Passing Comments

In his short whodunit article, “Capitalist Fools” in this week’s Vanity Fair, Nobel-laureate economist Joseph E. Stiglitz identifies exactly who led the world into its current state of economic havoc (Jan 2009).

Intro blurb:

Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion

It’s going to get worse, Nouriel Roubini says in an interview last week (Nov. 28) with Bloomberg.com. He notes that the global economy is now in crisis.

Other comments: the U.S. economy is in free fall and the effects are spreading across the globe, and the European Bank needs to be more aggressive in cutting rates, and more stimulus spending is necessary.

Most interesting questions: is confidence the key to restoring stability in the markets, and will bank rates drop to zero?

Watch video here (17:02)

Some items of interest this week:

I. Are Wall Street bankers losing their influence over the White House?

In appointing Timothy Geithner to the cabinet post of Treasury Secretary, President-elect Obama is breaking a long chain of Wall Street bankers running U.S. government, according to William D. Cohan at The Daily Beast (”Obama Gives Wall Street the Cold Shoulder” Nov 24, 2008).

Analyzing Obama’s choice of Geithner, Cohan writes:

But this surely drives home the point that one of Obama’s definitions of change is to not allow Wall Street its traditional role in running things. Tim Geithner, the presumptive Secretary of the Treasury, is all of a regulator, an academic and a civil servant. One thing he is not is a Wall Street banker (although he would have been an effective one.) Larry Summers, soon-to-be Obama’s director of the National Economic Council, is the son of economists, an economist himself, a former president of Harvard University and a former Secretary of the Treasury. He was never a banker and never worked on Wall Street. Indeed none of Obama’s cabinet picks, or rumored cabinet picks to date have worked in any substantive way on Wall Street.

The current U.S. Treasury Secretary is Henry Paulson — previously the Chairman and Chief Executive Officer of the investment bank Goldman Sachs.

To see short biographies of Obama’s new economic team, go here (”President-Elect Barack Obama and Vice President-Elect Joe Biden Announce Key Members of Economic Team” TPM, Nov 2008).

II. Obama’s not happy with Wall Street’s legendary greed is good credo

Obama offered a reprimand to the country’s top businesspeople last week in an interview with Barbara Walters on ABC network (Nov 26, 2008).

Excerpt:

BARBARA WALTERS: How did you feel when you read about the three heads of the auto companies taking private planes to Washington?

BARACK OBAMA: Well, I thought maybe they’re a little tone deaf to what’s happening in America right now. And this has been a chronic problem, not just for the auto industry, I mean, we’re sort of focused on them. But I think it’s been a problem for the captains of industry generally. When people are pulling down hundred million dollar bonuses on Wall Street, and taking enormous risks with other people’s money, that indicates a sense that you don’t have any perspective on what’s happening to ordinary Americans. When the auto makers are getting paid far more than their counterparts at Toyota, or at Honda, and yet they’re losing money a lot faster than Japanese auto makers are, that tell me that they’re not seeing what’s going on out there, and one of the things I hope my presidency helps to usher in is a, a return to an ethic of responsibility. That if you’re placed in a position of power, then you’ve got responsibilities to your workers. You’ve got a responsibility to your community. Your share holders. That if — there’s got to be a point where you say, ‘You know what, I have enough, and now I’m in this position of responsibility, let me make sure that I’m doing right by people, and, and acting in a way that is responsible.’ And that’s true, by the way, for members of congress, that’s true for the president, that’s true for cabinet members, that’s true for parents. I want all of us to start thinking a little bit more, not just about what’s good for me, but let’s start thinking about what’s good for our children, what’s good for our country. The more we do that, the better off we’re going to be.

III. Obama names his National Security team

Yesterday, Obama held a press conference to introduce his choices for his National Security team. From the Obama website change.gov:

Nominees announced today include Senator Hillary Clinton as Secretary of State, Eric Holder as Attorney General, Governor Janet Napolitano as Secretary of the Department of Homeland Security, Susan Rice as Ambassador to the United Nations, and General Jim Jones, USMC (Ret) as National Security Adviser. President-elect Obama also announced that he has asked Robert Gates to stay on as Secretary of Defense.

Video of the press conference here (27:01)

IV. The everlasting Clinton(s) factor

As noted above, Obama has picked Hillary Clinton to be his new Secretary of State. And as Newsweek’s Senior White House correspondent Richard Wolffe said in an interview yesterday (Countdown with Keith Olbermann, MSNBC, Dec 1, 2008):

“…for the media, Hillary Clinton has overshadowed every other pick coming out of this transition…”

My impression while clicking around online is that this Hillary media storm occurred with news outlets worldwide, given the high international profile of the former First Lady. Visiting various USA newsites and blogs, the two questions I saw posed most often were: one, why did Obama really choose his former arch-rival Hillary; and two, what does this choice tell us about what kind of president Obama will be?

The answers, of course, can largely only be speculation. But in a column yesterday, Matthew Yglesias captured the central focus of the discussion well, I think. Recalling some of the major differences on foreign policy between Obama and Hillary Clinton during the campaign, Yglesias writes (”A hawk in the roost?” The National, Nov 27, 2008):

For all the speculation about Obama’s offer to Clinton, there has been no real account of the rationale or motivations for his decision – at least not beyond vague, and endlessly repeated, references to Doris Kearns Goodwin’s book, Team of Rivals, a profile of the cabinet Abraham Lincoln assembled under wildly different circumstances. The transition team has done very little to outline the substantive agenda it expects a Clinton-led State Department to tackle, and indeed, perhaps the ongoing financial crisis will mean any bold new foreign initiatives will be put on the back-burner.

What is unclear at this point is whether Clinton joining the Obama team means that Clinton has gained faith in Obama’s approach, or that Obama has lost faith in his own. The very fact of Obama’s election would seem to tilt things in his direction: there was a consistent trajectory to their disagreements, and Obama was on the right side – a judgment vindicated by his victories over both Clinton and McCain. It’s not merely that he won, but that winning demonstrates his supposedly “risky” positions were not so risky after all.

V. Do you wanna speak English, Uncle Sam asks

The U.S. Department of Education is sponsoring a new online program offering free English language instruction. Titled U.S.A. Learns, the website…

…promotes programs that help American adults get the basic skills they need to be productive workers, family members, and citizens.  The major areas of support are Adult Basic Education, Adult Secondary Education, and English Language Acquisition.  These programs emphasize basic skills such as reading, writing, math, English language competency and problem-solving.

Read more background about the program here (”Learning English the Web Way” The New York Times, Nov 24, 2008).

See previous A glance at online news of politics USA

If you want to see the debate and the vote today in the U.S. House of Representatives as it returns a second time to Treasury Secretary Paulson’s $700 billion plus bailout plan for Wall Street, click on to C-SPAN, the only news media organization that regularly televises the legislative proceedings of the U.S. House and U.S. Senate.

The deliberations begin at 9 am Eastern Standard Time (USA).

Definitely check out this article yesterday from David Leonhardt at the New York Times about some of the stinkier aspects of Treasury Secretary Paulson’s bailout proposal (”Could Warren Buffett Negotiate a Better Deal for Taxpayers?” Sept 24, 2008).

One of the article’s insights:

Now, what would Mr. Buffett have said if Goldman asked for his money and wouldn’t let him share in the upside? “He would have said ‘no deal!’ ” said Daniel Alpert, of Westwood Capital, an investment firm. “And that is what Congress must say as well in defense of the American people.”

The article’s closing paragraph is especially a heartwarmer.

Another assessment from economist Nouriel Roubini in a CNBC interview yesterday about the ongoing Wall Street meltdown (”‘Socialism’ on Wall Street” Sept 17, 2008). Asked about the advisability of Uncle Sam rescuing the sinking insurance giant, AIG, Roubini says it’s a very bad idea.

So where was the regulation and supervision? They screwed up big time over and over again. Now we’re in a situation in which the profits have been privatized, and now the losses have been socialized…

“This is not a market economy. This is socialism for the rich, for the well-connected on Wall Street…”

Roubini rounds out his analysis by explaining his idea of what constitutes a practical and important use of public money, what should be done about the distressed U.S. housing sector, and the way to avoid massive home foreclosures.

Watch:

See previous post on Roubini here.

UPDATE: Today’s New York Times gathers some opinion from around the world on the AIG bailout (”Abroad, Bailout Is Seen as a Free Market Detour” by Nelson D. Schwartz, Sept 17, 2008)

In an interview earlier today, Nouriel Roubini from New York University’s Stern School of Business explained what many people are most worried about (the FDIC), why they’re right, and how long the tough times are going to last (”Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn’t Act” by Aaron Task, Yahoo! Finance, Sept 15, 2008). See article and video here.

Yesterday, Germany’s Der Spiegel (SPIEGEL ONLINE International) ran a fascinating piece about the hows and whys, and what’s yet to come in the ongoing, lopsided relationship between the dollar and the euro.

Writing about the Federal Reserve in the U.S. and the European Central Bank, Christian Reiermann offers a snapshot comparison of the two men in charge of them, and a history of how the contrasting philosophies of the two institutions came to be (”KEEP CALM AND DON’T PANIC” April 29,2008).

The article’s intro:

Never before have the central banks of the United States and Europe pursued such divergent strategies when it comes to dealing with a financial crisis. The increased value of the euro against the dollar reveals which strategy is working.

Reiermann writes in clear, straightforward prose that illuminates a subject that’s often presented — at least for mere mortals –as if it’s organic chemistry poorly translated from the original Swahili. Grazie!

Read more here.

Interesting short video interview here with Italy’s Minister for Economics and Finance (”TOMMASO PADOA-SCHIOPPA talks to Martin Wolf — The Italian Finance Minister discusses market turmoil”, Financial Times, Dec 20, 2007). Padoa-Schioppa talks about the Euro-zone, various key issues at present, and how Europe is being affected by what’s happening in world market conditions.

Toward the end of the nine-minute talk, interviewer Martin Wolf complimented Padoa-Schioppa on recent improvement in Italy’s economy, describing it as “remarkably successful on the fiscal side.” In response, the Italian minister agreed that he is “much more comfortable” with Italy’s situation now than a year and a half ago, saying that Italy is “out of the financial emergency.”

Answering Wolf’s question about Italy’s situation at present in “what may be a very turbulent world economy,” Padoa Schioppa said that the “recent turbulence doesn’t seem to hit Italy in any significant sense.”