On the Contrary

I have taken President Obama to task in previous blogs for what I feel is his failure to lead once he got into office (Skating on the Thin Edge of Disillusionment).  It seemed that once he arrived in Washington he was overcome with the conventional wisdom of what was politically possible instead of the reason so many supported him, to overcome that conventional wisdom.  Well this morning Arianna Huffington wrote a delightful piece in the Huffington Post about David Plouffe’s new book, The Audacity to Win, making the point that he seems to have forgotten all the lessons that got him to the White House (The Audacity to Win vs. The Timidity of Governing).

I hope he reads this because from my seat he is becoming just more of the same without the courage to take really tough positions and push through real change.  I am not alone in these feelings as a recent article in the New York Times about how Iowa voters who voted for Obama back in the primary are losing faith (In Iowa, Second Thoughts on Obama).  I hope this shakes him out of his slumber and realizes this is not about eight years, but about changing the mindset of America.  The eight years is just a byproduct if he can really do this.  Right now he and his team seem to want to take victory laps for baby steps.

Today is an off-year election as if you didn’t know and have not been inundated by the media that seems to have nothing better to cover.  I won’t pretend to know the local politics of these elections, but the kind of statements we are hearing out of the press is to believe this is a predictor of all future elections.  “History tells us….”, “This election will foretell the future for the Democrats in 2010…”, are the common things they are all bloviating.  To me it is all nonsense as Republican pundits tell you it is a referendum on the Obama administration, and Democrats tell you it is meaningless.  Depending on the outcome of these election they will probably switch positions.  They all have their agendas.

What is telling is that Virginia might elect someone who thinks women are second-class citizens, and New Jersey would reject a governor who made some hard decisions about funding government.  Meanwhile Maine will attempt to deny rights to gays and lesbians also as second-class citizens.  I know it is not that simple, but it does demonstrate that the nation still lacks some kind of vision about where we are headed and are reacting to their fears and selfish interests.  Until we get a holistic narrative about what we are about and where we are headed, these elections just reflect the refusal of most voters to make hard decisions about sacrifice for the future or have a shared set of values.  So much can happen between now and 2010 that these elections are meaningless for predicting the future.

One last extraneous thought:  David Kwak, co-founder of the Baseline Scenario, wrote a really interesting piece titled, Do Smart, Hardworking People Deserve to Make More Money? He was responding to a posting about a story of a family that was down on their luck and struggling with high credit card bills, including plenty of fees.  Apparently the story triggered a wave of posts blaming the victim.  What was on display was the same thought process that blames a rape victim for their rape.  What is really going on is that as a defense mechanism, people like to think that they can control their lives.  This control gives them piece of mind and what is really subconsciously going on is “that would never happen to me because I would make better choices.”  If you really want to understand why some people are utterly devastated when something bad happens to them, it is because they feel a total loss of power and control.  The world doesn’t make sense to them anymore because they didn’t deserve it.

But what Mr. Kwak takes on is a fundamental conservative belief that success and prosperity are the result of discipline and hard work, ignoring the impact of chance.  It’s is that being in control thing.  Many people work hard and don’t prosper.  Some aren’t as smart as others through the chance of DNA combinations or opportunities good parenting brings.  So he asks a fundamental question in terms of a philosophy foreign to conservative thought:

“If you are willing to acknowledge that chance determines who you are to begin with, then it becomes obvious (to me at least) that public policy cannot simply seek to level the playing field, because that will just endorse a system that produces good outcomes for the lucky (the smart and hard-working) and bad outcomes for the unlucky. Instead, fairness dictates that policy should attempt to improve outcomes for the unlucky, even if that requires hurting outcomes for the lucky.”

If you understand this reasoning you are a Progressive and if you don’t, you are a conservative.  It is the classic insight into why conservatives lack empathy for their fellow Americans and judge self-worth in terms of wealth.  It is because they do not believe that chance had anything to do with it.  They deserve what they got and do not need to spend any time pondering the fate of others, because they don’t deserve to share in their bounty.

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.