A voice of reason and leadership has emerged in recent days among those addressing the economic crisis in Europe, currently the most urgent and dire challenge facing the international community.
Unlike in the past, that voice is not however, the president of the United States, who has remained strangely quiet on this subject despite its direct implications for virtually all of the core U.S. economic issues that are his stated top priorities. Nor is it that of his secretary of the treasury who, though more visible on this issue recently, has not instilled confidence with statements that have, for example, asserting that under no circumstances would European leaders let their institutions fail, even though that has been precisely what they have been doing for years now.
Instead, the new voice comes from rather unlikely roots -- a scandal-rocked organization whose future value to the international community had, in the not-so-distant past, been questioned and a prior post that can only be seen as a potential drag on her credibility.
That voice however, belongs to IMF chief Christine Lagarde, and it has been so direct and crystal clear, so unafraid and so thoughtful, that within mere weeks of assuming office she has quickly gained recognition as one of the most important of the world's leaders.
Take her most recent remarks on the euro crisis and its international implications. In the first instance, she has crisply and accurately warned that a "vicious circle is gaining momentum" that could not only upset european efforts at bailing out its weakest economies but that also poses a threat to the world's financial system and to many of its so-called strongest economies, such as those that are the engines of european growth and that of the United States. At the center of that vicious circle she placed "political dysfunction" that had produced what has amounted to policy paralysis and may have us on the verge of a "dangerous new phase" of this on-going economic calamity.
Further, even as Central Banks agreed to pump in more money to prop up faltering banks, she suggested more might be needed. "Balance sheet uncertainty" was the immediate culprit, she observed, noting it existed at the government, bank and household levels. She accurately cited this as the core risk we face but then, with wisdom greater than most European and American political leaders, noted that debt solutions should not be so severe that they undermine the equally crucial issue of growth in Western economies.
She specifically and directly assailed "fiscal austerity that chips away at social protections; perceptions of unfairness in Wall Street being given priority over Main Street; and legacies of growth in many countries that predominantly benefited the top echelons of society." One can only hope her remarks resonated with all her new neighbors in Washington.
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While NATO bickers over strategy in Libya, BRIC leaders have gathered in Sanya, China, to demonstrate the growing strength of an alternative grouping that has among its principle selling points the fact that it is neither Western nor U.S.-dominated. To compare the world's most potent and enduring military alliance with a loose affiliation of emerging powers that are divided by perhaps more issues than unite them is clearly comparing apples and lychee nuts or guarana seeds, but the juxtaposition of the two events does offer yet another whiff of how the institutions and ideas of the 20th century are giving way to those of the 21st.
In Libya, the potent alliance that "won" the Cold War is coming apart at the seams fighting over strategy, tactics, and objectives in an optional, low-grade intervention in a largely irrelevant country. The U.S. secretary of state is forced to make public pleas for the bumptious commanders of the coalition to get their acts together, while on the ground the weakened forces of the isolated Muammar al-Qaddafi seem to be holding the megapower onslaught at bay. It is too poignant a reminder that intangibles like knowing what you're fighting for and political will are as important to any battle as the hardware being brought to bear by each side on the other.
In Sanya, Brazil, Russia, India, and the hosts welcomed South Africa into their little club, and if they achieved little else they underscored that they are taking coordination among their countries very seriously and seeking to deepen their ties. However, they did go further and offered a broad agenda including more hints that they will push for alternatives to the dollar-dominated global monetary system that we currently have.
Of course, the BRICs summit resonates with the Libya follies because the original four BRICs voted as a bloc to abstain during the Security Council vote on the imposition of the no-fly zone in Libya and within days of its initiation were publicly speaking out against it. That they were joined in the vote by Europe's most powerful country, Germany, also sent a message that the opposition to the initiative was meaningful and suggested that future votes in international institutions might see the BRICs (or the BRICS … if the final "S" is for South Africa) emerge at the core of a potent new alternative coalition to the traditional Western or developed powers.
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When the United Kingdom's prime minister stands up in front of an elite audience and slams an old friend alongside of whom Britain is fighting the war on terror for its government waste and because too many of that country's richest are getting away without paying much tax at all, it's got to sting. But fortunately for Jeff Immelt and the rest of us here in the United States, David Cameron was in Islamabad and the broken, favoritism-ridden, inefficient system he was excoriating was not the one in Washington but the one that, at least nominally, is responsible for Pakistan.
That said, Cameron is among a rapidly shrinking number of folks who have yet to pile on to the revelations of GE's protracted tax holiday and, by extension, President Obama's appointment of Immelt to be his competitiveness advisor. In fact, my guess is Immelt will not be able to survive indefinitely in his capacity as an informal consultant to the president. When I spoke to two different senior economic officials in the administration about him this morning, they both rolled their eyes and wondered aloud what the White House was thinking when he was picked.
America has produced few better respected senior executives than Immelt. And for an administration that needed better ties with the business community in a hurry, he seemed like an excellent choice. But as one of the officials observed to me, he was a disaster waiting to happen even before the tax hubbub and GE's ties to the Fukushima nuclear calamity became hot topics. Why? Because with so much of GE's revenue coming from outside the United States, it was only a matter of time before the company made a decision to invest in an overseas project that would be seen as sapping American jobs or at least failing to create them.
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The Japanese nuclear crisis, though still unfolding, may, in a way, already be yesterday's news. For a peek at tomorrow's, review the testimony of General Keith Alexander, head of U.S. Cyber Command. Testifying before Congress this week and seeking support to pump up his agency budget, the general argued that all future conflicts would involve cyber warfare tactics and that the U.S. was ill-equipped to defend itself against them.
Alexander said, "We are finding that we do not have the capacity to do everything we need to accomplish. To put it bluntly, we are very thin, and a crisis would quickly stress our cyber forces. ... This is not a hypothetical danger."
The way to look at this story is to link in your mind the Stuxnet revelations about the reportedly U.S. and Israeli-led cyber attacks on the Iranian nuclear enrichment facility at Natanz and the calamities at the Fukushima power facilities over the past week. While seemingly unconnected, the stories together speak to the before and after of what cyber conflict may look like. Enemies will be able to target one another's critical infrastructure as was done by the U.S. and Israeli team (likely working with British and German assistance) targeting the Iranian program and burrowing into their operating systems, they will seek to produce malfunctions that bring economies to their knees, put societies in the dark, or undercut national defenses.
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It says something about Gary Locke's tenure as secretary of commerce that it is clearly a promotion for him to have been named to an ambassadorial post and sent to the other side of the world. It also says something about the post he is being offered -- ambassador to China -- by far the U.S. government's most important diplomatic posting in the world. Locke is an excellent choice for the new job and will undoubtedly excel in the role. In fact, there is really only one thing the Obama administration can do to make this smart appointment even better: It can not appoint a replacement for Locke.
Locke is a soft-spoken, detail-oriented, thoughtful, lawyerly fellow, which is not surprising given that in addition to being the former governor of Washington, he is also a lawyer. As a Chinese-speaking, trade-smart Chinese-American from a state with important export ties to China and having the stature that comes of cabinet and state governor posts, he's an ideal choice for the Beijing job.
His tenure as commerce secretary was muted because his particular skill set was not particularly suited to being a cheerleader for U.S. industry. He has no bombast in him, and for a politician he is singularly devoid of the hail-fellow-well-met gene. But beyond his personal traits, one of the reasons he struggled as commerce secretary was that the Commerce Department itself is such a mishmash of agencies with competing missions that the reality is that the vast majority of people who have led the agency have disappeared without a trace into its bowels.
Frankly, it should be considered a destination of choice by the folks over at the federal witness protection program.
President Obama and those closest to him -- including one of the few people who have ever successfully led the Commerce Department and then gone on to bigger and better things, White House Chief of Staff Bill Daley -- recognize this and have very wisely and none too soon undertaken a review of whether or not to restructure the agency along with the other white elephants, redundancies, and lost causes of the federal bureaucracy. The effort is being led by former business exec Jeff Zients, deputy director of the Office of Management and Budget, and as a former management consultant, CEO, and very successful entrepreneur, an ideal choice for the mission.
While it is reported that Locke himself only heard of the president's intention to announce the initiative to rationalize the structure of departments including his own a few minutes before the announcement was made, the idea is a sound one that should be well-received by both parties in the current atmosphere of frugality -- or at least expressed frugality -- in Washington.
What Obama should do is appoint an acting commerce secretary to serve as a place holder. (Perhaps appointing Zients into a kind of caretaker role to oversee the change would be a good step. An analogy is the role Elizabeth Warren is currently playing re: the Consumer Financial Protection Bureau.) Putting someone new and "permanent" in the existing commerce job would a.) Immediately create an opponent to any meaningful restructuring and b.) Be quite tough if they knew there was a serious effort to dismantle the agency afoot. Then, the president and his team should take the steps that have been obviously called for by many of us who have worked at the Commerce Department and on the economic side of the U.S. government for years. They would include:
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Recently, there have been perturbations in the wonkosphere. While the trembles are so slight that they wouldn't show up on the Richter Scale of a real human being, they have generated blog headlines and conversations at conferences full of people with advanced degrees and too much time on their hands. The stir has been caused by the assertion that we now live in something that big idea branding experts are trying to characterize as a "G-Zero" world.
In the words of one of the term's proponents, Ian Bremmer, the term refers to the assertion that we now live in a world in which "no country or bloc of countries has the political and economic leverage to drive an international agenda." Bremmer, and another supporter of the idea, NYU's Nouriel Roubini, have been explaining the notion and have done so compellingly enough that after it came up at this year's World Economic Forum gabfest in the Swiss Alps, the New York Times called it the event's "buzziest buzzword."
Buzz words are important in the wonkosphere because people are very busy going from conference to conference, periodically stopping to Tweet about who they bumped into and how they influenced them, and they have very little time to really think about anything. So if you can take an idea, reduce it to a couple of key, easily digestible, tasty ingredients, and wrap into a piece of shiny gold foil you have ... a Reese's Pieces Mini. Well, actually, you have something just like it, but not quite as tasty; you have a candidate for buzz-term of the moment.
Sometimes, it must be said, that even the fizziest of the buzziest actually contain a core idea of real value. Take a stroll down foreign policy nerd memory lane and savor past hits like "illiberal democracy" or "the world is flat" or "clash of civilizations" or "the end of history." Agree with the core notion of the idea or not (the delicious peanut butter center), you have to admit these ideas performed a useful purpose, captured a zeitgeist, and got the conversation going. Some, like "the end of history," were both widely misunderstood and, when understood correctly, wrong. But it was a compelling idea thoughtfully arrived at.
This G-Zero thing, not so much. The idea, of course, plays on all the discussion that has swirled around recent international summits as the attendance lists changed and the labels were altered accordingly. We went from the G-8 to the G-20 and then, keen observers, eager to build their own bit of buzz in the pundit-hive, pondered whether we weren't really seeing a case of a G-18 wrapped around a G-2 (the United States and China.) The Chinese didn't much like this and wished pundits would leave their g-darned labels off of them.
Bremmer and Roubini and company make the case that the United States and the Europeans and the Japanese are too deeply under economic water, and the emerging powers like China and India are too busy developing all the time for anybody to be able to step up and drive the international agenda. And while I know and like Ian and think both he and Roubini are smart guys, this is as an idea that looks like what it is: not much built around a big zero.
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While it is too early to assess the long-term outcomes of the uprising in Egypt, there are nonetheless a number of important conclusions to which we can reasonably come.
First, something profound has changed. It did not change because of the uprising in Tahrir Square. It changed and the uprising was the result; the power has shifted in the region. We have passed a generational and technological tipping point. While the dinosaurs cling to the levers of power in virtually every country in the greater Middle East, the under 30 majority is now the great force to be reckoned with. While the establishment has done almost everything conceivable to keep them down from denying them education to curtailing the spread of information technologies to gutting the economies, nonetheless, new information sources and technologies and ways of connecting and collaborating seeped in to these societies through every one of the cracks spreading across the Ozymandian edifices of the elite.
These changes are irreversible. They are seen in the cell phones that even the poorest carry with them, in the broadcasts of Al Jazeera, in the burgeoning Twitter feeds, the apps young Arabs create to provide work-arounds every time a government tries to curtail Internet access, and even in the technological use of some of the region's worst players.
These changes have remade the social and political fabric of the region. What they have yet to do is what they have done everywhere else in the world and that is to fuel economic change.
That is the second inescapable conclusion we need to consider. The great challenges before this under-30 majority are economic, they are about opportunity. They are not about Israel or battles between Shiites and Sunnis or tribal divisions. Those problems still fester, but the unifying challenge for this generation is even more basic: They need jobs. They crave opportunity. And the failure of their leaders to provide them with these basic sources of sustenance and dignity is what has fueled the revolutions of 2011.
A corollary to this conclusion is that we in the United States have been sending the wrong people with the wrong approaches to solve the wrong problems in this region for decades. The problems of this region will not be solved by negotiators or generals. They require investors and entrepreneurs and educators. To the extent that we can contribute, we must do so by supporting the creation of economic opportunity. It is a massive undertaking but it is the only true peacemaker.
A third conclusion is related to the second, however. The role for the U.S. government in all this is very, very limited. We would do well to redirect what aid we provide to address this core challenge of creating jobs for the under-30s. We would do well to put our best economic minds in charge, perhaps even appointing a special economic envoy of real stature. But the only people who can ultimately solve this problem are in the Middle East. In fact, in the hierarchy of those who can help, if the people of the Middle East are first and by far foremost, it is the people of Europe, not the United States who must be second. They are the natural economic neighbors of the region and they must answer the question whether they want those under-30s employed in the Middle East or seeking employment in Europe. After the Europeans, it may even be the Chinese or Indians and others dependent on oil in the region and closer to its problems who should take more prominent roles in helping to solve the problem than the United States, which is a lightening rod and has problems of our own at home.
A fourth conclusion is that the hardest part is clearly still ahead of us. Egypt must make the transition to democracy and that means the military must really step aside after six months. Friends of mine who have met with them believe they understand the implications of the political earthquake that has taken place during the past month and that they will do so. But there are dinosaurs among their leaders so it is by no means a sure thing. Even beyond establishing a democracy is actually keeping one, and beyond that is addressing successfully the economic challenges alluded to above. Further, there are the problems of all the other countries of the region. They will be difficult to handle but we in the United States need to be confident enough in our core beliefs to let them work them out among themselves. There will be fights and setbacks and people we don't like will periodically gain the upper hand. But give me a duel between two guys armed with the Internet, Facebook, and Twitter feeds and let one offer the people the 11th Century and another offer the 21th and I know who I will bet on.
Finally, my fifth conclusion is that of all the big challenges ahead for U.S. foreign policy associated with this period of upheaval, the greatest by far lies with Israel and the Palestinians. Personally, I am not sure why the Palestinians have not yet unilaterally declared independence. The world would surely support them. But imagine what would happen if, perhaps on the road to such a declaration perhaps following it, a hundred thousand Palestinians took to the streets peacefully demanding real self-determination. With memories of Tahrir Square fresh in the minds of the world, how could the Israelis respond as they might have in the past? On what side of history would they appear to be as President Obama might put it? And in that vein, on what side of that history would President Obama and the United States want to be?
Until now, the fact that Israel was the region's only democracy was its "get out of jail free" card. It was used to excuse ... or attempt to excuse ... a multitude of sins. For this reason, no Arab military offensive could be as effective in undermining Israel's strategic advantages as real democracy taking root elsewhere in the region. The Netanyahu administration would be flummoxed if people power came to the West Bank and Gaza. They would be cast involuntarily with the dinosaurs. They would have no pages in their playbook indicating how to handle this. They would have very few good choices.
Actually, they would have only one. They would have to get out of the way. They would have to do what Mubarak did. They would have to step within the 1967 borders and let the Palestinians begin the job of building Palestine. And they would have to hope that the United States, Europe, and the rest of the world helped the Palestinians do it because once that happens, it will be of the utmost importance for Israel that its new neighbor produce real opportunity for its people ... because we have seen the alternative and it, for this generation who have both nothing and nothing to lose will not be contained by the tactics or the rhetoric of the past.
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While the attention of the media is largely devoted to looming storm clouds over the Middle East, it may well be that the next tempest to shake the world may in fact be expected in your teapot. Not to mention your shopping cart. And your gas tank.
In fact, while the uprisings in the Middle East may well be harbingers of historic change in the region, they are also a direct result of another set of factors that could conceivable eclipse them as the big story of the year for 2011: rising global commodity prices. In Tunisia, Egypt, Yemen, and Jordan among the most notable complaints of protestors has been the skyrocketing food prices.
As noted here, that fact is part of a vicious circle that is worrying markets. Bad global grain crops last year produce unrest in the Middle East this year. That in turn pushes up energy prices due to concerns about disruptions in energy flows. That in turn pushes up food prices further as something like 30 or 40 percent of the cost of most food products is related to energy costs associated with processing, packaging, and transportation.
But that's not the whole story. Look at the headlines coming out of China this week about a spreading and significant drought that is likely to further negatively impact food supplies and push up prices. Look at the other headlines about Chinese and Brazilian concerns about inflation. Or the headlines from today (and many recent days) about how inflation worries are depressing stock prices.
In fact, among the very few people who are not that worried about inflation is U.S. Fed Chairman Ben Bernanke who, testified Wednesday, said that while it may be a problem for the emerging world, "inflation is expected to persist (in the United States) below the level Federal Reserve policymakers" feel they have to worry about it. Of course, just because he doesn't worry about inflation here in the United States, doesn't mean Americans aren't going to feel the pinch if food and fuel prices go up. In a rough economic environment like this one for many Americans that squeeze will be particularly acute ... and included in that group are the politicians who will hear the howls of their constituents if prices get above the level average people feel is fair to them. Furthermore, if inflation in places like China, Brazil, or elsewhere in the emerging world causes them to tighten their monetary policies or it negatively impacts real growth, there could be meaningful negative knock-on consequences for the United States.
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Every school child knows that the U.S. government has three branches: the Executive, the Legislative, and the Judicial. And, as recent international test results have demonstrated, every school child is wrong.
Because there is a fourth branch of government that operates alongside the other three and plays a central and increasingly active role in the system of checks and balances the founders designed to keep any one group from getting too much power.
This fourth branch however, has been gaining power in ways that the forefathers never imagined -- largely because they didn't conceive of it in their political calculus. You see they were focused on mechanisms that were created to reflect the will of the people and to advance their interests. This mechanism was created independently and serves only a comparative handful of individuals.
But make no mistake, it is as essential a player as the Supreme Court, either house of Congress or the White House. And when those players stumble or fail to provide leadership, this fourth branch quickly and decisively fills the void. Indeed, it has special powers that trump presidential vetoes, filibusters, judicial reversals, and all the other tools given government officials. It advises and in the end, it provides the necessary consents. It deliberates and decides and reserves the right to change its mind. It is not only where the buck stops, it is where it starts and where it goes round and round till it comes out here.
It's the markets and if you merely take the time to look over the news of this week and last you can see it flexing its muscles and sending a message that it is prepared not only to contradict governments and institutions, it is, if necessary prepared to topple them.
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With the news this week that the Fed pumped money into European institutions during the darkest hours of the recent and continuing economic crisis without so much as a press release or a demand for better cheese prices, it is clear that even with all those big geopolitical shifts we have been hearing so much about, the United States remains the world's sole Schmuck Superpower.
Oh sure, whoever it was that was stamping "Approved" on all those requests at the Fed's "Foreign Banks Only" teller window no doubt thought it was in the self-interest of the United States to keep the global economy from imploding. But look at all the grumbling that Europeans do when asked to help preserve their own common currency and the economic health of their own neighborhood. Or, if you wish to look in the other direction, consider the not exactly Kumbaya spirit of the currency "wars" that define trans-Pacific monetary relations. In the end, you've got to wonder, what're we thinking? After all, if China is the country sitting on the biggest pile of cash and the EU is China's number one trading partner, shouldn't they have responsibility for footing the bill for all those overly cushy European pension plans that promised retirement seemingly within weeks of graduating from college?
Beijing appears to have enough money to commit $1.5 trillion dollars to prime the pumps for seven "strategic" industries (as they announced they were considering doing this week)… while we don't seem to have enough cash to pay for extending unemployment benefits for victims of the economic downturn. Mull that one over for a second: We have enough money to bail out big European financial institutions and their fat, happy shareholders, but not enough to help out struggling American families? We're paying for euro problems and unwinnable wars in the Middle East and China is saving its yuan for other activities -- like figuring out how to clean our clocks in the global marketplace of five minutes from now?
We are not just the uncontested Megapower of Schmuckdom, we are a deeply confused nation led by people with profoundly twisted priorities -- who clearly believe they report to higher powers than mere American citizens.
Today we discovered that U.S. unemployment is at 9.8 percent, that we have broken the 1980's record for most consecutive months of unemployment above 9 percent, and we are nonetheless forced to stomach the current charade on Capitol Hill in which the Republican party fights for tax cuts for millionaires while callously allowing Americans in need twist in the wind. All this, while it turns out that across town in the Fed's corner of Foggy Bottom it doesn't even take a vote to provide handouts for rich foreigners in want?
Where are the pitchforks and torches people? Where is the outrage? Don't tell me that's what the Tea Party was about. The Tea Party was clearly all tiny plastic tea cups and doilies when it comes to the real issues America faces. Otherwise, wouldn't all those champions of average Americans actually be championing the interests of average Americans right now?
On a separate point, what does it say about the idea of "European Union" that as soon as troubles bubbled to the surface in a couple countries, the discussion turns to a question of whether the Germans are likely to bail on the whole idea? Or see today's New York Times piece on the North-South divide in Europe. The reality is that the "European Union" might be a nice branding idea, but it's purely an aspirational one and seems to actually be getting farther away from a reality every day.
It took the United States 100 years and the bloodiest war in the history of mankind to finally buy into the idea that we were all in it together. The Europeans have had plenty of wars, but since around the time of Charlemagne, none of the battles were won by those fighting for the principle of unification. (Given the goals of the unifiers, from Napoleon to Hitler, that's not such a bad thing.) In fact, it was always those who wanted to unite Europe that were defeated. Ultimately, when they accepted the idea of knitting themselves closer together it was based primarily on the idea that finding shared economic interests might keep them from each others' throats and it came, even in its most advanced forms, with multiple caveats, exclusions, and protestations that real independence laid beneath the fragile superstructure of links.
So we are faced with the prospect that the wheels might come off the eurozone cart sometime soon and what do you think we'll see when that happens? Do you think we'll see the Chinese volunteer to come in and help clean up the mess? No? Not even as a way of thanking the Europeans for siding with them recently in Seoul when they decided to make the G-20 meeting about U.S. monetary policy mistakes rather than Beijing's manipulations? Or, alternatively, do you think we'll see a call for the United States to help out again, to dig into our own pockets to help solve European economic and social problems, while we fail to take even the minimum required steps to take care of our own?
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The United States seem to be swimming in economic initiatives that are going to go nowhere. But are we really surprised? After all, as in the case of U.S. efforts with regard to Afghanistan, Iraq, Iran, and Israel and the Palestinians, we also seem to be swimming in foreign-policy initiatives that are very unlikely to produce much (positive) change to the status quo.
But seriously, if the United States is going to devote our efforts to empty symbolism and hollow gestures, couldn't we focus on some that were leavened by a little nobility, creativity or boldness? If we are going to float proposals that are doomed to failure or ineffectiveness, couldn't we float better proposals?
Let's take the four big economic initiatives making headlines this week.
The Korea-U.S. Free Trade Agreement
We were greeted this morning with the unsurprising news that the efforts by U.S. Trade Representative Ron Kirk and his Korean counterparts to hammer out a new and improved version of the Korea-U.S. Free Trade deal had foundered on beef and automobile issues. I lead with this news because it is one of those rare proposals that actually have the opportunity to fail twice -- in addition to this week's setback, it could also fail in the negotiating phase. That's not very likely (the White House promises a deal "within weeks"). But even if the deal is reached, the likelihood that a free trade deal is going to make it through the U.S. Congress any time soon seems slim.
conventional wisdom has it that Republicans are warmer to free trade than
Democrats, the reality is that centrists are warmer to trade. The real
opposition lies in the growing right and left wings in each party.
A story in today's New
York Times highlighted a Pew poll that 44 percent of Americans feel free trade deals have
been bad for the country, while only 35 percent feel they have been beneficial.
While some deals are viewed more favorably, others -- like deals with China or
Korea, countries viewed with more unease -- are not. The article also notes
that, "Republicans and Republican-leaning independents who were aligned with
the Tea Party movement had a particularly negative view of the impact of free
trade agreements." In the last election cycle something like 4 out of 10 voters
identified themselves with the Tea Party or Tea Party candidates -- a group
that now has 110 members of Congress.
With the Blue Dogs slaughtered in the last election, the power in Democratic caucus has also shifted solidly to the left; between that fact and the growing importance of unions as 2012 nears, the idea that a trade deal might get approved anytime soon should provoke some skepticism.
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With the U.S. mid-term elections still a week away, the media is glutted with polls and prognostications. Cable news has offered up a menu of non-stop pundit stew, bubbling with hyperbole and featuring hard-to-digest floating bits of bias spiced with speculation and guess work.
For this reason, lest you collapse of intellectual starvation in the interim, it is up to us to offer something like a fact, something solid which, as it happens, is also something of an antidote to the hand-waving and hand-wringing of most pre-election "coverage."
Take to heart the near-hysteria of the newspapers or the TV reports and you would think the United States was on the verge of a political cataclysm, a transformational event that will change all our lives and the very nature of American politics. In this respect, the coming election is seen as something akin to the recent transformational events that we have seen associated with the economic crisis, subsequent Wall Street reform, and health care reform. In each case, our world would never be the same.
And in each case and in this case the opposite is true. Not only is the world the same, it is in several key respects samer. (Yes, I said "samer." It's my blog and I'll make up the words around here if I want to.) Some of the traits we most expected to change have become more entrenched, even more impervious to reform.
Banks are back to sub-prime lending, some even more actively than before. Other banks -- especially those in Europe and China -- are still underestimating and under-reporting their financial weakness. New economic bubbles are percolating up throughout the emerging world. The U.S. is facing another predictable financial crisis -- two actually, one having to do with a trillion dollars in underfunded public pension liabilities, and the other having to do with the current or looming insolvency of a large number of cities, counties and states -- with the same inaction as before. Not only are most derivatives traded in the world still beyond regulation, they connect to the huge and hugely volatile world forex markets in ways that should have us all more nervous than we were before. Wall Street reforms passed by Congress not only failed to address many core problems they still are a long way from having much effect on the problems they did manage to zero in on, because we are a long way from implementing many reform provisions, legal challenges will block many and delay others, and underfunding will make enforcement impossible on others.
A similar story is the case with health care reform which, while addressing a few of the gross flaws in the health care system, has left the grossest flaws unaddressed -- and getting worse. What was underfunded is becoming even more so with every passing day, and that underfunding remains the single greatest threat to the United States' economic and thus strategic health… exactly as it was prior to all the health care hubbub in Washington, in the media, and in the small minds of those whose ideologies have no room for the solutions we so urgently need.
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In today's Financial Times, Gideon Rachman has written a compelling piece called "Sweep economists off their throne." You can guess at the substance from the title, but the thrust is that Rachman was trained as a historian with a resulting bias toward basing conclusions on things that actually happened and that he has grown tired of the claims of economists that theirs is a field that "resembles hard science such as physics or chemistry" concluding, "maybe it is time for an alternative to the brash certainties, peddled by those pseudo-scientists, otherwise known as economists."
His use and reuse of the term "science" underscores just how abused it is by economists who claim rigor and scientific method but regularly produce work that is seldom more than guess-work clouded by politics. Evidence is everywhere to support this view, which is precisely why so many economists seem to have missed the point given that evidence-based analysis has never been their forte. If it was, perhaps there might be a consensus among them on even one of the great economic issues of our time. But there is not.
Take this weekend's suggestion by President Obama that the U.S. ought to spend more on infrastructure as a way of strengthening the U.S. economy. He was immediately assailed by Republican economists and their spokespeople for going back to stimulus approaches that have already proven to be failures (see the editorial in today's Wall Street Journal.) Yet over the weekend, we heard, for example, from CNBC reporter Erin Burnett on "Meet the Press," that in speaking to Wall Street economists she found widespread agreement that the stimulus program had actually helped avoid even more dire outcomes for the U.S. economy than we have already seen.
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This weekend the Obama Administration will send a team to China headed by the somewhat unlikely duo of Larry Summers, head of the National Economic Council, and Tom Donilon, deputy national security advisor. The purpose is to send a clear message that the U.S. is approaching its relations with China strategically, with a view that integrates the full range of economic and security concerns.
While such trips are old hat for Summers, the journey represents a bit of a change of pace for Donilon, the inside guy who is credited with having done a great job making sure the policy process trains have been running on time within the National Security Council. Some in Washington are buzzing that this is a profile- and skill-raising trip intended to make Donilon a better candidate to replace National Security Advisor James L. Jones should Jones decide to depart, as many expect he will. Others grumble that the trip represents precisely the kind of "operational" role for the NSC and NEC that many cabinet departments have long thought should be out of bounds for White House policy coordinators.
But beyond the Washington gossip the trip has caused, the juxtaposition of economic and security concerns offers an illustration of an often over-looked fact -- the centrality of economic issues to current U.S. national security concerns. In China, the tricky calculus is fostering collaboration on security issues from North Korea to Iran in the face of political pressure back home to press Beijing harder on issues like currency valuation and unfair competitive practices (especially those associated with pressuring foreign firms to transfer proprietary technologies).
The U.S. has never been especially effective at coordinating its multiple interests in China so that pressure in one policy area produces progress in another -- or even simply avoids causing setbacks. So this trip, in concept at least, represents a step in the right direction -- at least if Congress doesn't undercut the administration's efforts by, for example, drafting its own legislation on currency issues.
But China is just one of a host of current hotspots where Summers, Geithner, and the international economic team are playing a central role on national security issues.
For example, in Afghanistan, the story of the week turns on the amazingly brazen behavior of the Karzai gang in trying to pressure the United States into bailing out a clearly corrupt and mismanaged bank in which President Hamid Karzai's brother, Mahmood Karzai, is the third largest shareholder. Mahmood has publicly called for a bailout even though his affiliation with a bank through which U.S. funds flow to Afghan security forces compromises both him and the president. Both remain unabashed, however, behaving like the proverbial kids who murder their parents and seek the mercy of the court on the grounds that they are now orphans. So the United States is in a pickle: Step in and support the Afghan kleptocracy and its culture of corruption or stand on principle (and law), and run the risk that the bank falters. It's not a situation that General David Petraeus can handle, but how the economic team manages it will have direct ramifications for him.
In the same way, some of the most sensitive concerns regarding Pakistan turn on economic policy. Will the Zardari government pump too much cash into the economy to deal with the aftereffects of the devastating flooding, and risk a major inflationary episode? Or will it introduce price controls and a set of micro economic measures that, if mismanaged, could produce social tensions or even rioting? The wrong mix of policies could plunge the already fractured and battered country into political turmoil and perhaps the reintroduction of military rule.
In talks with the Israelis and the Palestinians, many of the core concerns will turn on how to improve the economic conditions for the Palestinian people. If they can get past initial hurdles, they will, of course, ultimately have to move to a state structure that will enable organic economic growth in a Palestinian state, actually fostering job and wealth creation for people who have lived in an economic no man's land for too long.
In North Korea, it is reported that the administration, conducting high level meetings on the subject this week, is seeking to explore "engagement." In the case of the economically isolated and struggling North, that inevitably will mean economic packages in exchange for gradual normalization of relations or reductions of threats. At the same time, this week, the administration widened sanctions intended to force Pyongyang to give up its nuclear weapons.
In Iran, the core initiative at the moment is making targeted economic sanctions work. In Iraq, the issue is fostering economic growth to help "purchase" social stability. The list goes on. It is clear that wherever the stakes are highest for the United States in the world, even as military and diplomatic initiatives garner most of the attention, behind the scenes much of the most critical work is being undertaken by international economic officials.
It is interesting to note in this respect that the responsibility for conceiving and coordinating most of these activities lies in the White House to a much greater degree than it does with military or diplomatic initiatives. The White House team on these issues is excellent. But in the end, these functions are so fundamental that the real leadership capabilities need to be cultivated elsewhere.
The economic team at the State Department could and should play a greater role in this respect; Undersecretary for Economic Affairs Robert Hormats is a talented and experienced official. As I have written before, State also could and should develop a dramatically enhanced capability when it comes to emergency economic intervention -- pre- or post-crisis. And all the other economic agencies need to be prepared to collaborate on this, not on an ad hoc basis but through a permanent program promoting cross-training and what the military might call inter-operability. Call it an economic rapid response capability -- or call them economic green berets.
We need people we can drop into critical situations and help manage them with an eye to our security and political needs rather than traditional purely economic metrics. That's a critical role for which development officials are ill-suited, and we still don't really have the fully developed institutional structure we need to support it.
Looking at the issues faced by the United States today, while one can't help but admire much of what is being done, the strategic side of the international economic agenda is such that it warrants some real thought about how and with whom we should be meeting such challenges in the future.
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Normally, were I to find myself inclined to agree with John Boehner, my first impulse would be to call a neurologist and arrange for a CAT scan. There are few more compelling reasons for America to resist turning the House of Representatives back to the Republican Party than the prospect of Speaker John Boehner. What could be more cynical than elevating a man to the third most powerful post in the land whose primary contribution as a politician -- beyond illustrating the perils of over-tanning -- has been his vigorous commitment to doing nothing? In the chamber that made Daniel Webster great, he is the Jerry Seinfeld -- except instead of creating a sitcom about nothing, he seems dedicated to an effort to create a Congress about nothing.
Yet, today, by accident, he stumbled upon an idea that had some merit. He advocated the resignation of Tim Geithner as treasury secretary. Boehner's reasoning was, as usual, not reasoning at all but pure, undistilled partisan boojwah. But the idea that the time has come for a change atop Obama's economic team is absolutely right.
Obama made a concerted effort to hire the best and the brightest and I consider both Tim Geithner and Larry Summers to be members of that group. What he neglected to do, however, was to hire the most compassionate or empathetic. (As I have said before, when David Halberstam coined the phrase "the best and the brightest" it was not a compliment but a cautionary term.)
This county is in a dark place economically unlike any I have seen in my half century or so of life. While I worry about the fiscal deficit and the trade deficit, we have seen those before and handled them. The more serious deficit we face is one that cuts to the very core of America's character: it is an optimism deficit.
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U.S. consumer confidence got a boost this month with the Conference Board's index rising six points, to 52.5 from 46.4 in February -- which just goes to prove once again consumers are dopes.
Me, I can't help but notice that:
And so, as we say on Passover, "What makes this recovery different from all other recoveries?"
Could it be that it is not really a recovery at all but just a respite between economic calamities? (My theory is that those free-spending Republican National Committee fund-raisers were in that S&M strip club for an economic briefing.)
I don't know about you but I'm going down into my basement until those consumers come to grips with reality. (Why do we even measure consumer confidence anyway? Isn't it the irrational exuberance of consumers that usually gets in trouble in the first place?) Maybe I'll watch an old Marx Brothers movie. As Groucho once said (no doubt referring to a consumer),"He may look like an idiot and talk like an idiot but don't let that fool you. He really is an idiot."
Or maybe I'll just read a book (like Michael Lewis' great The Big Short which will have all of you understanding the on-going nature of the financial con-game and joining me in my basement in no time.) Because as Groucho also said, "Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read."
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As promised -- trumpet fanfare -- "The Winners and Losers of the Decade." Or, as I like to think of it, "The Winners and Losers of the Oughts," in deference to the zeros in each year of the decade's numbering, the zeros who were in charge and all that we ought to have done that we did not do.
George W. Bush: It almost seems too easy. But upon reflection, it's not even close. Bush wasn't just born with a silver spoon in his mouth -- he inherited America, the world's sole superpower, with a budget surplus and clear skies ahead. When we were attacked on 9/11, the immediate consequence was unprecedented support for him and for the country. And yet, almost immediately thereafter, he started on a catastrophic set of missteps and bad decisions that had alienated the world by the end of his term. George W. Bush was not just the biggest loser produced by the American political system in the past decade, he was in all likelihood one of the worst presidents in American history and he presided over what was almost certainly the worst international relations calamity since, I don't know, maybe the Alien and Sedition Acts.
How did he get there? What was the worst of all the bad choices he made? Was it invading Iraq or picking Dick Cheney to be his vice president in the first place -- or more properly, letting Dick Cheney choose himself? In the literary biz, we call that foreshadowing ... but in the history biz they will almost certainly call it the beginning of the end for a president who undercut American stature like no other, compromised our historic values and at times, seemed like he could barely speak English.
Not only does he get my nod for loser of the decade in the United States, he takes the international crown as well. All hail George W. Bush. Thanks to his bumbling in the highest office in the land, he also achieved the rarest form of comic apotheosis: He became the punch line that didn't even need a joke. Sadly, for us all, it will always hurt when we laugh.
Al Gore and the American People: There are losers and then there are those who lost. For the remainder of our lives we will always wonder what might have been. Seldom have there been forks in the road of history as clear as the 2000 U.S. presidential elections. The difference between the two candidates was as thin as the sheet of paper on which the politically stacked Supreme Court reached its compromised decision. In retrospect, it is ever more clear that the election was stolen and America, and countless victims worldwide, were sent hurtling toward a destiny that we and they did not deserve. Gore later would go on to win the Nobel Peace Prize for his work battling climate change and has handled the defeat and its aftermath with a grace that would warrant the prize had he done nothing at all. But we cannot help but think how much more we would have done by now to combat climate change had he been in office, how much stronger our relations would be with the world, how many innocents killed by our wars in the Middle East would still be alive. It is the decade's defining political defeat.
I had breakfast today at the usual table in the usual restaurant with a very smart journalist who works for a large salmon colored newspaper. We both had oatmeal because a guy just can't get enough soluble fiber.
My friend said that at the moment the most over-used term in Washington is "defining moment." Of course, the reason the phrase-turning classes keep returning to this particular phrase is that they are cockeyed optimists. They keep believing that such a moment will happen and they will begin to understand who Barack Obama is. They don't want to have to grapple with the notion that he has already defined himself. They keep hoping that he is really will emerge from the chrysalis of his learning curve months in the presidency as the glorious butterfly of change everyone hoped he would be in the first place. The fact that there is precious little evidence this is likely to happen doesn't daunt them. They'll stick to their s.o.p. of doing the analysis they want and hoping that reality catches up to them sooner or later.
Personally, I'm getting a little worried. (Actually, I'm kind of perennially worried. Not as bad as my ex-wife who actually believed she was going to be hit by Skylab. But able to nonetheless find the cloud around every silver lining.) For months I have been going around saying this is a new generation of leadership, noting that Obama entered high school after Vietnam and his practice as a lawyer after the fall of the wall (that's the Berlin Wall, for you kids who don't remember). But so far, on key issues he has been acting like he isn't the first of a new breed but that he is actually the last baby boomer.
Have they no shame? Have they no sense of responsibility?
Perhaps by now nothing that Wall Street does ought to shock us. After all, these were the people who told us to trust them with our life fortunes when even they did not know the risks to which they would expose them. These were the people who felt it appropriate to game the U.S. economy, force families into the street and then claim big bonuses for their actions. These were the people who told the U.S. government to stay out of their hair ... right up until the moment they needed a government handout. A when they didn't need the cash any more, what's their response? To kick the people who helped them back to the curb.
Come on, Baby! Didn't I show you the love when you needed it? Wasn't I there for you when no one else wanted you? You weren't so big and powerful then, but I gave you what little I had. I mortgaged everything I had to get you back on your feet. I crawled right into bed with you and held you all night long. And what happens the minute you get a little wind to your back? You're out the door and you don't even know my name!
It's people like this that guarantee there will always be country music, the blues and drunks in bars getting the lyrics wrong while they sink into their beers. You know what I mean, those songs like "You Done Me Wrong" or "I'll Never Get Over You (Getting Over Me)." Or maybe what I really mean are songs like "Dirty Pool" or "Chain of Fools." Songs about betrayal and abuse. Muddy Waters:
Now look what you've done
You left me here, the lonely one
And all I could say, is look what you've done
A broken heart, a weary mind
And (just for a) few dollars baby, (every) time
I once had a dream, but now I have none
You've taken your love and see what it done
Oh sure, I never expected that the princes of Wall Street would actually change their stripes. I'm not talking about disappointment that they are not voluntarily foregoing the big bonuses for a year or two until the country is back on its feet. I'm certainly not suggesting that I ever truly expected them to use government resources to actually start lending again or to really take major steps to keep home owners in their homes. Taking smaller risks? Forswearing complex investment strategies that only benefit them while putting everyone else at greater risk? Expecting that would be like expecting a pride of lions to go vegan and open a nursery school for baby antelopes.
No, I just thought that they would do the right thing in the one way that it is surely in character, that they would say thanks in their own language, the language of money. But here President Obama is hosting a fundraiser tonight in New York City, right in their own backyard, and according to the New York Times, Wall Street is snubbing him, not forking over. In fact, according to the story, Wall Street donations to the Democrats are down since, oh, I don't know, back when the Democratic controlled Congress and the Democratic President were saving their bacon.
Apparently,the Masters of the Universe have concluded that the same Dems that bailed them out are now actually considering reforms that might mitigate risk and save the taxpayers for having to dig deep into their wallets to ensure the Wall Streeters could keep sending their kids to Dalton and Spence. And so no more soup for you, Barack.
Personally, I think they miscalculate. They finally may be undone by their greed. Except it won't be because they stole too much or blew up the international economy. It'll be because they stopped paying off the people who set the rules. And nothing puts a politician back in touch with his principles like a failure to keep up payments by the banker to whom he has mortgaged them.
So it is that the bankers of the most consequence at tonight's fundraiser at the Mandarin in Manhattan won't be the ones the news crews will be fussing about as they head into the $15,000 a plate gala. Rather they will be the ones who actually who don't show up ... and who, in so doing, "free" the President and the Congress to get aggressive about reforms in the way they should have been all along.
Perhaps that old Muddy Waters tune will go through the president's head tomorrow as he thinks back on his visit to the big city tonight:
Saw you last night, I was movin' around
With your new toys, paint the town
But it is ok, keep having your fun
Because someday, you'll pay for all you've done
And if you ask me, it couldn't happen to a more deserving bunch of guys.
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It used to be that the Chairman of the Fed was regularly referred to as the most powerful man in the world. This was back in the day of Alan Greenspan and, at the time, it seemed it was in spite of the fact that people seldom understood what he was saying. Subsequently, we learned it was precisely because of the fact that we didn't understand what he was saying. And then, subsequent to that, we also learned ... largely because he had the good grace to admit it ... that he himself didn't understand what he was talking about.
The downward spiral of Greenspan from philosopher king of the global economy to mere mortal caught his successor, Ben Bernanke, in its vortex. He was handed an economy in which the doors and wheels were coming off as we drove and nothing like the power he needed to deal with it. Indeed, as the current crisis unfolded we saw that the Fed chair was not the most powerful job in the world, that title was reserved for current or former ceos of Goldman Sachs. This must be so because for a while people wanted to fire Bernanke after one term in office primarily because he had inherited a mess whereas when you screw up the global economy as the current or former ceo of Goldman Sachs, people want to help bail you out or make you Treasury Secretary or both.
I kid. It is highly unlikely any ceo of Goldman Sachs is Treasury Secretary again for quite some time. Possibly years.
And Bernanke did earn some of the flack he got initially, largely because he was swept along in the groupthink of Washington economic honchos, buying into the "leave it to the markets" regulatory philosophy that got us into the mess we faced for far too long. But when it became clear that approach not only did not work but that real change was needed, the quiet academic stepped up and became perhaps the leading dependable voice of reasonable change. That's why there is a consensus emerging today that Bernanke, who against all odds seems to be restoring the notion of Fed Chairman as Washington's most trusted economic oracle, should be reappointed when his term in office ends. Steven Pearlstein, in a typically thoughtful piece in today's Washington Post, gets on this bandwagon and adds a few suggestions as to how to modify the Fed (as well as an absolutely justified endorsement of David Wessel's terrific new book on the economic crisis called, "In Fed We Trust.")
The growing momentum of this bandwagon has put in doubt the once conventional wisdom that Larry Summers had accepted the reins of the National Economic Council as an interim step on his way to the Fed chairmanship. But Summers has done such a good job elevating the National Economic Council to unprecedented prominence in the day-to-day operations of the White House and has so effectively earned the president's trust, that it is now almost certainly better for all concerned (including those of us out here in tax-payer land) that he stay right where he is. If there was ever a situation that called for the president to have a strong economic quarterback at his immediate side in the White House, it is this one and in Summers, Bernanke, and Geithner, Obama has got a first-rate team that has the number one criteria you need for success in each of their respective jobs -- the trust of the president.
Now, as readers of this blog know, I don't think every move they have made is perfect. I am disappointed by the speed of regulatory reform here in the United States and internationally. I think they have not done enough to address some of the underlying causes of the crisis such as the creation of massive pockets of risk in the global economy related to the development of opaque derivatives markets. I think they have cut deals with Wall Street that are too sweet for the bankers. I think they have spent too much, bought into ideas (like tax cuts) in the stimulus that amounted to political pandering and they sure haven't given the president the kind of clear guidance he needs on how to sell the health reforms that are perhaps the economic reforms we most urgently require.
That said, their job was first to stop the bleeding and to stabilize the patient. It was no easy task and what they did in terms of swift and sweeping intervention, while imperfect ... almost necessarily imperfect given the speed at which they were operating ... has seemed to work. I still fear a second dip of the recession ... the "W" rather than the "V" shaped recovery. But today's papers show Germany and France creeping out of recession. Japan may too. Economists (a group with limited credibility at the moment, I must admit) seem to think we are at least plateauing here in the United States too. So I think it is fair that this team get credit for their efforts.
Frankly, I hope that the initial success they seem to have achieved emboldens them. If anything they have seemed too deferential to the Congress and to Wall Street and once stability seems assured aggressive measures to rein in the budget deficit, further strengthen regulatory oversight and strengthen international regulatory mechanisms will be called for with the same urgency that stimulus measures were called for earlier this year.
We have seen the dangers of too much deference to the markets, of regulatory indifference, of not believing that government could or should play a significant role in protecting our national interests by identifying and mitigating market risks with broader macro or social consequences. I hope the president makes the early decision to keep everyone where they are so that they can focus on the next wave of reforms that are so urgently needed.
(And to be clear, does the above actually suggest that I want a bigger role for governments in market regulation, stronger global governance mechanisms, tax increases if we need them in addition to substantial spending cuts and that I am a fundamental believer that government also needs to play a much expanded role in ensuring sustainable health care...which optimally would be through a single-payer system that is not even on the table at the moment ... and preserving the environment ... ideally through a simple, straightforward and substantial carbon tax? Yes, it does. Start rolling out your labels if you would like, but if the recent crisis has taught us anything it is that we can't afford the reflexive rejection of government solutions where they are needed ... rather we need to rise to the challenge of figuring out how to make governments more effective in these critical roles that only they can play.)
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As Barack Obama trotted the globe toward the end of last week, back home a story on the technology front was creating a bit of a buzz. Google announced its plans to introduce a new operating system called Chrome OS that tech sector experts saw as a frontal assault on Microsoft. Chrome would go after Microsoft where it lived, attempting to offer an alternative to its Windows franchise that has dominated since the dawn of the PC era it helped make possible. But Chrome would employ a new paradigm, the idea the future of computers is in harnessing the power of the web, that vast computing power, storage capacity and other resources can be found in the "clouds" of computers that are linked together in the Internet universe.
Chrome's full potential is far off. It will first only be introduced for netbooks later this year. Laptop and desktop versions are many months away. But reading about the announcement and talking to a bunch of computer users, I came away with the sense that the market was viewing this introduction with great hope.
Why? Well, in large part because Microsoft is seen as having become a complacent bully. Microsoft was a tech darling in the 1990s, a symbol of American ingenuity and a likely engine of future American growth. When its market capitalization grew greater than that of GM, it made headlines. Ironically, this ascendancy came at the same time as America's post-Cold War assumption of its role of sole-superpower. In the mid-90s, America and Microsoft were clearly the future of the world.
Then both started to abuse their power. America, in the wake of 9/11, undercut the international system it built, rhetorically flaunted its hallowed values and then crudely and repeatedly undercut them in its behaviors. Microsoft went from a symbol of the garage-launched entrepreneurial energy of the tech revolution to being a ruthless crusher of competitors. In fact, it became so dominant, that it felt it could foist on the American public products that didn't work, were full of bugs, were vulnerable to security breaches and, as in the case of Vista, should never have been released in the first place.
Microsoft blew it. Today, consumers and specialists alike are rooting for it to fail. (Hence the love affair with Apple which is seen as the resilient insurgent, the better unconventional choice, even in its advertisements.) Fortunately, for tech consumers worldwide, the growth of Microsoft and the tech sector led to the birth of competitors like Google (founded just over a decade ago.) Google itself is now so large that many wonder if it will become complacent or employ ever-more unfair competitive practices. But it is also big enough that it actually has a chance to undo Microsoft's stranglehold on the inside of the world's computers (of all sizes and shapes), perhaps the most important real estate on the planet earth today (which is appropriately largely virtual).
Under George W. Bush, America also blew the opportunity to consolidate the position it achieved as victor of the Cold War. For years now, many have been rooting for America to fail as well. Certainly, this was never so clear as in the calls for an end to American capitalism during the peak of the financial crisis. But here is where America's fate has thus far diverged from that of its industrial doppelganger Microsoft (the fall of GM, Microsoft's predecessor in the flagship company role, echoes and amplifies many of the points made above...it too grew complacent, ignored the consumer...and invited the competition that has crushed it.) Because while the American brand endured untold damage during the previous administration and continues to be damaged with each passing week of this economic crisis for which we are seen to be responsible, there is still no alternative brand with anything like the appeal of our system, our values or, even today, our track record for creating opportunity for our people.
There is No Alternative (TINA) was a favorite watchword of Margaret Thatcher, used by her to indicate that market capitalism was the only way, and used by her supporters to indicate that she was the only viable option available for saving Britain from the slough of despond it had entered in the 70s. Her enemies were the socialist ideas that had grown so popular in Europe in the post-war era. Soviet communism cooperated by failing during her years in power. And she, of course, spoke for a perspective that was not just British, but was embraced by her soul-brother Ronald Reagan. In a way, it all seems very old-fashioned now. That world seems far away with the Cold War over, the G8 on its last legs, emerging powers rising, America's brand so damaged. And yet, search the horizon. America's greatest ally remains TINA.
Barack Obama can lose his star luster and conduct only marginally effective, workman-like diplomacy as he did last week, and still, post-Bush, post-Iraq, post-Guantanamo, post-Lehman America remains at the center of every critical discussion, the most important player, the basis for all comparisons. China, the rising rival, gains its power from descriptions of how it will have an economy equal to America's within decades...but it is no real alternative. Its political system is defective, fraying at its ethnic edges. Its economic growth is admirable but when we get to the far side of this crisis and the world is depending on China to pick up the slack in the place of diminished American demand, we will see that there are perhaps 50 million Chinese who are anything like Western consumers, a true addition to the market roughly the size of a mid-sized European economy. China with Russia and others seek to sell an alternative to the dollar and the response of world markets is deeply skeptical. Other revolutionary voices for the most part echo the failed approaches of the past.
Had there been a good alternative, now would have been a great moment for it to emerge. In fact, it is perhaps the most telling indictment of the alternatives that are out there...politically, economically, socially, in terms of world leadership...that after such a bad streak, that nothing is really taking hold as Plan B...which creates a terrific opportunity for Barack Obama and his team. We can learn from the Microsoft and General Motors examples. We can seek to adapt to new realities. The trick is going to be convincing the world that a United States that grows at 2 percent a year (which may well be the average for the next 5 years) offers a better approach than a China or an India that grows at 10. Or that the United States offers a better way of life for its people or is a country that deserves the leadership role it has.
It is clear to me that absent a strong recovery, real healthcare reform that meets the needs of all Americans, genuine leadership on climate, and an effort to address the flaws in our system that are exacerbating inequality, sooner or later a weakened, necessarily more inward looking U.S. will find that TINA has flown the coop. It is a telling irony that left-leaning development advocate Susan George offered as a successor to TINA, TATA...which means "there are thousands of alternatives" but also echoes the name of the Indian entrepreneur who now owns the auto brands that were among the British industrial flagships of the Thatcher era (Jaguar and Land Rover) and is the producer of the Nano, the small car designed for the emerging market demands of tomorrow. It is a reminder that things do change and that history suggests that almost certainly there will be alternatives.
But with some luck, America can play the role adopted by the innovators who last at the top, resisting the complacency that TINA's love brings and by seeking to become the even better alternative to ourselves the era requires.
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Somebody needs to do a new wiring diagram for Washington. Because much has changed and much is changing about the way power and influence flow through this town and while some of it is related to having a new president in place, some of it is linked to other technological, political, and social trends. In fact, while motives and many techniques for getting things done in Washington might look very familiar to the old time fixers and back room pols, much would be as alien as a lunar landscape.
Here are just a few random observations from the past few weeks that lead me to this conclusion:
The stark reality is that there are fewer business people at senior levels of this administration that at any time in decades and the Obama team is much more plugged into other interest groups: NGOs, academics, career politicians, lawyers, regulators, etc. What's more big divisions are emerging within the business community as some old school types hold on hoping that 2010 brings a reversal of fortune for the Democrats while others are being more proactive on issues like health care, energy and climate policy, seeking a seat at the table as a sea-change comes to the public sector-private sector relationship and underlying principles in those areas.
It used to be that energy and climate policy in America (and a lot else) was heavily influenced by groups like big oil and the auto industry. Now, as one senior energy executive put it to me, "we just don't have the access we used to. The American Petroleum Institute is completely discredited in the eyes of most of the people in this administration. We can't get in to see anyone."
As for the allies in the auto industry, well, the auto industry ain't what it used to be. And what's left is more heavily dominated by union voices than ever before (when it isn't guided by the interests of the bureaucrats who are in charge of managing the political capital the president has invested in saving GM and Chrysler). The old one-two punch of two of America's most politically powerful industries is gone.
Again, this is hardly news unless you've been sleeping in a cave somewhere for the past few years. But it is really striking to me how in the recent past places like Politico, Real Clear Politics, the Huffington Post, The Daily Beast, Drudge, the political blogs and even sites like this one are driving the buzz. Look at the links between what's talked about on broadcast media and where the idea started and these days, more often than not, it isn't the op-ed writers any more. It's palpable in private conversation. Want further proof? From the White House to local embassies, there is a new, concerted focus on shaping web opinion.
Most of the people in the Washington policy community don't seem to get these changes and, as a result, they are losing influence. Most think tanks have lagged in their adoption of new media and when they get on the bandwagon they are doing little more than creating web-based newsletters and channels for releasing old fashioned papers. They still view policy ideas as inert products to be released every so often and they don't recognize the on-going, dynamic, more inclusive nature of the modern policy influencing process. Compounding the challenge, some of the most influential think tanks have been decimated by losses to the administration (Brookings, CAP, CNAS) creating a paradox: at the moment of their greatest influence they are least able to take advantage of the situation. Personally, I think that any think tank that does not realize their entire model of membership, communication, collaboration, fund-raising...even their role in life...needs to change is on a trajectory to irrelevancy.
State Department types have long lamented the gradual shift of power to the NSC over the past several decades. But 24 hour news cycles have made everything political and thus relevant to the White House and it's only natural that it becomes the locus for most big decisions. But within this several-decade-long trend a new trend has emerged. Power continues to increasingly shift to the White House...but within the White House, the shift is away from the NSC per se and more toward the inner office of the president. This was a trend begun during Bush with the outsized role played by his vice president. But it has been maintained...though in a different form...in this White House with a super-engaged and confident president at the center of everything, as the main foreign policy spokesperson and with his closest personal political advisors playing an outsized role in many policy decisions. Rahm Emanuel may be the most powerful chief of staff since Sherman Adams. David Axelrod, Pete Rouse, Greg Craig, and the vice president and his staff are also very influential as are folks like Dennis McDonough and Mark Lippert more thanks to their personal relationships with the president than their official titles at the NSC.
Honestly, I think that power is generally shifting away from the diplomatic community. Ambassadors are superfluous as direct contact between higher level government officials becomes so easy and commonplace. Embassy row is a destination for cocktail parties only these days in Washington and a kind of vestigial limb reminding us of the way things worked back in our parents' day. But even within the diplomatic community, influence is shifting. The fact that the BRIC ambassadors meet once a month to coordinate policies is a sign of this shift. Ambassadors of traditional allies like those from Europe and Japan are less significant. The Chinese ambassador, because of the formalities involved in communicating with that government remains more significant. Colombia's ambassador used to be very important. No more. Mexico and Brazil are really the only two Latin ambassadors that matter any longer.
It's no small thing that we have created the world's biggest sovereign wealth fund to pull us out of the economic morass...even if it is the first such fund entirely debt-financed, and even if the stimulus money is only trickling out. (If Viagra stimulated as slowly as the government's package, Pfizer would also being administered by the White House by now.) But given this newly expanded role of the government, the people who administer these funds at cabinet agencies have become extremely powerful and on many visiting business peoples' must see lists.
These are just a few anecdotal observations. They understate the impact of new media on politics and influence in Washington. And old money politics still remains in place far more than one would have hoped. In some parts of Washington...on Capitol Hill, for example...dinosaurs and Paleolithic ways still rule. But my sense is that if you were to make a list of the 25 most truly influential people in Washington...particularly on the media and policy community side...you would see a new and surprising array of faces. A subject for another blog perhaps.
TIM SLOAN/AFP/Getty Images
Maybe the problem in the United States isn't that we're paying our business executives too much. Perhaps it's that we pay our government officials too little.
The Obama administration has made headlines this week by appointing yet another czar, this one to ensure we don't pay too much to the executives of the financial institutions the United States has bailed out. They have also made noises about trying to tackle the broader issue of executive pay in the United States. The second point is idle posturing that almost certainly will amount to little constructive change. The first has already sent the companies we bailed out scurrying to the exits of the TARP program and it will be a while before we see whether this is a healthy step, getting them off the dole, or an unhealthy one, with institutions hopping out of their hospital beds before they were fully cured. I also can't help but wonder if cutting executive pay is the best way to attract the kind of brains and efforts that will be needed to fix our busted banks.
Meanwhile, I have arrived in Singapore, home according to one count, of the 30 highest paid government officials in the world. And trust me, given the extraordinary success this city state has enjoyed, none of the people with whom I met today were complaining that those officials were overcompensated. This country wants the best minds in the government and recognizes that they have to pay to get them there otherwise they go work in the financial community, sell their souls and ultimately add to the overcrowding problem that is currently one of the biggest social issues facing Hell.
Come to think of it, the overcrowding in Hell probably plays directly into the hands of management down there. I know this because I was in Mumbai airport last night. And for all my enthusiasm for India, Mumbai airport, thronged with people as the late night flights prepare to depart, hot, fetid, and chaotic, would have had Beezelebub feeling right at home and Hieronymus Bosch reaching for his paint brush. In fact, I think I may actually have seen the Prince of Darkness himself there. He was manning a security line and he gave me such a thorough pat down that I think we are now engaged.
It would have been unbearable were it not for the staff of Singapore Airlines who met us, mere ticket holders albeit of premium tickets, at the door and whisked us through the crowds and ultimately onto the plane. And once on the plane, I knew exactly how Dante felt once he left Virgil behind and had reconnected after all those years with his old squeeze Beatrice.
Suffice it to say that it does not appear that Singapore Airlines is even in the same business as American Airlines or United. From the meticulous, exceptionally well-appointed aircraft to a seemingly enthusiastic commitment to service, the airline that was one of the first of the businesses created by the Singapore government when it gained its independence in 1965, is achieving its strategic goal. It makes you want to travel through Singapore on every flight. Treat me like they did last night and I'd be happy to have a Singapore Airlines connection on my next flight to New York from DC. Especially when the only other option is travel on run down U.S. airlines whose flight attendants seem to have been trained under some footbridge somewhere by a particularly obnoxious family of trolls.
Then you arrive at Singapore's Changi Airport and you are powerfully reminded that the excellence of the airline is not a fluke. This is the best airport in the world, spacious, efficient, and attractive. As such, it is the perfect preparation for Singapore itself, almost certainly the best run political entity on the planet. Admittedly, the country, led from the start by the man who is now known as its Minister Mentor Lee Kwan Yew, has practiced what I would characterize as constrained form of democracy but few places have ever so compellingly made the case that what is trade away in terms of the occasional citation for spitting gum on the sidewalk is more than made up for in a society that is prosperous (Asia's second richest), innovative, and safe.
It is a government that has led the way by behaving in many ways like a corporation, taking ideas like competitiveness and strategic planning seriously. (At dinner tonight with a senior business executive who is one of the country's great entrepreneurial success stories, she said, "In the beginning, in Singapore, the state was the entrepreneur." And that was said with a genuine appreciation for all the state achieved in that role.) Even in the midst of a global recession it has been seen as not just responsive, but creatively responsive, promoting retraining of workers and focus on new growth industries.
Part of the credit must go to its unique system of senior government official compensation. Ministers are paid via a formula: two thirds of the average of the eight highest salaries in six key professions (lawyer, accountant, banker, multinational executive, local manufacturer, and engineer). As a result in recent years the president and the prime minister have made in excess of $2 million a year in salary and other ministers in excess of $1 million. The result is that many of the best minds will be found in the government, zero corruption and terrific results. Want an example of the innovation? The president, prime minister, and ministers took an almost one-fifth pay cut this year because of the recession. What? Accountability among public officials? Real incentives? Imagine the loud "gak" you would get out of the U.S. government as they choked on those ideas.
I could go on regarding the innovation here, and perhaps I will tomorrow, but while we're on the subject of incentives, one last thought. Yesterday, I noticed that in exchange for taking those 17 Uighur terrorists, Palau was getting $200 million from the U.S. government. That's $14 million or so per terrorist. And incentives being what they are, I immediately concluded that I want some of that terrorist action.
I will take 100 of them or however many they have left. 100 will fetch me $1.4 billion. With this I will spend maybe $200 million on a small island on which to house them (and my appropriately comfortable warden's compound). Maybe I could buy Devil's Island from the French space agency -- which apparently currently controls it -- for about that much. Then I would set aside another $200 million to care for the prisoners (at $50K per year for an average of 40 years each that would cover it). And I'll pocket the billion as my fee. Secretary of Defense Gates or his representatives can contact me at FP to work out the details.
If you are looking for a unifying theme to describe the overarching policies of the Obama administration, you will find it coming from the least likely source: Hillary Clinton's State Department. I don't say the source is unlikely because HRC is doing a bad job. She's actually done very well. It's just an unlikely source because for reasons that have to be more than an accident, the department itself seems to have become the equivalent of Dick Cheney's undisclosed location. It, and particularly the Secretary, is off the radar. Everyone in DC these days is talking about how she hasn't appeared on a morning show. The Hill had a piece the other day on "The Incredible Shrinking Clintons." Richard Holbrooke has a much higher profile than his boss. Certainly, Bob Gates has had a higher profile and even the nearly invisible Jim Jones has gotten more press recently if only because of the leaked articles about some of his early (and I believe overstated) missteps.
Anyway, the theme and the metaphor that ties so much of what has been going on is "hitting the reset button," made famous when just such a button was delivered, mislabeled, by the state department to the Russians who were the first focus of what has become reset-mania. In addition to attempting to restart that relationship with our former arch-enemies, you can see evidence of the same mentality everywhere. We are attempting to hit the reset button for GM and Chrysler by pushing them through the bankruptcy process (the same one we spent tens of billions to avoid months earlier).
Today President Obama heads to the Middle East to hit the reset button on our relations with the Muslim World. Problems in Iraq and AfPak? Hit reset. Frayed alliances? Reset. Economy in the tank, Wall Street a mess? To many observers the impulse has been less toward sweeping reform and more toward getting things back to the way they were (with modest changes). In other words: reset. Demonstrating that no issue is too marginal or too antiquated for the focus on resetting, you need look only 90 miles away to Cuba. We even seem to be approaching health care by trying to hit the reset button to take the debate back to the days before the Clinton health care plan cratered and set health care reform back for more than 15 years.
Of course, the impulse to hit the reset button is pretty natural given the toxic nature of many Bush-era policies. And the reset button metaphor works for all of us in the information age and is undoubtedly better than suggesting that we cleanse ourselves of all the Bush dirt and toxins by climbing into the shower together.
But as any computer user knows, hitting reset doesn't work all the time. It's kind of magical when it does...to the extent that it seems inexplicable to most of us. But it would be a big mistake to make too much policy based on the notion that President Obama has -- to mix metaphors slightly -- the equivalent of the Fonzie touch, the ability to make a jukebox (or Bushed-up policy or relationship) work with a slap to its side. (I don't think it's mixing metaphors that much. The Fonzie touch is the '50s equivalent of the reset button.)
But here's the problem: if your computer is broken, the motherboard is fried, the demon viruses are at work on your data -- the reset button doesn't work. Same is true with broken companies, broken relationships, and broken global economies. Sometimes you may get signs that things are spluttering back to life but without real, material changes the problems will re-emerge. Sometimes you will get nothing at all.
In this respect, going to the Middle East to "restore relations with the Muslim world" sounds great in the reset context...Obama certainly achieves the main goal (and to some extent the primary deliverable) of Resetism, he demonstrates he is not George W. Bush. But it is unlikely to do much to actually fix the problem. It may help, to be sure. But many of the biggest problems that we have with regard to the Muslim world aren't actually problems we created or exacerbated. Neither Saudi Arabia nor Egypt, the President's two regional destinations, are anything like democracies...or for that matter are they home to anything like enlightened governments. Economic mismanagement and corruption are chronic and widespread and a bigger source of regional instability than many other issues that achieve more prominence. They are home to human rights violations, abominable treatment of women and tolerance of radical factions who are as big a threat to the Arab world as they are to the U.S. or any of our allies. These places are breeding grounds for risk to our interests and even doing the right thing and underscoring that the U.S. embraces Islam and all peace-loving Muslims, doesn't get down to the hard business of resolving tensions between the Arab and Persian worlds, the Sunnis and the Shiites, radicals and moderates, reformers and authoritarian rules or Arabs and Israelis.
Further, we need to remind ourselves that we are not the primary cause of the problems we face. We may have exacerbated some. There is no defense for Abu Ghraib, Guantanamo, or for the hundreds of thousands of innocents who died thanks to our invasion of Iraq. But neither is there any defense for 9/11, terrorism directed at anyone, or state-supported hate mongering. Our support for Israel may inflame the Arab world but even when we acknowledge Israeli policy failures or brutality, even when we condemn them and work against them, we are only addressing part of the problem.
As a consequence as President Obama wings off to the region, it heightens my sense that there is as at least as much reason for the leaders of the Muslim world to come to America to restore relations with us, to make amends and commit to change, as there is for the President to go there and do so. Indeed, there is much more given the level of dysfunctionality within their societies and their long record of miserable treatment of their own people.
Similarly, the reset button won't fix GM or Chrysler. Admittedly, doing what we should have done six months ago, letting the companies go into bankruptcy and be stripped down to more efficient pieces will help. But U.S. ownership certainly will not (and has not...save for all that writing of big checks.) Merging with Fiat probably won't either. I think the odds are pretty high that we will look at the U.S. monies spent on the auto industry as the most expensive golden parachute in history, designed to make the demise of failed companies as painless as possible and not really terrible effective at identifying, preserving or fostering value within either of them. There is a reset hope in all this -- strip 'em down and let them regrow like a backyard shrub-but without creativity and truly new thinking, neither of which will come from the government or the labor unions who have gained too much sway in all this given their roles in creating the problem, these efforts will likely be frustratingly costly and unsuccessful.
The list goes on. If there were core problems associated with the creation of new invisible unregulated risks in the global financial systems, even restoring growth to markets and the U.S. economy is not a fix. The risks will remain until addressed. To restore US-Russia relations really requires a fix in Russia and not here. To restore U.S.-Cuba relations to their rightful place in our foreign policy, we need to transfer it to the Deputy Assistant Secretary of State responsible for the Caribbean, normalize, and start treating like we should in much the same way we handle Jamaica or Trinidad and Tobago. In short, to achieve the ambitious goals the Obama administration has set and the American people seek, we need to rethink, reinvent and remember where the real problems lie...and not just hope that the world is as easily rebooted as our PCs.
FABRICE COFFRINI/AFP/Getty Images
Now that all the ecstatic moaning of the press surrounding the president's first hundred days has subsided, we can return our attention to the fact that things are worse in Pakistan, Afghanistan, and Iraq, the global economy is still deteriorating, the U.S. deficit is still ballooning, and I am experiencing sudden dizziness and a slight fever (although I think it is just from listening to replays of the Vice President's remarks on the Today Show this morning.)
So, to stay on top of the news, let's start with a few questions about the auto industry:
Is anybody stopping to work the numbers on this Chrysler deal? How much did we have to pay for the privilege of having Chrysler go bankrupt in springtime rather than winter? Isn't it true that bankruptcy was always the best outcome and that this was just a very costly stall to make the unions feel their members were being taken care of?
Aren't the unions getting a disproportionately large chunk of Chrysler and GM at the expense of creditors and shareholders? What'll happen if the companies go belly-up again in a few years and the unions lose the stake they got in exchange for the pension money that they were owed? (Hint: The taxpayers will cover it again after having shelled out a fortune now to protect them. )
Wouldn't it have been cheaper to let the companies go bankrupt, sell off their good assets, pay off the workers who got fired, retrain them and invest the billions in incentive programs to develop new, green transportation technologies? And are the unions really the people we want to be the dominant owners of these companies? Do we really think it is either right or in our collective interests to reward union leaders (as opposed to rank and file workers) who played a central role in forcing into place the unsustainable business models that essentially killed GM and Chrysler?
Isn't a pattern becoming apparent here? Can't people see that the deals the government cuts -- whether it is forcing Merrill and B of A together or "bailing out AIG" or the auto deals -- are actually lousy? Isn't anyone other than Ken Lewis going to argue for a discussion about what is the appropriate thing for the government as an owner to do when the national interest conflicts with their fiduciary responsibilities to other shareholders?
And when is anyone going to notice that the "white knight" that is going to save Chrysler is one of the world's crummiest car companies, one just back from the brink itself and that they are getting their stake in Chrysler for a song? Or that much of the benefit from this deal will accrue to stakeholders outside the U.S.? Also, for the fun of it, ask yourself if we would be doing all this to secure this deal if the purchaser in question were Chinese car manufacturer Chery? (Hint: we would not. Even though it would likely be a much better deal for all concerned.)
Another question is who are the creditors and if any of them are financial does the U.S. have a stake in any of them? Is it using its clout in the financial services sector to influence the outcome of the auto deals? If so, how, with whom, and in whose interests in the long-run?
After we get answers to these questions, I will offer my opinion of the deal. In the meantime, as with everything else right now, I am just hoping for the best (and, like the proverbial Bavarian at lunchtime, expecting the wurst.)
Bill Pugliano/Getty Images
Today, testifying before the Senate Budget Committee, Fed Chairman Ben Bernanke said, as quoted in an FT story on the AIG meltdown:
If there is a single episode in this entire 18 months that has made me more angry, I can't think of one other than AIG," he said. "There was no oversight of the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company."
The critique seems both harsh and fair. But it obscures a bigger question: If AIG was irresponsible what does that make a government that has bailed them out to the tune of $180 billion and may, according to some estimates, ending up pumping $250 billion into the company before all is said and done? What is that money buying the American taxpayer? Where is all that money going? Where has it gone? (There is hardly any point in asking how it might have been better utilized though it is worth noting that the AIG bailout thus far is 200 times larger than amount of aid the United States offered Gaza this week, 200 times what we were willing to pony up to try to resolve a humanitarian emergency and keep the peace in a vital corner of the world. Actually, to put the amount in true perspective, $180 billion is larger than the GDP of Israel, $250 billion would be between the GDPs of Finland and Ireland, bigger than the annual GDPs of all but 30 or so countries in the world.)
Indeed, what's really shocking about the AIG case is how little political debate there has been about what the money is being used for. As detailed in the FT story, and as also discussed in a good story in today's New York Times, vast amounts of it, tens of billions of dollars are passing straight through AIG and into the hands of the counterparties that AIG had signed up for Collateralized Debt Obligations (CDOs), a form of investment "insurance." Each of these counterparties got paid 100 cents on the dollar. As noted in my earlier conversation with Hank Greenberg, former CEO of AIG, the number one recipient of at least the first tranche of these funds was Goldman Sachs (a deal cut by a former CEO of Goldman Sachs, Hank Paulson, while the current CEO, Lloyd Blankfein was the only major counterparty sitting in the room).
In short, AIG has become a beard in the financial bailout process. Companies that were gambling on mortgaged-backed and other securities got AIG to "insure" their bets. When the loans tanked, the companies raised a hue and cry that AIG was "too big to fail" in an effort to persuade the U.S. government to give the money to AIG... so it could pass it along to them. They got paid, bailed out in effect, but without any of the conditions going along with our other bail out deals. Virtually all of these players were private companies. Some certainly were non-U.S. companies. While some of the money going into AIG is supporting functioning traditional insurance company assets, that sucking sound you hear is hedge funds, investment banks, and other financial institutions at risk siphoning the money they need through the hollowed out carcass of AIG's benighted financial products company. It is effectively a bailout laundering operation.
Since those companies are the ones benefitting from the largesse of taxpayers, shouldn't they also be on the hook to the USG, subject to restrictions? Couldn't also we have done deals with them to get them to take a fraction of what they were owed by AIG (which is what would have happened if AIG had been allowed to fail)? It could be more than they would have gotten, but if AIG and the USG had negotiated a better deal with them couldn't we have saved some of the money of the USG?
This is just one deal, albeit a big one. But it does reveal what happens when the government does big, complicated deals fast, without much debate and without having the staff to truly do the due diligence and later the monitoring that is required.
Alex Wong/Getty Images
I wrote this last night. (Actually the day before. It's a long story that involves trains, planes, snow, and an incident in a parking garage with an Eskimo that I just don't have time to go into here.) In any event, after I wrote it, I noticed that my colleague Dan Drezner has written an FP article called "13 Unexpected Consequences of the Crash." What am I supposed to do, shoot myself?
No, we'll just pretend it was all planned and maybe the editors can link them together and have it look like a carefully conceived symphony of in-depth perspectives on what is going to happen to us all at the end of this economic death spiral.
And in that vein, just to help you with your planning, here are some people and things that won't survive the economic crisis:
Ok, that's 20. Now, over to you. Global changes? Careers that won't make it? Institutions that won't survive it? Don't leave me hanging here.
Images from Getty
Watching the House interrogation of Wall Street leaders demonstrated conclusively to me that one of the greatest causes of the problems we face is that members of the House (and the Senate) simply do not have a clue about how finance works. Ask any group of 10 of these honorable yabos how a credit default swap works and one might know the answer, if that.
This is a broader problem. In a recent conversation with a retired Senator, a very prominent, respected former committee chair, he said that he guessed on a critical issue, like energy, there are only perhaps 3 or 4 legislators who actually understand our energy choice options well enough to write sensible legislation or understand what is said in a hearing. The problem is getting worse as technology, finance, even international affairs are getting more and more complicated, our legislators are falling farther and farther behind in their understanding of the fields for which they have oversight or other responsibilities.
This is not a snipe at Congress...okay, it is, but that almost seems too easy, like joking about Bush's intellect or Simon Cowell's man-boobs, but this is a serious problem, one of many with what is by far the most dysfunctional branch of the United States government.
Chip Somodevilla/Getty Images
Talked today with a brilliant investor I know who runs many billions of dollars more than you. He has been relentlessly bearish on the global economy and especially on the emerging world for the past several years. He just returned from Asia.
While he expects China to grow at 6.5 percent or so, not the 8 percent the Chinese are shooting for (and telling their enterprises to hit), he feels this will not cause a meltdown, that while the world has a liquidity problem, it's mitigated for China given its reserves, and that we may be at a kind of rough plateau. It's not a real bottom since he expects that a second "dip" in the crisis may come later this year linked to problems in U.S. consumer finance (the chairman of Bank of America testified yesterday that a rule of thumb they use for estimating credit card losses is unemployment plus one percent, so in the year ahead you are talking about 10 percent or more of credit card accounts defaulting). But he feels that after the dip China and Asia will recover to this level and then begin their growth out, which may come more rapidly than the developed world. (Younger economies -- in the sense of "emerging" economies -- collapse faster and recover faster, like younger bodies vs. older ones.)
As China goes, so goes Asia. He also feels for this reason the commodity price dive is behind us and that might lead one to conclude that Latin America has, in fact, dodged the bullet thanks to better policies. Things are bad there now, but wholesale economic collapses may be avoided. It's not exactly like he was saying, "Hey, folks, we've hit a bottom and we're on the way up." But what he is saying is he expects the emerging world to recover in 2010 and that it will lead growth thereafter. In other words, maybe, maybe, here is one very credible observer who is glimpsing a little light at the end of the tunnel.
Since political leaders only got wise to the unfolding crisis when we were well into it -- responding to symptoms rather than to the first signs of the disease -- their reactions can only be seen as a lagging indicator. A conclusion one could draw from this is that when they say it's the end of the world, things may actually be starting to stabilize somewhere.
MIKE CLARKE/AFP/Getty Images
I made a rookie mistake yesterday, proving once again why I shouldn't have dropped out of journalism school in pursuit of my dream that someday someone would invent the Internet so I could get up very early in the morning before going to my day job and write on a variety of subjects for essentially no money at all.
I wrote a post that was positive about the Treasury's financial bailout package based on stories that appeared about the package in various reputable (if unprofitable and only barely still publishing) newspapers.
What I read sounded pretty good to me although admittedly a bit vague and preliminary. As it turns out, what I read was vague and preliminary because the plan is vague and preliminary. Not quite even a plan. It looks like it might be headed in the right direction, but they took it out of the oven and served it too soon. What do you call that? Half-baked.
The response from Wall Street, legislators, and the punditocracy was to be expected. Severe indigestion. So, while I made a mistake with premature praise -- the Treasury and the White House made an even bigger rookie error and I feel pretty lousy about both. (Although needless to say I am much more concerned about my own embarrassment than I am about the fate of the entire global economy and the imminent doom that the President of the United States has repeatedly stated we will face if we get this wrong.)
David Rothkopf is the CEO and Editor-at-Large of Foreign Policy. His new book, "Power, Inc.: The Epic Rivalry Between Big Business and Government and the Reckoning that Lies Ahead" is due out from Farrar, Straus & Giroux on March 1.