Saturday, February 28, 2009
Music review: Grace inside a sound -- U2, 'No Line on the Horizon'
(ABP) -- "This is the most thoroughly Christian thing they've done yet."
That was my initial reaction to the last two U2 albums in 2000 and 2004. In retrospect, that was just as true of the triad of albums U2 released in the 1990s, but I admit that wasn't what I thought on first listen to them. Their nuanced irony required a few more listens and a good bit of rewarding theological reflection to get there.
Once again, my early impression of No Line on the Horizon, to be released March 3 in the United States, has been, "This is the most thoroughly Christian thing they've done yet."
 "No Line on the Horizon" is the 12th studio album by the Irish rock band U2. (Interscope Records) |
For those uninitiated in my profession's art of unclear communication, "eschatology" is the technical term for the division of theology that deals with "last things," from the Greek eschatos, "last," and logos, "ordered thought" about something. But eschatology isn't only about what happens at the end.
Baptist theologian James Wm. McClendon Jr. helpfully defined eschatology much more broadly: it's "about what lasts; it is also about what comes last, and about the history that leads from the one to the other."
In other words, eschatology has to do with God's goals for all creation, from creation to consummation and everything in between, as well as our participation in what God is doing to realize these goals in a world in which they are manifestly not yet realized.
U2's music has long occupied the tension between the present experience of what lasts -- "all that you can't leave behind" -- and the present absence of its full realization -- "I still haven't found what I'm looking for."
The basic message of No Line is that earth is not yet heaven, and therefore the album summons us to "Get On Your Boots" and work toward the day when things will fully be on earth as they are in heaven -- when heaven and earth will be indistinguishable, and there will at last be no line on the horizon.
Moving in that direction requires the triumph "of vision over visibility" ("Moment of Surrender"), an echo of an earlier formulation of the same insight: that the things that last and that come at the last constitute "a place that has to be believed to be seen" ("Walk On" from 2000's All That You Can't Leave Behind). It also requires an inner transformation wrought by a receptive hearing of the voice of God ("Unknown Caller") and a faithful reception of the love of God which requires that one both "stand up" for it and "sit down" to receive it ("Stand Up Comedy").
The central eschatological metaphor of No Line is the sound of the divine song, heard only by those who have the ears to hear it, yet unconsciously sought by everyone, for all people were created to hear and sing this song. Seven of the album's 11 songs invoke that metaphor in one way or another. Key expressions of it are the lines "Let me in the sound…meet me in the sound" from "Get On Your Boots," reprised at the beginning of "FEZ -- Being Born," and the concluding declaration of "Breathe," "I've found grace inside a sound."
Within this framework, No Line also calls our attention to the discordant dimensions of our world. For me the album's highlight is "White As Snow," set as the dying thoughts of a soldier fatally wounded by a roadside bomb in Afghanistan to a melody loosely inspired by the medieval plainsong tune for the thoroughly eschatological hymn "O Come, O Come Emmanuel." The song's musical and narrative zenith, accompanied by crescendoing French horns, is the soldier's remembrance of his baptism, having received the forgiveness of "the lamb as white as snow." But he also remembers his post-baptismal life with regret, for neither his heart nor the hearts of others who have brought him, and the world, to this point have been "as white as snow."
The album's final song "Cedars of Lebanon," cast as the world-weary random musings of a foreign correspondent, closes with a question addressed to God -- "Where are you in the cedars of Lebanon?" -- and a warning: "Choose your enemies carefully 'cause they will define you/Make them interesting 'cause in some ways they will mind you." We're still asking the question voiced earlier in the album: "Where might we find the lamb as white as snow?"
The theologian in me can't resist pointing out that Karl Barth, who incidentally shared a May 10 birthday with Bono, likely would have resonated with this couplet from "Stand Up Comedy" in light of his aversion to rational apologetics: "But while I'm getting over certainty/Stop helping God across the road like a little old lady." And the laughing theologian probably would have chuckled in agreement with the assertion of "Get On Your Boots" that "laughter is eternity if joy is real."
Did I forget to mention that the sound U2 is now hearing and inviting others to hear sounds really, really good?
Thursday, February 26, 2009
The Two Faces of Barack Obama - A president contradicts himself all night long
"But I also know," President Barack Obama said last night, in his typically self-referential fashion, "that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job—our job—is to solve the problem. Our job is to govern with a sense of responsibility."
It was a pleasingly presidential sentiment for a subdued, not-quite-a-State-of-the-Union speech. Unfortunately for Obama—and us—it was also contradicted, and blatantly so, not four paragraphs prior, by a guy named Barack Obama. "This time," the president warned us the minute before, while giving that stern schoolmaster look of his, "CEOs won't be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over!" Democrats leaped to their feet.
Obama aims to be the president of all Americans, a position that appears to be sincere. But I wonder whether in the process he might also want to consider appointing himself chief executive of his own head. All night long, with equally sonorous vigor, he served up confident assertions, only to state moments later, with equal conviction, their near opposite.
"We will rebuild, we will recover, and the United States of America will emerge stronger than before," Obama crowd-pleased near the beginning, in the slot normally reserved for lines like "the state of our union is strong." Not long after, though, Americans learned that our very "survival depends on finding new sources of energy." Also, "there will be no real recovery unless we clean up the credit crisis...our recovery will be choked off before it even begins," and if we don't do whatever Obama wants us to do about the banking system, "it could result in an economy that sputters along for not months or years, but perhaps a decade." Better! Stronger! Crippled for a decade!
After detailing some clean-energy advancements in China, Germany, Japan, and Korea, the president averred, "Well, I do not accept"—there's that self-referencing again—"a future where the jobs and industries of tomorrow take root beyond our borders." A few paragraphs later, however, zero-sum gave way to kumbaya: "The world depends on us to have a strong economy, just as our economy depends on the strength of the world's." Just don't you get strong by producing clean energy, Koreans!
It was like this all night. The president's stimulus package "will save or create 3.5 million jobs." One of those, anyway! His administration has "created a new website called recovery.gov so that every American can find out how and where their money is being spent," unless they try to use it to find out how and where their money is being spent. Importantly, Obama vowed to "act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times," a pledge he took so seriously that later on he stressed, twice, that "it's not about helping banks—it's about helping people."
The contradictions came flying even in his read-my-lips moment: "If your family earns less than $250,000 a year," he said, "you will not see your taxes increased a single dime. I repeat: not one single dime." But as recently as the previous paragraph the president vowed to "restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." And a few paragraphs before that, he called for a "market-based cap on carbon pollution." So: You will not see your federal taxes increased a single dime...unless you own a company that emits carbon or hires some of those dastardly Koreans.
The two faces of Obama reveal more than just a man hard-wired to work both sides of a room. There is an essential contradiction at the heart of his populist economics. He wants to jump-start the "flow of credit"—it's "the lifeblood of our economy," after all—but somehow surgically remove the "speculators" from the process. "I will not spend a single penny," he promised, undeliverably, last night, "for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage." His press secretary, Robert Gibbs, declared last week that, "I think we left [behind] a few months ago the adage that if it was good for a derivatives trader, that it's good for Main Street. I think the verdict is in on that."
Here is one of the many problems with that line of thinking: Wall Street isn't just some abstract pit of snakes that can be drowned in poison oil or otherwise given a wide berth—it's the heart (if tattered) of the country's financial industry. Which, among other things, does more to unleash the lifebloody "flow of credit" than any other power center in America. Not only does Obama get it wrong when he thinks you can best "help the small business" without involving the best single source of small-business funding, he also wildly misses the political and financial ethos of the abstraction he can't stop campaigning against. "I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions," he said with a smirk. "But such an approach won't solve the problem." Nor will erecting a giant straw man in Lower Manhattan.
But there's more: Not only is Wall Street going to be key to any recovery, the reviled "derivatives trader" is right at the clenched heart of the financial blockage. As Washington Post economics columnist Robert J. Samuelson pointed out earlier this month, "Contrary to popular wisdom, banks—institutions that take deposits—aren't the main problem. In December, total U.S. bank credit stood at $9.95 trillion, up 8 percent from a year earlier, reports the Federal Reserve. Business, consumer and real estate loans all increased....The real collapse has occurred in securities markets."
Securitized lending instruments, and the various insurance and pricing bets placed on them, sloshed hundreds of billions of dollars into the economy, but have now locked up. The point is not that the derivatives trader needs a bailout—he most certainly does not—it's that inaccurately demonizing him is not the shortest route to economic wisdom.
There were some promising notes in Obama's speech last night, particularly his vow to "end direct payments to large agribusinesses that don't need them," and discontinue the dishonest and irresponsible way that Congress has funded wars for the past seven years. But the biggest promise was the one that his contradictions—or maybe just his ideology—did not let him fulfill. "It is only by understanding how we arrived at this moment," he said near the beginning, "that we'll be able to lift ourselves out of this predicament." Too true. Moments later, however, despite piles of evidence to the contrary, he said: "Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
If understanding root causes is the key to good economic policy, we may have longer to go than even the pessimistic half of Obama thinks.
Matt Welch is the Editor in Chief of Reason magazine.Obama's Straw Men - Why does he routinely ascribe to opponents views they don't espouse?
President Barack Obama reveres Abraham Lincoln. But among the glaring differences between the two men is that Lincoln offered careful, rigorous, sustained arguments to advance his aims and, when disagreeing with political opponents, rarely relied on the lazy rhetorical device of "straw men." Mr. Obama, on the other hand, routinely ascribes to others views they don't espouse and says opposition to his policies is grounded in views no one really advocates.
On Tuesday night, Mr. Obama told Congress and the nation, "I reject the view that . . . says government has no role in laying the foundation for our common prosperity." Who exactly has that view? Certainly not congressional Republicans, who believe that through reasonable tax cuts, fiscal restraint, and prudent monetary policies government contributes to prosperity.
Mr. Obama also said that America's economic difficulties resulted when "regulations were gutted for the sake of a quick profit at the expense of a healthy market." Who gutted which regulations?
Perhaps it was President Bill Clinton who, along with then Treasury Secretary Larry Summers, removed restrictions on banks owning insurance companies in 1999. If so, were Mr. Clinton and Mr. Summers (now an Obama adviser) motivated by quick profit, or by the belief that the reform was necessary to modernize our financial industry?
Perhaps Mr. Obama was talking about George W. Bush. But Mr. Bush spent five years pushing to further regulate Fannie Mae and Freddie Mac. He was blocked by Democratic Sen. Chris Dodd and Rep. Barney Frank. Arriving in the Senate in 2005, Mr. Obama backed up Mr. Dodd's threat to filibuster Mr. Bush's needed reforms.
Even in an ostensibly nonpartisan speech marking Lincoln's 200th birthday, Mr. Obama used a straw-man argument, decrying "a philosophy that says every problem can be solved if only government would step out of the way; that if government were just dismantled, divvied up into tax breaks, and handed out to the wealthiest among us, it would somehow benefit us all. Such knee-jerk disdain for government -- this constant rejection of any common endeavor -- cannot rebuild our levees or our roads or our bridges."
Whose philosophy is this? Many Americans justifiably believe that government is too big and often acts in counterproductive ways. But that's a far cry from believing that in "every" case government is the problem or that government should be "dismantled" root and branch. Who -- other than an anarchist -- "constantly rejects any common endeavor" like building levees, roads or bridges?
During his news conference on Feb. 9, Mr. Obama decried an unnamed faction in the congressional stimulus debate as "a set of folks who -- I don't doubt their sincerity -- who just believe that we should do nothing."
Who were these sincere do-nothings? Every House Republican voted for an alternative stimulus plan, evidence that they wanted to do something. Every Senate Republican -- with the exception of Judd Gregg, who'd just withdrawn his nomination to be Mr. Obama's Commerce secretary and therefore voted "present" -- voted for alternative stimulus proposals.
Then there's Mr. Obama's description of the Bush-era tax cuts. "A surplus became an excuse to transfer wealth to the wealthy," he explained in his Tuesday speech, after earlier saying, "tax cuts alone can't solve all of our economic problems -- especially tax cuts that are targeted to the wealthiest few."
The Bush tax cuts were not targeted to "the wealthiest few." Everyone who paid federal income taxes received a tax cut, with the largest percentage of reductions going to those at the bottom. Last year, a family of four making $40,000 saved an average of $2,053 because of the Bush tax cuts. The tax code became more progressive as the share paid by the top 10% increased to 46.4% from 46% -- and the nation experienced 52 straight months of job growth after the cuts took effect. And since when is giving back some of what people pay in taxes "transferring wealth?"
In his inaugural address -- which was generally graceful toward the opposition -- Mr. Obama proclaimed, "We have chosen hope over fear, unity of purpose over conflict and discord." Which Republican ran against him on fear, conflict and discord?
Mr. Obama portrays himself as a nonideological, bipartisan voice of reason. Everyone resorts to straw men occasionally, but Mr. Obama's persistent use of the device is troubling. Continually characterizing those who disagree with you in a fundamentally dishonest way can be the sign of a person who lacks confidence in the merits of his ideas.
It was said that Lincoln crafted his arguments in "resonant words that enriched the political dialogue of his age." Mr. Obama's straw men aren't enriching the dialogue of our age. They are cheapening it. Mr. Obama should stop employing them.
Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.
'No Line on the Horizon' Is No Radical Reinvention of U2 (Hooray!)
"Time is irrelevant, it's not linear," Bono proclaims near the beginning of No Line on the Horizon (4 stars), U2's 12th studio album, which releases March 3 but is already posted on the band's MySpace page. When you've spent 30 years in the circus, are well into middle age, and are still working the territory most commonly associated with preening 20-year-olds, it's a reasonable stance to take. Fittingly, it's a preoccupation Bono circles back to again and again, and it results in the band's most thematically rich album in a storied career.
First, the bad news. Produced by the now-familiar triumvirate of Daniel Lanois, Brian Eno, and Steve Lillywhite, and recorded in studios around the world (Dublin, London, New York, and Fez, Morocco), Horizon occasionally suffers from sonic jetlag. It gives the impression that it has been painstakingly pieced together rather than allowed to flow organically. Not so much played as sculpted, the 11 songs exhibit the slick, professional sheen that sometimes inhibits a band once known for its raw punk energy.
But it's a quibble. No Line on the Horizon is not the band's best album, nor is it the radical reinvention that Bono announced in countless pre-release interviews. It's nothing more and nothing less than quintessential U2, full of the searing, echo-drenched guitar riffs and rousing sing-along choruses that have always marked the band's best work. And as a compendium of the sounds that have defined U2, it's an encyclopedia three decades in the making.
The first four tracks throw down the gauntlet. On the opening title track, Bono offers a typical open-ended assessment of commitment, both marital and spiritual, that works as a straightforward love song and a commentary on the vagaries of the divine courtship. Backed by the Edge's surging, propulsive rhythm guitar, he sings of a love that is equally sensuous and mysterious, one that cannot be pinned down and categorized. The exquisite "Magnificent" is the band's most transparent worship song since its very early days (and 1981's "Gloria"), a soaring hymn of praise that rockets forward on Edge's churning riff and Bono's crazed choirboy tenor:
I was born to sing for you
I didn't have a choice but to lift you up …
Only love can leave such a mark
Only love can heal such a scar
On the seven-minute "Moment of Surrender," arguably the album's central track, Bono returns to the power-ballad format that propelled classics such as "One" and "I Still Haven't Found What I'm Looking For." It's old-fashioned, heart-on-the-sleeve emoting, full of righteous passion and gospel melismas, and it's Horizon's strongest track. "Unknown Caller" is something else entirely, a jittery, paranoid rocker featuring a shouted chorus that is sure to be a fist-pumping concert favorite. Taken together, these four songs make up the strongest opening gambit the band has played since AchtungBaby, and they offer positive proof that the grizzled geezers still have plenty left in the tank.
Even more impressively, Bono (with help from Lanois and Eno this time — a first) writes some of his most thoughtful and introspective lyrics, and he explores themes that are expanded on and developed from song to song. There are the usual "is it Jesus or a girlfriend?" teases, but those looking for more depth will find much to savor. This is an album all about time: the ravages of the inexorable march of hours and days, chronos and kairos, calendar time and clock time vs. those moments that are out of time, that sustain us, those in which we encounter something of the Divine. It's a theme explored explicitly in "Moment of Surrender" and "Unknown Caller," and obliquely in later tracks such as the anthemic rocker "Breathe" and the atmospheric closer, "Cedars of Lebanon."
This is an album made by middle-aged men still playing a kid's game, well aware of the ridiculousness of the trappings (see the humorous, self-deprecating lines in the funk-driven "Standup Comedy"), and searching for and sometimes finding reasons to go on. As such, these are songs that could have never been written by Bono Vox, the naïve, idealistic youth of early albums. And as such, these are songs that could only have been written by Bono, the aging, iconic rock star in love with Jesus and himself in equal measure, and bothered by the incongruity. They are great spiritual and human songs.
No Line on the Horizon sags a bit in the middle, as "I'll Go Crazy if I Don't Go Crazy Tonight" borrows a little too liberally from '80s band Journey's "Faithfully." Yes, that's as problematic as it sounds, although the Edge does his best to energize the flaccid chord progression. The first single, "Get On Your Boots," merely reprises Elvis Costello's "Pump It Up," which is a transparent reworking of Bob Dylan's "Subterranean Homesick Blues." Imitation may be the sincerest form of flattery, but in this case, it makes for tired music.
But the album ends well, with the lovely, minor-key "White as Snow" (which cribs its melody from the Christmas carol "O Come, O Come, Emmanuel"), the arena shaker "Breathe," and the forlorn "Cedars of Lebanon," a disquieting ballad about a journalist stationed far from home and family. It's not an unqualified success. But on the best of these tracks, the band steps outside time and finds the eternal. It's a neat trick, and if U2 has done it before, that doesn't make it any less thrilling.
U2 could set Grammys record with 'No Line on the Horizon'
In total, U2 has won 22 Grammys spread out over 11 categories. That haul ties the group with Stevie Wonder. However, Wonder has won three album of the year Grammys as did Paul Simon and the late Frank Sinatra.
While the band's first five albums failed to break through with Grammy voters all that changed with disc No. 6 — "The Joshua Tree." U2 won album of the year in 1988 and the first of seven rock duo or group awards (the other wins in that category came in 1989, 1993, 2001, 2002, 2005, and 2006).
U2's next studio album "Achtung Baby" lost album of the year to Eric Clapton's "Unplugged" in 1993. While "Zooropa" won the alternative album award in 1995, U2's follow-up "Pop" went flat with Grammy nominators. "All That You Can't Leave Behind" contended for the top prize in 2002 but lost to the "O Brother, Where Art Thou?" soundtrack. But "How to Dismantle an Atomic Bomb" won album of the year in 2006.
Besides their two album of the year Grammys, U2 has won record of the year twice — "Beautiful Day" (2001); and "Walk On" (2002) — and song of the year twice as well — "Beautiful Day" (2001); and "Sometimes You Can't Make It on Your Own" (2006). And in addition to those seven Grammys for rock group, U2 has won rock album twice — "All That You Can't Leave Behind" (2002); and "How to Dismantle an Atomic Bomb" (2006) — and rock song twice — "Vertigo" (2005) and "City of Blinding Light" (2006). And they have three video wins — performance ("Where the Streets Have No Name," 1989); long-form ("Zoo TV," 1995); and short-form ("Vertigo," 2005) — as well as single wins for alternative album ("Zooropa," 1995) and pop group ("Stuck in a Moment You Can't Get Out Of," 2002).
U2's and Stevie Wonder's 22 Grammys are four less than Alison Krauss (26). Quincy Jones has 27. The all-time record is held by Sir Georg Solti (31), former conductor of the Chicago Symphony Orchestra.
Next February could be a very busy month for U2. Besides the need to perhaps attend the Grammys next February, one half of the group — Bono and The Edge — will be premiering their first Broadway musical. They have written the songs for a show based on "Spider-Man" which is reported to be budgeted at a record-breaking $40 million. That should make for quite the Broadway debut for them. And if everything comes together, they could be winning Tonys as well as Grammys next year.
Obama's Approval Ratings Slip More In 1st Month Than Any President In Recent History
But what does history tell us about how Obama stacks up with other presidents after a month in office? So far, he’s about on par with the average: since Nixon’s inauguration in 1969, the average presidential job approval has been 61.7% in the Gallup poll closest to the end of their first February in office.
While Obama’s overall rating is on track with the average, his approval has slipped more over the course of his first month in office than any other president in recent history. Gallup’s first poll tracking Obama’s job approval (1/21-1/23) found him at 68%, with 12% disapproving. Since then, his approval rating has dropped 7 points—over a timeframe when no other president has seen their approval fall.
The Age of Irresponsibility
Decades from now, historians are going to fill e-tome after e-tome debating when the crisis in American authority began. A good place to start would be the Clinton era. The president of the United States had a tawdry affair, lied about it, and refused to accept any responsibility for his actions. The Republicans correctly pointed out that the president had acted beneath his office. The problem was that many of them were acting beneath their offices, too. In Washington, where the spirit of public service is supposed to reign, both Democrats and Republicans were using positions of power for private indulgence. Many things sprang from the Clinton impeachment. Confidence in authority was not one of them. We correct for the mistakes of past presidents. George W. Bush (barely) won the White House in part because he promised to restore integrity to the office. And the terrorist attacks of September 11, 2001, did briefly increase the public's trust in government and its elites. In the tense months following the attacks, the public rallied behind strong leaders like Bush, Rudy Giuliani, and Donald Rumsfeld. These men, who had many private failings, nonetheless were seen to be acting in the interests of the nation as a whole. We seemed to be on the verge of a new era of patriotism and civic renewal. But it was not to be. The lack of accountability among the elites quickly caught back up. There was George Tenet, whose time as CIA director included two massive intelligence failures. Bush gave Tenet the nation's highest civilian honor in return. There was the FBI, which still hasn't definitively figured out who attacked America with anthrax in late 2001. There was Rumsfeld, who committed too few troops to the fight in Iraq and failed to change strategy when it became clear, early on, that America was losing the war. He stayed in his job until 2006. The generals whom Bush and Rumsfeld tasked with running the war? None of them suffered any consequences for his failures. One of the main opponents of the successful surge strategy in Iraq, George Casey, was promoted to Army chief of staff. Nor was the crisis in authority limited to politics. There were dramatic instances of public corruption such as the Jack Abramoff scandal, but there were also remarkable examples of private corruption such as the Enron and Arthur Andersen accounting scandals. In the months after September 11, business titan after business titan came under indictment: Enron executives, Martha Stewart, Tyco CEO Dennis Kozlowski--the list goes on. Chief executives were massively compensated even when they drove their companies into a ditch. No surprise when populism started making a comeback. The private sector and the public sector were failing the common man. Neither acted with any sense of propriety. The same was true of our cultural elites. The celebrity of the age was Paris Hilton, an exemplar of the inequality and promiscuity that characterize the present moment. Hilton was born into extraordinary wealth but did not achieve true fame until 2003, when her homemade porno movie made it to the Internet. Twenty or even fifteen years ago, Paris Hilton's behavior would have been a scandal. Not today. Why? Because the wealthy, famous, and well-connected can do as they please and suffer no consequences--as long as they possess no shame. There are moments when it seems as though every figure who waltzes across the public stage is a cheat, a fraud, a liar, or a failure. Child abuse scandals have tarnished the image of Catholic bishops and priests. Steroid scandals have racked Major League Baseball, the Tour de France, and the Olympic games. And then there are the celebrities who write books, make music, and perform in film and television. Where to start? On any given day, any public figure might be arrested, assaulted, admit to infidelity, go bankrupt, or break down emotionally in front of television cameras. Sometimes all of these things happen at once. The next day the celebrity will be released from incarceration. He will go into a rehabilitation program or "spend time with the family" and emerge, weeks later, with a tell-all book and publicity tour that make him even richer than he was before. The idea of "rehab" is so ubiquitous that in 2007 it was the title of a hit song. No negative value is attached to poisoning one's body to the point where it requires detoxification. Quite the contrary. "Rehab" is, in some sense, something to aspire to. To go to rehab implies deep financial resources and a life rich with experience (at least in the areas of alcohol and drug abuse). There are no consequences. It wasn't until last fall that we saw how widely the rot had spread. Everyone was implicated in the financial meltdown. Everyone who took on a mortgage they couldn't afford, who lent to people who couldn't pay back the loan, who securitized the unpayable debts and resold them in ways even astrophysicists can't understand, and who instituted government policies that spurred a culture of easy money and consumption beyond one's means. All were responsible. Meanwhile, as the men who brought the financial system to the brink of collapse were cashing in and remodeling their offices, the executives and union officials who bankrupted the American automobile industry were traveling to Washington hat in hand, begging the public sector to give them aid. Bush had no credibility with the American public. Treasury secretary Hank Paulson inspired no one's confidence. America's political, economic, and cultural elites seem incapable of behaving responsibly and being accountable for their actions. That incapacity is why you wake up in the morning and dread reading the day's headlines. It is why, for years, there seemingly has been nothing but bad news. It is this larger crisis that has driven the public's opinion that the country is headed down the "wrong track" and fostered the widespread sense that American power has entered a period of decline. This is the age of irresponsibility. Barack Obama was elected, in part, to restore the public's confidence in the elites. But he will have a hard time doing so. Obama mistakenly assumes that the problem is political. If the problem were political, a change in the partisan composition of government would be all that was necessary to restore confidence and integrity to the system. Yet nothing could be farther from the truth. The Bush administration's failures did not occur in a vacuum. The problem is systemic. There has been a change in government, but the crisis persists. Political corruption has not disappeared. It has simply changed its partisan affiliation. The chairman of the House committee that writes the tax code is under investigation for cheating on his taxes. A leading House appropriator, John Murtha, is under investigation for accepting illegal campaign contributions. The chairman of the Senate banking and housing committee is under fire for a sweet mortgage deal that he received. President Obama's commerce secretary-designate, New Mexico governor Bill Richardson, withdrew his nomination because of an investigation into his handling of state contracts. Obama's Treasury secretary, Timothy Geithner, whose department includes the IRS, has admitted to not paying payroll taxes while he was an employee of the International Monetary Fund. Obama's Health and Human Services secretary-designate, Tom Daschle, withdrew his nomination because he had not paid taxes on his limousine and driver. Another Obama appointee also withdrew because of tax problems. No wonder the federal government is in the red. The financial system remains shaky. The CEO class remains out-of-touch and politically tone-deaf. In December, federal prosecutors accused investor Bernie Madoff of orchestrating the largest Ponzi scheme in the history of the world. There are manifold opportunities for rent-seeking and graft in the Democrats' huge stimulus bill. And the culture has not been reformed. Over the summer the American swimmer Michael Phelps dazzled spectators with his record-breaking athleticism. Since winning eight gold medals at the Beijing Olympics, how has he behaved? Like a parody of a frat boy with way, way too much time on his hands. He gambles, drinks, and dates a stripper. Photographs of him smoking marijuana have surfaced in the press. This is not simply a case of a young person "having fun" and "enjoying life." Phelps is a role model. Role models have responsibilities. They are supposed to set an example. There are children's books written about Michael Phelps the athlete. Michael Phelps the young man is a character from a Jacqueline Susann novel. Recently the world's highest-paid baseball player, Alex Rodriguez, admitted that he had used performance-enhancing drugs during the early part of this decade. A reporter asked President Obama for his reaction to the news. "You know what?" Obama said. "There are no shortcuts. . . . When you try to take shortcuts, you may end up tarnishing your entire career." Bunk. In the age of irresponsibility, when you take a shortcut, you end up with $275 million from the New York Yankees. So far, there have been two chief reactions to the crisis in American authority. The first is populist. The second is elitist and embodied in the policies of the Obama administration. Populism, the sentiment that American elites are not acting responsibly, has been building for some time. We've seen it in the reaction to the long catalogue of government and market failures over the last decade. We've seen it in the palpable and growing anxiety about globalization that was manifest during the debates over the Dubai Ports deal, immigration reform, free trade, and the Troubled Assets Relief Program. We've seen it in the left-wing populism of authors like Thomas Frank and in the right-wing populism of Dick Morris, whose latest bestseller is titled--take a deep breath--Fleeced: How Barack Obama, Media Mockery of Terrorist Threats, Liberals Who Want to Kill Talk Radio, the Do-Nothing Congress, Companies that Help Iran, and Washington Lobbyists for Foreign Governments are Scamming Us . . . and What to Do About It. This is nothing new. Populism has been around for a while. It has its pluses and its minuses. Populism is a temper, not a program, a vague suspicion of elites that reinforces democratic notions of equality and majority rule. The temper motivates Americans to periodically chastise their elites. But the populist commitment also has a dark side. It too often spawns political utopias and pie-in-the-sky plots to better the condition of the people. And populist outbreaks can spin out of control, moving from a reasonable suspicion to a paranoid search for "enemies of the people." These days the enemies of the people are all over the place. For the left-wing populists, they are the titans of Wall Street, the bank executives, the CEOs who really botched things up but have suffered few consequences, and the business class's political allies in the Republican party. For the right-wing populists, they encompass all elites, from the CEOs whom John McCain criticized during the presidential campaign and the "liberal media" to central bankers and corrupt politicians. Suspicion. Paranoia. Contempt. Resentment. This sort of thinking doesn't make for reasonable politics. And here, ultimately, is the problem with populism. It is good at diagnosis but bad at prescription. Are a large number of the folks in charge not performing their duties? Yes. Is American society suffering from a deficit of personal responsibility? Absolutely. But the populist too often goes overboard. His rhetoric becomes too fiery. His anger feeds on itself. Asked what steps he'd take to address the problems he has identified, he says little more than "Throw the bums out!" But that doesn't get us anywhere. There are always new bums to take the old bums' places. Populism excels at tearing down old constellations of power and bringing new ones into being. In 1980, a populist moment brought Reagan the White House and Republicans control of the Senate. In 1994, it gave the GOP both houses of Congress for the first time in 50 years. In 2006, a similar populism handed power back to the Democrats. And, in 2008, widespread public anxieties sent Obama to the Oval Office. Reagan was a success. He instituted public policies that spurred the economy, forced the collapse of the Soviet Empire, and reinstilled national pride among Americans. Since then the populists haven't been so lucky. The 1994 Republican Revolution ran aground shortly after it left the shore. The 2006 Democratic Restoration was inept. It failed in its principal goal--to force an American withdrawal from Iraq--and rapidly replaced Republican corruption with the Democratic version. It's too early to judge Obama a success or a failure. But he does appear to understand the cause of the populist tremor. If his inaugural address is any indication, Obama has figured out that a lack of personal accountability is the problem. But he hasn't figured out what to do about it. "What is required of us now," Obama said, "is a new era of responsibility--a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly." Obama identified the pervasive lack of accountability among American political, economic, and cultural elites. He reminded his audience of the concept of duty. And while he might have expanded the sphere of personal obligation a little too far--what does it mean, exactly, to have duties to "the world"?--the message was spot-on. "It is time to put away childish things," Obama said earlier in the speech, quoting Paul. To leave childhood behind is to embrace adulthood and the values associated with it. Independence. Self-sufficiency. Modesty. Responsibility. Decorum. Fidelity. Civility. These are the values that have, like the buttresses of a cathedral, supported American society for centuries. A cursory glance around the country today--and especially at the people who run it--reveals that our nation is sorely lacking in these staples of middle-class life. We are living through a drought of middle-class respectability. And that has led us to political and economic crisis. Obama and the Democrats believe that the erosion of bourgeois values can be slowed or even reversed through public expenditure. This is what the Democrats are talking about when they bring up the "vanishing middle class" and propose government intervention. But their efforts are doomed to fail. Public expenditure can't buy virtue. It may even crowd it out. To preserve the American middle class, Obama and the Democrats want to transfer the burden of responsibility from the individual to the government. They want to raise taxes and finance expanded federal government intervention in education, health care, pensions, and the workforce. Their logic is that, if you no longer have to worry about sending your child to a good school--or going bankrupt because of a hospital visit, or delaying retirement because your 401(k) is now a 201(f), or working several jobs because you can't get a good wage--you are more likely to have a happy, healthy family. Your middle-class existence will be more placid. The bourgeois values of hard work, accountability, pride in country, and discipline will carry on to the next generation. The populist impulse will subside. The stimulus bill captures the ethos of this new liberalism perfectly. The dramatic expansion of government's share of the economy is geared toward specifically liberal ends. Ends like Head Start, subsidies for college education, Medicaid, alternative energy, and a loosening of welfare requirements. The bill is a partisan Democrat's dream. It's also a huge miscalculation. Increased dependence on the state is not a solution to our lack of personal accountability. It will only encourage more of it. Obama is no fool. He understands the need to bolster responsibility. He has given several speeches challenging fathers to play a more active role in raising their children. He seems open to good ideas from the private sector, from the nonprofits, from charities and churches. But his heart is with the public sector. He has witnessed elites fail, yet he seeks to put more power in the hands of political elites. Nor is he alone. The lack of alternatives to Obama's liberalism is dispiriting but unsurprising. All the political energy nowadays is on the left. The unanimity of liberal opinion seems to be that, for America to retain its place among nations, we need to look more like Sweden, Denmark, and the Netherlands. But the values of such social democracies are the opposite of the American virtues. The opposite of what Obama claims to want to promote. The American ethos is one of self-reliance. This is not the same as autonomous hedonism and greed. A self-reliant individual is responsible for himself and his family. He is accountable for his actions. He has to be. The welfare state, by contrast, promotes dependence. As government expands its sphere of involvement in everyday life, the number of supplicants for government assistance increases. Rather than encouraging the individual to take responsibility for his actions, the new liberals have embarked on policies that will encourage the individual to turn to government instead. The individual might be delivered from the risks of the marketplace. But what about the risks of the public sector? Government has, time and again, proven itself inadequate to the immense challenges of the day. At times it seems impervious to reform. The Democrats' assumption is that this is because the GOP was in power during much of the last quarter century. It is a partisan fantasy. What's more, the return of big government only invites further populist reaction. Since Obama has so clearly identified the solutions to the crisis with the state, guess who the people will rebuke if the crisis remains unresolved? Not Wall Street. The way we are headed, in a few years, there might not even be a Wall Street for the people to rebuke. The failures of the elites aren't related to public expend-iture. They are related to a spiritual torpor afflicting the affluent. In a rich society, as we pursue our individual ends, obligations--both private and public--fall to the wayside. The status game consumes all. Corners are cut. The higher we scale the ladder, the more material possessions become an end in themselves. We chase one pleasure after another. Our mantra is "eat, drink, and be merry, for tomorrow we die." The reigning ethic is every man for himself. Irving Kristol, in his 1976 essay "Adam Smith and the Spirit of Capitalism," anticipated the spirit of our own time:
How does more federal money for school construction fix that? There is no reason Obama can't begin to restore dignity to politics and American life. He just isn't trying very hard. But even if he did try, there is only so much one man can do. Hence it becomes necessary to identify an alternative vision of society where elites uphold and promote the bourgeois values. Only in this way might we all salve the spiritual crisis behind our age of irresponsibility. Such a task extends far beyond the reach of politics. Where to begin? Start with some exemplars of decency, professionalism, and ability. US Airways pilot Chesley "Sully" Sullenberger III riveted the nation with his dramatic crash-landing into the Hudson River. -Sullenberger's experience and stoicism meant that not a single life was lost during the dramatic and dangerous touch-down. It is no surprise that he has been lionized in the days since. When everything else seems to be crashing all around us, Sullenberger is a rock of common sense and soft-spoken modesty. Imagine--just imagine--if the men and women who represent us in Congress shared his character? Then there is General David Petraeus. At the recent Super Bowl, Petraeus received huge applause when he walked on field for the pregame coin toss. The crowd's response was no mystery. They were saluting the man who helped rescue the American war effort in Iraq, the man who did so without mincing words to the American people or their elected representatives. Petraeus has a Ph.D., runs marathons, wins wars, and spends every waking moment trying to become a better soldier and man. It ought to give us hope that our culture--the culture of A-Rod, Madoff, Hilton, and Murtha--is still capable of celebrating someone like Petraeus. Why not boldly and consistently champion the commitment to patriotism and duty expressed in the character of the American soldier--a living refutation to irresponsible living? The sad fact is that it is difficult to come up with more than a few examples of elite responsibility. Failure breeds apathy. So the age of irresponsibility has spawned a cheap cynicism that says, since everything is broken, why not sit back and laugh at the degradation? But the cynics are wrong. Things can get a whole lot worse. A failure of accountability not only erodes the foundations of our culture. It also puts our country on unstable fiscal ground. A storm of moral and financial insolvency has been brewing for some time. The populist reaction is only the beginning. We're hearing the thunder. Get ready for the deluge. Matthew Continetti is associate editor at THE WEEKLY STANDARD. |
Wednesday, February 25, 2009
Byrd: Obama in power grab
In a letter to Obama on Wednesday, Byrd complained about Obama’s decision to create White House offices on health reform, urban affairs policy, and energy and climate change. Byrd said such positions “can threaten the Constitutional system of checks and balances. At the worst, White House staff have taken direction and control of programmatic areas that are the statutory responsibility of Senate-confirmed officials.”
While it's rare for Byrd to criticize a president in his own party, Byrd is a stern constitutional scholar who has always stood up for the legislative branch in its role in checking the power of the White House. Byrd no longer holds the powerful Appropriations chairmanship, so his criticism does not carry as much weight these days. Byrd repeatedly clashed with the Bush administration over executive power, and it appears that he's not limiting his criticism to Republican administrations.
Byrd also wants Obama to limit claims of executive privilege while also ensuring that the White House czars don’t have authority over Cabinet officers confirmed by the Senate.
“As presidential assistants and advisers, these White House staffers are not accountable for their actions to the Congress, to cabinet officials, and to virtually anyone but the president,” Byrd wrote. “They rarely testify before congressional committees, and often shield the information and decision-making process behind the assertion of executive privilege. In too many instances, White House staff have been allowed to inhibit openness and transparency, and reduce accountability.”
The West Virginia Democrat on Wednesday asked Obama to “consider the following: that assertions of executive privilege will be made only by the president, or with the president’s specific approval; that senior White House personnel will be limited from exercising authority over any person, any program, and any funding within the statutory responsibility of a Senate-confirmed department or agency head; that the president will be responsible for resolving any disagreement between a Senate-confirmed agency or department head and White House staff; and that the lines of authority and responsibility in the administration will be transparent and open to the American public.”
Obama faces a decision as early as next week on whether to support a claim of executive privilege made by former President Bush in refusing to allow Karl Rove, the former deputy White House chief of staff, to be deposed by the House Judiciary Committee on the White House’s role in the 2006 firing of nine U.S. attorneys.
Bush claimed “absolute immunity” for top advisers in resisting such subpoenas, but Rep. John Conyers (D-Mich.), chairman of the Judiciary Committee, filed a lawsuit over the issue. The case is on appeal, and the Obama administration is scheduled to file a motion next week laying out its stance on the issue.
Saturday, February 21, 2009
Winning a Cyber War - The 'soft underbelly' of U.S. security.
The Central Asian Republic of Kyrgyzstan experienced a cyber attack last month that took down its two largest Web sites. But that's small beer compared to what happened to the Pentagon and several other U.S. agencies in 2007, when cyber attackers successfully hacked into their computer systems, including Defense Secretary Robert Gates's email.
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APWelcome to the brave new world of cyber war, an area where the U.S. lacks the dominance it enjoys in traditional military arenas. President Obama's recent appointment of Melissa Hathaway to head a 60-day cyber security review is a sign that he is serious about stepping up the battle in cyber space.
Like other forms of terrorism, cyber war offers an attacker asymmetrical advantages and can be used by individuals as well as governments to debilitate and confuse civilian and military targets. The more governments and economies rely on the Internet, the more vulnerable they become. Michael McConnell, the recently departed National Intelligence Director, called cyber security "the soft underbelly of this country."
The Bush Administration made some progress, such as last year's executive order creating the Comprehensive National Cyber Security Initiative. This highly classified $6 billion program aims to secure the dot-gov and dot-mil domains by instituting basic security measures for federal agencies. These include installing improved monitor programs -- known as "Einstein" -- to detect intrusions on federal computers, for example, and sharing attack information across federal departments.
The U.S. government deflects low-level cyber attacks every day. Many are seeking sensitive information, such as weapon designs or classified communications. Security experts say most hackers who target Washington appear to operate from China, although the nature of the Internet makes it impossible to know for certain. In 2007, the government reported nearly 13,000 information security attacks, more than twice the number in 2006. Brigadier General John Davis, deputy commander of the cyber security unit at U.S. Strategic Command, told us his mission deals with millions of cyber "events" every day, although not all of these turn out to be attacks.
Cyber attacks can also be coupled with conventional warfare, which is what happened in Georgia in August. Even before Russian tanks rolled over the border, hackers -- probably Russian -- probed Georgian government Web sites and took several down. Russian hackers are also believed to have attacked Estonia in 2007, freezing government and private information systems, including banks, for days, apparently in retaliation for Estonia's decision to remove a historic Russian statue.
The U.S. hasn't experienced such a coordinated and sustained attack, but no one is sure what would happen if it did. A known vulnerability is America's power grid, which could be disrupted for months by a sophisticated cyber attack, experts say. In telecommunications, banking and transportation, it's harder to predict how great the damage would be; the current season of the TV program "24" is showcasing some of the more unpleasant possibilities. It makes sense that one of Ms. Hathaway's first tasks is overseeing an assessment of the country's vulnerabilities.
The task is complicated by the lack of a legal framework that defines cyber war and security standards. It isn't clear whether the government can dictate security standards for private industry or if federal agencies can probe private networks to determine their safety. If you thought the debates over warrantless wiretapping were heated, get ready for fireworks over cyber security.
Responsibility for U.S. cyber security is shared across many federal agencies. The Departments of Defense and Homeland Security, the FBI, the CIA, armed services and others all have cyber security projects. A successful counterterrorism strategy has to be decentralized to some degree, but better coordination is needed. A good defense also requires a shift in mentality for anyone with access to sensitive computer systems -- even an ordinary flash drive can become a weapon if handled carelessly.
The experiences of Estonia and Georgia show that cooperating with allies to share information -- and possibly coordinate counterattacks -- is an important element of any response. Cyber warriors typically take control of computers in a third country, from which they launch their attacks. Negotiating agreements on cyber security with allies will also help make the U.S. more secure.
Mr. Obama released a statement on homeland security last month saying he would "declare the cyber infrastructure a strategic asset." That's a start. As the attacks on Kyrgyzstan remind, an aggressive response to the cyber threat can't come soon enough.
Friday, February 20, 2009
Thursday, February 19, 2009
Deregulation and the Financial Panic - Loose money and politicized mortgages are the real villains.
The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis.
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Getty ImagesPresident Bill Clinton signs the Financial Services Modernization Act of 1999.
If the cause was an unsustainable boom in house prices and irresponsible mortgage lending that corrupted the balance sheets of the world's financial institutions, reforming the housing credit system and correcting attendant problems in the financial system are called for. But if the fundamental structure of the financial system is flawed, a more profound restructuring is required.
I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.
The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere.
In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.
In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.
Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.
Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.
As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.
Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.
The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.
By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.
The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.
Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.
With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.
The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.
GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.
Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.
When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.
Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.
In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.
Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?
Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.
Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.
Mr. Gramm, a former U.S. Senator from Texas, is vice chairman of UBS Investment Bank. UBS. This op-ed is adapted from a recent paper he delivered at the American Enterprise Institute.
Is the Administration Winging It? Obama's reputation for competence is at risk.
Team Obama demonstrated remarkable discipline during the presidential campaign. From raising an unprecedented amount of money to milking every advantage from the Internet to grabbing lots of delegates from inexpensive caucus states, they left nothing to chance.
And now the administration has scored a major legislative victory in an extraordinarily short period of time. Less than 700 hours after taking the oath of office, President Barack Obama signed the largest spending bill in American history.
Nevertheless, this fast start can't overcome a growing sense the administration is winging it on issues large and small.
Take the vetting of cabinet nominees. Mr. Obama's aides ignored a federal investigation of New Mexico's Gov. Bill Richardson that started last August for a possible pay-for-play scandal. Mr. Richardson had to withdraw after being named to become secretary of commerce.
The administration treated as inconsequential the failure of its choices for Treasury secretary and White House performance officer, as well as its labor secretary-designate's spouse, to pay taxes. It failed to uncover Tom Daschle's problems with more than $102,943 in previously unpaid taxes, penalties and interest -- and once it did, aides assumed Mr. Daschle would be given a pass.
Team Obama promised Gen. Anthony Zinni he'd be ambassador to Iraq, then cut him loose without explanation. After the Bill Richardson fiasco, it romanced Republican Sen. Judd Gregg for commerce secretary -- then ignored his advice on the stimulus and wouldn't trust him with running the department, moving supervision of the Census into the White House. Mr. Gregg withdrew himself from consideration.
Then there is the stimulus itself. Mr. Obama's economic team met with congressional leaders in December to green light a bill costing up to $850 billion. But they described less than $200 billion of what they wanted in the envelope. In return for outsourcing the bill's drafting to Congress, the administration took on two responsibilities: running polls to advise Hill Democrats on how to sharpen their marketing, and putting the president on the road to sell a bill others wrote.
Team Obama was winging it when it declared the stimulus would "save or create" 2.5 million, then three million, then 3.7 million, and then four million new jobs. These were arbitrary and erratic numbers, and they knew there's no way to count "saved" jobs. Americans, being commonsensical, will focus on Mr. Obama's promise to "create" jobs. It's highly unlikely that more than 180,000 jobs will be created each month by the end of next year. The precise, state-by-state job numbers the administration used to sell the stimulus are likely to come back to haunt them as well.
Bipartisanship? The administration failed even to respond to GOP offers to endorse an Obama campaign proposal to suspend capital gains taxes for new small businesses.
Inexplicably, the president, in a prime-time press conference, raised expectations for Treasury Secretary Tim Geithner's bank rescue plan, which turned out the next day to be no plan at all. The markets craved details; they got none. When markets cratered, spokesmen didn't acknowledge the administration's poor planning, but blamed the markets.
Team Obama was also winging it on enhanced interrogation of terrorists. First it nullified all the Bush administration's legal authorities before considering what rules it should have in place. When the CIA briefed White House officials on the results obtained from these techniques, the administration backtracked and organized a four-month study of what rules were appropriate.
Something similar happened with the promise to close Guantanamo Bay within a year: The administration has no idea what it will do with the violent terrorists detained there. And on ethics, Mr. Obama proclaimed an end to lobbyist influence in government -- even as he was nominating lobbyists for major posts and filling White House ranks with former lobbyists.
Team Obama has been living off its campaign reputation for planning and execution. That reputation is now frayed, and all the bumbling and unforced errors will have an impact. Such things don't go unnoticed on Capitol Hill or in foreign capitals.
The president, a bright and skilled politician, has plenty of time to recover. The danger is that what we have seen is not an aberration, but the early indications of his governing style. Barack Obama won the job he craved, now he must demonstrate that he and his team are up to its requirements. The signs are worrisome. The world is a dangerous place. The days of winging it need to end.
Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.
Dear Mr. President, Have the Guts to Be an Optimist
OK, Mr. President, enough with the doomsday talk already. We get it. Things suck. And they’re going to get worse before they get better.
And we get how it important it was for you to level-set expectations out of the gate, as they were stratospherically out of whack.
We are all in economic rehab now, clear eyed and sober. If we’re not out of work, we know friends and family who are. And those of us lucky enough to have jobs are being showered with resumes. Really good ones.
So now we want to know that there is light at the end of this bleak, black tunnel.
It’s time for less mope and more hope. You were elected because you are a walking, talking hope machine. Plug that sucker back in and crank it up to ten.
There has been some debate in the opinion pages about whether the FDR or Ronald Reagan approach to a bad economy is the best remedy. Putting that aside, there is one thing they had in common: They were unblushing optimists. And they communicated their enthusiasm until their half-full cups ranneth over.
It’s time to cut the talk about similarities to the Great Depression. First, it sure as hell doesn’t help the markets. Second, it’s not true. Not yet anyway.
Bradley Schiller, an economics professor at the University of Nevada, straightens out the facts for us: “This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don’t come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate, Consider the job losses that Mr. Obama cites. In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2 percent of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost—fewer in number than today, but the labor force was smaller. So 1981-82 losses totaled 2.2 percent of the labor force, the same as now.
“Job losses in the Great Depression were on an entirely different magnitude…Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.
“This was reflected in the unemployment rates. The latest survey pegs U.S. unemployment at 7.6 percent. That’s more than three percentage points below the 1982 peak (10.8 percent) and not even of the a third of the peak in 1932 (25.2 percent). You simply can’t equate 7.6 percent unemployment with the Great Depression."
Auto production last year declined by roughly 25 percent. That looks good compared to 1932, when production shriveled by 90 percent. The failure of a couple of dozen banks in 2008 just doesn't compare to 10,000 bank failures in 1933. Stockholders can take some solace form the fact that the recent stock market debacle doesn't come close to the 90 percent devaluation of the early 1930s.
There now, don't you feel better.
George W. Bush was president through some of the darkest days of our history and yet his optimism never waned. He is optimistic by nature, but he also understood the importance of always communicating a sense that things will get better. And it’s in part why John Kerry lost in 2004. He painted a terrible picture of the future. And as Bush said, “You can’t say things are going to be awful, follow me and expect to turn around and see a crowd.”
So, Mr. President, you’ve got a big speech coming up. Turn the heat up and the lights back on.
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, causes, and individuals, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono. McKinnon is co-chair of Arts & Labs, a collaboration between technology and creative communities that have embraced today’s rich internet environment to deliver innovative and creative digital products to consumers.
The Auto Dead Zone: Only bankruptcy can force Detroit to change.
The cover page of Chrysler's restructuring plan, submitted along with GM's late Tuesday, tells you all you really need to know about these 100-page-plus tomes. Replete with pictures of World War II Army Jeeps, dead men in starched collars -- and the now-obligatory "hybrid" logo and plug-in car -- the first page declares that Chrysler "is the Quintessential American Auto Company."
None of that has anything to do with whether it has a viable business model or cost structure now. Consider: Chrysler's plan, which runs to 177 pages, cuts 100,000 cars out of its 2.5 million-car capacity. And this for a company that currently sells one million cars a year. It is, in other words, a political document more than a financial plan.
Meanwhile, the companies' "downside" scenarios from late last year have become this year's reality, with auto sales running at an annual pace of 9.8 million for the entire industry in January. GM insists that its plan will allow it to be profitable on an "adjusted" cash-flow basis "at industry sales rates of 12.5-13.0 million units." This assumes GM can maintain its market share when sales eventually pick back up, even though it has been bleeding share for the better part of three decades. While every auto maker has suffered from the 40% or so decline in sales, GM and Chrysler have been among the worst affected, with Chrysler's unit sales falling 55% year-over-year in January and GM's dropping by 49%.
At the same time, GM's funding needs are growing even faster than its market share is shrinking. Its latest plan foresees a total of $30 billion in government loans before it reaches its projected break-even point -- this for a company that, by its own reckoning, has a "net present value" in the range of $5 billion to $14 billion and market capitalization of only $1.25 billion. That $30 billion request doesn't include the possibility of pension-fund contributions over the next few years. It also assumes that additional aid will be forthcoming from European governments where the company has plants -- a possibility those governments view with dread.
GM posits this $30 billion against what it says would be a $100 billion tab for bankruptcy financing, a figure calculated to frighten the Obama Administration into doubling down on the $13.4 billion already lent to GM in December. Predictably, however, the latest plans defer most of the hardest decisions about labor costs and retiree benefits. The United Auto Workers are right to look askance at retiree benefit contributions made in company stock at a time when it isn't clear that the stock is worth much anyway. Likewise for bondholders, who are being asked to agree to a debt-for-equity swap to cut GM's debt load by two-thirds.
The Obama Administration, meanwhile, has junked the idea of a car czar, perhaps because there's no one willing to live that political nightmare. That alone should tell the Administration something. As long as this remains a political workout instead of a financial one, GM, Chrysler and the UAW will continue to postpone the hard choices. Only bankruptcy, painful as it may be, offers the tools and legal authority needed to force all stakeholders to change the habits that brought the companies to this ebb.
The shrinking of GM and Chrysler are inevitable; the only questions are how long it takes and how much it will cost. President Obama will help himself, taxpayers and the economy if he forces the hard decisions as soon as possible, well before the next election and while he can still blame the last Administration. Bankruptcy increasingly looks like the least painful choice.
Santelli's Chicago Tea Party
VIDEO: 'The government is promoting bad behavior... do we really want to subsidize the losers' mortgages... This is America! How many of you people want to pay for your neighbor's mortgage? President Obama are you listening? How about we all stop paying our mortgage! It's a moral hazard'... MORE...
Dukes of Moral Hazard - Re-default rates are 55% after six months.
President Obama yesterday announced his plan to prevent home foreclosures, saying he wanted to be "very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans . . . And it will not reward folks who bought homes they knew from the beginning they would never be able to afford."
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APWe really do wish he were right. In fact, the details released yesterday suggest the President's plan will do all of the above. The plan will help some struggling homeowners. But by investing in failure, the Administration will also prolong the housing downturn and make financing a home purchase more difficult for future borrowers. Meanwhile, the plan isn't likely to slow the continuing decline in housing prices.
Let's focus on the plan's effect on the individual borrower. Anyone with mortgages owned or guaranteed by Fannie Mae and Freddie Mac will be able to refinance to lower rates if his mortgage is between 80% and 105% of the value of the home. This is a sweet deal that is not available, for example, to many renters looking to buy homes now. Sadly for those who deferred the gratification of homeownership, the 20% down payment has now become industry standard. But at least their taxes will allow other people to stay in homes they can't afford.
Existing borrowers who may not qualify for Fan/Fred refinancing can still receive loan modifications that move their mortgage payments down to 31% of monthly income. In either case, no effort will be made to verify that recipients of aid were truthful on their original mortgage applications. Given that mortgage fraud skyrocketed during the housing boom, and that the Obama Administration intends to assist up to nine million troubled borrowers, we can say with certainty that the unscrupulous will be among those rescued.
Going forward, it will be up to lenders to verify income. Getting this number correct is critical to the government's hopes for the plan. That's because, if pending Treasury guidelines follow the Federal Deposit Insurance Corp. model on which they are based, new modifications will forgo extensive underwriting. The FDIC believes that a lot of the normal research that goes into making a loan or a refinancing decision can be skipped as long as the mortgage-debt-to-income ratio can be moved, even if only for a few years, down to that magic number of 31%. So the government will pay loan servicers $1,000 for each mortgage modified, share the cost of lowering the monthly payments and pay other subsidies to lenders and borrowers -- adding up to $75 billion in taxpayer assistance for modifications. The government will then spend another $10 billion compensating lenders if the housing market continues to decline and some of these loans go bad again.
Will $10 billion be enough? The recent history of mortgage modifications isn't encouraging. According to the December report by the Comptroller of the Currency and the Office of Thrift Supervision, "The number of loans modified in the first quarter that were 30 or more days delinquent was 37 percent after three months and 55 percent after six months. The number of loans modified in the first quarter that were 60 or more days delinquent was 19 percent at three months and nearly 37 percent after six months."
Said Comptroller John Dugan, "One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months."
Those who favor Mr. Obama's plan say that many of these modifications haven't lowered monthly payments the way the new plan does. True, and the more taxpayer dollars are spent subsidizing a particular borrower, the more affordable a loan becomes. But in part to avoid putting an astronomical price tag on this plan, the Administration doesn't necessarily fix loans for the long term.
In fact, the program encourages mortgage servicers to keep the payments low only for five years, after which rates will rise. During the housing bubble, these were called "teaser" rates. Modifications also may extend the term of, say, a 30-year mortgage to 40 years, but still leave the borrower underwater. Research at Credit Suisse suggests that borrowers without equity are not a good bet to stay current. What research cannot answer is how many people will seek assistance when they are told that a new federal program is available to cut their mortgage bill.
Mr. Obama's mortgage plan is his third big economic rescue proposal in a month, and perhaps someone in the White House has noticed that financial markets haven't exactly cheered. Yesterday's end-of-day wrap from UBS put it this way: "Obama Speaks, Market Listens, Sells Off."
What investors, businesses and working Americans want to hear is a President with ideas to spur economic recovery. What they've been getting are plans for a long national Chapter 11 workout.