Gotta change our economic culture

I’ve been critical of Steven Pearlstein in the Washington Post before, but I thought this column was very good. I especially liked toward the end as he talked about the cultural changes we’re going to have to make:

Then there is Richard “Is This America?” Kovacevich, the chairman of Wells Fargo. Late last week, Kovacevich gave a talk at Stanford University, complaining about how unfair it is that the government forced his bank to take $25 billion in bailout money last year when it could have easily raised private capital — and then compounded that outrage by changing the terms of the deal and forcing Wells to cut its dividend. Kovacevich said it was “asinine” for the Treasury to order his and other big banks to undergo a special “stress test,” explaining that well-run banks like Wells were routinely doing their own stress tests.

Kovacevich apparently believes that because his bank is still relatively healthy, he and his shareholders shouldn’t have to assume the same costs and burdens as banks that aren’t, particularly when those costs and burdens are imposed by incompetent government officials. That’s the way it works in America.

Except, of course, when it doesn’t. The reality is that, if the government had not stepped in to take over Fannie, Freddie and AIG; had not recapitalized Citigroup and Bank of America; had not provided the guarantees to allow for the orderly sale of Merrill Lynch and Bear Stearns; had not become the buyer of last resort for commercial paper and home mortgages, then the entire financial system would have melted down by now and taken Well Fargo and its arrogant chairman with it. Rather than bellyaching about how un-American it all is, Kovacevich ought to be thanking the government and asking what more he could do to help.

Like it or not, we’re all in this together now. It’s cooperation and compromise, not the usual every-man-for-himself competition, that is going to get us out of this mess. And the sooner people on Wall Street embrace that reality, the better it will be for everyone.

In praise of Dick Durbin

Missed this earlier this week, but Durbin is backing a Financial Products Safety Commission modeled on the Consumer Products Safety Commission.

The New Republic has more about the origins of the idea with Elizabeth Warren.

The details of such a plan always matter, but in general, I think this is a great idea. Over the last three decades, conservatives have pushed average Americans to take ever greater direct responsibility for their financial lives. Bush’s “ownership society” is an example of this. Okay, fine. There’s something to people bearing individual responsibility for their economic future.

However, all of this came without a similar push to get people the education necessary to make those decisions well – in other words, financial literacy.

Look, I have an MBA. My wife has an MBA. I read a fair bit about the best ways to handle our money, like how to invest our401k. But even we struggle at times to understand everything that we’ve been asked by society to take on. And if you’ve ever tried to look through a prospectus, I think you can relate. Never mind the complexity of mortgage documents and credit card rules, etc. Again, we have advanced training. In general, financial literacy is even worse.

Sure, I and anyone else could hire a financial adviser. But it can be very tricky to find a good one. And that’s also a very regressive answer. How exactly is a family that’s struggling to put food on the table or pay off their mortgage supposed to justify spending the money to get someone to help them figure out their finances?

I believe it would be incredibly helpful to have an agency committed to making financial decision-making easier for the average American. Maybe, with a little more education, we wouldn’t have the incredible mortgage debt that’s now dragging down U.S. homeowners. We don’t need more conservative moralizing about how people should just learn to live in their means or just suck it up. We, as a society, owe it to ourselves and others to help find the best ways to navigate financial decisions.

Remember, the jokers on Wall Street apparently didn’t even understand what they were buying and look where it got them. Of course, they can spend their idle time counting their millions. Average Americans aren’t so lucky.

Evaluating the New Deal

An excellent article by Jonathan Chait in the New Republic evaluating conservative claims against the New Deal.

Part of what I like is that he makes it clear that liberals are not muddle-headed about the New Deal. Some parts did not work and should not be repeated, while many parts did work and should not be repealed.

At the bottom of this post, I’ll include a New Deal summary that I compiled for myself while tracking all of the arguments coming out the economic crisis. I’ve found it helpful, and maybe you will, too. (I’ve done this before with this summary document of the causes of the economic crisis.)

Here you go:

First, whenever beginning a conversation about the New Deal, let’s make sure what we mean by the New Deal, because most economists – both liberals and conservatives – can agree that certain elements were good and certain elements were bad:

  • Both support the social safety net provisions – unemployment benefits, Social Security, etc.
  • Both agree the National Recovery Administration was a mistake.
  • Both agree that raising taxes in a downturn is a mistake.
  • Both agree that balancing the budget is a mistake during a recession (1937).
  • Both agree that, under normal economic conditions, monetary policy (money supply) can fix downturns.
  • Banking crises must be avoided to prevent credit crises.
  • Don’t increase bank reserves in the middle of a recession (constrict the money supply).
  • Don’t raise tariff barriers and precipitate lower trade in a recession.
  • Both agree that the bank holiday and FDIC insurance were great developments.

However, there remains disagreement to this day on several issues:

  • Efficacy of stimulus via fiscal policy. (Liberals say Roosevelt was too conservative. Conservatives want tax cuts, permanent in some cases, or they want the Fed to do more specialized monetary policy.)
  • The impact of monetary policy by leaving the gold standard and depreciating the currency
  • Whether true economic growth occurred
  • Whether to count government jobs in unemployment figures of the time
  • The impact of bolstering unionization.
  • The efficacy of Glass-Steagel regulation

There seems to be this fundamental impasse between left and right interpretations of the New Deal:

  • Left – The stimulus and work programs of the New Deal were the only thing available to stabilize, ameliorate and prepare for long-term growth of the U.S. economy. It had failings, but in the stimulus zone, it wasn’t tried enough.
  • Right – The economy would have recovered more quickly if it had all been left alone. Hoover tried things that ruined the economy and so did Roosevelt.

Jon Stewart takes down Jim Cramer

I, like many other bloggers interested in economics, offer you Jon Stewart taking apart Jim Cramer on the Daily Show. It’s incredible journalism.

In some ways, Jim Cramer gets unfairly blamed for all financial journalism on TV. But that’s okay. He’ll be glum all the way to the bank. And he agreed to come on. And it’s not like he’s totally innocent.

Also, I’m not sure the problems in financial journalism are limited to CNBC. A lot of fine journalism takes place elsewhere, but very little of it, in my opinion, really gets at the ways in which financial operators get rich off of “other people’s money.” I think there are some good reasons for this (reasons, not excuses, mind you) which could apply to any coverage area in journalism:

  • you need a certain amount of access, or you can’t do your job – so you don’t routinely piss off sources
  • you talk to industry people a lot, so you come to identify with their point of view
  • there’s been the three-decade trend toward praising and celebrating Wall Street.

Jon Stewart really doesn’t have the first two restrictions. And thanks to the economic crisis, he can fairly and safely ignore the third.

Now, how do we sustain this kind of questioning of the financial sector in all financial media once our economic ship begins to right itself?

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Israel, Palestine, and Domestic Politics

I think the drumming out of Chas Freeman from an intelligence post in the Obama administration is a bad thing. If the reporting is to be believed (here and here), he chose to leave because of the enormous pushback by “pro-Israel” groups. They claimed he was basically unhinged. I think he had the simple temerity to say something – anything – critical of Israel.

Saying anything bad about Israel or its policies is another third rail (along with Social Security – can you have two third rails?) of American politics. It will get you slammed hard by right-wing “pro-Israel” groups that believe that only the harshest, most militant, most lopsidely pro-Israel (contra-anyone else in the Middle East) policies are valid.

But, of course, why is this so?

Well, one line of reasoning goes down the “Israel lobby” road. I think there’s a lot to that. (If lobbying doesn’t work, why do so many groups do it?)

However, I also think it connects back to American electoral politics. Jews have lived in America for quite some time and are a generally successful and rich people. Successful and rich generally translates into political influence in the U.S., mainly thanks to our campaign finance system. On the other side, there generally is not a strong Arab presence in American politics. Many Arabs are far more recent immigrants to the U.S. and are just getting established. As that community gets its roots here, it will be interesting to watch the political balance change. I did a story for NPR on part of this issue a few years back.

I also think that it has to do with the definition of “pro-Israel.” I use scare quotes for that descriptor, while the articles I cited above from the NYT and the Washington Post do not. The reason is that it’s not at all clear that the policies pushed by the most vocal Israel-supporting groups in the U.S are necessarily “pro-Israel” – not when they continually advocate, as I already said above, for policies that are harsh and militaristic and only in Israel’s interests and no one else’s. Thankfully, I believe this might be changing. I follow M.J. Rosenberg and enjoy his work very much. I’ve also been encouraged by the creation of J Street as an alternative to the current crop of high-profile “pro-Israel” groups in the U.S.

The Israeli-Palestinian conflict – and by extension, the tensions in the rest of the Middle East – will not be resolved by right-wing policies that are bent on destroying the other side. It will be resolved through justice and by stopping the violence. And that applies to both sides – even Israel. It’s high time the U.S. took a more balanced approach to its Middle East policies.

Why the rest of us don’t like bankers

Or just about anybody in the Wall Street-based financial services industry.

They just seem to live in a different culture – a culture that few on Main Street would celebrate.

First, David Leonhardt writes in the New York Times that bankers were counting on being able to loot their companies in order to succeed.

Also, over at the Wall Street Journal, we have an article on how many investment bankers are leaving Wall Street as the money dries up. Down in the article, we find some bankers are headed for smaller firms:

Bankers at closely held firms have been spared the ire faced by employees of banks that have received public support. But boutiques aren’t a total safe haven. Bankers there are paid almost entirely by “eating what they kill,” while the larger Wall Street firms have historically offered somewhat lower, but more consistent, pay.

“Eating what they kill.” It’s not clear to me if this is the purely the reporter’s words. I’m guessing that it was picked up by the reporter as part of the industry’s lingo. I think it speaks volumes. Is that how you view your business relationships? Is that how you approach your day? These are people that have been warped by the industry they work in.

Not surprising for people who came to labeled “Masters of the Universe.”