SOLVING THE ENERGY/OIL PROBLEM

Here's Robert Reich on President Bush's weak (and pretty lame) comments regarding the price of gas during yesterday morning's press conference.

The President criticized Democrats in Congress today for barring oil drilling on the Alaskan tundra. If he thinks that will bring down oil prices, he's even farther out of his mind than I feared. Even if such drilling were environmentally safe (and it's not -- remember BP?) it would amount to a miniscule addition to global oil supples.

Reich's also on to the Snake Oil that Hilary and the increasingly out of touch McCain are pitching.

So what else can we do? McCain and HRC are proposing a tax holiday on gas - so this summer you wouldn't pay the 18 cents a gallon that would otherwise go to Uncle Sam. Talk about dumb ideas. This will only encourage Americans to drive more, thereby increasing demand and causing gas prices to rise even higher ... It's a cheap political gimmick that does nothing to stem the rising price of oil.

Reich's solution? It's pretty simple, and very doable.

You want to hold oil prices down? In the short term, strengthen the dollar. Part of the reason oil prices are soaring is because the dollar is tanking [which we discussed on Saturday]. The Treasury and financial ministries of other rich countries should buy back dollars to stop speculators who are bidding the greenback down.

Over the longer term, though, China and India's insatiable demand for oil will continue to drive oil prices up, and turmoil in the Middle East will keep them up. So there's really only one way for us to go: Alternative sources of energy - wind, solar, biomass, water, and if we can make it safe enough, nuclear.

The only drawback is that there's too much commons sense involved. It might even force the Bush administration to answer for its history of saying one thing on alternative energy while doing another - like gutting renewable energy programs.

But that's alright. I'm sure OPEC and/or these two guys will figure it out for us, right? (and, yes, that's Venezuela's Hugo Chavez).



- Mark

TIME FOR A LOYALTY OATH?

This morning I was channel-flipping as I was getting dressed and saw the press hanging the Rev. Jeremiah Wright around Obama's campaign - as if God Himself had made Wright Obama's VP running mate.

This anti-Wright fervor, with its reckless accusations, and guilt by association is reminiscent of McCarthyism. It's also a petty and pathetic display of double-standards by our nation's media. Worse, it's the media's way of saying "We don't understand the role of the church in Black America ... So, yes, we're going to make this an issue."

On the other side of the isle we have John McCain who openly accepts - and gets a free pass from the press on - the support of right-wing nut job, and Apocalyptic End-of-Times instigator John Hagee. Let's take a look at some of Pastor Hagee's views:

• On Women: “the difference between a terrorist and a woman? You can negotiate with a terrorist.

• On Catholicism: The “Great Whore” and a “false cult system”

• On Katrina: New Orleans “had level of sin that was so offensive to God” ... “there was to be a homosexual parade there on the Monday that Katrina came” ... “they were the recipients of the judgment of God for that” ...

Still, John McCain is "very honored" to have Hagee's support, while Barack Obama has to back-peddle and distance himself from Rev. Wright, a man who served his country honorably in the military. Unbelievable.

And let's not forget what Hagee believes, and wants: A nuclear confrontation with Iran, which is a precondition for bringing on Armageddon. This makes John McCain, with his famous temper, the perfect candidate for people like Hagee.

Forget the level of ignorance and hubris necessary to believe that someone like Hagee can force his vision of Armageddon down God's throat. Let's focus on this: These guys want to bring destruction and despair to the United States, and the world. Does advocating the destruction of the U.S., in a religious war of dubious intent, sound like a "subversive" act to anyone else but me?

Since our president is so keen on national security perhaps it's time for a loyalty oath (republicans are already familiar with them). You know, something like this:

"Do you swear to support the Constitution and protect this nation above all other personal and religious affiliations?"

Pretty simple, don't you think? We can start with the Muslims ... you know, to make the John Hagees of the world feel better.

- Mark

THE ROOTS OF MARKETS AND WEALTH

Here is another snippet from my forthcoming book, The Roots of Markets and Wealth. The lesson from this section is that panics, manias, and bubbles are market constants because the emotions that drive them are human constants. This means the state needs to have the resources and tools to prepare for the effects of panics, manias, and bubbles because we can't eliminate human nature.


In A Short History of Financial Euphoria, economist John Kenneth Galbraith discusses the famous case of “Tulipmania” in Amsterdam at the beginning of the 17th century. What started as granting prestige to those who possessed novel tulip bulbs turned into wild speculation over successive price increases throughout 1636. Specifically, competition over tulips turned into mania, with single bulbs trading for new carriages and homes, or fetching as much as $25-50,000 each. Demand reached such heights that the Amsterdam Stock Exchange developed a futures market for the bulb.

This market, as well as the dreams of many speculators, would collapse under the weight of its own nonsense and spectacular avarice. As sellers demanded that their tulip contracts be enforced, they were disappointed when their petitions fell on the deaf ears of the courts. Because the market had little to do with the production of actual goods and services, the courts viewed Tulipmania as little more than a gambling operation.

As is the case throughout these histories, panic, default, and bankruptcy followed. Galbraith wrote “no one knows for what reason” the speculation and mania ended, but there’s little doubt common sense finally prevailed in a market spun out of control by deluded buyers and sellers.

Fast forward almost 340 years. We find the creation of another futures market, but this time in U.S. dollars. In The Vandal’s Crown: How Rebel Currency Traders Overthrew the World’s Central Banks, Gregory J. Millman tells the story of how a glut of U.S. dollars helped turn the world’s anchor currency into another commodity, just like corn and beef. Driven by the need to pay for the defense of the West, while solving social problems at home, by the mid-1960s the U.S. government had put too many dollars into circulation.

Because too much of anything drives down its value traders knew that the future price of the dollar would both fluctuate and drop, especially with the amount of deficits and debt the U.S. ran up every year. Like all good entrepreneurs traders wanted to get rich, but wanted to go beyond what traders in the Eurocurrency markets were doing. They wanted to trade in all areas touched by the future value of the dollar.

By 1970 they wanted to trade and speculate on the dollar like Chicago Mercantile dealers bought and sold pork bellies and cattle. To do this, they needed to convince the Nixon administration that speculating on the value of the dollar was a good thing. They would say nothing about what made trading on the dollar so profitable – the underlying irresponsibility of bloated budgets, growing debt, and price fixing.

For $5,000 Milton Friedman was goaded into writing a paper supporting the idea that a futures market supported by deficit dollars was a good idea. Friedman, too, would ignore the underlying irresponsibility of bloated budgets and growing debt. Friedman’s paper was sent to Nixon’s Treasury Secretary, George Schultz, who bought into the idea, stating “…if it’s good enough for Milton [Friedman], it’s good enough for me.”

The result has been an explosion in currency trading and “innovative” financial instruments whose value far outpaces the total worth of goods and services produced around the world. An entire industry of traders, analysts, and lawyers make their living off of what Peter F. Drucker called a “symbolic economy.” Ignored is how little the average person understands about this aspect of the market economy, and how bloated national budgets and growing debt feed it.

Also left unaddressed – if not conveniently ignored – is how continued deficit spending and bloated budgets virtually insured the collapse of the dollar. These dynamics fly in the face of what Adam Smith had to say about the importance of knowledge, transparency, and information in capitalist markets. Given these two cases (and there are more), do we simply trust market players to do what’s right? Or do we try and find ways to control effects of those who succumb to speculation and the herd mentality that overtook Holland’s tulip traders?

This is an honest question because if history has taught us anything it’s this: The further a generation gets from the great financial disasters of the past the more their confidence grows in the brilliant and innovative market discoveries they’ve made in their day. The result is that past experience and legitimate questions are “dismissed as the primitive refuge of those who do not have the insight to appreciate” what the new wonderkinds have fashioned ...

- Mark

ALL'S FAIR IN LOVE & WAR?

Apparently Congress can't be bothered to look into a Pentagon deliberately using retired military officers, who work for defense contractors, to push a disasterous war. Exposing our fighting men and women to the prospects of an unnecessary death is OK by them. It's really not that important that we've sunk America's blood and treasure into a bottomless pit of political incompetence.

But the prospect of our GIs being exposed to naked people? Well, Congress has to act on this.

U.S. Congressman Paul C. Broun (R-MD) is introducing legislation designed to close a loophole that allows the sale of pornography on military installations. The "Military Honor and Decency Act" redefines “lascivious,” “nudity,” and other stuff that Broun finds offensive.

My guess is that his legislation will have some kind of amendment so that our military personnel, as per Bush administration sanctioned policy, can still do their jobs and stack the naked bodies of prisoners like wood, torture, and conduct sexually humilating interrogations. We can only take this "decency" and "offensive material" thing so far, right? It's a matter of national security.

Doesn't this guy have something better to do? What an idiot.

- Mark

JUST WONDERING ...

More and more market analysts are using "Depression Era" to describe developments in the economy ... The NY Times revealed the Bush administration lied about its torture policy ... Retired military officers employed - or seeking employment - with defense contractors deliberately used by the Bush administration to pitch a war of choice ... Record debt, record deficits. Plunging prestige abroad. And the list goes on ...

With President Bush poised to leave office as the only president on the losing end of two wars, his popularity has hit a new low: 69% of Americans disapprove of his presidential performance.

Then I came across this photo of LBJ listening to a tape describing the conditions on the ground in Vietnam, sent by his son-in-law Captain Charles Robb.

So I was wondering, Does anyone think President Bush ever finds himself in a contemplative, anguished, moment like this? Again, just wondering ...

- Mark

THE ROOTS OF MARKETS AND WEALTH

In A Short History of Financial Euphoria, John Kenneth Galbraith discusses the famous case of “Tulipomania” in Amsterdam at the beginning of the 17th century. What started as the granting of prestige to those who possessed novel tulip bulbs turned into wild speculation over successive price increases throughout 1636. Specifically, competition over tulips turned into mania, with single bulbs trading for new carriages and homes, or fetching as much as $25-50,000 each. Demand reached such heights that the Amsterdam Stock Exchange developed a futures market for the bulb.

This market, as well as the dreams of many speculators, would collapse under the weight of its own nonsense and spectacular avarice. As sellers demanded that their tulip contracts be enforced, they were disappointed when their petitions fell on the deaf ears of the courts. Because the market had little to do with the production of actual goods and services, the courts viewed Tulipomania as little more than a gambling operation.

As is the case throughout these histories, panic, default, and bankruptcy followed. Galbraith wrote “no one knows for what reason” the speculation and mania ended, but there’s little doubt common sense finally prevailed in a market spun out of control by deluded buyers and sellers.

Fast forward almost 340 years. We find the creation of another futures market, but this time in U.S. dollars. In The Vandal’s Crown: How Rebel Currency Traders Overthrew the World’s Central Banks, Gregory J. Millman tells the story of how a glut of U.S. dollars helped turn the world’s anchor currency into another commodity, just like corn and beef. Driven by the need to pay for the defense of the West, while solving social problems at home, by the mid-1960s the U.S. government had put too many dollars into circulation.

Because too much of anything drives down its value traders knew that the future price of the dollar would both fluctuate and drop, especially with the amount of deficits and debt the U.S. ran up every year. Like all good entrepreneurs traders wanted to get rich, but wanted to go beyond what traders in the Eurocurrency markets were doing. They wanted to trade in all areas touched by the future value of the dollar.

By 1970 they wanted to trade and speculate on the dollar like Chicago Mercantile dealers bought and sold pork bellies and cattle. To do this, they needed to convince the Nixon administration that speculating on the value of the dollar was a good thing. They would say nothing about what made trading on the dollar so profitable – the underlying irresponsibility of bloated budgets, growing debt, and price fixing.

For $5,000 Milton Friedman was goaded into writing a paper supporting the idea that a futures market supported by deficit dollars was a good idea. Friedman, too, would ignore the underlying irresponsibility of bloated budgets and growing debt. Friedman’s paper was sent to Nixon’s Treasury Secretary, George Schultz, who bought into the idea, stating “…if it’s good enough for Milton [Friedman], it’s good enough for me.”

The result has been an explosion in currency trading and “innovative” financial instruments whose value far outpaces the total worth of goods and services produced around the world. An entire industry of traders, analysts, and lawyers make their living off of what Peter F. Drucker called a “symbolic economy.” Ignored is how little the average person understands about this aspect of the market economy, and how bloated budgets and growing debt feed it.

Also left unaddressed – if not conveniently ignored – is how continued deficit spending and bloated budgets virtually insured the collapse of the dollar. These dynamics fly in the face of what Adam Smith had to say about the importance of knowledge, transparency, and information in capitalist markets. Given these two cases (and there are more), do we simply trust market players to do what’s right and not succumb to speculation and the herd mentality that overtook Holland’s tulip traders?

This is an honest question because if history has taught us anything it’s this: The further a generation gets from the great financial disasters of the past the more their confidence grows in the brilliant and innovative discoveries they’ve made in the markets of their day. Past experience and legitimate questions are “dismissed as the primitive refuge of those who do not have the insight to appreciate” what the new wonderkinds have fashioned ...

- Mark

YOU KNOW IT'S GETTING UGLY WHEN ...

... big time market players are calling for some type of government intervention - in their own market no less. According to market watcher Newsmax.com industry leader and bond guru Bill Gross is now saying "the government must move in support of home prices to make sure the credit markets don’t melt down." But Gross really lets his competitors in the credit markets have it with this:

"In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities ...”

This says alot. It will be interesting what kind of description he uses before "fraudulent activities" in a year.

- Mark

BAD APPLES, OR SYSTEM ROT?

Political satire is great. In my view, Tom Tomorrow ranks up there with Jon Stewart (if the print is too small to read, just click on the comic to make it bigger).

- Mark

REPUBLICANS: KEEPING GAS PRICES HIGH

By way of Crooks & Liars, Democratic Rep. Peter Fazio really takes it to the Republicans and the White House. Here Fazio's pointing out how the Bush administration and Republicans are assisting the Saudis in keeping gas prices high in America through collusion (via the Organization of Petroleum Exporting Countries, OPEC).



Here's one of the pieces of legislation that Fazio is referring to in his speech on the House floor: H.R. 2264. In a few words, H.R. 2264 would amend the Sherman Anti-Trust Act and make it illegal to have market collusion in the oil industry.

- Mark

NO LIFE OPTIONS? OK BY McCAIN

According to the Congressional Research Service, the total amount appropriated for President Bush's Blundering Wars Project now stands at $700 billion. Unfortunately, John McCain doesn't want to set aside $2-4 billion per year to help educate our military personnel after they serve their country. Incredibly, he's buying into the Bush administration's line that "enhanced educational opportunities" might negatively affect retention rates.

Put another way, it's better that our soldiers have no alternatives, and are forced to stay in an endless war because they have no other life options.

- Mark

ON TROJAN HORSES, AND SHINY SPOONS

I'm sure most have already seen the NY Times story detailing the Bush administration's use of retired military officers to sell the war in Iraq to the American public. Still, it's worth posting again since our TV media seems bent on ignoring a story that exposes their culpability in promoting a war of choice by using compromised "analysts."

Specifically, the NY Times reports that the medias use of Pentagon planted military "analysts" was a problem because:

... Hidden behind that appearance of objectivity, though, is a Pentagon information apparatus that has used those analysts in a campaign to generate favorable news coverage of the administration’s wartime performance ... Most of the analysts have ties to military contractors vested in the very war policies they are asked to assess on air ...

But there's something worse than former military officers using their air-time to promote wars that military contractors, no doubt, profit from.

... Records and interviews show how the Bush administration has used its control over access and information in an effort to transform the analysts into a kind of media Trojan horse — an instrument intended to shape terrorism coverage from inside the major TV and radio networks.

The report goes on to outline how the Bush administration used the military officers by providing them with "briefings." The military officers would then use these briefings as evidence that they had access to Bush's Pentagon to military contractors.

This explains why the 4th Estate is so distracted with Rev. Wright and Hillary's mistaken sniper memory. It allows them to highlight the mistakes of others. To do otherwise would mean having to admit they're simply too lazy to dig for real facts, and are easily distracted by the increasingly dim lights of political power.

Oh, look, a shiny spoon ...

- Mark

SOMETHING BUSH DIDN'T WRECK ...

If Obama wins it I hope Robert Reich finds another cabinet position in an Obama administration. Here he is reminding us about "The Best Thing that Didn't Happen During The Bush Administration."

The best thing to have occurred during the Bush administration is something that did not happen. We did not privatize Social Security ... Had we done so, boomers facing retirement over the next few years would be even worse off than they are today. Now they’re struggling with pension plans worth less than they counted on, and home values that are tanking. At least they can rely on a monthly Social Security check.


But had we privatized, they’d be totally reliant on the stock market. And look what’s happened to the market: Compared to stock values ten years ago, the S&P 500 has risen a little over 1 percent a year, adjusted for inflation. Even Treasury bonds have done better. Go back nine years and there’s been no gain at all. Go back eight years and the market has been off an average of 1.4 percent a year ...

It's not a long post, so click on the link. If I can dig it up, I'll try and post what I wrote on Social Security for the Bakersfield Californian a few years back.

- Mark

A CONSERVATIVE WHO GETS IT: GEORGE WILL

By way of Candi, I ran across this insightful Washington Post op-ed from life long Conservative, George Will. Those of you who have been reading this blog on a regular basis will be familiar with his argument.

But suddenly the Fed is undergoing radical "mission creep" ... Did the bank "lend" $29 billion to Bear Stearns, or did it, in effect, buy some of the most problematic securities owned by Bear? ... Today's argument is that Bear Stearns was so connected to the financial system in opaque ways that no one could guess the radiating consequences of its failure [i.e. "too big to fail"] ... The Fed has no mandate to be the dealmaker for Wall Street socialism. The Fed's mission is to preserve the currency as a store of value by preventing inflation ... The Fed should not try to produce this or that rate of economic growth or unemployment ...

But I especially like what George Will had to say next. With the bailouts, our nation's financial elites are - and should be paid like - civil servants.

If Congress cannot suppress its itch to "do something" while markets are correcting the prices of housing and money, Congress could pass a law saying: No company benefiting from a substantial federal subvention (which would now include Morgan) may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

For those of you inclined toward cynicism, George Will is really painting picture of our nation's financial leaders as Wards of the State. We'll be sure to discuss on Saturday.

- Mark

"TOO BIG TO FAIL" & BAILOUTS

Here we go again …

According to an April 14th Standard & Poor’s Report, two enterprises with nominally public missions, Freddie Mac (the Federal Home Loan and Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association) may have to be bailed out to the tune of roughly $5 trillion if the economy slides into a deep recession. The rationale is that these for-profit enterprises are seen as too big to fail because of their potential impact on the national economy.

Let’s make this real simple. “Too Big to Fail” is slowly becoming a nice prelude, and euphemism, for industry bailouts. In a darker corner some might call it what it looks like – another form of corporate welfare.

So, the question remains, How did two for-profit enterprises like Freddie Mac and Fannie Mae get into the position where the feds (i.e. you and me) may have to bail them out in the future?

Real simple (actually, I'm oversimplifying here). Both enterprises purchase a bundle of home loans and use the proceeds, plus fees, to guarantee that home loans will be processed and made in a timely manner. They then sell these products to others, who like to be called "investors" (I say this because the "investors" will be at the forefront demanding a bailout should everything fall apart). Freddie Mac and Fannie Mae then use the proceeds to buy more mortgages from the mortgage industry. In doing so Freddie and Fannie (1) create a new class of “mortgage backed securities” that (2) returns money to mortgage lenders, who then (3) make more loans to consumers.

This arrangement facilitates a transfer of funds from Wall Street to Main Street. But it also allows Wall Street and unscrupulous lenders to get off the hook when they push products they know are shady. You know, the "no doc" loans, the Ninja (no income, no job, no assets) loans, and the "liar" loans we saw over the past 5 years. Why worry about them when everyone's bought into the cycle of deception?

Problems also arise when you have companies like Countrywide Financial who go to Freddie Mac for more than $50 billion in loans, and then put up virtually worthless (or soon to be worthless) subprime loan contracts as collateral. This helps to explain why Freddie Mac and Fannie find themselves in trouble today. They’ve gotten wrapped up in a lot of “toxic” loan contracts.

There’s more to this story, but I’ll make this simple: This is what happens when government enterprises, with legitimate public missions (homeownership), underwrite an industry that then gets caught up in a euphoric web of deregulation, easy money, and greed. The taxpayer picks up the tab, while the "investors" lose little to nothing.

These dynamics not only gives legitimate government activities a bad name, but undermines the integrity of the market.

- Mark

ROBERT REICH SUPPORTS OBAMA

Robert Reich, long time Bill Clinton friend (going back to their Oxford days), is officially supporting Barack Obama for president. While his reasoning is clear, the fact that he does not elaborate much on his support tells me this was a difficult decision for Reich.

As Bill Clinton's Secretary of Labor, and probably the smartest guy in President Clinton's cabinet, this has to hurt - and not just politically.

But it says scores about Obama.

- Mark

LIKE PUTTING LIPSTICK ON A PIG?

Robert Baer, former CIA operative and author of Sleeping With the Devil: How Washington Sold Our Soul for Saudi Crude, recently did an interview that came out in the May 2008 Men's Journal. In it he discussess the war in Afghanistan (it's a "joke"), the use of torture (doesn't work), and drinking with the Russians (bring butter).

For my money, he offers the best one-liner on the war in Iraq, and Gen. Petraeus's contribution to the effort.

"IRAQ IS A CORPSE THAT PETRAEUS KEEPS PUTTING LIPSTICK ON TO MAKE IT LOOK LIKE IT'S STILL ALIVE."

If anyone has put it any clearer than this I'd like to see it.

- Mark

NDI: IRAQ, "A MAJOR DEBACLE"

By way of SusanG I found this report "Choosing War: The Decision to Invade Iraq and Its Aftermath (PDF). It's from the National Defense Institute, which is billed as the Pentagon's "premier educational institute." The opening line sets the tone:

Measured in blood and treasure, the war in Iraq has achieved the status of a major war and a major debacle.

The analysis, for the Bush administration, doesn't get much better after that.

Globally, U.S. standing among friends and allies has fallen. Our status as a moral leader has been damaged by the war ... At the same time, operations in Iraq have had a negative impact on all other efforts in the war on terror, which must bow to the priority of Iraq when it comes to manpower,materiel, and the attention of decisionmakers. Our Armed Forces — especially the Army and Marine Corps — have been severely strained by the war in Iraq. Compounding all of these problems, our efforts there were designed to enhance U.S. national security, but they have become, at least temporarily, an incubator for terrorism and have emboldened Iran to expand its influence throughout the Middle East ...

The reasons things haven't gone well are tied to 5 overarching assumptions made by the Bush administration that proved to be both wrong and based largely on "wishful thinking."

1. The fighting would end in a "climactic battle."

2. We would be welcomed with "sweets and flowers."

3. There would be no "score settling" because Iraqis hungered for democracy.

4. Iraq would be able to fund the war.

5. The troops would receive help from Iraqi police, the Iraqi Army, and state ministries.

More than wishful thinking, what stands out in this report is how prevalent willful ignorance was in the run up to war.

... much of the postinvasion state of affairs had been predicted. Many government and civilian experts had spoken well and loudly about the dangers of postwar Iraq, but their warnings were not heeded.

This is a well written and extremely accessible assessment of what happened in the lead up to war. It points enough fingers for us to see that George Bush, Dick Cheney, Condoleeza Rice, and Donald Rumsfeld will likely go down as Historical Incompetents, on many levels.

- Mark

INTERESTING ... WHO'S THE REAL PATRIOT?

After hearing President John F. Kennedy's challenge to, "Ask not what your country can do for you, but what you can do for your country," a young African-American gave up his student deferment, left college, and voluntarily joined the Marines.

Keep in mind that he did so at a time when he and his family could not be seated or fed in restaurants across the American south. Yet, he chose to abandon an educational opportunity that was not always available to African-Americans to serve his country. Here's his story, as told in the Chicago Tribune:

"In 1963, this man, having completed his two years of service in the Marines, volunteered again to become a Navy corpsman. (They provide medical assistance to the Marines as well as to Navy personnel.)

The man did so well in corpsman school that he was the valedictorian and became a cardiopulmonary technician. Not surprisingly, he was assigned to the Navy's premier medical facility, Bethesda Naval Hospital, as a member of the commander in chief's medical team, and helped care for President Lyndon B. Johnson after his 1966 surgery. For his service on the team, which he left in 1967, the White House awarded him three letters of commendation ...

... While this young man was serving six years on active duty, Vice President Dick Cheney, who was born the same year as the Marine/sailor, received five deferments, four for being an undergraduate and graduate student and one for being a prospective father. Presidents Bill Clinton and George W. Bush, both five years younger than the African-American youth, used their student deferments to stay in college until 1968. Both then avoided going on active duty through family connections."

The article continues by asking, "Who is the real patriot? The young man who interrupted his studies to serve his country for six years or our three political leaders who beat the system? Are the patriots the people who actually sacrifice something or those who merely talk about their love of the country?"


This is a good question. We'll discuss it this Saturday.

- Mark

P.S. For those of you who haven't already figured it out, I'll let you know who the Navy corpsman was during the program [it's Rev. Jeremiah Wright]

WILL FERRELL RETURNS AS "W"

Will Ferrell goes back to his Saturday Night Live "George W. Bush" bit for New York's Center for Autism. He goes after host Jon Stewart. Funny stuff. Fair warning, the language can be a bit strong.



- Mark

THE ROOTS OF MARKETS & WEALTH

Below is an excerpt from the book I'm working on, The Roots of Markets & Wealth. The topic is the Milton Friedman fed (or led) myth that the Federal Reserve created the conditions for the Great Depression in 1929.

... In Free to Choose: A Personal Statement, Milton Friedman took care to review the causes of the Great Depression. With characteristic bravado he declared that “the independent Federal Reserve System was to blame for the mistaken monetary policy that converted a recession into a catastrophic depression.” He also claimed “[w]e now know that the depression was not produced by a failure of private enterprise, but rather by a failure of government.”

Speaking of failures, Friedman failed to say anything about the well documented market schemes, market myopia, speculative euphoria, and structural weaknesses in the overall economy. Perhaps Friedman’s greatest overstatement is falsely suggesting – with his “We now know …” claim – that there is some kind of scholarly unanimity behind the causes of the Great Depression. Nothing could be further from the truth.

Nobel Laureate Paul Samuelson, for example, argued that there could be “dozens” of explanations for “cycle theories” that explain business slumps and economic depression. Indeed, looking at the claim that the Federal Reserve encouraged speculation early on John Kenneth Galbraith researches and then dismisses the position as ‘formidable nonsense.’


Another Nobel Laureate, Kenneth Arrow, questioned Friedman’s focus on monetary policy, warning that “the sole emphasis on incompetent monetary policy as the cause of the Great Depression is disputed by serious scholars.” He adds that “really bad turns in monetary policy did not come until the end of 1930” when the recession was already “severe.”

Friedman also ignores that before the creation of the Federal Reserve System capitalist history is rife with market failures on a grand scale, suggesting “instability” is “endemic in the free enterprise system.” Indeed, standard history texts of the American economy point to easy lending by industry (margin purchases, easy credit, shady loans, etc.), structural weaknesses in the banking industry, and slowdowns in agriculture and housing markets, among other problems in the overall economy.

In sum, it is clear the causes behind the Great Depression are far from decided, and the manias that lead to destructive herd mentalities in markets may be more common than we want to believe. More importantly, it tells us that Milton Friedman was prone to making broad statements that aren’t supported by the facts ...

- Mark

OBAMA: PRO-WORKING CLASS, PRO-UNION

Every day that I see Barack Obama the more I see a candidate who gets it. He had this to say about the Republican's notion of an "ownership" society ...

"They call it the ownership society – but what it means is you’re on your own. You’re a worker who’s been laid off from a job? Tough luck, you’re on your own. You’re a single mom trying to find health care for your kids? Tough luck, you’re on your own. You’re a senior whose pension got dumped after a lifetime of hard work? Tough luck, you’re on your own ..."

But what's especially nice to see is that Obama is willing to stand up for the working class in general, and labor unions in specific.

"It’s not just that this administration hasn’t been fighting for you; they’ve actually tried to stop you from fighting for yourselves. This is the most anti-labor administration in our memory. They don’t believe in unions. They don’t believe in organizing. They’ve packed the labor relations board with their corporate buddies. Well, we’ve got news for them – it’s not the Department of Management, it’s the Department of Labor, and we’re here to take it back ..."

As a fighter for America's middle class, and the only candidate who opposed President Bush's Blundering Wars Project from the beginning, we can add one more prefix-laced noun to Obama's credentials: He's also "pro-American."



- Mark

THE $3 TRILLION BLUNDER

With costs for President Bush's Blundering Wars Project expected to soar into the $3 trillion range, there have have been many attempts to put into perspective what this means. For starters, for about $420 billion we could overhaul much of America's energy infrastructure and replace it with solar capacity.



Here's a playful site that does the math for you on other items and projects that you might be interested in pursuing.

- Mark

THE PRESS: BLOWING IT AGAIN

Let’s take a time out from the media’s “for-your-entertainment-Obama-‘bitter’-fest” to focus on something a little more substantive ...

Dick Cavett (yes, that Dick Cavett) takes a look at how the use of words can shift attention from the ineptitude that surrounds the war in Iraq. But he also takes the time tell us how uncomfortable Iraqi Ambassador Ryan Crocker is covering for the Bush administration's ineptitude during his congressional testimony:

… Back to poor Crocker. His brows are knitted. And he has a perpetually alarmed expression, as if, perhaps, he feels something crawling up his leg.

Could it be he is being overtaken by the thought that an honorable career has been besmirched by his obediently doing the dirty work of the tinpot Genghis Khan of Crawford, Texas? The one whose foolish military misadventure seems to increasingly resemble that of Gen. George Armstrong Custer at Little Bighorn?

Not an apt comparison, I admit.

Custer sent only 258 soldiers to their deaths.

If the media wants to focus on elitism and how words can do real damage, Barack Obama is not the central front in their war on linguistic error(s). There are other real stories. Cavett’s article does a pretty good job of telling us why General Petraeus and Amb. Crocker – rather than Barack Obama – should be at the center of the media’s universe.

- Mark

DON’T BLAME ME

Here’s the Conservative’s version of accountability today: DON’T BLAME ME.



At the top of the “don’t blame me” crowd is Alan Greenspan. He’s also on top of the “free-markets-work-but-let’s-prime-the-pump-anyways” crowd. Currently he’s deflecting criticism of his tenure at the Federal Reserve by pointing to greed and, incredibly enough, the fall of the Berlin Wall. If we listen to Greenspan his “Let’s make ‘W’ look good” interest rate policies at the Fed had little to do with the bubble economy and rampant speculation. People are expected to act rationally, even if you hang a “For Sale … Almost Free Money” sign up.

Also at the top of the “don’t blame me” crowd is the CEO of Bear Stearns, Alan Schwartz. He argued in front of Congress that market “rumors” and wild “speculation” drove his company into the ground. What could he do once irrational actors fed themselves on rumors of his company’s impending insolvency, right? What he conveniently ignored is that he allowed his company to build a debt-equity ratio of 8: 1 (with rumors of a 32:1 ratio) when the industry average is on the heavy side of 3:1.

The crazy thing is that, for many conservatives, letting Greenspan and Schwartz off the hook because of the “irrational exuberance” of others only makes sense. It’s the borrowers and homeowners who should have known better.

AND YOU AND I PICK UP THE TAB …
But you want to know what the real crazy thing is? If we listen to Alan Greenspan, Alan Schwartz, and other conservatives, unregulated industry, rampant speculation, and market irrationality by the big players are simply to be tolerated – it’s all part of the market game. We shouldn’t worry ourselves about brokers, underwriters, and financial institutions who pushed and sold products with little consideration for the borrowers capacity to pay.

Indeed, why should the financial industry be pushed to do their job and pursue “due diligence” when Congress can write laws that force Americans to pay for industry greed. Don’t believe me? Check out the 2005 Bankruptcy Bill. And besides, if things get really bad the taxpayer can always be expected to pick up the tab for the big players in the form of billion dollar bailouts from the Federal Reserve.

This “let the wage earner/tax-payer pick up the tab” mind-set is so prevalent no one is paying attention to F.B.I. investigations into what they are calling “substantial” mortgage fraud. This mind-set also explains why Congress will not allow bankruptcy judges to re-write mortgage loans, no matter how inflated and fraudulent the terms were. In this mind-set, homeowners must pay the costs of predatory practices and market deception. The big guys, however, get bailed out at taxpayer expense.

NOTHING COULD BE DONE …
So this is what we have from the Greenspan and Schwartz mind-set. Greed and rumors are to blame for everything going on in the market. Case closed. Indeed, according to Alan Greenspan, nothing could’ve been done to prevent current market conditions because even with the “authority to intervene, it’s not credible that regulators would have been able to prevent the subprime debacle.”

What’s ignored by Greenspan here is that regulators had nothing to do with shoving cheap money into the economy. Also ignored is that the hands of regulators were tied by deregulation and incessant budget cuts (due, in part, to the republican tax-cut jihad). In order for Greenspan’s comments to be credible one has to suspend the capacity to reason. Think about it. If we let criminals loose from our prisons, stopped pursuing gang-related activities, and cut law enforcement budgets in half, would crime levels remain the same? My friends, regulation matters.

Still, demonstrating that his ability to suspend logical reasoning isn’t limited to absolving himself from blame for current market conditions, the former chair of the Fed is now offering a rather uncreative solution to the disorder he helped create: Let the market work its way through the current mess.

Hey, I have an idea. If we really want to fix the mess we created in Iraq, Why don’t we invade Iran, and do everything just like we did in Iraq? And for good measure, let’s hire Donald Rumsfeld to run the show. I hear he’s not doing anything ...

DON'T BLAME ME …
So here we stand, suffering through yet another set of central bank orchestrated rescues of financial institutions (which Greenspan has a history of signing on to), and watch as less than honorable “don’t blame me” executives escape investigations into their speculative and irresponsible predatory lending practices.

You know, the more I think about it, “Don’t blame me” may be the least of our problems. Someone should really be looking into how these government escorted bailouts are helping an industry stave off investigations and prosecutions that would help make one thing crystal clear: Asset inflation, fraud, bubbles, predatory lending, and market busting speculation at the levels we see today tend to occur when markets are not regulated.

But don’t blame me for this bit of news. And, please, don’t blame me because the conservative’s blind obedience to failed policy ideas makes regulatory prescriptions necessary.

- Mark

ENDLESS WAR, ON INSTALLMENT

From Rumsfeld's "six months" prediction in 2003, to what we now have today: Endless War on the 6 Month Installment Plan.



- Mark

IRAQ IS NOT THE CENTRAL FRONT IN THE WAR ON TERROR

Under questioning from Senator Joe Biden, Ambassador Ryan Crocker makes it clear that Iraq is not the threat the Bush administration - and, now, John McCain - claim it is.



- Mark

THE CASE OF DON SIEGELMAN

I don't have much time to comment on this now. But the politicization of the Justice Department under President Bush is something we've had on our radar for some time. In a few words, the case of Don Siegelman is not an isolated one - and Karl Rove should be in jail.

A new form of political murder has taken its place -- character assassination. Over the last two decades, the Right has learned how to destroy its enemies without leaving a body. Hit teams roam the country, willing and eager to destroy reputations and careers, with the U.S. press corps as accomplices ... That's a much more effective way to destroy someone than a gun. Bullets only kill the physical body, but character assassination destroys the person's reputation -- and their political effectiveness. Martyrs are a powerful force, but disgraced leaders can't threaten the status quo.

Be sure to watch the "60 Minutes" introduction in the post.

- Mark

COUNTRYWIDE & "SLEAZE CAPITALISM"

After driving Countrywide Financial to the brink of financial ruin (in part by issuing $40.6 billion in subprime contracts), former president Stanford Kurland was recently named chairman and chief executive of Private National Mortgage Acceptance Co. (PennyMac). In his new position Kurland will help PennyMac buy loans "from financial institutions seeking to reduce their mortgage exposures.”

Cutting through the jargon, this means Kurland will take his knowledge of "which mortgaged-backed securities are toxic" and will help his new company pick out the ones with real value (we can all guess who's going to pick up the tab for the worthless stuff, right?). Putting Kurland's charmed financial life in perspective, MoneyNews.com reports ...

... If Kurland thrives at his new venture, he certainly won’t be the first person in the investment world to cause huge losses and then rebound ... Victor Niederhoffer, who first made his reputation as a partner of the legendary hedge fund mogul George Soros, has apparently made and lost at least two fortunes through his investments ... There is a difference between Niederhoffer and the Countrywide crew, however ... Niederhoffer’s mistakes hurt himself and his clients. Countrywide’s mistakes helped push the economy into what probably is a recession and the financial system into a serious crisis ...

As MoneyNews.com pointed out, while many people are to blame for the subprime mess, "the leaders of Countrywide ... played a role."

No doubt considering the recent billion dollar Countrywide bailout engineered by the government, consumer lawyer Irv Ackelberg told The Wall Street Journal, "The whole subprime mortgage fiasco was built on sort of Wall Street’s snake-oil salesmen convincing America this is a can’t-miss scheme.” Nouriel Roubini was even more blunt: "The lesson of this sad and sleazy episode is that when profits are privatized and losses are socialized we get sleaze capitalism ..."

- Mark

AGAIN, THE SURGE IS NOT WORKING ...

Last week I posted a brief review explaining why "The Surge" is not working in Iraq. The Washington Post is now reporting pretty much the same thing:

A new assessment of U.S. policy in Iraq by the same experts who advised the original Iraq Study Group concludes that political progress is "so slow, halting and superficial" and political fragmentation "so pronounced" that the United States is no closer to being able to leave Iraq than it was a year ago.

It really doesn't get any clearer than this.

- Mark

A FADING REPUBLIC?

A couple of years ago, in Nemesis: The Last Days of the American Republic, Chalmers Johnson reported that the United States had well over 700 military bases abroad. According to a 2007 Department of Defense report, we now have 823 bases overseas. And a good thing too. Apparently the Russians are breathing down our neck with 16 bases around the world, while the Chinese have, no doubt, some diabolical plan since we can't seem to find any of their bases abroad.

With all the strategic stability and global Good Will we've generated by adding another 100 bases over the past few years I say "Let's add a few more ..." And, for good measure, we should flush our Constitution down the toilet and allow the president's Signing Statements to become law, while granting the president free reign when it comes to FISA statute(s).

Militarism and domestic tyranny ... I feel safer just thinking about it, don't you?

- Mark

THE "SAUDI PRIZE" ... A BUSH IN THE WHITE HOUSE

It was 1986, conservation efforts were paying off, competition in the oil industry was returning, and gas prices were plummeting. In The Prize: The Epic Quest for Oil, Money & Power, author Daniel Yergin details the efforts of then Vice President George Bush to assure the Saudis – and U.S. domestic oil producers – that the U.S. should support artificially high prices in energy. On a trip to the Middle East VP Bush made it clear to the Saudis that, as Yergin put it, "market forces had gone too far" and had the potential to cripple America’s energy industry.

Well, I’m sure Papa Bush would be quite content with the following.

At its March 2000 meeting, OPEC set up a price band mechanism, triggered by the OPEC basket price, to respond to changes in world oil market conditions. According to the price band mechanism, OPEC basket prices above $28 per barrel for 20 consecutive trading days or below $22 per barrel for 10 consecutive trading days would result in production adjustments …

And, just like that, competition is mugged by collusion. Think about this the next time you hear some Talking Head drone on about “market” forces in the oil industry.

But I really liked this comment: “At its January 30, 2005 meeting, OPEC decided that market changes had rendered the band unrealistic, and decided to temporarily suspend the price band mechanism” … Translated this says “OPEC’s already making so much stinking money they no longer have to manipulate production levels.”

Papa Bush is no doubt pleased.

- Mark

SHAMELESS, OR JUST INCOMPETENT?

Well, it looks like the Attorney General may have just stepped in it. In what looks like an attempt at Scare-Mongering gone awry, AG Michael Mukasey is being called upon by Congress to explain the following.

During a discussion with the press AG Mukasey revealed that the government became aware of a call from an Afghanistan "safe house" that was fielded in the United States (apparently on 9/11) and that, suddenly, "3,000 people who went to work that day ... didn't come home ..."

This tells us two things. Either the Bush administration was even more grossly incompetent than we thought before 9/11, or AG Mukasey simply has no shame in exploting 9/11 fears for Bush's political agenda.

My guess? It's both.

- Mark

THE ROOTS OF MARKETS & WEALTH

As I've been doing from time to time, what's posted below is a piece from the book I've been working on, The Roots of Markets and Wealth ... And, yes, it's almost done. To the left is a photo of John D. Rockefeller.





... Whatever the roots of his “scathing disdain for the ‘waste’ of unbridled competition” John D. Rockefeller’s pursuit of monopoly power in the late 1800s helped bring organization and, perhaps more importantly, steady profits to the oil industry. However, by the early 1930s oil profits were again threatened by too many competitors. Indeed, by August 1931 producers in Oklahoma and Texas were so plentiful and productive that the price of crude dropped to thirteen cents a barrel and, by the spring of 1933, saw some ‘hot oil’ runners get little more than two cents a barrel. And this occurred after Texas Governor Ross Sterling had, in effect, “declared war” on East Texas by sending the National Guard and Texas Rangers to cut off rogue producers, and then “rammed” a bill through the legislature which allowed market prorationing.

To stabilize prices, the oil industry turned to the federal government. After initially going after black market producers Interior Secretary Harold Ickes sought to reduce production by sending production quotas to the governors of each oil state. And why not? Acording to Ickes, after the Depression many business leaders were shell-shocked and “crawling to Washington on their hands and knees…to beg the Government to run their businesses for them.”

Unfortunately for Ickes, and FDR, the Supreme Court declared much of the National Industrial Recovery Act – which gave the federal government its authority in oil – unconstitutional. Still, with memories of ten cents a barrel still fresh, the states decided to follow federal government determined quotas on a voluntary basis.

To insure cooperation, the Interstate Oil Compact was passed in 1935 and provided a “forum for states to exchange information and plans, to standardize legislation, and to coordinate prorationing and conservation in production.” To check the flow of foreign oil, which might undermine the “informal” quota system, Congress imposed tariffs on foreign crude, fuel oil, and gasoline. This cut U.S. oil imports in half, stabilized sales, and put the U.S. oil industry firmly under a government escorted quota and tariff system.

As was the case during Rockefeller’s time, the post-Depression oil industry was able to establish regular profits at “market prices” only after competition had been brought under control. Perhaps more importantly, the organizational mold that would inspire the creation of the Organization of Petroleum Exporting Countries (OPEC) had been cast ...


- Mark

"HEADS" THEY WIN, "TAILS" WE LOSE

As usual, Robert Reich does an excellent job explaining why the Big Financial players are walking away with Big Bucks, while our economy and our wallets take the hit for the very poor (and dumb) decisions the Big Guys made ...

Some of the dollars I'm sending to Washington are now being used to backstop Wall Street investment bankers, hedge fund and private equity managers, and anybody else associated with a borrower that's too big to fail. The reason they're too big to fail is they've borrowed so much from me and from you - from our pension funds and money-market funds - that if they went bust, our savings would disappear ... The reason they've been able to borrow so much from us without putting up much of their own capital is they're unregulated, and don't have to put up their own money. The tax code also rewards them for borrowing rather than investing, by letting them deduct interest payments on the money they borrow. The tax code also allows them to treat the earnings they get on the investments they make with the money you and I lend them [because our tax dollars subsidize their deductions] as capital gains rather than ordinary income.

It's not much longer, so read the entire link here.

- Mark

THIS ISN'T WHAT ADAM SMITH HAD IN MIND ...

In the previous post we learned the following about Countrywide:

1. The company’s stock price went into free fall in 2007 while its 3rd and 4th quarter performance saw losses in excess of $1.6 billion.

2. To soften the blow of increasingly unstable subprime loans on their books, Countrywide turned to the federal government for over $50 billion in loans.

3. As collateral for these loans, the federal government accepted Countrywide’s toxic subprime waste as collateral, in the process sticking the American taxpayer with Countrywide’s garbage.

4. At the same time, Countrywide’s board members and executives cashed out enough millions of dollars in options to be investigated by the Securities & Exchange Commission.

Well, brace yourselves. It looks like more Countrywide ugliness is around the corner.

Countrywide has billions in loans that allow(ed) borrowers to pay a lower amount on their monthly mortgage than they actually owed (with the unpaid balance added to the principal). The result? Countrywide is now warning of defaults in these once highly-touted “pay-option” loan programs. Not surprisingly, they’re laying all the blame on the homeowners, claiming:

“Our borrowers’ ability to defer portions of the interest accruing on their loans may expose us to increased credit risk …”

This makes so much sense.

I mean, who can blame the creditors and brokers who made stupid decisions by selling home loans to deadbeats and the unemployed, and then saying “I don’t need documentation”? Why should Countrywide be blamed for their part in the industry stampede to underwrite irresponsible loans to people with “no income, no job, and no assets” (so called “ninja” loans), right? That would be like blaming drug dealers for selling … Oh, wait, never mind …

Seriously, if we accept Countrywide’s claim that home owners alone are at fault for the financial mess around the corner – while the federal government continues to bail out only the investors – all notions of accountability in America's capitalist markets fly out the window.

Adam Smith, the intellectual godfather of capitalism, is no doubt turning in his grave.

- Mark