Wall Street's Great Deflation

July 14, 2008

Phil Gramm, the senator-banker who until recently advised John McCain's campaign, did get it right about a "nation of whiners," but he misidentified the faint-hearted. It's not the people or even the politicians. It is Wall Street--the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington, Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor "run" that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street's preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.

The Bush crowd, always so reluctant to support federal aid for mere people, stepped up to the challenge and did as it was told. Treasury Secretary Paulson (ex-Goldman Sachs) and his sidekick, Federal Reserve Chairman Ben Bernanke, announced their bailout plan on Sunday to prevent another disastrous selloff on Monday when markets opened. Like the first-stage rescue of Wall Street's largest investment firms in March, this bold stroke was said to benefit all of us. The whole kingdom of American high finance would tumble down if government failed to act or made the financial guys pay for their own reckless delusions. Instead, dump the losses on the people.

Hillary's Economic Plan

March 24, 2008

Okay, stop the complaints about Democratic presidential candidates who won't face up to the financial crisis bearing down the country. Hillary Clinton stood up and shook her finger at it, kind of like her husband does. Her response seems a little goofy and maybe a sign the boys in her "war room" are losing their grip. On the other hand, what she said is exactly what you would expect her to say.

Speaking at the University of Pennsylvania Monday [AP story by Charles Babington] Senator Clinton proposed the government provide mortgage companies with protection against lawsuits by other investors. Say what? Isn't that the old Republican chestnut called "tort reform?" Shouldn't she have saved this nugget until after she wins the nomination and starts moving to the right for the fall campaign?

Her logic is strictly from financial. "Many mortgage companies are reluctant to help families restructure their mortgages because they are afraid of being sued by the investment banks, the private equity firms and others who actually own the mortgage papers," Clinton explained. Good thought. Maybe she could send along a few security guards. I hear mortgage lenders are afraid of being tarred and feathered by those families who were conned into buying the sure-to-fail mortgages.

Blues for Obama

March 19, 2008

Win or lose, whatever happens next, Barack Obama is now established as one of those rare, courageous teachers who leads the country onto new ground. He has given us a way to talk about race and our other differences with the clarity and honesty that politics does not normally tolerate. Whether this hurts or helps his presidential prospects is not yet clear, but he has done this for us and it will change the country, whatever the costs to him.

His words should discourage the media frenzy of fear-driven gotcha. His speech in Philadelphia on Tuesday may also make the Clintons re-think their unsubtle exploitation of racial tension. But nobody knows the depth or strength of the commonplace fears streaming through the underground of public feelings. No one can be sure of what people will hear in Obama's confident embrace, beckoning Americans in all their differences, leaving out no one, to a better understanding of themselves.

No Straight Talk from McCain on Economics

March 4, 2008

The Straight Talker, who warned us he was weak on economics, blew a big hole in his presidential vessel the other day by talking straight on the subject with the Wall Street Journal. John McCain has already embraced George Bush's Hundred Year War in Iraq. Now McCain says he also wants to revive Bush's plan to privatize Social Security. And he wants to cut the corporate income tax by one-third, though it has already been eviscerated by Republican loop holes. And the Senator's goal for tax reform includes a "fairer, flatter tax" which can only mean more regressive tax-cutting in the Reagan tradition.

The country and campaign reporters are presently fixated on fine-print arguments between Obama and Clinton, but John McCain's bold declarations to the Journal's Bob Davis provide devastating material for the fall campaign. On one level, the Republican nominee seems to be correcting the record, getting his policy positions even more closely aligned with Bush and the Grover Norquist school of perennial tax-cutting.

Deliver more boodle to the corporates and high-end incomes, so the federal government will be starved for revenue. This is meant to reassure the money guys expected to finance his campaign, but it ought to alarm anyone who still sees McCain as a level-headed moderate who thinks independently. The media truth squad should have fun trying to make sense of the McCain agenda. His remarks will provide content for multiple sharp-edged attack ads.

Slick Willie Rides Again

January 23, 2008

The Clintons play dirty when they feel threatened. But we knew that, didn't we?

The recent roughing-up of Barack Obama was in the trademark style of the Clinton years in the White House. High-minded and self-important on the surface, smarmily duplicitous underneath, meanwhile jabbing hard to the groin area. They are a slippery pair and come as a package. The nation is at fair risk of getting them back in the White House for four more years. The thought makes me queasy.

The problem is not Hillary Clinton per se or the sharp exchanges and personal accusations that squeamish political reporters deplore. That's what politics is always about. Tough, even nasty conflict is educational, also entertaining. Politics ain't beanbag, as Mark Shields likes to say.

Recession Refocuses Campaign Strategies

January 11, 2008

When Goldman Sachs announces recession and the Federal Reserve chairman on the same day promises ready-to-go interest rate cuts, you can take it to the bank: the recession is official. The 2008 campaign's refreshing spirit--the chorus of "change, change, change"--is joined by a more traditional theme. "Jobs, jobs, jobs." Suddenly, everyone wants to sound like a Keynesian liberal, ready to prime the pump with federal spending.

My advice to Barack Obama: look through the John Edwards file--he got there first--and borrow freely from his sound ideas for economic stimulus. Then double or triple Edwards' numbers to show your sincerity. Do this fast. Hillary Clinton is already out of the box with a plan the New York Times describes as the first from any Democratic candidates.

Wrong. John Edwards was out front with aggressive anti-recession proposals in early December. Act now, he said, don't wait for the official announcement. First, Congress should put up at least $25 billion to stimulate job creation and be ready to spend another $75 billion as things get worse. Spend the money on "clean energy" infrastructure, the housing crisis, reform of unemployment insurance, aid programs to help families get through hard times and other wounds. Get the money out to the folks who will spend it right now and to public works projects that can create new jobs quickly.

Peru Trade Bill: It's the Money, Stupid

November 8, 2007

In terms of economic consequences, the new trade agreement with Peru is trivial. In political terms, however, it delivers an ominous message. When faced with a choice between money and their own rank-and-file, the Democratic leaders in the House will go with the money, even if it requires them to pass legislation with Republican votes. Even if a majority of their own caucus is opposed. Even if it means handing the shrinking president, George W. Bush, a rare legislative victory.

Speaker Nancy Pelosi pulled it off today at considerable cost to her own reputation. How different are the new Dems in Congress? Not very, it seems. That is a reasonable interpretation of events and the Speaker is now stuck with the burden of disproving it.

Pelosi's lieutenants "whipped" the party caucus energetically and did better than expected--109 Dems voting for the Peru trade bill, 116 Dems against.

Citigroup: Too Big to Fail?

November 5, 2007

The fall of Citigroup is a resonant political event--akin to the Republican Party's failure to win reform of Social Security--only this time the bell tolls for the Democratic Party. The creation of Citigroup as an all-purpose financial supermarket and too-big-to-fail banking marvel was very much the accomplishment of Clinton Democrats. They enacted the law in the late 1990s that authorized this megabank monstrosity, with coaching from Treasury Secretary Robert Rubin, Fed chairman Alan Greenspan and of course Sanford Weill, the creative genius who built Citi.

Now that this institution has slid into deep trouble and Rubin has been appointed emergency chairman to rescue it, Democrats inherit the stink. They made this mess possible. Will they now accept the meaning of Citigroup gone sour and begin to undo the damage? That is, undertake reform of the financial system in fundamental ways? I doubt it, though the message is obvious.

Just as the GOP dreamed for decades of dismantling Social Security, investment bankers campaigned for thirty years to repeal the Glass-Steagall Act, which separated commercial banking from its investment-house cousins. This was the New Deal achievement enacted in response to the double-dealing banking practices that contributed to the crash of 1929. Bankers pushed their depositors into buying the corporate stocks the bankers were hustling, among other malpractices. Wall Street hated the law but failed year after year to win repeal. The problem was always Democrats (since Republicans were sure supporters).

The Puppet Talks Back

September 18, 2007

The news that the Iraqi government has banned Blackwater USA, the notorious mercenary firm, from operating in the country reveals another of the great fictions promoted by the Bush crowd in the course of this catastrophic war. The notion that Iraq is a sovereign nation in control of its own destiny.

The Bush Administration announced this myth several years ago after Iraqis adopted a Constitution and started electing a government. It was shrewd political propaganda--a reassuring sign of progress--but the claim was not true then or now. Major media and American political leaders, nevertheless, embraced the happy talk and pretended it was real.

(The Nation's own Jeremy Scahill has done pathbreaking reporting on Blackwater: See Bush's Shadow Army and Mercenary Jackpot, among others. Scahill also testified before the House Appropriations Subcommittee on Defense in May about the impact of private military contractors on the conduct of the war.)

The Lies of Alan Greenspan

September 17, 2007

Alan Greenspan has come back from the tomb of history to correct the record. He did not make any mistakes in his eighteen-year tenure as Federal Reserve chairman. He did not endorse the regressive Bush tax cuts of 2001 that pumped up the federal deficits and aggravated inequalities. He did not cause the housing bubble that is now in collapse. He did not ignore the stock market bubble that subsequently melted away and cost investors $6 trillion. He did not say the Iraq War is "largely about oil."

Check the record. These are all lies.

Greenspan's testimony endorsing the Bush tax cuts was extremely influential but now he wants to run away from it.