|the man who will make Rick Warren look very, very small at the inauguration -- the civil rights giant who will deliver the benediction, the Rev. Dr. Joseph Lowery. On February 7, 2006, the pro-equality Lowery bid farewell to Coretta Scott King, another icon of the civil rights movement who was a long supporter of LGBT rights. |
Friday, December 19, 2008
Saturday, December 13, 2008
What Americans Really Want: 10 Policies We Can All Agree On
Here is an agenda that the majority of Americans support, whether they vote red, blue, green or something else.
67% Favor public works projects to create jobs.
55% Favor expanding unemployment benefits.
73% Say corporations don't pay a fair share of taxes.
76% Support tax cuts for lower- and middle-income people.
71% Say unions help their members; 53% say unions help the economy in general.
80% Support increasing the federal minimum wage.
59% Favor guaranteeing two weeks or more of paid vacation.
75% Want to limit rate increases on adjustable-rate mortgages.
64% Are not confident that life for our children's generation will be better than it has been for us.
65% Believe same-sex couples should be allowed to marry or form civil unions.
70% Support restoring habeas corpus rights for detainees at
58% Believe a court warrant should be required to listen to the telephone calls of people in the
59% Would like the next president to do more to protect civil liberties.
68% Believe the president should not act alone to fight terrorism without the checks and balances of the courts or Congress.
ENERGY & CLIMATE
79% Favor mandatory controls on greenhouse gas emissions.
76% Believe that oil is running out and a major effort is needed to replace it.
90% Favor higher auto fuel efficiency standards.
75% Favor clean electricity, even with higher rates.
72% Support more funding for mass transit.
73% Believe our health care system is in crisis or has "major problems."
64% Believe the government should provide national health insurance coverage for all Americans, even if it would raise taxes.
55% Favor one health insurance program covering all Americans, administered by the government, and paid for by taxpayers.
69% Believe the government should make it easier to buy prescription drugs from other countries.
81% Oppose torture and support following the Geneva Conventions.
76% Say the
79% Say the U.N. should be strengthened.
73% Favor abolishing nuclear weapons, with verification. 80% favor banning weapons in space.
85% Say that the
63% Want U.S. forces home from
47% Favor using diplomacy with
57% Say going to war in
67% Believe we should use diplomatic and economic means to fight terrorism, rather than the military.
86% Say big companies have too much power.
74% Favor voluntary public financing of campaigns.
66% Believe intentional acts are likely to cause significant voting machines errors.
80% Say ex-felons should have their voting rights restored.
65% Believe attacking social problems is a better cure for crime than more law enforcement.
87% Support rehabilitation rather than a "punishment-only" system.
81% Say job training is "very important" for reintegrating people leaving prison. 79% say drug treatment is very important.
56% Believe NAFTA should be renegotiated.
64% Believe that on the whole, immigration is good for the country.
80% Favor allowing undocumented immigrants living in the
Thursday, December 11, 2008
There will come a moment when the most urgent threats posed by the credit crisis have eased and the larger task before us will be to chart a direction for the economic steps ahead. This will be a dangerous moment. Behind the debates over future policy is a debate over history -- a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it's crucial to get the history straight.
What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road -- we had what engineers call a "system failure," when not a single decision but a cascade of decisions produce a tragic result. Let's look at five key moments.
No. 1: Firing the Chairman
In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place. Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment. But Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.
Greenspan played a double role. The Fed controls the money spigot, and in the early years of this decade, he turned it on full force. But the Fed is also a regulator. If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you'll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.
Greenspan presided over not one but two financial bubbles. After the high-tech bubble popped, in 2000-2001, he helped inflate the housing bubble. The first responsibility of a central bank should be to maintain the stability of the financial system. If banks lend on the basis of artificially high asset prices, the result can be a meltdown -- as we are seeing now, and as Greenspan should have known. He had many of the tools he needed to cope with the situation. To deal with the high-tech bubble, he could have increased margin requirements (the amount of cash people need to put down to buy stock). To deflate the housing bubble, he could have curbed predatory lending to low-income households and prohibited other insidious practices (the no-documentation -- or "liar" -- loans, the interest-only loans, and so on). This would have gone a long way toward protecting us. If he didn't have the tools, he could have gone to Congress and asked for them.
Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen -- for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk -- but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar. The problem is that, with this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else -- or even of one's own position. Not surprisingly, the credit markets froze.
Here too Greenspan played a role. When I was chairman of the Council of Economic Advisers, during the Clinton administration, I served on a committee of all the major federal financial regulators, a group that included Greenspan and Treasury Secretary Robert Rubin. Even then, it was clear that derivatives posed a danger. We didn't put it as memorably as Warren Buffett -- who saw derivatives as "financial weapons of mass destruction" -- but we took his point. And yet, for all the risk, the deregulators in charge of the financial system -- at the Fed, at the Securities and Exchange Commission, and elsewhere -- decided to do nothing, worried that any action might interfere with "innovation" in the financial system. But innovation, like "change," has no inherent value. It can be bad (the "liar" loans are a good example) as well as good.
No. 2: Tearing Down the Walls
The deregulation philosophy would pay unwelcome dividends for years to come. In November 1999, Congress repealed the Glass-Steagall Act -- the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn't its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely? An ensuing spiral of bad judgment is not hard to foresee. I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest -- toward short-term self-interest, at any rate, rather than Tocqueville's "self interest rightly understood."
The most important consequence of the repeal of Glass-Steagall was indirect -- it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people's money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people's money -- people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking.
There were other important steps down the deregulatory path. One was the decision in April 2004 by the Securities and Exchange Commission, at a meeting attended by virtually no one and largely overlooked at the time, to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process. In agreeing to this measure, the S.E.C. argued for the virtues of self-regulation: the peculiar notion that banks can effectively police themselves. Self-regulation is preposterous, as even Alan Greenspan now concedes, and as a practical matter it can't, in any case, identify systemic risks -- the kinds of risks that arise when, for instance, the models used by each of the banks to manage their portfolios tell all the banks to sell some security all at once.
As we stripped back the old regulations, we did nothing to address the new challenges posed by 21st-century markets. The most important challenge was that posed by derivatives. In 1998 the head of the Commodity Futures Trading Commission, Brooksley Born, had called for such regulation -- a concern that took on urgency after the Fed, in that same year, engineered the bailout of Long-Term Capital Management, a hedge fund whose trillion-dollar-plus failure threatened global financial markets. But Secretary of the Treasury Robert Rubin, his deputy, Larry Summers, and Greenspan were adamant -- and successful -- in their opposition. Nothing was done.
No. 3: Applying the Leeches
Then along came the Bush tax cuts, enacted first on June 7, 2001, with a follow-on installment two years later. The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease -- the modern-day equivalent of leeches. The tax cuts played a pivotal role in shaping the background conditions of the current crisis. Because they did very little to stimulate the economy, real stimulation was left to the Fed, which took up the task with unprecedented low-interest rates and liquidity. The war in Iraq made matters worse, because it led to soaring oil prices. With America so dependent on oil imports, we had to spend several hundred billion more to purchase oil -- money that otherwise would have been spent on American goods. Normally this would have led to an economic slowdown, as it had in the 1970s. But the Fed met the challenge in the most myopic way imaginable. The flood of liquidity made money readily available in mortgage markets, even to those who would normally not be able to borrow. And, yes, this succeeded in forestalling an economic downturn; America's household saving rate plummeted to zero. But it should have been clear that we were living on borrowed money and borrowed time.
The cut in the tax rate on capital gains contributed to the crisis in another way. It was a decision that turned on values: those who speculated (read: gambled) and won were taxed more lightly than wage earners who simply worked hard. But more than that, the decision encouraged leveraging, because interest was tax-deductible. If, for instance, you borrowed a million to buy a home or took a $100,000 home-equity loan to buy stock, the interest would be fully deductible every year. Any capital gains you made were taxed lightly -- and at some possibly remote day in the future. The Bush administration was providing an open invitation to excessive borrowing and lending -- not that American consumers needed any more encouragement.
No. 4: Faking the Numbers
Meanwhile, on July 30, 2002, in the wake of a series of major scandals -- notably the collapse of WorldCom and Enron -- Congress passed the Sarbanes-Oxley Act. The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system. Accounting is a sleep-inducing topic for most people, but if you can't have faith in a company's numbers, then you can't have faith in anything about a company at all. Unfortunately, in the negotiations over what became Sarbanes-Oxley a decision was made not to deal with what many, including the respected former head of the S.E.C. Arthur Levitt, believed to be a fundamental underlying problem: stock options. Stock options have been defended as providing healthy incentives toward good management, but in fact they are "incentive pay" in name only. If a company does well, the C.E.O. gets great rewards in the form of stock options; if a company does poorly, the compensation is almost as substantial but is bestowed in other ways. This is bad enough. But a collateral problem with stock options is that they provide incentives for bad accounting: top management has every incentive to provide distorted information in order to pump up share prices.
The incentive structure of the rating agencies also proved perverse. Agencies such as Moody's and Standard & Poor's are paid by the very people they are supposed to grade. As a result, they've had every reason to give companies high ratings, in a financial version of what college professors know as grade inflation. The rating agencies, like the investment banks that were paying them, believed in financial alchemy -- that F-rated toxic mortgages could be converted into products that were safe enough to be held by commercial banks and pension funds. We had seen this same failure of the rating agencies during the East Asia crisis of the 1990s: high ratings facilitated a rush of money into the region, and then a sudden reversal in the ratings brought devastation. But the financial overseers paid no attention.
No. 5: Letting It Bleed
The final turning point came with the passage of a bailout package on October 3, 2008 -- that is, with the administration's response to the crisis itself. We will be feeling the consequences for years to come. Both the administration and the Fed had long been driven by wishful thinking, hoping that the bad news was just a blip, and that a return to growth was just around the corner. As America's banks faced collapse, the administration veered from one course of action to another. Some institutions (Bear Stearns, A.I.G., Fannie Mae, Freddie Mac) were bailed out. Lehman Brothers was not. Some shareholders got something back. Others did not.
The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence. But it didn't address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding -- and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, "cash for trash," buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America's taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.
The other problem not addressed involved the looming weaknesses in the economy. The economy had been sustained by excessive borrowing. That game was up. As consumption contracted, exports kept the economy going, but with the dollar strengthening and Europe and the rest of the world declining, it was hard to see how that could continue. Meanwhile, states faced massive drop-offs in revenues -- they would have to cut back on expenditures. Without quick action by government, the economy faced a downturn. And even if banks had lent wisely -- which they hadn't -- the downturn was sure to mean an increase in bad debts, further weakening the struggling financial sector.
The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems -- the flawed incentive structures and the inadequate regulatory system.
Was there any single decision which, had it been reversed, would have changed the course of history? Every decision -- including decisions not to do something, as many of our bad economic decisions have been -- is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You'll hear some on the right point to certain actions by the government itself -- such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.'s had the same perverse incentive to indulge in gambling.
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America -- and much of the rest of the world -- of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.
RonMills.us is making this material available in accordance with Title 17 U.S.C. Section 107: This article is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
Wednesday, December 03, 2008
Tuesday, December 02, 2008
Florida Sen. Mel Martinez (R) has decided against seeking a second term, a decision he will formalize shortly in the Sunshine State, according to an informed party source.
Martinez's decision was based on a desire for more free time and a less scheduled life, said the source. The first term senator also was an almost certain Democratic target in two years time although those familiar with Martinez's political prospects insisted his strengths in South Florida, coupled with his political base along the I-4 corridor, made his path to reelection possible.
Martinez's retirement ensures a competitive and costly open seat race in Florida. State Chief Financial Officer Alex Sink, widely seen as Democrats' strongest potential candidate, has apparently decided that she would not run but may well reconsider that decision given Martinez's expected announcement today. Democratic Reps. Ron Klein and Kendrick Meek as well as state Sen. Dan Gelber are likely to consider the open seat race.
On the Republican side, there may well be a push to recruit former Gov. Jeb Bush into the contest although that seems like a long shot. State Attorney General Bill McCollum will almost certainly be mentioned as will state Senate President Jeff Atwater and former state House speaker Marco Rubio. Reps. Vern Buchanan and Connie Mack also may consider a run.
Martinez's retirement creates the second open seat of the 2010 cycle for Republicans. Sen. Sam Brownback (R-Kan.) is expected to leave the chamber to run for governor. Republicans must defend a total of 19 seats in 2010 as compared to 16 for Democrats.
Martinez's rapid rise through the Republican political ranks began a decade ago when he was elected Orange County (Fla.) Chairman. President George W. Bush then named Martinez to head the Housing and Urban Development department in 2000, where he became the first Cuban-American to hold a Cabinet-level post. After initially demurring, Martinez decided to run for the Senate seat being vacated by longtime Sen. Bob Graham (D). He defeated Democrat Betty Castor in that contest. Two years later, Martinez served as stint as general chairman of the Republican National Committee.
"He's had a charmed political life in the best sense, completely unplanned, and totally motivated by wanting to give back to a country that has given him so much," said Phil Musser, a former senior adviser to Martinez at HUD. "In an era where most spend careers plotting their next move up, Mel's heart has always guided him, as it does today, and that's one of the things that makes him so special."
President-elect Barack Obama's victory in Florida last month coupled with Martinez's ties to the unpopular outgoing president made him a major target for Democrats heading into the 2010 cycle. A Quinnipiac University poll conducted last month showed 36 percent of Florida voters though Martinez deserved a second term while 38 percent did not -- troubling numbers for any incumbent. In that same survey roughly three in ten (31 percent) of voters had a favorable impression of Martinez while 28 percent had an unfavorable view of the Florida Republican.By Chris Cillizza |