Friday, April 18, 2008

Taxpayers Subsidize Richest Americans

The NYT reports that several hedge fund managers took home over a billion dollars in pay last year. It says, "Combined, the top 50 hedge fund managers last year earned $29 billion." Interesting that the $29 billion figure almost exactly matches the $30 billion bailout of Bear Stearns. It's more than a coincidence.

The hedge funds don't really do much useful. They don't make anything; they don't start businesses. They don't even pretend to make businesses more efficient, as private equity funds claim to do. They are basically gambling institutions, betting on various, esoteric market fluctuations. So, when they win, somebody else loses, because they are not creating wealth; they're just taking somebody else's wealth. So, the winners made $29 billion and the losers got bailed out to the tune of $30 billion by the taxpayers. The taxpayers are contributing to the unprecedented transfer of wealth from the lower and middle classes to the super rich.

Carter's Courage

Jimmy Carter has a lot of courage to take on the American Jewish community's virulent, racist, Zionist, hate-filled campaign against the Palestinians. This blog by Marc Ginsberg is just one example of the hate expressed toward him by Jews. Don't be fooled by the "more in sorrow than in anger" tone of the blog. It's a hate screed. The ironic thing is that as the Jews have garnered more and more power in the US, so that both the Republican and Democratic parties support Israel unquestioningly, the US has lost more and more power in the world, partly because of the hateful, racist, Israeli-inspired policies it pursues in the Middle East.

Wednesday, April 16, 2008

Maureen Dowd, Deer Hunter

Maureen Dowd's column in the NYT is the first I have seen that mentions the "Deer Hunter" movie. She says Pennsylvania is Deer Hunter country. What does this mean if it's not something weird having to do with bitterness and guns. Is it common for Pennsylvanians to play Russian roulette? Do they just naturally love Russian roulette like they love their God? Did Maureen and Hillary learn to play Russian roulette with their dads out behind the vacation cabins their grandfathers built? I don't think the characters in Deer Hunter would have been playing Russian roulette if they hadn't been messed up by the Vietnam war and faced a pretty depressing situation at home in Pennsylvania.

Tuesday, April 15, 2008

New Jewish Lobby

The Washington Post reports that liberal Jews have created a new lobby, J Street, to compete with AIPAC. This sounds great; we'll see how it works in practice. It seems true that there is much more political debate about Israel's future in Israel than there is in the US, where AIPAC is the only Jewish lobby, and AIPAC means Zionism supported 100% by the US.

Here's Mother Jones report of the new lobby.

Sunday, April 13, 2008

McCain and Charlie Black

The NYT features lobbyist Charlie Black's prominent role in John McCain's presidential campaign. I didn't know that he got his start with Jesse Helms, Lee Atwater, and other assorted right wing zealots. Not a good sign for me, since Jesse was a virulent hater of the State Department and an author of the Helms-Burton Act, which was one thing that encouraged me to get out of the Foreign Service.

While I was assigned to the US Embassy in Rome, an Italian contact whose little daughter had been denied a US visa under the Act remarked to me about how it penalized the children of those it targeted. I found its operation to be very similar to the way the Nazis targeted Jews in Italy during World War II as described by Herman Wouk in Winds of War and War and Remembrance. I was not happy that the US was punishing children for the "sins" of their parents.

Plus, as I said earlier, I am not happy about lobbyists having big roles in presidential campaigns, especially of someone like John McCain, who claims to be the king of straight talk. The Black connection seems to indicate that McCain has swung hard to the right. I worry that although he has a history as a maverick, he was neutered by George Bush in the 2000 campaign when Bush beat him in South Carolina by claiming that McCain's adopted daughter was actually a black bastard conceived out of wedlock. Now, to see McCain fawning over Bush is more than I can take. Plus, I hate seeing him get his Middle East policy whispered in his ear by Israel hawk Joe (Bomb Iran) Lieberman.

Barack, Hillary and the Deer Hunter

All of this political talk about Obama's description of Pennsylvanians as turning to religion and guns because they are bitter about how life has treated them sounds like it's straight out of the movie "The Deer Hunter." I find it strange that none of the talking heads I have heard have mentioned the movie. It's probably because it's about the Vietnam war and nobody except John McCain was involved in it. McCain's experience was hardly typical; he had little in common with the characters in the movie although they also were POWs. McCain came from a patrician family; his father and grandfather were admirals. Like John Kerry (not one of my favorites) he became a Congressional military aide when he came back from Vietnam. He didn't go back to a working class family in a steel mill town. As a returning hero, he didn't have any moral qualms to deal with when he came back, unlike the average grunt who was fighting in the jungles of Vietnam one day and back on his hometown streets two or three days later amongst cohorts who had avoided service in Vietnam. I don't think there are many ordinary Vietnam vets among the talking heads on TV. One is Sen. Chuck Hagel, but he's the exception who proves the rule, and I don't think he was on today. I think it is significant that he has not endorsed McCain, a fellow Republican and Vietnam vet.

If Hillary knew about the movie, she would probably see herself as the Meryl Streep character, but she is more like the wealthy Meryl Streep character in "The Big Chill," who owns the ante-bellum plantation house in South Carolina where the movie takes place.

Anyway the Deer Hunter is certainly about Pennsylvania and guns, and to a lesser extent about religion. Ironically, Obama doesn't seem to know about it either. He could simply reply to Hillary that if she doesn't understand what he is talking about, she should watch the Deer Hunter.

Wednesday, April 09, 2008

House Value Graph

Just for anybody who missed it, here's the Shiller graph of the bubble in house prices. It looks like something unprecedented has occurred, so that unwinding or popping the bubble may take a while and be fairly disruptive.

The Fed and the Markets

Although I have been critical of the Fed for not worrying more about inflation, there's no doubt that its main concern should be to avoid a financial meltdown that could lead to a depression or a breakdown of the financial markets. My main complaint is not with the Fed, but with Congress and the Administration for cutting taxes on the wealthy so drastically while waging very expensive wars in Iraq and Afghanistan. They are shuffling money by the handfuls from lenders in China to Republican war profiteers, including Dick Cheney.

The Fed may have prevented the onset of a major financial crisis due to the subprime mortgage situation. Nevertheless, America is still sitting out there -- exposed because of its huge indebtedness. Runaway inflation will reduce the size of the indebtedness over time, but not in the short term (hopefully). Therefore, we remain at the mercy of the Chinese and the Arabs, our largest creditors. It's unlikely that they want to destroy the US for financial reasons; they would stand to lose a lot of money by doing so. But if the political/military situation goes downhill, they might try to destroy the US economy for geopolitical reasons. China is now feeling a lot of international pressure over Tibet, as well as the traditional US pressure over Taiwan from the Republican right. There is some small risk that China could retaliate by dumping all of its US dollar investments, triggering a collapse in the dollar's value and perhaps pushing American interest rates into the stratosphere.

Alan Greenspan claims in the Financial Times that he's not responsible, and he's not the worst culprit, although the FT columnists have some legitimate gripes about his performance. But one thing he did which was very bad was to come out in favor of the dangerous Bush tax cuts because he claimed he was afraid that America would end up paying off its debt. In retrospect his claimed fears had no merit, and were no doubt expressed to please the political powers, Bush and company. By sacrificing his integrity for political expediency, he ensured his share of the blame for America's financial debacle.

Tuesday, April 08, 2008

Lobbyists and Presidential Candidates

Two recent articles illustrate the extent to which lobbyists dominate Presidential campaigns. One hope for Obama is that he may be less influenced because he has been in Washington for less time and thus the lobbyists have had less time to get control of him.

The New York Times reported on the role of Hillary Clinton's chief strategist, Mark Penn's, lobbying firm's role in getting US approval of the Columbia free trade agreement. It sounds like his firm, Burson-Marsteller, has lost its contract with Columbia at the same time Mark Penn has lost his position with Hillary's campaign.

Meanwhile The Nation reports on the role of the lobbying firm of one of John McCain's insiders, Charlie Black, in making Ahmad Chalabi one of the most important men in Iraq. Black is a principal at Black, Kelly, Scruggs & Healey, another one of the most powerful lobbying firms in Washington, which is also owned by Burson-Marsteller.

It looks as if Hillary and McCain are not masters of their own destinies, but are rather tools of backroom masterminds intent on bringing Washington under their control. It appears that Burson-Marsteller is America's Rasputin.

Monday, April 07, 2008

Israel, Jews, and the US Election

It appears that there are a substantial number of American Jews who oppose Barack Obama because of what they perceive as his position on Israel, as reported by The Nation in "(Some) Jews Against Obama. As the article points out, there is no basis for most of their concerns. This was followed up by a Nation article on "Smearing Obama" that said a particular target of the false smears against Obama were directed at Jews.

Meanwhile, Mother Jones reports that Hillary is pandering to American Jews and Israel by taking a position that Israel should have "an undivided Jerusalem as its capital." This appears to mean that she believes the Palestinians have no right to any part of Jerusalem. By deciding one of the major issues beforehand, this makes talks on peace between Israel and the Palestinians virtually pointless. The problem with Hillary's position on Jerusalem is illustrated by Helena Cobban's recent posting on Jerusalem, for example.

Finally, John McCain's recent visit to Israel appeared designed to pander to American Jews. Besides visiting the Holocaust memorial in his yarmulke, he seemed to be getting his foreign policy advice from Sen. Joe Lieberman, who advocates an American war with Iran on behalf of Israel. The sight of Joe whispering in John's ear about what to say about al-Qaida in Iraq was not a pretty sight.

I'm reminded of the movie Bulworth, where Warren Beatty's senator character says something like, "My staff knows they always have to put the rich Jews on my campaign schedule." Hillary and McCain need that "rich Jew" money. Obama has enough money coming in from regular people that he doesn't have to pander to any particular group. Thus, it appears that the Jews fear him because they are afraid that they can't control him, as they do Hillary, McCain, and most Presidents, certainly including George Bush, whose Middle East policies are blatantly pro-Israel, to the point of arming Fatah Palestinians in the hope that they will kill Hamas Palestinians.

Friday, April 04, 2008

Wall Street vs. Main Street

The economy lost 80,000 jobs and the stock market barely went down. To me this signifies the disconnect between Wall Street and Main Street, the rest of the country. It's fairly typical that bad news for middle America is good news for Wall Street, but with everybody concerned about the financial turmoil on Wall Street and the potential recession for the whole country, that attitude is particularly poignant. Wall Street is happy that jobs are being outsourced to China and India because it reduces labor costs. Detroit and the rest of the rust belt is already suffering from this Wall Street attitude, but the pain is spreading to the rest of the country outside of the playgrounds for the rich, like Manhattan, Beverly Hills and Aspen. Meanwhile, the fat cats on Wall Street, who got us into this mess, just got bailed out to the tune of $30 billion or more, while the average Joe, who has just been minding his own business, will get a tax rebate of $600 or so.

Tuesday, February 26, 2008

Pimco Loses Confidence in Bernanke

It's not a good sign when Bill Gross of Pimco, probably the foremost bond trader in America, loses confidence in Bernanke, as he has according to this Bloomberg report. Gross does not think that Bernanke is committed to fighting inflation. Bernanke is more concerned about cutting interest rates to keep the stock market up, which seems to be working, since it's up over 100 points at the moment. But what's best for America's future? Probably not another stock market bubble.

Monday, February 25, 2008

Bill Kristol's Patriotism

Bill Kristol's op-ed in the NYT criticizes Barak Obama for making a point of not wearing a flag pin in his lapel. I guess the NYT is printing Kristol to show how open minded it is. It just happens that I agree with Obama on this issue. In the old days when American presidents were patriots they earned military decorations, and chose to wear them or not, depending on their personal attitudes toward public displays.

The most notable example is probably President Lyndon Johnson's Silver Star, a lapel pin that he wore most of his life, although it was probably undeserved. See this CNN story. Many true heros feel no compunction to wear their decoration, believing modestly that their actions were more important than any display. Because most of the politicians in Washington today were cowards who failed to serve their country, they don't have any military decoration to wear and therefore have chosen to wear the flag. No modesty for the Republicans!

I'm guessing that Bill Kristol is not a combat veteran, and probably not a veteran at all. He's a flag man, and a typical Republican coward, who has no hesitation about sending our troops to fight in Iraq, although he would not go himself. Barak Obama shows his patriotism and courage by standing up to cowardly bullies like Bill Kristol.

I still have bad memories of seeing Zbigniew Brzezinski introduce Vice President Al Gore to an audience of Polish World War II veterans at the Ambassador's residence in Warsaw, Poland. Brzezinski introduced Gore as a Vietnam veteran. The Polish veterans greeted the introduction with applause, but the Americans murmured, "Doesn't he know that President Clinton didn't serve in the military?" Military service is no longer admired in the US, especially by slackers like William Kristol.

Thursday, February 21, 2008

Bushies Gut Non-Proliferation Effort

Just for the record, I worked with Linda Gallini and Dean Rust who are mentioned in this Mother Jones article about the Bush Administration's true believers who gutted the US non-proliferation efforts.

Saturday, February 09, 2008

Will America Repeat Japan's Recession

The recession that Japan experienced in the 1990s, and that still pervades Japan today, started out in a very similar way to the way the subprime mortgage/credit crunch started in the US. The real estate market was in a bubble, and when that burst, the banks' problems made it worse. The NYT looked at the similarities and found that a better response by the US will prevent us from following Japan's downward trend.

The people whom the NYT interviewed are probably smarter than I, but I am not so sure we can beat the downturn without following the Japanese example, although I don't think we should be doomed to stay in the doldrums for a decade as the Japanese have been. The NYT sees the big difference as fiscal policy. The Japanese used only monetary policy -- keeping interest rates at almost zero for almost a decade -- but apparently not so much fiscal policy.

First, the fact that the Japanese have kept interest rates at almost zero demonstrates the limits of monetary policy as practiced by the Fed. Secondly, the Republican tax cuts mean that we have been running our fiscal policy as if we have been in a recession for the last seven years. Now that we are in one, inplementing a strong anti-recession fiscal policy is likely to ignite inflation, because we are not starting with a balanced budget. We are starting with a budget already badly in the red. Printing money is a recipe for inflation.

I don't think the Republicans care much about inflation, because it allows them to decrease the value of the debt they have run up the last seven years. It allows them to pay if off in cheaper dollars. Of course, for everyone else, it means that they are stuck with cheaper dollars when they get paid, when they buy things and for everything else.

The lesson of inflation, and low interest rates in general, is don't save. Spend what you've got and borrow at low interest because you can pay it back in cheaper dollars. But look at Latin America: the chickens come home to roost. People won't invest in your country, because their investments lose money as the inflated currency depreciates. We are already seeing foreigners (Chinese, Saudis) talk about diversifying out of the dollar into the Euro or a basket of more stable currencies. At some point, inflation and the depreciating dollar will force interest rates to rise, back to the high rates of old days (the 1970s) of 15-20 percent, or more if things get really bad. Such high rates are very bad for domestic business. Maybe globalization will make the coming scenario different from the 1970s scenario, but it will be a first test; so, who knows.

I would like to know what Paul Volker thinks, who got us out of the 1970s stagflation painfully, but successfully.

Thursday, February 07, 2008

Tom Friedman on Israeli Attitudes toward Race

Tom Friedman deals with Israeli attitudes toward race in his book From Beirut to Jerusalem, first published in 1989. Since he's Jewish, I cite him as someone who should not be anti-Semitic. On page 269 of my paperback copy, he says:
The Lebanon invasion [in the 1980s] reopened the fundamental division in Israel over the questions: What kind of society is Israel to become? What kind of values does it stand for? Is it going to be a Jewish South Africa, permanently ruling Palestinians in West Bank homelands, is it going to be a Jewish Prussia, trying to bully all of its neighbors, or is it going to be a state with borders that will be based solely on considerations of what will preserve a secure, democratic, and Jewish society at peace with its neighbors?
These are almost exactly the same questions Jimmy Carter raised in his book, Peace Not Apartheid, and for which he was severely chastised by the Jewish community.

Friedman also deals with Israeli attitudes toward the Holocaust a few pages later. He describes how fatalistic and pessimistic Israelis are, in part because of their connection to the Holocaust. But then he says:
If Israel wasn't founded on the basis of such a fatalistic outlook, then how did it take over? ... In the early years of the state of Israel it was common for nativeborn Israelis to feel contempt for the Jews who died in the Holocaust, and even for some of those who survived, because they were viewed as sheep who simply went off to slaughter, while the Zionists were men of bold initiative, who went ou and found the British and Arabs and built a Jewish state.
Ruth Firer, an Israeli who came to Israel from Poland via Siberia during World War II said:

"When I was a student here [in Israel] in the 1950s, the Holocaust was a family secret -- a shame.... The feeling, the whole atmosphere, was that the future must triumph over the past. All of us, parents and kids, tried to cover up what had happened. When we taught the Holocaust then, we taught the heroism of the Warsaw Ghetto -- that was it."
Friedman continues:
The change began, I believe, with the trial of Nazi war criminal Adolf Otto Eichmann in 1961, which brought both the Holocaust and the survivors out of the Israeli closet.... Today -- unfortunately -- the teaching of the Holocaust is an essential element of Israeli high-school education and in the Israeli officers' course. No one goes to Kibbutz Degania [an early kibbutz founded in 1909] anymore. Most Israeli younsters I met had no idea what it represented. dEgania is not viewed as the gateway to Israel. Instead, that role has been taken over by Yad Vashem, the massive hilltop memorial in Jerusalem honoring the 6 million Jews killed in the Holocaust.... Israel today is becoming Yad Vashem with an air force. The past has caught up with the Zionist revolution and now may be in the process of overtaking it. The Holocaust is well on its way to becoming the defining feature of Israeli society.

Wednesday, February 06, 2008

Republicans Are the New Communists

Rice's decision to call the US's UN Amb. Khalilzad on the carpet, as reported by Reuters, for appearing publicly with the Iranian ambassador at Davos smacks of the old Communist methods. Condi should know them well, since she used to be a Soviet analyst. She was probably under pressure from the right-wing apparatchiks like John Bolton, who emulate the methods of the old Soviet Union to maintain thought control.

While on the subject of X is the new Y, it looks like Israelis are the new Nazis. The turmoil in Gaza, with imprisoned Palestinians breaking out into Egypt, has shown that Gaza is the new Warsaw ghetto. Jews have all kinds of racist profiling methods that they use against Palestinians and other Arabs, but locking them in the Gaza ghetto is clearly reminiscent of Nazi policies against Jews during World War II. The race hatred that is seething in Israel is hard to fathom.

Monday, January 28, 2008

What about Inflation and the Dollar?

Bernanke's rate cut, expected to be followed soon by additional rate cuts at the next Fed meeting, helped the stock markets and the rich investors avoid a deep drop last week, but what effect will it have on inflation in the US and the value of the dollar? It's likely to be negative on both counts. The usual monetary tool to stop inflation is higher interest rates, which also depresses business. Unfortunately, cutting interest rates tends to encourage inflation, and it is likely to do so in this case. Furthermore, currency traders tend to invest in currencies that give a good rate of return, interest, on their holdings. Lowering interest rates discourages people from investing in that currency, the dollar. Therefore the rate cut will likely have the effect of lowering the value of the dollar. The effect may not be immediate, because the dollar is currently at almost historic lows against most major currencies, the yen, euro and pound. It may take a while for people to get used to even lower values for the dollar.

The US has a great incentive to allow inflation and devaluation of the dollar because of our huge debt. It's a common practice for third rate developing countries to run up huge debts with foreign lenders and then devalue their currencies so that they pay off the debt with cheaper money. Thus, if the dollar eventually is worth many less Chinese yuans, the US will have to sell a lot fewer goods overseas to pay off the billions we owe China. That's not going to happen immediately because the Chinese persist in pegging the yuan to the dollar, but if the dollar really starts to tank, they may change their mind. But it's a complicated case, like the one where if you owe the bank $1,000 and can't pay, you are at the bank's mercy, but if you owe the bank $10 billion and can't pay, the bank is at your mercy. Thus we and the Chinese each have leverage on each other.

The Economist magazine takes Bernanke to task for his precipitous cut in interest rates, mainly because it smacks of panic. But it's also likely to have some harmful long-term effects.

Thursday, January 24, 2008

The Bernanke Put

It will be interesting to see how Fed Chairman Bernanke's rescue of the stock market works out. It may be easy to compare his approach with a less activist approach, since all the other central bank governors appear to be resisting the temptation to rescue their stock markets. The Bernanke put seems to have replace the Greenspan put, allowing big investors to maintain an option to sell their stocks at a higher price if the market goes down too much. In essence this administration has said that it will rescue the rich investors immediately, and maybe later it will do something for the small fry.

The Europeans so far seem to think that the stock markets and the rich investors can take care of themselves. If they make some bad investments, they should have to live with them. This runs the risk of being a drag on the economy in the short term, but it gets the trash out of the financial system and creates a foundation for future growth. Bernanke and Greenspan are acting in the present, but are they mortgaging the future? Greenspan had twenty good years, which argues that his approach may work out. But the turmoil we have today is at least in part due to Greenspan's decision to keep credit cheap and let the good times roll.

Friday, December 14, 2007

Banks in Trouble

An excellent op-ed in Friday's Wall Street Journal (which I can't access on the web) explained the credit crunch problem well to me, and why the Fed has so far been unable to solve it.

The problem is that banks don't trust each other. Therefore, it's clear that there is another shoe to drop. Banks have expanded their risks enormously because they used securitization (selling loans as some kind of paper) to get loans off of their books. If the loans stayed on their books, the banks would have been limited in their loan making by their capital and their access to funds. Once banks were close to being limited in making loans by the size of their capital, the Fed could regulate new lending by expanding or limiting the banks access to additional funds.

If they moved the loans off of their books, however, they were never limited. Furthermore, at least in theory, moving the loans off of their books also moved the risk off. But now all of this junk that the banks thought they had gotten rid of is coming back home. Citibank has recently taken several of the "SIV" off-books sham entities it created back onto its own books, thus limiting the amount of new lending it can do.

To the extend that Citibank or other banks become capital limited, the Fed can help in its traditional way. However, if the majority of the loans are floating around as commercial paper being held by who knows who, there is not much the Fed can do. In essence the banks created money that was beyond the control of the Fed.

The rub is that the banks know how much trash is out there, because they know how much trash they sold. Therefore, banks are reluctant to lend to other banks, because they don't trust the other bank to stay solvent to repay the loan. The scary thing is that the banks know better than anybody what risk is out there, and they are too scared to lend to their colleagues. That makes it look bad.

Everybody talks about the subprime housing crisis, but what if there is other bad stuff out there. Banks have been "securitizing" everything, getting loans off their books. What about credit card debt? Car loans? Business loans? If banks lowered their lending standards considerably in these other sectors as they did for mortgages, won't some of them start to go belly up, too?

Paul Krugman has an article in the NYT saying that we are in more than a liquidity crisis. A liquidity crisis is when you have the capacity to pay off a loan, but you just don't have the cash on you. In this case, somebody (the Fed) can loan you the money to pay it off now, and then you can pay them (the Fed) off later as you continue to get salary paychecks, or your house finally sells, or whatever. But if you can never pay off the loan, it's a different problem. The money is gone for good. In this case the banks may have paid themselves huge profits on bad loans in a giant ponzi scheme. If the debtor can never pay, a Fed loan is not going to help. It may be that the banks believe this, and that's why they won't lend to each other.

If only a small percentage of the loans are bad, the system can handle it, but at some point this could grow from a liquidity crisis into a financial crisis.