John McGowan, September 29, 2008
What’s coming down the pike? It's pretty certain that it's not going to be the good news, especially where the US economy is concerned. The short-term prognosis is terrible and the long-term fundamentals worse. But here’s a silver lining. The Depression caused a lot of suffering - and a realignment of the American economy. From 1933 to 1973, economic inequality in America declined, creating that vast middle class of which we have so rightfully been proud. Since 1973 the middle class has been decimated, split into an upper, professional middle class that has done alright for itself and a non-professional middle class that has steadily lost ground. Meanwhile the excess wealth, the part that used to go to that non-professional middle class, has been Hoovered up by the very wealthy. Maybe the outrage generated by the bailout, along with the coming economic downturn, will provide the political will and clout to actually turn the post-1973 trend around. Redistribution of wealth? You bet. Wealth’s been relentlessly redistributed upward over the past 35 years. A correction in the other direction is long overdue.
John McGowan, September 29, 2008
It looks like most everyone will hold their noses and vote for the bailout plan. House Republicans may very well refuse to come along, but the Democrats can live with that unless John McCain also decides his best chance is to sucker the Democrats into backing the Republican president while he runs on being a “maverick.” There’s no telling what McCain might do; his behavior the past week gives a whole new meaning to the word “erratic.” But when it comes to choosing between its populist and its business wings, the Republican Party has generally understood which side its bread is buttered on. The bailout stinks. Make no mistake about that. But doing nothing is not really an option. And doing what the House Republicans suggested is worse than doing nothing since they seem, once again, to not have the slightest idea of how a modern economy works. All they can keep repeating is the old Reagan mantra of government being the problem and of cutting taxes, when the first is patently not true in this case and the second is irrelevant.
John McGowan, September 22, 2008
If the Bush Administration tried to ruin America’s economy, it could hardly have achieved that goal more quickly then its spend-now-pay-later policies have done. Feckless is the best word to describe its three page sketch of a bailout plan that will cost $700 billion. Basically, their message is “trust us.” Yes, Henry Paulson solemnly tells us, the regulatory system needs an overhaul. (He doesn’t mention that it might be just fine, and that our current mess comes from non-enforcement, not bad rules.) But first, pass the bailout package, since speed is of the essence—and then we’ll get to the messy details of reform later on. In other words, sell the store, then try to bargain with the new owner over the details of the sale afterwards. If the past 40 years have anything to teach us, it is that only government has the slightest ability to stand up to the power of business, and that business left to its own devices will foul the nest that lays the golden eggs. Here we are, in the midst of one of those periodic crises that seem to be getting more frequent, with everyone assuring us that this crisis dwarfs the savings and loan mess, the 1987 crash, and the dot.com bust. Yet the resistance to any coherent or enforced government regulation continues as the Bush administration plans to rob the federal treasury to pay for Wall Street’s greed.
Tom Murphy, September 18, 2008
It's hard to say what would have happened if AIG had crashed and burned. Instead, the government bailed it out with a loan based on the company's risky assets. Just two days earlier, the government declined to extend the same courtesy to Lehman Brothers, but there are a couple of differences worth noting. First, if AIG went under, it probably would have created a financial tsunami capable of triggering economic panic around the globe. As it is, the idea that the insurer is now partly owned by the US - a government not known for cost-efficiency - is frightening enough. Second, Lehman had another way to go, which has become obvious now that Barclay's has agreed to buy part of the trouble US investment bank. Lehman shareholders took a huge loss, but that reflects the risk of holding onto a troubled financial stock long after many other investors bailed. Would someone have bailed out AIG? Probably not, given that the few firms big enough to do so aren't looking to add more risk to their portfolios. What's an individual investor to make of all this? First, if you can't risk a huge loss in your retirement portfolio, don't buy risky financial stocks - no matter how much they've fallen. The market isn't dumb. Those stocks are cheap for a reason. Second, take a look at your own portfolio. Where are the risks? What's done well? How much cash do you have if things go south? We could be facing years of financial turbulence. If things get really bad, do you think the government will bail you out, like it did with AIG? Or will it leave you on your own, like Lehman?
Tom Murphy, September 16, 2008
\It's a relief in many ways to see Uncle Sam refraining from rescuing Lehman Brothers, the venerable Wall Street investment bank that, among other things, helped to finance the transcontinental railroad. This action was a lot different from the case earlier this year where the government did step in to finance the takeover of Bear Stearns. At that point, the credit crunch was little understood and was getting much worse. And it's different from the case with Fannie and Freddie, institutions whose main assets are middle class American homes. In this case, Lehman has been teetering on the brink for months and had lots of time to fix its problems or shop itself to would-be suitors. Ultimately, it faltered because it waited too long. It's very sad for investors who held onto those shares for too long; they could have sold long ago. But by letting the big bank fail, the government reminded us that investments on Wall Street at times like these carry a lot of risk - a lesson that applies to those planning a retirement as much as it does to the financial industry's biggest players.
John McGowan, September 8, 2008
The credit mess is the trouble that just keeps on coming while the federal government remains the sugar uncle that just keeps on giving. As the old saying goes, the only risk-free way to rob a bank is to own it.While they are making profits, financiers describe themselves as noble risk-takers who are only reaping the just fruits of their heroism.But when the losses start, the whole financial edifice on which our economy is based cannot be allowed to collapse;Uncle Sam to the rescue again.Freddie and Fannie, it now seems clear in retrospect, were a bad idea, some kind of unworkable hybrid between a private, free-market financial institution and a nationalized loan provider.Don’t believe for a minute, however, that it was a honest mistake that created Fannie and Freddie. The financiers knew exactly what they were doing when they created entities that would deliver all the profits to private investors, but make all the losses come out on the government’s tab.The only good that can come of the current credit crisis is a totally revamped financial system that brings some sanity back by placing risk squarely on those who loan out the money.Don’t hold your breath in anticipation of such reform.There are powerful economic players who, for reasons perfectly obvious, like the game played by its current rules of I win, you pay and I lose, you pay. A craven Congress has not, over the past 40 years, shown any inclination to stand up to those players.
John McGowan, September 2, 2008
How extensive was the background check performed by John McCain and his campaign team on Sarah Palin? We now know that McCain only met Palin once four months ago and that he spoke to her once briefly on the phone before presenting her as her VP choice. That presentation included her lie about being against the infamous “Bridge to Nowhere," while the McCain campaign apparently was unaware that she, as governor, supported - and got passed - a windfall profits tax on the oil companies. They also seemed to have missed that she is under investigation from a bipartisan legislative committee for abuse of power. With all these oversights, can we really believe that they did know all about her daughter’s pregnancy? Are these really the people we want running our government? At best, McCain and his team have been revealed as incompetent; at worst, they have displayed an astounding lack of judgment about something that is not only important but also that they had every reason to do right.
John McGowan, August 19, 2008
That didn’t last long, did it? Ten years, give or take a few months, between America's triumph in the first Gulf War and the start of the insurgency in Iraq. Ten years when America stood alone, the supreme power in a post-Communist world.But now China, some kind of capitalist-communist hybrid, challenges American economic supremacy, while Russia is making a comeback as the troublesome giant at Europe’s back door. Bogged down in the Middle East, in wars that deplete its economic and its military resources, the United States doesn’t have many options at the moment. It can bluster, but it can’t do anything to change China’s or Russia’s behavior significantly.No wonder Russia is taking its own sweet time about leaving Georgia. There’s no penalty for its staying. Americans - and American foreign policy - would do well to face the fact that the United States is not alone in the world and is no longer, if it ever really was, in a position to dictate the terms of international conflicts or agreements.
John McGowan, August 10, 2008
To understand the current hostilities in Georgia, you have to go back to the 1999 NATO action in Kosovo. It was NATO, not the United Nations, that intervened in Kosovo to protect the ethnic Albanians there from the Serbians, because Russia blocked any UN action. NATO, in effect, made Kosovo’s bid for independence from Serbia possible in the name of the humanitarian protection of an ethnic group that was in the majority in the particular province but not the ruling group in the whole nation. Russia (as well as China) condemned NATO’s action—and both Russia and China have refused to recognize Kosovo’s independence. Now Russia has played the same game in South Ossetia that NATO played in Kosovo; it has intervened militarily to prevent a central government—in this case, Georgia—from bringing a secessionist province back under control. To revive a term that hasn’t had much play lately, Russia considers Georgia within its “sphere of influence,” just as NATO considered chaos in the Balkans as too close to home to ignore. The larger point is that, in the post 1989 world, the ability of the superpowers to prevent or contain local sectarian, ethnic, or tribal disputes has proved almost nil, but that doesn’t keep them from trying. Meanwhile, the UN is as paralyzed as ever, lacking both the moral legitimacy and the raw power it would need to be effective.
John McGowan, August 4, 2008
I first heard of Alexander Solzhenitsyn when I was a sophomore in high school, probably from an article in Time magazine. I got a copy of his novel, First Circle, from the public library and took it that night to a babysitting gig I had in the neighborhood. The father of the seven year old I was minding took one look at the book and said, “You’ll never read all that.” Needless to say, that insured that I finished the six hundred page book. In fact, it wasn’t a hard read, almost a page-turner. I went on to read two more Solzhenitsyn novels while in high school, but it wasn’t until may years later that I read his non-fiction masterpiece, The Gulag Archipelago. Of course, left-leaning apologists for the Soviet Union had plenty of reasons—the murder of Trotsky, the Moscow show trials, the non-aggression pact with Hitler, the invasion of Hungary—before Solzhenitsyn’s exposé of the Soviet prison system to abandon all trust or hope in Russia. But there was something about Solzhenitsyn’s first-person testimony and the banked fury of his eight hundred page tome that brooked no argument. After 1975, it really became impossible for anyone to deny that Communist Russia had been a disaster of staggering magnitude for the Russian people. The Soviet Union’s collapse in 1989 was partly a result of its utter loss of moral legitimacy—and Solzhenitsyn did more than any other single human being to show the Russian Communists’ crimes to the world.
John McGowan, July 27, 2008
We’ve got inflation. How could that news surprise anyone? The mystery is how the government could claim that inflation was practically non-existent over the past 10 years. For those of us actually paying the bills, costs have steadily gone up for years. So why is it only now that the statistics bear out what everyone knows? The big difference is the cost of commodities. It is true that things like scissors, light bulbs, computers, and cars have been remarkably constant in price over the past 10 to 15 years. Food wasn’t quite as stable, but still only climbed moderately. The big increases were in services, everything from college tuitions to getting your leaky faucet fixed. The biggest increases of all were in housing costs—as if the competition for prime housing soaked up all the savings on commodities. Now we have a reversal; the housing market is down just when the cost of oil is driving commodity prices up. And since the government’s way of calculating inflation is heavily reliant on the price of commodities, the government is finally catching up with reality: life just keeps getting more expensive.
John McGowan, July 15, 2008
Today’s question: What ways are open for intervention in the criminal practices of another nation? Since World War II, there have been four favored routes: economic sanctions, multilateral military intervention, multilateral negotiation (with aid serving as the carrot, and military action as the stick), and criminal proceedings such as the Nuremburg trials or the trials of the Libyan plane bombers. The Bush Administration has generally scorned all four of these methods, with the exception of economic sanctions. And the Republicans are adamantly against the US accepting the authority of the International Criminal Court. The actual impact of the court is doubtful. The indictment of Sudanese President Omar al-Bashir for crimes in Darfur may have the awful effect of making things worse for the victims of al-Bashir’s murderous policies. So the American reluctance to join the court is somewhat understandable. But that same reluctance is also connected to the Americans’ desire to remain a law unto themselves. Jane Mayer’s new book, The Dark Side: The Inside Story of How the War on Terror Turned into a War on American Ideals, makes it clear that the current administration has, by every international standard, tortured prisoners. Who will call the Americans to account?
Tom Murphy, July 9, 2008
Not so long ago, a president couldn't go to war on his own. After Pearl Harbor, for example, President Roosevelt asked Congress to declare war and it did without hesitation. The War Powers Act of 1973 changed that. In the nuclear age, the thinking was the president wouldn't have time for permission. But since then, presidents have ordered attacks on other countries, and committed American troops to full-fledged conflicts in places like Grenada, Nicaragua, Kosovo, Afghanistan and Iraq. In some cases, Congress gave the president authority for short-term action that turned into long-term action. In others, the president acted alone. Now a bipartisan panel recommends laws that require the president to ask Congress before going to war. The present state of affairs in Afghanistan and Iraq, not to mention ongoing threats against Iran, suggest it's time for a new approach, or perhaps an old one.
John McGowan, July 7, 2008
Calling Jesse Helms “the polarizer” is exactly right. None of the obituaries I’ve seen have credited Helms with two of the inventions that have contributed greatly to the partisan brickbats thrown in Congress these days. The first was the trick of adding amendments on flag burning or funding for the National Endowment to the Arts to every bill that came before the Senate. Then you can run an election campaign ad that says “my opponent voted for flag burning 97 times. ”The second was the creation of a personal PAC. The Senator collects money from across the country through the mail-order route (in those days) and then doles it out to various congressional colleagues to help them in their campaigns, thus accumulating power through a new kind of patronage system. And, of course, also drives up the cost of Congressional elections as a by-product. That Helms could be a charming man I can attest through the stories told by many friends and colleagues here in North Carolina for whom he provided his signature exceptional service for constituents. But to insist, as Mitch McConnell of Kentucky, has this week, that “Helms was no bigot” flies in the face of what the man stood and fought for in Congress over three decades. Just think of it this way: do you think anyone felt called upon to say, when Paul Wellstone died, that “he was no bigot?”
