Fiddle While Burning

There was good news in the failure of a SINGLE REPUBLICAN to support the new president's stimulus package, which won in the House 244-188 (11 Dims also voted against it): Obama learns early that compromising with the Republicans is a waste of time. Congressional Repubs are going to go down for the ideas that brought us the crisis in the first place. They will try to take us down with them.

The core Republican idea is that tax cuts are good and government spending is bad. There are two grounds for them saying this. One is "it's your money": is, you earned your salary yourself, supposedly without any help from government or society, so any taxation is either theft or charity. The premise is absurd, since every salary and fortune depends on a whole range of infrastructures, services, and work from other people. Still, it's a philosophical anchor for one of our somewhat backward country's two major parties.

The second ground is that private spending through tax cuts is more efficient than public spending. Various academic studies suggest that this is technically false: higher returns to the economy come from infrastructural investment than from tax cuts that are either saved or spent on consumer items, most of which are made outside the US and will thus export the stimulus. The record of private business is no better, as the bank record with their new government $350 billion shows: they didn't increase leading, but hoarded, merged, bought bonds, all of which were in their self-interest as they define it and not in that of the economy's.

The core fact that thirty years of Reaganism has tried to erase is that firms invest for themselves and not for society. They are legally and financially required to do this. Reaganism asserts that an invisible hand takes investment for one's firm (e.g. in telephone call centers in India or shoe factories in Malaysia) and translates it into maximum wealth for society. There was never any evidence for this, Adam Smith the supposed author didn't say it, and it has now in the real world come completely unglued.

Dims need to be militant on the higher values created by social investment or the Republicans will sink us all as surely as their forefathers did in 1930 and 1931.

Bore Me with Some Accounting

It is amazing to see Obama actually being president. It is amazing to have a black President of The United States. I still get a huge kick out of thinking that sentence.

Plus this week he did all sorts of direct and immediate things, including his orders ending at least some kinds of torture and ending the "global gag rule" on abortions.

One order Obama hasn't signed yet is the one that makes the bank bailout transparent. We're still where we were in November. No accounting, reckoning, explaining, or minimal tracing of the TARP funds expenditures.

There's also no repentance, conversion, rethinking - except for the moment of weakness from Greenspan. No one is sorry. The people who lost a ton of money got a whole lot more. Their Republican advocates are out there whaling away on the Obama plan as though their ideas and policies hadn't created the biggest financial disaster since, well, the last time they screwed up and created the Great Depression.

What will make them stop? What will get a plan in place that will help the non-rich? We need Watergate hearings or worse on why the system went so bad, where the money went, and how to get the money back into public systems.

Martin Now

It's hard to believe listening to him again on the radio how precise Martin Luther King was about the problems of his day - and, sad to say, our day as well.

Problems like: "war preventing programs" - programs for every kind of social progress. At one point he quoted a US Senator's estimate that the US was spending $500,000 to kill every Vietnamese solider, but only $53 per person to end poverty in the US.

The US story then, and the US story now, is the centrality of war, the weight of war spending, and more generally the irrationally of misspending in grotesque overproportion to suppress threats when their root causes should be fixed instead.

In the 1980s and 1990s it was "wealth preventing programs" - the piling up of huge fortunes in tech and finance that avoided the root causes once again.

What is it about us that makes us unable to stop?

King was great about the psychological underpinnings of the compulsive American errors - the helpless, defiant, and yet shame-filled, and reality-denying thread of uncontrollable feeling that backed it all. He once summarized the foundations of US foreign policy, with its world-alienating use of force to back oppressors, as "this melancholy body of obsessions."

Washington won't ever stop its backward choices unless the US population makes them stop.

Thank you for the reminders, MLK. And Happy Birthday.

I'm Talking the Spanish Inquisition

Fr. Frank leads nicely today with the failure of account- ability, the failure of outrage for widespread federal mismanagement, and the absence of signs that the Bush nexus will be brought to justice. Since regular folks have only the law - no power, that is - this suggests that Obaman government will not be more responsive to the majority.

We need more than a figurehead. We need the bourgeois virtues of accounting and accountability.

We need a process, and mass support for investigation, explication, storytelling, and convicting - the great procedures of democratic process and crime fiction alike. As people like Joseph Stiglitz add up the Bush bill, the numbers are big enough to crush all recovery activities - if payback and just sourcing of funds doesn't start happening fast. We need inquests and investigations. We need the Spanish Inquisition.

One of Fr. Frank's links pointed me belatedly to the work of Eric Janszen, who has a good piece in this month's Harpers on the "next bubble," which includes a lot about our recent bubbles. Even more importantly, Janszen was as ahead of the curve on toxic assets and hedge-fund problems as Dean Baker was about the housing bubble. See his "Myth of the Slow Crash" from June 2006, which has some tasty charts about the Great Depression. It's true that the professional discussions are not as far behind as the public debate - see then Fed governor Ben Bernanke - now Federal Reserve chair - talking in 2002 about deflation after the housing bubble, as Greenspan was still priming it. But that's the point. The public is cut out until everything is decided.

Nothing will change until the investigation creates both answerability and a full tilt public debate.

Employment Unraveling, Bushes Not Yet Burning

The US unemployment rate hit 7.2% in November, which the excellent labor journalist Louis Uchitelle notes is "the highest unemployment rate since January 1993, when the country was still shaking off a jobless recovery from the 1990-91 recession. The loss in total jobs for 2008 was the largest since 1945."

This brings Bush II's unemployment legacy exactly back to the percentage level of his father Bush I's. See the photos of the presidential gathering in which Barak Obama is flanked by the Bushes, both looking as doltish and mediocre as they are. The Bushes were arguably the worst political dynasty in US history, and should never be heard from again, except if dragged to the dock in chains for any of a range of lethal stupidities.

Most sectors are struggling, and people trying to work on their own are getting hammered. The LAT has a good piece on trucking. This used to be an industry where someone without a college degree could a) make a more or less middle class living and b) be their own boss. This workplace combination of financial stability and self-direction was supposedly the cornerstone of political democracy. It's vanishing for college folks, and even more quickly for most non-college people as well.

Nest Egg news is staying dismal. Since the residence is the main form of working class and middle class wealth, the fall is crushing the main source of psychological and actual economic advancement for the majority in our long and continuing period of stagnant majority incomes. This has been especially hard on the Black middle class. Doug Henwood of the New Left Observer (#118) points out that houses are still overpriced when expresses in relation to incomes.

Through the 1980s and 1990s, the average existing house cost 3.25 times the average household's income; it got to 4.7 times at the end of 2005. Prices would have to decline another 4% to get to their long-term average. we're getting close,though after a boom like we had, some overshoot seems likely.

Here's one of Henwood's charts, which paints a nice picture of the temporary 2000s m-c wealth effect.


Krugman is stuck in "size matters" mode for the stimulus. He's getting a bad feeling that Obama is turning Republican deficit hawk at exactly the wrong moment. It's hard to blame him.

The depth of investor sorrows is shocking. Money Morning is, like it sounds, run by pro-capitalist investment advisers. One of their main writers started the year by noting that Finance is a "bearish sector," and then saying, "The entire industry appears to be scaling down to a fraction of its 2007 size, as many of the innovations of the last 20 years turn out to have been spurious."

Well Wow! How do we bury their toxic waste without blowing ourselves up with it?

Facing Up to Trickle Up

I was reminded of another Principle for making anything better economically by this good discussion between Dean Baker and Arun Gupta about the Obama - really the Summers - Stimulus. They were pointing out that it's too small, and too skewed towards tax cuts instead of direct spending, and too skewed towards business and not enough towards poor people. There's continuous enormous need among leaders to give money to the top, e.g. the biggest banks. It doesn't matter how incompetent they are, as long as they're at the top. But money to middling and poor people? Much less likely. And it doesn't matter how much more likely they are to spend it.

Gupta estimated that "Business tax cuts give about twenty-five to thirty cents on the dollar." And he went on to point on that a lot of tax-cut-driven consumption goes to buying foreign-made products. Yesterday Obama promised $1000 per household. Gupta noted like many others that the best way to stimulate the economy is infrastructure spending.

Can the US, after decades of tireless slamming of the entire government sector - from unemployment offices to urban bus systems - spend real money on public services? That's where the real rebuilding will be. But it will mean spending big money on public services that are woven into the lives of the non-wealthy. Think the hybrid city bus, new job training centers with Google-quality equipment and solar capacity built into the materials. US leaders have lived for 40 years by nickle-and-diming the public sector, taxing the middle (with social security taxes on top of income), and moving money up to the top.

Does Washington know how not to give and give to the rich?

I don't think so, and hence half the current stimulus is going to be for business, who will hoard a lot of it, give the rest to shareholders and senior executives, and use another piece to increase their market dominance by buying weaker rivals.

4. Face up to our 19th century social Darwinism. And purge it.

Principles for Dummies

Some basic stuff:

1. Stimuli should develop society, not just support consumption. Obama's Big Whopper is likely to have much infrastructural stuff that's good, and good reimbursements to states for the unemployment, health and education costs that support and develop the workforce, not to mention the population as a whole. It's also getting bloated with tax cuts for business to try to buy Republican support. And you - you get five hundred dollars! Krugman reminds us of how beleaguered development policies are in US politics:

The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on proposals for tax cuts.

This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.

2. Economics depends on social systems and not just markets.

For example. China is wondering whether export-driven growth is a form of sustainable development. Measured in yuan, and corrected for inflation, China's export revenue fell over 11% in the month of November.

Barak Obama called on China to shift its economy from foreign to domestic demand. But the piece explains why this is unlikely:

Shifting toward a greater reliance on domestic demand is not easy. Chinese households have one of the world’s highest savings rates because the country’s social safety net is in tatters, with families receiving scant government help with education costs, medical care and retirement; the average hospital stay costs the equivalent of two years’ wages for the average Chinese worker.

On the same poing, NYT writer Joe Nocera offers a comprehensive piece on risk models and tells the story of the "Value at Risk" model. It failed to be predictive for at least 4 reasons: it generally used only two years of data - artificially peaceful up-years as it turned out. It also fails to account for the rare or exceptional events that change everything - the "black swans" that appear after thousands of white ones make you assume all swans are white. It can be gamed by traders who load up on low-risk positions with huge downsides in the "less than 1%" tail of the curve, and finally, it hides huge losses in that statistically ignorable tail.

The moral of the story is that markets are far less regular and predictable than is often assumed - that is, many many regularities can be overturned by one big irregularity, as when the Dow of 2008 undid the gains of the six previous years in a few weeks.

Nocera also makes clear how intellectually conflicted the trading community is right now: views of VaR aren't just diverse; they are deeply unresolved. For example:

One risk-model critic, Richard Bookstaber, a hedge-fund risk manager and author of “A Demon of Our Own Design,” ranted about VaR for a half-hour over dinner one night. Then he finally said, “If you put a gun to my head and asked me what my firm’s risk was, I would use VaR.” VaR may have been a flawed number, but it was the best number anyone had come up with.

The risk models need lots of interpretation, which mixes market math with people and institutions, which also destroys the ideal of the self-regulating market and brings society and the state back in.

That's where we are now. Unresolved. With little progress in 2008 toward real financial redesign. Which leads to

3. Investment decisions have to be made by society, not by investors and bankers alone.

Does this mean I want NASCAR Bob to have a vote on what Goldman Sachs does with its / our money? YES. But not in the sense that Bob overrides or wrecks decisions made with professional expertise. I mean in the sense of

• accountability. How about basic accounting? We don't yet have this with bailout money, and even finance professionals are alarmed.
  
• explicit public goals. Finance doesn't do anything for 80-90% people. Yet another summary of the stats: "As of 2004, the wealthiest 10 percent owned about 78 percent of all equity in businesses, 75 percent of all equity in individually-held stocks, and 65 percent of mutual funds." Only the top of the middle-class has much money tied up in any investment outside of the house they actually live in:
  

Why were the trillions spent on credit default swaps not on bridges and post-silicon photovoltaic research?

We have to talk.

Happy New Year!

Something funny about money for a change.

While you're still laughing, read this wrap-up of Wall Street 2008 - good riddance!

Jump

That is my instinctive response to 2008, taken from Episode 7 of this year's half-season of Battlestar Galactica. I will get to this in a moment.

As I have had to point out before, the great economic majority, here called the "middle class," but which includes many subdivisions and fragmentations and the working poor, hasn't advanced for 30 years through wage increases. It has advanced through asset inflation: stocks in the 1990s, when its companies converted pensions to investment funds, and through housing inflation in the 2000s.

Both of these patches are now rendered useless. Housing prices are still in free-fall -- down 18% in October from the year before. Given the great m-c's inability to save, that is 18% less for the future - college, for example - and for the present - a more reliable car for work, and in some cases clothes and food. No big surprise that "consumer confidence" fell to an all-time low. This is in effect a no-confidence vote in our leaders. It says no hope in sight.

The only thing that the middle class ever has going for it is analysis and accountability. The crisis needs to be explained. Causes and primary agents need to be found. Justice needs to be done: prosecutions of CEOs, hedge fund managers, and while we're at it of some financial economists for fraudulent product claims.

War has been waged on the middle classes for years. Now it is time to fight, using the class's actual strengths - analysis and accountability through law. There are calls for accountability for this with the Bush administration and foreign policy, torture, and general corruption and malfeasance - Katrina obviously comes to mind. There will be exposures of the rigging of the ground rules in favor of the bigs against the middles and the smalls - even the rigging of the bailout. Here's a picture just to remind you of the stakes (from the Economic Mobility Project).

A year ago I had wishes for 2008: that we could remember that value comes from labor and collective effort, and not just from technology, "entrepreneurial spirit," and leaders. My wishes did not come true.

This year I have wished that people would think systemically. The French do this when their national press gets up in arms about the death of a 57-year-old in an emergency room that lacked necessary equipment: they trace it to the decline of public services, Sarkozian cheapness for all but the rich, failed modernization, and various other major trends. Still, the French have not done this about Israel in Gaza: they see no systemic explanation, and generally look at the last rocket fired before the Israeli strikes. People who invoke systemic elements, like Dean Baker on structural government bias toward the wealthy in making good on losses for the largest banks' high-risk investments, or like Fisk on Gaza cited yesterday, or like this sociologist critiquing mutual militarism and its War Without End, are voices lost in the din.

This wish too did not come true.

Nothing good will happen until these wishes do.

Let's move from our own Battlestar issues to those of Galactica. As you know, the humans created Cylons to be their servants, the servants realized they were considered subhuman slaves, and the slaves revolted. There was a truce. It was broken a lot. Then the Cylons came out of their quandrant and nuked the planet, killing all but about 40,000 humans, who now wander space trying to find Earth so they can settle again. They have sub-light drives on their ships of course, but real travel occurs in "Faster Than Light" (FTL) mode, which occurs when they "jump." And of course they and the Cylons go at each other in every episode. The show's themes are love, fear, terror, and War Without End - and also how to end it. More than any other show I've seen lately, it gets at the mood and the systemic forces of the degenerative Bush years.

The breakthrough in the half-season aired so far (4.0) is that some Cylons rebel against the extermination campaign, which is tied to a parallel rejection of the subordination of their own earlier Cylon models - the Centurions (mechanical) and the Raiders (bio-mechanical pilots). The rebellion is the result of lots of human-Cylon interaction, hatred, and above all inter-"racial" love, which has a religious dimension I ignore here.

The core idea of the rebels is a kind of humanist egalitarianism. I personally believe that this is the sole basis for real progress on our Earth that the BSG humans are desperately seeking, which keeps me going through the repetitive agitation and character-loops of most of the episodes. Will humanist egalitarianism overcome racial hatred, continuous actual violence, and its endless renewal of hostility and revenge?

This brings us to Episode 7 (I omit its foolish title). SPOILER PARAGRAPH HERE: At the start, the humans barely avoid destroying their new allies, the rebel Cylons (the Twos, Eights, and Sixes), who then, through their Six-leader Natalie, offer the humans an amazing deal: they will take the humans to the Cylon resurrection hub (which allows endless downloading of minds and thus a kind of immortality), who can then destroy it. In exchange, the humans will allow the rebel Cylons to go their own way with the "Final Five" Cylons whom they think are great spiritual leaders. They will all, humans perhaps with Cylons, go to Earth together. The humans, especially the conniving, authoritiarian President Roslin, immediately go on to setting up a double-cross. The Cylons, realizing humans are double-crossers, decide to double-cross in turn. After Natalie-Six meets with the human Council to explain her theory that mortality makes life meaningful, she tells the other Cylons the humans still hate them, which prompts her fellow rebels to try to un-doublecross (to both defeat the human plan and to show the humans they are worthy allies), and also to realize that the inconsistency involved in un-doublecrossing will itself seem like yet another doublecross. The episode's last ten minutes are a great hallucinatory mix of sound and light that conveys the descent into madness guaranteed by the mutually cancelling and yet annihilating doublecross, as certain as Hamas Vs. Israel and as Spy Vs. Spy in the Mad Magazine of the 1960s. It ends as Athena-Eight, the Cylon married to a human and the mother of the first human-Cylon hybrid, Hera, while looking for Hera, and seeing Natalie-Six, escorted by soliders, greeting Hera in a corridor, and having a flashback to a dream many of them are having of the Six taking Hera away, responds by shooting Natalie-Six the rebel leader in the chest. At the same moment elsewhere, on the rebel base ship, President Roslin, has ordered the Cylon hybrid (the link between the bio-mechanical and the human Cylons) plugged back in. The hybrid speaks like an oracle, and controls the Cylon base ship. Once plugged back in, the hybrid first and only word is JUMP.

The base station FTLs and disappears.

The double-cross shall not be uncrossed. The only solution is to Jump.

For us, the non-leaders of the world, the only jump available is to block the next doublecross. That work begins by digging down to the depths of the doublecross we are living now.

Damned by Leaders

American leaders, Dims and Rips alike, lined up for Israel's right to respond to rocket fire with its turkey shoot in Gaza. I will spare you the gruesome and abundant details in this appalling international ritual we have seen many times. But in reference to our favorite social group, the American middle class, it is amazing that they seem not to realize that the war, the defense, the killing, the expense, will make everything good impossible for them.

I mean that literally. There will be no real economic recovery, no redevelopment of US society without peace in the Middle East, whose conflicts are draining the world. For US society, more crudely, there will be no money.

See Robert Fisk for the noir leadership vision of what keeps it going, "Leaders Lie, Civilians Die."

And speaking of leaders who lie, Dan Rather is suing CBS for $70 million, claiming breach of contract by CBS in caving to political pressure to retract his story that George W. Bush had a very poor national guard service record.

Worshiping the Black Box

Often they are called "investors." I call them marks, johns, goobers, shitbirds, chumps, suckers - you know, the customers. What did Bernie Madoff call them?

This is a bad time to bring this up. Lots of good people are hurting this holiday season. And I've been fairly sympathetic to the pressure during decades of increasing income polarization on middle-class dupes not to fall behind when everyone else was making 10% a year, including the dope next door. Your salary had plateaued, the job wasn't rock solid, the kids needed college, mama needed a new pair of shoes. Unearned income could make life quite a bit better. But many of these guys gave up the only thing the middle-class ever had going for it: skeptical and independent thinking.

Madoff preyed on his inside networks. He told them how hard it was to get in, how exclusive he was, what a tight little elite club his was. The 19th hole wannabes lapped it up. Then he told them it was all proprietary. Secret shit. 10% year after year pumped out by his black box stuff. They loved it even more.

They loved that they didn't get it. They loved that they didn't understand. They didn't really care about the inequality boom or growing poverty or declining manufacturing or 40 million without health insurance - at least not enough to think about what they were doing.

This is the core religious impulse that keeps the world the dogwatch of tyrants and con men that we sometimes and correctly feel it to be. So we have this chaotic undemocratic sidestepping of progress that the marks and suckers insure that it is.

There's lots more to say about things like the failure of the Securities and Exchange Commission. There's more to say. But it starts with the dolts that make it all possible: the middle-class wannabes without the guts to think for themselves.

The Essential Premise

The starting point for understanding the state of things is that the the American middle classes are not in danger, but have already been destroyed.

The exception is the upper middle-class, the doctors, lawyers, and bankers who are in professions that have been both protected from competition and grossly overpaid by comparison with the nation's overall pay scale. It is becoming clearer, as the Madoff and other Wall Street scandals unravel, that much of this amazingly inflated income (millions to tens of millions for an individual in a year) and swollen wealth accumulation depended on personal connections, family ties - the stuff of "natural aristocracy" gone mad.

For the rest, wages have declined, as I've noted many a time before. NYT columnist Bob Herbert has a good piece today on the auto industry example.

Last year, before the economy went into free fall and before any talk of a government rescue, the autoworkers agreed to a 50 percent cut in wages for new workers at the Big Three, reducing starting pay to a little more than $14 an hour.

That is a development that the society should mourn. The U.A.W. had traditionally been a union through which workers could march into the middle class. Now the march is in the other direction.

Mr. Gettelfinger noted that his members “have not received any base wage increase since 2005 at G.M. and Ford, and since 2006 at Chrysler.

Some 150,000 jobs at General Motors, Ford and Chrysler have vanished outright through downsizing over the past five years.

Auto workers gave and gave and gave at the office, and their executives and then the Senate just kept coming back for more. Why did they bother? Look at the Michigan economy: its cornerstone - not the "auto industry" but "auto workers" and their earning and spending - has already been semi-destroyed.

The old "Fordist" contract between workers and employers was the cornerstone of the American economy. The deal was attributed to Henry Ford Sr., who was mean as hell but capable of a medium-term self-interest well beyond that most economic leaders today. The deal was that his workers should make enough, consistently enough, to eventually buy one of the cars they made. By paying workers $5 a day, he could expand the market for his own product.

American economic leaders have for decades only wanted to expand foreign markets, and have taken the domestic one for granted, and don't really care what happens to local purchasing power. More accurate, perhaps, is the first phrase - they just take it for granted, in the lazy, thoughtless way that Reaganites took highways, bridges, airports, roads, schools, hospitals, and sewer service for granted as they were trying to destroy the governments that had and were continuing to build them. They haven't stopped yet, and a new, much smaller generation of auto employees making $14 hour has no chance of supporting an economy that helps them or anybody else.

None of the bailouts are going to get us off the low road that for decades has been quietly stripping the US of its status as a broadly middle class society. Anyone who thinks we can have one without the middle class status of blue-collar manufacturing workers - well, I've got some Phil Gramm 1999 legislation I'd like to sell you.

More Unrest, Less Meltdown

For the French-inclined, here's a nice piece about the background to the Greek riots.

High schoolers have been marching in France as well. I will have to explicate later - I'm not feeling so good.

Suffice for the moment to say that Greek and French unemployment for 18-24 year olds is about 25% in both cases. This is always attributed by our economists to the oppressive welfare state in places like France, that discourages innovation - like mass layoffs. OK, to be fair, French business law is a pain in the butt. But Greece has no welfare state and is as stuck as ever.

I keep thinking we'll start to look at the business system itself for an explanation.

It's kind of obvious that massive unrest or global meltdown are the only things that prompt basic introspection in our political and business leaders. We need more unrest.

Some Clarity

For a good short statement of the financial industry's extraction of money from the real economy instead of putting it in, see today's Krugman.

For a good overview of auto pension economics and the earning of pensions, see Gregg Shotwell (ignore the already outdated frame for the story

Ongoing Conceptual Crisis

The Financial Times was the first of the big business newspapers, back in August of 2007, to point out the real root of the financial crisis, which was and is that a huge proportion of the securities everyone was buying and selling cannot be priced. Value unknown. Value zero. Value= what the sucker will pay. Suckers everywhere have gone broke or gone home.

So note today's FT coverage for the financial equivalent of the cigarette warning label that has become routine:

The affair has called into question the business model of funds of hedge funds – which run about $685bn in assets – after many of the biggest failed to spot warning signs.

Cleanups require sorting wheat from straw, sheep from goats - all farmyard metaphors are alike to me . . In our current case, the pros can't tell them apart. Worse, the two kinds of assets trade places all the time, and depend on confidence for their stability - on faith in the story being told. Financial sheep are turning into goats, while governments try to pay investors to see their goats as sheep.

It's a great way to run an economy.

The Nation's Mental Decline

Dean Baker nails yesterday's theme:

One of the key lessons of this economic crisis should be that there is a remarkable lack of capacity for independent thinking in our most important institutions: government (both the executive and legislative branches), business, the media, and academia. It is possible that an important authority figure could force a re-examination of deeply held views of the world, but we all must recognize that there is a huge amount of dogma to overcome.

The Dying Middle

The lunatic criminal governor Rod Balgojevich is now helping Obama to his first taste of Clintonian Whitewater politics, now in a media circus near you even before the guy takes office. Who will be Obama's permanent Ken-Starr Special Prosecutor. But crazy Balgojevich is a sideshow. Lets stay focused on crazy bankers and their codependent lawyers. After all, a couple of big firms imploded this week - Dreier LLP and Madoff Securities.

The money these people were making was completely insane. Literally delirious. Operations like Dreier's silently sponged hundreds of millions of dollars annually out of the economy for a couple of hundred people, basically by doing paperwork. You wonder why they call it "law" or why they call "law" a profession. Dreier law is to a profession what crack is to Riddlin. You use a profession to negate it.

Fr. Frank utters an eloquent call for this kind of return to honesty and decency. Other voices of sober wisdom are reading from the Book of Keynes.

Well it's a much better Scripture than the Book of Greenspan. But like all scriptures it needs to be replaced by a new one. Keynes was born in 1883, was in his 30s during World War I, helped enormously contain the ravages of the 1930s depression by giving mainstream clueless policymakers something way less dumb than what they were using, and died before the Cold War even got started (1946).

The current financial knowledge system is so rotten that we are going to have to work much harder than that to make any headway. The big lesson of the meltdown is that not only the public, not only 401(k) investors, not only economists, not only corporate executive, but professional banking elders like Robert Rubin at Citibank had no idea what the hell they were doing. There are the crooks like Madoff and Dreier, but the deeper point is that the biggest bankers of all couldn't tell true from false accountability if their billions depended on it.

The guys at "L'Esprit Public" were debating the Obama team today, but only one, Denis Olivennes of le Nouvel Observateur, expressed sadness at the "classic" nature of the choices, which he thought would block any meaningful innovation. I think he's right.

This is a sad truth indicated by articles like "Liberals Wonder When Obama’s Team Will Reflect Them." The way to get picked for the liberal top is to a) be superconnected (all Harvard-Yale-Chicago this year) and b) have always stayed inside conventional wisdom. The lesson is that originality and strong positions will sink you now and forever.

This is really too bad. Real solutions come from breaks with orthodoxy. Breaks with orthodoxy require a certain antagonism towards orthodoxy itself, and often involve conflict, critique, unpopular position-taking, and general offensiveness. The failure to find any of this ever in the Obama-nomicists leads to the strong possibility that the moderate Obamans are not actually going to be deal at all with this enormous crisis.

Larry Summers is a case in point. The article reads:

Even some of [Obama's] appointees have evolved in their views. Lawrence H. Summers, the former Treasury secretary chosen to be Mr. Obama’s chief White House economic adviser, talks much more about income inequality, financial industry regulation and other favorite causes of the left. “The Larry Summers of 2008 is not the Larry Summers of 1993 or 1999,” said Katrina vanden Heuvel, editor and publisher of The Nation, a liberal magazine.

Of course vanden Heuvel is right. But all this means is that Summers went with the neoliberal deregulatory anti-social flow in 1993 and is going with the flow in 2008, in which every non-reactionary banker on earth has become a Keynsean statist. The future has to come from somewhere else.

Go Ahead Take Everything Take Everything Why Don't You

Dow Chemical is laying off 5000, closing 20 plants, and shutting 180 temporarily. Sony is laying off 9000 of 160,000 and cutting 10% of its capacity. The Tribune Company filed for bankruptcy, affecting the Chicago Tribune, LA Times, two dozen television stations and more. Blogher has good backstory on the use of the Tribune company as pure debt capacity, not to mention the continuous squeezing of the LA Times.

At the end of the day the story is simple. We tried it the Zell Way. We tried the debt and deal making way. We tried taking real companies and using them as financial shells. We let them all print their own money - any kind of security they could make up. The amazing thing is the total latitude these financiers have had, to do absolutely anything. And they wrecked everything. They were already wrecking news journalism. Now they have wrecked their entire companies.

When I look at the largest auto company in the world, one of the backbones of the American 20th century, and hear people talking about it disappearing this winter, I am amazed at the incredible fragility of the enormous wealth that the whole society ceded itself to.

The employees of Republic Windows and Doors are occupying their factory for the 5th day. The company had its credit line cut off by Bank of America - not long after B of A got $25 billion in taxpayer bailout funds so that it would maintain this kind of credit line. The State of Illinois announced that it is boycotting Bank of America. Meanwhile, the Chi-Town Daily News reported that Republic Windows and Doors owner's wife bought a similar factory in Iowa, suggesting a plot to dump unionized Chicago workers in exchange for cheaper ones in the countryside.

Why exactly are these nitwits running everything? Why are the rest sitting without jobs on the factor floor?

Meanwhile Athens is burning

Glad SOMEBODY'S Paying Attention

Even if the office workers are lambs to the slaughter, here are some blue-collars who aren't. It's a good moment too for Obama, and Jesse Jackson, and the power of outrage at basic hypocrisy on the part of banks loading up on govt money.

Obama Says Workers at Chicago Factory Should Get Pay


By Julianna Goldman

Dec. 7 (Bloomberg) -- President-elect Barack Obama said that union workers in Chicago who are protesting their factory’s sudden closure with a sit-in are justified in demanding their benefits and pay.

“I think they’re absolutely right,” Obama said today in response to a question at a Chicago news conference. “And understand that what’s happening to them is reflective of what’s happening across this economy.”

Obama, who gave up his Illinois Senate seat last month after the Nov. 4 election, was asked at a press conference today to weigh in on the protest at Chicago’s Republic Windows & Doors factory, which closed on Dec. 5 after Bank of America canceled its line of credit.

Workers “are occupying the plant around the clock this weekend, in an effort to force the company and its main creditor to meet their obligations to workers,” the United Electrical, Radio and Machine Workers Union says on its Web site.

Because Bank of America received funds from the government’s $700 billion rescue package, the protest has attracted attention from the Reverend Jesse Jackson and Representatives Luis Gutierrez and Jan Schakowsky of Illinois as an example of the Troubled Asset Relief Program helping Wall Street and not Main Street.

‘Reasonable Steps’

“It’s also important for us to make sure that the plans and programs that we design aren’t just targeted at maintaining the solvency of banks, but they’re designed also to get money out the door and to help people on Main Street,” Obama said.

Nobody answered the phone today at Republic Windows. Bank of America declined to comment on Obama’s remarks, spokeswoman Julie Westermann said. “We are honoring all of our contractual obligations to the company,” she said. “We have taken reasonable steps to talk to the company and its management and we expect that the company will soon decide how to proceed.”

While Westermann wouldn’t discuss details of the bank’s relationship with Republic, she called it regrettable that the company has faced “extreme financial hardship.”

The labor union’s goal “is to at least get the compensation that workers are owed,” its Web site says. The workers also want the company to resume operations and, if it closes, are seeking 60 days notice and a “fair severance package,” according to a fact sheet distributed by the union.

The union fact sheet also says the average wage at the factory, which manufactures vinyl windows, is $14 an hour. Workers also “receive good health coverage and retirement benefits,” the union statement said.

“I think that these workers, if they have earned these benefits and their pay, then these companies need to follow through on those commitments,” Obama said at the news conference.

To contact the reporter on this story: Julianna Goldman in Chicago at jgoldman6@bloomberg.net

Last Updated: December 7, 2008 21:00 EST

Pavlovian Applause

That is Fr. Frank's phrase for the fairly mindless praise being heaped on the Obama economic team, people of great credentials and many practical failures.

The piece is called "The Brightest are not Always the Best." One great thing about Frank Rich is that he's incapable of saying what everyone else is saying. But another great thing is his ability to find a cultural framework that puts politics in perspective. Here he invokes David Halberstam's book about the boy wonders in the JFK administration who brought us the quagmire of Vietnam.

Were Fr. Frank not invoking Halberstam, he could have used a more accurate title, "The Brightest are Often Dumb."

The piece is about Summers and Rubin and Geithner and you won't be surprised by the flaws he finds in their actual record. The more interesting bits are the frighteningly familiar comments from Halberstam about the blindness of the Kennedy geniuses. Since I think Kennedy is Obama's real model rather than Bill Klinton, it was alarming to hear Halberstam talk about the free pass the DC press gave JFK because of his similarties to them as to prep schools, Ivies, credentials, and white-collar world-view - a certain kind of entitled, liberal elitism that you could hear in Obama's comment as he introduced his foreign policy team: "They share my pragmatism about the use of power, and my sense of purpose about America's role as leader in the world."

Rich quotes Halberstam at one point on how the boy geniuses were not so smart:

“the difference between intelligence and wisdom, between the abstract quickness and verbal facility which the team exuded, and true wisdom, which is the product of hard-won, often bitter experience.” That difference was clearly delineated in Vietnam, where American soldiers, officials and reporters could see that the war was going badly even as McNamara brusquely wielded charts and crunched numbers to enforce his conviction that victory was assured.

This is true. The "quickness" comes from systematic dissociation from the actual consequences of and people affected by the model that appears in the boy wonder's brain.

There are two things that have made the problem much worse since Kennedy:

• the hegemony of economics over domestic policy. Economists in the US are abstract modelers, and the modelers are in charge of Obama's economic policy.
• the "knowledge economy" was just an idea during the Kennedy Administration, first publicized by UC President Clark Kerr as the Kennedy period was coming to an end. The prestige of "symbolic analysts" and their detachment from the great masses of real people are more acute now by a factor of 10.

It's going to take cultural imagination to get us out of this. The question is how do we get that through the airlocks of the Obama Admin?