In Which Bill Greider Talks Me Back Up

While BooMan does have an excellent point that Obama has things under control for now with a pragmatic, thoughtful, and careful approach with the goal of paving the way for long-term change, The Nation's Bill Grieder argues that the time for caution is long past and that only radical and immediate change will save the country, especially on the economy.

This is not the last word and things are changing rapidly. But Obama's choices have begun to define him. His victory, it appears, was a triumph for the cautious center-right politics that has described the Democratic party for several decades. Those of us who expected more were duped, not so much by Obama but by our own wishful thinking.

Let us stipulate that these are all honorable people, smart and experienced veterans of Washington combat. But they represent the Democratic party that mainly sees itself as managerial--making government work better. The long era of conservative dominance has taught them to keep their distance from big reform ideas that promise fundamental change of the system. Their operating style is incremental and cautiously practical. They conscientiously avoid (or actively block) propositions that sound too liberal or radical. Alas, Obama is coming to power at a critical moment when incrementalism is irrelevant. The system is in collapse. Financial chaos won't wait for patient deliberations.

Events have confronted Obama with a fearful symmetry between past and present, illustrated by his choice of economic advisers. On Friday, we learned that Timothy Geithner, president of the New York Federal Reserve, would become his new treasury secretary and Larry Summers, who held the same position in the Clinton administration, would be the White House overseer of economic policy. On Monday, Geithner was busy executing the government's massive rescue of Citicorp--the very banking behemoth that Geithner and Summers helped to create back in the Clinton years, along with Federal Reserve chairman Alan Greenspan and Robert Rubin, Clinton's economics guru. Now Rubin is himself a Citicorp executive and his bank is now being saved by his old protégé (Geithner) with the taxpayers' money.

The connections go way beyond irony. They raise very serious questions about where the new president intends to lead and whether he has the nerve to break from the weak and haphazard strategy of the Bush administration. It has dumped piles of public money on the largest financial institutions and demanded little or nothing in return, hoping for the best. Geithner has been a central player in the deal-making, from Bear Stearns to AIG to Citi. The strategy has not only failed, it has arguably made things worse as savvy market players saw through the contradictions and rushed out to dump more bank stocks.

One of these two strategies is going to go by the wayside very quickly unless Obama can manage the impossible: radical, fundamental and complete transformation of our economic system while at the same time maintaining a broad enough coalition of GOP moderates and Blue Dog Democrats to ram through the changes.

And yet the impossible is exactly what Obama will have to achieve, and quickly. Anything less than a total paradigm shift of America's economy will result in the current long-term global recession becoming a disastrous global depression.

It's a daunting prospect to say the least. I don't have the solution to the problem, either. I know where we should start, but it's where we end up that is the important part.

Still...Obama is all we have right now.

In Which BooMan Talks Me Down

As downright pissed as I am about Obama's cabinet selections, the always dependable BooMan offers up some of his usual trademark expert analysis on why I should relax and let Obama do his thing.

Which gets me back to Barack Obama. Obama has not called for an American retreat from the world stage or a radical upending of our foreign relations. He recognizes that our involvement in the Middle East creates problems and blowback, but his solution is cautious and designed to work over a period of time. After stabilizing the financial markets, his number one domestic policy is going to be a green-economy initiative to take some of the pressure off our dependency on Middle Eastern energy. That will give us a freer hand to take risks that might involve a period of regional instability. In the future we might feel secure enough to allow the Saudi regime, for example, to be swept away in a popular uprising. Right now, we'd be too concerned about disruptions in the oil supply to let that happen.

When it comes to Israel, listen to the advice that Scowcroft gave in his August 2002 opinion piece:

Possibly the most dire consequences would be the effect in the region. The shared view in the region is that Iraq is principally an obsession of the U.S. The obsession of the region, however, is the Israeli-Palestinian conflict. If we were seen to be turning our backs on that bitter conflict--which the region, rightly or wrongly, perceives to be clearly within our power to resolve--in order to go after Iraq, there would be an explosion of outrage against us. We would be seen as ignoring a key interest of the Muslim world in order to satisfy what is seen to be a narrow American interest.

That might sound like a progressive critique but it was anything but. The Realist School has long held, correctly, that the resolution of the Israeli-Palestinian conflict is the number one priority of American Middle Eastern policy. It's one reason why George Herbert Walker Bush's administration was so distrusted by many Israeli hard-liners.

So, what is Obama doing? By taking advice from Scowcroft, leaving Robert Gates (for now) in charge of the Pentagon, and by bringing in other Realists on to his team, he is co-opting the centrist Republicans. The Ranking Member of the Senate Foreign Relations committee, Richard Lugar, and likeminded thinkers like Chuck Hagel, are now de facto members of the Obama coalition. They are inside the tent, pissing out. This dulls McCarthyite criticisms from the neo-conservatives and from the Israeli hard-liners as it gives the appearance (and much of the reality) of a bipartisan foreign policy consensus. But Obama did not stop there. He has disarmed the Israeli hard-liners by giving them a seat at the table, as well. Nowhere is this clearer than in his selection of vice-president and chief of staff. If he goes through with the selection of Hillary Clinton as Secretary of State, he will further disarm the hard-liners.

Now, there is a legitimate progressive critique that Obama is staffing up with a toxic combination of people that were either wrong about the invasion of Iraq or that were right, but for the wrong reasons. After all, the Realist School might have been clear-eyed on the ill-advisability of invading Iraq, but they are myopic about their own culpability in creating the problems we face in the Middle East and elsewhere in the world. What is needed is much more far-reaching change. That's true. But that change must be managed carefully, and it will come much easier if it is done with a broad coalition of support.

Barack Obama would be well-advised to find some idealistic progressives for his foreign policy team. He needs to hear their voices even if he doesn't take their advice. His strategy so far is finely honed to getting things done in the Washington/Establishment framework, but he needs allies as well as advice that runs counter to Establishment thinking. We need radical change, but we need to do it in a pragmatic way.

And as usual, he's dead right. Compared to the last eight years of incompetent, moronic, belligerent insanity that we're used to, a well-thought out and pragmatic approach to actual problem-solving in the Middle East is exactly what we need.

And Obama is in fact going out of his way to get as many people on board as he can in order to defuse and disarm the knee-jerk, reactionary opposition to it. If he's successful, then it will assure lasting change.

I just pray BooMan's right.

The Volker Gambit

Obama's plan for getting us out of this mess involves putting Paul Volker in charge of the Presidential Economic Committee On Getting Us Out Of This Mess.

President-elect Barack Obama Wednesday named former Federal Reserve chairman Paul Volcker, 81, to lead a new economic recovery board.

"Paul has been by my side throughout this campaign, providing a deep understanding of financial markets, extensive experience managing economic crises, and keen insight into the global nature of this particular crisis," Obama told reporters, calling Volcker "one of the one of the world's foremost economic policy experts."

Obama said a key purpose of the board would be to provide a perspective from outside the walls of the Washington "echo chamber," which he said "can sometimes keep out fresh voices and new ways of thinking."

The announcement came during the president-elect's third news conference in three days on the economic situation.

Austan Goolsbee, a University of Chicago economist who has been one of Obama's top economic advisors, will serve as Staff Director and Chief Economist of the board.

Obama said he would name other members of the board "in the coming weeks." He is due to take office on January 20, 2009.

The board will brief Obama, offering independent, nonpartisan information, analysis and advice to the president as he formulates and implements his plans for economic recovery, Obama's transition office said.

It will be established initially for a two-year term, after which Obama will determine whether to continue its existence based on its continued necessity.

I suppose that qualifies as a ray of hope on the economy.

Maybe.

Zandar's Thought Of The Day

If neocon con man Max "Bomb Em All" Boot is "gobsmacked" with happiness over Obama's foreign, military, and economic policy picks, then there's something seriously f'ckin wrong with "change we can believe in."

I Can Guess Where More Bailout Cash Is Going

To the FDIC, of course.

The Federal Deposit Insurance Corp. said that the list of banks it considers to be in trouble shot up by 46 percent, to 171, during the third quarter.

Total assets held by troubled institutions climbed from $78.3 billion to $115.6 billion -- a figure that suggests that the nation's top 20 banks aren't on the list, even though they also are getting slammed by the ongoing credit crisis. The FDIC does not reveal the names of institutions it deems troubled.

On average, about 13 percent of institutions on the FDIC's list end up failing.

Nine banks failed during the third quarter, decreasing the FDIC's deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter.

And of course these are far worse than average times.

It's that last paragraph that bothers me the most. Nine banks failed at a cost of $10 billion. More will fail this quarter, indeed some already have.

The $34.6 billion that's left in the FDIC won't make it through spring. Billions will be fed into it. Billions more will be paid out as more and more banks fail.

But it's okay, Bloomberg says Obama's a smart guy for putting some of the same folks responsible for this mess in charge of it.

After all, that philosophy worked so very well for Bush and America over the lest 8 years. It's not like Obama ran on "change" or anything.

StupidiNews!

• More US troop deaths in Iraq this week, bringing the total to 4,206.
• 6,400 uncounted absentee ballots in Minnesota could make the difference in the Senate recount there.
• Yesterday's announced plan to buy half a trillion worth of mortgages lowered 30-year rates across the board.
• After suffering deadly wildfires earlier this month, now California faces major mudslides.
• A Florida judge has overturned that state's 30-year ban on gay adoption.

Gates At The Barbarians

No surprise here, right before Thanksgiving, America gets another Obama turkey.

Several officials close to President-elect Barack Obama's transition tell CNN that Defense Secretary Robert Gates is expected to stay on the job for at least the first year of the new administration.

One source called it "all but a done deal" that the announcement could come as early as next week.

"It's now pointing in that direction," one of the sources close to the transition said of Gates being part of Obama's national security team, which may include Sen. Hillary Clinton as secretary of state.

"It's likely to happen," a second source close to the transition said of Gates staying on.

This source noted that Gates could stay for longer than a year if he and Obama end up working well together.

So let me get this straight:

The man who ran primarily on ending the Iraq War is now content in hiring the man who helped sell Bush's surge, there's nobody in Washington among all the generals and admirals and brilliant managers Obama knows that is qualified to run the Pentagon better than the incompetent guy in charge for the last two years, and we're now supposed to believe that magically, things will now improve in Iraq enough so that we can bog ourselves down in Afghanistan.

Oh, and we clearly can't afford either war right now. We gave that money to Citigroup, AIG, and Fannie and Freddie.

Raise your hand if you still believe we'll be out of Iraq before Obama first term ends. I've got a nice package of securitized subprime mortgages to sell you.

But I'm supposed to lay off the guy because he's not in office yet.

His SecDef is in office. Can I criticize him at least? Did Obama's campaign to end the war over the last two years mean a damn thing if he keeps Bush's Pentagon team?

Greg Sargent spells out what Obama's choice means.

It's also worth making a crucial distinction between two different ways of critiquing Obama's staff picks.

The first involves looking at the choices in order to extrapolate Obama's policy priorities -- a somewhat useless exercise, since we won't know what policy direction he's headed in until he proposes actual policies, no matter who he appoints. The second, and more valid, way of looking at his staff choices is to ask whether they're inherently good ideas, regardless of what they suggest about his possible policy priorities.

For instance, as Chris Bowers argues persuasively, keeping Defense Secretary Robert Gates is inherently a bad idea, because it keeps the same leadership in charge of half the Federal budget and, worse, sends the message that Republicans are needed to manage national security.

That mode of critique doesn't involve making any speculative extrapolations about Obama's future policy directions, and seems like a far more sensible way to look at his choices.

It also signals strongly that Obama's chief argument -- that the Bush Administration was filled with incompetent people that John McCain would keep on in full capacity-- is a moot point now.

Obama's foreign policy is now about to be run by the same woman who called his foreign policy "irresponsible and naive" 18 months ago, and he in turn called her" irresponsible and naive" for voting to authorize the Iraq War.

Obama's economic policy is being run by some of the same people who Obama argued got America into this "crisis of historic proportions" not more than a few weeks ago.

Now Obama's military policy is being run by the same folks who brought us the last two years in the Middle East.

Surprised? I'm not. Obama's been angling to keep Gates on since June.

And yes, this does constitute strike three for Obama. Your honeymoon is now over.

Count on it.

Dear America:

"Don't say I didn't warn you when Obama completes America's transformation into a Socialist nightmare of granola-spewing, Prius-driving, welfare-state protectionist bureaucracy and destroys our economy, which was doing perfectly fine until you crazy assholes voted him into office."

--Matthew Continetti, Weekly Standard

Wall Street Journal Stopped Clock Is Right Twice A Day Update

The WSJ asks the smartest question I've heard all week about the CitiBailout:

Why are Robert Rubin and other directors still employed?

More than a year into the financial crisis and decades into the perception that Citi is too big to fail, we once again have three tired guys making it up as they go. We wish Treasury Secretary Henry Paulson, New York Federal Reserve President Tim Geithner and Fed Chairman Ben Bernanke cared as much about their obligations to U.S. taxpayers as they do about the expectations of Asian investors. Few would argue that a bank with Citi's size and scope wasn't too big to fail, but is it too much to ask Washington to develop a policy that isn't crafted in a scramble of private phone calls?

To be fair, there are virtues here, when placed in the context of this year of bailouts. Unlike the initial AIG "rescue," this deal appears to be helping the intended beneficiary. In contrast to Bear Stearns, there is a more plausible case for systemic risk. What is missing is a statement that at least some American bankers still have the freedom to fail, an essential ingredient if we hope to restore functioning capital markets. Not a single one of Citigroup's senior managers and directors will be let go as a condition of taxpayer assistance that now totals close to $350 billion.

"Citi never sleeps," says the bank's advertising slogan. But its directors apparently do. While CEO Vikram Pandit can argue that many of Citi's problems were created before he arrived in 2007, most board members have no such excuse. Former Treasury Secretary Robert Rubin has served on the Citi board for a decade. For much of that time he was chairman of the executive committee, collecting tens of millions to massage the Beltway crowd, though apparently not for asking tough questions about risk management.

The writers at the Deal Journal blog remind us of one particularly egregious massaging, when Mr. Rubin tried to use political muscle to prop up Enron, a valued Citi client. Mr. Rubin asked a Treasury official to lean on credit-rating agencies to maintain a more positive rating than Enron deserved. What signal will President-elect Barack Obama send if his Administration, populated with Mr. Rubin's protégés, allows this uberfixer to continue flying hither and yon on the corporate jet while taxpayers foot the bill?

They have a valid point.

I'm still not convinced the new boss is any different from the corruption of the old boss. Obama's Economic Team(tm) has a lot of questions to answer.

The M Word

And Obama used it today. In public on the Teevee Box.

Mandate.

An interesting moment at Barack Obama's presser on the economy today: He declared in more direct terms than I've heard before that his "decisive" win has unquestionably given him a "mandate."

"We had, I think, a decisive win, because of the extraordinary desire for change on the part of the American people," he said in response to a reporter's question. "And so I don't think there is any question that we have a mandate to move the country in a new direction, and not continue the same old practices that have gotten us into the fix that we're in."

Of course Obama, being smart enough to know exactly what use of the M Word would then entail, promptly backtracks on it.

But Obama also tempered his claim to a mandate by acknowledging that he needs Republican help to succeed.

"I won 53 percent of the vote," he said. "That means 46 or 47 percent of the country voted for John McCain."

He added that he was entering the White House"with a sense of humility and a recognition that wisdom is not the monopoly of any one party. In order for us to be effective given the scope and the scale of the challenges we face, Republicans and Democrats are going to have to work together."

It's a start. No use rubbing it in the faces of the GOP he'll need in order to pass his legislation.

...I'm lying about that. Obama should really just tear into these assholes. Just once. Samuel L Jackson style.

Zandar's Thought Of The Day

If Nouriel Roubini can live with Obama's economic team, I guess I should stop being hard on Tim Geithner.

Maybe.

Hey Look, Another Bailout Program

The Treasury is tossing another $800 billion at the financial sector this morning. What's 12 figures between friends?

The U.S. Federal Reserve, in another massive life-support intervention for the U.S. financial system, Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.

The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises.

The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

The move is intended to strike at the heart of U.S. economic woes, the collapsed housing market.

Another $600 billion to take near worthless securitized debt off the books of banks. Of course the program is "intended to strike" at the housing depression. The real beneficiaries will continue to be banks with these toxic derivatives on the books.

And after the money comes in, they'll continue to sit on it, or use it to fund mergers and acquisitions. What they won't do is lend money to businesses and consumers, because the housing market and the accompanying collapse in the commercial real estate market is making lending that money out right now too much of a risk.

Besides, the banks know they have trillions and trillions more in bad derivatives lurking just off their balance sheets. $600 billion is just pissing on a skyscraper fire.

The $200 billion for securitized consumer loan products? A nice little gift to credit card companies this holiday season. The consumer is tapped out, and millions of defaults on credit card payments are going to be coming. Credit outfits aren't going to make effort one to use this to loan to new customers. They're going to need it just to stay alive. In this consumer-driven recession, with retail sales falling off a cliff and auto sales stalled out, credit card companies are on the front lines right now. They're in tremendous amounts of trouble.

If Americans walk away from their credit card payments, or even worse, pay off their debts and then cut up their cards in order to get their own financial houses in order, the credit card companies are screwed. This recession is going to put many of them out of business, and those that survive will have to do so by charging usurious rates, exorbinate fees and maximum penalties for cardholders who miss even one payment by one day.

The next couple of years will only be worse, no matter what Obama does.

StupidiNews!

• More than half of Americans are planning to spend less this holiday season.
• President Bush cranks up the pardon machine.
• Russia's Vladimir Putin wants his old job back.
• After Citigroup, is Bank of America next?
• Forget the NFL in HD, how about the NFL in 3-D?

Another Look At Obama's Team

HuffPo's Robert Kuttner takes a pretty detailed look at Obama's economic plan from a progressive's point of view.

As progressives, we can view President-Elect Obama's emerging economic team in one of two ways. Either he has disappointed us by picking a group of Clinton retreads--the very people who brought us the deregulation that produced the financial collapse; the fiscal conservatives who in the 1990s put budget balance ahead of rebuilding public institutions. Or we can conclude that he has very shrewdly named a team of technically competent centrists so that he can govern as a progressive in pragmatist's clothing--as he moves the political center to the left.

My fears of course are of the former, especially with Tim Geithner as SecTreas. He's constrained of course by *not* having Hank Paulson's job right now, and still having to deal with Bush's plans. But to fix this problem both Geithner and the rest of Obama's economic team are going to have to completely change gears.

I just don't see that happening. As Kuttner says, these are the same people that worked to come up with the Gramm-Leach-Bliley Act, the legislation that massively deregulated the financial industry. Clinton signed it into law and it passed with broad bipartisan support in both houses of Congress.

To his credit, Geithner has been a voice for more regulation. But nobody's talking about repealing GLB, which should be among the first of the major consequences the financial sector should have to accept for taking trillions of taxpayer dollars in corporate welfare.

Still, Kuttner has more confidence than I do.

In fairness, adults are not merely tools of their patrons. In recent months, Larry Summers has disagreed with Rubin on the scale of the needed stimulus. Tim Geithner is for far more regulation than Rubin. Jason Furman, though suggested by Rubin for his campaign post of economic policy director, actually spent more of his career working for Joseph Stiglitz than for Robert Rubin. Peter Orszag has done a fine job as director of the Congressional Budget Office, and is not averse to large scale public spending.

Obama is the president, and he will do what he deems necessary. In my writings during the campaign, I sometimes found myself second-guessing Obama's strategy--and he invariably turned out to be smarter than I was.

Obama is also famous for listening to a wide variety of views. Others among his senior staff, such as legislative director Phil Schiliro, are further to the left. But this economic team will have influence--in posing options, playing the role of gatekeeper, writing position papers, and serving as an echo chamber of each other's advice.

Obama is intelligent enough to reach his own conclusions, and they are likely to produce far more heartburn for conservative Republicans than for those who worked so hard to elect him. But it would be helpful if his senior economic team included even one person who was not a member of the same centrist club - a Joseph Stiglitz, a Jamie Galbraith, a Jared Bernstein or a Sheila Bair. We shall soon see whether the most interesting team of rivals in the Obama White House will be the president and his own economic advisers.

We'll see, indeed. Radical, earthshaking action will be needed to save our economy from depression over the next several months. Will Obama's team, as Obama has said, "do what will be necessary" to save the US economy?

I'm still not so sure. Obama will have to pleasantly surprise me.

Home, Home I'm Deranged

Where the fear and the antipathy play...

The pace of sales of existing homes in the United States fell 3.1 percent in October to a 4.98 million-unit annual rate, while the median home price dropped to its lowest in more than four years, a National Association of Realtors report showed on Monday.

Economists polled by Reuters were expecting home resales to set a 5.00 million-unit pace. September's figure was revised downwards to 5.14 million from 5.18 million.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,'' said Lawrence Yun, NAR chief economist.

The inventory of existing homes for sale slipped 0.9 percent to 4.23 million from 4.27 million in September. The median national home price declined 11.3 percent from a year ago to $183,300, the lowest since March 2004 when the median price was $183,200.

The percentage drop in prices was the biggest since the NAR started keeping records in 1968.

"We have favorable affordable conditions, but we need more than that to give buyers with jobs the confidence they need. Without home price stabilization, there will not be an economic recovery,'' Yun told reporters.

Ding ding ding!

Smartest piece of economic analysis you'll hear all year, right there.

Without home price stabilization, there will not be an economic recovery.

And as long as home prices continue to fall month after month, we're trapped in a deflationary spiral. Who's going to buy a home if the price is falling at 15-20% per year, guaranteeing negative equity in a few months and seeing an underwater mortgage in a year?

The problem is deflation now, not inflation. Particularly on long-term borrowing, deflation is going to be a killer on the markets. Less demand leads to price deflation, leading to higher unemployment as people are laid off, leading to even lower demand: the classic deflationary spiral.

The housing collapse is leading to trillions in deflationary pressure. Until housing stops falling, we're in trouble. The housing depression has gone on so long it's becoming self-perpetuating now, and that's the real danger.

Unless Obama can stabilize housing prices, everything else is spitting in the wind.