Obamas Economic Team on The Huffington Post

Peter Henne: Recklessness Cloaked in Righteousness

2009-05-27T10:53:40Z

In the silence following Dick Cheney's last grumbled words in response to President Obama's speech on counterterrorism strategy last week, I could almost hear the clicking of thousands of keyboards as they erupted in a cacophony of punditry. Some masterfully dissected Cheney's statements to reveal their mind-blowing inanity, while others claimed Obama is hewing closely to the Bush Administration's approach to the threat from al-Qaeda (AQ) or criticized him for not going far enough on the treatment of detainees. I was tempted to ignore the speech, consigning Cheney to the irrelevancy he deserves, but I worry that many of the responses miss an important aspect of the two speeches, and overlook why Cheney's statements are so significant. Beyond the contrasting styles and rhetorical quality of President Obama and Cheney, what we really saw were two distinct views on the threats the United States faces.

The worldview Cheney presented was distressingly familiar. America faces a shadowy enemy that hates us for who we are; no policies we enact can change this. This enemy seems ever-present, from supposed sleeper cells throughout America to the next 9/11 waiting in the wings. Despite Cheney's refusal to provide details, though, the reality of this threat is apparently undeniable. Any lack of will among the American public -- which includes debating our counterterrorism strategies -- is capitulation to the terrorists. Moreover, the failure to completely appreciate the immediate and existential nature of this threat, which justifies seemingly immoral actions in response, would invite disaster. As Cheney said, there is "no middle ground;" we must either accept that terrorism poses a threat and support the use of torture and ill-advised wars of choice, or side with the terrorists.

Obama's worldview is markedly different. First, like Bush/Cheney, he does agree that the terrorism of AQ is a serious and continuing threat. Yet, it is because of this emphasis -- rather than in spite of it -- that Obama's strongest critiques of Bush/Cheney emerge. The best way to combat this shadowy threat is to realize the uncertainty that surrounds it and admit, as Obama did, that there are "no easy answers;" what might seem the only choice to keep us safe -- such as torture -- may actually be counterproductive. Moreover, the very severity of this threat calls for an affirmation of those American values that Cheney seems to think get in the way. As Obama said, our values are our greatest weapon in winning over potential AQ supporters. This is more than a tactical difference; it reveals the distinct worldview in which Obama is operating. The goals of AQ are incommensurable with liberal democratic values, and we will never win over hardcore AQ members. Yet, we can undermine their support by demonstrating our commitment to -- and the benefits that arise from -- those values, thus allowing room for more nuanced strategies than Cheney's invade-and-torture or surrender dichotomy.

Of the two worldviews, Obama's is the more accurate and more likely to produce effective counterterrorism policies. Cheney laughably criticized Obama for "recklessness cloaked in righteousness;" laughably because that phrase can easily describe most of the Bush/Cheney Administration's many failures and abuses. A worldview that admits uncertainty and nuance is part of the very American tradition -- beginning with the Federalist Papers -- of checking human ambition and fallibility, it is also inextricably tied to a strong foreign policy. Moreover, Obama's view of the threat from terrorism is more accurate, based on facts and rational analysis. Approaches to the struggle with terrorism that are instead based on ideological zealotry -- such as Cheney's -- are doomed to failure.

There is the very real possibility, however, that Cheney's worldview is more potent politically. The charge of being "weak on terrorism" still terrifies legislators, as seen in Senate Democrats' recent abandonment of Obama's effort to close Guantanamo; a return to the effective fear-mongering of the Bush/Cheney years is a distinct possibility. Progressives must have the courage to support Obama's policies, through the same strategy he is so ably pursuing. President Obama draws explicitly on true American values, tying his counterterrorism policies to our tradition of rule of law and transparency; as seen in the McCarthy-era, fear-mongering is powerful, but Americans soon realize what it is that makes this nation so majestic. Also, his policies are not ad hoc initiatives or political triangulation. They represent a coherent set of beliefs about how the world works, a worldview that is our best chance to both maintain our security and ensure the United States of America remains the greatest country in the world.

Sheldon Filger: Why Barack Obama Cannot Prevent America's Next Great Depression

2009-05-19T14:40:02Z

Barack Obama, America's 44th President, is one of the most brilliant, hard working and innovative politicians to occupy the White House. If the current economic crisis were a typical post-war cyclical recession, there is no doubt that President Obama would be up to the challenge, and lead the United States to renewed growth and prosperity. Alas, we are in different times, with a uniquely devastating and dangerous economic disaster of worldwide scope. Not even as gifted a leader as Barack Obama, I fear, will prove sufficient in arresting the rampaging Global Economic Crisis.

No one can accuse Obama of not recognizing that the U.S. faces a severe economic recession. Most of his administration's initial activity has centered around crafting policy responses to the recession, primarily involving the unprecedented expenditure of borrowed money in an attempt to revive growth. However, the very character and essence of his administration's economic policymaking reveals the lack of comprehension of how dire and unique the Global Economic Crisis is on the part of President Obama. At his core, Obama believes that the American economic system is basically sound, but slid into a severe recession because of irresponsible behavior on the part of some actors within the financial oligarchy. Hence, by restoring growth through deficit spending and enacting a new regulatory regime to restrict the destructive greed of some Wall Street tycoons and bankers, we can return to the happy economic days of yore. In effect, Obama is acting like a nostalgia buff, hoping that the correct policies will recapture the solid economic model of pre-George W. Bush America. Unfortunately, this view of America's political economy is mythological. The U.S. economy was unhinged under the presidency of Bill Clinton as much as it has been under Bush, yet Obama has chosen Clintonites to serve in the most important economic policymaking positions in his administration. Cheerleaders for a failed model will not lead America to a new economic Jerusalem.

A major part of the problem Obama is facing is philosophical. He is following a conventional view of counter-cyclical economics; when a recession occurs, the sovereign can go into debt and use borrowed money to artificially increase demand and thus arrest the decline in growth. Once the recession is arrested, government fiscal policy can return to a more prudent policy of balanced budgets, as restored economic growth eliminates the need for the government to maintain demand. Sounds simple, as this has been enshrined as the recession-fighting bible created by economist Maynard Keynes. The only difference, the Obama administration would argue, is that this recession is much bigger than previous economic downturns, and therefore requires much more significant deficit spending. Otherwise, the Keynesian model remains unaltered.

This perspective by the Obama administration, in my view, is myopic. Like many contemporary politicians and economists, President Obama and his senior economic advisors have misread Maynard Keynes. Contrary to public perception, Keynes was no economic radical, but a centrist in dealing with the challenge of managing economic cycles within a capitalist system. Though Keynes did believe deficit spending was justified as a means to stimulate economies in deep recession, he also advocated budget surpluses during times of relative prosperity. In effect, Keynes believed in "rainy day" economics; in times of plenty you put away a little fiscal cushion that can then be spent during a recessionary period to enable the sovereign to maintain economic demand during a time of private sector contraction and declining tax revenues. This is actually a conservative philosophy that many farmers are familiar with.

In the United States, even during times of sustained economic growth, massive government deficits have been de rigeur during the past nine years, in the process doubling the national debt. There is no rainy day fund to speak of, so the staggering deficits that are now being enacted by the Obama administration are, in my judgement, fiscally unsustainable. Already, the projection for the current fiscal year's deficit has risen by $200 billion to a stratospheric $1.8 trillion; my own estimate is that it will top $2 trillion. Looking into the future, the current Obama fiscal agenda foresees annual deficits of $1 trillion or more for several years into the future, gambling that the recession will be short-lived, with growth returning as early as the last quarter of 2009, leading to increased tax revenue and declining deficits.

But are we in a recession? The current downturn is already the most protracted and destructive since World War II. However, there is another ingredient that has been added into this toxic economic stew: globalization. We are in a Global Economic Crisis in which synchronized contractions across the world create multiple negative feedback loops that reinforce the underlying negative causation. The subprime collapse in the United States crippled banks in the U.K. and devastated Japan's export machine; the Eurozone economic contraction is now impacting America's export driven manufacturers. When China's exports to America decline, commodity exporters and peripheral economies that supply value-added components to China's export goods get whipsawed. This phenomenon is occurring at an accelerating pace, despite attempts by the Obama administration to portray minor statistical anomalies to the prevailing trend as "rays of hope" and "green shoots." Reading tealeaves is no substitute for critical analysis.

The ongoing Global Economic Crisis has proven to be so severe, sustained and virulent that if it is not yet a global depression, it has embarked on that dangerous trajectory. However, another flaw in the Obama administration's approach is its failure to recognize that a substantial part of the financial system is rotten to the core, and not merely a fundamentally sound system with a few bad apples populating it, who can be restrained by improved regulation. More importantly, the Obama economic team seems to have convinced themselves that "mind over matter" is the best palliative for the nation's stricken banking system. When a sovereign's private banks are essentially insolvent and not engaged in normal loan activities, this is another manifestation of an economic depression. Rather than admit the truth, the Obama administration cobbled together a make-believe series of bank stress tests, which supposedly show that America's banking system, with a few minor problems, is essentially sound and fiscally healthy. This conclusion is an utter fraud, designed to artificially create a climate of economic confidence. It won't work, and by delaying an honest approach towards the nation's crippling level of bank insolvency, the policymakers are insuring that the final cost of the inevitable day of reckoning will be far more costly to the taxpayers.

The economist Hernando de Soto has captured the essence of the Global Economic Crisis as few others have. In his view, the Western world, and principally the United States, who have for so long railed against Third World inefficiency and corruption, have created the largest, most toxic shadow economy in the history of human civilization. More than one quadrillion dollars in unregulated financial derivatives paper, according to de Soto, has destroyed inter-bank and financial counter party trust to such an extent, credit flows have largely frozen despite unprecedented levels of taxpayer-funded borrowing to bailout the global financial system. Nothing short of an honest accounting of the true value of the toxic assets underlying these colossal derivatives products, which equal twenty times the entire world's GDP, can put the global economy on the road to recovery. Until these unregulated "unknown unknowns" become fully transparent, all other government interventions, including Obama's massive borrowing binge, are doomed to failure. Sadly, as the bogus bank stress tests reveal, President Barack Obama and his Clinton-era economic advisors have financial transparency as the least important objective on their agenda.

It seems that President Obama, despite his obvious leadership gifts and towering intellect, has chosen to place his faith in a team of advisors who are tied to the Wall Street oligarchy by an umbilical chord than cannot be severed. In a sense, Obama is following the path of the last Soviet leader, Mikhail Gorbachev, who also sincerely wished to resolve his country's economic problems, but believed that the system was fundamentally sound and only required a modicum of reform to correct its distortions. Only after the collapse of the USSR did Gorbachev conclude that the system itself was unsustainable. Now it appears to this observer that President Obama may be fated to travel the same path as Gorbachev, and like him, end up as a valiant failure.

Robert Kuttner: Reviving Pecora's Ghost

2009-05-03T21:15:36Z

We are hearing a lot about the need for a new "Pecora Commission," to conduct a comprehensive investigation of all the Wall Street abuses that led to the financial collapse and the general recession that has followed. House Speaker Nancy Pelosi has called for such a commission. A House floor vote on a bill sponsored by Rep. John Dingell is expected this week. The bill would establish an investigative panel with full subpoena powers. A companion bill, the Fraud Enforcement and Recovery Act, has bipartisan Senate sponsors, including Senators McCain and Grassley as well as several progressive Democrats. These efforts are an implicit rebuke to the Obama administration's economic team.

The original Pecora committee was not a commission, but the Senate Banking committee operating in investigative mode. Its chief counsel beginning in late 1932 was a former New York City prosecutor named Ferdinand Pecora. The committee began its work in March 1932, and Pecora became chief counsel later that year. It continued throughout 1933 into early 1934. The new Democratic chairman, Sen. Duncan Fletcher, who took office when the Democrats began the majority party after the 1932 election, kept Pecora in the job. Today, Fletcher is a footnote; Pecora is the name people remember. (As a former chief investigator of the Senate Banking Committee, I love to see Senate staffers make good.)

Pecora's work unearthed numerous conflicts of interest--a "preferred list" of investors (including President Coolidge and Supreme Court Justice Owen Roberts) kept by Morgan who had access to lucrative securities offerings not available to ordinary customers; the unsavory practice of bank presidents of borrowing money to short stocks, including sometimes their own; and the first wave "securitization," in which investment banks made sketchy loans and repackaged them as bonds for unsuspecting investors.

Pecora's work led to several resignations of bank executives, but more importantly in created a climate for reform legislation. Pecora's findings helped inform the Glass Steagall Act of 1933 separating investment banking from government-insured commercial banking, the Securities Act of 1933 and the Securities Exchange Act of 1934. Most importantly, it functioned as a public shaming of Wall Street. It thus helped change the political climate so that radical reforms could proceed. President Roosevelt encouraged Pecora's work and he encouraged the public indignation. Pecora was subsequently appointed by Roosevelt as a commissioner of the newly created SEC.

The Obama administration is proceeding very differently, and it has little enthusiasm for a Pecora Commission or for recriminations against financial elites. There has been no dramatic rupture with Wall Street. Rather, Obama's economic team is working hand in glove with the same investment banking firms and commercial banks that invented and underwrote the financial products and subterfuges that creates the collapse.

Two of Obama's top people, Lawrence Summers and Rahm Emanuel, did lucrative stints on Wall Street before returning to government (with an outlook substantially influenced by their time in the financial markets.) A third senior official, Treasury Secretary Tim Geithner, was a senior member of the Bush administrations financial crisis team, in his previous job as president of the Federal Reserve Bank of New York. So when Obama succeeded Bush, there was a seamless handoff from Geithner to.....Geithner.

Several other senior Obama economic officials were part of the Clinton economic team that was responsible for so much of the deregulation. Rather than channeling and affirming public indignation as Roosevelt did, the Obama sees populist backlash as a dangerous force to be damped down.

Although there have been some good individual hearings by particular committees on aspects of the collapse, neither of the key legislative committees in the House or Senate has shown much appetite for a Pecora-style investigation. Rather, investigative efforts have been diffused among the Congressional Oversight Panel chaired by Elizabeth Warren, which was created to oversee see the Treasury's disbursement of $700 billion in bailout money, chaired by Elizabeth Warren; the reports of the Special Inspector General; investigative work by New York Attorney General Andrew Cuomo; and some good hearings by subcommittees. All of the Democratic committee chairmen, however, are under subtle pressure from the White House not to embarrass the administration.

But by refusing a Roosevelt-scale break with Wall Street, the administration embarrasses itself. So we need a new Pecora committee, less to unearth new information than to focus public attention and build support for sweeping reform. Between the work of the Special Inspector General, and the work of other congressional committees, and investigative reports of the financial press, much of the core story has already been unearthed. Commercial and investment banks, their hedge fund counterparties, the mortgage companies and the corrupted credit rating agencies, perpetrated systematic frauds on the public using levels of speculative borrowing that any uncompromised regulator would have shut down. The fraud was central to the business model. William Black has coined the useful phrase, "control fraud," meaning that the fraud was systematic and emanated from the very top of the business.

With Larry Summers, Tim Geithner, and Ben Bernanke working closely with major investment bankers to restart the system of securitization, this time with the Federal Reserve's money and loan guarantees from the Treasury, there will be a titanic struggle over what kind of regulatory system to have going forward. Wall Street is resisting any form of regulation of hedge funds and private equity companies, and hopes that a voluntary system for registering derivatives such as credit default swaps will head off stronger medicine.

For a time, it appeared that the issue of regulation of the shadow banking system would be finessed by making the Federal Reserve the "systemic risk regulator." The Fed (the weakest regulatory agency of the lot) would decide what entities needed additional surveillance.) But that scheme, originally proposed by former Treasury Secretary Hank Paulson in 2006, no longer has much support in Congress. So all of the issues about what to regulate, how, and by whom, are still very much on the table--and a consensus still needs to be created. We need a latter day Pecora Committee to arouse the public and the back-benchers in Congress. Otherwise, the reform moment will pass, and we will revert to something very much like business as usual.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."

Howard Winant: A Response to My Mom on Obama and the Economy

2009-04-06T16:36:33Z

A RESPONSE TO MY MOM ON OBAMA AND THE ECONOMY
(Note: she's 89 and something of a radical)

Hi Mom,

This is in response to your recent rant about the economy and Obama. Note Obama's remark to the bankers on April 3rd (as reported in Salon):

***
Friday, April 3, 2009 15:30 EDT
Quote of the day

President Obama, during his recent meeting with bank CEOs, as quoted by Politico:

"Be careful how you make those statements, gentlemen. The public isn't buying that.

My administration is the only thing between you and the pitchforks."

That's true, at least to an extent. And it shows something I've written about before, which is the advantage that the kind of populist outrage that's been directed at AIG can have for the Obama administration. There are, obviously, some pitfalls there, but at the same time, if done the right way, the administration can use the threat of those pitchforks to keep the banks in line and at least somewhat compliant.
-- Alex Koppelman
***

Not that I don't agree with you somewhat, but Obama's strategy is surely impelled by his perceptions of the politically necessary. Let's not forget that banks, hedge funds, insurance cos. etc. are the repositories of a lot of pension funds, 401Ks, etc. My TIAA and Fidelity retirement funds for example. And millions of workers (the ones whose pensions haven't already been ripped off, that is).

Remember too that if these guys go down (eg Citi, Rubin, Summers...) they'll take the economy down with them. We are in some sense hostages. Not only we in the US or we in the West, but also China, India, etc. The "bankrupting" that would ensue would put the 1930s depression in a favorable light. It wouldn't be literal bankrupting (hence the quotes) because no court on earth is big enough to work out those balance sheets. To consider just one case: If nuclear India is returned to impoverishment, from which it has only recently begun seriously to extract itself, what might be the political consequences of that?

In short the practical consequences of intervention can be huge, and it is vital to proceed carefully, and so to speak to employ "minders" from the old exploitative regime. Like a good parent, Obama must assure these clients that while he will discipline them, he still loves them. Then too, much of finance capital (the "enlightened" wing, the relative sane wing), were integrally involved with his campaign: major donors and advisors.

I'm quite grateful to have a dude like this running the show. Although I often don't agree with him I admire him and trust him more than I have any other president in my lifetime. The greatest was Lincoln; the next best was Roosevelt. I think Obama has the potential to be a president on their level.

Love,
Howie

****
Mom's Original message:

> I hope you watched Bill Moyer's journal tonight. Not only the discussion with William Black which gave us a harrowing picture of what is
> going on in the current administration, ( not much better than under Bush supporting the establishment to the detriment of
> openess) and the interviews with Glenn Greenwald (Salon) and Amy Goodman, both honored with the Izzy prize. How can we
> get the real information to Obama who just gets briefings. And why did he appoint such establishment figures. Sumner never
> was right, Bernanke is not better than Greenspan etc etc. The banking situation is a total disaster. I am sorry to miss Stewart
> and Colbert most of the time, I get too tired and fall asleep watching them. What I heard today reinforced my views that
> Obama needs better information and advisors. Just felt like letting off steam.
> Lots of love from Oma

Rupert Russell: The Left isn't Leaving Obama -- Yet

2009-04-01T16:55:14Z

Over the last week, pundits and journalists alike have declared that the showdown between Obama and The Left has begun. As the FT's Edward Luce announces: "The liberal backlash against President Barack Obama has begun with many prominent left-leaning economists in the US attacking the administration's plans to bail out the banks." Indeed, Paul Krugman, Arriana Huffington, Joseph Stiglitz, Robert Reich, Rachel Maddow, and Michael Moore have indeed criticized last week's announcements on the new bank bailout and Afghanistan.

Yet, a crack up of the Democratic coalition or fracturing of the progressive movement it is not. And that's what counts.

American politics is the business of building coalitions. These coalitions bring together money, messaging, expertise and votes in the form of organizations -- be they churches, unions, or lobbies. Individual defectors are only important to the extent that they can bring some organizational capacity with them. David Frum's new blog has not lead to the collapse of the conservative movement. But, if the Heritage foundation endorses gay marriage, regulation and tax-hikes, then they've got a problem.

The crux of the Obama vs. The Left claim are the criticisms by leftist economists of Geithner's budget proposals. Such critiques were inevitable: the leftist intelligentsia has never had the same relationship with governing Democrats as the conservative intellectuals have had with Republicans. There are historical and structural reasons for why this is so.

Historically, conservative intellectuals have been entrepreneurs who were instrumental in building the conservative counter-establishment from its early beginnings in the 1950s to the massive expansion of the New Right in the 1970s. They were deeply entwined with practical concerns of founding organizations, raising money, mobilizing voters for an insurgent Republican Party far beyond their intellectual duties of criticizing the Liberal Establishment and proposing a conservative policy agenda.

In contrast, liberal intellectuals have sat on the sidelines waiting to be asked their opinion, to volunteer a policy opinion or take a cabinet post (which they habitually resigned from soon thereafter). The organizations of the Democratic coalition came from the grassroots, be they blacks or feminists, unionists or environmentalists, who successfully controlled the party from the 1960s through to the early 1990s, only to be partially eclipsed by a resurgent centrist, southern Democrats and corporate lobbies.

They have played these different roles for structural reasons. Conservative intellectuals were initially excluded from academia, the press and even the Republican Party, forcing them to create their organizations with which to publish and promote their ideas. The financial backing of such endeavors has done and continues to come from donors who lend their support on the basis of the implementation of those ideas as government policy. This has tied conservative intellectuals to the practical concerns of governance and the electoral success of the Republican Party.

The discontented liberal intellectuals, on the other hand, reside exclusively in academic institutions with tenured appointments. Their payroll is not tied to Democratic interest groups nor is their status evaluated by the pragmatic implementation of their policies (although they may be very practical policies nevertheless). This gives them a freedom to articulate their discomfort as they please without fear of the retribution their conservatives counterparts encounter for the same offense.

Newsweek's Evan Thomas, description of the "Nobel headache" is more accurate. The liberal intellectuals can make a noise and generally be a pain to Democrats, but they've never been an intrinsic part of their coalitions nor do they command or coordinate important political resources as their conservative counterparts have done.

Major threats to the Democratic coalition lie ahead. Card-check will be the first test of the coalition as it is proposed by its most important partner: labor. The fissures are unlikely to emerge until after the 100 days, the breathing room interest groups have given the administration to get to grips with the economy. After that, patience will be thin and expectations will be high. Then will begin the true test of whether Obama can hold together a coalition that few Democratic presidents have been able to before him.

Robert Kuttner: White House Confidential

2009-03-08T23:07:39Z

[Note: These memos fell into my hands. I cannot guarantee their authenticity--RK]

From: BHO

To: Rahm Emanuel

Subject: The Banks

Extremely Sensitive

Rahm,

I'm concerned that I'm getting only one viewpoint on how to solve the banking crisis, from Larry and Tim. A kind of echo-chamber effect sets in where they talk mainly to Wall Street and to each other, and different views are not heard. Larry is a very effective gatekeeper.

They both seem convinced that bailing out outfits like AIG and Citigroup, using even more money both from Treasury and the Fed, is the only way to go. And nobody inside the administration is really challenging them on the economics.

The problem is that neither the financial markets nor public opinion is buying it. My recovery package can't work if the banks keep dragging down the economy, and time is not on our side. We're burning through money that will be very difficult to get Congress to replenish if we blow it this time.

We've had some good strategy conversations about the politics. Limiting executive pay helps. So do these trips outside Washington where we can identify with ordinary people. But the Republicans are eating our lunch on the A.I.G. bailout, and Lou Dobbs is making us look like allies of the people who caused the crisis. The press is full of stories about people from Countrywide and the hedge funds profiting a second time, as purchasers of underwater bonds. We can survive all that--if Larry and Tim's plan actually works. But I'm beginning to wonder.

Could you set up some conversations with some well informed people who have a different view? What's your advice on how to handle Larry and Tim? We can't very well go behind their backs. Larry is keeping a low profile, and letting Tim take all the heat even though Larry totally shares the approach. Tim is all alone. He doesn't have a senior sub-cabinet official confirmed yet to help him. A chorus is building calling for his head. Do we want to set up some very discreet one-on-one conversations with critics, or bring Larry and Tim in, too?

Also, Rubin is constantly on the phone to everyone. His fingerprints are all over this mess, but people still take him seriously. Is he looking out for the system, or for Citi and Goldman? I'm beginning to have buyer's remorse that we hired so many of his protégés.

BHO

-----

To: The President

From: Rahm Emanuel

Re: A Second Opinion on the Banks

Mr. President:

I share your concerns both on the optics and on the substance of the plan not working. Basically there are three views of how to proceed with the banks. One is the Tim/Larry approach: Lend money to hedge funds and private equity speculators to get purchases of securities from banks flowing again, so that bank lending resumes. The problem is that this does not sop up existing toxic bonds. The Street seems to have no confidence in it. And, appearance-wise, it looks like rewarding the bad guys.

The second approach is the good bank/bad bank strategy, where the bad assets are taken off the books of the banks, and they can resume operations again with clean balance sheets. The problem is that the taxpayer pays, it costs more money than we have, and the same bad actors keep running the banks. Alan Blinder makes the case for this approach, in Sunday's Times, about as well as anyone. But he didn't convince me.

The third approach is "conservatorship" or "receivership" (let's keep avoiding the N-word) where a government agency--probably an expanded FDIC--takes temporary charge of the big banks (the top four hold more than half of all the deposits). That way, the government cleans up the balance sheets, existing management goes, and we can break them up into manageable parts where no bank is too big to fail. The taxpayer shares the loss with the bondholders. Bank stockholders lose, but they've already lost upwards of 95 percent of the value of the shares.

I'm no expert on this, but the third option seems more likely to actually work, more likely to head off a full blown depression, is less costly to the taxpayer, and is far better politics.

The middle option is flawed--more expensive for taxpayers, more windfalls to speculators--but it's better than the Tim/Larry plan.

But I definitely agree that we should hear from more outside experts. Here's what I recommend:

Some of the best sessions in the campaign were the times when you put fifteen people with different views around a table, let them argue it out, and then you decided. As long as Larry and Tim are heading the economic team, we can't very well exclude them, but we should bring in others--and you should hear this argument in the raw, and not filtered.

This should be a very small event, and participants should be emphatically asked to keep the meeting confidential. It should not be a media event like the recent White House summits on fiscal responsibility and on health reform, where we papered over vast ideological differences for the sake of the appearance of consensus.

If we are not absolutely certain that this won't leak, then let's do it as several one-on-one conversations with you, maybe with Summers arguing the other side. Leaks from Summers or Geithner spinning dissent inside would be just as damaging as leaks from one of the outsiders. But if we can keep it confidential, there is no substitute for hearing the arguments hashed out by both sides. As participants, I'd recommend:

From the Administration:

The President

Larry Summers

Tim Geithner

Rahm Emanuel

David Axelrod

Skeptics of the Geithner/Summers approach:

Joe Stiglitz, Columbia University

Paul Volcker, former Fed Chair, heads your outreach panel

Sheila Bair, heads FDIC

Nouriel Roubini, NYU

Elizabeth Warren, chair, Congressional Oversight Panel, Harvard Law

Damon Silvers, deputy chair, Congressional Oversight Panel, AFL-CIO

From the Fed:

Ben Bernanke, chair

Dan Tarullo, governor

Don Kohn, governor

As for others, Alan Greenspan is somewhat skeptical, but I'm not sure we need him in the meeting, and we certainly don't want self-interested people like Rubin. This is also not the time for bipartisanship; we can get Republican and Wall Street input at a separate meeting (in any case Geithner more or less speaks for Wall Street.) Paul Krugman has been very critical and ahead of the curve, if nasty to us, though his last column on the budget was kind to you (finally!) But he also plays a journalist role, and he might be tempted to use what he learned in a column, even indirectly. This also precludes people like Kuttner. He's very friendly to you, but he's been pretty hard on the economic team. I don't quite trust the guy.

Sincerely,

Rahm

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His best-selling book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."

Teryn Norris: Obama Needs an Economic Philosophy

2009-02-19T18:04:30Z

By Teryn Norris & Adam Zemel

On Tuesday, President Obama signed the historic American Recovery and Reinvestment Act to avoid a spiraling economic downturn. But is it enough?

No. The Congressional Budget Office projects the U.S. economy will lose $2.9 trillion in total economic output over the next three years (PDF). To close that gap, Obama would need to sign a bill with approximately $2 trillion in total spending. But the current plan is less than $800 billion, with almost $300 billion for tax cuts. A recent report (PDF) by the chief economist at Moody's Economy shows that while one dollar of public spending can boost GDP as much as $1.70, every dollar of tax cuts can increase GDP by only $0.30 to $1.00. In other words, spending is up to five times more effective than tax cuts at boosting GDP.

So we have a stimulus bill that contains about $500 billion of public spending and $300 billion of dubious tax cuts. Given the CBO's projected $2.9 trillion output gap, calling the bill weak is an understatement. This gap presents a danger not just to the economy. If the economy is still dragging in two years, and the stimulus is publicly perceived as a failure, Democrats could not only lose the mid-terms in 2010, but the role of public investment could be discredited for years to come.

Why is the stimulus so timid? Of course, a share of the blame goes to Republicans, who continue to cling to market fundamentalism, a failed and outdated economic ideology obsessed with tax cuts, deregulation, and smaller government. But the overarching problem is that President Obama currently lacks an economic philosophy. Obama and his advisors made a critical miscalculation by allowing the political goal of bipartisanship to trump urgent economic necessity and the need for a new economic philosophy. If Obama had shot higher with his initial spending goal -- let's say $2 trillion -- and made a principled case about the role of public investment in laying the foundations for growth, Republicans and centrist Democrats could have bargained it down from there -- to say, $1.5 trillion.

President Obama's next steps are critical. To avoid discrediting the role of public investment, Obama needs to continually advance a new, progressive governance philosophy based on long-term public investments in areas of strategic growth and productivity -- such as clean energy, advanced infrastructure, health care, education, information technology, and other areas of science and technology. These types of public investment are critical not only for growing out of the current recession, but also for promoting U.S. prosperity and strength for decades to come -- just as public investments did for most of the post-war period, from airplanes and highways to microchips, the internet and biotechnology. All of this will require a level of clarity, vision and strong leadership from Obama that was not on display for the stimulus debate.

Establishing a new era of productive public investment requires a systematic overhaul of the federal budget structure and process. Ever since the rise of market fundamentalism, deficit hawks, and the passage of the 1990 Budget Reconciliation Act, the federal government's ability to make long-term investments has been critically weakened. The result has been significant underinvestment in areas like infrastructure and R&D, with federal investments in major non-defense physical capital declining 20% over the period between 1980-2000 compared to 1960-1980.

Obama should start by restructuring the federal budget to include a "capital investment budget" -- separate from PAYGO and the annual appropriations process -- which would be used for long-term investments in physical capital, R&D activities, and possibly human capital (education). Currently, the federal government hardly distinguishes between short-term spending and long-term investment. But like any smart and responsible business or family, the federal government needs to make smart choices between short-term consumption -- which satisfies current operating expenses and social needs -- and long-term investments, which yield long-term economic benefits and increased productivity.

If Obama aims to successfully achieve a transformational presidency and launch a new progressive age, he must offer a new economic governance model that gives America a fresh start. Market fundamentalism is dying, but progressives haven't yet offered an economic philosophy to take its place. Obama should start by overhauling the federal budget system and offering a clear vision and narrative about the role of public investment in building new American prosperity -- and he should act quickly before the historic opportunity has passed.

Jeffrey Klein: President Obama Fails his First Hard Choice

2009-01-21T10:25:33Z

"Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age." -President Barack Obama in his Inaugural Address

Barack Obama is failing his first hard choice as President by pushing hard for Tim Geithner to be confirmed as Secretary of the Treasury despite Geithner's serial cheating on his taxes and Geithner's utter failure in his previous job as head of the New York Fed.

Geithner's low personal profile and Wall Street's high comfort level with him will probably guarantee he'll survive Wednesday's hearing before the Senate Finance Committee. Who wants to dwell on this little guy when we finally have something big to celebrate? Besides, how important is one appointment? Newsweek thinks it's pretty important. They just listed Geithner as the 15th most powerful person in the world.

"Tim Geithner, when I nominated him, was rightly lauded by people from both sides of the aisle, from the market, from labor, as somebody who was uniquely qualified." Obama responded when questioned about Geithner's taxes. "Is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake. It has been corrected. He paid the penalties."

Geithner didn't make one mistake. He committed multiple transgressions over the course of many years. To call them "an innocent mistake" is as insulting as deducting your kid's expensive summer away camp as a childcare expense, which Geithner tried to do. Furthermore, Geithner paid the majority of his missing taxes and penalties only after he was nominated to be Secretary of the Treasury. His situational ethics are directly at odds with the culture of personal responsibility that Obama has set as his foremost goal.

Obama's selection of this ethical goal shows the shrewdness of our new president. The world didn't plunge into a deep recession just because real estate was overvalued, credit too highly leveraged, and so on. Our financial markets and models broke because they ignored the power of social norms and sent the regulators home. Markets were supposed to be self-correcting. They certainly adapted to a lack of scrutiny. A CEO's pursuit of self-interest at the expense of his shareholders or even the solvency of his own company was the natural outcome of such folly.

As head of the New York Fed, Geithner was Washington's eyes and ears on Wall Street before this crash. He saw and heard nothing coming. From crisis day one, Geithner confused the financial health of the big bankers with the financial health of the country. It's no surprise that Wall Street and both sides of the political aisle want Geithner to pick up the reins from Henry Paulson without pause. They want stock prices to head back up without a fundamental change in the rules of the game.

President Obama is nothing if not pragmatic. He knows that many Republicans fear that if Geithner's nomination is nixed, someone more stringent could be appointed. While Obama's sticking with Geithner shows political strength, it may betray Obama's anxiety about the upended global economy. Geithner not only speaks Chinese, he speaks Kissinger. His first job was working for Kissinger & Associates. This fall the Chinese government became the largest holder of U.S. Treasury debt. It can't hurt to have someone on our side of the counter who's learned to speak Kissinger's amoral language.

However, the domestic cost for keeping Geithner could literally be enormous. Obama has repeatedly called upon the wealthy to pay a larger share of federal taxes. Already he may postpone part of this pledge because of our weak economy. In the meantime, how well is the President preparing the richest in our nation for, as he warned in his Inaugural Address, a new age? As they shift their funds around, how many wealthy elites will have Secretary Geithner in mind when they contemplate making "an innocent mistake" likely to escape the IRS' notice?

In 1993, the late Senator Patrick Moynihan coined the phrase "defining deviancy down" to capture how society tolerates behavior previously considered unacceptable. Obama has defined deviancy up by minimizing Geithner's clearly intentional cheating. I hope some Senator Wednesday presses Geithner on why, given his wealth, he prepared his own taxes. My guess is that he wanted to keep his omissions to himself.

Don't many people cheat some on their taxes? Perhaps. But obviously that should disqualify them from becoming Secretary of the Treasury.

Stimulus Plan Could Give Obama Down Payment On Big Campaign Promises

2009-01-19T00:15:26Z

WASHINGTON -- President-elect Barack Obama is well on his way to finding the silver lining in the economic storm he is inheriting.

The two-year, $825 billion economic recovery plan taking shape in Congress includes billions of dollars for renewable energy and a national electricity grid to distribute it, lower taxes for all Americans but the affluent, computerized medical records and modernized schools. These are all down payments on Mr. Obama's ambitious campaign promises, affording him an opportunity few new presidents have had. Not since Franklin D. Roosevelt at the depths of the Great Depression has a president entered office with a bipartisan green light to spend and cut taxes so much.

Obama Would Spend Bailout Funds On Housing Crisis

2009-01-14T22:48:34Z

WASHINGTON — President-elect Barack Obama would spend the remaining $350 billion of a financial bailout fund on expanded lending and reduced foreclosures and would not use the money to help other industries, lawmakers said Wednesday after discussions with Obama emissaries.

The Senate was set to vote Thursday on whether to release the money. Lawmakers insisted that Obama advisers put their assurances in writing before the vote.

Charlie Cray: Obama's Wall St. Reforms: Timid at Best

2009-01-13T16:06:38Z

A congressional oversight panel (COP) appointed to monitor the Wall St. bailout (TARP) outlined a few of the problems so far in its second report (released yesterday) including:

• The shifting rationale for a program that amounts to dumping hundreds of billions of dollars on the companies that got us into the mess, along with a continuously changing approach and no guarantee that it will actually stabilize financial markets or help those most impacted, including "homeowners threatened by foreclosure, people losing their jobs and families unable to pay their credit cards," let alone protect the interests of taxpayers or bring confidence back for shareholders.

• Although Treasury responded to a first round of questions from the COP, "it did not provide complete answers to several of the questions and failed to address a number of the questions at all." For example, the panel "still does not know what the banks are doing with taxpayer money." In other words, the Treasury's handling of the bailout is starting to make Paul Bremer's mismanagement of Iraq's reconstruction project (remember the bricks of $100 being thrown around without any accountability?) look like a small corner-store stickup. Perhaps the panel could recommend that Congress hire Stuart Bowen to set up shop over at the Treasury. At the same time, Congress could start asking why Treasury's strategy "appears to involve allocating the majority of the $700 billion to "healthy banks," banks that have been assessed by their regulators as viable without federal assistance."

So, we have to ask why Obama is asking for more money to be disbursed when the first $350 billion has been allocated without accountability, and the Treasury department reportedly isn't in a rush to receive it.

We seem to be headed for a triple-failure response to the crisis:

First: A poorly-managed bailout (TARP),

Second: A stimulus package that most economists agree will not be enough to revive the economy and, with a good portion going out in the form of corporate tax breaks instead of shovel-ready projects, may not even be enough to stop the hemorrhaging of jobs.

Thirdly, and perhaps most importantly: The absence of any serious debate over financial regulatory reform.

Congress is too tied up with the stimulus package to take on this latter responsibility with anything like the seriousness it deserves.

Maybe that will change with the incoming administration. After all, it was Obama who said in his March 27 speech at Cooper Union that, "To renew our economy and to ensure that we are not doomed to repeat a cycle of bubble and bust again and again and again, we need to address not only the immediate crisis in the housing market, we also need to create a 21st-century regulatory framework."

Let's hope so, but so far there is no evidence for it. All of Obama's speeches have focused on the stimulus package and fiscal (rather than regulatory) policy, with little more than a nod to the idea that some kind of reform needs to occur in the mortgage markets. Not much more than that. The danger is that they will move quickly to pass something simple, especially with a G20 summit coming up in April that puts additional pressure on the new administration to demonstrate new leadership. And so, the drum is beginning to beat in Washington for Congress to quickly reform the current patchwork of regulations by giving the Fed expanded authority over banking regulations, a move that could be disastrous.

I could be wrong about this, but if I'm not, let's hope Obama is smart enough to resist any such proposal.

For one, if we want strong regulators we need to house them in public institutions. Just as Treasury Secretary Paulson has suggested that Fannie and Freddie will fail if they have to serve two masters - shareholders and the public, whose interests often conflict -- so many of the other institutions responsible for getting the economy back on track must be redesigned to more capably represent the public interest.

If we want to get beyond the ideological fixation with deregulation that so many (including Alan Greenspan) have finally acknowledged failed to keep the system from doing itself in, then we need to put our faith and support behind strong public regulatory institutions, instead of the now-discredited Self-Regulating Organizations like FINRA and the AICPA.

Another example of this is the credit rating agencies, which essentially function as the government's surrogates. To make sure they certify investment grade securities, they should be made public utilities or non-profits. (The same thing should have been said about the auditing function, which was left with the accounting firms after Enron. Instead, they were left to form a cartel that is now pushing to insulate itself from any accountability through civil liability caps.)

We need to recognize up front that the Fed is NOT as currently designed a purely public institution and therefore debate whether the Fed's authority for bank regulation should be expanded (in which case it probably needs to be reformed to be more publicly accountable) or whether we need to come up with alternative, like some kind of coordinating body responsible for allocating authority, smoothing inter-agency collaboration, and preventing the kind of regulatory arbitrage witnessed in recent years by the shape-shifting financial institutions.

Either way, simply assuming that turning more power and regulatory authority over to the Fed would be to ignore a number of critical facts: a) It wouldn't guarantee that the Fed will protect other interests besides the big commercial banks and bank holding companies. The Fed was never intended to protect the interests of consumers, homeowners or even shareholders (the SEC's job). As anyone familiar with the ways of Washington know well, single institutions can have vicious internal policy fights, especially if different divisions represent constituencies whose interests can sometimes conflict. Anyone who believes the Fed should be charged with protecting homeowners might want to review its history of enforcement of the Community Reinvestment Act; anyone who thinks the Fed can clean up Wall St. might be forgetting how it helped block the regulation of derivatives when proposals were brought up in Congress. (To be fair, the SEC under Arthur Levitt and others were aggressively opposed to derivatives regulation, and their view may have held greater weight.)

Another problem is b) that the Fed is even less transparent than the SEC and other regulators (ever try to send a FOI request to the Fed?) The advantage of the Fed is that it is not publicly funded. But that's the disadvantage, too - it's easy to imagine that it will claim (as it has in the past) that it is not a public agency, and therefore exempt from public oversight and control.

If you want an example of how opaque the Fed is, check out former House Financial Services Staffer Robert Auerbach's history, "Deception and Abuse at the Fed," in which he describes how Alan Greenspan and other powerful Fed officials blocked Congress from providing oversight by falsely declaring - for 17 years - that it had no transcripts of its hearings.

Finally, there's an inherent and obvious conflict of interest at issue here: The fact is that the Fed is too intertwined with the big banks themselves to adequately regulate them. E.g. the majority (6 of 9 directors) of the governing boards of the regional reserve banks are selected by the banks themselves.

If we're going to give the Fed more power, then it's clear that the Fed itself needs to made more public. However, unless Congress is willing to undertake a broader examination of the issue, we won't see any other alternatives put on the table, and very little resistance to the notion that elevating the Fed's authority is a good idea to begin with.

Bank regulation is a complex and important issue, and at a time when the financial services sector is the most powerful -- constituting some 30% of the economy (27.4 percent of all of corporate America's profits in 2007, not including GE Finance, GMAC and other corporate financial divisions); in a time of crisis so much is at stake that we need much more from Congress than a simple rush-to-fix-it proposal.

That's why the first thing Congress should do (and could have done a long time ago) in this area is empanel a commission to examine a variety of important questions, including the elimination (or at minimum proper regulation) of derivatives; strengthened consumer and taxpayer protections; structural regulation and antitrust questions (including how to prevent regulatory arbitrage and the dangers of cross-sector integration); and the elimination of offshore tax haven scams.

What we need is something like a combination of the Pecora commission that Ron Chernow so wisely reminded us about, and the Temporary National Economic Committee, which began to examine the structure of various industrial sectors back in the late 1930s. (Hopefully we don't have to get that far into a depression before Congress does something like that.)

It's an old truism in Washington that how a crisis is solved is determined by the terms of the debate. It's also true that he who pays the piper plays the tune. Although candidate Obama proclaimed his independence from corporate lobbyists and PACs, we learned in today's WSJ (who used data compiled by Public Citizen) that "90% of donations (to Obama's inauguration) received so far have been raised by well-heeled fund-raisers, including Wall Street executives whose companies have received billions of dollars in federal bailout money." As a group, people affiliated with Wall Street firms donated $5.7 million through financial service industry bundlers.

It looks like "Government Sachs" has yet to be sacked.

Thus, we should be automatically suspicious of any proposals coming out of Washington, starting with Obama's recent request that Treasury release the second $350 billion. But we should also be wary of any proposal for financial regulatory reform that makes a laughable lunge for simplicity, especially if they don't come after fierce debate.

As economist Robert Kuttner, author of Obama's Challenge (and a new report that explains how we should strive to reform the financial regulatory system) said here last week, "the issue isn't whether to regulate or not, but the character of regulation."

We are often told that Heraclitus once said, "character is destiny." Judged by his appointments and the direction and timidity of the proposals coming out of the transition team, so far the character of the regulations being proposed by Obama seem destined to fail...C'mon, Mr. Obama, step it up! What we need is more than a nudge. We need a strong regulatory push.

Obama Plans To Keep Estate Tax

2009-01-11T22:19:39Z

President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010, suggesting the levy might outlive the "Death Tax Repeal" movement that has tried mightily to kill it.

The Democratic stance on the estate tax contrasts with Mr. Obama's reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession.

Obama Team Offers Concessions On Stimulus In Talks With Senate Dems

2009-01-11T19:57:57Z

President-elect Barack Obama tried Sunday to shore up support in Congress for his ambitious economic policies, with his top advisers offering concessions on his economic-stimulus proposal and preparing to detail conditions for how the incoming administration will spend the second half of the $700 billion financial rescue package.

Emerging from a two-hour meeting in the Capitol with Obama advisers Lawrence Summers and Jason Furman, Senate Democrats praised the President-elect's team for agreeing to make changes to its stimulus proposal based off of concerns senators raised last week at a meeting with the president-elect's senior aides.

Kerry: Obama Within Hours Of Decision On Bailout Funds

2009-01-11T18:04:32Z

President-elect Barack Obama vowed to restructure a financial rescue plan to save more U.S. families from home foreclosures, as he considered on Sunday whether to seek additional funds from a $700 billion bailout program.

Obama's aides have been in discussions with the White House over whether President George W. Bush should ask Congress for permission to use the remaining $350 billion of the funds, which are aimed at stabilizing the financial system.

Diane Francis: Obama-Nomics Coming

2009-01-06T11:45:44Z

Obama is twice the luckiest President in living memory: He is not blamed for the current crisis and he has the luxury of watching the meltdown, and his lame-duck predecessor's rescue efforts, safely from the sidelines since November.

But Obama-nomics must be global, not merely national.

The world's financial system must be multilaterally bridled. This current economic catastrophe is rooted in the fact that the globalization of capital markets took place without any globalization of oversight or rules.

This created the vacuum into which crooks, as well as legitimate financial players, leaped. Hedge funds, mostly headquartered in secrecy havens and unencumbered by national rules such as disclosure or taxation or regulations, were culprits. But so were nationally-regulated institutions in the U.S. and other countries -- such as brokers, banks and insurers -- who indulged in off-balance sheet shenanigans in the world's unfettered international space.

Glocal not global or local

So Obama's domestic task will be to shore up the economy of the United States, its workers, homeowners and businesses by putting shovels in the ground within weeks, revamping Detroit and calming a frightened citizenry by providing European or Canadian-style social programs such as foreclosure relief, universal health care, more generous training and unemployment benefits.

But his administration must also juggle short-term domestic self-interest with long-term, multilateral initiatives to police the global financial sector.

Attack the crooked "insurance" scam

The first order of business will be to create mechanisms to bring the "shadow" financial sector to heel -- hedge funds and derivatives markets. According to the Bank of International Settlements, the notional value of derivatives contracts have grown from US$75 trillion in 1997 to US$600 trillion. During that decade, the fastest-growing derivatives segment was Credit Default Swaps which brought down the system because Wall Street, AIG and others underwrote these hedges against bond losses without sufficient capital to back the bet when the bonds cratered.

These swaps by AIG, Lehman and the others were, in essence, nothing more than insurance policies bought by others to protect them against a financial hurricane, but AIG and the others failed to put aside the capital and assets needed to back up that insurance when the hurricane hit. This was not only disastrous but immoral, unethical and illegal in terms of other insurance policies they wrote around the world.

Reforms to insure sustainable growth

So Obama-nomics won't merely be the New Deal Part Two. It will have to be executed along with policies hammered out in partnership with the best minds and most enlightened leaders in the world.

Fortunately, the world's central banks and governments have already begun this task through real-time collaboration and the exchange of policy ideas. The real fix is to create a worldwide regulatory and transparent template that matches what is already in place in well-run economies so that there is no place in the future to hide or to get away with concocting weapons of financial mass destruction.

Fortunately, Obama and his advisors have a clean slate, in terms of blame; experience and some distance having watched the worst effects of this meltdown between the election and inauguration.

Mark Weisbrot: Stimulus Time: The Fierce Urgency of Now

2009-01-05T17:21:03Z

Nobody needs to be told that our economy is going down the tubes at a rate unseen for decades. Every week brings new numbers that are setting records. In just the three months ending in November, the job loss was 1.26 million, the worst since 1975. We have lost more than 2 million jobs in 2008.

To arrest this downward spiral, the Obama team is talking about an economic stimulus package of about $800 billion over two years. Some are complaining that this is too much. But it is actually not so large considering the size of the problem we are facing. It is about 2.7 percent of GDP. The recent increase in military spending plus tax cuts for the rich -- compared to 2001 levels -- adds up to about the same.

Even if we take into account the rest of our red ink, and we actually hit the dreaded "trillion-dollar deficit" in 2009, how extreme would this be? A trillion-dollar deficit would be about 6.7 percent of GDP. In 1983, coming out of our last deep recession, President Reagan ran a deficit of 6 percent of GDP. And the current recession could easily be worse than that one. We really don't know where the bottom is yet.

The Obama stimulus also differs from the deficit spending that we accumulated in the Bush (or Reagan) years in a profound way. Tax cuts for the rich -- and much more horrifically in the case of spending on the Iraq war -- are unnecessary and socially destructive. By contrast, President Obama is proposing to spend money on things that we actually need.

State and local governments will need at least $100 - $150 billion next year to keep from cutting back on their employment and education and making the recession much worse. We will need increases in food stamps, unemployment insurance, and Medicaid spending for the poor -- who are most at risk of suffering from the destruction caused by the excesses of Wall Street financiers and the government officials who failed to police them.

Obama's plan will also include spending to repair our roads, bridges, and schools -- much of which is long overdue. There will inevitably be tax cuts in the package, but at least these will go to working and middle class people, unlike the bulk of the Bush tax cuts.

Two things that could turn the stimulus package into an even more positive force for change would be health care and environmental spending. The federal government can subsidize health insurance for the uninsured, with public sector insurance like Medicare, as President-elect Obama promised during his campaign. This would advance health care reform while also providing jobs and spending in the health care sector. To begin the transition to a less fossil-fuel based economy, the federal government can also subsidize mass transit, the retrofitting of buildings to make them more energy efficient, and start to build a 21st century electricity grid that can handle wind and solar energy sources.

The exact details of the package are not as urgent as its size and the speed with which it is implemented. President Bush and his Republican party have unforgivably destroyed thousands of businesses and hundreds of thousands of jobs by delaying the package until Obama takes office. Further delays by Republicans in Congress should be met with mass outrage.

If anything, the Obama team's proposed stimulus may not be enough. Nobel laureate economist Paul Krugman has suggested four percent of GDP, or $600 billion for just next year. He may well be right. Better to err on the side of caution, than risk falling into a deeper hole that is even more difficult to get out of.

This article was distributed by McClatchy Tribune Information Services on January 2, 2009.

Dan Solin: Mary Schapiro Will Protect Investors the Same Way Willie Sutton Protected Banks

2009-01-04T15:24:17Z

We don't have to guess how Mary Schapiro, named by President-elect Obama to head the SEC, will protect investors. As the CEO of the Financial Industry Regulatory Authority (FINRA), she has been a strong advocate of the mandatory arbitration system which requires investors to arbitrate all disputes with their brokers before a panel selected by FINRA and governed by its rules.

How has this worked for investors?

Here is a recent example. It is a true story. You can't make this up.

A 60 year old doctor invested $100,000 he had in an IRA with a FINRA broker.

The broker put the funds into an after-tax account, triggering a $35,000 tax liability.

Over the next 14 months, during which time the S&P 500 increased in value, the portfolio lost a whopping $86,000, reducing its value to $14,000.

This is not surprising given the amount of trading by the broker. His commissions were so huge that the account would have had to earn 31% just to break even! The broker used margin to generate even more trades.

The stocks in the portfolio were 600% more volatile (risky) than the S&P 500.

Before any Judge or jury, the investor would have recovered his losses and most likely would have received a meaningful award of punitive damages.

Not before the FINRA arbitration panel.

They found that the broker had to pay back only the tax liability caused by the transfer of the IRA to a taxable account.

Now for the unbelievable part.

This "impartial" FINRA arbitration panel concluded that the broker did nothing else wrong. No unsuitability. No excessive trading. They gave him a clean bill of health.

Just another day at the office, ripping off investors with impunity. Instead of being drummed out of the industry, he is happily back in his office high fiving his fellow brokers.

So much for FINRA "self-regulation."

This shameful process is "supervised" by the SEC, the very agency Ms. Schapiro will head if she is confirmed.

"Real change" would be to put an investor advocate, and not an industry shill, in charge of the SEC.

"Real change" would be to abolish the FINRA mandatory arbitration system and expose it for the farce it is.

"Real change" would be give investors their constitutional right to a trial by jury.

Do you think Mary Schapiro will represent "real change" at the SEC?

Do you think Willie Sutton protected banks?

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein.

Steve Clemons: Bill Richardson Withdraws Commerce Bid -- Time to Call Leo Hindery

2009-01-04T14:19:47Z

I only have time for a short comment as I'm heading to the airport to fly to Europe, but Commerce Secretary nominee Bill Richardson has withdrawn from his appointment because of an ongoing grand jury investigation into whether he traded New Mexico government contracts for campaign contributions.

Here are the statements from Barack Obama and Bill Richardson:

STATEMENT OF PRESIDENT ELECT BARACK OBAMA

It is with deep regret that I accept Governor Bill Richardson's decision to withdraw his name for nomination as the next Secretary of Commerce.Governor Richardson is an outstanding public servant and would have brought to the job of Commerce Secretary and our economic team great insights accumulated through an extraordinary career in federal and state office. It is a measure of his willingness to put the nation first that he has removed himself as a candidate for the Cabinet in order to avoid any delay in filling this important economic post at this critical time. Although we must move quickly to fill the void left by Governor Richardson's decision, I look forward to his future service to our country and in my administration.

STATEMENT OF GOVERNOR BILL RICHARDSON

For nearly three decades, I have been honored to serve my state and our nation in Congress, at the U.N., as Secretary of Energy and as governor. So when the President-elect asked me to serve as Secretary of Commerce, I felt a duty to answer the call.I felt that duty particularly because America is facing such extraordinary economic challenges. The Department of Commerce must play an important role in solving them by helping to grow the new jobs and businesses America so badly needs.

It is also because of that sense of urgency about the work of the Commerce Department that I have asked the President-elect not to move forward with my nomination at this time.I do so with great sorrow. But a pending investigation of a company that has done business with New Mexico state government promises to extend for several weeks or, perhaps, even months.

Let me say unequivocally that I and my Administration have acted properly in all matters and that this investigation will bear out that fact. But I have concluded that the ongoing investigation also would have forced an untenable delay in the confirmation process.Given the gravity of the economic situation the nation is facing, I could not in good conscience ask the President-elect and his Administration to delay for one day the important work that needs to be done.

So, for now, I will remain in the job I love, Governor of New Mexico, and will continue to work every day, with Lieutenant Governor Diane Denish, to make a positive difference in the lives of New Mexicans. I believe she will be a terrific governor in the future.I appreciate the confidence President-elect Obama has shown in me, and value our friendship and working partnership. I told him that I am eager to serve in the future in any way he deems useful. And like all Americans, I pray for his success and the success of our beloved country.

So, that's the second person who didn't make it through the process. Penny Pritzker was the first in line, but she also removed her name.

I think that the Obama team needs someone who understands the economy and the vital need to reinvest in high wage job growth creation, who understands the importance of redesigning America's domestic social contract between labor, firms, capital and government, and who is familiar with business -- and liked by labor.

There are very few who fit that bill, and Leo Hindery -- who was senior economic advisor to the John Edwards campaign and then was an economic advisor to the Obama campaign as well and authored the interesting book It Takes a CEO -- is a real stand out who the Obama team should consider for Commerce.

-- Steve Clemons publishes the popular political blog, The Washington Note

Sheila Tendy: No You Can't -- Why Wall Street Management Refused to Question Good Results

2009-01-04T09:40:35Z

Satan's little helpers are alive and well. Their names are Greed and Avarice and their sins have proven deadly. Every financial institution sucked into the vortex of the economic crisis walked precisely the same road - they put unchecked and unadulterated greed ahead the interests of depositors, shareholders and the stability of the global economy. Wall Street truly turned to the dark side.

As President Elect Obama prepares to take office, global financial stability continues to go to hell in a hand basket. Jump starting the economy will only help if the financial system is properly restructured. Some say the definition of insanity is making the same mistake over and over while expecting a different result. If Obama doesn't fix what is broken in our regulatory system, it won't matter what kind of stimulus package is launched. All we will have is economic Groundhog Day over and over again.

The most important question the new administration must ask is a philosophical one - why was Wall Street management so completely unwilling to question good results? This is a misleadingly sophomoric question to ask and seductively easy to answer too quickly.

Pressure to make more money, increase shareholder value, and feed the bubble is part of the explanation. Money managers around the world violated all sense of responsible investment strategy and stayed top heavy with mortgage-backed securities because of the collective chant that the real estate market would shoot to the moon forever.

Why else was management so unwilling to question good results?

1. Because no one truly understood the devilish details of how money was being made except for the geeks making rubber band balls while they created these products.
2. Because the thinkers advising our fearless leaders were too self interested to reveal what was really going on.
3. Because regulators weren't equipped to handle the volume of new product complexity which left them unable to ask management salient questions.
4. Because Wall Street management wasn't forced to.
5. Because everyone was afraid to ask, "What if?" out loud.

How could Bernie Madoff engage in such massive criminal behavior for so long without being exposed? Let's face it, investors had plenty of warnings that his returns were too good to be true. This occurrence demonstrates that Satan's little helpers worked overtime to feed the investor's appetite for toxic products that yielded "good" returns. In this case, the toxic product was presented with the illusion of safety and security. Madoff's track record was unrealistically steady and investors went with him anyway, directly as a result of management's unwillingness to question good results.

Did due diligence red flags wave? You bet they did. Here, due diligence would have meant to verify Madoff's success using sources outside of the country club gossip flow. It would have meant analyzing historical returns by requiring independent verification apart from Madoff. It would have meant that the watchers on Wall Street would have examined the investment thesis to see if it made any legitimate business sense once it was being questionably launched on "sophisticated" investors. It would have meant that management and regulators would not have been afraid to carefully scrutinize such good results.

Responsibility for due diligence doesn't stop after the cash is invested or historical returns are tallied. Due diligence requires an ongoing, careful analysis of not only what you are investing in, but what you are hawking, depending on which side of the Street you play.

Despite national exhaustion, we face this new administration with gritty determination to keep going, even though teams of economists have analyzed the ugly data to let us know that we should be depressed for a very long time.

Do we really believe anything that anyone says anymore? Nicholas Chamfort got it right when he said, "An economist is a surgeon with an excellent scalpel and a rough-edged lancet, who operates beautifully on the dead and tortures the living." But real time economics is people. Now we have new people with new ideas saying, "Yes we can." Well, maybe, but only if you take the proper steps to say, "No you can't " first.

Obama must restore faith in our nation's financial institutions by requiring them to start lending again or face loss of bailout funds.

Fannie and Freddie must be cleaned up, restructured and carefully monitored. If they don't function properly, nothing else will. Our unregulated, shadow banking system must be held accountable if it is to continue have such a strong hold on our economy.

Obama can help hedge funds rehabilitate themselves by strongly advising them to walk and talk like regulated entities unless and until a proper regulatory structure can be implemented. New life can be given to the capital markets if those seeking capital voluntarily include bona fide transparency and welcome scrutiny.

Technology must be used to oversee products, whether exchange traded or not, that are tied to the economy. Regulators can face the new world order if given the technological tools to monitor complex products. Obama can further empower regulators by ensuring them that funding for technologically sophisticated oversight will be a priority.

Finally, President Elect Obama should add the one phrase to his lexicon that really needs to be there -- "No you can't."

Obama's Speedy Transition "On Pace To Break All Records"

2008-12-21T23:02:21Z

President-elect Barack Obama this weekend virtually completed the naming of his government's top officials, setting transition records for speed but passing over some longtime aides for posts and irritating some liberal groups hoping to see greater representation of their interests.

By the end of his 11th and final transition week, George H. W. Bush had named 26 senior executives and White House staff. Richard Nixon had named 25. After Week Seven, Mr. Obama had named 69 and has started to appoint officials below the top layer. His latest, on Saturday, were Harvard University physicist John Holdren as White House science adviser, and marine biologist Jane Lubchenco as National Oceanic and Atmospheric Administration chief.

Monroe Price: Sarah Palin: the All-in-One Reality TV Show

2008-12-07T19:26:06Z

It's hard to have yet another Sarah Palin epiphany, but that's what happened as I was drifting happily through a conference called "Reality Worlds," organized at the Annenberg School for Communication by Marwan Kraidy and Katherine Sender.

Scholars devoted to the genre were generating all sorts of theories about these relatively inexpensive and ubiquitous program efforts. But what occurred to me (and undoubtedly has occurred to others) is how Palin's trajectory through the political campaign approximates the rhythm of makeover and other reality TV shows.

Palin is one-person reiteration of everything from "Who Wants to be a Millionaire" (early round dismissal?) up through and including "Survivor."

And then now, there's the story of Palin and her hair stylists, including Amy Strozzi, who received over $40,000 and was awarded an Emmy for her work on the show "So You Think You Can Dance." Shades of "Making the Cut," "Million Dollar $alon,"and "Top Hair."

Palin wasn't even mentioned in the Annenberg talks, but her arc during the campaign could have been a subtext for all the scholarly presentations.

Laura Grindstaff, for example, a professor at the University of California, hit a kind of proverbial Palin nail on the head when she spoke about how these shows seek out a center of American life, and engage in what she called the "production of ordinariness" through reality television.

Grindstaff was talking particularly about an MTV series called "Sorority Life" which chronicles the life of pledges as they move towards acceptance and initiation. I didn't ask, but it seemed to me that one could call Palin, whatever else she was, a kind of initiate, a rushee who among other things had to go through a process of hazing (did she make it? You be the judge.).

At the Philadelphia event, I talked with a very helpful Penn graduate student, Rebecca Pardo, who, like a lot of modern young scholars, has a slight and admirable obsession with "reality" filtered through this art form. She loves the work of Nicholas Couldry (a professor at Goldsmiths in London) and sees Palin as the embodiment of what Couldry has called the Myth of the Mediated Center.

Pardo also put me on to Justin Wolfe, who blogs about "The Hills," a reality show about life in 90210, hedonistic and pragmatic California. Wolfe has written , without, blogwise, using capital letters, about Palin and the process of candidate selection in reality shows:

"it's funny because the way sarah palin was chosen is, in many ways, just like the way heidi montag was chosen for the hills. if you strip all the fame away from heidi montag, if we pretend that she's just a normal girl what's special about her, what sets her apart? nothing, really, she's just normal. kind of pretty, sort of ambitious, but mostly normal. and, without the magic ticket she was given into the world of celebrity, into the show, that's how she would've probably stayed, a normal girl from a small town in colorado. If course, that's the Sarah Palin narrative, too: plucked from the relative obscurity of the alaskan wilderness into the national spotlight, with the barest of real experience or qualifications but with scads of those particular qualities that resonate with the american public: personality, relatability, normality.

"

As on some reality shows (take "Project Runway" for example), Palin was subjected to ingenious and daunting tests that would raise public anticipation about the outcome--triumph or failure. Would she make it to the next round? When Sarah met Katie Couric, it could have been one of these "tests" revealed to the contestant ("for your next challenge, you must go one on one with a noted anchor-person who will ask you questions you may have no way of answering"). Palin's life was a series of created melodramas with accompanying anxieties and the imminent apprehension of failure.

No reality show is complete without the backroom drama, as "Dancing With the Stars," illustrates through the elaborate process of trying to turn someone quite ordinary (in some respects) into the surprisingly gifted (the Pygmalion moment, the alchemy of transformation). Can you really make this person rhumba? Can he or she be trained to be a cook or a business executive (or an expert on foreign affairs)? We were all on pins and needles to see if this process would work with Sarah.

My mind drifted to one of my favorite shows I never watched in entirety: "Ladette to Lady," the story of a group of relatively inexperienced young women,who are given an old-fashioned five-week course in learning how to behave like a real lady. They are sent to Eggleston Hall, an English finishing school.

There was a lot of Ladette to Lady in the Palin tale, though Palin was not a Ladette, by any stretch. And the Republican National Committee wasn't Eggleston.

You could say that this wasn't a real reality show because it didn't have the panel of judges requisite in some versions. But I think of that curious crew of indifferent panelists Wolf Blitzer oddly and unrealistically named "the best political team on television." They could just as well have had cards and numbers; and Sarah (holding Todd's hand tightly) might have been seen on camera -- like frightened ice-skaters -- waiting for the results in an isolated room.

Zala Volcic, a Slovenian now living in Brisbane spoke, at the Annenberg conference (part of Professor Barbie Zelizer's Annenberg Scholars Program in Culture and Communications Program) about That's Me, a Big Brother style Balkan reality TV show which mixed roommates from all over the former Yugoslavia. The show was designed to "negotiate the struggles among religious, ethnic and national groups that still plague the region." That's Me was supposed to smooth conflict, and did not necessarily succeed. This was reality show as social engineering. Think Palin: The Message, energizing the base.

There was much talk at the Annenberg workshop about "parenting" as a persistent theme in reality shows. Mark Anthony Neal, the Duke scholar of hip-hop, gave an exuberant talk on Snoop Dog and his program called "Fatherhood." There and on so many other shows, the fragile nature of parenting--and the possibility of failing and the complexities of succeeding--were tracked.

Of course, the Sarah candidacy--right out of the box--was about mothering in American society--mothering and having a career, mothering and the extraordinary decisions about a child with Downs Syndrome, parenting and an unmarried daughter who discovers pregnancy--it goes on and on.

Much of reality television scholarship is about voting habits of the committed viewers. Stephen Coleman (Leeds), the guru of Big Brother voting, has concluded that there's not a gulf between those who vote in "real" elections and those who vote in "reality" elections. Aswin Punathambekar of the University of Michigan probably had a slightly different view. He spoke, movingly, about the temporarily intense political activity and rampant mobile phone voting in North-East India for the Indian Idol candidacy of Amit Paul.

And then, of course, there were the clothes. Palin and her relationship to clothing is Reality TV writ large. It's the epitome of the "makeover" story. One can think of the RNC operatives as channeling "What Not to Wear", the British show with Trinny Woodall and Susannah Constantine, even including those choice bits of surveillance where Trinny and Susannah view videos of the poor subject.

It's a small and maybe obvious epiphany--The Palin campaign as all reality shows rolled into one. The Annenberg conference luxuriated in phrases that resonated with the campaign like "cult of the commonplace." But mostly, it was interesting to see, through the Reality TV Show lens, what the Republicans -- McCain and Palin's handlers or the audiences reacting to her so enthusiastically -- were actually doing, thinking and reflecting this summer and fall.

Steve Hildebrand: A Message to Obama's Progressive Critics

2008-12-07T14:20:12Z

Five short weeks ago, Barack Obama won a decisive victory against John McCain - winning 365 electoral votes to McCain's 173 and winning the popular vote by 9 million - the largest popular vote margin ever for a non-incumbent.

After a strategy of expanding the electoral map, nine states that George Bush won in 2004, went to Obama - some by significant margins. The Obama victory changed the course of politics - from a candidate who bucked the system saying no to PAC and lobbyist money, to a disciplined campaign, tht beat expectations at every turn, building an unprecedented grassroots movement and raising record sums of money that dwarfed his Republican opponent. Campaigns in this country will never be the same.

Now comes the hard part - assuming the presidency at a time when there are more major problems facing our country and the world than at the beginning of any administration. Our economy is in shambles, affecting people at every income level. Nearly 500,000 jobs were lost during November alone. Retirement and investment accounts were shattered as the Stock Market dropped by historic proportions. Record numbers of families are being forced from their homes. Banks are hardly making loans to anyone right now. Auto manufactures and auto dealers have seen their sales drop between 30 and 40 percent.

We have a war with Iraq that needs an exit strategy and attention by our new president and his foreign policy team. There is unrest with Iran, Pakistan, North Korea and a host of other countries. We desperately need to repair our Nation's reputation around the world. And we need to do all we can to protect our soldiers overseas and our people here at home.

Nearly fifty million Americans have no health insurance, left vulnerable and one catastrophe away from bankruptcy or worse yet, death. This number will increase if we see unemployment continue to grow.

Every day that goes by, where the U.S. and other countries fail to stop the irreparable damage of global warming, is a day closer to changes in climate that we may never gain back.

I could go on and on. The point I'm making here is that our new president, the Congress and all Americans must come together to solve these problems. This is not a time for the left wing of our Party to draw conclusions about the Cabinet and White House appointments that President-Elect Obama is making. Some believe the appointments generally aren't progressive enough. Having worked with former Senator Obama for the last two years, I can tell you, that isn't the way he thinks and it's not likely the way he will lead. The problems I mentioned above and the many I didn't, suggest that our president surround himself with the most qualified people to address these challenges. After all, he was elected to be the president of all the people - not just those on the left.

As a liberal member of our Party, I hope and expect our new president to address those issues that will benefit the vast majority of Americans first and foremost. That's his job. Over time, there will be many, many issues that come before him. But first let's get our economy moving, bring our troops home safely, fix health care, end climate change and restore our place in the world. What a great president Barack Obama will be if he can work with Congress and the American people to make great strides in these very difficult times.

Dawn Teo: NASCAR Car of Yesterday: Emblematic of the Detroit Problem

2008-12-04T14:34:39Z

America's stock car racing is to international racing as the Big 3 (Ford, GM, Chrysler) are to the international automaker industry -- both are the laughing stock (no pun intended).

NASCAR has become such a joke that something like Godwin's Law has developed: The longer a conversation continues among international racing enthusiasts, the more likely someone will make a joke about NASCAR or their misnamed Car of Tomorrow.

Foreign manufacturers see racing as a means to innovate. For automakers outside the U.S., fierce competition on the track leads to better products on the street. Companies like Honda and Toyota develop new technology for their race teams, then find ways to make it affordable for every day cars. American manufacturers, however, refuse to compete on the world stage -- both on the race track and on the street.

Almost all international touring car series require starting with a stock monocoque -- the entire car body (frame, shell, the whole shebang) -- straight off the factory floor. NASCAR starts by welding up a tubular frame (prefab from a single supplier). Then they add a thin shell of sheet metal. The trunk does not open. Headlights and taillights are stickers. NASCAR is less like a stock car racing league and more like a mock-up racing league.

Like the bloated American car companies and the fat cats that run them, NASCAR made their new Car of Tomorrow bigger and boxier, not sleeker and slimmer. International racing rewards those who build smaller, lighter, more efficient engines that squeeze more horsepower out of smaller and lighter engine blocks. The engine block and cylinder heads of NASCAR's Car of Tomorrow, on the other hand, is based on a V8 engine from the 1960s.

Instead of taking advantage of cutting edge technology, American automakers and NASCAR tap into obsolete technology that even car consumers aren't buying anymore. Even the American government has modernized more than NASCAR. It has been illegal to sell a new car that runs on a carburetor in America since the mid-1980s, but the Car of Tomorrow continued NASCAR's tradition of using carburetors.

The Car of Tomorrow also replaced the rear spoiler (on the body) with a rear wing (above the body) and replaced the front valance (aluminum curtain under the front bumper) with a front splitter. NASCAR borrowed these new design elements from international touring car racing series (e.g., DTM, BTCC) who have been using this type of rear wing and front splitter combination since the mid 1980s.

NASCAR's spoiler-splitter change came at a time when aftermarket rear wings had become very popular on street cars (think Fast and Furious). This was meant to reduce the benefits of "drafting" while providing the additional benefit of appealing (or so they hoped) to the young, hip import performance crowd (again, think Fast and Furious). Unfortunately, the NASCAR design has made the cars notoriously more difficult to maneuver, especially when passing. The cars are also more difficult to setup (prepare for each race tracks), and drivers most commonly describe the handling as "twitchy."

Like the Big 3 car companies, the Car of Tomorrow is a mirage, a diaphanous image that is easily seen through when held up to the light. The Big 3 tells taxpayers they are developing the cars of tomorrow -- NASCAR claims they are racing them. The sad reality is that America's automakers are recycling yesterday's technology and sponsoring the racecars of yesterday. NASCAR touts cost savings as a primary factor in its regulatory decisions, but team owner Robert Yates says that fuel injection would be cheaper. He summed it up,

If I had to close down my engine shop and lay off all of my guys, they wouldn't be able to get a job at a car dealership because they've been working on antique engines.

NASCAR engine builder Danny Lawrence (of Richard Childress Racing) says,

They still want it to be where the guys in the shop don't have to have a lot of engineers or computer guys.

Like NASCAR, the Big 3 automakers squandered billions of dollars in profits over fifty years rather than investing in research and development that would have ensured their future. If IBM had decided in its glory days not to try to make personal computers smaller and more efficient, we would not be debating an IBM bailout.

While NASCAR is touting a Car of Tomorrow that is less aerodynamic and less efficient, the rest of the world has moved on. Technical development is the crux of international racing. Although international racing leagues take on some aspects of spec racing, they largely establish regulations by spelling out desired outcomes. This encourages innovation because each team wants to develop a faster, more efficient, more powerful way to meet any outcome set by the sanctioning bodies.

Every year, Formula 1 enacts regulations to slow down the cars for safety reasons. But where there's a will, an engineer will find a way. At the end of every year, Formula 1 cars are faster and more efficient than the year before. NASCAR's Car of Tomorrow included some similar features. Crews have gotten better at setup, and drivers have learned to better handle the car, but there has been no innovation by the engineers.

The car bosses of yesterday have tried for decades to lay the blame of their failures at the feet of the United Auto Workers (UAW) union, but the unions don't design or market the cars. Unions do not allocate investment in research and development. The employees of automobile manufacturers do the same thing all American employees do. They negotiate the best compensation package they can, and then they sweat and toil every day to earn their wages. The buck stops in the corner office on the top floor -- not on the factory floor.

UAW workers have sacrificed much of their hard-earned salaries and benefits to help save these failing giants (and have already voiced willingness to make more sacrifices). After all, taking a pay cut is better than taking no pay at all. But while workers on the line have been cutting back on food, healthcare, and education for their families, the executives continued jetting around on fat bonuses and multi-million dollar salaries.

It never occurred to the Detroit 3 executives that they might sacrifice a little today for a better tomorrow until they shuffled into the capitol building two weeks ago, stepping off their corporate jets with hats in hand, asking for a handout and instead were treated to a dressing down. Their capitol cronies will surely give them their payola -- but they will join the bailout beneficiaries club only after suitable hazing. After all, what member of Congress would miss an opportunity to bolster their standing back home by publicly humiliating Detroit's finest tycoons.

When the Big 3 CEOs truckled into the beltway in ostensibly ultramodern hybrid vehicles, they paraded more of their cars of yesterday. Ford CEO Alan Mulally drove a Ford Escape Hybrid, and GM CEO Rick Wagoner drove a Chevrolet Malibu Hybrid. Both cars have a MPG (mile per gallon) rating roughly equal to the gas-drivenHonda Accord. The Ford Escape Hybrid cannot run on electric-only power above 25 mph. The Chevrolet Malibu Hybrid cannot run on electric-only power at all. Toyota and Honda have edged out the Big 3 automakers -- both in gas-driven and hybrid cars.

The $1 salaries the Big 3 CEOs are purporting are also part of the illusion. Ford CEO Alan Mulally made a public showing of accepting only a $1 salary in 2006, but he actually earned $7.9 million that year in other compensation. The CEOs of companies like Google and Apple have gotten rich on $1 salaries. This is not their first ~~rodeo~~ bailout.

The so-called "Detroit problem" is not going to change without changing the executive culture of Detroit. Just like NASCAR, the Big 3 are going to go round and round in 500 circles before finally realizing the answer is to turn in the other direction.

Robert Scheer: Will Obama Stay the Course?

2008-12-03T04:28:18Z

I do so want to believe that Barack Obama is on the right track. His brain is big, his style fresh, his pronouncements both logical and compelling, and it does feel good to have a president-elect elicit universal respect rather than make the world cringe. Indeed, he's downright inspiring when he defends constitutional restraint on the presidency and shuns torture. Bush is so yesterday, but imagine how panicked we would now be if John McCain and Sarah Palin were about to take a turn at the wheel.

Yet, it all does hang on him. Yes, Obama. The superstar, and not that supporting cast of retreads from a failed past that have popped up in his administration in the making. Now that we have the list of his top economic and foreign policy picks--mostly a collection of folks who wouldn't know change if it slapped them upside the head--we've got to hope that it's Obama who is using them, and not the other way around.

Maybe he picked a bunch of Wall Street insiders to send a comforting message to the financial community that Obama was turning to folks just like them to get us out of the mess that they created. So far, Wall Street hasn't done anything to pay back the taxpayers for the upward-of-a-trillion dollars wasted on that bailout. The credit markets remain frozen, and these banking grinches are stealing Christmas by further cutting individuals' credit lines.

If there is a grand arc to Obama's appointments strategy, it seems aimed at providing the appearance of continuity on the part of a leader who still promises to be very different. Clearly that was the case in retaining Robert Gates as secretary of defense and Marine Gen. Jim Jones as his White House national security adviser. Both choices could have been far worse. Jones has been involved in the exercise of "soft power" initiatives and seems like an otherwise sensible fellow. Gates has been a vast improvement over Donald Rumsfeld in grasping the limits of military power.

Gates also dared challenge the military-industrial complex over egregious military spending on projects such as the $65 billion F-22 stealth fighter plane that was designed to penetrate Soviet air defenses that were never built and has yet to fly a combat sortie in either the Afghanistan or Iraq wars. That's a start on cutting military spending, which under President Bush grew to be higher than at any time since World War II, exceeding the levels of both the Korean and Vietnam wars. Thanks to Bush, the United States now spends as much as all of the rest of the world's nations combined to defeat an enemy armed with a weapons arsenal that, in the case of the 9/11 attacks, could have been purchased for a couple hundred bucks at Home Depot.

Unfortunately, on Monday Obama stuck with the absurd "war on terror" language he inherited from Bush in describing the attacks in Mumbai conducted by 10 lightly armed fanatics who should have been quickly dispatched by a well-functioning local paramilitary force. These terrorists did not, as available evidence would indicate, have anything to do with the Taliban or al-Quaida based in Afghanistan, where the United States continues to wage the good war, as opposed to the bad one in Iraq, that Obama invoked during the presidential campaign: "Afghanistan is where the war on terror began and where it must end."

Both wars are bad in representing exactly the wrong way to deal with "terror," which should properly be thought of as representing pathology to be excised with surgical precision rather than bludgeoned with conventional warfare, which only recruits new fanatics through the killing of innocent civilians.

Finally, the appointment of Hillary Rodham Clinton seems a good one. To paraphrase Obama's remark during the primary debates, Hillary is peaceable enough, and also has the smarts to make a fine secretary of state. Her more hawkish rhetorical side will be muted by the position's obligation to emphasize diplomacy. My prediction is that she will leave her mark by exploiting her pro-Israel creds to complete President Bill Clinton's once promising Mideast peace initiatives to finally provide the Palestinians, and Israelis, with viable states.

The problem with Obama's national security team is not that he has picked hawks who he cannot control; they are all professionals, who took the job expecting to go along with his game plan. The danger here, as with his economic advisers, is only that Obama may stop being Obama, the agent of change who electrified a nation.

Robert Scheer is author of a new book, "The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America."

David Sirota: The Real Rivalry In the Team: The Cabinet vs. The Campaign Promises

2008-12-02T10:38:42Z

Just as an add-on to my column this week, I wanted to add two more macro thoughts about Obama's appointments, and progressive unrest about those appointments.

First, I think there's a psychological aspect to what bothers progressives about Obama's refusal to appoint movement progressives to key positions. The public opinion data overwhelmingly confirms that Obama won with a clear progressive mandate - to argue otherwise against cut-and-dry numbers is to mimic an ostrich shoving its head in the sand, or to mimic the Braindead Megaphone's insistence that this is a "center-right nation." Additionally, nobody argues that his victory wasn't the product of huge progressive grassroots support. So in light of that, there's a perception that he's delivering the spoils of that victory to those who embody what the election rejected.

In that sense, there's a Rodney Dangerfield harrumph - we progressives get no respect. That's understandable, but we're going to have to keep our eye on the policy, understanding that personnel impacts policy, but isn't policy itself. And the policy is ultimately what defines true respect (and disrespect).

Second, the meaningless "pragmatic Team of Rivals" horseshit - and it truly is media-created horsehit - is clearly being used as a rationale to pack the incoming administration with Establishment figures. Indeed, the "rivalry" isn't between the "team" of appointees (most of them come from the same team - ie. the center-right team of permanent Washington). The "rivalry" is between the positions/ideology of the appointees and the positions/ideology Obama explicitly campaigned on.

For instance, the "rivalry" isn't between Bob Rubin proteges Larry Summers and Tim Geithner on economic policy - it is between Summers and Geithner the ideological deregulators and Obama's promises to better regulate Wall Street. Likewise, the "rivalry" isn't between Hillary Clinton and the other "hawks" on the foreign policy team, it is between Clinton who bashed Obama's proposals for more diplomacy with enemies and Obama's promises to diplomatically reach out to enemy nations.

The problem could be something of a cloistering effect. George W. Bush was criticized for putting yes men around him - people who didn't challenge his thinking. By contrast, Obama is being praised for assembling a "Team of Rivals" that will challenge his thinking and, by extension, his campaign promises (it's logical, after all, to believe his campaign promises are an extension of his thinking). But if that team is comprised mostly of the same kinds of voices from the same Establishment perspective, it will likely mean constant if subtle pressure on the President to water down his policies. In short, he won't be surrounded by yes men - he'll be surrounded by no men.

It's certainly possible that Obama will not be affected at all by the voices he puts around him, and that - as I wrote earlier - he is banking on getting center-right Establishment figures to carry center-left Establishment-challenging policy. We should withhold final judgment until we see the policies come January 2009 and beyond. We don't know that this conservatives -carrying-progressive-legislation strategy is his goal, but we can certainly hope, and we can additionally hope that he didn't appoint center-right Establishment figures to carry a center-right Establishment agenda.

That said, I think those who say that the latter isn't possible and that the only rationale thing to do is simply trust Obama's "buck stops here" promise yesterday are being willfully stupid and dishonest - both to themselves and to those they are arguing with. They claim progressives are being "purists" for the progressive agenda - as if they aren't being pro-Obama purists (ie. purists who refuse to question the Dear Leader). And really, what's better - supposed "purists" whose purity is about a set of policies, or purists whose purity is about who can most loyally worship an individual?

The truth is, we all want Obama to do well - but there's nothing disloyal, silly or uniformed about looking at his appointments and asking why many of them seem to individually represent positions and ideologies at odds with the positions and ideologies he campaigned on. And despite the insistence by some that we should "just wait until Obama's in office" and shut up and "give Obama a chance," there's nothing disloyal, silly or uninformed about speaking out about those questions and concerns now - because he is already exercising power when making these appointments, and as Frederick Douglass said, "power concedes nothing without demand."

As a great philosopher asked, "If not now, when?" And to that I'll add, if not us now, then someone else now. By that I mean, if there isn't progressive pressure now, then there will be pressure from somewhere else.

In fact, there already is - it's no accident that the conservative noise machine from Karl Rove on down is praising Obama's appointments, and effectively creating that rightward pull. If there isn't similar progressive pressure now, don't be surprised if the debate - and thus the policy - starts slowly creeping right. As Chris Bowers notes, even Bill Clinton understood the value of progressive pressure - and noted that without such pressure he was forced to the right. That means progressive pressure benefits Obama by helping him play off it and define the progressive center his campaign promises embody.