Prevent the Next Meltdown

The federal bailout of Citigroup, including a stake of $45 billion in cash injection for shares and up to $250 billion in loss guarantees, is but the latest manifestation of a shocking abnegation of responsibility. Between them, Thomas Friedman and Paul Krugman encapsulate our financial and recessionary situation to a tee. Three-time Pulitzer Prize winner Friedman reminds us how we came to this state of affairs and Nobel economist Krugman reminds us how to prevent a recurrence.

Writing on November 26, Friedman diagnoses the root of the problem. In his piece "All Fall Down" Friedman reminds us it was not just the bankers who caused the financial meltdown. It "involved a broad national breakdown in personal responsibility, government regulation and financial ethics." The heart of his summation is telling:

So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling these loans into securities and selling them to third parties as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

Friedman's column is well worth reading. He introduces astonishing examples such as a Bakersfield "strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000." And why not? The builder sold a home, the person who sold the house made a commission, as did the one who wrote the loan, the regulator who assessed the prospects as A-plus and then the outfit that bundled it together with other loans to sell in bulk to other financial institutions. It was nothing but a giant pyramid scheme.

Krugman squares the other end of the equation in his piece on November 28, "Lest We Forget." In it, Krugman begs us not to get so caught up in the details of extricating ourselves from the current mess that we neglect the stringent regulation that will be necessary to keep another such catastrophe from happening again. He reminds us that the banking industry is rather strictly regulated but that the derivative swaps that perpetrated this rot are not. This is what he refers to as the "shadow banking system," the one that Alan Greenspan, Phil Gramm and Robert Rubin insisted was somehow immune to human fallibility and could not be restrained by annoying rules requiring sane and sustainable practices.

Congress and the new president should heed Krugmann's conclusion: "So here's my plea: even though the incoming administration's agenda is already very full, it should not put off financial reform. The time to start preventing the next crisis is now."

Dealing with Mumbai

The horror of the Mumbai terror attacks is at long last over. According to the Calcutta News Net current totals after sixty hours of combat are 183 dead, including 20 police and 22 foreigners, and 327 injured. Two things are still unclear: who was responsible and what their objective was. Another critical imponderable concerns what India and other governments will now do.

Among the theories now current the Times of India reports American and Indian signals intercepts link the terrorists to a group known as Lashkar-e-Taiba, sometimes spelled Lashkar-e-Toiba, a Pakistani-based group dedicated to opposing Indian sovereignty over the disputed region of Kashmir.

Lashkar-e-Taiba, literally "army of the pure," is one of a number of groups established with the aid of Pakistani military intelligence in the 1980s. The nation's Inter-Services Intelligence directorate (ISI) was active with the American CIA in working to organize resistance groups fighting against the Soviet Occupation of Afghanistan. One of these became al-Qaeda. In many cases it is now clear that these efforts succeeded in spawning a set of hateful violent Islamic fundamentalist groups.

If the Mumbai attacks were indeed this group or another spawned in or abetted in Pakistan as seems likely, the next question is what will India do. Its government has announced it can no longer tolerate the existence of safe havens for such groups in Pakistan. It is difficult to imagine any government in the world who had suffered such an attack saying anything else. The United States too has ratcheted up the pressure on Pakistan. The Bush Administration has stepped up Predator drone attacks within Pakistan and even sent in a commando raid against suspected al-Qaeda or Taliban targets across the Afghan border. As a candidate, Barack Obama stated his preference for drawing down in Iraq and building up in Afghanistan. He also announced support for the idea of striking unilaterally into Pakistan at al-Qaeda targets whenever the Pakistanis "could not or would not" do the job themselves.

Faced with this kind of pressure from both India and the Americans the Pakistani government will soon have a bitter quandary on its hands. To take on the extremists within its borders could invite something approaching civil war. At the very least, the terrorists' capabilities would now largely be directed against the government itself. But to do little would be to invite increasingly brazen violations of its sovereignty by the American superpower and by its longtime hated rival, India. We should soon see what course Pakistan will take. It will be tough politically for the Islamic state to crack down hard. Either path will be painful and result in much violence in the country.

India and the United States ought to be working together behind the scenes to coordinate a strategy and an approach to Pakistan on this. They need action but they also need to sustain the rule of law and organized authority in Pakistan. If that breaks down, if Pakistani society disintegrates into its various tribes or important factions within the government or military side with the extremists one need only remember that Pakistan has nuclear weapons. If ever there was a time for adroit diplomacy based on an acute understanding of a country and its problems now is that time.

Homelessness

My wife and I went to San Diego to get together with friends and family for Thanksgiving. We stayed at a downtown San Diego hotel. While having breakfast at the hotel cafe Thursday morning I saw a homeless woman shuffle by on the sidewalk outside. The accoutrements of the trade labelled her as homeless whether or not she really was. The apparently 65-year-old white-haired woman wore a grimy stocking cap and pushed a wheeled, wire cart stuffed with bedrolls and plastic trash bags.

People like her are such a common sight in our society. I have seen them around home, scrounging in trash cans looking for cans and bottles or pushing a shopping cart behind bushes between streets and drainage ditches, getting ready to bed down for the night. Early morning runners along the St. John's River tell me they see encampments in the trees lining this local runoff channel. The local cops regularly sweep the city parks at night to roust them. They beg at freeway onramps. They are everywhere but they are invisible at the same time.

An estimate puts the number of Americans who experience homelessness during a year at 3.5 million. About 33% are chronically homeless. The number at any one time is thought to be about 800,000. It is believed the homeless population tripled between 1981 and 1989. You can look at some data from the National Coalition for the Homeless or the Los Angeles Homeless Services Coalition. They think about 59% of homeless people live out of their cars and 25% live in "makeshift shelters" like boxes. About 33% to 50% suffer from mental illness. Veterans are twice as likely to be homeless as the rest of the population. 43% are female and 39% are children. 25% are employed but cannot afford shelter. In fact, 76% had been employed within the past year.

You didn't used to see so many homeless before the eighties. Anecdotally I'd certainly support the findings about the numbers growing dramatically then and remaining high since. In addition to being a human tragedy for the homeless themselves I suspect they present quite a cost to society. Their camps and living arrangements in general cannot be very sanitary. They wash infrequently and urinate and defecate in the open. The chronically homeless support themselves by some combination of scrounging, begging, stealing, prostitution and dealing drugs. Only 7% have legitimate jobs and high percentages are drug and/or alcohol abusers.

In the past people like that were institutionalized. The non-functional mentally ill and non-functional addicts were "committed" to controlled state wards. In the interest of "freedom" and the Reagan-era desire to cut social services these tools and facilities were greatly scaled back in the 1980s. The result is what we see now. I'm not so sure that what we have is progress, or preferable to what we had before then. In a recent year there were 80,000 homeless in Los Angeles and 18,529 beds in homeless shelters. Are we saving money this way or costing ourselves? Are we serving the chronically homeless best this way or are there better ways? Is not the presence of hundreds of thousands of desperate vagabonds in the self-described greatest country on earth a national disgrace?

Thanksgiving Gratitude List

I'll be travelling out of town with my wife for Thanksgiving. I'm not sure when I'll have a chance to blog before Friday, so I'll devote this space to what we are supposed to be doing at this time of year, counting our blessings. A gratitude list is a healthy thing. It's a good antidote for a negative attitude, which is something I do not want to have.

I'm thankful for
A wonderful wife who is still my best friend after 31 years,
Two fine grown daughters who love their parents, and
A full-time job doing what I love.

I'm thankful that
It seems they got the prostate cancer and it hasn't returned.
I am on good terms with my three sisters.
I have had a chance to see much of the US and a bit of Europe.

I'm grateful
I live in a country with so many freedoms.
I am pretty happy most of the time.
I get to associate with so many fine colleagues and students at work.

I'm grateful that
I've gotten to see the Dodgers win 5 World Championships and the Lakers 8 of them.
My parents pulled themselves up from impoverished childhoods and gave my sisters and me support and a chance.
George W. Bush has less than two more months in office.

I'm thankful that
We have good health insurance.
We can afford to pay our mortgage.
Visalia is such a nice city.

I'm thankful for,
Thanksgiving, turkeys, stuffing, cranberry sauce, pumpkin pie, friendship and love.

Happy Thanksgiving!

Fanatics Among Us

Today one of my U.S. History students handed me a minister's blog entitled "Response to the Recent Presidential Election." The writer, who signs off as "Dutch Sheets" is a pastor in the Christian Reformed Church, formerly popularly known as the Dutch Refomed Church. The student indicated his general agreement with the pastor's views.

The upshot of the pastor's analysis is that because of the election of Barack Obama, the harsh punishment of a vengeful God is now about to fall upon the United States. In his section entitled "Judgment Will Increase" the minister begins "This is not a fire and brimstone warning from an angry, legalistic preacher." When somebody starts out that way it's a pretty clear indication of what is to come next. He does not disappoint, either.

Here is what the reverend forecasts from the Almighty as retribution for America's choosing Senator Obama: "More economic woes, more violence in an already violent nation, disease and death (satan, who is responsible for these things will have greater inroads to our nation), natural disasters (weather-tornadoes, hurricanes, floods, drought; fires; earthquakes; etc.), terrorism (they will fear us much less now), war, perhaps on our own soil, and judgments relating to the Court."

The list makes me wonder two things. First, what would he have forecast if he had been "an angry, legalistic preacher," and second, are not these predictions characteristic of what has been happening under the born-again President Bush whom this preacher no doubt supported the past two elections, and under whose reign, if this preacher's crystal ball and view of God is right, we should have expected earthly blessings day and night for the past eight years?

What is sobering to consider is that tens of millions of people are subjected to this picture of God, this world view and this view of the legitimacy of Barack Obama as president every week in churches across the country.

Was this the God Jesus spoke of? God as the big hit-man in the sky, indiscriminately laying waste guilty and innocent alike in an endless thirst for vengeance? Is the world view that is godly the one whose candidate supports unnecessary wars and sings and jokes about starting new ones? Is it really that clear and simple?

And finally, if millions of the faithful are weekly being exposed to an ideology that holds the recent election is not about the expressed will of the people but instead about a servant of "satan" whose "background, associations, beliefs and practices..." will set the causes of "God, life and morality...back years, possibly decades," then how long will it be before many of them feel it their celestial duty to eliminate him before these calamities befall us?

I do not mind saying that I frankly find this variety of religion very, very disquieting.

Obamanomics To Be Unveiled

President-elect Barack Obama is set to announce his economic team on Monday. His economic package is being prepared with the idea of having it ready to pass on Inauguration Day, January 20. It may well include a massive stimulus package in the range of $600 billion. There is no doubt Obama and his advisers feel the economy is too sick to stand further delay. He obviously intends to pursue an activist presidency.

Obama's economic brain trust will include Timothy Geithner, the 47-year-old head of the New York Federal Reserve Bank as Treasury Secretary. When word of his impending appointment was leaked Friday the market responded with a nearly 500-point gain. His reputation includes a cool demeanor and a non-ideological approach to problem-solving.

Larry Summers, 55, a former Treasury Secretary under Bill Clinton, will head the National Economic Council. Summers is brilliant but purportedly arrogant. His selection as an inside adviser to the president rather than a conduit to the press and public seems shrewd. Peter Orszag, director of the Congressional Budget Office, will supposedly be announced as Obama's Director of the Office of Management and Budget. He enjoys the confidence of both parties on Capitol Hill for his non-spin fiscal reporting.

To round out the top-level announcements we will likely also see New Mexico Governor Bill Richardson as Secretary of Commerce. He served as Secretary of Energy and Ambassador to the UN in the Clinton days, and his diplomatic credentials ought to come in handy in his new job for negotiating trade pacts. Hillary Clinton's position at State has also been widely reported.

The recession is worsening now primarily because of consumer retrenchment. Consumer spending accounts for some 70% of economic activity, and it has contracted as unemployment has risen, credit has tightened and home values have plummeted. The next contributor to economic activity, investment, is also down. Few businesses are interested in expanding in such a bad economy, even if they are flush or have access to credit. That leaves one entity with the pull to provide demand on a large scale, and that is the federal government.

In true Keynesian fashion, this is what the Obama Administration plans to do. Like Franklin Roosevelt's New Deal, Obama will ask Congress to initiate a massive public works program, an investment in jobs and national infrastructure to jolt the economy into action and get confidence and demand moving again. He will also reportedly go ahead with his middle class tax cut proposals. To engender some support across the aisle among Republicans, aides such as David Axelrod have let word out that Obama may not push for the reinstitution of the pre-Bush tax rates for the wealthy as Obama advocated during the campaign. Instead these could be allowed to lapse on schedule at the end of 2010.

These moves will unquestionably worsen the deficit, but the avoidance of a deflationary spiral (read Depression) constitutes the urgent matter at hand. Unfortunately, budget reduction will have to wait. In the meantime, while the Bush Administration seems to be asleep at the wheel now other than hurriedly rewriting environmental regulations to permit more poison in the air and water, the Obama team is, as expected, taking bold steps to prepare to hit the ground running and begin addressing the nation's problems from Day One-and even before.

How Will US Handle Multipolar World?

The era of American dominance in world affairs is coming to an end. So says the latest assessment from the U.S. Directorate of National Intelligence. Its report, "Global Trends 2025: A Transformed World", paints a picture just seventeen years hence in which, "the U.S. will find itself as one of a number of important actors on the world stage," playing "a prominent role in global events" but not the decisive one as in the past.

C. Thomas Finegar, chairman of the National Intelligence Council and the nation's top intel analyst said on Thursday, "The unipolar moment is over, or certainly will be over by 2025." World War II ended in a bipolar world. From 1945 to 1991 the United States and the Soviet Union dominated world events. When the Soviet regime collapsed the "unipolar moment" was created. The U.S. stood as the lone world superpower. Now, with the emergence of China and India, the reassertion of Russia and the consolidation of regional blocs such as the European Union, the pre-war multipolar dynamic is poised to return. An essential question for Americans is, how should the United States adjust to the coming reality?

The keys should be to cultivate self-sufficiency within and multilateral cooperation without. Internally, this is why it is so important now to embark on domestically-produced renewable energy in a big way. It is similarly why we must invest in restoring the national infrastructure to world-class status. The transportation, energy and communications grids especially need immediate attention. Fortunately, these are projects the incoming president-elect is committed to. Pursuing them will also offer the added benefits of internal economic stimulus in a time of recession. Health care and education need attention, too. It is a competitive drag on the U.S. economy to be paying twice as much per capita for a health system as the rest of the developed world while getting poorer results. Inefficiencies like this can no longer be tolerated. In education we are wasting too much of our human capital by making it financially unfeasible for so many of our young people to go to college. Our competitors do not have this problem. Obama's "school for service" proposal is a way to address this. It or something like it must be embraced.

Externally, we will no longer be able to bully and intervene militarily with impunity to get our way. To attempt to do so will only invite similar counterpressure from our international rivals, rivals whose influence and power will be coming ever closer to our own. To continue down this path would be to follow the path of earlier waning imperial powers such as France and the Netherlands, who futilely and at great wasted expense tried to hold onto their colonies in the wake of World War II. Instead, the focus of our diplomacy with the rising powers should be to lock in mutually beneficial arrangements on such topics as regional security, resource allocation, terrorism, immigration, trade, labor standards and the environment.

Iraq and Afghanistan should have shown us how costly and indecisive the war model of addressing foreign problems can be. It may be that extreme rivalry with the rising powers is inevitable, but it ought to be our goal to avoid that if possible and seek the win-win first. It is indeed welcome that the crude and myopic approach of the outgoing administration is giving way to the more forward-looking stance of the new one. Change is never easy, but it is coming. The only real question is how we will manage it: proactively and intelligently or reactively and wastefully. Now is the time to make the intelligent choice.