Demographics

October 16, 2008

The debates and campaigns for the presidency certainly give us an opportunity to learn about the candidates and their parties. Many. many people become political junkies during this period. Each election brings new insight and hopefully understanding. What is just as interesting to me is what we learn about ourselves.

I was frankly astonished at the results of the last presidential election. A significant number of the people who now hold Bush in low regard voted for him four years ago. Yet to my knowledge nothing happened in the second term that was not at least very clearly telegraphed in the first term. Concern about the economy was clearly expressed four years ago. Nobel Prize winning Paul Krugman (among others) has been prominently and clearly talking about the failures of Bush’s economic policies for years.

Actually as early as the late stages of the Clinton administration people were beginning to express concern about credit default swaps and the health of the financial industry. Four years ago we knew pretty much as much about our foreign policy and its flaws as we know now.

So I have to confess, not only was I surprised at the 2004 election results, but I have been surprised by the strength of the present aversion to Bush and his policies. It seems like Bush is being scapegoated a bit. No one can say that Bush did anything unexpected in his second term. His second term, like his first term, is defined by ideological inflexibility. We voted ourselves into this situation. I just don’t buy blaming Bush for our problems when we chose him with our eyes open.

In the current election, Gallup just came out with interesting polls that show demographic results. The economy seems to be driving voters to Obama. As I see it the well publicized miscalculations of the McCain campaign are not the reason for his decline in popularity. Rather they have merely impeded his ability to overcome the devastating effect of the economy on his campaign.

One thing the Republicans have been absolutely lock-step about is the deregulation of the financial industry and the deregulation of corporate activity in general. It is hard to imagine any proud advocate of this policy (such as McCain) being embraced by the population at the time of the catastrophic exposure of the consequences of this policy.

The Gallup survey shows that Obama for the first time now has a lead among male voters and for the first time among elderly voters. In September he gained a lead among college graduates and has always had a substantial lead among people who extended their education beyond college. This is all consistent with the broader polls.

One of the features of this campaign that is interesting of course is the fact that an African American is running for the first time. In that light it is interesting that McCain still has an edge among white voters. It is a steadily declining edge and no longer a clearly significant preference, but white voters as a group are showing more reluctance to vote for Obama than other demographic groups. This, I guess, is not surprising but it is a little startling to see.

I would not attribute this to racism, as that term is commonly used, but perhaps to unexplored precognitive associations. A good exercise I think for undecided whites or whites not strongly disinclined to vote for Obama is to imagine that things were reversed.

Imagine that McCain, instead of being at the bottom of his class had been at the top and had been Editor of the Harvard Law Review.

Now imagine that Obama barely graduated from college. Imagine that 15 years ago was deeply involved in a savings and loan scandal that cost tax payers hundreds of billions of dollars. Imagine that he was an ardent champion of deregulating the financial industry, and that all of the unpleasant aspects of Senator McCain’s personal life were a part of Obama’s life instead. Imagine that he had an unwed pregnant teenage daughter and had been found to have committed serious ethics violations while in the legislature.

If you can do this kind of switch and say that it really would not matter to you, or that your attitude about these things would the same for both candidates then I think you can say that you are not laboring with the precognitive associations of the sort I’m talking about.

I by no means am suggesting that a white’s disagreement with Obama is racially influenced. It is just that the polls suggest that in about one out of ten cases that could be an unexamined influence.

Another interesting poll result is that Obama lags among the group of people that attend church at least once a week. This is the group in which McCain is strongest. His is up 16 points there. I do not have the polls that predate the Republican convention but by all accounts Palin has firmed up McCain’s standing in this group. My guess here is that people who attend church the most tend to be more zealous and that among the zealous, McCain’s opposition to Roe v. Wade wins him the support of most people in the group. I’m presuming that this group is mostly a single issue group. If I’m wrong then the poll results would become even more interesting.


Where is the Money Going, Part 2

September 26, 2008

I do not think that anyone knows where the money is going.  The Democrats do not seem ready to undertake that analysis, bending to the administration’s cries of urgency.  I myself am not prepared to surrender reason to threats of disaster just yet.  The Washington Mutual takeover after was conducted by the administration the moment it unexplained plan bogged down.  The timing is not above suspicion, but unquestionably WaMu was in serious trouble.

Congress has put restraints on this massive corporate welfare program by insisting that the money be paid in installments (almost entirely to corporations who claim they are in trouble because home loans are not being paid, so why not help with those payments instead?) and with Congressional oversight.  Still nobody knows where the money is going which seems to have become a theme of this administration since the Iraq invasion.

Marie Cantwell and Joe Lieberman issued this press release quoted below.

WASHINGTON, DC – Today, U.S. Senators Maria Cantwell (D-WA) and Joe Lieberman (ID-CT) sent the following letter to Senator Reid, Senator McConnell, Speaker Pelosi, Representative Boehner, Senator Dodd, Senator Shelby, Representative Frank, and Representative Bachus, asking them to ensure there are clear mechanisms for long-term transparency, accountability, and reform in the current financial recovery package.
“Any financial recovery package that Congress enacts must put transparency and tough rules in place to make sure consumers are protected,”said Cantwell. “While the financial markets need emergency surgery today their long-term health is dependent on prevention. We need to establish a robust regulatory regime capable of overseeing today’s complex global marketplace.  We also need to determine what went wrong, hold bad actors accountable and apply the lessons learned to prevent future financial market meltdowns.
In addition to protecting homeowners and taxpayers and holding Wall Street executives accountable, it is critical that the financial rescue package jumpstart the process of fundamental reform of our financial markets so that we never again find ourselves in this position.  Under our proposal, in four months, the National Commission for Financial Regulatory Reform will provide Congress with a specific plan for comprehensive reform of the financial system that will strengthen the stability of our financial infrastructure and protect the long-term interests of American taxpayers, investors, and businesses.  With the Commission recommendations in hand, the next Congress will be able to immediately begin moving forward with the fundamental reforms we desperately need,” said Lieberman.
This does nothing to explain where the money is going and admits that we do not know how we got here.  There being no explanation of where “here” is it appears that Congress may be almost as much in the dark as we are.
It remains unclear why just paying off the $112 billion of troubled home mortgages, or loaning enough to keep them current, would not solve the problem.

Where is the Money Going?

September 26, 2008

I’m having trouble understanding this bailout business and I cannot find an explanation anywhere. Apparently a lot of other people are having trouble understanding this as well.  My confusion relates to the claim that the problem is due to the foreclosure crisis and that at least $700 billion dollars is needed to fix it.

The total amount of troubled home loans is $112 billion. This at least was the number bandied around over the last year. It was that portion of Washington Mutual’s portfolio that brought it down. The Wall Street Journal this morning reports that Washington Mutual has $30 billion in bad loans that will be written down with the purchase. What are these loans? Are they not home loans?

From published reports just paying off the home loans would have rendered Washington Mutual highly solvent. If the government stepped in and paid them all off, what would we use the remaining $588 billion for?

Furthermore that does not take into account the collateral for the loans. If we were able to recover just one quarter of the amount for which the collateral had been orginally valued, that would reduce the cost by an absolute minimum of $28 billion, leaving a cost to the tax payers of $84 billion. It is likely that more would be recovered so that the actual cost would be around $50 billion.

Either the total amount of troubled home loans is more than six times greater than previously reported or there is a lot going on that I have not been able to find explained.


Bad News for McCain; Obama with a 9 Point Lead

September 24, 2008

The Republican Convention carefully avoided reference to the economy.  This was clearly a wise move as recent news of the economy has caused McCain’s support to plummet like the stock market.  Obma now has a nine point lead according to the Washington Post-ABC News poll.

Voter confidence in McCain could not have been bolstered when after McCain denied that his advisers had any connection with Fannie Mae or Freddie Mac and he falsely accused Obama of such a connection, the New York Times reported that from 2005 until taken over by the government Freddie Mac has been paying a firm owned by McCain’s campaign manager $15,000 per month.

This comes on the heals of the revelation that while McCain condemned golden parachutes given to executives who run companies into the ground, it was discovered that one of his top economic advisers, Carly Fiorina, received a $21.4 million severance package (a.k.a. “golden parachute”) when she was dismissed by Hewlett Packard in 2005 after laying off thousands of people and taking the company down the road to insolvency.

McCain right now is having trouble taking a stand on economic topics that do not make him look hypocritical.  He is even being accused of sexism on CNN in his treatment of Sarah Palin.


The Construction Industry

September 22, 2008

The housing industry was hurting last spring before the most recent economic difficulties.  Housing starts were already at a fifty year low.  Commercial construct enjoyed a better fate but it appears that the home loan crisis has served to dry up money for commercial projects.

Bloomberg reports:

The recent collapse of Lehman Brothers and Merrill Lynch will make it even more difficult for borrowers to refinance commercial real estate loans.

According to UBS AG, the world’s largest manager of private wealth assets, eight of the top 10 investment banks accounted for about half of the loans packed into commercial mortgage-backed securities in 2006 and 2007. As of today, the eight are now either merging with other companies, no longer in business, or significantly reducing their real estate holdings.

By the end of 2012, UBS analysts anticipate a competitive market and estimate that almost $151 billion in commercial mortgage loans that were underwritten by investment banks and securitized will be due.


Bernie Sanders on the Middle Class

September 20, 2008

There is a connection between the current financial crisis and the already declining circumstances of the middle class.   Until recently the middle class has always been described as the ballast of o stable society.  The measures undertaken by Bush and he predecessors accomplished a dramatic redistribution of wealth but subjected the society to an instability for lack of regulation.  A society with wealth heavily concentrated in a few is not stable.

Bernie Sanders on the middle class:

The middle class has really been under assault. Since President Bush has been in office, nearly 6 million Americans have slipped into poverty, median family income for working Americans has declined by more than $2,000, more than 7 million Americans have lost their health insurance, over 4 million have lost their pensions, foreclosures are at an all time high, total consumer debt has more than doubled, and we have a national debt of over $9.7 trillion dollars.

While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s. The top 0.1 percent now earn more money than the bottom 50 percent of Americans, and the top 1 percent own more wealth than the bottom 90 percent. The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president. In the midst of all of this, Bush lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers or nurses.


Deregulation: A Short History

September 20, 2008

It is generally acknowledged that the lack of effective regulation of our financial intuitions, and the blind eye that the Bush administration turned to the excesses and wanton profiteering of that economic sector, were primary causes of the recent near meltdown.  We are suffering the greatest financial crisis since 1929 when we were last dramatically reminded of the need for regulating this area.

The Great Depression marked the end of a Republican epoch in which the party had dominated the office of the presidency since before the turn of the century.  In the 1920’s Republican presidents Harding, Coolidge and Hoover had famously kept the the government out of the way of business and enjoyed the benefits of an economic boom based on speculation in financial markets.  The Great Depression called for the need for reforms and the institution of regulations to curb the profligacy that inevitably attends opportunity.

The Democratic Party was voted in to rein in the excesses of Wall Street and to protect the everyday person who suffered the consequences of its reckless profiteering.  A system of safeguards and oversight was created to assure that such catastrophe would not happen again.

In the 50 year period that followed the two Republican presidents that were elected safeguarded and contributed to the post depression-era safeguards.  Eisenhower did battle to check the Pentagon’s insatiable need for money and Nixon created the Environmental Protection Agency among other things.

In 1980 the pendulum began to swing back, as it has throughout our history.  (Arthur M. Schlesinger wrote a great book about this called “The Cycles of American History.”  These cycles usually last about 30 or 40 years, or so.)

The current frenzy to deregulate dates back to the Nixon years, where talk began, although on a limited scale.  Carter was a proponent of deregulating or loosening the regulation of a few industries, but Reagan made it an ideological theme.    In order to do this he needed plausible support from the people whom the regulation was ultimately intended to protect.  He used a variety of bumper sticker type slogans like “getting the government off our backs.”  He created theatrical hypothetical villains and was celebrated for titling his lance at these windmills.  He mixed this in with cutting taxes to create enough populist appeal to undertake the removal of many restrictions imposed by government.   Thomas Frank explored this phenomenon in more recent years in a book called “What’s the Matter with Kansas.”

Bill Clinton carried the lust for deregulation where Reagan dared not tread.  Reagan did not think that he had the political currency to attack the whole welfare system.  Clinton, as a Democrat, was able to do this.  Banks and investment firms had been separated since the Great Depression but Clinton oversaw the revocation of this section of the Glass Steagall Act in 1999 with his signing of the Gramm-Leach-Bliley Financial Services Modernization Act.  (That is the same Gramm who is McCain’s chief economic adviser.)

Reagan began the wholesale changes in the media. After several other tinkerings in 1987 Reagan abolished the Fairness Doctrine which had been a cornerstone of media regulation.  It required media to air both sides of an issue if they presented one view.  It was this that legalized, if you will, the Rush Limbaugh phenomenon.  The Democrats were caught by surprise while right wing people raced to fill the media with their views.

It was Clinton’s signing of the Telecommunications Act on 1996 that really fueled this radicalization of the air waves by opening the doors to the monopolization of media outlets by a very few corporations.   Clear Chanel began gobbling up radio stations and broadening Rush Limbaugh’s reach.   Published or transmitted opinion became servant to the interests of fewer and fewer companies.

Historians will devote much attention to the similarities between the Bush administration and those of Harding, Coolidge and Hoover in the 1920’s.  There was the same disregard for the oversight function of government and the same obeisance to business interests.  For this crisis to occur all we needed was a captain asleep at the wheel during the late stages of the deregulation frenzy.


What Bush Himself is Doing

September 19, 2008

Here’s a report on the activites of Bush.  His reaction in this time of crisis is much like his reaction to being informed that we were under attack on September 11, 2001, when he kept reading a children’s book to kindergardeners.  So far he has been able to wrestle out of his schedule time for a two minute Rose Garden speech.  That’s it.  Otherwise he hasn’t been out since early August.  We’re at the point now where no one seems to expect more of him.


McCain and the Economy

September 18, 2008

Let’s start adding things up.  The war has cost somewhere between $600 billion and $3 trillion depending on whether you find the administration or Joseph Stigletz, the Nobel economist, more credible.  The Bear Stearns bailout was accomplished by the Federal Reserve using Great Depression procedures of the 1930’s.  The cost was reported to be around $30 billion.  The Los Angeles Times reports additional commitments:

[We are] committed to investing up to as much as $200 billion in preferred stock of the loss-plagued finance giants Fannie Mae and Freddie Mac and at least $5 billion in their mortgage securities; and agreed to provide an emergency loan of $85 billion to American International Group Inc. in return for an ownership stake of as much as 80 percent in the stricken insurance giant.

That brings the total over $300 billion so far this year.  There are still several institutions that will require help, so the total will inevitably climb.

As our commitment to saving the advocates of lower taxes and free markets continues we will approach a total near the administration’s estimate of the cost of the Iraq War.  The war has been a well documented drain on our financial system and has greatly impacted our national debt.  We are in a short period of time undertaking to double that amount of debt.

McCain and his camp, icons of deregulation, are now piously advocating for regulation.  This is madness!  McCain, like Bush on the war, does not feel the slightest sense of owing us an explanation.  What was he thinking in giving free rein to financial institutions?  What was he thinking while he was telling us over the last year that there was no serious problem?  Now without any explanation he is trying to sound like a reformer of the system he created.

Remember McCain advocates a substantial increase in the budget for defense spending and reducing revenue through reducing taxes.  His foreign policy calls for spending the defense budget on greater military activity.

How can he do anything but drive us deeper into debt?  I understand that this has to do with securing petroleum assets but is this the best way to proceed?


Washington Mutual

September 18, 2008

Did you know that Washington Mutual began just after the Great Seattle Fire in 1889? Here is a thumbnail sketch of its history. It has been around over a century and it appears that now its days are numbered.

Washington Mutual appears to have gone the way of Seafirst Bank in the 1980’s. Seafirst was at the time the biggest, baddest bank in the region and its board of directors hankered for more. At that time national banks were getting fat on third world loans and energy loans. Remember that an asset for a bank is a performing loan.

So you make a loan and you have an asset until a few payments are missed, then it flips to the other side of the balance sheet. This makes banks which loan heavily in one sector quite vulnerable to slumps in that sector of the economy. If the sector slows down things can turn around fast for the bank.

Banks hedge their bets by selling portions of their loans to other banks, called “participations.” The problem is that this seems to encourage banks to dive much deeper into a given area, so that the advantage of selling off portions of the loan are lost by the sheer magnitude of the lending. Penn Square Bank, a little shopping center bank in Oklahoma City, started making oil loans by the billions and selling off participations to banks around the country. Seafirst invested hundreds of millions of dollars in these participations, as well as serving as the primary bank in many of the loans and became a big player as rapidly as Washington Mutual.

But the bubble burst and Penn Square Bank folded, sending the biggest banks in the country into insolvency. Seafirst, already strapped with nonperforming third world loans was purchased by BankAmerica.

Ten or fifteen  years later Washington Mutual decided to become a big player by riding the home lending boom. It succeeded and grew exponentially. With the bursting of that bubble, it too has I think reached the end of its days. It has probably not been bought out because of concerns about the market — home loans — into which it plunged. Financial institutions are not sure that the bottom has been reached and are reluctant to jump in even at fire sale prices.

There are only two major investment banks left standing and there are serious questions as to whether either one can survive.  With Barklay’s, a foreign bank, buying Lehman it appears that the pool of potential domestic buyers is reduced if not depleted.  It is at least questionable whether the federal government can afford to prop up Washington Mutual, but the country could ill afford to have a bank of its size fail.

Colossal mismanagement has put us in a situation where we are steeped in debt and watching our financial assets, so far only historic investment houses, taken over by foreign interests.