Monday, December 08, 2008

Let the Liberal Angst begin

Who woud'a thunk it? Barack Obama, that seductive Rorschach test of a candidate, that lightworker who promised to usher in a new era of progressive enlightenment, turned out to be just another politician pandering for votes:

Liberals voice concerns about Obama

Liberals are growing increasingly nervous – and some just flat-out angry – that President-elect Barack Obama seems to be stiffing them on Cabinet jobs and policy choices.

Obama has reversed pledges to immediately repeal tax cuts for the wealthy and take on Big Oil. He’s hedged his call for a quick drawdown in Iraq. And he’s stocking his White House with anything but stalwarts of the left.

Now some are shedding a reluctance to puncture the liberal euphoria at being rid of President George W. Bush to say, in effect, that the new boss looks like the old boss.

“He has confirmed what our suspicions were by surrounding himself with a centrist to right cabinet. But we do hope that before it's all over we can get at least one authentic progressive appointment,” said Tim Carpenter, national director of the Progressive Democrats of America.

OpenLeft blogger Chris Bowers went so far as to issue this plaintive plea: “Isn't there ever a point when we can get an actual Democratic administration?”

Even supporters make clear they’re on the lookout for backsliding. “There’s a concern that he keep his basic promises and people are going to watch him,” said Roger Hickey, a co-founder of Campaign for America’s Future.

Obama insists he hasn’t abandoned the goals that made him feel to some like a liberal savior. But the left’s bill of particulars against Obama is long, and growing.

Obama drew rousing applause at campaign events when he vowed to tax the windfall profits of oil companies. As president-elect, Obama says he won’t enact the tax.

Obama’s pledge to repeal the Bush tax cuts and redistribute that money to the middle class made him a hero among Democrats who said the cuts favored the wealthy. But now he’s struck a more cautious stance on rolling back tax cuts for people making over $250,000 a year, signaling he’ll merely let them expire as scheduled at the end of 2010.

Obama’s post-election rhetoric on Iraq and choices for national security team have some liberal Democrats even more perplexed. As a candidate, Obama defined and separated himself from his challengers by highlighting his opposition to the war in Iraq from the start. He promised to begin to end the war on his first day in office.

Now Obama’s says that on his first day in office he will begin to “design a plan for a responsible drawdown,” as he told NBC’s “Meet the Press” Sunday. Obama has also filled his national security positions with supporters of the Iraq war: Sen. Hillary Clinton, who voted to authorize force in Iraq, as his secretary of state; and President George W. Bush’s defense secretary, Robert Gates, continuing in the same role.

The central premise of the left’s criticism is direct – don’t bite the hand that feeds, Mr. President-elect. The Internet that helped him so much during the election is lighting up with irritation and critiques.

“There don't seem to be any liberals in Obama's cabinet,” writes John Aravosis, the editor of “What does all of this mean for Obama's policies, and just as important, Obama Supreme Court announcements?”

“Actually, it reminds me a bit of the campaign, at least the beginning and the middle, when the Obama campaign didn't seem particularly interested in reaching out to progressives,” Aravosis continues. “Once they realized that in order to win they needed to marshal everyone on their side, the reaching out began. I hope we're not seeing a similar ‘we can do it alone’ approach in the transition team.”

This isn’t the first liberal letdown over Obama, who promptly angered the left after winning the Democratic primary by announcing he backed a compromise that would allow warrantless wiretapping on U.S. soil to continue.


I had a secret suspicion that Obama may have been a closet moderate all along, and thankfully recent developments have begun to confirm that suspicion.


Blogger Harry Eagar said...

I think you're being somewhat unfair. Obama thinks highly of himself, but he never described himself as a lightworker. In fact, nobody but a lone loon did that.

Bush will leave a government financially crippled enough that Obama won't be able to do anything that costs money -- while not deliberate this time as it was in the '80s, I am sure the paleocons are smiling about that.

I am very puzzled by the notion that Obama does not represent 'change,' since he is bringing back retread Democrats. I thought the change was away from Bush.

Keeping a Republican or two in the Cabinet is a typical Democratic concession to the raving right. As long as it's not Paulson, that's cool.

December 08, 2008 11:27 AM  
Blogger erp said...

Harry, I believe this sentence "Bush will leave a government financially crippled enough that Obama ..." was incorrectly constructed. It should read: "The government was financially crippled enough prior to Bush leaving ...".

You know very well that Bush had nothing to do with crippling the economy.

As for lightworker? Where did all those pictures of Obama back lit or with a halo around him looking up to the heavens, or ... too many to mention come from. Surely he okayed every word and picture that was made public.

December 08, 2008 12:21 PM  
Blogger Susan's Husband said...

Obama and his campaign certainly encouraged that sort of hagiography and I think the "light worker" reference is a good, if a bit exaggerated, reference to that whole phenomenon.

December 08, 2008 2:12 PM  
Blogger Harry Eagar said...

Candidates can pressure but do not have approval of, say, Time covers. US covers, yes; Time, no.

erp, you and Skipper have to get over the idea that the Democrats and the CRA caused the trouble. The cause was unsupervised financial markets, nothing more and nothing less.

And that's Reaganism, pure and simple.

I have a few things to say about that, obliquely, at Restating the Obvious today, in the context of the first crash of Barings bank, in 1890. Really, Bill Clinton did not cause that one.

December 08, 2008 4:39 PM  
Blogger erp said...

Harry, for a guy who's had as many varied experiences, traveled and read as enormously as you, your conclusions seem naive.

FDR & the WPA? That world ended more than a half century ago. Americans have gotten soft, it's unlikely middle aged men will live in tents and eat in soup kitchens while they do the kind of heavy labor that built all those bridges and sidewalks.

That kind of work is done by heavy machinery now and that takes expert knowledge. Shovels and pickaxes need not apply.

Look around. Socialism, restrictions and supervised markets are the path to poverty and misery. Surely there are enough examples that you have to deliberately overlook them to not see it.

Obama will scare the bejesus out of the public so they'll okay whatever he wants to do. By the time buyer remorse sets in, we'll be so much in the tank, it will be long painful climb out.

I sure hope it doesn't take too long. Even though I won't be around to see it, I'd like my grandchildren to have to lives they born into and not live in a third world banana republic because a lot of very savvy people found a perfect foil for their dream of a socialist USA.

December 08, 2008 6:36 PM  
Blogger Susan's Husband said...

You mean unregulated financial markets like this? I think we can all agree that was a bad idea we shouldn't repeat.

December 08, 2008 6:49 PM  
Blogger Hey Skipper said...

you and Skipper have to get over the idea that the Democrats and the CRA caused the trouble.

Simply repeating that is not making your case.

The Economist a month or so ago did a pretty long and detailed history of the mortgage market meltdown.

They put the CRA right at the top of the slippery slope.

This is what the NYT had to say about how this started:

While questionable mortgages made to risky borrowers prompted the credit crisis, regulators and investors who continue to pick through the wreckage are finding that exotic products known as derivatives — like those that Merrill used — transformed a financial brush fire into a conflagration.

Do a little thought experiment. Instead of the CRA, Congress passed a law requiring 7 years documented employment history and 20% down on a house.

Anything change?

December 08, 2008 9:43 PM  
Blogger Brit said...

Dear God, that Lightworker article is horrendous, a total car crash of a piece. I wish I could unread it, and I bet the twit will soon wish he could unwrite it.

December 09, 2008 1:44 AM  
Blogger Duck said...

Brit, I bet he is very proud of the piece.

December 09, 2008 7:53 AM  
Blogger Harry Eagar said...

Anything change? No, not really. Just the timing.

The AP's Stephen Ohlemacher has a piece today about how the economic downturn, as revealed by census data, show an economy during the first half of the Bush administration that 'touched nearly every U.S. community. Incomes dropped while poverty and unemployment rose in the vast majority of the nation's cities and towns.'

Skipper, you lived in one of them. Without the CRA, the economy would still have had to deal with:

1. Huge current account deficit.

2. Hollowing out of local economic networks due to deliberate policy of exporting jobs overseas.

3. Too easy retail credit.

4. Disinvestment in infrastructure.

5. Imbalances in medical system.

6. Illegal immigrants driving down domestic wages.

And a few others.

It was unsustainable. You will recall that the Reaganomics economists were crowing about the 'fact' that a greater proportion of Americans owned their homes than ever before.

There were plenty of 3% and 5% (and for vets, 0%) mortgages written in the early '90s, and a lot of those people got foreclosed when the economy contracted due to a) the demilitarization of California; b) the popping of the yen bubble; and c) Gulf War I.

That did not bring the financial system to its knees. It takes a while for things to reach a critical point.

If mortgages, even dicey ones, had been held by local lenders, then the string could have been run out much farther, probably. Mortgage-backed securities were invented in 1985. They were a bad idea then, but it took a while for it to work out.

The idea of depending on short-term foreign investors to support long-term domestic housing was also a bad one and sure to crash at some point.

The decoupling of rewards from competence throughout American management, so spectacularly on display in every corner of business today, also was unsustainable in the long run.

Lastly, the failure to adapt Glass-Steagall to novel banking forms guaranteed a crash.

December 09, 2008 9:31 AM  
Blogger Duck said...

I agree with some of Harry's points. There was a lot of bad underwriting that had nothing to do with CRA. This whole mess was founded on the erroneously accepted conventional wisdom that housing prices can never fall. I don't know how many times I heard that refrain over the last eight years from people who should have known better. You can't manage risks whose existence you don't accept.

Regulations might have helped, but that assumes that the regulators are smarter than the people you are regulating.

Plus the Chinese should have been investing their savings in rural China, not the suburbs of San Diego. There was plenty of stupidity to go around.

Before we shoot all the lawyers, we should shoot all the quants. Quantitative analysis based on erroneous assumptions enabled this mess.

December 09, 2008 10:18 AM  
Blogger Ali said...

Yeah, the Wall Streeters neither knew nor cared about what they were doing.

Michael Lewis has the best take on what happened.

December 09, 2008 1:24 PM  
Blogger erp said...

True, but they wouldn't have had all those gazillions to squander if the small banks hadn't sold off their risky mtges to larger banks and on and on until it all landed in the biggest banks of all on Wall Street. By that time, like the bogus dot com market ponzi scheme frenzy of 80's there was no there there and it had to collapse.

December 09, 2008 2:54 PM  
Blogger Duck said...

Here's a quote from the Lewis article, that echoes my comments:

"But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says."

December 09, 2008 3:31 PM  
Blogger Hey Skipper said...


Anything change? No, not really. Just the timing.

No, really. Things do change.

Subprime mortgages do not happen. The housing asset bubble does not happen. Fannie Mae and Freddie Mac -- the hideous GSEs -- don't get a chance to give the appearance of greatly reducing risk in the housing market.

That article is of a piece with AP's "accountability journalism".

In other words, it is a mendacious vista.

Here is just one example: [The new numbers] also explain why voters soured so much on President George W. Bush's handling of the economy, even before the current financial crisis.

Which implies, if not outright states, that Bush was responsible for the dot com bubble.

Skipper, you lived in one of them.

Yeah, sure did. The UAW bears, but refuses to acknowledge, most of the blame.

Your list of particulars is fair enough, but what economy in a world inhabited by humans does not have problems?

It would be wonderful if, say, the Chinese (among others) were to allow the RMB to float. Unfortunately, until they do, we, just like every other worthwhile economy on the planet is going to run a trade deficit with them.

If there is a deliberate policy to export US jobs overseas, I'd love to see a reference to it, and how it is supposed to work.

Conversely, a deliberate Chinese policy to import jobs is easy to envision, and demands rather more answer than what you have given as what to do about it.

That said, none of those things take separately, or together, brings the financial system to its knees.

Not even local lenders selling off mortgages does it. Unless, of course, those bundled mortgages contain those that came about due to the CRA infection, further enabled by the FMs.

December 10, 2008 2:10 PM  
Blogger Harry Eagar said...

'If there is a deliberate policy to export US jobs overseas, I'd love to see a reference to it, and how it is supposed to work.'

It's called a free trade agreement.

That's a unicorn, but the jobs go nonetheless.

An exception to the policy was the refusal to regulate Wall St., on the ground that capital markets would flee to some other, unregulated place (London, in the most obvious scenario), costing hundreds of thousands of the kinds of jobs that people who go to Harvard care about.

See my post "Ironing out Detroit" at Restating the Obvious for an example of the UAW trying but failing to get Big 3 management to behave sensibly.

Nothing in the CRA obliged AIG to make naked bets on default swaps. Wall St. was a bucket shop. I know, David objected to my characterization a couple weeks ago, but I was right. AIG was making bets on securities that never existed.

December 11, 2008 9:54 AM  
Blogger Hey Skipper said...

It's called a free trade agreement.

What is the alternative, particularly one that doesn't hand no end of power to politicians?

I note note you have not acknowledged that the flip side of wages is prices. Nor have you noted the consequences of trade, where it is most unfree (agricultural products) on both consumers and producers, particularly in poor countries.

Nothing in the CRA obliged AIG to make naked bets on default swaps. Wall St. was a bucket shop.

Acknowledged. However, the CRA, in combination with the FFMs made the problem central, rather than peripheral.

That is why it changed much more than "timing", and, no matter the underlying good intentions, had destructive consequences.

IMH (and not awfully well educated) opinion, there does need to be some regulation, but it should be light, and focused primarily on leverage and transparency.

No leverage is bad -- imagine what the US would look like if an 80% down payment, instead of 20% -- was required for a house. Infinite leverage, which is what a 0% down payment amounts to, is bad.

Before the CRA, the mortgage market was operating in the Goldilocks region. We need to extend the lessons learned there to all financial markets.

December 11, 2008 11:17 AM  
Blogger Harry Eagar said...

'Nor have you noted the consequences of trade, where it is most unfree (agricultural products) on both consumers and producers, particularly in poor countries.'

Again, follow links at "Ironing out Detroit."

Free trade has been a disaster -- that is, people are going to die -- for agriculture.

Markets don't work. At least, they don't work the way Adam Smith thought they worked. They work especially badly where (as with food or water) there is an absolute upper bound of the desired resource.

I have no particular objection to letting the market have free rein if the commodity in question is football tickets or ladies slingback sandals.

December 11, 2008 1:06 PM  
Blogger Hey Skipper said...

Free trade has been a disaster -- that is, people are going to die -- for agriculture.

You can't possibly believe there is any such thing as free trade in agriculture. Between our own stygian plethora of agricultural programs, and the EU's CAP, so much wealth is transferred to rich world farmers that developing world farmers would get undercut in their own markets without import taxes (thereby entrenching developing world inefficiencies). And where they might otherwise be able to compete, our subsidies and import barriers make it impossible.

Markets don't work.

With respect to what? All you have offered so far is a nullity.

They work especially badly where (as with food or water) there is an absolute upper bound of the desired resource.

Huh? What upper bound?

(BTW -- I didn't notice any links at "Ironing out Detroit".)

December 11, 2008 4:45 PM  
Blogger Harry Eagar said...

My mistake. The link is at 'Bank error in your favor.'

No way subsistence farmers are going to compete with Iowa farmers.

The European butter mountain doesn't help, but it isn't the origin of the problem.

I am talking here about farmers who, in their best years, have very little surplus. These are the ones who are going to die.

When it comes to farming, there is an upper bound, in both the short and the long term. If you are manufacturing ski boots, the number of boots you can make is more or less infinite. When you are sowing wheat, there is an upper bound.

The production of wheat per hectare ranges from 1 ton in Afghanistan to 6 T in Kansas to 15 T in France. Not only are these numbers not close, the inputs that create them are more or less incommensurable. Kansas farmers cannot reach French outputs, there is an upper bound (population of Kansas).

December 11, 2008 9:57 PM  

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