Archive for the ‘Recession’ Category
A poll recently done for the New York Times and CBS News on the state of the American Dream has some interesting results. It appears that more Americans believe that they have achieved the American Dream today (44%) than they did four years ago (32%). The results may seem strange given the depth of the recession. However, it appears that for a substantial number of Americans the way in which the Dream is understood has undergone a revision. There is now less emphasis on financial security. The New York Times article excerpted below is worth a read, although the examples given in the article are open to alternative interpretations.
The Times and CBS News asked this same open-ended question four years ago and again last month: “What does the phrase ‘The American dream’ mean to you?”
Four years ago, 19 percent of those surveyed supplied answers that related to financial security and a steady job, and 20 percent gave answers that related to freedom and opportunity.
Now, fewer people are pegging their dream to material success and more are pegging it to abstract values. Those citing financial security dropped to 11 percent, and those citing freedom and opportunity expanded to 27 percent.
Delacroix’s Lady Liberty leading consumers and investors who say, enough is enough.
We have all wondered how the financial wizards down on Wall Street managed to help tank the economy. No doubt creative accounting played a substantial role. This clip will explain to you, in a straightforward and easily accessible fashion, just how simple creative accounting can be.
In thinking about the financial crisis—Wall Street, brokers and bankers, and their supporters in Congress, those who have promised us so much in return for so little these past few decades—I remembered hearing the words, “We ask only that you trust us.”
But I was not trusting. I was suspicious. I was ill at ease. Yet, who was I to question the wonders that they produced, the capital that they created, the products they financed, the fortunes they made.
But now I recall. We had been warned. They would come bearing gifts. And then…. Here is that warning (in abridged form), drifting over the air waves for almost fifty years.
It begins with an introduction by Rod Serling, “Respectfully submitted for your perusal: a Kanamit. Height: a little over nine feet. Weight: in the neighborhood of three hundred and fifty pounds. Origin: unknown. Motives? Therein hangs the tale, for in just a moment we’re going to ask you to shake hands, figuratively, with a Christopher Columbus from another galaxy and another time. This is the Twilight Zone.”
Consider as you watch that “a Kanamit” may have been a clever way to say “a Capitalist” back in Serling’s day. For as Wikipedia tells us, “Throughout the 1950s, Rod Serling had established himself as one of the hottest names in television, equally famous for his success in writing televised drama as he was for criticizing the medium’s limitations. His most vocal complaints concerned the censorship frequently practiced by sponsors and networks. ‘I was not permitted to have my Senators discuss any current or pressing problem,’ he said of his 1957 production The Arena, intended to be an involving look into contemporary politics. ‘To talk of tariff was to align oneself with the Republicans; to talk of labor was to suggest control by the Democrats. To say a single thing germane to the current political scene was absolutely prohibited.’ Twilight Zone’s writers frequently used science fiction as a vehicle for social comment; networks and sponsors who had infamously censored all potentially ‘inflammatory’ material from the then predominant live dramas were ignorant of the methods developed by writers such as Ray Bradbury for dealing with important issues through seemingly innocuous fantasy.” The Twilight Zone
RockefellerJ.P. Morgan in action
Obama’s budget is smart and far-sighted. I wish I could say the same about the bank bailout. We are certainly not out of the woods on this one.
On April 1st, the New York Times ran an Op-Ed piece by the noble winning economist, Joseph Stiglitz. (There is an excerpt and link below.) It’s about as clear a presentation of the issues involved as I have seen (in a short piece). And it lays out why we should be concerned about the plan, which is no doubt the work of Geithner and Summers. I worry, as many do, that the red-herring rhetoric of “nationalizing” the banks will prevent us from properly addressing the situation. I worry that Geithner and co., for all of their good intentions, are too close to Wall Street not to be sucked into the myth that “nationalizing” must mean socialism or the appearance of socialism. (The irony here is that this is precisely the rhetoric that the right has used so successfully in the past to prevent such needed programs as universal medical insurance.) I worry that this plan is viewed as a shrewd move to get the Wall Street/banking crowd on board by Geithner and co., but will end up providing the banks only a temporary boost in liquidity, yielding “profits” that will once again allow them to laugh all the way to their own banks.
J.P Morgan headquarters
My hope is that if the plan doesn’t work, the Administration will quickly turn around and say, we tried, and move on to a solution more appropriate to the problem. I am confident that Obama the pragmatist would make such a move. The question at hand: how hard will his own soft ideologues fight to avoid the appearance of “nationalizing” the banks?
Obama’s Ersatz Capitalism (excerpt)
by JOSEPH E. STIGLITZ
THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.
Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency. . . .
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.
1934 movie poster, United Artists
For reasons that you might easily be able to infer from our present collective financial woes, I recently had an urge to read (and listen to) a book that I have never read, The Count of Monte Cristo. My more philosophical side says, avoid revenge. No good will come of it. My gut says, go, go, go.
Here is a short passage you might enjoy. The Count is speaking to the banker Danglars, one of the guys who “done him wrong,” but is unaware of the Count’s actual identity.
“But what is the matter with you? You look careworn; really, you alarm me; for a capitalist to be sad, like the appearance of a comet, presages some misfortune to the world.” The Count of Monte Cristo, Modern Library Edition, 2002, p. 887.
Music to the rescue in the face of economic troubles….In this case some saxophonists.
Another reason to support the arts, even in times of trouble.
At today’s Congressional Hearing:
“We are meeting today at a high point of public anger,” said Mr. Liddy, a former chief executive of Allstate who was installed as A.I.G.’s chief when the Federal Reserve announced its rescue package. “I share that anger. As a businessman of some 37 years, I have seen the good side of capitalism. Over the last few months, in reviewing how A.I.G. had been run in prior years, I have also seen evidence of its bad side.” NY Times, March 18, 2009.
I watched a good portion of Edward M. Liddy’s testimony before Congress today. I hadn’t planned to. I got caught up. Liddy took on the job of CEO at A.I.G. for 1 dollar a year. He appears to be a man sincerely dedicated to the service of his country. However, while by no means clueless about the possible reaction of the American people to the AIG bonuses, he did not realize that his arguments amounted to telling the American people that we had been blackmailed. If he hadn’t agreed to pay the executives of the compromised division their bonuses, they would have walked, AIG would have tanked, and our economy would have headed into a death spiral. Or so he claimed. Liddy needed to retain these folks. And he could only do so by paying out millions. (Yes, he made it clear time and again that there were contracts that had to be honored, but as congressmen pointed out, the company could have chosen not to pay and accepted the possibility of being sued.)
“Of the 418 employees who received bonuses, 298 got more than $100,000, according to the New York attorney general, Andrew M. Cuomo. The highest bonus was $6.4 million, and 6 other employees received more than $4 million. Fifteen other people received bonuses of more than $2 million and 51 received $1 million to $2 million.” NY Times, March 18, 2009
The danger to the nation due to a complete financial collapse is far greater than the danger of terrorism. And this is just what Liddy was claiming might happen if these executives walked and AIG tanked. So we have people dying in the fight against terrorism, but we have others insisting on the entire amounts of their bonuses in order to cooperate and prevent financial ruin. As patriotic Americans (that is, those who are Americans), they should have offered to work for a small portion of what they were being paid, especially the top earning executives.
Each contract with each employee had its own unique structure, reported Liddy. They simply couldn’t hold back the funds. However, today he reported that he has asked the executives to return 50% of the money. They don’t have to, but as good Americans they might. (Why didn’t he ask this of them last week? or a month ago? or ask for more?) Think about this, as you think about all those who are on the street without jobs, including Wall Street people. Think about the sense of entitlement that these AIG executives have. Think about why so many of us didn’t see this sense of entitlement as dangerous to the well-being of our nation until very recently.
The American people have been sold a bill of goods for almost two generations now, and it goes something like this: if we take advantage of the magic of the market, if we just look out for number 1, the free market will reward us as a nation. Yes, there are folks in the military who sacrifice, and there are those who volunteer for civilian service, but at the end of the day we serve our country and communities best by seeking our own fortunes.
I am putting this too starkly you say? Perhaps. But it became the mantra of Wall Street. And as they once said about GM, what’s good for Wall Street is good for America. Just watch those 401k’s grow, and never take any money out of them. The market always makes a profit in the long run. (Of course what they forget to tell you is that the long run can be very long indeed.)
The party’s almost over, as so many have declared. The party, however, is not just about living the high life in good financial times. The party is about having a set of beliefs that comfort and aid us in getting on in the world. And one set of these beliefs has involved the goodness of capitalism and the free market. We have spoken about them as if they are gods. They are not. Capitalism can be an exceedingly productive economic system, but only when operating under proper guidance and regulation. There are no free lunches and there are no entirely free markets. Believing so is exceedingly dangerous, especially when this ideology replaces our common sense about the sacrifices and labors required to build and maintain communities and a nation.
AIG, Bernie, foreclosures, housing bubble, -401K, recession, depression, global financial meltdown, Eric Cantor, Mad Money, etc.
It’s time for a break, if only a short one.
Let’s return for a moment to how our grandparents (or perhaps our great-grandparents) kept their spirits up in the Great Depression. From “Follow the Fleet” (1936):
The word is out. Unless AIG pays their executives millions more in bonuses, they might lose the best and the brightest of their employees. Corporate raiders will swoop out of the clouds and plunder their human capital. And then where would AIG be? And then where would we be? (According to FOX, if AIG cannot retain their top execs, it has threatened to morph into a black hole and take the inner planets with it.)
But wait. We may have nothing to fear but fear itself. Let us not forget that AIG is in the business of insuring companies against their own incompetence. The solution is simple. AIG should insure itself against its own incompetence through one of its products, for example, FinancialGuard (see below). So, even if it were to lose its best and brightest by not paying out the bonuses, AIG could still survive through the miricle of insurance.
Here is AIG/Australia hawking one “product” that can help save it (and us):
What is it?
Professional indemnity insurance on a civil liability basis
Why do you need it?
The activities of regulators, the changing distribution of financial institutions products and a more informed and litigious consumer environment lie behind the increase in the frequency of civil liability claims against financial institutions….
Our Civil Liability product provides blanket protection against the financial consequences of a legally enforceable obligation in which a civil liability is incurred arising from services provided. Covers includes defence costs and civil penalties.
Who needs it?
All Financial Institutions including Banks, Building Societies, Investment Management Companies, Insurance Companies and Stockbrokers.
And under a discussion of assets on the AIG site we find the following pitch:
A company’s assets are vital to its operations. And protecting those assets is essential to the well being of a business. Assets can be tangible and intangible and can include a company’s corporate reputation, as well as physical assets such as property or goods. We offer standard or customised programmes on a domestic or global scale as well as a wide range of products covering more demanding and specialist risks.
Protection of assets!! Protection for corporate reputation!! Protection from the activities of regulators!! AIG can save itself (and us).
Up until now little beside blind greed and gross incompetence have been offered to explain AIG’s behavior. Here is an alternative hypothesis: Someone inside AIG decided that the best way to stimulate the market for its financial insurance products was to come up with an example (AIG’s own failure) that would scare the daylights out of even the most confident of finance people, pushing them right into the arms of AIG’s financial insurance sales force. Insanely diabolical, wouldn’t you say?
And if this hypothesis is incorrect, I have another: AIG is a corporate comic genius.
P.S. Here’s five bucks. Feel free to buy yourself half a dozen shares of AIG.
Kate Phillips reports the following in the NY Times on August 20, 2008 (article here):
“A dividing line shows up in this [NY Times/CBS] poll, according to the analysis by Mr. Cooper and Ms. Sussman:
Mr. Obama, the presumptive Democratic nominee, was trusted more by voters to handle their top concern, the economy. Sixty-five percent of those surveyed said they were confident that Mr. Obama would make the right decisions on the economy, compared with 54 percent who expressed confidence that Mr. McCain would. When it came to foreign policy, the image was inverted: 66 percent expressed confidence in Mr. McCain to make the right decisions, and 55 percent in Mr. Obama.
The economy ranks far higher than national security or the Iraq war as a top concern among voters in the new survey, which indicated that respondents were more negative about the economy than at any time since 1992 when, as the article notes, Bill Clinton won the presidency with the admonishment that ‘It’s the Economy, Stupid’.”
McCain has hung out the bait: you hate the war, well I am going to keep making outrageous claims about winning it. Come and get me. And we will if we are not careful. Because he was wrong about the war from the get go and his foreign policy is a throwback to the Cold War. But it’s a trap. While most Americans agree that the war is bad news, it is not what they are mainly concerned about right now. Or more to the point, it is not the central concern of most of the undecided voters, those who will determine the outcome of the election. They want to talk jobs, wages, foreclosures, mortgages, retirement, and medical care. If Americans are basically confident that Obama can handle foreign policy, and the poll suggests that 55% of them already are, then Obama has crossed the most significant threshold. He doesn’t have to top McCain. He just has to make sure that enough people feel comfortable about his ability to handle foreign affairs so that they can go ahead and vote for him based on economic self-interest.
My conclusion: as painful as it might be for Obama and his supporters, they should avoid responding to McCain every time he raises the Iraq War and foreign policy. A better course: remind the American people as often as possible that the war is costing us 10 billion a month when we have no health care and the economy is tanking. (And they should also remind the American people that McCain said that he needed to study up on economics just a few months ago. A captain of the economy he is not.)
P.S. Yes, of course, there will be times that Obama and his supporters will have to respond about the war and discuss foreign policy, but this is different from getting sucked into an endless debate about the war. It was and is wrong, corrupt, and strategically stupid. But this is going to be a pocket book election unless something unforeseen and very big happens internationally. Focusing on the Iraq War and foreign affairs is not going to win the election for anyone but McCain. And then we will have to stare at this for years to come……
UPDATE: August 23, 2008. The selection of Joe Biden as the VP candidate should work beautifully with the strategy outlined above. The basic premise of this strategy is that Obama does not have to poll better than McCain on foreign policy; he just has to convince a majority of Americans that he can handle foreign policy well. The NY Times/CBS poll suggests that he has already crossed this threshold. Biden will not only help to make sure that he remains above this threshold, he will help Obama improve his standing. My guess is that the selection of Biden, and other moves that Obama will make, will push him well into the 60% range on the question of confidence in handling foreign affairs. (A 3-4% lead in the popular vote will almost surely translate into an electoral college win. That’s a 52%-48% win, without third party candidates included.)