Beastly Again

I have another new piece up today on the Daily Beast as the budget wars begin....

Beastly

FYI I've got a piece up today on Obama's new budget on The Daily Beast.

Quick Morning After Thoughts On Obama's Speech

1 - These thing are always a Rorschach test, but in our household Obama was king of the world last night. In fact, my wife Jody (as usual) had the best quick take when he was done. "After he does eight years as president," she said, "he'll clearly go on to be president of the world." She meant that since we'll increasingly be looking for new forms of global governance to deal with all the important stuff that can only be dealt with across borders, Obama will create or lead whatever premiere institution has emerged or is being set up in this regard. Yes, I know, we've got a recession to conquer and health care, energy and education to fix first. Still, sounds like a plan!

2 - During the always amusing cutaway shots I couldn't help noticing the wistful looks on many of the presidential wannabes in the audience, all of whose faces had the same sentiment grudgingly etched in italics: "I really wanted this, but this guy's got the goods in ways I never will." On my list that captured John Kerry, Evan Bayh, John McCain and Jay Rockefeller. Maybe I missed some.

3 - Can't wait to see what Obama said was the $2 trillion in budget savings over ten years they've already identified when the budget outline gets unveiled Thursday. Team Obama is laying the groundwork for the kind of budget honesty we haven't seen since -- well, since Clinton, in whose OMB I proudly served. If the $2 trillion over ten is real stuff (and not magic asterisky) it will be fabulous. Fingers crossed.

4 - Wonder if anyone else was as struck as I was by Obama's message to kids about not dropping out of high school. If you drop out, he said, "you're not just quitting on yourself -- you're quitting on your country." Why hasn't a president put it that way before? Another great example of Obama's instinct for using the bully pulpit to make a difference. Look for that quote to be up on placards in high poverty schools across America soon. Hope they develop a more detailed "hang in there" You Tube message from Obama that schools and other caring adults can show to every kid who's at risk of dropping out.

A Case for Hope

Lots of people I know are deeply depressed as they watch the Dow spiral down toward 7000 -- I'm no less gloomy when it comes to the market because we've been been riding it down, too. And I'm no stock market guru (if such a thing exists), so I have no idea when things will turn.

But I'll tell you what gave me supreme hope Monday: watching Obama conduct what amounted to a national teach-in at the end of his Fiscal Responsibility Summit at the White House. Find the clips on You Tube and watch them. (Start here, here, here, and here.) Obama led a conversation about our fiscal and economic challenges with a hundred or so assembled pols and other community and interest group leaders, and in its seriousness, civility, candor, and humor, it was a thing to behold.

He called on John McCain first, led the conversation through assorted Democratic and Republican leaders, including GOP House leader Eric Cantor (who clearly looks in the mirror each morning and imagines he sees the next Newt Gingrich). Obama's masterful framing of the issues, the respect and deftness with which he treated and integrated all views, his shrewdness in knowing how much coveted national TV airtime he was giving even to those who disagreed with him...all of this amounted to a new model of presidential leadership that I think we're going to see much more of.

Obama is trying to create a climate in which our real long-term challenges can actually be talked about and addressed. These necessarily involve finding ways both parties can work constructively together, in spite of their simultaneous ambition to clobber the other at the polls. This bipartisan gambit - a determination to create a new space in our political culture where real problem-solving can take place across party lines -- is at the core of Obama's real audacity (a point I argue in a Wall Street Journal op-ed on Tuesday, and which I think many liberals who've bashed Obama's GOP outreach have failed to appreciate).

It gives me real hope even amidst the bad economic news because Obama's eye is plainly on long-term problem solving -- which is what our economy needs -- no matter the day to day fears and rumors that hold so many Wall Street traders in their myopic grip.

Beastly

FYI I have a new column up at The Daily Beast entitled, "You Don't Deserve To be Rich." It's about what we might do now that it looks like capitalism isn't a meritocracy after all.

Always Nice To See

WSJ reports that a number of top mutual fund managers did very well for themselves in 2008 even as those who invested with them lost their shirts. Some CEOs and chief investment officers pulled down $4 to 5 million while their funds were off 16% and 38%. Always nice to see merit rewarded in the free market....

Health Scandal

A new report from my colleagues at the Center for American Progress shows that 100,000 people are losing health insurance each week in this recession. Only in America does a president need to seek "emergency" funding as part of an economic stimulus to try to stem this calamity that comes with rising unemployment - all because America remains uniquely in the grip of the dead idea that health care should be tied to one's job. For those who say we can't afford to do health reform, the fact that an economic downturn leaves people at risk of medical bankruptcy (and worse) is proof that we can't afford NOT to do health reform. Hopefully Obama will make that clear in his State of the Union and budget presentations next week.

Harold's Point

Make-you-think column by Harold Meyerson in the Post on how unions might have mitigated today's woes in context of the US-China imbalances. Highlights:

At the center of the global meltdown, then, is the misshapen economic codependency of the United States and China. Each has followed a fundamentally unstable economic model, with one nation suppressing wages so that it could export more and the other living on borrowed funds so that it could purchase more. Despite the sharply different roles that each nation carved for itself, though, a shared characteristic allowed them to chart their ultimately disastrous course...What do the United States and China have in common? They are the only two major economic powers that are resolutely hostile to unions....

But suppose that China and the United States did have powerful unions. In China, such unions might have pushed for higher wages, social insurance and more domestic consumption. Here, such unions would have preserved more of a manufacturing sector and boosted wages in the service and retail sectors, so that American consumers could have relied more on income than on credit to make their purchases. The two nations would have had more sustainable economic strategies.

I'm not sure he's right, but I'm also not sure he doesn't have an important point. Worth mulling, especially for those who reflexively oppose unions.

Shocking bank factoid of the day

Fascinating op-ed in NYT today that points out something I had not been aware of - the TARP money went to bank holding companies, not the bank subsidiaries themselves, which seems like an enormous benefit to shareholders and incumbent management but not at all a way to assure capital adequacy in the actual banks. Highlights:

While TARP has been generous with bank holding companies, these companies have not been so generous with their banks. Four large holding companies — JP Morgan, Citigroup, Bank of America and Wells Fargo — initially received a total of $90 billion in TARP money in the fall, but by the end of 2008 they had contributed less than $15 billion in equity capital to their subsidiary banks....[This] means that when it comes time to recapitalize banks there is a bigger hole to fill, and when banks fail there is less capital available to meet the government’s obligations to insured depositors and other creditors. Keeping money at the holding company may benefit its shareholders, but it is costly for taxpayers.

If there's a credible rebuttal I'd like to hear it. Otherwise this looks like (yet) another source of justifiable outrage in the way the bank bailout has been structured to date.

Detroit Blackmail?

Can anyone explain why GM and Chrysler say they'll need $100 billion and $25 billion in financing respectively if they have to file bankrupcy, but far far less if they stay out under the latest hat in hand plans they've brought to DC? The enormous difference in magnitudes feels like it's part of Detroit's rhetorical blackmail to get the fix it wants (i.e. not bankrupcy), but maybe I'm missing something.

The Voodoo We Need

NYT has fun piece on the new Bernie Madoff doll turning heads at the Toy Fair -- with the epic Ponzi man dressed as a devil, and a bonus hammer included to take your own revenge. Also apparently hot is the John Thain doll that sits on its own golden toilet.

Housing confusion

Heard NPR report this morning that gloomily lamented the fact that housing starts were down some record amount last month, but I don't understand the arm-waving about this. Don't we need fewer new homes until the housing market in general settles down? When prices have been plummeting and are seeking a bottom, MORE new houses is the last thing we need -- boosting supply would just push prices down even more.

Trouble at Treasury?

Krugman's blog usefully points to Washington Post piece today that shows that Geithner's bank plan was so vague largely because he decided close to the deadline set for announcement that the approach they'd been focused on wouldn't work -- and there wasn't time to fully develop the alternative he decided would be better. Coupled with other details about how shorthanded the working group seems to be, the episode says troubling things about the team's insularity, the needless commitment to false deadlines, and more. To keep an eye on...

Judd Gregg...

...looks like a horse's ass. What else can one say? How can he not have thought this through before he sought -- affirmatively sought -- the Commerce job? As I wrote when this first came up, the idea that he'd do this was mystifying in the first place. Several people wrote to say that he was desperate to revinvent himself as New Hampshire swung Demcoratic and he faced certain defeat next time. Fair enough. But it's very bad form to jerk a president around like this. Gregg has made the president a casualty in his own drama of personal reinvention. Another disappointing low in official behavior.

Obama's Bipartisan Gambit

Can't tell you how exciting it is to see a president close his debut news conference, as Obama just did, by saying, apropos of his desire to bring people together, including even people from the other party, that "People over time respond to civility and rational argument -- and that's the kind of leadership I'm going to try to provide."

So many folks -- including the usually sound Paul Krugman -- seem to think this goal of bipartisanship is a sucker's game. I disagree: it's the essence of the change Obama can bring to the country, and a measure of his audacity that he's willing to try. He also plainly feels this in his bones -- witness the long riff at the press conference on why conservatives need to get past their "money doesn't matter" canard on schools even as he challenges liberals to get past their resistance to making systemic reforms in exchange for new investment. A lot of folks think getting both parties to to come together is a naive fantasy, and that Obama is just giving small groups like the moderate Senate Republicans undue power in the current stimulus battle, for example. This critique is shortsighted. Obama has his eye on a bigger prize -- literally changing the political culture in ways we need if we're to tackle a host of major challenges -- and he's taking risks to set that tone from the get-go. It's a big wager, but when your real project is to redefine the political center in the country, it's essential.

More on this -- maybe a column -- when I have time to develop the thought.

Capital, Lloyd, Capital

Goldman chief Lloyd Blankfein in the FT Monday gave a modified "wea" culpa, saying:

Much of the past year has been deeply humbling for our industry. People are understandably angry and our industry has to account for its role in what has transpired...Financial institutions have an obligation to the broader financial system. We depend on a healthy, well-functioning system but we failed to raise enough questions about whether some of the trends and practices that had become commonplace really served the public’s long-term interests.

But in a 1000 word piece he had scarcely a word for capital adequacy. If all the casino gamblers on Wall Street had been forced to rely on equity instead of leveraging up 30 or 40 to 1, the impact of a price decline in one asset sector -- housing -- could never have brought down the entire economy. How can one of the chiefs of Wall Street weigh in and not make this central to the lessons he says we should learn?

Blankfein also is a master of understatement:

...complexity got the better of us. The industry let the growth in new instruments outstrip the operational capacity to manage them. As a result, operational risk increased dramatically and this had a direct effect on the overall stability of the financial system.

Well said. Still, it will be interesting to see how Goldman lobbyists react to efforts to sensibly reign in bank discretion in these matters.

Spaghetti Economics

The Big Point being lost in all the back and forth over the stimulus plan's flaws is this: there is no such thing as a perfect stimulus. First, we don't really know what will work best; second, no giant bill like this gets through Congress without massive amounts of unattractive stuff. But with consumer demand collapsing and business retrenching, government is the only entity that can lift demand in ways that avert a self-reinforcing downward spiral. We need to throw lots of spaghetti against the wall, and fast -- and continue to throw lots of spaghetti against the wall for at least a few years. This is not a case against trying to make the spaghetti tossing as smart as we can -- it's just an acknowledgement that we're unlikely to know what's really best and the most important thing is the volume and speed of the spaghetti we start tossing. And yes, once we get things stabilized, we'll have to come back and figure out a pasta withdrawal diet (i.e. long term budget reform, slowing the growth of health care costs, raising taxes, etc). But that will be a comparatively good problem to have once we're past this mess.

The Lerach Solution

My wife Jody has the perfect answer to how we can get these crazy bank executives to disgorge the ill-gotten bonuses they've paid themselves even while they're on the taxpayer dole: the feds need to hire Bill Lerach to bring their case. Lerach, you'll recall, is the premiere shareholder suit litigator/corporate shakedown artist in the country. The only problem is that he's in jail right now, serving time because his law firm paid plaintiffs illegally in his assorted class actions over the years.

Whatever else you may think of Lerach, the guy scares corporate America, and he knows how to use that fear to get big settlements for his clients. Today the U.S. government is the client that needs him, in its role as major shareholder of all these badly behaving banks. Lerach's skills are too perfect for this moment for him to be paying his debt to society sitting in some country-club federal prison. Let Lerach reduce his time by bringing the cases that are tailor-made for his particular brand of hardball.

Until now the president's men have made wimpy noises about it likely being "hard" or "impossible" to claw back these recent bonuses, not to mention the other bogus zillions many bankers made while wrecking the economy. Sic Lerach on them and this entire conversation will change overnight.

The Gregg Conundrum

If reports are right that Judd Gregg will be named Commerce secretary, the only question is: why is Gregg doing this? Commerce is typically a backwater cabinet post far from the action on anything. Even the most creative reinvention of the job would leave it nowhere near the thick of key issues like the budget and the future of Social Security and Medicare, which Gregg's Senate posts give him a real voice in. Plus, if Al Franken is finally seated, and New Hampshire's Democratic governor appoints a Democrat to replace Gregg, Senate Democrats would reach the magic 60 votes that could give them the power to really get things done. I can see why it's a brilliant move for Obama if he can pull it off, but what Gregg is thinking escapes me. Thoughts, anyone?