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Paying the Piper

| Fri Oct. 10, 2008 1:36 PM EDT

PAYING THE PIPER....Matt Yglesias says, sure, people were using their homes as ATM machines during the housing bubble, but it's not as if our political leaders were raising any red flags about it at the time. In fact, just the opposite:

Meanwhile, the broad conservative movement spent a lot of time trying to shout down anyone who worried about rising inequality or stagnant wages by pointing out that the trends looked better if you only examined consumption. In other words, if you ignored the fact that people were maintaining consumption growth by piling on more debt, things looked great! And yet, now somehow things don't look so great....

Obviously, the mere fact that conservative politicians, hacks, and operatives were egging this trend on didn't force anyone to accumulate enormous debts. Plenty of people didn't do so. But the underlying ill here is economic policies that sought to substitute an asset price bubble and innovative credit products for real, broadly-based prosperity.

This deserves a much longer treatment, which I'm not going to attempt right now either. But someone ought to. We usually argue about rising income inequality in moral terms, but there's a practical side to it too: when all the economic growth a country produces goes to a very small class of rich people, stupid things happen. The rich can't possibly consume enough to spend all this money, so they start casting around for something, anything, to do with all the cash they have sloshing around. And since, in an ever more unequal economy that nonetheless preaches ever rising living standards, the poor need payday loans to keep up and the stagnating middle class needs HELOCs, that's where their money goes. It still gets spent, eventually, on things like cars and food and new furniture, because that's what middle class people mostly spend their money on, but instead of being spent directly by people who are earning it, it gets funneled downward to them via increased debt and financial legerdemain that extracts more and more money upward from poor to rich with each cycle.

That's not sustainable. Median income growth produces not just growth, but stable growth for everyone, the rich included. Top end growth, almost by definition, produces unstable, unsustainable growth. Modern economies are driven by consumer spending, and if you want consumer spending to increase consistently you have to increase consumer income. All the financial wizardry in the world will never change that.

Social justice aside, that's why the single most important financial statistic for any modern economy is real median income growth. If you have it, you're in pretty good shape no matter what else is going on. If you don't, you're a banana republic. Guess which one we've become?

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A Friday Distraction From Finance Doom

| Fri Oct. 10, 2008 1:07 PM EDT

At The Atlantic:

Casanova's first orgasm, Hitler's famous mustache, Bob Hope's last jokes: for every thing, there is a season. Herewith a compilation of great moments in precocity, endurance, and procrastination, organized instructively by age.

You're welcome.

Old McCain Aides Regret New McCain

| Fri Oct. 10, 2008 1:02 PM EDT

John McCain has had a coterie of advisers that has worked with him, off and on, for his entire political career. John Weaver and Mike Murphy are two such men. Despite the fact that they are not working for McCain's current presidential campaign, they are devoted McCainiacs. And both have become disheartened with the direction the McCain campaign has taken these past few weeks.

Weaver, a man the Washington Post once called McCain's Karl Rove, is quoted in the Politico:

Joe Sixpack

| Fri Oct. 10, 2008 12:38 PM EDT

JOE SIXPACK....David Brooks has a good column today:

Over the past few decades, the Republican Party has driven away people who live in cities, in highly educated regions and on the coasts. This expulsion has had many causes. But the big one is this: Republican political tacticians decided to mobilize their coalition with a form of social class warfare....What had been a disdain for liberal intellectuals slipped into a disdain for the educated class as a whole.

....[Sarah] Palin is smart, politically skilled, courageous and likable. Her convention and debate performances were impressive. But no American politician plays the class-warfare card as constantly as Palin. Nobody so relentlessly divides the world between the "normal Joe Sixpack American" and the coastal elite.

Sure, it would have been nice if Brooks had noticed this a little earlier. And it's not the hardest hitting column on the subject of culture war politics we've ever seen. Still, this stuff isn't easy to write about your own side. It's a pretty decent piece.

Fear-Mongering and Fox

| Fri Oct. 10, 2008 11:59 AM EDT

Various outlets are growing concerned with the anti-Obama anger that seems to have taken over McCain/Palin rallies of late. I'd like to point out that Fox News is doing far, far more to entice hatred and possibly violence than the McCain campaign is. If you take your cues from Fox News, you're likely to think America is under attack by a foreign terrorist agent who holds both a Islamic faith and a communist agenda. Further, you likely believe that this secret Stalinist Muslim will steal the election from god-fearing Americans through his connections to ACORN, the single sleaziest organization on the planet.

Yes, McCain and Palin have drifted into seriously shady territory by implying that Obama is an unamerican terrorist sympathizer. But Fox is way more explicit in its race-baiting and fear-mongering than the McCain campaign is.

As just a bit of evidence, see this Daily Show clip:

McCain's Foreign Policy Advisor and Ahmad Chalabi: How Close?

| Fri Oct. 10, 2008 11:50 AM EDT

Back in the fall of 2002, long before president Bush had told the public of his plans, the man who would become the John McCain campaign's top foreign policy advisor was tasked with a sensitive mission that had come from the White House: to set up a group to lobby for war with Iraq. The group that Randy Scheunemann subsequently set up and became president of, the Committee for the Liberation of Iraq, argued, as did Iraqi exile politician Ahmad Chalabi, that the problem with Saddam Hussein was not just his (alleged) weapons, but the nature of the regime: "We believe it is time to confront the clear and present danger posed by Saddam Hussein's regime by liberating the Iraqi people," Scheunemann said in a press release announcing the creation of the Committee on the Liberation of Iraq, which was celebrated by a party at Chalabi's Georgetown home, according to Chalabi's biographer Aram Roston.

So how close really were Scheunemann and Ahmad Chalabi? In this piece, I asked long-time Chalabi advisor Francis Brooke, among others:

Brooke says he met Scheunemann in 1996 when he and Chalabi were hitting Capitol Hill to try to drum up increased US government support for the Iraqi opposition. Brooke's pitch then was that putting pressure on Saddam Hussein was not just the right policy; it was also a vehicle for attacking Bill Clinton, then running for reelection. "I thought it was a good time to educate the Republican Congress…and give them the ammunition they needed to beat the president up." In Scheunemann and other hardliners on the Hill, Brooke says he found kindred spirits—a clique of Republicans deeply disillusioned with how George H.W. Bush had let both the Cold War and the first Iraq War end without meting out sufficient punishment to America's adversaries. "These people had a great sense of psychic loss that we had not finished the first Iraq War in the most comprehensive way. They hated George Bush the first."
Still, Scheunemann, who then worked for Senate Majority Leader Trent Lott, was initially skeptical. After he and Chalabi made their pitch, Brooke said, "Randy said, 'This is all fine but on the other hand, the CIA and other parts of the US government tell me that the Iraqi opposition is a feckless bunch of people, that can't do anything, have no support inside the country, and have probably been up to no good all over the place.'" Brooke says he encouraged Scheunemann to do his own research, and eventually convinced him.

Go read the whole piece.

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Tough Times for Conservative Philanthropist

| Fri Oct. 10, 2008 11:31 AM EDT

After taking a hit of $4 billion in the recent financial turmoil, conservative philanthropist and Freedom's Watch-backer Sheldon Adelson is no longer the third wealthiest person in the United States, according to a revised Forbes' list. Bloomberg:

Las Vegas Sands Corp. Chief Executive Officer Sheldon Adelson's net worth declined by $4 billion between Aug. 29 and Oct. 1, the steepest drop among Americans who lost $1 billion or more during the credit crisis, according to Forbes magazine.
The magazine, in its Oct. 27 issue, recalculates the effect of September's financial news on the wealthiest Americans, those who make up its Forbes 400 list. That list was published on Sept. 17.
Berkshire Hathaway Inc. Chairman Warren Buffett overtook Microsoft Corp. co-founder Bill Gates as the richest American by posting an $8 billion gain to $58 billion during the period, the magazine said. Gates's net worth declined $1.5 billion to $55.5 billion during the 33-day period. He had been first for 15 straight years.

I wrote about the right's frustration with Adelson's tendency to take a hands-on role in projects he funded back in the spring. And Peter Stone profiled the casino mogul in the magazine.

Yet More Troopergate

| Fri Oct. 10, 2008 2:52 AM EDT

YET MORE TROOPERGATE....While we're waiting for the Alaska legislature's official report on Troopergate, the New York Times offers the results of its own investigation:

In all, the [public safety] commissioner and his aides were contacted about Trooper Wooten three dozen times over 19 months by the governor, her husband and seven administration officials, interviews and documents show.

.... On Jan. 4, 2007, a month into the Palin administration and his tenure as public safety commissioner, Mr. Monegan went to the governor's Anchorage office to talk with Todd Palin, who had requested the meeting. Mr. Palin was seated at a conference table with three stacks of personnel files. That, Mr. Monegan recalled, was the first time he heard the name Mike Wooten.

"He conveyed to me," Mr. Monegan said, "that he and Sarah did not think the investigation into Wooten had been done well enough and that they were not happy with the punishment. Todd was clearly frustrated."

....Several evenings later, Mr. Monegan's cellphone rang. "Walt, it's Sarah," the governor said before echoing much of what her husband had said. Trooper Wooten, he recalls being told, was "not the kind of person we should want as a trooper." He told the governor, too, that there was no new evidence to pursue.

Soon after that, Mr. Palin and several aides began pressing the public safety agency to investigate another matter: whether Trooper Wooten was fraudulently collecting workers' compensation for a back injury he said he had suffered while helping carry a body bag.

Mr. Palin's evidence: He told Ms. Peterson, the commissioner's assistant, that he had seen the trooper riding a snowmobile while on medical leave and that he had photographs to prove it.

The Palin family really had the bug, didn't they? Definitely not people you want to get on the wrong side of.

Financial Crisis Update

| Fri Oct. 10, 2008 2:39 AM EDT

FINANCIAL CRISIS UPDATE....The latest on the financial crisis:

The U.S. is weighing two dramatic steps to repair ailing financial markets: guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits.

....Under the U.K.'s recently announced plan, which it is now pitching to the G-7 members, the British government would guarantee up to £250 billion ($432 billion) in bank debt maturing up to 36 months. The British concept to expand its proposal to other countries has a lot of support from Wall Street and is being pored over by U.S. officials, according to people familiar with the matter.

....The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure.

Directly recapitalizing troubled banks is yet another idea under consideration, of course. Greg Mankiw comments:

That raises several questions. First, which firms? The government does not want to put taxpayer money into "zombie" firms that are in fact deeply insolvent but have not yet recognized it. Second, at what price should the government buy in? Third, isn't this, kind of, like socialism? That is, do we really want the government to start playing a large, continuing role running Wall Street and allocating capital resources? I certainly don't.

Here is an idea that might deal with these problems: The government can stand ready to be a silent partner to future Warren Buffetts.

It could work as follows. Whenever any financial institution attracts new private capital in an arms-length transaction, it can access an equal amount of public capital. The taxpayer would get the same terms as the private investor. The only difference is that government's shares would be nonvoting until the government sold the shares at a later date.

This plan would solve the three problems. The private sector rather than the government would weed out the zombie firms. The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control.

Nouriel Roubini offers similar advice here, along with several other ideas.

Mindgames

| Thu Oct. 9, 2008 7:59 PM EDT

MINDGAMES....John McCain and Sarah Palin (with the help of the entire cast of characters at Fox News and NRO) have been trying over the past few days to talk up Barack Obama's ties to former 60s radical Bill Ayers. But McCain didn't bring it up directly in Tuesday's debate, and apparently the Obama campaign has now decided to start taunting him over it. Today's taunts:

Barack Obama: "Well I am surprised that — you know, we've been seeing some pretty over the top attacks coming out of the McCain campaign over the last several days — that he wasn't willing to say it to my face."

Tom Vilsack: "If John McCain were so concerned about things like Mr. Ayers, why didn't he just simply turn to Barack Obama and directly confront him?"

Joe Biden: "In my neighborhood, when you've got something to say to a guy, you look him in the eye and you say it to him."

I guess the Obama folks figure there are three things that could happen. First, McCain does nothing and ends up looking like a coward. Second, their taunts get under McCain's skin so badly that he goes over the edge and does something really stupid. Third, McCain takes the bait and decides to bring up Ayers at the next debate.

The first two possibilities are obviously good for Obama. And the third? I guess they must be really sure they have a dynamite response ready in case McCain decides to unload next Wednesday. Either that or they're trying to fake McCain into thinking they have a dynamite response, thus scaring him into not bringing it up. Or else, by being so obvious about it, they're actually trying to sell McCain on the fakeout theory — and then when he falls into the trap and brings up Ayers, they're going to crush him. Or....um.....you get the idea. Basically, they're just playing mindgames with the old guy. I wonder if it'll work?