Archive for March, 2008

I Agree with Bill Richardson

March 22, 2008
Bill Richardson endorsed Barack Obama for President this week.  In his endorsement he called Obama’s speech on race an historic speech (click attached link to view the speech).  I wholeheartedly agree.  Listening to the speech, I felt the way I have felt listening to Martin Luther King’s speeches or reading Lincoln’s speeches.  Obama turned an apology for Reverend Wright’s intolerant remarks into an uplifting appeal to our better angels.  His eloquence and power to move us are truly unique. 


From a political standpoint as well, it was brilliant.  He confronted the Wright comments head on and managed to turn a weakness into a strength. As Richardson pointed out, Obama, ahead in the delegate count, could have been more cautious and waited for it all to blow over.  He was brave, confident, poised.


Barack Obama gives voice to our frustrations as well as to our desire to love and do good in the world.  It is emotionally satisfying to listen to him.  True, his speeches contain plenty of politics; this one reverted to the tested applause lines of bashing corporations, the special interests, the Iraq War, and above all, Bush.  But none of that diminishes the energy of his walking us through how blacks in America feel, how whites in America feel, how we should understand the bitterness and misunderstanding on both sides.  Nor does it diminish the power of his own story, of his having white grandparents who at once loved him completely and harbored some parochial and perhaps bigoted views about blacks.  Very imperfectly human.

He did a pretty good job explaining Reverend Wright, his anger about racism against blacks, his imperfect humanness, at once helping the downtrodden and harboring bigoted views.  While he sharply criticized Wright’s wrong views, he sought to diminish the impact by explaining why he holds them.  It is what conservatives typically hate about liberals, their tendency to want to explain deviant behavior – be it crime, Islamic terrorism, or bigotry among minorities – rather than to simply categorically condemn it. 

Yet this speech contained one of the most eloquent explanations of human contradiction I have ever heard.  Our simultaneous failings and potential.  The capacity to love and hate, build and destroy.  Obama exhorted us to aspire to the best that is in us.  He gave a profound speech, painting a very human picture, right in the middle of one of the most competitive presidential elections in our history.  Brave, confident, poised.   

Obama’s very candidacy asks us to move beyond our divisions, to come together to solve problems.  It is a compelling message.  What I call my “aspirational politics” are fully behind the candidacy of Barack Obama.  I aspire to live in a world wrought by Barack Obama, like the world created by the writers of The West Wing. Yet my actual politics are more cautious, more realistic, or some might say, more cynical.

A president must also help identify answers, solutions.  He/she is an executive, so he/she must guide an enormous bureaucracy, set priorities, lead.  Speeches are important.  Without them, you are a failed president.  But speeches aren’t enough.

In his speech, Obama exhorted blacks to identify their economic challenges with those of the wider nation.  He exhorted whites to try to understand the injustices faced by minorities.  But, his only allusions to solutions were “cut and paste” from the stump – stop corporations from shipping jobs overseas, give everyone health care paid for by the government, stop the Iraq War, stop the lobbyists and special interests. 


His speech was uplifting, but also pessimistic.  It was pessimistic in that it looked at what is wrong with America.  Ronald Reagan told us it was “morning in America.”  You could not shake Reagan’s unshakeable belief that there was nothing wrong with America.  I’m not saying there is nothing wrong with America.  I’m just saying that perhaps Obama believes there is more wrong with America than there actually is. 


He explains that America is great, because only in America could someone with his story have the opportunity to become president.  But he only partially understands why this is so.  In his speech, he correctly alluded to the Constitution and the fact that America’s flawed institutions from the founding of the Republic contained the seeds of change, the promise of equality for all Americans.   This was a very moving part of his speech for me, because it was the source of Lincoln’s greatness. 

Lincoln understood that America’s democratic institutions were robust and could withstand a Civil War that ended slavery.  These institutions could be updated and perfected to include more people and give voice to their aspirations, avoiding the bloody revolutions occurring throughout the world and throughout history.

But what Barack Obama may not fully understand is that in addition to inclusion, people desire an improving standard of living and economic security. 

For most of the people of the world, excluding the exceptionally good among us, our better angels only come out when we have jobs.  It is our liberal, capitalist economy that ensures social peace.  It is globalization, international trade, a well-run fiscal policy, a well-run monetary policy, prudent regulation of banks and other institutions, adequate taxes to fund education, a police force, the armed forces and a social safety net, but not prohibitive taxes that discourage entrepreneurship – in short, it is our flexible, dynamic economy that keeps America’s standard of living high, including that of blacks and other minorities.  And this keeps racial tensions to a minimum, emotions from boiling over, bloody revolutions from happening.  Recognition of another person’s pain a la Obama is important, but a sound economy is more important.

We’re not sure how Obama would act on economic policy, but his campaign and track record lean left. Bill Clinton and his Treasury Secretary Bob Rubin were centrists.  They made fiscal policy fairer than it was under Reagan, but they let markets function relatively unfettered; they passed NAFTA and brought China into the global trading system.  Market economics was the core belief of the centrist Democratic Leadership Council, which Bill Clinton co-founded, and the New Democrat Network.  It seems to me that this winning agenda, which by the way was the successful agenda of New Labour in Britain under Tony Blair, may to an extent escape Barack Obama. 

At this point in history, what do we need more, racial healing or a sound management of economic and foreign policies?  From this point of view, it was a little odd that, during the week that Bear Stearns almost failed, Barack Obama gave a speech on race.


Richardson alluded to the fact that Barack Obama opened up, calmly and with decency, about how people feel about race in this country.  So, in the spirit of understanding, allow me to open up a little on a personal level: how one Jewish-American feels about this speech, from a Jewish perspective. 


Reverend Wright called Zionism a form of white racism.  Barack Obama criticized this statement, saying, and I paraphrase, that to blame the ills in the Middle East completely on the actions of an ally (Israel) and not on radical Islam, is unfair.  

I basked in that line.  I swam in it.  I danced among its words and letters.  Thank you, Barack. You made me feel great. 

I’m not being facetious.  I really did love that line and was so happy he said it.  But, again from my personal Jewish perspective, I felt he could have said more. 

He didn’t go into why Wright was wrong about Zionism.  He didn’t discuss Jesse Jackson’s Hymie-town remark or Louis Farrakhan.  He didn’t discuss the Jewish frustration that black nationalism, Million-Man-March-pull-yourself-up-by-the-bootstraps activism sometimes contains anti-Semitism.  He didn’t explain, why, why Reverend Wright in speaking out about white oppression of blacks in this country felt a need to take a swipe at the Jews.  Is it the competition of the oppressed for the mantle of persecution?

He didn’t discuss the parallels between the simultaneous good works of Wright’s church and his racist oratory on the one hand, and Hamas, with its simultaneous social welfare programs and genocidal Jew-hatred on the other. 

He exhorted white Americans, tired of hearing about the plight of black Americans, to try to understand black bitterness. But he didn’t exhort non-Jews in America, tired of hearing about anti-Semitism and Israel, to understand the sensitivity of Jews to these issues, given the Holocaust and the history of anti-Semitism, even in America.   He didn’t criticize Walt and Mearsheimer, two prominent American political scientists, for resuscitating the golem of Jewish control of the government.  But after all, it was a speech on race, not on anti-Semitism.

So, Bill Richardson was impressed by how far Barack Obama went in his speech, but one Jewish-American felt he didn’t go far enough.


Obama didn’t speak about how Reverend Wright may be misinformed about Zionism and that someone should simply explain to him that Zionism is Civil Rights. 


Zionism is Civil Rights.


It is the quintessence of Civil Rights.  A homeland in Palestine for the Jews, a globally persecuted minority for thousands of years, is Civil Rights.  Giving Jews the civil rights to live peaceably in their own country after one third of them were murdered as the world looked on.  A country they have lived in since time immemorial (my relatives have been in Jerusalem for five centuries).  Sure, the Palestinian problem is complex.  Arafat and the Husseinis who led them wouldn’t accept partition.  Sure, Israel hasn’t always treated the Palestinians well. Some people view some settlements as a barrier to peace. But let me say it again: Zionism is Civil Rights. 


Pro-Israel friends of Barack Obama should encourage him to say this. Such a statement coming from Barack Obama would show me, a Jew, concerned about his pastor and his association with Brzezinski and others, that he really means it when he says he wants to bridge rifts, heal wounds, recognize injustice, bring people together.  It would go far to healing black-Jewish tensions.  And, it is a true statement.  Zionism is not racism.  Zionism is Civil Rights. This is my inner angry Jew speaking to Barack Obama’s inner angry black man.  Just say the words.  Just say it.

And now to all the Bush bashing.  I’m tired of it.  Obama says he wants to stop the old politics, the politics of personal destruction, yet he trashes W at every turn.  When Bill Richardson, during his endorsement, blamed everything from the recession to global warming to the extinction of the dinosaurs on George W. Bush, Obama smiled, clapped and bellowed, “Yeah!”  If we’re trying to understand the other, aspire to our better angels, liberals should try to understand Republicans, instead of demonizing them.

Finally, as in all of his speeches, Barack Obama suggests that the way forward to this nirvana of racial peace and jobs and good schools is through his candidacy. If we don’t join his movement, as he said in his speech, we’ll go back to politics as usual.  This smacks a little of hubris, that he believes he represents perhaps the only way forward.

In short, it was a powerful, moving speech.  I came a step closer to pulling the lever for Obama.  The speech sought to explain human nature, our failings, our strengths.  It sought to explain how the different races feel about each other, and it called on us to understand our fellow humans.  It appealed to our better nature. It was rooted in who Barack Obama is.  Truly extraordinary. 

Yet Obama remains short on practical solutions, short on understanding how the global economy has made us successful, has underpinned our aspirations and our social peace. And, for all his efforts to give voice to the frustration of different ethnic groups in order to engender understanding, I, as a Jew, felt he could have said more. True, he failed to mention the plight of many other ethnic groups.  Yet my inner angry Jew still cries, Zionism is Civil Rights.  Repeat after me.  Tell Reverend Wright.      

Walking the Tightrope

March 17, 2008

The US Government has come to the rescue.  Unlike after the 1929 Stock Market Crash, policy makers in the US and across the globe are taking action to contain the spread to the wider economy of the losses mounting in the financial sector.  Years of speculation in housing, fed by interest rates held too low for too long by the Greenspan Fed, have come to a crashing end.  The government has begun to use its powers to foster an orderly adjustment of home and stock prices, while attempting to avoid what is known as “systemic risk,” i.e. when problems at some financial institutions threaten the integrity of the whole financial system on which our economy depends. 


Three problems remain: 


First, the government only has so many levers at its disposal.  It can pump money into the financial system, but cannot get financial institutions to lend or consumers and businesses to spend.  It can spend its own money, which it is doing with the stimulus package.  It can inspire confidence in its management of the economy, an elusive but necessary task. 


Second, warriors tend to fight the last battle, unable to see what new threats are on the horizon.  Will the government perceive what the critical problems are?  Is it the banks?  The investment banks?  The hedge funds?  The complex, often crazy financial products called “derivatives?” Which problems should they focus on? 


Third, politicians are involved.  They blame each other, can’t resist the impulse to partisanship, especially so in an election year.  This crisis does point up the need for voters to consider who among the candidates for president and Congress is up to the task of managing a financial crisis.  Right now, it seems voters have other considerations in mind.

The dimensions of the problem: There are roughly $10 trillion of mortgages in the United States, representing nearly three-quarters of our GDP, which was $13.8 trillion last year.  The next largest economy in the world is Japan’s, which is about one-third as large, then Germany’s and China’s, each about one-fifth the size of the US economy. You can see how the US economy dwarfs the rest of the world, how dependent the rest of the world is on us through trade, and how large and menacing our housing crisis could become.

The American consumer drives our economy, responsible for 70% of purchases, yet many US consumers are feeling the pain of the real estate crisis. Some have negative equity in their homes (their mortgages are larger than the value of their homes). Some are losing jobs (more will), and many are nervous.  Consumers are slowing their spending, and the economy is in recession. 

Of the $10 trillion in mortgages, about $1.5 trillion represent “subprime,” the marginal borrowers who are losing their homes. There are signs the subprime problem is spreading.   The banks that made loans during the boom are seeing some of their loans go bad.  But the banks also sliced and diced loans into mortgage-backed securities and sold them to the likes of Bear Stearns, the investment bank that went under over the weekend.

Because the banks, investment banks, hedge funds and others borrow and lend to one another, sound financial institutions could be at risk when a Bear Stearns fails.  This is “systemic risk.”  The government’s job is to prevent systemic risk from becoming, well, systemic. 


The government has another, conflicting goal.  It seeks to avoid what is called “moral hazard.”  Moral hazard occurs when the government bails out institutions, causing bankers to learn that they can bet the bank and not worry because the feds will bail them out.  Hence, the government seeks to teach these bankers a lesson from time to time, while avoiding systemic risk.  It’s like walking a tight rope.


Hank Paulson, appointed Secretary of the Treasury by Bush, Tim Geithner, President of the New York Fed and a protégé of Democrat Bob Rubin who ran the Treasury under Clinton, and Ben Bernanke, Chairman of the Fed and a Bush appointee, as well as many of their talented subordinates, did an excellent tight rope walk over the weekend.  They burned Bear Stearns shareholders by paying them $2 a share for a bank worth $160 a share in January 2007.  Ouch!  Thirty percent of Bear Stearns stock is owned by its employees.   Double ouch!  Hopefully, the deal won’t unravel.

A disorderly bankruptcy of the Bear was avoided, which could have dragged others under.  They did it with some public money, while putting a large and strong financial institution, JP Morgan, on the hook for all the risk (and, mind you, all the potential reward).  Bravo Gentlemen!  Bravo Ladies!  A job well done.  You are avoiding the ignominy of your predecessors who mishandled the 1929 Crash. 

What else have they done?  They are attempting innovative solutions geared toward the current, not the last, crisis.  The Fed announced over the weekend it was lending to investment banks, which has not been done in the past, and accepting dodgy collateral, such as mortgage-backed securities.  Critics cry “Moral Hazard!” but these are difficult times.  As long as the Fed has an exit strategy for these innovative measures, once a sense of normalcy has returned to the markets, they can limit the damage from a moral hazard point of view. 

The US government is seeking to avoid what happened to Japan in the 1990s and make amends for what Sir Alan wrought. 

Alan Greenspan’s Fed failed to act against the rapidly rising prices of real estate and stocks earlier this decade because his 1970s thinking dictated that you raise interest rates only against rising prices of goods and services, what we commonly know as inflation, not against rising prices of financial assets.   It was a mantra he repeated.  It was accepted monetary orthodoxy.  Goods price inflation was low earlier this decade, but financial asset prices were run amuck.  Economists know that when financial asset prices rise – when the value of your home and stock portfolio increases — people feel richer and ultimately spend more, bidding up goods prices and ultimately causing the more traditional inflation. Sir Alan stayed too long in the job. 

The Bank of Japan in the 1990s after its stock market and real estate bubble burst also stuck to monetary orthodoxy.  Instead of purchasing corporate debt to inject money into the financial system, the BoJ sat on the sidelines and Japan experienced its “lost decade” of low growth.  The Bernanke Fed, I expect with some consultation with Secretary Paulson, is seeking to avoid a Japanese-style “lost decade,” lending money to investment banks and accepting mortgages as collateral.


Thus, US policy makers are attempting to confront the problems of “limited policy levers” and “fighting the last war.”  Yet the third problem is more nettlesome. 




Last week Senator Chuck Schumer, in the middle of the Bear Stearns crisis, was running around calling Bush, “Herbert Hoover,” the man widely credited with doing nothing as the Great Depression took shape.   Barney Frank got into the fray with similar rhetoric, as did the two Democratic presidential candidates.  Okay, it is an election year. 

Today, on the other hand, Schumer was more careful.  I saw him interviewed on MSNBC.  He extolled Republicans Paulson and Bernanke, but still couldn’t resist at the end of the interview, pounding Bush for doing nothing.  Pollsters must be advising the Dems that Bush is so unpopular that he should serve as the lightning rod of all criticism in their adrenaline-rushed dash to recapture the White House, even at the expense of undermining confidence in the government in the middle of a financial crisis. 

Alas, as part of this mad dash, the Democrats have boxed themselves in on trade.  One of the dynamics that exacerbated the Great Depression in the thirties was the vicious cycle of protectionism that took place, the so-called “beggar-thy-neighbor” policies that sharply restricted international trade.  I erect tariffs and quotas against your exports to my country; you erect them against my exports to your country.  We’re both worse off.  Both of our economies shrink. 

In Ohio, Obama and Clinton promised to scrap NAFTA, the free trade agreement with Mexico and Canada, and to be very cautious on future trade agreements.  Democrats in Congress constantly threaten trade protection against China.  Good politics perhaps.  Bad economics. 

NAFTA has been good for the United States; ask people living in border communities in Texas.  Sure, some manufacturing workers in Ohio and elsewhere have lost their jobs.  It is not clear that this is a result of NAFTA.  It could be the result of a Japanese car company opening up a plant in Alabama at lower cost than plants in Ohio or Michigan.  Nevertheless, to soften the blow of adjustment due to trade, we need government-sponsored retraining and job placement services.  But don’t damage the overall US economy, which is resilient and strong, in an effort to postpone the inevitable.  I don’t care what Barack Obama promises you in his speeches. 


The Democrats have boxed themselves in on trade, making it virtually impossible to pass a free trade agreement with Colombia, an ally that badly needs it, or to liberalize trade with the wider world.


Which brings us to the choice in November and for those of you in Pennsylvania (and North Carolina) over the next couple of months.  Bush picked Hank Paulson to head the Treasury, and he is doing a fine job.  Bill Clinton picked Bob Rubin to head the Treasury, and he helped navigate our economy through a number of crises.  Who will the candidates choose to help manage the economy and walk the next tightrope? 


And don’t forget that elusive role of government in a crisis.  Who among the candidates has the gravitas and credibility to inspire confidence in his/her management of the economy?   Have a think on that.