On the Contrary

Probably one of the reasons this is not getting much attention is because the financial guys start talking financial speak and we all drift off to la-la land.  But with banks resuming their same old practices of big bonuses based upon risky investments backed by our tax dollars, it is time to focus a little light down in this rat hole.  The good news is this is really a no-brainer.  We have two approaches here.  One is to leave the existing system as is and regulate the hell out of it, and the other is to break up the existing big banks.

Well actually there are three approaches because some of our really brilliant Republicans have proposed that we have no regulations. Republican Congressman Don Manzullo of Illinois, Patrick McHenry of North Carolina and Spencer Bachus of Alabama proposed an amendment that would allow agencies that watches over the financial sector to just die off after five years.  Ideology run amok once again.

I think we can all understand that pure free capitalism in this world runs amok every time.  If it is cheaper to pollute the environment and therefore you gain a competitive edge, you pollute the environment.  If you can rig bids by payoffs, you make payoffs. If it is cheaper to send our airliners to South America for their required yearly checks, you send them to South America. All these examples are true and are on-going.  The history of labor unions is based on corporations enforcing a slave wage because they could.  Need I mention the last financial crisis, or the fact that the rating agencies could make more money by giving the ratings the securities firms demanded?  Where the profit motive is involved, there is no morality and governments must regulate.  Money corrupts absolutely.

As I like to say the devil is in the details, so what kind of regulations.  “Aye, there’s the rub” as Hamlet would say.  What regulations would protect the public and yet not overly limit innovators to innovate?  The other problem with this discussion is that as Congress creates arcane rules, there is major room for mischief here.  Should we be controlling bank executive’s salaries?  Should we have a government regulator nix a deal if it is too risky in his eyes?  If we did that would anyone have funded Apple?

But I told you this was simple and it really is.  First we need clear simple regulations to address the obvious.  But the real solution, believe it or not, comes from Paul Voicker and Alan Greenspan.  NO COMPANY CAN BE TOO BIG TO FAIL.  In the words of the New York Times Article that interviewed him, “He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.   Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities. Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.”

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.”

So we have a simple solution.  Insulate banks and the backbone or our financial system from the security market, and then let the security markets do what they do, and if they fail, boohoo.  One has to wonder why the Obama Administration is ignoring this sage advice and sticking with Timmy-boy and Larry-boy, both creatures of the status quo in the markets?  Or said more graphically. suckled on the fat tit of Wall Street.  These guys have never been you or me.  Remember who Paul Voicker was:  He was the one who raised interest rates back in the eighties and save us from inflation.  He knows what it is like to stand tough with an unpopular, but effective approach.  Oh could our President learn from this man.

By the way, the debate goes on, and if you are interested you can follow economist Paul Simon on the Baseline Scenario as this debate rages.  Trust me, it affects all of us.  Some think the banks are already headed down the road to even a bigger meltdown as we again incentivize risky behavior backed by the U.S. Treasury.  It is amazing to me that we keep turning to Wall Street experts, those morons who did not see this coming or didn’t care.

I have written before that our economic crisis has yet to hit bottom, but who the hell am I to know better than the President and his brilliant economic advisors.  Well, I am that little lower level bureaucratic pissant who was involved in trying to change the way the Corps of Engineers did business in my little office.  And in this role I learned a lot about experts and change.  Neither are what they are cranked up to be.  Experts are people who know what ought to happen, but many times they are co-opted by access to power, and change is always the victim of inertia and self interest.  So President Obama has some of the world’s top minds on the economy advising him and little has changed.

But you don’t have to take my word for it.  On Fareed Zakaria’s GPS Sunday, he had Michael Lewis of Liars Poker fame making the same point I have been trying to make:  Nothing has structurally changed in the banking system and there is still massive debt out there.

“I think that we are in for another day of reckoning down the road. I just don’t know when it is.  I think that they haven’t even properly evaluated the institutions. They haven’t been honest about what these institutions have on their books. They’ve had phony stress tests.  So, we’re in a kind of, I think, right now, in a period where there’s a false sense that it’s over, that the crisis is passed. I don’t think the crisis is passed.”

In another dissenting view of the bottoming out of the economic crisis, Sandy B. Lewis and William D. Cohan wrote an op-ed piece in the New York Times (The Economy is Still at the Brink) which basically said the same thing.  But they went on to point out that the team of advisers really didn’t have any people who did real work in the financial system and really understood how business gets done.

“We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game.”

They both make my point that the systemic problems have not been addressed and we are simply patching a deteriorating tire so we can get a few more miles out of it before it finally completely comes apart.  So why am I so smart and the experts are missing it?  Because they are being seduced by access to power and more importantly, they have not been some lower level lackey who has actually had to make the system work.  They don’t really get how things really work so they are easily compromised by power and the status quo.  Remember Star Trek’s Captain James T. Kirk?  He had his Scotty who understood the nuts and bolts and with that knowledge made things happen.  We don’t have any Scotties in these pools of experts and that is why in the case of Michael Lewis, Sandy Lewis, and William Cohan, you are starting to hear warnings about our economy.

I keep asking the same question and I get no answer and yet I think it is fundamental to fixing our economy.  Our economic ship ran aground because of the housing bubble.  But that was only a symptom of the larger problem that our financial markets were making all the money in our economy by packaging and selling debt.  The goods and services side of the market was dwarfed by this financial services sector where all the profit was.  But if we can’t package and sell debt anymore and the fundamental problem was this imbalance between financial services and the making of real products, just exactly what is going to be the engine of our economy in the future?

To me this is the root issue.  If we just restore banks so they can lend again, then ask yourself lend for what?  If we are going to have a vibrant economy again then we must start making something the rest of the world wants to buy.  That is the root question no one is addressing.  The assumption is that the market place will somehow guide us and we need to just follow its lead.  The last time we did this the big profits were in the financial sector and look where it got us.

The banks are the problem and nothing has been done to change the way they do business.  If you doubt this, just follow the money.  People who blame Freddie and Fannie, or the irresponsible borrowers have missed the whole point.  Who needed more debt to package to make tremendous profits?  When everything collapsed who walked away basically unscathed?  If we don’t tackle the banks soon, our window of opportunity will close and we will be setting ourselves up for even a bigger fall. Unless we change the system in a fundamental way so that smart people can’t still game it to take out gigantic profits thinking they deserve it because they are so smart, nothing will change.

Vine:  Well I have just come in from the vineyard, thinning the Syrah.  The picture on the left gives you some idea of the rapid growth that is occurring in the vineyard especially if you compare to my last weeks posting.  For those of you that want to know what growing grapes involves, this is one of those extremely important tasks to focus growth on well-positioned and strong shoots.  I have been getting up every morning at 5 am to be in the vineyard so I can be out of the vineyard by 10 am or so to he out of the heat and the sun of the day.  What you want is that each of your spurs produce two well positioned (top of plant and growing up) fruit bearing shoots. Think of a T, with the cordon forming the top of the T.  On each side of the trunk on the cordon, you want 5-6 spurs out of which you want two fruit bearing shoots to grow.  But the grape plants are very unruly and they will push out buds that grow into shoots all over the plant, and will push out multiple shoots at one connection point (node).  You want to remove all of these excess shoots, break off one of the doubles since this weaken the joint and makes the two shoots compete for nutrients, and remove non-fruit bearing shoots (you can see the flower clusters that will produce the grapes).  So you must walk along each row, and do some choosing at every spur.  It is time consuming, sometimes frustrating, and tedious. This gets further complicated since many times your strongest shoots are either doubles (two shoots out of the same node) or are poorly placed so that pulling them up through the wires (trellis) could and will break them off.  In some cases, growth is weak and then right next to it you have a very strong shoot, but with no fruit bearing clusters.  So you are trying to thin the growth, pick the best choices for fruit bearing shoots based on strength of growth and location, and sometimes leaving non-fruit bearing shoots to reposition your spurs next year.  The picture on the right shows a single spur and some of the jumble of shoots.  The picture below on on the left shows the same spur thinned.  It is a long tedious task but I have finished in the Syrah.  The lower vineyard Syrah is the worst because it is all terraced so you are working on a steep slope and yes I fell on my ass more than once.  Next I will tackle the head trained Grenache and then the Mourvedre.  In the meantime I need to walk the Syrah about every three days, break off any new growth, and push the shoots through the wires as they grow.  And you just thought I sat on the porch and sipped wine.  Next up after that is mowing down the vineyard, and then beginning Spring spraying for powdery mildew.  The fun just never stops.

Ron Mansfield, my vineyard adviser, told me a story about a couple who recently planted a vineyard (last year) and the plants (bushes really) needed to be thinned to strong shots to grow up the stake to later be thinned to one (the strongest) to form the trunk of a head trained vine.  He had gone out to give them a lesson in how to thin the plant and pick the two shoots (and tie them to the stake).  Then left them to their work.  While he was out there they were telling him about their plans to do some traveling in June and I laughed and said, they don’t get this yet, you don’t travel in June.  He said it got better.  They called the next day to see if Ron would “back them up” if they couldn’t get all the work done.  It is a lesson for all you out there that are thinking about your own vineyard.  It is hard work, albeit rewarding work, but the work doesn’t care about your schedule.  If you are planning to do everything yourself, I would not exceed 1500 plants which is what I have.  And understand that some tasks you really will need help because it won’t wait for one or two persons to get around to it.  Heavy equipment won’t help.  That is pruning in the spring, and harvesting in the fall.  Both tasks have a window of optimum performance and needs to be done by a crew who can complete it in a very short time.

Wine: We have an event up here this weekend (Rock and Rhones) which is one of my favorites and I wrote about it two weeks ago if you are interested.  But this is my time to replenish my wine cabinet and since I belong to many wine clubs, most of my work is simply picking up my shipments at the different wineries.  So I thought I would do that so that during the event at many of these wineries I would not have the additional task of picking up wine.  My wife is always suggesting that we buy more wines we are unfamiliar with and generally I would agree with her, but one rule of thumb is that good wine is usually not cheap.  Good wines up here are usually $20-$32 and of course I get a growers or club member discount which makes getting my wine fix locally even more attractive. So I pick up about four cases (of course I added some additional bottles to my shipments) and I thought I would give you some recommendations to come up here and taste so here they are (sorry, no whites):

Holly’s Hill

2007 Mourvedre Classique (Disclaimer – Some of the grapes are mine)

2005 East Slope Syrah

2007 Tranquille

Miraflores

2006 Petite Sirah

2004 & 2005 Syrah 2006 Zinfandel

Any Year Methode Ancienne Syrah

David Girard

2005 Mourvedre

2006 Syrah Gamay Noir

2006 Syrah

Narrow Gate

2007 Petite Cuvee

2006 Petite Sirah

2006 Syrah

Donkey and Goat

2006 Four Thirteen (Disclaimer-2 of the 4 varietals are my grapes)

2006 Syrah (Vieilles Vignes, Mednocino)

2006 Fenaughty Vineyard Syrah

I have a suggestion for you.  Sometimes if a winery is tasting several vintages of say Syrah ask to do some side by side tasting.  For instance pour a Miraflores 2004 Syrah next to a 2005 and compare.  Do the same thing with different growing locations.  For instances at Holly’s Hill ask to taste the Hilltop Syrah along side the East Slope (same vintage).  You will be amazed at what you can learn.  Carpe Diem.

The thing that keeps me sane is the assumption that most people see beyond the soap operas that are presented in the media as news, but I am beginning to wonder.  I drove once again to San Francisco this weekend for a five year anniversary party for my sister-in-laws for being cancer free and the experience of watching other drivers gives me pause about their ability to think and the future of this country.  Here are my favorites that make me think either the rest of the world is oblivious, or just rude and stupid:

• The idea that the far left lane is where you set the cruise control at 55 mph and never look in your rear view mirror at the line of cars piling up behind you hoping you will get over.  When you notice people passing you on the right, you give them the evil look as though they have somehow offended you.  Personally it is a good thing I don’t have a rocket launcher mounted on my car.
• You merge into traffic moving at 65 mph behind someone going 35 mph.  This is usually someone with a gray head that thinks they are being super safe while exposing you to being rear ended by the oncoming traffic.  Then after they have made your merge potentially lethal, when you try to get around them, they accelerate to 85 mph.  The only positive thing is that they will die soon.
• Then there is the guy (usually a guy in a truck) who decides to merge into your lane without looking, so as you swerve to miss them and honk your horn, they flip you the bird.  Then later on as they pass you, the woman in the passenger seat gives you the evil eye.  I cannot figure out what is going through their mind that could say this was my fault.  But then I think I know exactly how Republicans think:  They cause all this havoc and then when you try to make the world safe again, they glare at you.
• You are moving 70 mph in the fast lane when suddenly the car in front of you slows down to 55 mph for no known reason (speed limit 65mph).  Then they drift around in their lane going from one line to the other.  Finally in exasperation and your need to put some distance between you and them, you pass them on the right.  As you pass them you notice that they have a cell phone plastered to the side of their face.  I wish I could stop all drivers not using hands free devices, rip their cell phones out of their hands and stomp on them.
• You are in the left lane going 65 mph with traffic in front of you as far as the eye can see, and some guy/gal passes you on the right and then forces his/her way back into your lane.  Let’s see.  You gained one car length moving at 65 mph which gained you .5 seconds on your trip.  You could do that only because I was nice enough to leave enough space between me and the guy in front of me to allow for an emergency stop.  But you showed me didn’t you and now you are winning the race.  Where oh where can I purchase a rocket launcher for my car?  Maybe one of those 50 caliber machine guns that mounts on the roof that are available at gun shows or maybe a one of those gun shops along the border.
• What is it about using a turn signal indicator that is so hard?  I know it would require moving your right hand about 8 inches, but is that so much to ask?  When I lived in New Orleans where most of the drivers did not have car insurance, I understood why they didn’t use it.  If the other driver knew what you were going to do, that would give them an unfair advantage.  Maybe that thinking is spreading.

Well the good news is we survived the trip, my sister-in-law is healthy and happy, the party was a great success, and San Francisco is a beautiful place to visit.  The bad news is that if people’s driving habits reflect their judgment and intellect, we are heading for hell in a hand basket.  Hopefully they vote better than they drive.

The Republicans and the “moderate” (I will call them the moron Demos) Democrats are trying to throw a wrench into the Obama budget.  Basically they all have a new found fear of deficits.  I say new found because they had no problem during the Bush years when the financial industry was humming, doubling the national debt by cutting taxes, but now when we actually need to stimulate and invest in the economy, they are pulling back.  I have a basic question for this debate which most people aren’t even thinking about:  Exactly what do we make that either our own population or the world markets are going to buy to give us all jobs?

Think about this, because this question is critical to our resurgence as an economic force.  Looking back on what the Republicans describe as the good times in the early 2000s, our economy was driven by creating and selling debt to the whole world.  It wasn’t sustainable.  It wasn’t that great of a time because as the rich got fabulously wealthy, the average guy/gal stagnated.  Clearly the way forward is for a vibrant, creative, and competitive economy that can create goods and services that the world wants and provides economic growth across the entire working sector.  These jobs are not going to get created out of thin air.  So what’s our plan for getting there?

Well right now we are focused on getting our economy back up and running.  But an economy based upon what?  And this is where the politics and the debate have become almost irrational and self-destructive.  President Obama makes the argument that not only do we need to restore our economy with a three point plan (stimulus, banking capitalization, and mortgage reform), but we must make investments in health care, education, and energy in order to have the basis for a vibrant economy.  He, along with columnists such as Tom Friedman see green energy as the engine that will drive our economy in the future.  But we are not going to get there without investments in our future.  This plan is embodied in his budget he submitted to Congress. But the nay sayers are shocked, shocked, shocked at the price tag.   So what is the counter argument or Plan B?

Well there isn’t a plan B, just concerns and obstructionism.  Probably the most rational argument is the concern over growing the deficit.  But being concerned about the deficit is not a plan for getting us to a growing economy again.  It reminds me of a conversation I have with my better half all the time about what to have for dinner.  I get a whole list of what is not wanted, but not what is wanted so I can plan a meal.  Look at this argument another way.  What is the alternative to not growing the deficit as we make needed investments in our future?  There isn’t one.  We solve nothing, we go nowhere, and we kick the can down the road.  More importantly we don’t have the discussion about where we are going.  Their argument seems to be that we need to get the economy running again before we solve these other problems, but the other problems are a function of our basic problem with the economy.  The irrational part of all this obstructionism is that until we fix ourselves and start making investments in our future, there is no future.  Yet it would seem that the argument is we can’t afford it and then silence about our future.

Think about it.  Well meaning people (well some are) are concerned about running up a debt that could be problematic for our future, but if we don’t make these investments, we won’t have a future.  I realize that some ideologues think the market place will solve all problems and we need to let it just run free, but that is exactly what it has done in the past 10 years and the results for this country and the world have been disastrous.  So the obvious conclusion is that we can’t afford not to make these investments.  We certainly can have debates about the best way to spend this money to get the most bang for the buck, health care comes to mind, but there should be no debate about the fact that we have to make these investments.  Saying we can’t afford it is like saying we can afford to prepare for the future and is the beginning of our decline.

This is the part of the discussion that I find almost unreal.  Republicans and their moron Demos cohorts who are aiding and abetting them have no real plan for the future.  If we do less, eventually things will get better seems to be their belief.  But while we are doing less, countries like China will go right by us, if they haven’t already.  If they had a plan for our future which would explain how their proposals, including scaling back, limited spending, cutting taxes, not addressing energy, education, or health care, at this time solves any of our problems maybe we could have an honest discussion.  Their argument here is we can’t afford it.  But the more obvious conclusion here is that what we are seeing is denial.  They simply want to kick the can down the road instead of making the hard decisions now.  I find this totally irrational and destructive.

So as the flame throwers try to scare you about the budget, the bailout, the deficit, or the stimulus, remember to asked them exactly what is their plan.  Just saying no is not responsible criticism.  How and what are we going to be doing in the future to be competitive and what is your plan to get us there?  Just letting them lob grenades and be obstructionists does nothing to solve our problems and just reduces us to dithering fools.

I am also worried about the deficit, but I know there is no choice.  First we need to get the engine pumping, and then we need to invest in ourselves to give the engine something to do.  Then once it starts to hum, we need to start paying off our investment. Unlike the Bush years, we need to actually raise taxes to pay off our debts.   Personally, I think it will pay for itself and we can’t afford not to believe in ourselves and take the risk.  The Republicans and the Moron Demos want you to hide your money in your mattress and wait out the storm.  This approach could make the storm last indefinitely.  Isn’t it time we let the President take charge and move forward?

The market reacted favorably to the Giethner Plan for the banks and some seem to think this is a good thing and proves we are moving forward.  But investors like what protects their asses, not what is good for the nation.  The real problem with the plan is that the average American is never going to understand it.  In fact if you asked the average American what has happened to the financial markets, most would give you some simplified half-truth because quite frankly it is very complicated.  But it doesn’t have to be.  Matt Tiabbi wrote a piece for Slate Magazine which should be required reading for all Americans because he fairly well nailed it in language most of us actually speak (The Big Takeover).

For those of you who really want to understand this thing and the real issues I would recommend several wonderful blogs in order of how much you need to already understand to understand the arguments, and by the way from real economists, not talking heads and political mouth pieces.  They are in order of easiest to read:
1.    Room for Debate Blog, Will the Geithner Plan Work, a discussion by Paul Krugman, Simon Johnston, Brad DeLong, and Mark Thoma
2.    Paul Krugman’s Blog, Conscience of a Liberal
3.    The Baseline Scenario, Simon Johnston and James Kwak.  There is a wonderful beginners section to get you up to speed
4.    The Economist’s View, by Mark Thoma

Let me try to summarize in one paragraph.  AIG is just the tip of the iceberg.  They bought and sold Collateral Debt Obligations (CDOs) which were nothing more than bundled loans, sliced and diced so they could convince, or more appropriately confuse, the rating agencies into giving them high credit ratings making them highly marketable.  But that is not the real problem.  They sold Credit Default Swaps (CDSs) which were really insurance that the CDOs would not default.  But because they were unregulated (long story) they, unlike a normal insurance company, did not have to have capital (read cash) to back them up.  They sold them to anybody.  It was great money while it lasted.  You did not have to have the CDOs to have insurance on them and there was no limited to how many they could sell (take bets).  Remind you of Las Vegas?  So when the market bubble finally went psst, they are holding these things they can’t pay off.  And everybody was holding them.  Now the trick in this is if you re-evaluate the CDOs to what they are worth today (estimates at 20 cents on the dollar) then the CDSs would kick in and you would have to pay out.  So everyone is dancing around holding all this stuff like hot potatoes which if evaluated in today’s market, makes everyone broke and unable to lend.  That is why when the Treasury gave a ton of money to AIG, they paid out to other companies, yet to be named, this money.  Some of the outrage is because they paid this out at face value worth when many think these numbers could have been negotiated down based upon today’s worth.  Again, no adult supervision.  Because of the domino effect, the belief is that many of these institutions are too big to fail.  Keep this in mind because it is also part of the solution.

Now there are a couple of problems with this handing over money for the private sector to resolve their problem without adult supervision.  First they are using taxpayer money to make bad bets whole.  So the firm that receives this payoff doesn’t suffer and neither does the firm, in this case AIG, that is making this payout.  The conventional wisdom in the banking community is that this is what it takes to save our financial system.  The conventional wisdom in the general population is this is highway robbery using taxpayer dollars to keep failed institutions alive.

Most of us recognize that we have a very bad situation and we have to fix it.  Only the most ideological or political Republicans believe we can let these institutions fail and possible collapse the whole system.  The best of all possible realistic solutions is that we balance the suffering among all the parties.  Every body get’s a bloody nose.  Right now the public perception is only they are being asked to suffer and they are right.  Enter the Geithner banking plan.  The idea is that these toxic assets are undervalued in today’s market.  Given time, and the market/economy recovering, the future worth of these assets is much greater than they are now valued.  The key is to get them off the banks balance sheet at their present worthless value so that banks will then be sufficiently capitalized to loan again, and hey, we are borrowing like fools again, a subject for a whole other blog.

Now one approach is to nationalize the banks/financial institutions, sell off the good stuff, and have the government take on the bad stuff, hold it, and hopefully make a profit in the future  Also, did I mention fire most of the morons that got us to where we are?  But Congress is in no mood to appropriate any more money for this action, and the Treasury has no authority to take over financial investment firms/insurance companies/hot dog stands.  So the other approach is to get private investors to buy this stuff by loaning them the money, and insuring the loan.  This is called non-recourse loans which says if they default, we get the toxic waste back.  They have to put very little of their own money.  It is kind of a heads you win, tails I lose situation.  They have some risk, but very minor compared to the taxpayers.  The plus side is that if the toxic assets do gain in price, depending on what price they bought them at, if a profit is made, the government gets some of it.  But if they go bust, we get almost all the bust.

Now here is where the problems lie.  First, because the taxpayers are insuring the money to buy this stuff, the price they will pay for it may be inflated.  Read that as the taxpayers are getting gouged.  Second, those banks/financial institutions that hold it have to agree to sell it at some reduced price from its face value.  There is no way to force them to do this.  Third, how does this solve the too big to fail issue?  And fourth, where is the pain for the investors in these institutions who let their management run wild, where is the accountability?

My own layman view is this is the best we can do in the political climate, but it won’t work and when things get dicey enough, enter the Sweden solution.  That is when we nationalize these institutions, take over the problem, break them up, and then re-privatize them.  This, by the way, is also the final solution because the banks/financial institutions can never be too big to fail ever again. The problem is, the longer we wait the more costly the problem.  But we are still living in the age of government is bad and this solution will only come about when we are face down in the gutter.  Looking forward to that.

By the way, heard any Republican solutions yet?  That is because they don’t have any.  They are throwing fire bombs at anything suggested, but have no plan of their own except be afraid of deficits, don’t take too much on, and lets cut taxes and spending, the government is the problem.  They really are irrelevant along with our “moderate” Democrats who are really Republicans.

Watching Congress for the last couple of days has been quite entertaining although the destruction they are wreaking may be catastrophic.  Better yet watching Nora O’Donnell on MSNBC almost shrieking as she brow beat Representative Charlie Rangle who was in the conference committee on the TARP bill when he said he knew absolutely nothing about who took the language out of the bill to prohibit the bonuses, was watching misplaced rage out of control.  It turned out the language was removed at the request of Treasury long before it got to conference but that is beside the point.  They want someone to hang, and rational thought is not on the agenda.

The sad thing is that while the bonuses tell you everything that is wrong with the mentality on Wall Street, they are not the real problem.  The real problem is that the banks are broke, badly broke.  It may feel good to string up a few traders who helped get us there, but the reality is, they are small potatoes in the scheme of things.  The real action is getting the system working again and then fixing the systemic problems.  And just as a by-the-way, no laws were broken.  There apparently weren’t any to break.

Congress meanwhile, in wild political gyrations, is playing politics of the worst kind, opportunism.  Most Republicans went into the blame game mode to try to blacken the Obama administration and Democrats in any way they could, conveniently ignoring the fact that it was the Bush Treasury that agreed to these bonuses originally, but none of this is really important.  Some called for the resignation of Timothy Geithner.  Let’s move the chairs around on the Titanic and everything will be okay.  Meanwhile the Democrats headed them off at the pass by passing a bill to tax 90% of the bonuses in the House.  This kind of takes the wind out of the Republican’s sails because it was a problem, but was quickly remedied.  But then the Republicans found themselves caught between a rock and a hard place when they realized this was raising taxes which they had pledged to never raise and many couldn’t vote for it.  By all accounts all this is meaningless because the bill itself is most probably unconstitutional and if not, bad legislation at best.  It will never get past the Senate.

Steven Pearlstein, who is a business and financial columnist for the Washington Post wrote a wonderful article on Friday to describe why this is all about small potatoes and once again the focus is in the wrong place (Let’s Put Down the Pitchforks).  But his most important point was who was really to blame for this financial mess we are in.  We are.  When we finally get tired of lynching parties, maybe it is time to look in the mirror.

Our economy has been going strong not because we were manufacturing anything, but because we were borrowing up to the hilt and making truckloads of cash selling that debt to all comers.  Our entire economic boom was based upon creating and selling debt.  Much of the spending in the last 10 years was funded by 2nd mortgages and credit cards.  Even the investments in this debt was funded by borrowing.  While we ignored the real needs of our country by continued tax cuts, we were out with the credit card getting all those things we were entitled to and deserved.  Think about it.  It is the same mentality as the Master’s of the Universe.  They are entitled to their bonuses because they worked hard and sold all those worthless pieces of paper.  The common good is lost in all of this.  We became so selfish we all feathered our own nests while we emptied our governments and by extension, our children’s.

So what do we make of all this?  Well for the fury in Washington, we can draw the conclusion that nothing has changed.  They are still not focused on coming together to solve the real problems.  Most of our Congress thinks we can find a few scapegoats, score some political points, and things will be back to normal, meaning going nowhere.  But anyone who has ever had to manage a real program and get things done will tell you that shit happens and you make mistakes.  The way forward is not to shoot those who make mistakes, but to learn from your mistakes, correct them, and move on.  Joe Nocera in the New York Times on Saturday chronicled why what Congress has been up to is so damaging to the real problem with our economy (The Problem with Flogging AIG).  If we continue on this path we are doomed.

As I watch those who are playing the blame game, I know they have never really been put in charge of something really important and had to make it work.   The media are experts at pointing fingers when someone stumbles.  The politicians know how to cover their asses.  But none of them has ever had to build an organization and lead it.  It is not about charging forward and shooting deserters.  It is about stumbling, trying something different, making mistakes, learning, correcting, and slowly building a team that can succeed.  It is so easy to criticize and it is so hard to take the risk to lead and then be vulnerable from those that can second guess you.  It would seem that our President has figured this out, but for the rest of the rabble, the jury is still out.

So bottom line here is we should get the money back if we can, but we shouldn’t pass legislation that could be counterproductive to your whole effort.  Note this legislation affects all banks and financial institutions that took federal money and employees who did not work in these troubled financial groups.  They may opt out of the program and just sit tight which is exactly what we don’t need (See Joe’s article above).  We may eventually find out that the deal was struck when the contracts were signed and lo and behold, Treasury was right when it said we could not violate those contracts, as unjust as they are.  If that is the case, swallow hard, lick your wounds, move on. And don’t make that mistake again.  The real battle is to save the economy, not get back one-tenth of one percent of the bailout money.  Meanwhile back in Washington the circus continues and as they do what they do best, finding fault and fixing blame.  Anybody think this is progress?  We need to stop the hysterics, focus on our real problems and start moving forward behind our President instead of this endless lashing out.

For those of you who are repeat readers you know that I like to sum up the Sunday talk show chatter and see if anything besides the usual Washington echo chamber is on anybody’s agenda.  So I started with Meet the Press who had White House Chief Economist Christina Romer and House demagogue Eric Cantor (R-VA).  It was two interviews you could fast forward through.  Dr. Romer pitched the administrations way forward and Representative Cantor told us they had it all wrong.  Yawn.  Once again we had politicos pitching their politics instead of a reasoned discussion about the way forward.  Let’s face it, if Christina thought we ought to be more aggressive she would never say it since she must push the administration plan, and Cantor, while full of criticism, had no plan of his own.  This interview is a reflection of the chattering classes on cable.  No new ground or any rational look at the policies and the way forward, just the same old dueling political ideologies.  No wonder we never make any progress.

I then ran through (DVR) Reliable Sources (no transcript available) because I knew they were going to talk about John Stewart’s roasting of CNBC and Jim Cramer in particular.  The reason the Daily Show and John Stewart are so important to this country is that he takes the obvious, points it out, and makes fun of it.  Mainstream media is locked in their echo chamber and they are missing the real stories that are staring us in the face.  Enter John Stewart.

Well the panel discussion was interesting with most of panelists recognizing that Stewart was calling out mainstream media for not paying attention to the real story, how did all the experts miss the coming downturn.  Of course, there was Tucker Carlson claiming that this was just a liberal hack job on Cramer.  My how the Right continues to be blinded by their politics.  Sooner or later one would have to ask how this coming major catastrophe in our economic lives was so ignored by the financial community.  But Tucker can’t go there since all he sees is liberals ruining his perfect country.  Why do they have this guy on anything?

To me this story was the epitome of all that is wrong with our media.  The conventional wisdom is that nobody saw the economic disaster coming, but this is belied by a little research on the actual reporting which shows that there were financial journalists (and economists) who were warning of this coming meltdown.  But what became painfully obvious in the Camer interview is that most of the mainstream financial journalists were tools of the financial community.  Their reporting depended on access to the movers and shakers in the financial community and their access was dependent on their echoing what their masters were telling them.

Sadly this same dynamic is at work in the mainstream media as well and is why reporting is so much an echo chamber.  What we get are media talking heads who are tools of the political parties.  Their talking points, questions, and criticisms are part of the carefully crafted political dialogue that they just parrot.  So what we get for news is that same old arguments with no real factual or rational basis to judge them.  I guess the best way to say it is that our news has degenerated into a game of spin with the media nothing more that echo chambers for that spin.  Puppets driven by their puppet masters.  At least it is cheaper than doing real research and background.

Then there was Dick Cheney on CNN telling us that we are less safe today because of the Obama administration following the rule of law and even more important, that the administration is using this economic crisis as an opportunity to expand government.  I have a feeling that you need to watch John Stewart tonight, because the irony here is unbelievable and John King (CNN correspondent) just went along for the ride instead of questioning any of these highly dubious claims from a man who has almost destroyed law and order.  Is it just me or did waiving habeas corpus, rendition, torture, warrantless wire tapping, enemy combatants, and military tribunals not expand the power of government beyond anything we have ever seen?  Did attacking Iraq and now seven years of unending war while al Qaeda rebuilt in Pakistan make us more or less safe?  It is incomprehensible that we still give this man deference instead of challenging his “facts” every step of the way.

There was as usual a bright side and it was once again from Fareed Zacharia on GPS.  I cannot say enough about his approach to discussing important issues.  He rarely ever has on political flacks pitching their spin, but international subject matter experts to give their perspective on various issues.   I won’t bore you with the details, but this is one show where you can really learn something and question some of your own preconceptions.

Alas, this morning the news was all about public anger over AIG and the bank bail out.  Anger, anger, anger.  Although it is a real emotion that many of us are feeling, emotion is not what is going to solve this crisis and I have yet to hear (except on blogs such as the Baseline Scenario) what our real options are.  Do we have an option to public spending for stimulus and is what we have done enough?  What does history from the Great Depression or the Japanese lost decade tell us?  What are possible scenarios to bailing out the banks and what are the pros and cons?  What happens if we do nothing?

Oh, I agree we have heard these arguments, but only as political talking points.  Where are the economists (mainstream) and what can they teach us?  We are not being educated by our press.  They are failing as journalists.  How many of you know the real crisis in Europe that could make our problems infinitely worse?  The press once again are simply acting as an echo chamber of the political spin.  Oh by the way did I mention that the financial analysis and advice for our way forward is being giving by the same talking heads that missed the whole economic crisis?  When will it ever end? When will we ever learn?  Where have all the flowers gone?

David Brooks, a reasonable conservative, one might even say moderate Republican, gave a five point plan for how the G.O.P. could not only help their country, but begin the resurgence of their party (Taking a Depression Seriously).  So I thought I would look at this plan and ask a few questions/comment on the five points.

1. “First they take the current economic crisis more seriously than the Democrats.” -  What David is arguing here is that the Obama administration has been too rosy in its economic forecasts and therefore all focus should be on the economy.  Okay so far, but then he says that focusing on other priorities such as education, health care, energy is too distracting.  In other words this is not an opportunity to reinvent these failing policies but we should be focusing only on the economy.  Uh, David?  Isn’t health care, energy, and education intrinsically linked to our economic well being?  For us to have a vibrant economy in the future, we need to be leaders in these fields.  Somehow David is implying that these, although important, are side issues to fixing the economy.  He doesn’t say what investments or strategies he does recommend for “focusing” on the economy so one is left to wonder if this is more tax cutting.  I think David knows government must play a role here, but he is not going out on a limb so say what that role should be while the G.O.P. continues with its tax cuts fix everything chant, and cap all federal spending.
2. “Republicans could admit that they don’t know the future holds, and they’re not going to try to make long range plans based on assumptions that will be obsolete by summer.” – This to me is just another attempt at saying we should not be investing in our future now.  What he is really saying is we need to restore the market to where it was before, then we can consider our way forward.  I also reject this.  First the markets were fundamentally flawed.  Part of restoring the market is to fix it in a way that does restore our future.  Secondly, as noted above, if stimulus is required, and that is what most of us believe, shouldn’t we be spending in things that have long term strategic value instead of whatever gets the market going again, but doesn’t give us any long term assets for our future?
3. “Republicans could offer the public a realistic appraisal of the health of capitalism.” – In other words instead of pushing the market place solves all problems, recognize that it is the best innovative force but has serious problems that have to be addressed.  I couldn’t agree more with him here, although I have a feeling that the Republican’s idea of regulation and the Democrats idea are very different.  Their last go round left holes you could drive Mack trucks through as the Republicans led the charge on deregulation although the Demos went along.
4. “Republicans could get out in front of this crisis for once.  That would mean being out front with ideas to support the wealth-creating parts of the economy rather than merely propping up the fading parts.” – Now here David gets a little more specific to include encouraging the global community not to depend on just the U.S. stimulus, but to put pressure for them to also join in.  He also calls for an end to populist talk about letting Citigroup and others fail as this would be counterproductive.  I would agree with both points here. It would appear that David is supporting the stimulus package, or some sort thereof, since he thinks other countries ought to join in.
5. “Republicans could make it clear that the emergency has to be followed by an era of balance.” – I am not sure what this means, but I think I agree with it.  It says once we get the vehicle back on track we need to start reducing the debt.  I think President Obama has already said this, but the devil is in the details.  If you take this in light of #1 & #2, it means getting the economy running again and then little progress on health care, education, or energy which most of us think are the way forward.

David does not expect Republicans, at least in the near term, to shift to these priorities.  It appears to me that David is showing his moderate Republican stripes because it is clear to me that he does support federal (and international) stimulus support.  The critical question is what kind of stimulus spent on what.  Republicans, both moderate and red state maniacs, don’t want to see investments in health care, education, and energy research because of their belief that government programs are inherently inefficient.  But many of us think these investments are the key to reviving our economy.  This is the real battle ground.  We have followed their lead for the last eight years and we are at least eight years behind in where we could have been reviving our nation.  David will be forever hobbled in his thinking by failing to see that the government has to be an important partner in our economic future.

On Monday, David Schuster of MSNBC’s 1600 Pennsylvania Avenue had Paul Krugman on to discuss his column in the New York Times on Monday (Behind the Curve).  In this column Professor Krugman took the Obama team to task on their economic plan.  Specifically that the stimulus plan was not near bold enough.  He has consistently argued that the Obama plan is not keeping up with the degrading economy and is not nearly bold enough.  He also feels that their approach on the banks is really dithering and is causing further turbulence in the markets.

Apparently this criticism is grating on the West Wing as David read a quote from Rahm Emanuel, President Obama’s Chief of Staff:  “How many bills has he passed?  Now my view is that Krugman as an economist is not wrong.  But in the art of the possible, the deal, he is wrong.  He couldn’t get his legislation.  No disrespect to Paul Krugman, but has he found a way to seat the Minnesota senator?  Write a (explicative) column about how to seat (explicative).  I would be fascinated with that column, O.K.?  Anytime they want, they can have it.  I give them my chair.” (Interview)

In other words, that’s nice, but not practical and we are doing what is practical.  It reminds me of an ongoing argument I have with my spouse about Abraham Lincoln.  Lincoln, who in my estimation was a truly great man is challenged by my wife who saw him as some historians do, of equivocating what was right with what was politically expedient.  I would argue that Lincoln was a man of his times and he knew that even small steps were progress.  My wife would find that morally reprehensible.  If it is wrong, it is wrong.  He should have stood for equal rights for slaves from day one because it was the right thing to do.

Professor Krugman wisely did not enter into this argument, but I will.  In this case I have to take the side of Professor Krugman.  If what you are doing is not going to help, and may lend ammunition to your enemies to say your policies are ineffective, then half-way, what is possible, will be self-defeating in the end.  This is different from the Lincoln argument in that he was moving inexorably forward and moving the nation as they would move.  To be morally pure is nice, but if it helped no one, it was counter productive.  But in this case, doing not enough, but some, may in fact just empty the treasury and not resolve the problem.  Worse, it will empower those who disagree with this approach and stymie progress for years to come.

The argument boils down to this simple idea:  If what is practical is not sufficient, why are you wasting your ammunition?  I think this comes down to a “War on the Economy”.  Decide what is the appropriate course of action, lead by selling it, and don’t compromise away success.  Democrats, sadly, need to get a pair.  This fight may be more important than the war on terror as our whole economic future is at stake.  So take the fight directly to the Republicans and some conservative Democrats.  Don’t be afraid to actually fight a filibuster.

I understand Rahm Emanuel’s frustration, but he is failing to see the forest for the trees.  Half measures are not progress in this war on the economy.  There is a great story told by Stephen Covey in The Seven Habits of Highly Effective People and I will paraphrase it here.  It is the difference between management (managing legislation through Congress), and leadership (standing up for the right approach).  There were a group of managers that were hacking their way through a thick jungle.  They had come up with a way to change leads often so there were always have fresh hackers and they were making excellent progress.  But one in the group wanted them to stop so he could climb up in a tree to see their progress.  There was great dissention in the group because they were making such great progress and did not want to stop. The point is that it makes no difference if you are making great progress if you making it in the wrong direction.  In this case Rahm is a hacker and Paul is a tree climber.