Monday, May 31, 2010

Careless people (Sunday Reflections for May 30, 2010)

People have used many words to describe their reaction to the unfolding catastrophe in the Gulf of Mexico. Shock, dismay, anger, grief, despair, and outrage are typical examples. One word you don’t hear much, if at all, is surprise.

This past Thursday, Chicago Tribune columnist Steve Chapman put his finger on this aspect of the Gulf oil disaster. It is yet one more massive screw-up, inflicting suffering on a massive scale, resulting from government and/or private institutions acting incompetently, recklessly, or criminally—if not all three.

This is not a new story but a recurring one. It describes the invasion of Iraq. It describes the failures that led to the destruction of New Orleans after Hurricane Katrina. It describes the financial crisis that led to the worst economic collapse since the Great Depression. It describes the explosion of the federal budget and the government debt in the last two years.

The aftermath of each event was chaos and pain, which seemed to surprise no one more than the architects of each failure. But the cost of their errors ended up being borne by those beneath them — soldiers in Iraq, homeowners in New Orleans, workers in companies far removed from Wall Street and taxpayers whose liabilities multiply like rabbits.

What adds to people’s disgust and cynicism is that so often the perpetrators of these fiascos are able to walk away. They may lose their jobs but usually their exile is to a life of luxury from fortunes and connections collected while planning and implementing these debacles.

Time and again, we are led into uncharted territory by leaders of one kind or another. We end up wandering in the wilderness while they proceed to the Promised Land. The culprits bring to mind the description of the Buchanans in The Great Gatsby: "They were careless people, Tom and Daisy — they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made."

Chapman goes on to repeat the now well-known survey reports finding public trust in institutions of all kinds is at an all-time low. One other statistic he cites also shows, however, that we shouldn’t assume such cynicism has always been the case. “In 1966, four out of five Americans trusted government to do the right thing all or most of the time. Today, four out of five do not.”

That high watermark of public trust was ended by two events in quick succession: the Vietnam War and the Watergate scandal. In both cases, political leaders went down paths of self-destruction reminiscent of the Hebrew prophets and Greek tragedies. Indeed, those ancient stories remind us that the propensity of leaders to act stupidly and selfishly is certainly nothing new. What is new, however, is that the power of modern leadership positions vastly compound their errors to wreak havoc beyond anything the ancients ever imagined.

The BP oil well blowout has made evident one serious problem. While the technology has continued to develop to now enable very deep drilling, the state of technology has hardly moved at all to prevent or control the accidents that inevitably occur. Something similar has occurred in the development of our modern society. The complexity of our public and private institutions has enabled the incredible standard of living we now enjoy. That complexity has also put great power in peoples’ hands which can and will be abused. We have not developed parallel institutions to check that abuse.

There has been much debate in recent years about the value of government regulation. Critics cite its inefficiency and tendency to add costly burdens to private industry. Yet recent events point to the need for more and better means of regulation and control. There needs to be a major attitude change about the necessity and role of watchdogs, examiners, testers and even the court system. Such people and their agencies need to be viewed as genuine public servants, guarding the public’s safety and welfare as much as anyone with a badge or a gun. This whole field needs to be seen as an honorable vocation, attracting people of the highest intellectual caliber and integrity.

People have not grown more evil, corrupt, or stupid. The mechanical and social tools at our disposal, however, have multiplied the ability of people to do great harm when their less noble sides take over. We must simply see it as a necessary part of advanced society that we devote significant talent and resources to knowledgably watch ourselves. Doing so both catches our unintended errors and makes us think twice about putting our hand in the cookie jar. The cost for this is more than balanced by the price we all pay when things go seriously wrong.

Wednesday, May 26, 2010

Hope sinks

The second angel sounded his trumpet, and something like a huge mountain, all ablaze, was thrown into the sea. A third of the sea turned into blood, a third of the living creatures in the sea died, and a third of the ships were destroyed. (Revelation 8:8)

It’s hard to know which is more astonishing: the yet ongoing creation of what likely will be the worst single ecological disaster of modern times or the somnambulant reaction of the public to this catastrophe. The reality, however, is that they are two sides of the same coin.

The American mainstream media has seemingly lost all ability to evaluate the events of our times. Its sole basis for deciding what to report are how many eyeballs a story will attract. If an event lacks sex or violence, has no immediately obvious connection to people’s everyday lives, is too complicated to be explained in 60 seconds, or is not trumpeted by a celebrity or well-known politician (the latter being a subset of the former), then its airtime or column space will be minimal, at best. Stories are not pursued or developed; there is no time or money for that. Besides, all the Woodwards and Bernsteins were long ago put out to pasture.

Needless to say, the oil industry culprits in this fiasco have no interest in drawing any more attention to the disaster than is unavoidable. Honestly, who can blame them? No, the scandal beyond the scandal of the blowout itself is the blanket being thrown over it by our government, with the acquiescence of President Obama. Beyond the public’s reaction, where is his outrage?

A month into this catastrophe, the unavoidable realization is that the president is keeping as much of this story below the radar screen as he can. There are probably multiple explanations for this but it fits with a disturbing pattern of this administration to shield big business from the consequences of its actions. A growing number of commentators are recognizing the parallel between the current hands-off attitude towards BP and the protection of the TBTF banks last year at the start of the Obama administration.

It is now obvious that BP has been lying from the start about the quantity of oil gushing from its blown well. Again, no surprise. What is incredible is how government agencies have not only not challenged BP’s estimates but have seemed to go out of their way to avoid coming up with their own figures. But this only continues what has also become obvious, the dereliction of duty at all levels of the agencies charged with regulating offshore drilling.

Following the almost laughably pathetic performance of oil and drilling company executives testifying before congress, President Obama came out to sternly chastise them for their finger pointing and blame games. There have also been announcements of regulatory reorganization. Yet the scope and horror of this event continues to be downplayed and, of course, the oil continues to pour out.

Obama’s lecture was very similar to his expression of dismay last winter with banking executives’ resistance to his reform proposals. For this appearance he trotted out grim faced Paul Volcker to stand at his side and relegated Treasury Secretary Tim Geithner to the sidelines. Volcker is known as the only administration figure to have consistently urged that the TBTF banks be severely reined in by new government regulation. But Volcker is only an advisor and, after Obama’s public tongue lashing of the banks, disappeared from view once again.

In the 1950s a GM CEO famously said, “What’s good for GM is good for the country.” Barack Obama seems to have accepted this philosophy, now applied to corporate America generally. It is very likely that he came into office having been convinced that the nation’s economy was on the precipice of a Depression-like collapse. And that assessment may very well have been accurate. Avoiding this, however, has resulted in two pernicious strategies. One was to keep the magnitude of the danger a secret to prevent the public’s panic from giving the economy the final push over the cliff. The second has been to give time and protection to the country’s seriously wounded banks and other corporations to enable them to rebuild and power a national recovery.

What has not been considered, however, is the possibility that the financial collapse was the result of systemic problems in the nation’s and even the world’s economy. For if that was the case, then simply putting all the old economic pieces back in place will only set us up for yet another crisis, probably worse than the last. And many financial and economic observers fear this is indeed what is in the offing. Increasingly, Obama’s fabled caution and pragmatism seems to playing right into the hands of those whose primary goal is protecting the status quo. Virtually all his advisors are Washington and Wall Street veterans who can only see the world from the perspective of those vantage points.

While the pettiness and goofiness of the Bush administration are gone, it is remarkable how little else has changed. What better sign of this was there than the announcement of yet another supplemental appropriation for the Pentagon? Combat deaths in Afghanistan have passed the 1,000 mark and more American troops are now there than in Iraq. Meanwhile the vision of our future in Afghanistan only gets murkier and our tactics become more reprehensible.

“Change you can believe in” was one of Obama’s primary campaign slogans yet change is exactly what seems to be most missing. Add to that “Yes we can” and “The power of hope” and the emptiness and cynicism of it all becomes all too familiar and very sad.

Having supported and voted for Barack Obama my feeling is of disappointment, of course, but also embarrassment and foolishness. I was taken for this ride once before with Bill Clinton—how could I not have learned? Fool me once: shame on you. Fool me twice: shame on me. And while the consequence of his words cannot be treated lightly, it is hard after a generation of misgovernment and deceit not to think again of Thomas Jefferson’s famous warning: “God forbid we should ever be twenty years without such a rebellion. …[W]hat country can preserve its liberties, if its rulers are not warned from time to time, that this people preserve the spirit of resistance? Let them take arms.”

Friday, May 21, 2010

Less it, more thou (Sunday Reflections for May 23, 2010)

The past month has been another roller coaster ride for Wall Street. Watching stock market gyrations in recent years has no doubt done wonders for Pepto-Bismol sales. And yet a longer term view shows that, when it comes the nation’s equity markets, things have really just been going nowhere in a hurry. With this week’s decline, the S&P 500 index (a broader measure than the DOW) is back at a point it first reached 12 years ago.

For as long as people have thought in terms of economics (a modern development, by the way), it has simply been assumed that the goal was always GROWTH—more, bigger, faster, better. In recent years there has been much worrying talk of our economy being "stagnant," "flat," or "stuck." Such conversations always occur among people with grim faces, communicating that these are seriously bad things.

There are a growing number of people, however, who are challenging that assumption. They have actually been around for quite awhile but in the past they usually were dismissed as naïve if not irrational. Not so much anymore.

It’s not that economic growth has suddenly gotten a bad name. Rather, it’s starting to become apparent that, whether we like the idea of constant growth or not, it may just not be possible anymore—at least not the way it used to be. In other words, the stock markets’ decade-plus seesaw may be telling us something important about a new world that we are entering.

The one factor leading to this new world that everyone is aware of is oil. The term “peak oil” is being discussed a lot these days. It refers to the fact that global oil production is slowly declining now—it’s “peaked.” New sources are still being found but they are (at best) only replacing depleted sources. Those new sources also tend to be harder to reach and therefore more expensive and more hazardous. At the same time, however, demand is growing as formerly under-developed countries build all the modern infrastructure of their developed neighbors. Other resources are also being strained to keep up with demand for all the concrete, steel, plastics, cables, microchips, etc these nations want. And then there’s that whole food thing (oh yeah, and water—hmm, anything else?).

Awareness of this has produced a lot of doom and gloom prognosticating. In addition to scholarly papers and books, Hollywood had found dystopian, end-of-the-world-as-we-know-it sagas great ways to show off their latest special effects gadgetry (3-D!!). They’re good money makers, as well, being the newest type of horror films, and we all know how much we like being scared to death (that ancient Greek catharsis thingy still seems to work).

Yet this is all based on the assumption, so common in the business world, that if you’re not growing then you’re dying. Indeed, it is built into our culture in so many ways and we learn it almost from birth. As consumers (a great word in itself) we are taught that, whatever we have, something better will be coming soon to render it obsolete and needing to be replaced. Planned obsolescence used to get people angry but now it’s an accepted part of life. “Of course, it broke after the warranty expired. What did you expect? Just go out and get a new one.”

What happens, though, if we find ourselves in a world where you can’t “just go out and get a new one”? For most of us, me included, it’s almost impossible to imagine. We are so accustomed to our lives being a climb up a ladder of ever-growing and improving products: toys, electronics, cars, houses, RVs, etc. Indeed—and here’s the rub—it’s the way we’ve come to measure and value our lives. “If I don’t have “X” by the time I’m 30/40/50 then, I’m a failure.” What else is there?

In the last chapter of Saving Jesus from the Church (the book a group of us have been discussing at church), author Robin Meyers concludes his re-imagining of Christianity by saying religion and life itself is all about relationships. He refers to the German Jewish philosopher and theologian Martin Buber (1878-1965), whose most famous book was I and Thou (Ich und Du, 1923). In his works, Meyers says, Buber “spelled out his belief that life at its depth is dialogical and that reality itself is defined by personal dialogue.”

The contrasting type of relationship is “I-It” in which a human relates to something else as an object. There is no dialog in such a relationship because the other is treated as a thing. We are unconcerned about what affect we may have on it and assume it can have no real affect on ourselves. “It” is disposable because it has little if any intrinsic value. “I-It” is the type of relationship most common in our lives, often even when we are relating to other people.

An “I-Thou” relationship, however, assumes that there will be genuine interaction. As a result of such a relationship, I will learn and grow, “I” will be affected and so will “Thou.” In the course of such a relationship, I will become a different person, and ideally a fuller and better one. Imagine if we evaluated our relationships on such a basis, and not just those with other people. Imagine if we asked about the inanimate objects that we consider acquiring, not just will it make me happy or impress my friends, but will it make me a better person, will I grow and learn from this?

It’s said that the Chinese for “crisis” combines the ideas of danger and opportunity. There is much danger in the current crisis but also real opportunity. Our current cultural lifestyle is rapidly becoming untenable. Yet most indications are that it hasn’t really been making us all that happy, anyway.

There is an opportunity here to stop and ask ourselves anew, “What really makes me happy?” Having more and bigger things hasn’t really been doing it for us. What if we saw our lives not as a journey of accumulation of things but as a journey of experiences which help us learn and grow as human beings? What if we asked of people and things, not how can we use them, but how can we relate to them and interact with them and be changed by them? Such a life would have little concern for price tags, size or speed. And the nice thing is that for that kind of growth, there doesn’t seem to be any limits.

Thursday, May 20, 2010

"Fasten your seatbelts--it's going to be a bumpy night"

American stock markets plunged about 4% today, their biggest drop in a year. Blame has been put on the surprise increase in weekly first time applications for unemployment benefits and the drop of a leading measure of future economic activity. Continued financial turmoil in Europe is also on everyone’s mind.

The DOW now officially stands “corrected” having receded 10% from its high in April. No one knows, of course, where this slide will end. Some are expecting another 10%. Other sages have sounded the “everyone out of the pool” alarm fearing that a free-fall is in the offing. Or it could all start climbing again (probably not).

Part of the uncertainty is the growing conviction that central banks are intervening heavily, including the Federal Reserve. It’s widely accepted that today’s turnaround of the previously falling euro was the result of purchases by the ECB (European Central Bank). Action by the Fed was also suspected. There have also been suspicions and rumors for some time that Fed purchases have even been pushing up the DOW, which would be unprecedented (and if true, probably illegal). In any case, there has been a steady outflow of funds from the markets for several months, which only accelerated after the crazy 90-minute plunge a couple weeks ago.

It seems pretty certain that we have turned another corner but to what is not at all clear. It is entirely possible that another downturn is beginning. Most real economic indicators have been going sideways for some months. The widely expressed fear, that last year’s stimulus bill was big enough to only halt the slide but not re-ignite the economy, may well be proving true. Many state governments are at the end of their budgetary ropes and cuts and layoffs are coming soon. Government housing supports are ending and prices and sales are likely to drop. The Fed’s monetary spigot is nearly shut off as its independent stimulus of buying junk of all kinds has ended. The ugly specter of deflation still looms, as shown by the first drop in consumer prices in a year.

So, yes, the markets are nervous and for good reason. Toss in social upheaval in Greece and Thailand, the continuing oil catastrophe in the Gulf of Mexico, a volcano in Iceland, and the announcement that it was indeed North Korea which had sunk a South Korean ship (which in another time would be classified “an act of war”) and you know lights are burning late in ministries and financial houses around the world. Yes, fasten your seatbelts.

Sunday, May 16, 2010

Recession Act 2

I had the opportunity to bend the ear of a Chicago financial advisor at dinner last night. Basically Tom confirmed a lot of what I have heard and read elsewhere, which was sobering. “We’re in for more pain, a lot more than most people realize.” A specific observation: “The money supply has been shrinking for five months straight. The economy can’t grow in such a situation.” With regards to our home state of Illinois and its ongoing financial mess, he noted this: His firm has recently been researching bonds. In every category, he said, whether amount or term length, the largest numbers for sale are State of Illinois. Everybody, it seems, is trying to get rid of them.

Contra the Washington mantra, the recovery is wobbly at best and very likely will be taking a pause in the second half of the year. Europe will now certainly be doing the same, nearly simultaneously it would seem. China’s economy is also likely heading for a slow down, probably in conjunction with its own real estate meltdown.

Almost every developed country has the goal of devaluing its currency to make its exports more competitive. This “race to the bottom” (as it’s been called) can’t work for everyone, of course, but looks least likely to work for the US Dollar which still functions as the world’s reserve currency. We won’t be “exporting” our way to recovery anytime soon.

One of the most amazing signs of the severity of this recession is that, despite the enormous amounts of money central banks are pouring into the global economy, the overall trend is still deflationary. TARP and the stimulus’ billions just seem to have been sucked up by the driest of sponges (hence the shrinking money supply). It’s almost impossible to overestimate the impact of the collapse of home and commercial real estate values (a slide many are predicting will be resuming soon).

I asked Tom if a great aunt surprisingly left him a $1 million dollars, what would he do with it right now? His reply: keep 30% in cash (USD) and put 70% in gold coins. That’s about as defensive as you can get. Batten down the hatches. The predictions of a decade-long stagnation are looking more accurate all the time.

Friday, May 14, 2010

Saving Jesus (Sunday Reflections for May 16, 2010)

Jesus’ primary mission was to expose the world’s sinfulness and then die on the cross so that the sins of those who believed in him would be forgiven, enabling them to go to heaven. He was not especially concerned about people’s daily lives, except for sexual impurity which he strongly condemned.

Attending many churches today or listening to many TV preachers, one who could easily believe such a statement summarizes the importance of Jesus. This Jesus, however, bears almost no resemblance to the Jesus we meet in the gospels. In the gospels, Jesus talks A LOT about people’s lives, especially their relationships with other people. He talks about the use of money and material possessions far more than he does about sex. Jesus says very little about “getting to heaven” and (with the possible exception of John, the last gospel to be written) does not interpret his death in those terms.

A group in our congregation has been reading a book by Oklahoma City pastor and author Robin Meyers. Its provocative title is Saving Jesus from the Church: How to Stop Worshiping Christ and Start Following Jesus.Meyers’ contention is that within a few centuries of Jesus’ death, the church effectively “declawed” Jesus (my term) as a result of its agreement with Constantine to become the official religion of the Roman Empire. Jesus stopped being a radical voice for change in human relations and in society. Instead he became an object of worship and, through the clergy, the sole official dispenser of tickets to heaven.

Over the past two centuries, modern biblical scholars have been attempting to re-discover the Jesus of history and it is this Jesus that Meyers is trying to promote. The world has changed—for the better—so that now people have little interest in a Christ to be passively worshiped. Today people are looking for guidance in dealing with the challenges and complexity of their lives and so instead the church needs to be presenting a Jesus to be followed.

Not everyone in the church endorses such a shift, of course. Clergy, especially, are reluctant to relinquish their “keys of the kingdom” power even if fewer and fewer people are interested in the door those keys supposedly open.

A recent article by Luther Seminary professor Gracia Grindal, a leader of ELCA dissidents, says that people traditionally came to worship to “hear the Word of God, to be reproved by it, not to be affirmed; to be cleansed of their unrighteousness.” Abandoning this tradition is what has led to the ELCA’s dramatic drop in worship attendance, she contends. Yet this ignores the fact that a church which presumably has kept this tradition, the Lutheran Church—Missouri Synod, has declined at the same time and just as fast at the ELCA.

The church as “morals police” is another role hard to let go of. Speaking this week in Fatima, Portugal, Pope Benedict declared that abortion and gay marriage are some of the most “insidious and dangerous” threats to the world today. Hearing this it’s hard not to recognize that an obsession with rooting out evil only leads to a complete distortion of one’s view of the world and of reality—and of Jesus. Ecological destruction is not a threat, even as a runaway well is dumping thousands of gallons of toxic oil into the ocean? Nuclear terrorism isn’t a threat, even as weapons multiply, their control weakens and global tensions increase? Economic injustice isn’t a threat as millions lose jobs, despair for their future, and the world’s wealth shifts ever more to the industrial titans at the top of the financial pyramid?

When in the 4th century the Roman Emperor Constantine formally embraced Christianity it was for one purpose: to find a new social glue to hold his tottering empire together. Sadly, the church’s leadership enthusiastically embraced this role and the prestige and power it gave them. In the centuries since the church has continued to view itself in this way, even as political and economic powers have found new and much more affective means for achieving Constantine’s goals.

The church’s pretense to either earthly or heavenly power now simply looks pathetic. It’s no wonder people today walk by the church’s door bemused and shaking their heads, if they notice it at all. What Robin Meyers and many others have recognized is that Jesus would be among them. The church established in his name has become exactly what Jesus himself railed against, an institution that is irrelevant when it’s not being oppressive.

As I wrote a couple weeks ago, however, people and the world still have real and important spiritual needs. Religion still can and should serve a genuine purpose, such as the five functions I quoted by Philip Goldberg. Such religion can’t be engaged in turf battles with religious and secular rivals. It can’t be obsessed with controlling people’s morality and personal lives. It can’t be distracted by theological disputes over words and rituals.

Rather, religion must do what Jesus did nearly two thousand years ago. It must take seriously people’s individual lives. It must help us see and understand two things: our lives and our world as they really are and how they could and should be. It must lead us to care for one another even as it leads us to a new appreciation of who we ourselves uniquely are.

Meyers quotes the medieval German mystic Meister Eckhart: “This then is salvation: to marvel at the beauty of created things and to marvel at the beauty of their Creator.” For the “Jesus movement” to regain any value or relevance, it must return to the very beginning and affirm the Bible’s understanding of our world and everything in it. In the first chapter of the first book, God looks on everything he has made and proclaims it all “very good.” In the second chapter Adam and Eve are placed in the garden to “till it and keep it.”

This world is indeed a beautiful marvel and we are the ones responsible for caring for it, which includes caring for each other. Reminding people of that and challenging those who failed to do that, especially those with power and authority, was Jesus’ message and mission. It is also what Jesus asked his followers to do. For the sake of the world, the church needs to get back to following that Jesus.

Monday, May 10, 2010

Market madness

Last Thursday's 1000 point joy ride provided Wall Street its most bizarre day ever--and there is still no explanation for it. Financial blogger Felix Salmon advised individual investors this is your last warning: get out of the market NOW. The waters are getting far too rough for any but the big boys to play in. 

And if you needed any more evidence that Wall Street has simply become an extension of Wonderland, there was this announcement today by Goldmas Sachs. During the 63 trading days of the 1st quarter of 2010, GS made money ON EVERY ONE OF THEM. This has never been done before in its history, the company said. Commentators say the odds of doing this are beyond calculation. Wall Street is now regularly described as a casino but it won't be long before Las Vegas sues for slander: that description is unfair to casinos and giving it a bad name.

Oh, Goldmas also issued one other statement today. It says it is anticipating further investigations of its practices and possible litigation as a result. Ya think?

Eurozone buys some time

European finance ministers came out of their late-night, closed-door meeting Sunday with all guns blazing. The question is, how long will their ammunition last?

In essence, the European Central Bank will buy up the bad debt of Greece (which Moody’s said it is about to drop to junk status) and any other EU countries needing help and issue its own bonds to pay for them. In this way, the whole of the EU (along with help from the IMF) is stepping in to back up its floundering members, to the tune of nearly $1 trillion. That sounds impressive until you realize that Greece’s debt alone is over $400 billion. Greece is in the worst shape but it is also one of the smallest of the EU member economies. Throw in the rest of the PIIGS (or PIGIS as I recently saw it spelled)—Portugal, Ireland, Italy and Spain—and that trillion bucks disappears in a hurry. Oh, and then there’s Hungary, and Austria’s not looking so good, and ….

The stock markets loved it, of course, but that could change in a hurry. This mess has now cost German Chancellor Angela Merkel her majority in the Upper House and a legal challenge to the bailout in German courts is entirely possible. The UK is trying to form a new government which is almost certain to be weak and short-lived. French President Sarkozy may also soon be facing an opposition controlled National Assembly due to public anger over the bailout.

EU leaders are pedaling as fast as they can and this weekend’s plan is straining the union’s legal structure (much of it was enacted through “emergency” provisions). There is growing concern that this weekend was a dramatic push towards a United States of Europe and there is certainly no consensus for that.

Many commentators have described the EU plan as a TARP for Europe. Its goal is largely the same. TARP took bad bank and other corporate debt and put in on the Federal Reserve’s books. The EU is now taking bad sovereign debt and putting in on the books of the ECB. In short, debt is being paid with more debt but now with taxpayers' help. In both cases the hope is that over time somehow the mess will clear itself up. It is not at all clear that is the case and, even it were true, that the credit markets will give it that time. This is high stakes poker unlike anything we’ve ever seen.

Note: Good analysis and discussion of the EU bailout can be found at many of the financial and economics blogs I have refered to in the past, including: Bill McBride's Calculated Risk (always my first stop), Paul Krugman's Conscience of a Liberal, Yves Smith's Naked Capitalism, and The Baseline Scenario of Simon Johnson and James Kwak.

Note 2: Here's a succinct evaluation of the bailout's problems from Bloomberg's Businessweek:

The leaders of the euro-area countries have thrown 750 billion euros ($963 billion) at shoring up confidence in the single currency. But it doesn’t matter how many zeros you put on the end of a bad idea. It’s still a bad idea.

In reality, you can’t stabilize a sinking ship.

The new stability package suffers from the same problem as all the other ones the European Union has come up with in the months since the Greek crisis started rattling the markets last year: It tries to fix the symptoms, not the causes.

Greece has exposed deep structural problems within the euro. There is no mechanism to stop governments breaking the rules. There is no popular support for massive fiscal transfers between countries. The rules for the euro area have turned out to be unreliable. And there is no way to start stimulating economic growth again in the heavily indebted nations.

Those are the hard questions. Even 750 billion euros won’t get close to answering any of them.

Friday, May 07, 2010


From Indexed via Barry Ritholtz at The Big Picture:

Dies irae (Sunday Reflections for May 9, 2010)

Hear this, you that trample on the needy,
and bring to ruin the poor of the land,
saying, "When will the new moon be over
so that we may sell grain;
and the sabbath,
so that we may offer wheat for sale?
We will make the ephah small and the shekel great,
and practice deceit with false balances,
buying the poor for silver
and the needy for a pair of sandals,
and selling the sweepings of the wheat."
The LORD has sworn by the pride of Jacob:
Surely I will never forget any of their deeds.
(Amos 8)

“Thus says the LORD!” The image of the thundering prophet is a part of our common culture, even if does not bring to everyone’s mind a specific character such as Jeremiah, Amos or John the Baptist. The Bible’s prophetic tradition may not be its most familiar but it likely has been its most influential. It certainly underlay Jesus’ mission as it has the work of countless reformers over the centuries, both religious and secular. In modern times it has been embodied in Gandhi, Martin Luther King and even Karl Marx.

The words of the prophets are inherently subversive. They are intended to shake up people and shake up institutions. They bring out into the light what is hiding in the shadows. They challenge established authority and conventional thinking. They make people squirm and often get them angry. They give people hope and courage. They are the Bible’s dynamite.

Hear this word, you cows of Bashan
who are on Mount Samaria,
who oppress the poor, who crush the needy,
who say to their husbands, "Bring something to drink!"
The Lord GOD has sworn by his holiness:
The time is surely coming upon you,
when they shall take you away with hooks,
even the last of you with fishhooks.
Through breaches in the wall you shall leave,
each one straight ahead;
and you shall be flung out into Harmon,
says the LORD.
(Amos 4)

Recently Wall Street’s largest investment firm, Goldman Sachs, was charged with fraud in a civil suit by the federal Securities and Exchange Commission. It’s reported that federal and state criminal investigations are also underway. Other similar companies may also be getting attention from regulators and prosecutors.

These investigations and legal actions are, of course, all a consequence of the 2008 financial meltdown which led, in turn, to the worst recession since the Great Depression of the 1930s. While some have explained this economic downturn as being an inevitable occurrence like the seasons, there is a growing consensus that its severity, at least, is the result of fraud and illegal market manipulation. In the case of the Goldman Sachs’ suit, it is charged with marketing and selling as an investment vehicle a mortgage backed security which had, in fact, been constructed to fail. And fail it did, costing investors about $1 billion.

Many see this case as the tip of the iceberg, a representative sample of the corruption that riddles Wall Street’s investment and banking operations. And many also see Wall Street itself as simply the largest and the most visible component of a global financial system that is riddled with fraud and fantasy (suspicions only strengthened by this week’s market gyrations).

When economists or financial commentators speak or write to explain it all, most of us just shake our heads or our eyes glaze over. “It’s just too much. Who can understand any of this?” Yet millions of ordinary people have lost jobs, lost their homes, and lost their retirement dreams in this latest financial debacle. We may not understand this game and yet we play it in some form almost every day.

John said to the crowds that came out to be baptized by him, "You brood of vipers! Who warned you to flee from the wrath to come? Bear fruits worthy of repentance…. Even now the ax is lying at the root of the trees; every tree therefore that does not bear good fruit is cut down and thrown into the fire." And the crowds asked him, "What then should we do?"…"Whoever has two coats must share with anyone who has none; and whoever has food must do likewise." (Luke 3)

The biblical prophets see corruption and injustice and they call it out. They don’t necessarily have a systemic solution for the problem. They see what’s wrong, however, and name it in no uncertain terms. No doubt they would be counseled to be practical, realistic, constructive, and not always so negative. What’s sobering about their stories is that in nearly every case their messages are ignored—and disaster follows.

There are voices today naming the evils of our financial and economic system. Few are political or economic authorities. Those that can’t be ignored are often dismissed as kooks. Yet with new communication outlets like the internet, their message is being heard even if not heeded.

None of these voices that I know of are religious authorities, but then neither were the biblical prophets. Interestingly, though, many are familiar with the Bible and the prophetic tradition. The root of much of the world’s economic misery is its enormous debt. Recently I have been hearing promotion of an ancient biblical concept: jubilee. This was the practice of debt forgiveness every quarter-century. It was intended as a great social leveling and an undoing of the injustice assumed inherent in all great debt burdens. Needless to say it would be the worst nightmare for bankers and politicians the world over.

The prophets were demanding, unreasonable, and sometimes hysterical. What they asked for was impossible, people said. Yet, according to the Bible, God spoke through them—and events proved them right. Their stories are a warning that in dangerous times the “unreasonable” voices are the ones we may need to listen to most of all. They may, in fact, be the voice of God who, if the past is any indication, also seems to have a penchant for being unreasonable.

Thursday, May 06, 2010

What a day! What next??

The craziness continues. The New York Stock Exchange went into free-fall this afternoon but then bounced back. In that short time the DOW fell 1000 points, its largest ever point drop and biggest percentage drop since 1987. At the close the DOW was off 348 pts or 3 percent.

In Europe, the Greek parliament approved the proposed austerity measures needed to qualify for the international bailout, while outside demonstrators again clashed with police. The conviction is growing, however, that this is too little, too late—and not just for Greece.

Meanwhile back in the US, government and stock exchange officials are working late into the night trying to figure out just what the hell happened today. NASDAQ has already said it will cancel some trades it believes were erroneous. How they are determining this is not clear and there is already talk of law suits. Many “retail” traders found themselves locked out of the market during the plunge as servers and broker websites crashed all around the country. Financial web sites and blogs had similar outages.

Regardless of possible mistaken orders or technical glitches, today’s market roller coaster was primarily about growing anxiety around the world that the economic recovery may be going off the rails, if it hasn’t been a mirage all along. Since the financial meltdown in 2008, the world’s economic problems have come down to one four-letter word: DEBT. In the US it was the sub-prime mortgage collapse that sent the economy over the edge. Now comes the sovereign debt crisis of Greece and who knows how many other European countries. In both cases this debt is held by institutions around the world and so everyone is involved.

We are in an extremely unstable economic situation and perhaps political as well. Today’s fiasco on Wall Street has dealt a severe blow to confidence not only in future economic prospects but in the integrity of the market itself. Events like this combine with revelations like the Goldman Sacks fraud case to raise serious suspicions about whether the whole US financial system isn’t rigged and with some pretty heavy fingers on the scales.

The voices are growing louder and more numerous expressing concerns that we are teetering on the brink of a second major economic downturn. In recent months I’ve read several pieces pointing out that the Depression began with two crashes, the famous one in 1929 and a less well-known but even deeper one in 1932. One of these quoted articles from 1931 expressing confidence in the “recovery” and that the economy was on a rebound. Just today Robert Samuelson voices his concerns along these lines in Newsweek.

There are a lot of worries being expressed these days. Many have noted that the dithering of European leaders is much like that of politicians in the early 1930s. There is concern that US action since the 2008 financial meltdown has been mostly window dressing and that Wall Street’s influence in Washington is so strong that politicians are incapable of anything really substantive. Many say that the debt crisis of developed countries around the world is being avoided because no one—politicians or voters—wants to face the fact that the only solution is a significant reduction in living standards across the board. Coupled with this is the fear and anger that those with political and financial power are manipulating economic developments to insure their living standards are untouched. Suspicion or awareness of this at some level explains the protests and violence in Greece, which many expect to spread elsewhere in coming months.

The coming days and weeks and months will certainly be interesting.

Wednesday, May 05, 2010

To fix the banks, first find the fraud

Conclusion of a presentation by economist and University of Texas at Austin professor James K. Galbraith before Senate Judiciary's subcommittee on crime:

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.
You can read the whole speach here and it is well worth it. As the first comment says: Wow.

Eurozone tottering (cont.)

Greece descended further into chaos today as demonstrations turned violent and deadly. Masses of protesters chanting, "Thieves! Thieves!" attempted to storm the parliament building and threw Molotov cocktails at police. Unsurprisingly yet tragically the first deaths also occurred as three bank employees died when demonstrators set fire to the bank building where they worked.

These episodes are making evident the one factor ignored in the financial and political calculations for saving Greece and the eurozone: namely, the verdict of the population at large. Greek labor leaders and others have figured out that the proposed “bailout” really only bails out the banks which foolishly gave Greece all the credit rope with which it has hung itself.

The bailout’s goal is to avoid a Greek default on its debt. In addition to billions of euros in new loans, this supposedly will be accomplished by drastic cutbacks in Greek living standards. Greek demonstrators are saying, “Sorry but we want everyone to share the pain.”

A restructuring of Greek debt is becoming increasingly likely, as market reactions are making clear. In other words, Greece’s creditors are going to take a hit. Alone this may not be such a big deal but the precedent it sets has bankers and the markets in a growing panic. The fear is that the rest of the PIIGS will quickly get in line for similar treatment and possibly other countries as well. Now we’re talking real pain for the banks which—despite the rosy claims of having “turned the corner”—are still in a precarious state.

Exposure of US banks to possible European defaults is not insignificant. In addition, such defaults would almost certainly mean a deepening of Europe’s recession and a devaluation of the euro. American exports would take a hit, further slowing or even reversing the US recovery. Despite such dire consequences, financial writer Simon Johnson says in a very pessimistic column that we should “expect nothing” in the way of genuinely constructive help from those in charge:

The Europeans will do nothing this week or for the foreseeable future. They have not planned for these events, they never gamed this scenario, and their decision-making structures are incapable of updating quickly enough. The incompetence at the level of top European institutions is profound and complete; do not let anyone fool you otherwise….

The Europeans will not lift a constructive finger. The leading emerging markets are too busy battening down the hatches (and accumulating ever more massive chests of reserves). And the White House still seems determined to sleep through this crisis. Expect nothing.

Tuesday, May 04, 2010

Eurozone tottering (cont.)

Greek protesters expressed their disdain today for austerity measures proposed by the government to qualify for international bailout funds. Unions marched in Athens' streets and a group broke through barricades to unfurl banners on the Acropolis.

Meanwhile, the financial world expressed its disdain for the whole EU debt mess by sending stock prices tumbling around the globe. The DOW dropped 225 points or 2%. There is growing concern that the cost of propping up all the EU's faltering economies will be more than anyone wants to afford. If so, then defaults by other EU PIIGS and beyond (Hungary?) will be inevitable and the affects will ricochet in all directions.