue the MODs in 1976. That vote began the official seventeen-year lie. Among those voting to discontinue was the president of the New York Fed Bank, Paul Volcker, who would become Fed chairman. Philip Coldwell, president of the Dallas Fed Bank, was the only dissenting vote.

The Fed's announcement of the end of the MODs produced a firestorm at House Banking. Hearings were held. Laws were proposed to restart the MODs. The chairman of the Subcommittee on Domestic Monetary Policy, Stephen L. Neal (D-SC), contacted many distinguished academics and people from the financial community, requesting their opinion concerning how FOMC meetings should be documented and made public. A preponderance of seventy respondents wanted either the transcripts or the MODs restored, and many wanted timely publication. Milton Friedman, the Nobel laureate, wanted publication with only a few days' delay. "

A Devious Way to Get around the Law"

Burns outfoxed some people by announcing a substitute for the transcripts. Ninety days after the FOMC meetings, the public would get something called the "Minutes of the Federal Open Market Committee." These minutes would not contain statements for attribution to FOMC members. They would not even record a member's individual views except for a very brief description of any recorded nay votes. Since the Fed tries to make the publicly recorded vote unanimous, generally little or no individual responsibility can be divined from these remnants.

Burns told Congress that the minutes recorded the votes responsibly: "The new policy record does not attribute individual opinions to committee members by name; but the record always reports the votes of the members by name and their accountability is preserved." Each time the padded but anemic substitute was published, it was received with great gusto and given wide press coverage by the Fed-watchers industry. Entrails are better than a complete record for those employed to interpret them.

As Burns led the committee members to the funeral for the MODs, David Eastburn, president of the Philadelphia Fed Bank, warned, "It seemed to me that we incur certain costs in cutting out the memorandum of discussion in terms of implications to others on the outside that we're being more secretive if you want to put it that way, that this is a devious way to get around the law" (emphasis added). A page from the MOD containing Eastburn's remarks is shown in Figure 6-1. It is less tidy than the transcripts from future periods, when computers had replaced typewriters. Notice that Chairman Burns ("CB") replied by saying, "That depends how we present it. Now I would want to present this, I would want to make a virtue of this, and never mind how we arrived at it. We were not seeking virtue for the sake of virtue."

Burns was dismissive when doubts about the lack of a full record were raised at an FOMC meeting. He replied: "I think you credit individuals who follow the Federal Reserve with more knowledge than I think many of them really have. . . . those who feel that it merely repeats that which they already know will have no difficulty skipping paragraphs or pages." Denying for the record that the minutes should be padded, he ordered more pages: "We're describing this document as an expanded policy record. . . . Now on that basis of this concept the document should be longer, you see, must be longer, and this is a formal consideration that cannot be neglected, and we need some additional pages. I'm not going to tell you how to add additional pages, and I'm certainly not going to say that we should do anything that remotely resembles padded, but produce several additional pages" (emphasis added).

Secrecy and Videotapes

Sixteen years later, alarm bells went off at the Fed as Gonzalez began asking about the records of FOMC meetings. During 1992 and until October 1993, officials of the Greenspan Fed answered Gonzalez's inquiries with warnings about the harmful effects of openness at the nation's central bank. The videotaping of FOMC meetings, proposed in Gonzalez's legislation (HR 28), triggered extreme irritation in Fed officials. For many of them, and for other admirers of the Fed's "independence," it was an insolent intrusion that would lead to blatant transparency and individual accountability. Fed officials said the quality of their meetings would be severely impaired. As late as 1998, Greenspan was still warning the FOMC: "If we went to the fullest extent in that direction [more information], then Henry Gonzalez's approach of live transmission of this meeting obviously would be the most ethical and most directly available source of information to the market, but it also would be the most useless." He misrepresented Gonzalez's bill, which provided for a sixty-day delay before the release of the videotape of a session. The bill also prevented pulling the plug on the tape recorder when an FOMC quorum was present.

Behind the public rhetoric of disdain for the Gonzalez legislation, Greenspan and other Fed officials reached for additional political muscle. The chairman of this politically powerful governmental bureaucracy traveled to Little Rock, Arkansas, in 1992 to talk with the president-elect. Reporting to the FOMC about his meeting with Bill Clinton, Greenspan interpreted Clinton's "body language and peripheral comments" as "consistent" with Fed independence. (For further details, see Chapter 10.)

During the first year of his presidency, Clinton notified all governmental agencies to comply with the Freedom of Information Act in his "Memorandum for Heads of Departments and Agencies." The Justice Department would implement this new administration policy. Greenspan reacted by warning FOMC members: "The trouble, unfortunately is . . . the Department of Justice would not under the Freedom of Information Act be on our side in the court to protect these particular transcripts and prevent [their release]."

In pursuit of FOMC records, Gonzalez used the White House directive and comments from numerous scholars who had responded in 1976 to the request by Congressman Neal for their views. Many were opposed to the discontinuance of the MODs. John Kenneth Galbraith wrote: "The effort at secrecy has only one source: That is the long-standing effort of those having to do with banking and central banking to feel that they are above the procedures ordinarily required of other individuals and agencies. . . . There is no good reason why full minutes should not be published and why the obligation should not be fully on the Chairman to see that all discussion is on the record."

The Fed Can't Afford It

The statements issued by the FOMC in 1976 on why the MODs should be discontinued included the following transparently inapplicable rationale: "The decision to discontinue the memoranda [the MODs] reflected the Committee's judgment that the benefits derived from them did not justify their relatively high cost."

In an FOMC conference call on October 15, 1993, Chairman Greenspan made a similar suggestion to justify eliminating a verbatim record of FOMC meetings. It cost too much. In the Fed's wasteful, bloated bureaucracy, which has an operating budget exceeding $2 billion, this rationale is a meaningless excuse for secrecy.

Doodles and Rough Notes

Much to their assumed consternation, an impressive array of the nation's central-bank officials assembled behind a long, continuous row of tables in the Wright Patman Chambers of the House Banking Committee, with Greenspan in the middle. They looked up at Henry B. Gonzalez, House Banking chairman. Gonzalez had sent each of the twelve Fed Bank presidents and the seven members of the Board of Governors specific requests for information. The letter sent to Fed governor David W. Mullins, Jr., is shown in Figure 6-2. They were directed to submit statements for the record on "any notes or records that you have made in connection with FOMC meetings" or "others have made at any FOMC meetings and the location and disposition of any such material."

According to their prearranged plan, nearly all the witnesses deferred to Greenspan, who did not disclose the most important fact concerning the FOMC records, which had seemingly shocked some of them four days earlier: the existence of FOMC transcripts from many prior years. The committee did not know that most of the witnesses had decided not to change their formally submitted written statements even after being told, four days before the hearing, that prior transcripts existed. Thus, some of them let stand written statements that misled Congress on the areas about which they had been instructed to testify.

Robert McTeer, former president of the Dallas Fed Bank, testified: "I doodle during discussions and occasionally write down a word or phrase for reference when I speak. I don't write down decisions because they are simple and easy to remember, and normally come at the end of the meeting. My doodles and notes all mixed up would be of no use to traders or journalists. I destroy them after the meeting and rely only on official documents for future reference."

Did McTeer seriously think that when he was asked about FOMC records, Gonzalez would be satisfied to learn about his discarded doodles? What official documents was McTeer talking about? Greenspan testified that the FOMC kept "rough notes." These answers appeared evasive and misleading.

With artful sleight of hand, Greenspan, in his prepared statement, emphasized the temporary nature of FOMC records: "The meetings are recorded electronically by the FOMC secretariat. . . . the tapes are recorded over . . . In the process of putting together the minutes, an unedited transcript is prepared from the tapes, as are detailed notes on selected topics."

Gonzalez then inquired of all the witnesses: "In the questions that I had directed, I did ask and each of you responded, as to their notes or records that you are aware of. But today's testimony by Chairman Greenspan reveals to me, at least, that the FOMC meetings are tape-recorded. . . . What I am going to ask is if any of you knew or know about these recordings being made when you submitted your written testimony for today's hearing. . . . I will be glad to hear from any of you."

As previously planned, the Fed officials let Greenspan answer. He drew attention to tapes and notes rather than the existence of years of transcripts: "The FOMC staff, in the preparation of the minutes, takes a recording for purposes of getting a rough transcript, but the tapes are taped over." Greenspan then emphasized: "In other words we don't have the actual tapes themselves. We don't have electronic recordings of our meetings." Gonzalez said he was a "little bit confused here. In other words you have no tape recordings of the actual proceedings." Greenspan injected his own uncertainty about what his staff does: "We have them only--as far as I know, what the staff does is, in order to assist its presentation and preparation of the minutes, it takes recordings but then tapes over them so they are not available thereafter."

Congressman Maurice Hinchey (D-NY ) probed further: "And in the interim [before the minutes are issued], those tapes are taped over, so that no record exists in that way. Is that correct?" Greenspan replied: "There is no permanent electronic record, that is correct. We obviously have rough notes." The neatly typed FOMC transcripts I later viewed were not rough notes.

Jim McTague, then the Washington bureau chief for American Banker and now the Washington editor of Barron's, attended the hearing. He reported: "In a performance that would have made professor Irwin Corey weep with admiration Mr. Greenspan avoided drawing attention to the existence of transcripts during appearances before the House Banking Committee on Oct. 13 and Oct. 19 to discuss FOMC record keeping." Corey has famously performed as a double-talking comedian.

David Skidmore, an Associated Press reporter who was later employed at the Fed, wrote an article entitled "Greenspan Defends Secrecy Surrounding Key Central Bank Committee": "Federal Reserve Chairman Alan Greenspan warned lawmakers today that forcing central bank policy makers to operate with less secrecy would hurt the economy. . . . Disclosing the committee's directives, which are often conditioned on future economic events that may or may not happen, would cause changes in interest rates even when the panel intended no immediate change, he said."

The Lie Revealed

Skidmore also reported that Gonzalez said: "There appears to be conflicting statements, less than forthright responses, and possibly some jointly arranged understanding with regard to the testimony."

Gonzalez was not convinced that the nation's central monetary-policy committee destroyed the verbatim records of its meetings and maintained only rough notes of members' statements, as Greenspan had testified. Gonzalez ordered that letters be faxed immediately to all the witnesses, asking if they had been forthright in their testimony and demanding details of their knowledge of FOMC records.

The pressure from Gonzalez, a legislator who would not reach an "accommodation," did elicit a break in what Gonzalez called the "code of silence." In response to the post-hearing letters that Gonzalez sent to witnesses, the House Banking Committee received information regarding an FOMC conference call that had occurred four days before the hearing. David Wessel reported in the Wall Street Journal about this break in the Gonzalez investigation: "Fed Chairman Alan Greenspan saw this coming, according to the extraordinary notes of an hour-long Oct. 15 conference call among Fed officials: 'AG [Alan Greenspan] not as confident as previously that Fed is not at risk,' an official of the Cleveland Federal Reserve Bank recorded. 'Fed vulnerable if mishandle transcripts matter.' The notes were obtained and released by the House Banking Committee, which has demanded unedited copies of the transcripts as well as the public release of edited transcripts older than three years" (emphasis added). Pointing to the sudden change in the Fed's public stance, Wessel added: "As recently as last month, Mr. Greenspan testified that releasing a transcript of Fed deliberations 'would so seriously constrain the process of formulating policy as to render those meetings unproductive.'"

Seven days after the hearing, on October 26, the Fed liaison phoned a House Banking Committee staff member (me). He said that a courier would deliver a letter from Greenspan to Congress that would be made public in one hour. It is customary to allow the recipient member of Congress adequate time to read a letter from a governmental entity before making it public. Discourteous, preemptive disclosure may be used to jump ahead of the expected news coverage of the recipient's public reply, the news value of which would be diminished.

Greenspan's Memory Problems and Admission

As Greenspan admitted in this letter to Congress: "Unedited transcripts exist for each regular meeting of the FOMC held after the meeting of March 15-16, 1976." Greenspan explained that he had some memory problems: "I was aware from the beginning of my tenure that the meetings were being taped. Several years ago, staff informed me of the existence of transcripts. . . . I gave the matter of these procedures no further thought until recently. Indeed, until a staff member jogged my memory in the last few days, I had been under the impression I first learned about a year ago that transcripts were being retained."

The congressional publication The Federal Reserve's 17-Year Secret summarized Greenspan's responses to the committee in a column of a table labeled "Date of first knowledge of FOMC transcripts": "Knew in 1987, then forgot. Told FOMC members on October 15, 1993 that he remembered one year ago. Several days before he sent 10/26/93 letter staff had reminded him that he knew two years ago."

Anna Schwartz, a distinguished scholar and coauthor of books with Milton Friedman on the history of the Fed and monetary policy, was quoted in the Washington Post the day after Greenspan's letter was made public: "Whether there has been a deliberate attempt to pull the wool over people's eyes, I don't know. But obviously they have not been truthful all these years." The mock burial was now revealed. The transcripts were never discontinued. Transcripts did exist. The transcripts from the Burns Fed are part of the papers Arthur Burns bequeathed to the Gerald R. Ford Presidential Library. They have been lightly edited by archivists from the National Archives and Records Administration. In the 1980s, Fed Chairman Volcker reportedly prevented Fed staff from destroying FOMC transcripts that were being secretly maintained.

The Submission of Incorrect Testimony to Congress

Gonzalez drew attention to Fed responses that "clearly do not reveal the existence of tape recordings or transcripts." It was difficult to understand how Fed officials did not know or forgot that they were being taped or that FOMC transcripts were being maintained. Meanwhile, Gonzalez asked the same group of witnesses to send any material related to an FOMC conference call on October 15, 1993. Some of the nineteen Fed decision makers responded. Silas Keehn, president of the Chicago Fed Bank, admitted, "At the time of the October 15 conference call, I expressed concern about the possibility that my testimony as then drafted might be viewed as inaccurate," adding, "Others expressed similar views but I am unable to recall who did so or their comments in any detail."

It should be mandatory for officials of the nation's central bank to give accurate replies to Congress rather than to merely express their concerns to one another. A table from The Federal Reserve's 17-Year Secret, entitled "Responses of Presidents Who Refused to Submit Their Notes on the October 15, 1993 FOMC Conference Call," is shown in Figure 6-3. The report also tabulated an interesting summary of when the Fed officials admitted they knew about the transcripts. One indicated being aware of transcripts as far back as 1989. Most indicated they had not known until immediately before the hearings. "If We Keep Stonewalling, We're in Trouble".

Chairman Gonzalez demanded the transcripts of the FOMC conference call during which the Fed had planned its testimony. The Fed resisted. Gonzalez reluctantly agreed to an alternative procedure, in which congressional staff members would go to the Fed and listen to the tapes of that call.

On January 13, 1994, a group of Democratic and Republican staff members from the House Banking Committee, including me, went to the Board of Governors. We listened to a tape recording of the conference call. The room was crowded with Fed and congressional staffers. Over the objection of senior Fed staffers, I turned the tape recorder off after short intervals so that the congressional staffers could make a verbatim record of the conference call.

During this FOMC conference call, some FOMC members displayed an anxious tone: they had been informed that transcripts existed and that the secret might be uncovered at the hearing four days later. Robert McTeer appeared to know what they were doing when he said, "If we keep stonewalling, we're in trouble." A top staff person who would become Fed vice chairman, Donald Kohn, explained what Greenspan intended to do, a clear policy to mislead Congress about the written records of the FOMC, which had been specifically requested in writing: "The Chairman is not highlighting these transcripts . . . We're not waving red flags." Greenspan said he took some solace from his recent testimony experience, on October 13, before House Banking: "I would say Fed-1, House-0. We were on very safe ground earlier this year, and presumed threats to the Federal Reserve System were considerably far less six to nine months ago . . . We can become very vulnerable if this is not handled properly."

Virgil Mattingly, general counsel for the Fed, tried to soften the idea of possible public disclosure of the transcripts: "Well, I don't know what the Justice Department would say, but my suspicion is that they would probably say that we are fully able to put a disclaimer on those transcripts saying that they are rough and unedited and they may or may not reflect what the person actually said." Greenspan replied: "You know, that's like taking the National Enquirer and putting that on the front of it. [Laughter]" Governor Wayne Angell added: "And every newspaper that quoted it would run the full disclosure as the lead!"

A Fed Bank president inquired whether Gonzalez knew about the transcripts or leaks of information. A Fed congressional liaison replied: "I don't have any sense that they have any knowledge whatever of what we've been talking about."

A Fed Bank president stated that some Fed officials had submitted false written statements to Congress: "Some members of the FOMC who happen to be members of the Board of Governors knew about the transcripts. Other members who happen to be Reserve Bank Presidents didn't know and now have submitted to Washington statements saying that they didn't know. And that's going to come out on Tuesday [at the hearing] and that's awkward." Although "awkward" is a gross understatement for describing the submission of false written statements to Congress, Greenspan did not see a problem. His reply bypassed the whole issue of sending knowingly false written statements to Congress.

Edward Boehne, president of the Philadelphia Fed Bank, confirmed the Fed's seventeen-year lie:

Let me just [say], since I may be one of the few people who was around when the Memorandum [of Discussion] was still being done and when the change was made, that to the very best of my recollection I don't believe that Chairman Burns or his successors ever indicated to the Committee as a group that these written transcripts were being kept. What Chairman Burns did indicate at the time when the Memorandum was discontinued was that the meeting was being recorded and the recording was done for the purpose of preparing what we now call the minutes but that it would be recorded over at subsequent meetings. So there was never any indication that there would be a permanent, written record of a transcript nature. And I think that.

Virgil Mattingly added, "That accurately describes what Chairman Burns told the Congress."

"I Hope They Didn't Think That When the Green Light Went on It Meant Raise Interest Rates"

The congressional staff members examined the meeting room used for FOMC and Board meetings. The recording systems were extensive. A voice-activated green light before each member who sat at the large conference table was part of the recording system. An adjacent room contained recording equipment. During FOMC meetings, a cable extended from this adjacent room to a string of microphones that were placed along one wall to make a backup recording. A staff member seated at the head of the conference table next to Greenspan assisted in operating the recording system. Just around the corner of the L-shaped hallway passage from the offices of Greenspan and the other governors was an office with a secretary and a file cabinet containing the FOMC verbatim transcripts.

This array of recoding equipment raised questions. How could any of the nineteen decision makers who had attended many meetings in this meeting room fail to know they were being recorded? How could any of them, including Greenspan, fail to comprehend that the recordings were being carefully typed and stored in an office around the corner from the conference room? How could any of them in carrying out their extremely important decision making, which affected the economic welfare of the nation, fail to ask the Fed staff if the transcripts were being retained? At a later Banking Committee hearing, Chairman Gonzalez asked one FOMC member, William McDonough, these questions. He had submitted a statement that declared that he did not know he was being recorded at FOMC meetings. Gonzalez quipped: "I hope they didn't think that when the green light went on it meant raise interest rates."

Governor Wayne Angell testified at this later hearing about Greenspan's memory problems: "He said he [Greenspan] forgot about the transcripts. He never forgot about the recording. . . . And I want you to know that in my view, Chairman Greenspan is one of [the] world's most accurate people; and he would never, ever want someone to believe what wasn't the case." That did not seem to explain the memory problems Greenspan said he had, as described in the congressional report.

Shredding Fed Records and Turning Off the Tape Recorder

Obviously, Chairman Greenspan's memory of the unedited transcripts was acute when he orchestrated an unrecorded vote to shred them. When, as a result of the Gonzalez hearings and investigations, the transcripts of the FOMC meetings from 1995 were placed on the Fed's Web site in 2001, it was astounding to find that the Fed officials had voted to destroy the unedited transcripts. As a professor of public affairs at the University of Texas, I wrote to Chairman Greenspan on September 3, 2001, praising him for his admission that transparency had not impaired their deliberations. Greenspan had acknowledged at a 1995 FOMC meeting that any prior reluctance to publish the transcripts was ill founded: "I believe there was some strong support within this Committee a year or so ago, mainly on the grounds that we thought the taping inhibited the deliberative process . . . I think the conclusion, with perhaps a qualification [a subpoena for early release of the transcript] . . . is that there is very little evidence that the quality of our discussions have been reduced."

My letter also contained some specific questions. A timely reply was not expected, because the terrorist attacks of September 11, 2001, occurred eight days after the letter was sent. However, Greenspan's senior staff member, Donald Kohn, who became a Fed governor in 2002 and vice chairman in 2006, replied in a letter to me on November 1, 2001. He confirmed that the FOMC members had voted to destroy their unedited transcripts for 1994, 1995, and 1996.

FOMC members were told in 1995 that even though they were "not permitted" to discard "raw transcripts" of meetings before 1994, future unedited transcripts would be "thrown out," and only transcripts edited by the Fed would be retained. FOMC members were also told to move some discussions to the lunch period, when "the tape is not on."

The 1995 transcripts also revealed that FOMC members agreed to pull the plug on the taping system used at their meetings without agreeing on the subjects that should be "off the tape." The term "organizational subjects" was suggested for off-the-tape discussions, although there was little consensus on what that constituted. A subcommittee of the FOMC reported on its deliberations. The subcommittee chair, Governor Alan Blinder, characterized the discussion at the FOMC meeting: "I did not hear any consensus--maybe someone else heard a consensus. Maybe we should just have a vote on whether there should be an 'off the tape' portion. Do you agree?" Greenspan replied: "I agree." He later added: "I am not going to record these votes because we do not have to. There is no legal requirement." The vote was taken without recording members' names. Greenspan announced: "The 'Ayes' have it."

Greenspan's anonymous voting scheme removed the Fed officials' individual fingerprints from the vote to pull the plug on the recording of their meetings for undefined reasons--which means whenever they wanted to block the public or anyone else from finding out what they were saying.

"Unredacted" Does Not Mean "Unedited and Unredacted"

A final deceptive practice on shredding Fed records should be emphasized for the interpretation of Greenspan Fed records. Future Fed governor Kohn indicated in his 2001 letter to me that the Fed had notified Congress in 1995 that it would destroy the unedited FOMC transcripts, noting that the Fed "is not obligated to retain draft transcripts." He said that the minutes of the meeting held on January 31-February 1, 1995: reads as follows: "As permitted by the National records Act, the recordings and unedited transcripts will be discarded after all the participants at the meeting have reviewed and corrected, as necessary, the transcripts prepared by the Secretariat." In keeping with the National records Act and with the concurrence of officials at the National Archives, the FOMC is not obligated to retain draft transcripts or any meeting recordings used in their preparation. What must be retained are the edited transcripts, i.e., those that incorporate member corrections in both their redacted and unredacted versions. The redacted versions are released to the public after five years; the unredacted versions will be sent to the National Archives after 30 years.

Notice the word "incorporate," which is emphasized. The law, according to the letter, says "incorporate" not "shred." The corrected page from the FOMC MOD of April 20, 1976 (Figure 6-1), from the Burns Fed, was lightly edited by archivists at the National Archives. It is very different from the destruction of source FOMC transcripts, which the FOMC approved in a nonrecorded vote in 1995. Regardless of how the law cited above can be interpreted or twisted or even broken without consequence, Fed officials, who are unelected agents serving the public, should diligently preserve their source records for full accountability. That did not happen in the 1990s, and the practice may be continuing.

Kohn also said that Greenspan had sent a letter to six members of Congress in 1995 with this information. This congressional notification was in a class with the previously discussed 1962 Fed plan for using an obscure announcement that would not be fully perceived or properly understood to notify Congress about the new foreign-exchange operations it was undertaking.59 This was how the deception worked in 1995. A 1995 Greenspan letter looked as if it heralded the new procedures for openness at the Fed, but there was a terrible caveat: "I [Greenspan] am writing to bring to your attention recent decisions of the Federal Open Market Committee (FOMC) on disclosure of its policy and deliberations. As may be seen in the enclosed press release of February 2, 1995, the FOMC has formalized the procedures for greater openness in policy making that it has been using for the past year. We believe these procedures will make our policy intent as transparent as possible to market participants without losing our flexibility or undermining our deliberative process."

Greenspan announced the implementation of a formal practice that would require FOMC transcripts to be released after a five-year lag. This appeared to be the Fed's formal statement of its transparency rules. Then Greenspan used sleight of hand. With the shredding card up his sleeve, he held up the transparency card: "A complete, unredacted version of the transcripts of each FOMC meeting" would be retained, and then turned over to the National Archives after thirty years. Hail the rules for transparency: they will continue a policy of retaining the unedited transcripts!

No, that is wrong. On the second page of his letter, Greenspan states that unedited transcripts will be discarded: "As permitted by the National Records Act, the tapes [recordings of FOMC meetings] and unedited transcripts will be discarded when all the participants at the meeting have approved the lightly edited written transcript." So the Greenspan Fed is really shredding the unedited FOMC transcripts. A new distinction has been added to the vocabulary of deceptive record shredders: "unredacted" does not mean "unedited and unredacted."

Transparency, accountability, and trust are sharply curtailed by this practice, cleverly hidden by Greenspan, who publicly displayed his strong support for transparency and accountability: "It cannot be acceptable in a democratic society that a group of individuals are vested with important responsibilities, without being open to full public scrutiny and accountability."

Don McNay: Washington: Totally Disconnected From Main Street

2009-11-23T19:30:25Z

Can you hear me calling you?

-Mike and The
Mechanics

Mark Twain said that when he died he wanted to be in Kentucky because everything happens 20 years later in Kentucky than in the
rest of the world.

I live in Kentucky but I
want to die in Washington. It might be the ticket to immorality. The people running Washington seem to exist in an alternate
universe.

Sunday’s Huffington Post headline read “Sherrod Brown: Obama
Focused on Main Street
but not all his advisers are.”

How long did it take you to figure that one out, Sherrod?

What was the first clue? Double-digit unemployment? Huge
Wall Street bonuses? The fact that no one on Obama’s economic team
has ever worked on Main Street
in his or her entire life?

Operating a business on Main Street is a lot different than lecturing
at the Harvard Economic Club. The team
President Obama surrounded himself with has spent way more time in a faculty
lounge than in the corner barber shop.

In the alternative universe of Washington,
the idea that Senator Brown, a progressive Democrat from Ohio, would criticize Obama’s advisers, is
considered earth-shattering.

Partisanship rules in Washington.
And Democrats and Republicans never
deviate from their talking points.

No one is supposed to think for himself. Even just a little bit, like Brown did.

In the alternative universe of Washington, they don’t really understand that
people on Main Street
are hurting. Not only are they hurting,
they are angry.

Charlie Rose recently hosted Warren Buffett on his show. Buffett is one of the richest guys in the
world, but he thinks he, and other rich people like him, should pay a higher
percentage in taxes.

Buffett noted that “K Street lobbyists” had developed too
much influence in Washington
and the average American was not being heard.

Buffett was a big Obama supporter. But he is also a realistic businessman. He understands that our economic future
depends far more on Main Street
than on Wall Street.

Part of the reason Washington
can be an alternative universe is that it’s a city that tends to be immune to
recessions and depressions.

I was in Washington
recently and a friend told me of his dilemma of trying to buy an affordable home. Washington
has one of the most expensive housing markets in the country. The federal government has not had any
significant layoffs or cutbacks in many years.
They keep on printing money.
There are many others who work for agencies or firms that deal directly
with the government. They are not
feeling the recession, either. It seems
the business of government is always booming.

People in Washington
are not feeling our pain. Or the extreme
pain that their counterparts in state and local governments are about to
feel.

My business is somewhat recession-proof, but I operate just
off Main Street
in Richmond, Kentucky.
Economic despair is all around me.
I have friends, and friends of friends, come to me daily looking for a
job. Not a high-paying career with
possibilities for advancement, benefits and a pension. Just a job.
A paycheck.

I don’t know what to do for them. I don’t have jobs to give them.

We advertised for an entry level position earlier
this year. We were flooded with
applications, including people with advanced degrees and boatloads of experience.

As Sherrod Brown so astutely noted, some of President
Obama’s advisers don’t “get it.”

Those of us on Main
Street knew from Day One they wouldn’t “get it.” Nothing in their background, education or
life experiences prepared them to understand the economic crisis from a Main Street
perspective.

I don’t blame the people Obama appointed. I blame the guy who appointed them.

We don’t get to vote for Secretary of the Treasury or
Chairman of the Federal Reserve Board.

We do get to elect a president. A president I voted for. One who campaigned on “change we can believe
in.

We have not had change on the economic front because Obama
chose his advisers from the same bunch of Wall Street and Washington insiders
that George W. Bush chose from.

Tell me how Timothy Geithner,
Dr. Lawrence Summers and Ben Bernanke are different from Henry Paulson, Alan
Greenspan and the people Bush had around him?

Imagine how different economic policy would be if someone
who understood Main Street
was calling the shots.

We would have the kind of change we really could believe in.
And was promised.

Don McNay,
CLU, ChFC, MSFS, CSSC is one of the world's leading authorities in helping
people deal with “Big Money” issues.McNay is an award
winning, syndicated financial columnist
and Huffington Post Contributor. You can read more
about Don at www.donmcnay.com
McNay founded McNay Settlement
Group, a structured settlement and financial consulting firm, in 1983 and Kentucky Guardianship
Administrators LLC in 2000. You can read more about both at www.mcnay.com
McNay has Master's
Degrees from Vanderbilt and the American
College and is in the
Eastern Kentucky University Hall of Distinguished Alumni.

McNay has written two
books. Most recent is Son of a Son of a Gambler: Winners, Losers
and What to Do When You Win The LotteryMcNay is a lifetime
member of the Million Dollar Round Table and has four professional designations
in the financial services field.

Jackson Williams: Bush Oil Buddies Divvy Up Iraqi Oil, Now Joined By "Liberal Scion" Peter Galbraith

2009-11-13T10:48:15Z

The ongoing saga of the Iraqi oil patch pie adds a new chapter, courtesy of the Thursday New York Times, and its above-the-fold front pager, "American Adviser to Kurds Stands to Reap Oil Profits."

In today's installment, we learn that Peter Galbraith, former ambassador, foreign policy expert to Joe Biden and John Kerry, and son of the famed economist John Kenneth Galbraith, is in line to reap $100 million dollars -- maybe more -- from contracts between a Norwegian oil company and the autonomous Kurdish region of Iraq. As an advisor to DNO, Galbraith and a partner received a 10% stake in a large Kurdish oil field back in 2004.

What's more, Galbraith has long championed the idea of partitioning Iraq, presumably into three regions that roughly encompass the country's three stakeholder groups (Shiite, Sunni and Kurd).

Why does this matter?

For one thing, the American-created central government in Baghdad has long insisted that it has sole constitutional authority over all of Iraq's oil. For another, giving the central government time to devise an equitable oil agreement between the stakeholders was the main goal President Bush touted when he announced "the surge" in January 2007.

Later that same year, in September, Hunt Oil of Dallas announced an oil production-sharing agreement with the grand poobahs of the Kurdistan region. At the time, Bush briefly feigned concern:

"I knew nothing about the deal. I need to know exactly how it happened. To the extent that it does undermine the ability for the government to come up with an oil revenue-sharing plan that unifies the country, obviously I'm - if it undermines that, I'm concerned."

Nine months later, in June 2008, Ray Hunt himself crowed about it at a dinner in his honor. D Magazine's online blog "Front Burner," in a piece titled "Oilman Hunt Sees A 'Soft Partition' For Iraq," quoted the longtime Bush crony parroting the Galbraith line:

"I think that, in the end, you'll end up with a soft partition of Iraq, a very decentralized government, with authority granted to three provinces. The Kurds I think will end up being an example...American democracy is not one-size-fits-all, but, as an example of what freedom can do, it's remarkable that this can happen."

Freedom's just another word for "I'm gettin' mine, boys!" Galbraith apparently figured that out years earlier.

Remarkably, the latest story in the Times states that "Mr. Biden and Mr. Kerry, who have been influenced by Mr. Galbraith's thinking but do not advocate such a partitioning of the country, were not aware of Mr. Galbraith's oil dealings in Iraq, aides to both politicians say." Come again?

Vice President Biden may not favor partition now (he's not in charge of foreign policy), yet he certainly advocated it for years. In fact, he co-wrote a 2006 op-ed promoting it -- in the Times, no less! -- and often hyped it as one of his great ideas on cable chat shows. Partition may or may not be a great idea. Still, how does the germane fact of Joe's historic support not make it into the paper's story today?

Alan Greenspan noted in his 2007 memoir The Age of Turbulence, "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil." Since I've previously blogged about this at Huffington Post, I'll just say it again:

Desert Storm in 1990 was also about oil, but Bush the Elder tacitly signaled that the motivation was to protect Kuwait's oil fields, which is why much of the world (including Arab neighbors) approved of the limited military action. "No-fly" zones over Iraq, continued by Bill Clinton for eight years, ultimately turned Baghdad's Bully into the mother of all empty suits.

Ah, but the son also rises.

Immediately after 9/11, Bush the Lesser held a megaphone at Ground Zero, promising that "the people who knocked down these buildings will hear all of us soon." That should have meant al-Qaeda in Afghanistan and Osama bin Laden, but it morphed, at least publicly, into Saddam's mythical mushroom clouds and WMDs. Then it became freeing the Iraqi people from tyranny, and finally it arrived at the fantastical notion of remaking the Middle East, at all cost and with our blood.

Remaking it for whom, exactly? Royal Dutch Shell and Exxon-Mobil, our Chevron shining bright?

Thomas Frank: The Real Danger of "One Big Regulator"

2009-11-11T13:26:41Z

Financial regulation is the next item on the political horizon, and it doesn't have to be the deathly dull wonk-battle that it sounds like. In fact, if the Democrats do their job, it can just as easily become a platform for addressing the greatest issues of them all.

Our current way of regulating the financial system is dysfunctional. Oversight is dispersed among numerous confusing bodies that at times have seemed to be racing each other to the bottom. Setting up One Big Regulator would end that problem.

The Obama administration's plan is to have the Federal Reserve regulate banks that might pose a "systemic risk" if they were to fail. Critics suggest the Fed is too close to the banks that it would be charged with cracking down on. What's more, the Fed's main task is monetary policy, so regulating banks would never receive the attention it deserves.

Let me add another objection: What if some future administration were to install as the chairman of the Federal Reserve--or as chief of whatever agency is made into the One Big Regulator--a man who really doesn't believe in the regulatory mission? What if control of the systemic regulator is handed over to a person who considers 19th-century economic arrangements to be a sort of aspirational ideal? A man who turns out to be a dedicated fan of Ayn Rand, that Nietzsche of the boardroom? A man who blows off warning signs because, in his perfect theoretical universe of rational markets, the only really systemic problem is government itself?

I raise this potential problem because, from 1987 to 2006, that's pretty much the sort of man who headed the Federal Reserve. Had Alan Greenspan somehow been handed the One Big Regulator job back in those days, we might have had no real financial regulation in this country at all.

Consider the astonishing ideas about fraud that Mr. Greenspan once reportedly expressed. According to a Washington Post interview earlier this year with Brooksley Born, the former head of the Commodity Futures Trading Commission, in 1996 Mr. Greenspan "explained [to her] there wasn't a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him." Later on, Ms. Born proposed that the U.S. regulate certain financial derivatives; Mr. Greenspan was influential in stopping her.

Could a Fed chairman do otherwise? As economist James K. Galbraith has pointed out, they are usually chosen "from among people who are close to the banking industry and to the financial sector." They can hardly be expected to be enthusiastic regulators of the same.

As Fed chairman, Mr. Greenspan also worked to head off regulation of hedge funds. He waged war against the Glass-Steagall Act. A 2004 Wall Street Journal profile of Mr. Greenspan, subtitled "The Deregulator," described his Fed's fondness for bank mergers and then included this critical passage: "Critics say these mergers concentrate financial risk too heavily in a few institutions. Mr. Greenspan argues that deregulation also produced a more stable financial system."

Did the nation ever rise up to tell The Deregulator to get with the program? No. Our consensus opinion leaders virtually worshiped the man. In 1999, he made the cover of Time magazine as part of a "Committee to Save the World." His biography, a classic of Washington-style power-palaver, was written by Bob Woodward, who dubbed Greenspan the "Maestro."

Why rehash this embarrassing stuff? Because judgment day for this particular form of wrongness has never really come. Yes, Mr. Greenspan himself has changed his ways: He uttered a famous mea culpa in October 2008, at the very pit of the crisis; of late he has even seemed to call for some kind of breakup of the "too big to fail" institutions.

Out in the consensus world that made a god of Mr. Greenspan, though, the deregulatory faith has never really been challenged. And until it is--until the bad ideas themselves are confronted--the best-designed regulatory institution in the world will go awry. It will merely become a fat target for the next bunch of "market based" politicians to come down the pike.

Taking on the consensus ideas of the past few decades is not a task for a happy bipartisan administration. It is not something that can be done by triangulation. What's more, it will require Democrats to align themselves openly with government, a posture they are loath to strike in these cynical days.

On the other hand, President Barack Obama has often spoken about a politics that transcends the culture wars, and this issue might just be the way to start building a new coalition around economic issues. Besides, the Republican leadership has made it easy for him, betting everything on the absurd notion that more government automatically equals less freedom. With a little skill, the boring issue of financial regulation could become their Waterloo.

Read other OpinionJournal articles:
Janet Trautwein: Why We Need a Strong Individual Mandate
Morris Davis: Justice and Guantanamo Bay

Kishore Mahbubani: Obama in Asia: West Looks East After "The End of History"

2009-11-11T12:09:39Z

SINGAPORE -- The 20th anniversary of the fall of the Berlin Wall has just been celebrated. For many, that momentous event marked the so-called "end of history" and the final victory of the West. This week, Barack Obama, the first black president of the once-triumphant superpower in that Cold War contest, heads to Beijing to meet America's bankers -- the Chinese Communist government -- a prospect undreamt of 20 years ago. Surely, this twist of the times is a good point of departure for taking stock of just where history has gone during these past two decades.

Let me begin with an extreme and provocative point to get the argument going: Francis Fukuyama's famous essay "The End of History" may have done some serious brain damage to Western minds in the 1990s and beyond. Fukuyama should not be blamed for this brain damage. He wrote a subtle, sophisticated and nuanced essay. However, few Western intellectuals read the essay in its entirety. Instead, the only message they took away from the essay were two phrases that can be found in the essay: namely The End of History = The Triumph of the West.

Western hubris was thick in the air then. I experienced it. For example, in 1991 I heard a senior Belgian official, speaking on behalf of Europe, tell a group of Asians, "The Cold War has ended. There are only two superpowers left: the United States and Europe." This hubris also explains how Western minds failed to foresee that instead of the triumph of the West, the 1990s would see the end of Western domination of world history (but not the end of the West) and the return of Asia.

There is no doubt that the West has contributed to the return of Asia. As I document in my book The New Asian Hemisphere: The Irresistible Shift of Global Power to the East, several Asian societies have succeeded because they finally understood, absorbed and implemented the seven pillars of Western wisdom, namely free-market economics, science and technology, meritocracy, pragmatism, culture of peace, rule of law and education.

Notice what is missing from the list: Western political liberalism, despite Fukuyama's claim that "The triumph of the West, of the Western idea, is evident first of all in the total exhaustion of viable systematic alternatives to Western liberalism."

The general assumption in Western minds after reading Fukuyama's essay was that the world would in one way or another become more Westernized. Instead, the exact opposite has happened. Modernization has spread across the world. But modernization has been accompanied by de-Westernization, not Westernization. Fukuyama acknowledges this today. As he said in a recent interview with Global Viewpoint editor Nathan Gardels: "The old version of the idea modernization was Euro-centric, reflecting Europe's own development. That did contain attributes which sought to define modernization in a quite narrow way."

In the same interview, Fukuyama was right in emphasizing that the three components of political modernization were: the creation of an effective state that could enforce rules, the rule of law that binds the sovereign, and accountability. Indeed, these are the very traits of political modernization that many Asian states are aspiring to achieve. Asians surely agree that no state can function or develop without an effective government. We feel particularly vindicated in this point of view after the recent financial crisis. One reason why the United States came to grief was the deeply held ideological assumption in the mind of key American policymakers, like Alan Greenspan, that Ronald Reagan was correct in saying that "Government is not a solution to our problem; government is the problem." Fortunately, Asians did not fall prey to this ideology.

Consequently, in the 21st century, history will unfold in the exact opposite direction of what Western intellectuals anticipated in 1991. Then they all assumed that The End of History = The Triumph of the West. Instead, we will now see that The Return of History = The Retreat of the West. One prediction I can make confidently is that the Western footprint on the world, which was hugely oversized in the 19th and 20th centuries, will retreat significantly in the 21st century.

This will not mean a retreat of all Western ideas. Indeed many key ideas like free-market economics and rule of law will be embraced ever more widely. However, few Asians will believe that the Western societies are best at implementing these Western ideas. Indeed, the general assumption of Western competence in governance and management will be replaced by awareness that the West has become quite inept at managing its economies. A new gap will develop. Respect for Western ideas will remain, but respect for Western practices will diminish, unless Western performance in governance improves again.

Sadly, in all the recent discussions of "The End of History" 20 years after its publication, few Western commentators have dared to address the biggest lapse in Western practice. The fundamental underlying assumption of "The End of History" thesis was that the West would remain the "beacon" for the world in democracy and human rights. In 1989, if anyone had dared to predict that within 15 years, the foremost "beacon" of human rights would become the first Western developed state to reintroduce torture, everyone would have shouted "impossible." Yet the impossible happened!

Few in the West understand how much shock Guantanamo has caused in non-Western minds. Hence, many are puzzled that Western intellectuals continue to assume that they can portray themselves and their countries as models to follow when they speak to the rest of the world on human rights. Fukuyama is right to emphasize the importance of "accountability." Yet no one in the West has been held accountable for Guantanamo.

Consequently, what moral authority does the West have to speak on the issues of human rights anymore? This loss of moral authority is the exact opposite outcome that Western minds expected when they celebrated the fall of the Berlin Wall in 1989.

Does this mean we should give up hope? Will the world become a sadder place? Probably few in the West will remember what Fukuyama wrote in the last paragraph of his essay. He wrote: "The end of history will be a very sad time. The struggle for recognition, the willingness to risk one's life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination and idealism, will be replaced by economic calculation, the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands. In the post-historical period there will be neither art nor philosophy, just the perpetual caretaking of the museum of human history."

Here, too, as the 21st century unfolds, we will see the exact opposite outcome. The return of Asia will be accompanied by an astonishing Asian renaissance in which many diverse Asian cultures will rediscover their lost heritage of art and philosophy. There is no question that Asians will celebrate the return of history in the 21st century. The only question is: Will the West join them in these celebrations, or will they keep waiting for the end to come?

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy, at the National University of Singapore, is the author of The New Asian Hemisphere: The Irresistible Shift of Global Power to the East.

(c) 2009 GLOBAL VIEWPOINT/TRIBUNE MEDIA SERVICES. HOSTED ONLINE BY THE CHRISTIAN SCIENCE MONITOR.

Nouriel Roubini: 'Too Big To Fail' Revisited

2009-11-05T16:36:56Z

Although the G-20 finance ministers pledged stronger prudential regulation and financial oversight of systemically important firms at their September meeting, there is no consensus yet among regulators, lawmakers and academics on how best to proceed.

Joseph A. Palermo: The Wrath of Suburbanites and Independents

2009-11-04T09:45:46Z

Suburbanites and independent voters in Virginia and New Jersey broke Republican in yesterday's election. Last night I saw CNN's John King tell his viewers that this phenomenon could only mean that people are sending a signal to President Barack Obama that they're fed up with "all that spending" in Washington. King's assertion is interesting because it sounds a lot like the Republican talking point we'll hear flogged endlessly today and it comes from a network that prides itself on being neither FOX nor MSNBC. But I think the election results show that in today's miserable economic context no incumbent governor (or incumbent party) managing a state or province can escape the wrath of an electorate that continues to bleed and suffer while it watches its tax dollars squandered on foreign wars and Wall Street fat cats.

Any governor facing voters at a time when teachers are being fired, parks closed, and services discontinued, when people are unemployed, losing their homes and without adequate health care, is bound to have a difficult time. Here in California, if Arnold Schwarzenegger were up for re-election, with his abysmal 27 percent approval rating, he'd get clobbered. I heard that Jon Corzine's rating was 39 percent (Arnold would call that number evidence of a mandate). What Virginia and New Jersey show is that the inaction on the economy in real terms coming from Congress and the Obama administration is taking its toll. It's nice to hear all that talk about "economic stimulus" and "public options" for those who need health care, but so far Washington inertia has failed to deliver any concrete gains to ordinary people. And if this trend continues into the midterm election season of 2010 I wouldn't be surprised if more incumbents go down in flames when the voters have an opportunity to vote their rage.

The public's anger arises from the sense that Washington only serves the interests of the rich and powerful while the middle class gets bupkis. When was the last time the federal government did anything for the working middle class? Stagnant wages and salaries, depleted pensions, soaring health care, college, and housing costs, predatory lending, gouging of every kind imaginable from creditors. Consumer "confidence" is a foreign concept. The Great Wall Street Rip-Off of 2007-2008 broke the back of the American middle class. Most people were just treading water before Wall Street ran away with a large chunk of the country's wealth. The only lesson from yesterday's voting is that people want to throw the bums out and this sentiment will only build through 2010.

In 2010 the Democrats will lose House and Senate seats -- the only question is: How many? If the Congress continues on its do-nothing 1994-deja vu course -- whether due to bureaucratic inertia, Blue Dog obstruction, or political miscalculation -- the Democrats will lose their majority in one or both chambers of Congress. And they will deserve to lose their majority just as they deserved to lose it back in 1994.

Foreign wars and occupations of basket-case countries where every additional one thousand soldiers costs the nation an additional $1 billion a year. Trillions of dollars in bailouts, corporate welfare, and loan guarantees forked over to a clique of filthy rich, undeserving, white collar criminals on Wall Street. These are things that do not make good public policy and the American people understand this fact. Ordinary working people deserve to get something in return for their hard-earned tax dollars but so far all they've gotten is foreclosed homes, job losses, shoddy access to medical care, and uncertain futures.

The only "good" news for Democrats was New York's 23rd district. Now at least they have one more seat they can afford to lose in 2010. In Maine, the rollback of gay rights shows that these rights must be won in the courts, not at the ballot box.

During the 2008 presidential campaign Obama tapped into this same anger and won big. After he turned over the economy to Tim Geithner and Larry Summers it just looks like business as usual. Wall Street pays out billions of dollars in bonuses regardless of performance and has already begun securitizing about $18 billion worth of peoples' life insurance policies betting (indeed hoping) people will die earlier than expected, and speculators are once again hedging those bets with credit default swaps. Lukewarm regulations are the talk of Washington but so far nothing has come out of the Democratic Congress with any real teeth. Bob Gates continues Bush's ill-conceived wars unabated and the Treasury Department is full of Alan Greenspan retreads. These are the reasons people are angry and will take it out on incumbents in 2010, not because of "all that spending" in Washington or any fondness for the Republicans.

Robert Reich: Health Care Reform is Critically Important, But Getting Americans Back to Work is More So

2009-11-02T12:41:55Z

Presidents tend to overcompensate for the errors of their predecessors in the same party and in so doing sow seeds of their own mistakes. Bill Clinton wanted above all to avoid Jimmy Carter's fate -- losing re-election because the economy was heading south on Election Day. So Clinton made a deal with Alan Greenspan to slash the budget deficit and thereby jettison much of his ambitious campaign agenda (that was Greenspan's precondition for lowering interest rates and causing an economic boom in time for the re-election) and then Clinton took direction from Dick Morris, who told him to move to the right. The result: Clinton avoided Carter's failure and won re-election handily. But the Clinton years produced few if any major social reforms. Clinton spent so much of his initial political capital, as well as his time and energy, on deficit reduction that he didn't have enough left to enact health care in 1994.

Barack Obama came to the White House intent on not repeating Clinton's failure to enact universal health care. Did he over-learn the Clinton lesson? Obama seems to have made all the right moves to enact something he can credibly label health-care reform: Rather than spend his political capital elsewhere, he reserved most of it for health care.

I sincerely hope America gets genuine health reform and I hope it's stronger than what's emerging in the Senate. (Whoever voted for Joe Lieberman last time around ought to pray for continued good health.) I worry, though, that Obama's strategy may turn out to be a mistake comparable to Clinton's overemphasis on deficit reduction. Obama's focus on health care rather than jobs, when the economy is still so fragile and unemployment moving toward double digits, could make it appear that the administration has its priorities confused. While affordable health care is critically important to Americans, making a living is more urgent. Yet the administration's efforts to date on this more basic concern have been neither particularly visible nor coherent.

The current rate of unemployment would have been even higher were it not for the federal stimulus package, but the stimulus should have been much larger. Especially with the states still cutting back on spending and raising taxes, the federal stimulus will be barely enough to keep unemployment from hitting 11 percent by the middle of 2010. Yet as the rate of unemployment continued to rise faster and higher than the White House anticipated, Obama could not return to Congress to seek a larger stimulus. He was spending political capital on health care.

The Wall Street bailout, meanwhile, has saved Wall Street but left most regional banks in deep distress. Almost nothing has trickled down. Small businesses still can't get loans. Foreclosures continue to mount largely because jobs continue to vanish and homeowners can't pay their mortgages. Yet at this point, on the eve of a health care bill, it would be difficult for Obama to return to Congress seeking billions more to aid distressed homeowners and small businesses.

While health care reform, if done right, can help American families stay afloat in the economy, the current bills won't offer most Americans any appreciable decline in the cost of their health insurance nor clear improvement in the efficiency or quality of the health care they receive, and those who will benefit won't see the benefits until 2014 at the earliest. All this is partly a result of Obama's sharpest break from Clinton -- whose ambitious health care plan drew immediate fire from Big Pharma, the American Medical Association, and health insurers: The Obama White House bought off the medical-industrial complex by promising it fatter profits, bolstered by tens of millions of new paying customers.

That and other deals cut with industry -- including promises to Big Pharma that Medicare wouldn't use its bargaining clout to reduce drug prices, to the AMA that doctors wouldn't have to face larger cuts in Medicare reimbursement rates, and to private insurers that the White House wouldn't fight hard for a public insurance option -- are likely to make the resulting reform far more costly than it would be otherwise. These extra costs will be borne by those Americans who will be required to buy insurance but won't qualify for federal assistance, along with Medicare beneficiaries who will be paying more and receiving less. These people may not know they're indirectly paying the costs of buying off these industries, but they'll know they're getting shafted (Republicans will be sure to make them aware, even though the GOP has a much longer record of shafting the middle class for the benefit of big business).

The optimist in me says Obama can pivot off a health-care victory and launch some new initiatives that palpably and quickly spur job growth. The realist says there aren't any such initiatives -- at least none that can work fast enough to reverse the tide of unemployment before the midterm elections. Fiddles such as a new jobs tax credit can help but they won't make much of a dent. Even with a larger stimulus, a jobs recovery would still be far off. The tangible benefits of health-care reform are likely to be so elusive in the meantime that the public may become easy prey for demagogues on the right who blame Democrats for the economic insecurities that bedevil the nation next November.

If Obama and the Democrats lose one or both houses of Congress in the midterms, it will be because the president learned only the most superficial lesson of the Clinton years. Health-care reform is critically important. But when one out of six Americans is unemployed or underemployed, getting the nation back to work is more so.

Cross-posted from Robert Reich's Blog.

Linda R. Monk, J.D.: Let Us Now Praise Uppity Women

2009-11-02T08:04:46Z

On the day of the dead, Nov. 1, the news media reported the story of CIT's* impending bankruptcy. Cassandra, take a bow. This time, her name is Brooksley Born. She saw it all coming almost 20 years ago.

Born was the lone woman in a group of powerful men when she tried to persuade Congress to regulate the novel financial instruments known as over-the-counter derivatives during the 1990s. She served as head of the Commodities Futures Trading Commission, and legally had jurisdiction over the side bets that banks and insurance companies made with each other to hedge their risky investments. Except nobody was keeping score, and nobody was required to actually have money on hand to pay up. Born thought that should change, because too much of the American people's money was at risk.

She was defeated by the financial titans of Robert Rubin, Larry Summers, and Alan Greenspan -- at the time Secretary of the Treasury, assistant secretary, and chairman of the Federal Reserve. The triumvirate portrayed her as that worst of all possible beasts in Washington officialdom, a "difficult" woman.

Greenspan believed "The Market" would police itself of fraud because he was a devoted acolyte of Ayn Rand, the radical individualist and author of Atlas Shrugged. Not exactly an inspiring metaphor for a Fed Chairman during a global economic meltdown.

But as Born knew, fraud is the mortal enemy of any supposedly free market. Unless investors can be confident that their money is safe from fraud, capitalism cannot survive. A system rife with fraud is a death star, imploding upon itself. Derivatives, houses, tulips--the object of the exchange does not matter if the information it is based on is knowingly false. Such a system is based on patsies, not investors.

Let's not forget that fraud is, after all, a crime. Saying the government should not regulate fraud is like saying it should not regulate murder. Sure, private means can redress the grievance, but in the end the whole society suffers. That is, assuming that suffering matters. It didn't to Ayn Rand.

All the New Deal securities regulations boil down to preventing fraud. Insider trading, churning, margin requirements--the premise is that traders cannot hold themselves out to be something they are not if they are soliciting, in Louis Brandeis' immortal phrase, "other people's money."

Ever late to the scene of a catastrophe, Congress is now considering new regulations for the financial markets, in the wake of the Great Recession.

Brooksley Born recently gave the PBS series Frontline her latest warning:

I think we will have continuing danger from these markets, and that we will have repeats of the financial criss--it may differ in details, but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over until we learn from experience.

Women have a long history of being whistleblowers in systems dominated by men. Perhaps this time Congress -- and the American people -- will listen.

*Correction note: This has been corrected from an original version that mistakenly said Citi rather than CIT.

Dean Baker: President Obama After One Year

2009-11-01T12:32:48Z
A year after President Obama was elected, progressives can say that we got pretty much what we had a right to expect. President Obama ran as a centrist. In the campaign, he repeatedly talked about how he wanted to govern in a bi-partisan manner, with the Republicans as genuine partners. Given this campaign, it should not be a surprise to progressives that he has largely pursued a centrist agenda in office.

On key issues, this has meant that he has moved the ball forward, but certainly by less than we would have liked. His stimulus package was an important first step toward stemming the downturn and getting the economy growing, but it clearly was not large enough. We knew that even back in February, and with the economy having performed worse than projected, the package looks even more inadequate today.

He has supported cap and trade legislation as a step to limit greenhouse gas emissions, in addition to including some green elements in his stimulus package. At this point, the cap and trade proposals being considered in Congress have already been substantially weakened. At the moment, they are bogged down in House and Senate committees, with health care being given top priority by the administration and congressional leadership. At best, we can say that whatever gets through Congress may be a good first step towards achieving necessary emissions reductions.

President Obama has supported the Employee Free Choice Act, which will make it easier for workers to gain union representation, however this has also taken a back seat on the administration's agenda. The proposal faces serious opposition in the Senate and overcoming a filibuster will not be easy, but with some limited compromises and some arm-twisting from the administration, a version of the bill may pass next year.

President Obama's stance towards the banks and financial reform has been especially disappointing. It is essentially a status quo agenda, where his reforms would have done little to fundamentally change the industry, even before they were weakened by Congress. It is especially disturbing that he has not followed through on commitments made during the campaign to help homeowners facing foreclosure through bankruptcy reform or alternatively right-to-rent legislation.

There is now a growing consensus across the political spectrum for breaking up the "too big to fail" banks, including former Fed chairs Paul Volcker and Alan Greenspan, and current FDIC chair Sheila Bair. At this point, President Obama would not be stepping out of line to join the chorus. Instead, his reform is a Rube Goldberg contraption that does little to address the fundamental issues.

President Obama put forward pretty much the health care program that he had run on during the campaign. It is a mixture of extending subsidies, mandating coverage and a public plan. However, his support for the public plan has been less than enthusiastic. President Obama and others in the administration have been quite explicit in their willingness to jettison a public plan to get a bill through Congress.

His conduct in the health care debate has perhaps been the biggest disappointment from a progressive perspective. During the campaign, Obama repeatedly railed against lobbyists, making a big point out of his refusal to accept lobbyists' money. However, in pushing his health care package, he made backdoor deals with representatives of the pharmaceutical industry, the hospital industry and the other major interest groups. This looks like exactly the sort of politics that President Obama insisted he would change if he got in the White House. Instead, he seems to have quickly fallen into the usual way of doing politics in Washington. This is perhaps not a surprise - it would not have been easy to confront the Washington lobbyist crew head-on - but it is a disappointment.

Interestingly, grassroots progressives have been remarkably effective in countering the Obama administration's willingness to compromise on the health care plan. They have insisted that the Democrats in Congress refuse to support a bill that did not include a public plan. By maintaining the resolve of progressive members, they have forced the leadership to include public plans in the proposals coming to the floor in both the House and Senate. The public plan will almost certainly be a weak version, however it can at least provide a starting point that can be improved through time.

This victory on health care can provide a model in other areas, like global warming, financial reform, and even the administration's foreign policy agenda. If grassroots activists can impose discipline on progressive members of Congress, it will help to ensure that not all of the Obama administration's compromises are with the right. Financial reform is an area in which the threat of blocking action by progressives can be especially potent, since that the bill taking shape is likely to offer little of value to progressives.

To sum up the first year, progressives got pretty much all that we should have expected. President Obama has created opportunities for change that would not have been available otherwise, but he is not going to substitute for a progressive movement. If we are going to see real change it will require organized and sustained pressure.

Read more: Health Care Reform, Financial Crisis, President Obama, Cap and Trade, Finance, Employee Free Choice Act, Progressives, Alan Greenspan, Greenhouse Gas Emissions, Barack Obama, Politics News

Les Leopold: Geithner Advocates Permanent Billionaire Bailout Society?

2009-10-30T16:26:26Z
Everyone realizes that we have to do something about "too big to fail." But there are two fundamentally different paths: one threatens the very existence of the billionaire bailout society and the other makes it permanent.

The obvious way to end "too big to fail" is to break up large financial institutions so that they are "small enough to fail." Paul Volker, not a radical by any means, argues for this. Even Alan Greenspan -- the very personification of the financial establishment -- agrees.

But to do so threatens the elite status of insiders at giant institutions like Goldman Sachs, JP Morgan Chase and Morgan Stanley. They make their billions from the combination of government welfare and their enormous, market-distorting size. Right this moment we are still bailing them out through a series of subsidies that go well beyond TARP.

Also, there are far fewer large financial institutions left in the marketplace which means that the remaining giants have near-monopoly pricing power. But most importantly everyone knows that we won't let them fail. That gives them access to cheaper capital -- they don't have to pay the risk premium other borrowers have to pay because you and I, through Uncle Sam, are implicit cosigners on the downside of the deal. And of course, they have excessive political muscle.

For those of you that believe financial institutions have the very best talent and therefore deserve the very best pay, take a look at Why Do Bankers Make So Much Money?"" by Rick Bookstaber. Here's one memorable passage:

"But I don't buy the notion that there are so many who have the level of talent that justifies tens and even hundreds of millions in compensation. I think this level of compensation, and the notion of talent behind it, is the result of the inherent uncertainty in the financial enterprise, one that makes it very difficult to assess talent. Indeed, I think the invocations of talent for money producers in finance are akin to those that, in times past, were set aside for the mystical powers of saints and witches."

Treasury Secretary Geithner doesn't want a radical departure from that witches' brew. He argues that it's possible to prevent the next meltdown by setting up a new watchdog council of regulators and by increased regulations on the large institutions that are designated (in secret, mind you) as too big to fail. He hopes that the next meltdown can be avoided by monitoring them closely, requiring more capital reserves, and by prohibiting excessive leverage. And if they go under Geithner wants the large institutions to be assessed to pay for the bailouts, after the fact. (Why not before the fact? Geithner thinks they would view it as insurance and gamble even more.)

Sadly, this would make bailouts a permanent feature of our financial system. It would guarantee the perpetuation of our billionaire bailout society for generations to come. (See "Breaking out of the Billionaire Bailout Society" on
Today, our large financial institutions have an even a tighter grip. But our political establishment is afraid to break them up. If Roosevelt or Taft were around today, they'd probably get the same treatment as back-benchers like Dennis Kucinich.

It's not often that we can see such a clear fork in the road. We can either prop up the billionaire bailout society or we can begin the necessary process of breaking it up. You know what the financial interests want. It's now a question of whether popular resentment can be translated into a new populist rebellion.

Granted, it's not looking too good. But to quote Yogi Berra "It ain't over till it's over."

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.
Read more: Financial Crisis, Unemployment, Billionaires, Wealth, Bailout, Economic Crisis, Paul Volker, Economic Recovery, Alan Greenspan, Too Big to Fail, Recession, Business News

Nathan Havey: Join in the Effort to Break Up the Big Banks

2009-10-30T10:02:07Z
If you were here yesterday, you may have seen the case that James Boyce and Paul Abrams laid out for breaking up the big banks. I want to reiterate the importance of having balance among the competing interests in Washington, and the security that comes from an economy in which no small group can affect the financial well-being of millions.

Judging by the list of people who have endorsed this policy, I think we may be onto something.

If they're too big to fail, they're too big
- Alan Greenspan (Former Fed Chairman)

. . .there is growing agreement that such financial institutions should. . . be made to plan for their own orderly wind down
- Mervyn King (Governor of Bank of England)

Approved breaking up Lloyds, Royal Bank of Scotland and Northern Rock
- The European Union (Multi-national Governing Body)

We need to end 'too big to fail' and this needs to be an overarching policy that applies to everyone
- Sheila Bair (FDIC Chief and Person who has to Bail Out Banks)

The obvious place to start in this effort is the break-up of the "too big to fail" behemoths.
- Dean Baker (Economist Extraordinaire)

We have little to lose, and much to gain, by breaking up these behemoths, which are not just too big to fail, but also too big to save and too big to manage.
- Joseph Stigletz (Ditto with a Nobel prize)

Those banks are just too big. Someone should break them up.
- Charlotte Havey (My Mother)

A horse, a horse, my kingdom for a horse!
- William Shakespeare (Author: Romeo and Juliet, Shakespeare in Love)

(Don't believe me on the Shakespeare thing? Richard III makes this plea as he is fleeing from an invading army raised by people he used for his personal gain and betrayed. If that isn't an allegory for what must be done to the banks - I don't know what is.)

But I digress -

I write to say that there is a movement afoot, and I'd like you to join us. Several organizations are cooking up a number of ways to make this change happen. Some favor direct pressure on the banks like the Showdown in Chicago, others are organizing to strengthen legislation pending in Congress, some are taking their opinions to President Obama, and still other are seeking other (non-violent) means to secure the future of the global economy.

Whichever of these ways appeals to you, I urge you to get involved in one or all of them. The campaign I am working on is at www.breakupthebigbanks.com, and we've got some fun (yet to be disclosed) ideas in the works. Come check us out.

Its time to stand up, and get down to work strengthening our economy. We've got a lot of things going for us. Signs are looking up and we need to make sure that we clear the way for sustainable prosperity to take root once again.

P.S. If you want to do something right now, how about helping us build our twitter presence? Tweet this: "Join the movement for a stable economy: #FF @breakupbigbanks"

Read more: Nathan Havey, Financial Crisis, Big Banks, Break Up the Banks, Alan Greenspan, James Boyce, Paul Abrams, Business News

Trey Ellis: Re-Regulating the Banks Is Change We Can Believe In

2009-10-27T17:48:57Z
First, if I were in the Obama Administration I would be steaming that that no one seems to care that during their first few months in power they managed to steer the world economy away from almost certain catastrophic ruin. That single act alone had more of a positive impact on ordinary lives than anything done in the previous two terms of the Bush Administration.

Of course, even at the time, entire schools of economists warned that the stimulus was too small, the recovery would be virtually jobless and that there was the potential for obscene profiteering by the biggest and most culpable players. (Note to Paul Krugman: If this whole Princeton/NYTimes thing doesn't work out you could have quite a career as a fortune teller. )

The teapartiers on the right, the Chicago bank protesters from across the political spectrum, ex-Fed Chairmen Paul Volcker and Alan Greenspan all agree on one thing: banks have to get back to banking. Re-regulating them, divesting them of their high-risk investment wings is a bold, simple way to ensure that American homeowners and business owners both small and large, have a stable and adequate access to capital.

The idea would be about as popular with the vast majority of Americans as free milkshakes on Fridays.

The only factions against the idea are the banks themselves, drunk on the sexiness of pretending they're hedge funds (with the salaries that go along with it), and the Democratic and Republican officeholders upon whom they have lavished money.

Breaking up the banks to ensure that never again can the greedy few throw an entire planet into a Depression is not only a logical step but also smart, popular politics.

Beginning with the bailout of Wall Street the Obama Administration has been obsessed with showing Main Street a new kind of Democrat. Gone is the reflexively pro-union peacenik. Obama is a New Democrat, a pro-business, military and fiscal hawk.

Yet there is a world of difference between being pro-business and pro-Wall Street. Wall Street had their chance to play nice after we the people bailed them out with billions of dollars.

Instead they displayed a systemic untrustworthiness and ingratitude. If bailing out Wall Street was the most important (and positive) act yet by the young administration, not then demanding reforms when we had the leverage was its biggest mistake.

Now the road is harder but the need no less. The President cannot talk about "encouraging" them to act for the common good when it's against their best interests. It reminds me of President Bush talking about "voluntary" emissions standards for coal plants. "Pretty please," never works.

The White House has so far distanced itself from this big idea but it is a bipartisan one that, if presented right, would have enormous appeal across the political spectrum. Re-regulating the banks would allow the administration to atone for not asking enough of big banks when we bailed them out, and remind us that his historic election was a victory for all of us.
Read more: Obama, Alan Greenspan, Paul Volcker, Banks, Financial Crisis, Bailout, Hedge Funds, Business News

Don McNay: 2010: The Year Main Street Sticks It to Wall Street and Washington

2009-10-27T13:00:03Z
Look what's happening out in the streets
Got a revolution, got to revolution

-Jefferson Airplane

There is one thing I would not want to be right now: an incumbent politician.

From the president to the dog catcher, many in elective office are suffering from rapidly declining popularity. People are angry and broke. Governments are being forced to make massive cuts in programs and services. They will be forced into more layoffs, which will make even more people angry and broke.

It's not a fun time to be in government.

Next year will be a year of reckoning. We are going to see massive numbers of politicians get voted out of office. It could be that many unemployed people make a new career move -- such as running for office. If anyone has ever dreamed of being an office holder, 2010 is the year to do it. There are going to be several situations where voters elect a complete unknown, just to express their anger about the incumbent.

People want change, any kind of change, especially on the economic front. To those of us on Main Street, it looks like Washington and Wall Street are ignoring the economic pain and trying to pretend as if the crisis didn't happen or is all over with now.

Wall Street is gearing up to pay itself record bonuses. The president went to Wall Street, shaking down fat cats for campaign contributions. Instead of cracking down on Wall Street abuses, Obama wants to convene a conference and "talk about it." Yeah, that will do a lot of good. It pushes any real action down the road a few years. Maybe you could have a fundraising event while the conference is going on.

The same old story, same old song and dance. Next year could be the time when we change the tune.

President Obama was elected on change. But his economic team is just another variation of the Washington-Wall Street version of "good old boys." Dr. Lawrence Summers, Timothy Geitiner and Ben Bernanke are the same people who got us into the economic mess. They screwed up badly, but Obama put them back in charge to try again.

I've been reading Andrew Ross Sorkin's riveting new book, Too Big To Fail. It's a fascinating view of the personalities involved in the current financial crisis. One of the things that immediately strike you is how all the characters seem to be buddies from way back. They've worked together, played tennis together and spend all their time talking to each other, which is why they are clueless about what is happening on Main Street.

As someone who has opposed government bailouts since the beginning, I would like to say, "I told you so." But that doesn't get us out of the mess we are in. I suspected that the Wall Street-Washington alliance would think about each other first and the taxpayers later. That wasn't hard to see. All you have to do is look at recent history. For years, Wall Street has been paying for high priced lobbyists and funneling millions in campaign contributions to Washington. The overwhelming majority in Washington gets re-elected because they are able to outspend their opponents. It perpetuates a cycle where Wall Street and Washington only talk to and socialize with each other and think they can ignore everyone else.

Next year is when the voters are finally going to make them listen.

When you see companies who accepted bailout money wanting to dole out billions in bonuses, you see how tone deaf the people in Washington and Wall Street are. They don't get that there is real anger in the country. And it's not just because we have high unemployment and real economic pain. It's because the people are tired of being played for saps. That is why 2010 will be the year of the great upheaval.

Americans are tired of self dealing. From the largest cities to the smallest towns, any sign of an office holder feathering his own nest will be met with public retribution. Any challenger looking for an issue will find one. As Robert Penn Warren wrote in All The Kings Men, "There is always something." Anyone who voted for the Wall Street bailouts will automatically have a hard time. Wall Street and Washington think that the public has forgotten, but they have not.

They've been waiting for, but not seeing, some return on their investment.

I don't think President Obama is going to "get it" before 2010. He's big on the concept of un-elected "czars" -- a concept that scares me even more than the bailouts ever did. "Czars' aren't accountable to anyone and will be hard to get rid of. Voters want more ability to influence government, not less. They don't want some "czar" speaking for them. They want their own voices to be heard.

I voted for President Obama, just like I normally vote for the Democratic nominee. Obama is getting called out by conservatives, as one would expect. But some liberals, such as Arianna Huffington, are also taking him to task. He thinks that if he dominates the "news cycle" and bashes on Fox News, the rest of the country will let him do what he wants.

What we have here is a failure to communicate.

I'm not ready to sign up with Glenn Beck and the tea baggers of the world. But I do understand that people are tired of being ignored. Unless vast numbers of people on Wall Street and in Washington start to "get it," and get it quickly, you are going to start seeing a whole lot of new faces in Congress, state legislatures and city councils all across the country.

It may not change the unemployment rate. But it will at least change who is unemployed.

Don McNay, CLU, ChFC, MSFS, CSSC is one of the world's leading authorities in helping people deal with "Big Money" issues. McNay is an award-winning syndicated financial columnist and Huffington Post Contributor. You can read more about Don at www.donmcnay.com McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.comMcNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University. McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery. McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.

Read more: Mid Term Elections, Upheaval, Congress, Kentucky Guardianship Administrators, Hank Paulson, Lobbyists, Bailouts, Consumer Spending, Big Money, Roger Ailes, Lawrence Summers, Arianna Huffington, State Legislature, Cnbc, Economic Pain, Unemployed, Lexington KY, Spending Cuts, Wall Street-Washington, Andrew Ross Sorkin, Timothy Geithner, Kenneth Feinberg, Inside the Beltway, McNay Settlement Group, Incumbants, Republican National Committee, City Council, High Unemployment, Ky, Willie Stark, Democratic National Committee, Pay Czar, Fox Business News, Clu, Anger, Louisville, Million Dollar Round Table, Ben Bernanke, Alan Greenspan, Bonuses, Czars, Jefferson Airplane, Small Business, President Obama, Congressional Elections, 2010 Elections, Washington, Main Street, donmcnay.com, Tea Parties, Msnbc, Unemployment, Tea Baggers, All the Kings Men, Rural Journalism, Financial Crisis, Housing Crisis, Running for Office, President Bush, Richmond, American College, Incumbant Politican, Personal Finance, Msfs, Chfc, Small Towns, Kentucky, Don McNay, www.mcnay.com, Structured Settlements, Layoffs, Wall Street Bailouts, Wall Street, Vanderbilt University, Robert Penn Warren, Self Dealing, Eastern Kentucky University, Fox News, Certified Structured Settlement Consultant, Glenn Beck, Cssc, Too Big to Fail, Bill O'Reilly, Business News

George Goehl: A New Crossover Hit: "Break Up the Big Banks"

2009-10-24T02:16:14Z
We've reached an incredible moment when Alan Greenspan, Michael Moore, FDIC head Sheila Bair and Elizabeth Warren are all singing the same tune. These four, and others, have formed a distinct choir that is calling for breaking up the big banks.

In the United States, three banks hold almost 34% of the nation's deposits, four banks issue 50% of the country's mortgages, and the five largest credit card lenders control 74% of the market. These companies have a stranglehold on our wallets. And as we've seen, when they make bad decisions, they can take the whole economy down with them.

Our wallets aren't all that's being strangled -- so is our nation's democracy, as Wall Street lobbyists and campaign contributions tighten their chokehold on Washington. You would think that after sending the economy south, needing billions in taxpayer bailouts, and handing out lavish bonuses, that these institutions would be too toxic for elected officials to hang with. Think again. The big banks and their lobbyists are as welcome on the Hill and in the White House as ever. And until average Americans begin to mobilize our primary currency -- our family, friends, and neighbors -- to move into the streets, we will watch the big banks become bigger, more powerful, and less accountable.

Now is the time to move toward a vision in which financial institutions are more accountable to and more controlled by the communities they serve. So, dust off your songbook, warm up your vocal chords, and join the band that is calling for breaking up so called "too big to fail" institutions.

Your first chance comes October 25-27 in Chicago as people from 20 states come together for a showdown with the nation's largest banks and their trade group, the American Bankers Association. Make your way to Chicago and let's ensure the message of "break up the big banks" is heard loud and clear.

Read more: Elizabeth Warren, Congress, Campaign Finance Reform, Wall Street, Showdown in Chicago, Michael Moore, Financial Reform, Too Big to Fail, Mortgage Crisis, Obama Administration, Financial Crisis, Alan Greenspan, Sheila Bair, Bankers, Banking Regulation, Banks, Banking Crisis, Business News

Joseph A. Palermo: Wall Street Is More of a Threat to Obama's Domestic Agenda than Afghanistan

2009-10-20T15:02:29Z
"Deficits don't matter." When Vice President Dick Cheney uttered this famous line he was making a political judgment, not an economic one. In 2001, when the newly selected President George W. Bush and his posse rode into Washington they immediately began in earnest the chicanery, lying and recklessness that we came to expect throughout the subsequent eight years. They promised there'd be great benefits for our nation if the Republican Congress passed a massive tax cut aimed at Bush's wealthy friends, corporations, and campaign donors.

This call for fiscal abandon came after years where we heard squawking about the danger of budget deficits from Newt Gingrich and other Republicans, as well as from conservative pundits and Blue Dog Democrats. And one of the loudest voices decrying budget deficits in the pre-Bush years was the Chair of the Federal Reserve Alan Greenspan. The proposal coming from the Republican president and the Republican Congress was a tax giveaway to the wealthiest Americans and corporations that was certain to blow a hole in the federal budget and add $1.7 trillion to the national debt.

As head of the Federal Reserve it was Alan Greenspan's job to tell the Bush gang that after the sacrifices made to pay down the debt a new round of Reagan-style tax giveaways to the rich and corporations would be a bad idea. That line would have been the "conservative" position to take. Instead, as the high priest of all things economic, Greenspan testified to Congress giving his imprimatur to the Bush administration's kleptomania.

Greenspan's easy money policies aided and abetted Wall Street's pumping up "the mother of all bubbles." And along with the federal budget deficit he encouraged (and the Republicans' drunken spending spree that followed) the money ordinary Americans circulate was buried under a mountain of new debt and new claims on the money supply from Wall Street. By 2006, Wall Street was throwing around 7.5 times as much money ($10.299 trillion) than was being spent by Main Street ($1.367 trillion). Greenspan also sat back and watched when an exemption to the "net capital rule" was passed in 2004 that allowed investment banks to exceed the maximum debt to equity ratio of 12 to 1. Soon Bear Stearns' debt to equity ratio jumped to 33 to 1 and Merrill Lynch's ballooned to 40 to 1. And a lot of this leveraged debt was wrapped up in collateralized debt obligations (CDOs) and other toxic derivative sludge.

We all know how the story plays out: In October 2008 the Congress, with a gun to its head from Wall Street titans and in the middle of an election season, forked over $810 billion of the taxpayers' money to bailout some of the greediest and most short-sighted market players ever to exist in the history of capitalism.

Today, just over a year later, with Goldman Sachs and other bailed out financial institutions turning big profits and paying out bonuses to their luckiest gamblers we continue to see the "real economy" in free fall. There are about $70 billion in crappy mortgages due to be "reset" in the next eighteen months, so there's no end in sight to Americans being thrown out of their homes. Unemployment continues to climb (albeit at a slower rate) but the deep hole that needs to be filled to replace the jobs lost will take many years of robust economic growth. The Congress, always in hawk to Wall Street, is dragging its feet in passing anything near the sweeping regulatory restructuring that is needed if we are to prevent Goldman Sachs and the rest of the gang from exploiting their "moral hazard" by using the federal treasury as the mother of all "credit default swaps." We can't even get the Democratic Congress to create a Pecora Commission with subpoena power to explore the extent of the criminality that led to the current crisis with the aim of modernizing the Securities and Exchange Commission to challenge the kleptocracy.

At some point, as the journalist Matt Taibbi and others have pointed out, our nation's Treasury seems to have been usurped by the former Goldman Sachs CEOs and other executives who both Bill Clinton and George W. Bush thought would make great Treasury Secretaries.

President Barack Obama's economic team headed by Treasury Secretary Tim Geithner and presidential adviser Larry Summers, like Alan Greenspan, are the wrong people doing the wrong job at the wrong time. They are catering to the whims of Wall Street when they should be mad as hell and representing the interests of Main Street. When FDR tapped Joseph P. Kennedy to be the first chair of the SEC he did so because Kennedy understood the swindles that needed to be policed because he had practiced them himself. Geithner and Summers understand the problems but so far they have not shown the will or desire to do anything about them.

There is currently a lot of hand wringing about the possibility of the war in Afghanistan, as costs rise and public support wanes, destroying President Obama's domestic agenda just as the Vietnam War brought down Lyndon Johnson. But whatever Obama decides to do in Afghanistan is of little consequence compared to Wall Street's ongoing "plutonomy." Either President Obama and the Congress tame and bring under control the white collar criminals who run Goldman Sachs and other "too big to fail" institutions or else there isn't going to be a "domestic agenda."
Read more: Matt Taibbi, Bill Clinton, Pecora Commission, Treasury Department, Sec, Joseph P. Kennedy, President Barack Obama, Cdos, Collateralized Debt Obligations, Larry Summers, Federal Reserve, Credit Default Swaps, Newt Gingrich, Fdr, Merrill Lynch, Goldman Sachs, Wall Street, Vietnam, Tim Geithner, Vice President Dick Cheney, Afghanistan, Timothy Geithner, Bear Stearns, Lyndon Johnson, Alan Greenspan, Securities and Exchange Commission, Too Big to Fail, President George W. Bush, Blue Dog Democrats, World News

Greenspan: Break Up Big Banks That Are "Too Big To Fail"

2009-10-15T12:18:55Z
Oct. 15 (Bloomberg) -- U.S. regulators should consider breaking up large financial institutions considered "too big to fail," former Federal Reserve Chairman Alan Greenspan said.

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

Read more: Tim Geithner, Banks, Financial Crisis, Federal Reserve, Hank Paulson, Too Big Too Fail, Alan Greenspan, Business News

How to Regulate Derivatives: Barry Ritholtz

2009-10-08T11:56:56Z
Any plan that seeks to reverse the unregulated wild west that derivatives have existed in since 2000 must have a simple beginning: Repeal the Commodity Futures Modernization Act.

This ruinous and corrupt legislation, pushed through by the Bonnie & Clyde of deivatives, Enron Board member Wendy Gramm, and her astonishingly clueless ideologue husband, former Texas Senator (and current UBS member) Phil Gramm, lay at the heart of the current derivatives debacle.
Read more: Phill Gramm, Financial Reform, Derivatives, Barry-Ritholtz, Alan Greenspan, Gary Gensler, Commodity Futures Modernization Act, Cftct, Business News

Dean Baker: The Recovery: Can You Feel It Yet?

2009-10-05T16:17:11Z
We all know that the economy is now recovering. The stock market is up by more than 50 percent from its March lows and Alan Greenspan, the former Maestro, is now projecting a 3.0 percent growth rate for the third quarter. Banks are again reporting strong profits and the Wall Street bankers are getting bonuses that are approaching their housing bubble peaks.

Everything is bright and sunny again, unless you have to work for a living. The news here is less good. The economy lost more than 260,000 jobs in September, with the unemployment rate reaching 9.8 percent. The 10.3 percent unemployment rate for adult men is the highest rate since the Great Depression. And real wages are headed downward.

Even worse, the unemployment rate is virtually certain to keep rising in the months ahead. While job loss in manufacturing has slowed, construction is continuing to shed jobs at a rapid rate. Most of this job loss now stems from the collapse of the bubble in nonresidential construction. The retail sector is laying off workers at a rapid pace as consumers cut back spending in response to the loss of $8 trillion in housing bubble wealth. And state and local governments are now laying off teachers, firefighters, and other workers in response to the huge deficits created by the recession and the collapse of the loss of property tax revenue due to the collapse of the housing bubble.

While tens of millions of workers are facing unemployment or underemployment, and millions are facing the prospect of losing their homes, the instinct among the Washington punditry is to just sit back and wait. After all, now that the banks are all right they don't see any urgency for government action.

There are certainly many people who believe that the only role of government is to support bankers and other wealthy people who could not get by on their own. But for those who think that the government has the responsibility to prevent large segments of the population from being mired in unemployment, homelessness and poverty, there is much that can be done.

First, we should be clear, the stimulus passed last February did work. Go ask your governor or mayor how many more people they would be laying off right now had it not been for the federal aid provided by the stimulus. Also, millions of unemployed workers are seeing bigger unemployment insurance benefits (including health care coverage) because of the stimulus. Extended and increased benefits not only help these workers, but when they spend this money, it helps boost the economy. The same is true of the tax cuts directed toward ordinary workers that were included in the stimulus package.

The stimulus package has likely kept the economy from losing one million more jobs by this point. If the prospect of 10 percent unemployment sounds bad, let's start talking about 11 to 12 percent unemployment. That is where we would be going if Congress did not pass the stimulus package.

But the key point is that we desperately need more. It is not fair that tens of millions of people should suffer because Alan Greenspan and Ben Bernanke were too dumb to see an $8 trillion housing bubble.

There are many ways that the federal government can boost demand, with more aid to state and local government probably topping the list in terms of priorities. However, to get large numbers of workers back to work quickly, the best route is a tax credit to shorten normal working time.

The basic logic is very simple; the tax credit effectively pays employers to hire more workers, with each worker putting in fewer hours. If we used the tax credit to pay employers of 100 million workers to work 5 percent fewer hours, while keeping their take-home pay unchanged, then in principle they should want to hire 5 percent more workers, or five million workers. This can be done quickly and will involve more employment in the private sector, not make work public sector jobs. That should make the conservatives happy.

There undoubtedly will be some gaming of such a tax credit, but there is some waste/fraud in everything we do. The prospect of having 15 million people unemployed for much of the next two years is unacceptable. Having used trillions of dollars in loans to bail out the richest people in the country, it is time that the government take some bold steps to help everyone else.
Read more: Banking Crisis, Bank Bailout, Stimulus, Economic Recession, Economic Recovery, Alan Greenspan, Business News

Robert Reich: The Phantom Recovery and What To Do About Jobs

2009-10-05T13:56:20Z
In his Saturday radio address, President Obama acknowledged the White House is exploring "additional options to promote job creation." It's about time. This is the worst job market in seventy years -- including the longest duration of steep job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because "we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly." Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what's likely to be in store.

The economy may be in a technical recovery but this is not a real recovery and the "green shoots" or "positive signs" that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can't go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund -- extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens' health, public health (we need workers to administer swine flu vaccine) and public transportation. Instead of bailing out banks and giant automakers, we should switch to bailing out public services that average people need.

Propose a one-year payroll tax holiday on the first20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more in payroll taxes than they do in income taxes.

Give small businesses a "new jobs tax credit" for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn't have much effect, and it's difficult to separate hires that would have happened anyway from net new ones. But we're not in normal circumstances; small businesses, which are responsible for most new jobs, still aren't hiring. They need a boost.

Dramatically expand the Small Business Administration's lending programs and have the Fed buy up the SBA's debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them and help small businesses get the capital they need, so they can start hiring again.

The politics of these four steps aren't difficult. It would be hard to get a new stimulus package through Congress, but no member who's up for reelection next year when unemployment is likely to be in double digits wants to be accused by rivals of voting against steps to help small businesses, public schools, childrens' health, and average working people who need a tax cut.

Cross-posted from Robert Reich's Blog.
Read more: Unemployment, Jobs, Economic Recovery, Alan Greenspan, Job Creation, Barack Obama, Economy, Federal Reserve, Business News

Greenspan: No Second Stimulus, We're "Getting Close" To End Of Job Losses (VIDEO)

2009-10-04T10:31:40Z
Former Fed Chairman Alan Greenspan said on Sunday that the U.S. economy was "getting close" to the point where it would stop losing jobs. But during his appearance on ABC's This Week with George Stephanopoulos, Greenspan also predicted that the level of unemployment would "penetrate the ten percent barrier" and stay at the level for some time before going down. Despite it all, he stressed, the administration shouldn't push for a second stimulus package to spur job growth.

Speaking days after it was announced that 263,000 jobs had been lost in September -- vaulting the unemployment rate to a 26-year high of 9.8 percent -- Greenspan was able to muster a bit of cautious optimism about the economy. He predicted that economic growth in the third quarter of this year would end up greater than his previously predicted 2.5 percent. "The numbers are coming in higher than that," he said.

On the job market front, however, there were not many rays of sunshine. Asked whether a second stimulus package was needed to kick-start additional growth, Greenspan was skeptical, saying at one point that "in trying to do too much you can actually become counterproductive."

"We are in a recovery and I think it would be a mistake to say the September numbers alter that significantly," he said. "It is true the last couple of weeks some of the numbers coming in have been a little bit soft. But this is what a recovery looks like."

There should be "no new stimulus for two reasons," he concluded.

"One is only 40 percent of the first stimulus has been in place," said Greenspan. "And there is a considerable debate going on in the economics profession about how effective this stimulus package is. And so, mainly because of the fact that as broad as it is and as effective as it will turn out to be you still have 60 percent left to go. In my judgment it is far better to wait and see how this momentum that has already begun to develop in the economy carries forward."

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Read more: Greenspan Job Losses, Greenspan Abc This Week, Greenspan Stimulus, Alan Greenspan, Greenspan Economy, Abc This Week Job Losses, Video, Politics News

Anis Shivani: Is the Opposite of Capitalism Democracy? A Review of Michael Moore's Capitalism: A Love Story

2009-10-03T13:23:08Z
CAPITALISM: A LOVE STORY
Directed By Michael Moore

Until Sicko (2007), Michael Moore's movies, from Roger & Me (1989) onward, showed a progression in radical questioning. We expected each movie to take us to the next logical step, and although each time he would refrain from going all the way, we felt it was only a matter of time before he did. Sicko was his most subversive movie, and his best by far, since he used the opportunity to comment not only on the health care industry, but on why capitalism as practiced in the U.S. fails to deliver a satisfactory quality of life for workers. What would follow? Why, a movie on capitalism itself, where we would rigorously learn the evils of the system itself, not a particular company or industry or cultural conflict or political cabal! So he takes us there, but unfortunately--while everyone should watch the movie--he again pulls back from the brink. He's no revolutionary, after all, we learn in Capitalism; he's unable, at last, to top what he's done in the preceding movie.

Capitalism has a very different visual and auditory aesthetic from Sicko. The anger is more manifest, the funereal music ubiquitous, the humor of the inserts (images from a century of collective amnesia and paranoia, otherwise known as popular culture) relatively flat, and the process of questioning not so much digressive, roundabout, and Socratic as top-down, linear, and loaded. The movie opens with the eviction of a family from a piece of land and the house they've owned for a long time, losing everything that gave them pride. All over America, there are similar tableaus of hardworking Americans confronting foreclosure, homelessness, and humiliation. Later in the movie, Alan Greenspan -- that protege of Ayn Rand, and maestro appointed by Ronald Reagan to run the Fed -- encourages, during the present decade, home owners to "tap into their home equity." Predatory "vultures" scour foreclosure listings to buy property at the lowest possible value -- this bottom-feeding is, for Moore, capitalist evil at its worst. No one cares what happens to the families whose lives have been ruined by the after-effects of the great financial hysteria that swept nearly all of us along.

All of which is true, but Moore is pulling punches. He keeps returning to Flint, Michigan, his lodestar and hometown, a place where the war on the working class truly gained momentum after Reagan's election in 1980, as General Motors and other employers continually downsized and outsourced, in order to forestall bankruptcy. (GM recently declared bankruptcy anyway, Moore points out.) Many people no doubt lost their homes in the last few years because they lost their incomes. Did others simply make bad decisions? Who should ultimately be responsible for their lack of financial savvy? Did many not get into financial trouble because they too were infected by greed, the same as the CEOs at the top of the pyramid? Just because Greenspan said you could tap into your home equity doesn't mean you have to; many didn't. Where is the praise for those who lived within their means, didn't fall for the seductions of the consumer economy?

Moore has well and truly run into the problem over which Marxists used to throw up their hands. Who is the revolutionary guard, when the system reaches a certain point of rot? In the last half hour of the movie, Moore explicitly turns to this question. At a Chicago factory, Republic Windows and Doors, workers laid off without notice deploy a sit-in to gain severance and vacation pay, and temporary health benefits. Moore presents this as a success -- and it is, as far as it goes -- but it is success of a particularly tainted kind. It rings hollow, when capitalism's systemic assaults go so deep, and spare no one. Can this sort of spontaneous "revolt" (this seems too strong a description for the examples Moore provides, of polite disobedience geared to achieving small, discrete purposes) lead to reorganization of American workers into strong unions, as used to be the case during the heyday of American manufacturing? To even pose the question is to betray mind-boggling naivete.

Which gets us to the biggest problem with Capitalism: its lack of historical insight, despite Moore's use of footage such as President Carter's famous 1979 eulogy for consumerism, or Ronald Reagan's 1950s corporate hucksterism, or even Franklin Roosevelt's late admonishment that the country needed a second, economic, bill of rights. Moore's father worked at the same factory for thirty years, and could afford some of the perks of the middle-class life, such as college education for children, vacations, and retirement savings. With the onset of globalization in the 1980s, all of that security was gone. Moore notes that though the German and Japanese industrial machines lay in ruins at the end of World War II, it is they who make the better cars now, not us. It wasn't quite paradise, America's Golden Age (which actually stalled in 1973, not 1980), as Moore shows, for a brief second or two, physical assaults on African-Americans and the dropping of bombs (presumably on Vietnam). So racism and imperialism were a necessary offshoot of the social contract, which worked for most Americans, but we need not focus too much on the evils then, because at least most Americans were getting a living wage, and Mom didn't need to work to make ends meet.

The "love story" in the movie's title reveals much; we (like Moore and his family) were once in love with what capitalism could do for us, in that hallowed age, but now we're not so much in love with it. Love usually means putting on blinders; why did we have them on in the first place? There has never been an intellectual class in this country able to mobilize popular opinion where it matters most, and we're not about to get one.

As is the problem with other populist (as opposed to truly systemic) renditions of the historic arc, Moore identifies greedy CEOs and Wall Street insiders (Goldman Sachs, above all) who buy off presidents as the culprits in this tragic story. The shortcomings of this personalization become obvious when Moore goes very easy on Obama, and even Bill Clinton, though the extent to which Obama has continued George W. Bush's policies must have been apparent by the time Moore wrapped up the movie, and certainly Clinton was the one who, after NAFTA, sent globalization (which is really what Moore is critiquing) into overdrive. Robert Rubin and Larry Summers get noticed for the amount of money they each made on Wall Street, following their stints at Treasury, but the real crime Rubin and Summers committed, as Moore notes, was to dismantle Glass-Steagall on Clinton's watch in 1999, setting off financial collapse. And Timothy Geithner, after all, was chosen by Obama to continue his "failures" (as William K. Black, Moore's most impressive interview subject, puts it) at another level altogether.

Obama is very lightly touched on, for the comment he made to Joe the Plumber that it's good for wealth to be spread around; Moore makes it sound as if Obama was indeed some kind of a closet socialist, but Wall Street panicked and quickly put him in his place. It's closer to the truth to say that Obama is the candidate Wall Street felt most comfortable with, to salvage it, to resurrect its image, and to continue its monopoly on American politics; and Obama has, so far, delivered big-time. Nary a disappointment for Wall Street in all that he has said and done. With news of financial ruin, Moore keeps interspersing Bush's creepy face--his squished eyebrows and beady eyes--but couldn't he as well, since the subject is Wall Street's bailout, show Obama's face? If Moore is making a movie called Capitalism-- that ultimate abstraction -- he ought not to get in the muck of individual personalities, channeling hatred this way or that, since individual leaders are beside the point. Carter may have delivered the malaise speeches; he was also the one to set deregulation in motion, and just as Clinton laid the groundwork for Bush to follow, so did Carter for Reagan in many ways.

What comes next after tapping into populist anger? Where is the argument, the manifesto, the plan, the vision? Angry laid-off workers with foreclosed homes and devastated retirement savings are as likely as not to turn to populist demagogues like Sarah Palin, and whoever follows in her train. To stoke the anger is fine, and Moore deserves enormous credit for pointing out the different ways that Wall Street and Washington have sold out the country, at the expense of people who want to do no more than live honorable lives as part of the social contract they grew up with, but how should the anger be channeled? No national party currently exists to mobilize popular frustration into any sort of an economic strategy good for workers. Indeed, the Democratic party is explicitly now a party not of workers, but of the alleged middle-class; there is a big difference. In the last election, among all the candidates running for president, only Dennis Kucinich offered any kind of a vision to address the kind of evil Moore shows in Capitalism. And someone like Kucinich doesn't have a shot in the oligarchic system capitalism has managed to set up as its political branch (Moore refers to a Citigroup document praising it as "plutonomy").

Moore explicitly states that we ought to turn to democracy as the alternative to capitalism. But the opposite of capitalism is not democracy, it is socialism. Democracy is the opposite of fascism. One might say that fascism is really corporate control of politics, which is the sense in which Moore is using the term capitalism, so in fact democracy would then be the opposite of capitalism. This is true, and it is convenient shorthand (to appeal to the masses, who may not understand what socialism entails), but it betrays the confusion in Moore's thought, in mixing up politics and the economy. Thus we fail to get a picture of deindustrialization as a perfectly rational, profit-making opportunity, in the context of global capitalism. Thus we fail to understand how the American empire of the 1950s and 1960s (during the supposed golden age for American workers) had to be continued in a different form, particularly after the end of the cold war, but that empire in its current version is not a fundamentally different beast. The two parties -- branches of the same corporate engine -- have a monopolistic stronghold. Wouldn't it be the first idea for democracy to break this stranglehold, to allow real alternatives to emerge? Where is the intellectual class to educate voters over the very long haul about this necessity? Moore shows how Congress, at least for a few days, put the $700 billion Wall Street bailout on hold; but he also shows how Bush then worked with Democrats to quickly turn that defeat into a success; Wall Street got exactly what it wanted after all.

A social welfare society would deliver a living wage, health care, job security, free higher education, consumer rights, and civil liberties for all. Just to mention these ideas seems ridiculously utopian, given our present political reality. The program would have to be led by a viable political party, able somehow to break though the combined strength of the capitalist juggernaut, which also happens to own the media. Let us not forget the so-called Reagan Democrats, typified by the Macomb County, Michigan working-class voters who stayed with Reagan despite deindustrialization, welfare cuts, and military aggression.

The agenda is continuous and one-sided, and remains so under Obama. Sure, Moore gives voice to the people in Capitalism. But it is a voice desperate and pleading and lost; the people are on their last legs, unable to think beyond today, deprived of oxygen. This movie can almost be read as a final victory statement of everything the evil capitalists, from Donald Regan to Robert Rubin, ever stood for, though Moore surely didn't intend it that way. His repeats of his signature move--trying to speak to top executives at company headquarters, and unable to break through the security cordon--prove this point; this time, there's no heart in it.

Read more: Auto Industry, Foreclosures, Populism, Ronald Reagan, Larry Summers, Globalization, Economic Bill of Rights, Republic Windows and Doors, Goldman Sachs, Capitalism: A Love Story, General Motors, Dennis Kucinich, General Motors Bankruptcy, Roger & Me, Plutonomy, Financial Deregulation, Deindustrialization, Bill Clinton, Economic Crisis, Flint, Democracy, Franklin Roosevelt, Capitalism, Oligarchy, Nafta, Barack Obama, Sicko, Robert Rubin, Glass-Steagall Act, Jimmy Carter, Michael Moore, Alan Greenspan, Business News

Greenspan Sees Growth Slowing As Stocks 'Flatten Out'

2009-10-01T08:27:46Z
"The odds are that we flatten out, even though earnings are doing very well," Greenspan said in an interview with Bloomberg Television, referring to the equity market. That flattening out will probably "put some sort of dull face" on the economy in 2010, he added.
Read more: Equity, America, Stock Market, Economy, Economic Crisis, Business News, Federal Reserve, Financial Crisis, Equity Market, Alan Greenspan, Recession, Business News