Volcker, Stiglitz, Hussman….

Here’s some positive news from or about people who can help point us in the right direction. First there was the big news that Paul Volcker will finally take a key role in addressing economic reform, particularly with the reinstatement of some of the key features from the Glass-Steagall Act. Joseph Stiglitz touches upon that need as well as other issues in an extract from his new book, Freefall; Free Markets and the Sinking of the Global Economy in a piece entitled “Why we have to change capitalism”

We now know the true source of recent bank bonuses: “free money” profits: According to Stiglitz, “the alacrity with which all the major investment banks decided to become ‘commercial banks’ in the fall of 2008 was alarming – they saw the gifts coming from the federal government, and evidently, they believed that their risk-taking behaviour would not be much circumscribed. They now had access to the Fed window, so they could borrow at almost a zero interest rate; they knew that they were protected by a new safety net; but they could continue their high-stakes trading unabated. This should be viewed as totally unacceptable.” Also, Stiglitz puts the bailouts in the context of the bigger picture: “the failures in our financial system are emblematic of broader failures in our economic system, and the failures of our economic system reflect deeper problems in our society. We began the bailouts without a clear sense of what kind of financial system we wanted at the end, and the result has been shaped by the same political forces that got us into the mess. And yet, there was hope that change was possible. Not only possible, but necessary.” As a consequence he argues for “a new financial system that will do what human beings need a financial system to do.”

Meanwhile, the Financial Times carried an excellent piece on Paul Volcker now that he is again front-and-center, Man in the News: Paul Volcker. For too long now Volcker inexplicably had been pushed off the center stage. Last March, as the market was in complete free fall, my tongue-in-cheek piece about “the new era of the 177K” asked, “Where is Paul Volcker to lead the way back to the 401K?”. Per the Financial Times: “this week the towering former Fed chief stood by Barack Obama’s side as the president embraced what he dubbed the “Volcker rule” banning proprietary trading – over the reservations of some of his most senior economic advisers.”
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Then, John Hussman, the economist who runs his own mutual funds, and each Monday blogs about his views, published, today, a lengthy, carefully reasoned Blueprint for Financial Reform.
This is an extraordinarily detailed eight point plan/proposal and rather than giving the bullet points here, go to the link. It deserves careful consideration by our elected officials. Needless to say, he sides with Volcker. Hussman for Chairman of the Federal Reserve or bring back Volcker?
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I've argued that in addition to financial reform, the main economic focus must be job creation: “a true recovery requires jobs, jobs, jobs – and how are they going to be created – by banks trading energy futures? What happened to the commitment to the infrastructure? Our roads, utilities, and public transportation are falling apart. Alternative energy seems DOA. Aren’t these the areas our financial recourses should be focused on, ones that will create jobs, in construction, technology, and finance, and can lead a true economic recovery we can pass on with pride to future generations?”

Green shoots first, then…..

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Obama’s First Year

Yesterday’s Palm Beach Post carried an outstanding editorial, putting Obama’s first year into perspective, and I sent a letter to the editor yesterday as well. The timing of each was particularly apt as the editorial appeared the day after Brown’s victory in Massachusetts, a clear wake up call, and my letter pointed out the need to listen more to Paul Volcker if we are going to achieve some real financial reforms and, eureka, today I learned that Obama is going to finally back some of Volcker’s ideas. At long last!

The Post editorial, A clear-eyed look at Obama's first year in office makes many excellent points:
* [He faced] not just an economy on the verge of the deepest recession in 70 years but unrealistically high expectations

* [Although he has had varying degrees of success,] he has stuck to the agenda he touted as a candidate

* The GOP strategy from the start has been to oppose and deceive…Given recent poll numbers Republicans seem to be succeeding with their strategy of opposition and an appeal to ignorance or short memories. Republicans invoke Ronald Reagan. But the Reagan tax cuts — which had bipartisan support — passed Congress in July 1981, and unemployment kept rising for 18 months. It was 7.2 percent when Mr. Reagan took office and peaked at 10.8 percent, the postwar high, before coming down.

* The worst aspect of the last year has been the spillover of illegitimate criticism from the campaign. It is the criticism — most of it on the Internet and talk TV and radio — that attacks Barack Obama as less of a person, less of a patriot and thus undeserving of the presidency….Out of this rage comes the bizarre call to "take back our country" from where it supposedly has drifted in just 365 days.

* We’d like to take back the country, too, but we'd like to take it back from a media/political culture that lives only in the moment

* The problems that Mr. Obama inherited were caused by Democrats and Republicans, Wall Streeters and Main Streeters. If some Americans just are waking up to the fact that we're spending beyond our means, their previous silence makes them partners in crime. It was fanciful to think that Barack Obama could change in one year the Washington that for decades has resisted institutional change. It also is ridiculous to think that somehow he has ruined the country in one year. We are back from the brink of one disaster but far from real economic recovery.

* Mr. Obama deserves decent marks, but he can do a lot better. That's what new presidents have the rest of their term to accomplish. An impatient America must wait longer to truly judge Barack Obama.


My January 20 letter in response follows. If it appears in the newspaper, it will be in a truncated form, so here is the full-blown version…

To the Editor:

How appropriate that your excellent editorial should appear the day after Scott Brown’s victory in Massachusetts. How sadly ironic, and ominous, that Ted Kennedy’s seat should go to one who opposes the very programs his predecessor would have supported.
Your editorial sprinkles some reality dust on the whole matter, reminding us that even though we, and especially the Republicans, have deified Reagan, he too had first year shortcomings not unlike President Obama. And how quickly we forget (or the media helps us forget) that today’s economic and foreign policy problems are ones the present administration mostly inherited. And as you say, we are all complicit in the matter. Only a few years ago many Americans thought they were living the good life, using their homes as piggy banks to finance excess. We were once a nation which once relied on the production of real things, but became focused on “paper asset” appreciation.

Nonetheless, the clarion call of the Massachusetts election does underscore some serious weaknesses of the Obama administration, most notably, in my opinion, the failure to achieve real banking reform. Yes, we needed first to rescue the entire financial system, but we continue to sacrifice Main Street at the altar of Wall Street and people are angry. Who truly believes the economic crisis is solved rather than being merely postponed? This issue becomes conflated with others like healthcare, the anger simply spilling over from one to the other.

Interestingly, Obama had enlisted Paul Volcker, who helped rescue our financial system in the early 1980’s, in his campaign and once elected exiled him to the minor post of chairman of the newly formed Economic Recovery Advisory Board. He has been calling for sweeping banking reform measures such as bringing back some of the best points of the Glass-Steagall Act separating investment and commercial banking, arguing that the best way to avoid “too big to fail” is make them so they are not too big and consigning riskier financial activities to hedge funds to which society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."

Instead, the Obama administration has engaged in political rhetoric on this issue, like taxing banks and criticizing bank bonuses (although indeed they are outrageous). We need a new economic morality and that is what the Obama administration has failed to address, certainly deserving as high a priority as healthcare, and has failed to heed Paul Volcker’s sage-like advice.

On a more serene note….

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The More things Change….

…the more they stay the same. It’s as if we did a Rip Van Winkle during the past six months, awakening to the Sturm und Drang of the banker’s bonus controversy, listening to the same blather from CNBC about our stalwart bankers’ right to riches as they have paid back their TARP money, the consequences of a capitalist system at work. Six months ago I noted the absurdity of Citibank’s salary increases, their logic being they were “needed” to retain the best talent. Today’s news is record bank bonuses, even surpassing those paid out in 2007 at the top of the market: “top 38 firms on pace to award $145 billion for ’09, up 18%” per the Wall Street Journal.

We’ve become a Corporatocracy – this is not capitalism, which is supposed to reward success, not underwrite failure -- and the bonuses are just another piece of evidence that the Obama administration, while talking up change, has been conned. TARP repayments is a smoke screen, masking the myriad other ways the taxpayer is subsidizing bank profits, be it AIG back door payments, federal government guarantees, or the zero interest rate environment which gives banks access to free money (buy a 6 month CD today and see what YOU get as lender). $145 billion in bonuses while unemployment is well over 10% (if you count people who are no longer part of the labor force as they’ve given up looking for jobs)? One would think banks would grasp the PR downside of the issue, or do they live in their own amoral world?

And as brilliantly noted in a piece in Naked Capitalism, Obama’s “Get Tough on Banks” Again Tries to Play the Public for Fools, Obama’s proposed tax on banks is merely a slap on the wrist, nice political fodder to appease the masses, but it clearly falls short of the reforms that are needed in the industry. Naked Capitalism contrasts Obama’s weak stance to the soaring rhetoric of FDR when he took office: “….the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.”

However, all of this pales in importance to the tragedy in Haiti. Here is the site of the American Institute of Philanthropy, a nonprofit charity watchdog and information service, giving their highest rated charities that are active in Haiti.
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Aegean Adventure Redux

I left the Aegean Adventure post in the middle of our trip, with a promise to cover our remaining days in the Greek Islands, Dubrovnik, and, finally, Athens. Today, southern Florida is in its 10th day of temperatures near freezing at night, a record, and, so, what better time to recall the warmth of the Aegean Sea?

The Greek Islands in particular were stunning in their beauty, the timelessness of its towns meeting the sea, the ubiquity of its churches juxtaposed to medieval walls, evidence of conflicts of previous civilizations. In Croatia, the walled city of Dubrovnik shows not only the mark of ancient wars, but the recent flack scars of the Serbian siege of 1991 as well. And Athens, understandably mobbed with tourists such as us, majestically marks the foundation of Greek civilization. Searching for a leitmotif in this experience, I cannot help think of the scores of generations that have come and gone on these ancient lands, the lives, and the births and deaths of an endless parade of now anonymous individuals as well as the notables marked by stone monuments.

I mentioned that while we were touring, I was reading John Updike’s Self Consciousness, the closest he ever came to writing an autobiography. There are so many passages that I underscored in the book, ones I will want to return to, I ended up noting as much as I failed to note. But some of his writings on religion and mortality as well as the craft of writing, struck a particularly sensitive cord with me while visiting these places, the evidence of civilizations we saw, so I am going to defer to Updike and allow his words to resonate at the end of this post, while some of my photographs offer their own viewpoint.

One of the Seven Wonders of the Ancient World, the Colossus of Rhodes, once bestrode the harbor of Rhodes. We visited the old town that is contained within its medieval walls.

Rhodes Palace Archway

Rhodes Street of the Knights

Delos, a small rocky island, but to the Greeks a sacred place as Apollo and Artermis were said to be born there.

Delos Panorama

Mykonos is one of those picture post card islands whose Cycladic architecture and narrow streets makes every turn a photo-op. A young woman even wanted to show off how she filled out her bathing suit in a doorway, and was eager to pose.

Mykonos Harbor

Mykonos Church of the Panagia

Mykonos Doorway

Santorini is another such island, built on the ring of a volcanic crater, the main town of Oia rising dramatically from the sea

Santorini on the Edge of the Caldera

Santorini Blue Dome at Oia

Olympia, the site of the ancient Greek Games, is a sanctuary associated with the games and the worship of the Greek Gods. To stand on the remaining site of the stadium where the events were held, is awe-inspiring.

Olympia Temple of Hera

Corfu is one of the largest Ionian Islands and we spent the day in the old town

Corfu Old Town

We loved Dubrovnik, Croatia. Our wine steward aboard the ship was Croatian so we had already felt a deep affection for the long suffering of the Croatian people and their city, which has been a focal point of conflict and conquering forces.

Dubrovnik


In Crete we bused to the Lassithi Plateau and toured its ancient windmills, returning to the city of Aghios Nikolaos on the islands eastern side.

Crete Ancient Windmills

Walking up the steps to the Acropolis with thousands of other tourists, the city of Athens below, made me think of the march of civilization and the inconsequentiality of our own steps in this procession.

Athens Parthenon

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Athens and Temple of Thission

From John Updike’s Self Consciousness; A Memoir (Knopf; 1989)

On Religion and Mortality…

“…The idea that we sleep for centuries and centuries without a flicker of dream, while our bodies rot and turn to dust and the very stone marking our graves crumbles to nothing, is virtually as terrifying as annihilation. Every attempt to be specific about the afterlife, to conceive of it in even the most general detail, appalls us.”

“Not only are selves conditional but they die. Each day, we wake slightly altered, and the person we were yesterday is dead. So why, one could say, be afraid of death, when death comes all the time? It is even possible to dislike our old selves, those disposable ancestors of ours. For instance, my high-school self – skinny, scabby, giggly, gabby, frantic to be noticed, tormented enough to be a tormentor, relentlessly pushing his cartoons and posters and noisy jokes and pseudo-sophisticated poems upon the helpless high school – strikes me now as considerably obnoxious, though I owe him a lot: without his frantic ambition and insecurity I would not be sitting on (as my present home was named by others) Haven Hill.”

“For many men, work is the effective religion, a ritual occupation and inflexible orientation which permits them to imagine that the problem of their personal death has been solved. Unamuno: ‘Work is the only practical consolation for having been born.’ My own chosen career – its dispersal and multiplication of the self through publication, its daily excretion of yet more words, the eventual reifying of those words into books – certainly is a practical consolation, a kind of bicycle which, if I were ever to stop pedaling, would dump me flat on my side. Religion enables us to ignore nothingness and get on with the jobs of life.”

“Karl Barth…responding in an interview late in his life to the question about the afterlife, said he imagined it as somehow this life in review, viewed in a new light. I had not been as comforted as I wanted to be. For is it not the singularity of life that terrifies us? Is not the decisive difference between comedy and tragedy that tragedy denies us another chance? Shakespeare over and over demonstrates life’s singularity – the irrevocability of our decisions, hasty and even mad though they be. How solemn and huge and deeply pathetic our life does loom in its once-and doneness, how inexorably linear, even though our rotating, revolving planet offers us the cycles of the day and of the year to suggest that existence is intrinsically cyclical, a playful spin, and that there will always be, tomorrow morning or the next, another chance.”

On writing…

“My success was based, I felt, on a certain calculated modesty, on my cultivated fondness for exploring corners – the space beneath the Shillington dining table, where the nap of the rug was still thick; the back stairs, where the vacuum cleaner and rubber galoshes lived; the cave the wicker armchairs made when turned upside down against the rain on the porch. I had left heavily trafficked literary turfs to others and stayed in my corner of New England to give its domestic news.”

“Celebrity, even the modest sort that comes to writers, is an unhelpful exercise in self-consciousness. Celebrity is a mask that eats into the face. As soon as one is aware of being ‘somebody’ to be watched and listened to with extra interest, input ceases, and the performer goes blind and deaf in his overanimation. One can either see or be seen. Most of the best fiction is written out of early impressions, taken in before the writer became conscious of himself as a writer. “

“I envision my paternal grandfather as having been, like me, bookish and keen to stay out of harm’s way; we aspired to the clerisy, and the price that we pay, we Americans who shyly wish to live by our eyes and wits, at our desks, away from the frightening tussle of human strength and appetite and intimidation and persuasiveness, is marginality: we live chancily, on society’s crumbs in a sense, as an exchange for our exemption from the broad brawl of, to give it a name, salesmanship.”

“So writing is my sole remaining vice. It is an addiction, an illusory release, a presumptuous taming of reality, a way of expressing lightly the unbearable. That we age and leave behind this litter of dead, unrecoverable selves is both unbearable and the commonest thing in the world – it happens to everybody. In the morning light one can write breezily, without the slight acceleration of one’s pulse, about what one cannot contemplate in the dark without turning in panic to God. In the dark one truly feels that immense sliding, that turning of the vast earth into darkness and eternal cold, taking with it all the furniture and scenery, and the bright distractions and warm touches, of our lives. Even the barest earthly facts are unbearably heavy, weighted as they are with our personal death. Writing, in making the world light – in codifying, distorting, prettifying, verbalizing it – approaches blasphemy.”

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Well Worth Noting…

Two interesting articles, one an interview with Richard Koo, a former economist with the Federal Reserve Bank of New York and now chief economist of Nomura Research Institute, which appeared in this week’s Barron’s Magazine, A Japanese Rx for the West: Keep Spending and the weekly commentary of the economist and mutual fund manager John Hussman, Timothy Geithner Meets Vladimir Lenin

Koo’s views might seem to be counterintuitive – government needs to increase deficit spending on a three to five year plan while the private sector is repairing its balance sheet. Japan failed to recognize the dangers of “a balance sheet recession” and the USA could make the same mistake. I would agree, provided spending is focused on our infrastructure or alternative energy, or on myriad other public projects that resonate in our economy, creating jobs while fixing our roads and public transportation, encouraging energy independence, reducing greenhouse gases, and improving our educational system. Such investments are aimed at Main Street, not Wall Street. I would imagine Koo would be the first to note that bailouts of irresponsible investment bankers do not constitute the kind of government borrowing he means.

Koo contends that while the private sector repairs its balance sheet, writing down debt on devalued assets, it is imperative for the Federal government to borrow because even if interest rates are zero, the public sector cannot be induced to borrow: “The only way the government can turn this economy around is to do the opposite of the private sector -- borrow the money the private sector saved and spend it, which means fiscal stimulus. That's what saved Japan from entering a Great Depression.”

In effect we can’t make businesses borrow by giving capital to the banking system which only encourages more reckless economic behavior – it has to be spent elsewhere, and what better place than our infrastructure and energy independence?

John Hussman, meanwhile, writes about the very kind of borrowing we must eschew, especially as it is being done without our elected constituency’s input: the Treasury’s recent announcement that it would provide Fannie Mae and Freddie Mac UNLIMITED financial support for the next three years, reminding us that it was Vladimir Lenin who said: “The best way to destroy the capitalist system is to debauch the currency.”

As Hussman notes, “in a single, coordinated stroke, the Treasury and the Federal Reserve have encroached on spending powers that are enumerated for the Congress alone.” And perhaps worse, “…homeowners who have been diligently making their payments will keep their homes, and homeowners who took out mortgages they couldn't afford will keep their homes as well with no adverse consequence to the lenders – since the underlying loans are now owned largely by the Fed, and the Treasury has pledged its unlimited support. Why pay one's debts if it becomes optional, and the Treasury stands to absorb unlimited losses at public expense?”

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Ghost of New Year’s Future?

If you read only forecast for 2010, let it be this one by James Howard Kunstler who writes a blog, Clusterfuck Nation. While I hope things will not evolve as badly as he speculates, he may have the direction right, the ephemerality of the “recovery” from our duct-tapped economy, government’s complicity, and our lack of moral fiber as a nation to do the right thing. “We're a nation of thugs and louts with flames tattooed on our necks, who call each other ‘motherfucker’ and are skilled only in playing video games based on mass murder.”

Amen to that.
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And to All a Good-Night!

How many times does one have to see a version of Dickens’ A Christmas Carol to say “enough?” Never, I say, as every generation can find it’s own version, just as Hollywood always seems to find another way to rework the story. Today, the tale could be a morality play about our financial times, Scrooge being played by a Wall Street Banker du jour, Tiny Tim by a child lacking health insurance, Bob Cratchit by someone in foreclosure, while the unemployed gather beneath the robes of the Ghost of Christmas Present. Past or present Chairmen of the Federal Reserve could play the ghosts. I pick Paul Volcker for the Ghost of Christmas Present, as he seems to see things the clearest. Naturally, Bernie Madoff must play the part of Jacob Marley wearing his chains forged of Ponzi links.

For me, the classic tale still elicits an emotional response, especially the versions that come closest to Dickens’ original text. So in that spirit, I offer a couple of photos of our Xmas past, in our home in Connecticut where the holiday really felt like Christmas:

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And this one from Florida Christmas Present, where it will be 80 degrees and one of the high points is the annual Christmas Boat Parade. It’s a Humbug, I say!

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