Summing up 2011: Drowning Homeowners, Soaring Banks, Historic Inequity

(picture credit: http://www.moonbattery.com/Underwater-House.jpg)

As we await the outcome of the tea-party-dominated vote in Iowa--a tea party movement that got its name from Rick Santelli's rant on CNBC against Washington's "subsidizing losers' mortgages" in 2009 --let's take stock. More than two years in, this must be considered one of the most lopsided and pathological recoveries--a non-recovery, really--in American history. Here is what does not add up in our economy: even today, no one wants to risk the "moral hazard" of helping the "losers" -- the deadbeat mortgage holders who aroused the ire of the libertarian Santelli -- in a big way, lest this action undermine the proper working of capitalism. And yet we've just spent the last four years pouring hundreds of billions of dollars into helping deadbeat banks (while asking nothing in return), thus also undermining capitalism.


Why aren't we talking about the inequity in this? The "losers' mortgages," of course, continue to be the biggest dead weight on American recovery. The underwater mortgage and foreclosure crisis has prevented a resurgence of demand in a consumer economy that, because of stagnant wages, had become dependent on debt and refinancing for growth until the crash. So it is an economy that now has no great new life in it, with so many households still drowning in the deluge left behind by an unnatural-- this had little to do with authentic capitalism, Mr. Santelli! -- and fraud-driven housing mania, as I wrote in a post on Dec. 20.

On the other hand, the banks are soaring, artificially sustained by Ben Bernanke's Fed. This positive trend has been ironically turbocharged by the eurocrisis, with European banks dumping assets to be picked over by their U.S. brethren. Yet the American banks continue to defy even the meager government efforts to force them to renegotiate more underwater mortgages. From the very beginning, says Diane Thompson of the National Consumer Law Center, the admininstration and the Congress "underestimated the amount of fraud. And I think they overestimated the good will of the bankers. From the beginning, all the proposals were too small." Congress kicked its biggest opportunity away in 2009 by declining to alter bankruptcy rules and thus make it easier for homeowners to get out of bad mortgages, and the Obama administration didn't fight the issue very hard.

Maybe the strangest thing of all is that Barack Obama's 2012 re-election probably hinges on working this dead weight off the economy. And yet, with just 11 months to go, he remains curiously detached from the problem, still deferring to Timmy Geithner, his let-the-banks-be Treasury Secretary, who never met a Wall Street firm he didn't want to protect.

No one seems interested in discussing how nonsensical it is to be worrying about moral hazard for people but not for banks. (When was the last time you heard a good debate about the "too-big-to-fail" problem?) And even here the problem of forgiving "deadbeat" borrowers was always exaggerated, argues Kathleen Engel of Suffolk University, one of the most prescient observers of predatory lending and fraud in the country. As she points out, "The people who are walking away from their homes are generally investor-owners, not owner occupiers. Yeah, there's some reason to be concerned about moral hazard, but they still can be sued for deficiency judgements if they walk away."

Even the Justice Department, the SEC and other agencies have been passive, despite the evidence of massive documentation fraud in which the biggest banks were complicit. The one agency that could make a difference, the new and independent Consumer Finance Protection Bureau, remains hamstrung and leaderless because of GOP obstructionism.

No one in power wants to pressure Fannie and Freddie -- which have become too toxic to touch, again because of politics -- to renegotiate terms and write down principle. Currently, notes Thompson, "Fannie Mae and Freddie Mac don't even //allow// principle reductions." And Congress continues to hold up Dodd-Frank reform, including new mortgage rules.

This is what really ails us. It is the sclerosis eating at the heart of our economy. The only solution for a government-created crisis--yes, it is that, though not the way the tea partiers think--is a government-created solution. Naturally, you won't hear much of it discussed in Iowa over the weekend....

America's New Super Pac Politics

Unraveling Newt Gingrich's hypocrisies is not unlike peeling an onion--there are so many layers that you can't help but cry and give up the task. Here are the first few layers of Newt's latest multiple-flip-flop: Recall that Gingrich was a stout defender of Citizens United, the right-wing group that precipitated the infamous Supreme Court decision that opened the way to Super PACs, and that Newt allegedly used millions of dollars from his now-defunct Super PAC, American Solutions for Winning the Future, to fly around the country promoting himself, although candidates are supposed to be divorced from these new campaign monstrosities.

Then, a few days ago, a newly "positive" Gingrich decided to make a principled stand against the impact of Super PAC politics. He whined about the effect that Romney's Super PAC was having in Iowa by airing negative ads against Newt. Romney should be able to "influence" the group, Newt declared with his usual self-righteous certainty. How, he thundered, could Romney hope to influence Congress or even China or Russia if he couldn't get get his Super PAC in hand? "The only person who profits from Republican ads attacking other Republicans is Barack Obama and I think it is pretty reprehensible behavior on the part of some of the candidates," Gingrich added. ("It's against the law" to coordinate with one's Super Pac, Romney reasonably countered).

Well, now Newt has apparently decided that Romney is right--or at least that it's impossible after all to control one's Super PAC. His own new group, Strong America Now, is calling "Romney is the second most dangerous man in America" after Obama. Nothing negative about that, I guess.

Newt Gingrich, there's a steady man for you.

What this really demonstrates is that not even the candidates understand any longer how the new Super PAC machine created by the Citizens United decision is upending American politics. What the Super PACs are already doing to twist Iowa's much-touted grassroots caucus process out of shape is only an early sign of what's to come ...


(Picture credit: http://www.rawstory.com/rs/2011/11/18/super-pac-man-gobbles-up-regulators%E2%80%99-time-patience/)

Check out : Countdown to Iowa

How the Iowa caucuses could be putting themselves out of business: Countdown to Iowa

'Momentous'? Obama-Romney will be close--but booooring

It's not often that you get to make fun of Newt Gingrich and a liberal Washington Post columnist in the same breath--but we've arrived a such a moment! Day after day, the Newt-ster is reminding normal people on all sides of the spectrum why they're frightened by the prospect of a Gingrich presidency: the hypocrisy is one reason, but mainly it's his pretentious, vainglorious, overreaching rhetoric, which the logorrheic candidate seems incapable of moderating or containing. Two examples from recent days: Newt believes the best "analogy" to his being kept off the ballot in the Virginia primary is Pearl Harbor, according to TalkingPointsMemo, quoting Gingrich campaign director Michael Krull. It was a setback, Krull explained, but "in the end we will stand victorious.”

Somehow, in Newt's addled consciousness, his failure to get enough signatures for a state primary adds up to the beginning of World War II. So... what would a real challenge like Pearl Harbor mean?


Then, campaigning in Iowa, Gingrich declared:  "This is the most important election since 1860, because there's such a dramatic difference between the best food-stamp president in history and the best paycheck candidate." The election of 1860, of course, was about whether the nation would dissolve into Civil War. Uhhhh, WHAT? Yes, Newt, we are a politically divided nation. But I haven't heard any secession talk lately.  Nonetheless WashPost columnist E.J. Dionne, departing today from his usual informed sensibleness, cited Gingrich's ridiculous 1860 analogy in concluding that "everyone agrees that the 2012 election will be a turning point involving one of the most momentous choices in American history."


No, they don't agree. At least I don't. "For the first time since Barry Goldwater made the effort in 1964, the Republican Party is taking a run at overturning the consensus that has governed U.S. political life since the Progressive era," Dionne writes. To wit: Republicans want to remove government from American life, and Obama wants to impose it. OMG, we've been hearing this since the Reagan era, and the reality is nothing like the rhetoric. Reagan launched a deregulatory era but did not cut the size of government; he increased it. So did the two Bushes. The tea-party-driven GOP rhetoric we're hearing now is an angry reaction to that, but let's not overreact ourselves.

In truth, Obama and his likeliest opponent, Romney, are far closer in mindset and philosophy than anyone is willing to acknowledge just now. Obama, despite his image, has sought to placate business and left Wall Street largely intact, and he is taking a far tougher line on foreign policy--one that reflects a traditional GOP "realpolitik" view and a dramatic ratcheting up of covert war-- than is generally acknowledged, even when it comes to China. Romney, increasingly desperate to win over his base against an onslaught of "Not-Romneys," has allowed his rhetoric to grow more inflamed on the trail, including commitments to a balanced-budget amendment and partially voucherizing Medicare as well as eliminating Obamacare. But based on his history, if he gets the nomination he is unlikely to follow through fully on these overheated pre-primary pledges and do many things very differently, either on the economy or foreign policy. The problems of slow growth, chronic deficits, and an overextended military will inevitably lend themselves to similar solutions from either an Obama or a Romney administration.

Dionne acknowledged that Gingrich's metaphor was "cheap and inaccurate," but he nonetheless took Newt's "historical sweep" seriously. "It says a great deal" about the importance the election, Dionne concluded generously, "that Gingrich chose to reach all the way back to the election that helped spark the Civil War."
Sorry E.J. It only says a great deal about Newt.

The Big Lie Grows

The Right can't agree on much these days--witness the Boehner-McConnell miscue over payroll tax cuts--but conservatives are eagerly converging around the idea that their Sugar Daddy No. 1, Wall Street, was largely blameless in the biggest financial crash since the Depression. We're hearing a whole new iteration of a very tired claim: that government housing policies dating back to Bill Clinton and Fannie Mae and Freddie Mac, the quasi-governmental lenders, were Ground Zero of the crisis. Gov. Rick Perry, whose cluelessness only seems to grow the longer he spends on the trail, not only wants to "free up Wall Street" to save the economy, but in Iowa this week he labeled Fannie and Freddie a "modern day Bonnie and Clyde." Gingrich and Romney have joined in identifying Fan and Fred as Public Enemies No.1.

Now the GOP has a willing accomplice in that weakest of regulatory sisters: the SEC. Having proved inept at nailing Wall Street over the last three years despite the biggest financial fraud in history--what I once called the Too Big to Jail problem-- the SEC is going for the easy pickings, Fannie and Freddie. This has lent credibility to the loons of the Right, as Joe Nocera noted the other day. It is also exactly what we have long expected from the the seriously compromised SEC chairwoman, Mary Schapiro, who spent most of her career as a tool of the financial industry, and her Deutsche Bank-engendered enforcement chief, Robert Khuzami. As head of the Commodity Futures Trading Commission in the mid-90s, Schapiro failed to assert control over OTC derivatives trading, despite scams that were already so worrisome that one of her successors, Brooksley Born, called them “the hippopotamus under the rug.” Later, when Schapiro was running the Financial Industry Regulatory Authority (FINRA)--Wall Street's abysmally incompetent "self-regulatory" body--she also missed Bernie Madoff's Ponzi scheme. In both her jobs Schapiro followed a pattern: she tended to aggressively investigate relatively minor violations while failing to see the hippopotamus-size frauds in the room. As Bill Singer, a former attorney for the National Association of Securities Dealers who's become a leading critic of regulators, told me back in 2009:  "My ultimate concern with Mary Schapiro is, we cannot afford to have the new SEC chair come in with a bucket of whitewash and a bucket of plaster. We need a wrecking ball."

We never got one. We got Schapiro and her bucket of whitewash instead. Now Khuzami has gone the route of least resistance, suing six former Fannie/Freddie execs in civil court saying they misrepresented the extent of the exposure of these "government-sponsored entities" (GSEs) to subprime loans. The Fan/Fred conspiracists have erupted in celebration. "Fannie led private lenders into the subprime market," the Wall Street Journal edit page crowed on Dec. 22.

Were Fannie and Freddie corrupt? Of course. I wrote that more than three years ago, as did many others. But to argue that they were prime movers in this crisis is to argue that the moon is made of green cheese rather than rock and dust. It's not just that new Fed data makes clear how deep and extensive the infection of bad lending on Wall Street--and therefore culpability--became. What's more significant is the obvious evidence that while Fannie and Freddie got involved, they were very late to the game, and they were at best fellow travelers.

As Bloomberg BusinessWeek reported this week, at the peak of the mortgage mania in 2005-06, only 6 percent of all subprime loans involved lenders or borrowers governed by the law, under which Fannie and Freddie were required to operate, according to Federal Reserve data. The rest was shadow banking encouraged or sponsored by Wall Street. “The available evidence seems to run counter to the contention that the CRA [the Community Reinvestment Act encouraging loans to low-income borrowers] contributed in any substantive way to the current mortgage crisis,” Fed economists Neil Bhutta and Glenn Canner wrote in 2009.

But what really puts the kabosh on the Fannie/Freddie theory is that -- as I wrote a year ago and go into considerable detail in Capital Offense -- the seeds of the financial crash of 2008 were planted decades before the subprime securitization market took off. The notorious advent of "CDOs," or collateralized debt obligations, were not something new under the sun. They were only the latest generation of a long lineage of  deceptive Wall Street securitization practices that developed independent of Fannie or Freddie or government-sponsored loans or real estate. To the extent that government was complicit, it was mainly in its willingness to stop regulating Wall Street and ignore the system of institutionalized fraud that was emerging. 

Among other changes, the 2000 Commodity Futures Modernization Act created what may have been the world’s most laissez-faire market in over-the-counter derivatives; the Glass-Steagall repeal in 1999 erased the remaining firewalls between federally insured banks and the riskiest trading practices; and the Securities and Exchange Commission lowered limits on leverage whenever asked, creating a pyramid of debt. Increasingly complex products and practices regularly blew up—think of the 1994  bankruptcy of Orange County, Calif., and the 1998 collapse of Long Term Capital Management—but the result was only more deregulation.


The heart of the issue had to do with the burgeoning markets in over-the-counter derivatives, credit default swaps and brain-crushingly complex structured finance products. The key to these trades was as much deception back then as it later became during the CDO craze. “Quants” on the street -- many of them former physicists or other math geniuses -- were always finding complex new ways to repackage assets. The structured-finance schemes usually followed the same theme: The key was to take junk -- risky but very high-yielding bonds or securities denominated in pesos or Thai baht or Malaysian ringgits -- and disguise them well enough so that pension investors or insurance companies or others thought they were buying investment-grade stuff denominated in dollars. 

These practices were direct forerunners of what many of the same Wall Street firms later did during the subprime bubble. The approach was the same: disguise bad assets as better ones. This was achieved by euphemizing poor credit risks as “subprime borrowers” and lumping them together with better credit risks within vastly complex CDOs, then slicing and dicing the loans so that investors--indeed, even the CEOs of the Wall Street firms themselves--no longer understood what was safe and what wasn't. Need further proof? Consider: by 2006, 44.7 percent of all securitized subprime mortgages in the country were "stated income" or no-document loans of the kind the GSEs couldn't engage in, according to Patrick Madigan, an Iowa assistant attorney general. "There's only one reason for that high number, and that's fraud." Fraud of precisely the kind that a securitization-hungry Wall Street had been engaging in for a decade or more before the subprime bubble.  


After the mortgage-refinancing boom of 2003–04, demand from Wall Street for fresh subprime "product" for new CDOs grew so intense that lending standards nationwide disintegrated. To meet the Street's demand for a steady supply, lenders kept reaching lower and lower down the scale of quality in both property and borrowers. The investment banks were so desperate for more mortgage-backed securities to sell that some of them cut deals with the big nonbank lenders to deliver billions of dollars worth of loans a month, no questions asked. "The drug lord was Wall Street. This was money looking for people to exploit," Jim Rokakis, the treasurer of Ohio's Cuyahoga County, which was particularly hard hit, told me in 2008.

Yes, Fannie and Freddie got into the game at some point -- but it was a game that had been invented by Wall Street years earlier. QED.

Good News, Bad News Barack

On one hand, the economic numbers are looking up for Obama at the moment, and ECB head Mario Draghi is finally fulfilling his promise:  he appears to be taking the necessary actions to prevent the eurozone from collapsing and thereby becoming the biggest factor weighing on Obama's chances in 2012. On the other hand, even Iowans are coming to realize that Newt is presidentially challenged, unsuited in both temperament and character to be in the White House. So Obama is now more certain than ever to be facing Mitt Romney, who for all his many flaws is realistically the only one who can beat him. To make matters worse, Iraq may be going downhill fast--and Mitt has hit him hard over the failed troop extension talks.


So where does that leave the election odds? I think Obama's biggest trump card may end up being the divide within the GOP exposed by the new House-Senate rift over payroll tax cut extensions. John Boehner's jittery eleventh hour cave today, and the GOP's long weekend of humiliating internecine tension, is further evidence that the Republicans don't know who they really want to be. In the broadest philosophical sense, there is GOP consensus on pursuing the Bush tax cuts, changing the tax code and reducing entitlements. But as soon as you get into the details of many of these issues, confusion reigns, as seen in the apparent inability of Boehner and McConnell to communicate. There is a new confusion over trade policy, over voucherizing Medicare (the sharp dispute between Ryan and Gingrich), and which programs are to be cut. And we haven't even begun to talk about foreign policy, where the tensions between the old neocon camp (best manifested by Santorum, I think) and the traditionalists (like Huntsman) remain completely unresolved within the party: have you ever seen a more confused and less united response to any foreign policy than the various debate comments that have come out of the GOP candidates about Obama's Libya policy?


Obama's botched many opportunities already, as we have tirelessly pointed out, but he's very lucky in his adversaries. He still has a chance to look leaderly, and presidential anew, in 2012....

A Great Recession Cover-Up?

Per today's housing data, we keep learning that the Big Crash was worse than many of us knew. But perhaps not worse than EVERYONE knew. How much was the Obama administration and the Fed covering up? The Fed, we learned, committed far more than anyone imagined to saving Wall Street (some $29 trillion, according to Bloomberg: see my 12/10 post, "Two Awful Numbers"). And some of the losers in the great debate inside the administration, like former Council of Economic Advisors chair Christina Romer, gave us signals of how bad things really were even as they lost their fight for a bigger stimulus. Romer, in 2009,  said the blow to public confidence from those harrowing months of 2008 was actually much worse than what happened in 1929. “The collapse in wealth was far more dramatic,” Romer said. “All told, household wealth fell 17 percent between December 2007 and December 2008, more than five times the decline in 1929.” Were both the administration and the Fed--both so vested in creating the unregulated and out-of-control financial system that came to grief -- simply in denial about the extent of the disaster they had created? I think the evidence is compelling...



A Hero of the Housing Crisis

The housing market of the 2000s "was the Wild West, and there was no sheriff in town. ... The only difference is that in the old days, people robbed the banks. Now the banks were robbing the people."

--JIM ROKAKIS, then-Cuyahoga County Treasurer, quoted in "Mortgages and Madness," Newsweek, May 24, 2008

There were few people in the country who saw into the pathology of the Wall-Street-engendered housing mania as deeply and as early as Jim Rokakis, whom I quoted in that article back in 2008 and whose ideas heavily informed my book Capital Offense. Not surprisingly (at least to me), Rokakis is also one of those on the front lines of a solution, as profiled on "60 Minutes" last Sunday. Knowing that the housing implosion was not natural market condition--and that therefore it couldn't be expected to "clear" like a normal market either (an insight that still eludes the Obama administration)--Rokakis has pushed for years for a "land bank" program that will demolish run-down homes left over from the bubble collapse that even the banks don't want any more, so that blighted neighborhoods can recover. Now he's finally got it...

Rokakis, the county treasurer, was puzzled in the early 2000s when he saw real-estate values soaring  in "the mistake by the Lake," as Cleveland was sometimes known. Rokakis knew the rust-belt market had always been stagnant; what was different now? So he was able to see, long before most, that it was all driven by Wall Street; that unethical mortgage brokers were being encouraged by securitization-hungry Wall Street firms to loan almost any amount to anybody, even in places once bypassed by the real-estate market. The finance community in New York knew that, in an ever-appreciating real estate market nationwide, even indigent mortgage holders could always refinance, even in backwaters like Cleveland. And Wall Street, of course, would then snap up the //next round// of loans as well and bundle them into yet a new round of securities. This no longer had anything to do with real-estate values in Cleveland or any kind of a normal market, Rokakis realized. Deeply worried, Rokakis attempted to awaken the interest of the Fed and other regulatory authorities to the emerging bubble, and the inner dynamics that were driving it. The authorities, of course, had no interest in what this hayseed from the heartland had to say, as was typical in those years. The result: the greatest crash since the Great Depression, and a Wall Street that to this day has escaped whipping.

For those who are heartened by the upturn in national housing numbers announced today, take heed. Unless interventionist programs like Rokakis's are created on a national scale, and Washington gets much tougher with the banks (forcing them to do what it should have three years ago, which is to launch a program of writing down principal as well as interest), we will still be writing stories and blog posts about the underwater mortgage market and an ass-dragging economy a few years from now. As the MSNBC story above notes: "There are multiple, strong headwinds that will hold back [housing] recovery. The biggest is the long pipeline of housing foreclosures glutting the market with houses owned by banks looking to unload them at bargain prices."

Rokakis, as always, has the most sensible (and thus least heeded) advice: "You`re going to have to write down principal balances. Because if you don`t write down the principle to something that`s more realistic, it just guarantees that more people will walk away and more people will default." But nothing like this, or salvage programs like Cleveland's, can possibly occur without aggressive government intervention that does not appear forthcoming.

What a Broken Eagle Really Means for the World

As our sclerotic Congress today continues to govern by inches, it's about time we talked about the real damage that political paralysis in Washington is doing to the once-stable global system that we all depend on like air--a system which, like air, we would probably only notice in its absence. This coming Saturday, Dec. 25--Christmas day--marks the 20th anniversary of the disbanding of the Soviet Union, and the beginning of what I call the American Interlude. Since then the world has experienced fitful U.S. leadership. But now, with our politicians far more confused about what they want than even our protesters in the street, that era too is all but over. And history doesn't bode well for a world without clear leaders or even a stable balance of power.

Let's think about what comes next:  If Washington is no longer the agenda-setter it once was, can a leaderless world continue to enjoy peace and stability? Can the “international system” as we know it today survive without its father in the driver’s seat? The question is as important for America’s future as, say, détente versus confrontation was during the Cold War, or isolationism versus engagement during the rise of fascism. If history is any guide, a global system of open trade and peaceful relations cannot survive under such conditions. Through most of recorded history, and in every region of the globe, an international power vacuum has meant a ruthless jostling for military might, empire- and alliance-building, and sometimes worse. The fall of Rome ushered in the Dark Ages. The Congress of Vienna that imposed European order after the Napoleonic wars broke down in terrible conflicts by the late 19th century. The end of European empire precipitated World War I.

Already signs are emerging that, absent American leadership, the seams are unraveling. Recent G-20 outcomes have been close to incoherent: The world’s major governments didn’t just fail to devise a coordinated strategy for avoiding double-dip recession. In Washington and European capitals, they have embraced policies (for varying domestic political reasons) that most economists argue are the opposite of what is needed. They are pursuing austerity, in other words, when the world needs a concerted stimulus. The 50-year effort to strengthen rules for open trade—so integral to global stability since the General Agreement on Tariffs and Trade began in 1947—is also badly adrift; the 10-year-old Doha Round of talks has been at an impasse since negotiations broke down in 2008.

In fact, the only real evidence of global economic coordination in recent months has come from unelected central bankers, as seen in the coordinated rate cut of early December..... (picture credit:

(http://www.spikehampson.com/images/broken_eagle.jpg)

Dr. Evil Dies--And He Doesn't Live in Washington!

As tempting as it may be  to describe the dysfunction of American government as absolute --as we face another near-total failure of our government to enact anything as sensible as a payroll tax cut extension -- the passing of Kim Jong Il and the bizarre persistance of the North Korean regime is a reminder that all is relative after all: http://nationaljournal.com/nationalsecurity/the-death-of-dr-evil-20111219

The GOP's search for a Great Red Hope

How do you search for Barry, and end up with NewtMitt? That's what the GOP needs to be asking itself right now, along with a tough followup question: what does it say about the state of your ideological confusion as a party that what your base wants most of all is "authenticity" -- as Adam Branden of FreedomWorks told me in an interview today -- and you end up being forced to embrace two of the most inauthentic Republicans in recent memory?

Their inauthenticity is not entirely the fault of NewtMitt, of course. Any Republican who's spent any years in politics, like these two, has had to play breathless catchup with a party that keeps driving itself off the known ideological map in each election, toward more extreme and simplistic conservativsm. (Still, even that doesn't explain the mercenary cynicism with which a cliented-up Newt backed prescription drug expansion, making himself a load of consulting fees; as Sen. Tom Coburn told me last year, the tea party really “started when Republicans were in charge"... under Bush.  "The Medicare prescription drug plan—that was the worst thing imaginable, $13 trillion in unfunded liabilities.”)

The GOP's existential crisis is already far worse than it was in 2008, when my colleagues at Newsweek and I wrote a cover story about the base's nose-holding, teeth-grinding shift toward John McCain. Now you've got Red State mocking National Review for attacking Gingrich, which was "just one more yelp from the once-proud flagship publication of the right," as tea partier  Erick Erickson put it. "Unfortunately, NR remains as tone deaf as it was during George W. Bush’s second term, when they drifted and meandered along uncertainly." That's why there is even talk of a brokered convention, a prospect that might be even likelier given the new GOP primary system that proportionally allots delegates until April.

These are new grassroots conservatives, which I guess explains both why they have to re-learn everything not only about Newt's real record, but even Barry's. People tend to forget that Goldwater got walloped by LBJ in 1964 because he was, to put it charitably, an inept candidate. Despite his rugged man-of-the-West demeanor, Goldwater's turquoise-studded cowboy boots kept landing squarely in his mouth. Only a year after John F. Kennedy’s death, Goldwater told audiences that JFK had orchestrated the timing of the Cuban missile crisis to help his party during the midterm elections. He went to Boeing and blundered through a simple “thank you” to the company for the performance of its planes in wartime, saying that in his administration Boeing planes “will be doing so again.” All of which, of course, played straight into the Democratic campaign’s brilliantly successful message that Goldwater was a warmongering extremist.

Obama is hoping for the same result, of course, though he's not going to get it, given the different temper of the times and state of the economy. But if he lines up against someone he can paint as both inauthentic and extremist at the same time, he's got a chance.

Obama's First-Chapter Problem

Ezra Klein and Jared Bernstein both go at a fundamental issue (to indulge a bit of Newt-speak during his 15 mins), using Obama's sicklied o'er TR impersonation at Osawatomie, Kan. last week as a way of noting that the policy prescriptions for our problems tend to be far meeker than the diagnosis. It's what historian David Greenberg brilliantly identified as a "last-chapter" problem: authors with big ideas and tough analyses tend to get mushy, banal and vague when it comes to recommending what to do next. As Klein neatly put it, Obama's "speech got right to the heart of our economic problems. The solutions got right to the capillaries."


This is all sharply observed. But let me humbly suggest --as I write in my book Capital Offense and elsewhere, and as others such as Yves Smith and Dylan Ratigan have argued -- that the only way to get to a better last chapter of good policy for fixing our economy is to write a new first chapter. We need, in other words, to revisit our premises and honestly acknowledge how many of our fundamental economic assumptions have been wrong over the last three decades or so.

This observation is itself a sad last chapter (or at least blog post), of course, since we're currently going in the opposite direction in Washington. The more complex our problems have grown, the more simplistic and shallow the economics bandied about in Washington have become.   That 9 pct approval rating for Congress (which is now less popular than communism and polygamy) is no accident. Maybe when they get to zero pct some cosmic light will go off, the "polarity will be reversed" as in one of those Star Trek episodes, and the universe will be saved. I'm not counting on it, you understand. Just trying to spice up my last chapter.

I'm taking a break from hammering Wall Street....

... to note the momentous end of an even greater evil: a terrible war that never, ever should have been fought, and which President Obama formally announced was over today (even as Mitt Romney effectively called for a new war with Iran). Be sure to read Richard Engel's eloquent post-mortem on Iraq, which again raises the question: Has any U.S. president ever launched a more disastrous policy than this one by George W. Bush? The answer must be no. We have lived through the reign of an American Nero, folks.  

Demo-dummies

Since very few Democrats ever embraced the fundamental grievances of the OWS movement -- in other words, opposition to a Wall-Street-dominated economy rigged in favor of the few--why in the world should we expect that the same Dems would embrace the movement now, per this article in Roll Call? Starting with Barack Obama, who kept his hands off the banks under the tutelage of fine ex-Rubinites like Summers and Geithner, both of them pining for the lost '90s. To identify with OWS aims is to engage in self-indictment, and no one wants to do that.... It's not too much to say that the relationship of mainstream Dems to OWS is similar to the relationship of mainstream Republicans to the tea party. The Dems would like to shoo away OWS as an uncomfortable reminder of their chronic betrayal of principles of equity; the Repubs would like to shoo away the tea party as an uncomfortable reminder of their chronic betrayal of principles of fiscal restraint.....(Picture credit: MikeNormaneconomics).

Yet more evidence Obama missed the boat...

...big time politically when he failed to aggressively address Wall Street and the Washington nexis: the new cover of the National Review, no less, features an attack on Wall Street from the Right. Imagine if Obama had taken down the big banks as well as bin Laden; he'd pretty much have the middle and would look a lot less beatable right now....

How the govt is unprepared for the next Lehman

Figures the Republicans in Congress are spending so much time  at the ongoing hearings this week trying to figure out if regulator Gary Gensler was playing footsie under the table with his old Goldman boss, Jon Corzine, late of MF Global. After all, they're used to pursuing dust mites when there's an 800-pound gorilla in the room. In this case the real gorilla is not Corzine himself--who's finished in public life and on Wall Street too--or Gensler, the head of the Commodity Futures Trading Commission who recused himself from MF Global monitoring. The gorilla is looming at us from across the Atlantic. It's the fact that even such a dedicated regulator such as the CFTC, which has found religion under the zealous Gensler, was not equipped to know that MF Global was catastrophically overloaded with European debt. And that's the problem: while the Republicans are gutting Dodd-Frank--which even if fully enforced would be weak--they're ignoring the woeful inadequacy of our half-written regulatory system to detect and take care of the next Lehman, the eurocrisis Lehman. At least that's what my colleague Stacy Kaper and I concluded in our piece, "What If Lehman Happened Today?"   

euro watch

The Germans are demonstrating they really want to keep the euro, along the lines of "Apocalypse Never," but the devil will be in the details, and the details will all depend on the specifics of ENFORCEMENT in the new fiscal pact.

Two Awful Numbers

On his segment with me yesterday, Dylan Ratigan pointed out two astonishing figures yesterday that, when you put them side by side, illustrate just how out of whack our economy really is. On one side there is the $29 TRILLION that the Fed reportedly deployed to save Wall Street; on the other side there are the record numbers of Americans in poverty, some 46 million of them. Truly historic inequity. And here's the key point: the same Wall Street and the same oversized banking sector exists today, though it is hardly lending or doing much of anything else to grow the economy. Meanwhile the persistence of the Too-Big-to-Fail problem and the fact that opaque over-the-counter derivatives trading is now HIGHER than it was in 2008--it's gone from $600 trillion to $708 trillion--virtually ensures that Wall Street will continue to be coddled with our capital while the middle class continues to disappear. NO ONE in Washington is doing anything to change this. So clearly we need to change Washington.

Talking head alert

There aren't many journalists and pundits who can claim to have been warning about and hammering away at the excesses of Wall Street and the deficiencies of Dodd-Frank long before the OWS movement arose--but Dylan Ratigan is one of them. I'll be on his show this afternoon to talk about my article "The Left Behinds," which The Browser has picked as one its ten best reads of the month, and my book, "Capital Offense."

'Designed Solely to Protect Consumers'

Obama's words just now at his news conference on GOP's blockage of his nominee to head the Consumer Financial Protection Bureau. I've been pretty hard on the sprawling, diaphanous Dodd-Frank law, but this was a great idea.  The Republicans' mindless opposition to it is more evidence of an almost Stalinist liquidation of history. The history of what really happened in 2008. And, omg, Cordray was Obama's //compromise//choice :

Mario Draghi as Philippe Petit

True to his MIT-educated, New Keynesian roots, the head of the ECB is now engaged in a tightrope walk over an abyss, somewhat reminiscent of Petit's awesome and illegal traipse between the WTC towers in 1974. Another rate cut, more liquidity to banks, but, uhhh, no, you were mistaken if you thought (are you listening Bundesbankers?) I would be doing a lot more Trichet-esque bond buying. Though of course in the end I will....

'If Wall Street Doesn't Like It, So What?'

Sen. Bernie Sanders, appearing with me yesterday on the new "Current TV," succinctly summed up one of Obama's biggest problems--not just with progressives, but the Center and Right as well. Which is that in listening to Tiny Tim Geithner's advice and leaving Wall Street intact, Obama missed his FDR moment entirely: uniting most of the country around a common aspiration: removing finance's whip hand over the economy. So having botched his chance to be Franklin, Obama is now embracing Teddy, and using "square deal" language. Is it too late for substantive change? Oh, it's much later than it ought to be. But too late? Not with the right leadership. As I wrote in "Capital Offense," after the crisis of 2008:

"...one of the few issues in Washington that seemed to unite a bitterly partisan Congress was how to deal with the “too-big-to-fail” problem. Democrats deplored Wall Street's outsize role in the real economy and its lobbying influence, and conservatives were appalled at the way the capitalist system had been undermined and rigged in favor of big banks that introduced so much moral hazard into the markets. Yet neither side seemed to have the power to take on Wall Street, and they weren’t getting much help from Obama."

The Real Newt, Part III

Gingrich's just-announced pick to be secretary of State, John Bolton, is often misidentified as a neocon when he is really a radical libertarian who renounces international law and was so far right in refusing to work with the U.N. (though he was named ambassador to it, in fox-guarding-the-henhouse-fashion) that even his colleagues in the Bush administration couldn't wait for him to leave.  Even the British, our closest allies, couldn't take him, per this 2005 piece: "Bolton's British Problem."

The Real Newt, Part II

Is Newt's rise evidence of GOP overconfidence? Had been thinking Mitt would slip in as nominee despite base's distaste a la McCain in 2008. But the new GOP thinking is: we're going to beat Obama anyhow, so we might as well do it with a "real" conservative. Big mistake, methinks.

Barack Obama is a War President....

...he just doesn't like to talk about it. Just on MSNBC's Martin Bashir to to discuss the latest front in a series of covert wars

Europe on the Brink

The stage is set for what may be the biggest geopolitical poker game since the Treaty of Versailles in 1919. The Germans and French have dictated terms to the rest of the euro nations ahead of the decisive Dec. 9 leadership meeting. S&P have put both of them and 13 others on notice for downgrades. And the markets, no longer patient, are insisting that this be the real thing, along the lines of what I wrote in early autumn. 
The shape of Europe for decades, possibly centuries, to come will be decided in the next few days. Along with, more immediately, the health of the U.S. and global economy and very possibly Barack Obama's re-election chances. Not that any of that is important....

The Real Newt, Part I.

It's time to talk about the Bizarro world of the GOP, wherein Gingrich is seen as a future hope rather than what he is: evidence, all too roundly, of the Corruption of Past Hopes. His offenses are in fact Falstaffian in degree. Or to quote King Henry IV, Part One: Why, GOP, "...dost thou converse with that trunk of humours, that bolting-hutch of beastliness, that swollen parcel of dropsies, that huge bombard of sack, that stuffed cloak-bag of guts, that roasted Manningtree ox with the pudding in his belly, that reverend vice, that grey iniquity, that father ruffian, that vanity in years?"

Obama 2012

Rising prospects for Obama: 8.6 pct unemployment, and the rise of the Gingrich balloon, which should be easier to detonate than the Hindenberg. Beyond that, he's going to try to out-hawk the GOP on foreign policy (bin Laden's dead!) and China.

The 99 percent persist....

Police may be clearing out the parks but the OWS movement won't go away as long as the fundamental problems that gave rise to it persist. Appearing on C-Span yesterday on my article "The Left Behinds," I was struck by how many stories of "thrown-away" workers came out from all over the country. Have a listen by clicking here