Third Way Dispatch: Category General Commentary

President Obama's Inauguration

contact@thirdway.com (Matt Bennett, Vice President for Public Affairs) — Wed, 21 Jan 2009 08:33:00 -0700

All of us at Third Way watched President Obama’s inauguration with deep emotion and enormous pride in our country.

Below is his magnificent inauguration speech. Below that is the inaugural poem by Elizabeth Alexander. As she so eloquently wrote, today “anything can be made, any sentence begun.” We greet this new day in America with that spirit.

President Obama

My fellow citizens -

I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and cooperation he has shown throughout this transition.

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we the people have remained faithful to the ideals of our forebears, and true to our founding documents.

So it has been. So it must be with this generation of Americans.

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land — a nagging fear that America’s decline is inevitable, and that the next generation must lower its sights.

Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met.

On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.

On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics.

We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free and all deserve a chance to pursue their full measure of happiness.

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.

For us, they packed up their few worldly possessions and traveled across oceans in search of a new life.

For us, they toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth.

For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sanh.

Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction.

This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act — not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. All this we will do.

Now, there are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. Those of us who manage the public’s dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control — and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart — not out of charity, but because it is the surest route to our common good.

As for our common defense, we reject as false the choice between our safety and our ideals. Our founding fathers … our found fathers, faced with perils we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man, a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience’s sake. And so to all the other peoples and governments who are watching today, from the grandest capitals to the small village where my father was born: know that America is a friend of each nation and every man, woman, and child who seeks a future of peace and dignity, and that we are ready to lead once more.

Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.

We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort — even greater cooperation and understanding between nations. We will begin to responsibly leave Iraq to its people, and forge a hard-earned peace in Afghanistan. With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus — and non-believers. We are shaped by every language and culture, drawn from every end of this Earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace.

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society’s ills on the West — know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist.

To the people of poor nations, we pledge to work alongside you to make your farms flourish and let clean waters flow; to nourish starved bodies and feed hungry minds. And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to the suffering outside our borders; nor can we consume the world’s resources without regard to effect. For the world has changed, and we must change with it.

As we consider the road that unfolds before us, we remember with humble gratitude those brave Americans who, at this very hour, patrol far-off deserts and distant mountains. They have something to tell us, just as the fallen heroes who lie in Arlington whisper through the ages. We honor them not only because they are guardians of our liberty, but because they embody the spirit of service; a willingness to find meaning in something greater than themselves. And yet, at this moment — a moment that will define a generation — it is precisely this spirit that must inhabit us all.

For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours. It is the firefighter’s courage to storm a stairway filled with smoke, but also a parent’s willingness to nurture a child, that finally decides our fate.

Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends — hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism — these things are old. These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths. What is required of us now is a new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

This is the price and the promise of citizenship.

This is the source of our confidence — the knowledge that God calls on us to shape an uncertain destiny.

This is the meaning of our liberty and our creed — why men and women and children of every race and every faith can join in celebration across this magnificent Mall, and why a man whose father less than sixty years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath.

So let us mark this day with remembrance, of who we are and how far we have traveled. In the year of America’s birth, in the coldest of months, a small band of patriots huddled by dying campfires on the shores of an icy river. The capital was abandoned. The enemy was advancing. The snow was stained with blood. At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people:

“Let it be told to the future world … that in the depth of winter, when nothing but hope and virtue could survive…that the city and the country, alarmed at one common danger, came forth to meet (it).”

America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children’s children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God’s grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

Thank you. God bless you. And God bless the United States of America.

Elizabeth Alexander’s poem:

Praise song for the day.

Each day we go about our business, walking past each other, catching each others’ eyes or not, about to speak or speaking. All about us is noise. All about us is noise and bramble, thorn and din, each one of our ancestors on our tongues. Someone is stitching up a hem, darning a hole in a uniform, patching a tire, repairing the things in need of repair.

Someone is trying to make music somewhere with a pair of wooden spoons on an oil drum with cello, boom box, harmonica, voice.

A woman and her son wait for the bus.

A farmer considers the changing sky; A teacher says, “Take out your pencils. Begin.”

We encounter each other in words, words spiny or smooth, whispered or declaimed; words to consider, reconsider.

We cross dirt roads and highways that mark the will of someone and then others who said, “I need to see what’s on the other side; I know there’s something better down the road.”

We need to find a place where we are safe; We walk into that which we cannot yet see.

Say it plain, that many have died for this day. Sing the names of the dead who brought us here, who laid the train tracks, raised the bridges, picked the cotton and the lettuce, built brick by brick the glittering edifices they would then keep clean and work inside of.

Praise song for struggle; praise song for the day. Praise song for every hand-lettered sign; The figuring it out at kitchen tables.

Some live by “Love thy neighbor as thy self.”

Others by first do no harm, or take no more than you need.

What if the mightiest word is love, love beyond marital, filial, national. Love that casts a widening pool of light. Love with no need to preempt grievance.

In today’s sharp sparkle, this winter air, anything can be made, any sentence begun.

On the brink, on the brim, on the cusp—praise song for walking forward in that light.

The Roots of the Financial Crisis

contact@thirdway.com (Anne Kim, Director of The Middle Class Project) — Thu, 02 Oct 2008 06:45:00 -0600

Note: This was authored by Stephen Rose, a consulting economist and former senior economic fellow for Third Way and is reprinted from stats.org

To paraphrase a famous saying: the road to financial ruin was paved with good intentions.

But to understand what has happened, you have to start with understanding the role that finance plays in the economy.

This begins with the basic capitalist act—starting a business to make a profit. This process starts with a leap of faith that putting up money today will lead to more money in the future. Even established companies are constantly expanding and changing product lines to respond to the signals from the market. To do this, they are either risking previous profits or having to finance new activities. Consequently, companies always need money at the beginning of each production cycle. This money can come from the individual business proprietor, a small group of people (partnerships), a large group of people (corporate stock) and loans from banks and individuals (bonds). The difference between “equity financing” and “debt financing” is based on how the future profits are provided: lenders are paid first at a fixed rate of return while the owners divide the profits which can vary widely.

Companies turn to debt financing because they don’t have enough capital themselves or as a profit maximizing strategy. To understand the latter approach, consider the following two ways of funding a $100 million project that is expected to last one year and generate revenues of $112 million. For the owner who puts up the entire amount, the profit rate is 12%. An alternative way of financing this project is to borrow $50 million and personally invest the other $50 million. If the interest rate of the loan is 10%, then $55 million must be paid back to the bank at the end of year, resulting in a profit of $7 million or 14% return on the investment.

In financial parlance, the use of the loan permitted the investor to “leverage” his $50 million into the $100 million he needed. If sales in this example turned out to be $106 million rather than the planned $112 million, the profit rates on the two financing schemes change dramatically. In the first case where the investor put up the entire amount, the profit rate would be 6%. The leveraged investor, on the other hand, would still have to pay back $55 million leaving only $1 million of profits or a 2% rate of return on his $50 million. Even worse, if sales turned out to be $96 million, the owner’s loss would not be $4 million but $9 million (because he still would have to pay the bank $55 million). So, the use of debt financing magnifies the risks and rewards of the equity owners.

In addition to loans to businesses for production activities, consumers and government are also users of debt financing. In most cases, the borrowing is used to finance activities whose benefits are spread out over many years. For the public sector, this means public works and transportation activities. By contrast, loans to consumers were originally for home mortgages only. By requiring large down payments, lenders seemed to be protected because they could foreclose and sell the home at auction to recover the outstanding principal.

This broad stroke outline of finance shows that it performs many useful functions. A counter-intuitive statement is that debt is democratic. Although borrowers worry about repayments, using debt enabled them access to resources, be it a new house, furthering their education, or starting a new business. As Glen Yago puts it: “In the absence of inherited wealth or the granting of seigniorial rights to property, debt has been a central tool for acquiring productive assets.” {reference: Junk Bonds: How High Yield Securities Restructured Corporate America, New York and Oxford: Oxford University Press, 1991, p. 109.} The next step is to follow the money and find out where the money for loans comes from. Instead of dealing with person-to-person transactions, institutions develop to combine small amounts of money from many people into a common pot. Banks then are “intermediaries”—they collect money from one group of people and then make it available to another group of people. They make a profit because they pay their depositors less than they charge for their loans.

They can only do this because all of the depositors do not ask for their money at the same time. Hence, they only have a relatively small proportion of their assets readily available (“liquid”) to meet the normal flow of money in and out of their accounts.

As intermediaries, they are mainly dealing with other people’s money and there are many different ways in which the system can break down. Because time and risk are so integral to this process, banks loans are just claims on future money streams. Of course, banks expect some loans not to be repaid but there are unexpected downturns that can lead to a higher than anticipated rate of default.

To account for this potential, banks are supposed to keep a reserve that not only includes a fixed share of depositor’s money but a sizable amount of money from the owners of the bank. Banking practices are supposedly made to be “prudent” because the first money that is applied to losses is the capital of the owners.

A run on a bank occurs when depositors feel that the bank is about to become bankrupt. As many people show up at the door at the same time, the bank is unable to provide the cash and must close its door. This is what happened at the beginning of the 1930s (and happened in Argentina and Uruguay as recently as 2001). To combat this happening again in the US, a series of new regulations were imposed (culminating in the Glass-Steagall Act of 1933) creating federal deposit insurance, new oversight of banks with higher capital requirements, and a strict division between different types of financial institutions.

Once the economy rebounded strongly after World War II, banking became a boring business that one analyst called “3-6-3 banking”—pay your depositors 3%, lend at 6%, and be on the golf course by 3 PM. Savings and Loans banks were particularly hemmed in by regulations that limited what they could pay depositors and the fact that they lent money for long periods of time (they were predominantly home mortgage lenders). The high inflation of the 1970s put them in an untenable position such that in 1980, 85% of the 3,800 federally-chartered S&Ls were losing money.

The deregulation movement that began in the 1970s picked up momentum with Reagan’s push for ‘less government.’ One of the first major pieces of financial regulation was the Garn-St. Germain Act of 1982, which freed the tight reins on the S&Ls. In many ways, this attempt to rely on the market was too late and misguided. Many S&Ls had lost their capital base and were truly playing with other people’s money. Because they had nothing to lose, they made big bets on loans to risky projects (that had high interest rates) hoping that they could recoup their lost capital.

Regulators were denounced for ‘harassing’ S&Ls, even though they were trying to ensure that insolvent banks were forced to close. When the desperate attempts to win big with risky loans failed, there were a series of high profile bank collapses. In the last years of the 80s, the number of S&Ls shrunk by 50% and 1,400 commercial banks had closed or received federal assistance.

The 1980s witnessed many other dramatic financial events. On the negative side, there was the rise of high yield “junk bonds” to facilitate mergers and acquisitions. The famous decade of “greed” led to a handful of high-profile convictions of insider trading. The most famous example was the junk bond king himself, Michael Milken. Although sentenced to 10 years, he only served 22 months and was fined $200 million. But 20 years later, his current net worth is estimated to be $2.1 billion.

On the positive side, the rise of venture capital facilitated the growth of a series of high tech start-ups –e.g., Microsoft, Netscape, Intel, and Cisco—that would lead in the economy in the 1990s. At a World Economic Summit ten years ago, it was widely agreed that only in America could such companies start out with an idea and grow to multibillion operations within 10-20 years.

The rise of these companies also fueled a wild run-up in stock prices. After gaining ground in the 1980s, there was a pause for a few years at the beginning of the 90s. But from 1993 to its collapse in 2000, a tech-led rally led to wild optimism with some people seeing the Dow reaching into the stratosphere for decades to come.

In this environment, the urge to strike it rich led to new financial strategies. The “quants” arrived on Wall Street with sophisticated trading programs that seemed to guarantee success. No one was better placed than Long Term Capital Management (LTCM) which included two Nobel economics prize winners at its founding in 1994. It did not disappoint with a 40% rate of return in its first year but then crashed in 1998 following huge losses after the Russian government defaulted on their government bonds. The ‘sure fire’ strategy of LTCM was based on differences in yields between similar classes of assets. LTCM bet that the price of Japanese and European bonds was too low relative to American bonds. When everyone one rushed to the security of American bonds, LCTM lost nearly $2 billion in a matter of weeks.

But this rise and fall was quickly forgotten as a variety of institutions developed new ways of leveraging investment for maximum gain. Two things happened in the late 90s that set the stage for the current crisis. First, the Clinton administration encouraged the mortgage industry to find ways to expand home ownership to high risk, often low-income families. Second, the limits of Glass-Steagall were abolished with the passage of Grahm-Leach-Bliley act of November, 1999.

Neither September 11th, the tech stock crash, the LTCM collapse, nor the S&L debacle of the late 1980s led to any significant pressure to regulate financial activities in the 2000s. Instead a low-interest rate environment created the perfect conditions for a housing price explosion and home ownership rise.

The Clinton and Bush policies of serving the poor seemed to be working—the home ownership rate, which had been stuck at about 64% from 1975 to 1995, rose to 69%. But without adequate regulatory controls, this advance was done in a crazy way. At one point, getting a home loan required 50% down; in the 1950s, the rule was relaxed to a 20% down payment. Slowly the conservatism of bankers was lost as the lending standards kept on getting lower. First, it was 5% down, then it was nothing down, and then it was no requirement to document one’s assets and incomes.

The incentives for loan originators—they were paid on the basis of how many loans they could sell without much consideration of what the future default rate would be—led to remarkably poor financial practices. In many cases, people were enticed into agreeing to loans that they had very little chance of paying off. In particular, teaser rates on adjustable rate mortgages meant that someone could afford the original payments but could not sustain their payments once the rates were reset.

On top of this, the rating agencies became enablers of the craziness. Packing loans and selling different components as separate securities potentially is a great way to add more money to the mortgage market. But with little historical experience to go on, the rating agencies rated very weak bundles of mortgages as being very financially sound.

This combination of events was bound to fail in a big way. One day, housing prices would stop going up; one day people who did not have the incomes to support a mortgage would lose their homes; one day, adjustable rates would mean that people couldn’t afford the payments; one day, speculators who were flipping houses would get caught with a property worth less than they bought it at; and one day people who were taking out second mortgages or home equity loans would find that they owed more than the current value of the home. Because of the linkages between these events, each negative trend would reinforce the others.

The housing price bubble bursting would have caused problems under all circumstances. The problems would have been huge considering how many inappropriate borrowers were given loans with no down payments. While this was not sustainable, a downturn in the housing market would not have caused the current financial implosion without the expansion of exotic financial instrument based on “securitizing debt,” leveraging investments, and hedging against loss.

The principles of these strategies are fairly straight forward. In the past, the banks that originated the loan held that loan through maturity. The new innovation was to have a financial entity buy up lots of mortgages and then create bonds that were backed by the monthly payments of the borrowers. But the loans were not simply packaged, they were divided into various groupings (called “tranches”) based on their risk.

Things got really off track for three reasons. First, the rating agencies were unprepared to evaluate these different bonds and used a sloppy approach in saying that even bonds with very risky loans were themselves quite safe. Second, a lot of the purchasers of the bonds leveraged their investment by purchasing them with loans and thus exposing themselves to large losses when the bonds underperformed so badly. And third, in order to protect against risk, a new set of instrument financial instruments were used (e.g., ‘credit default swaps’). But these back-up protections were not adequately funded and were not financially viable during a big downturn.

So when the housing market collapsed, the financial structure behind the mortgages has so many instrument intertwined that any localized problem would rapidly spread throughout the international financial system. Even after a year and half of housing price declines, it is still uncertain where the losses are. And since no one knows the quality of lots of assets, there is an erosion of trust and people are hesitant to make deal with firms that may collapse in the future. Without this trust, markets ‘seize up’ and you can’t turn your assets into cash to repay your obligations. When you can’t sell them, firms have to make up a price to determine the value of their assets. When people know lots of people are making up a price, confidence declines yet more.

The main lessons of this history are that it is very easy to misuse other people’s money and that unforeseen events happen. We are paying dearly for many people forgetting these lessons and blithely increasing the number of financial instruments. Financial innovation when done right allocates capital in an efficient way and can price risk at the appropriate level. But when financial deregulation leads to too little regulatory oversight, it is a certainty that a number of people will overstep the line. When things go well for a period of years, it is a certainty that the line will be pushed that much further back from sustainability and that the resulting meltdown will be that much larger.

Finance was meant to facilitate the functioning of production and consumption. Instead it has become the hub of the system by centralizing huge amounts of money. In addition, there has been a transformation from the stolid, conservative banker to aggressive risk takers.

Their sophisticated use of mathematical models has identified trends that are rarely broken. Unfortunately, the key word here is ‘rarely’ and not ‘never.’ They misunderstood how time could work against them. The people who bought out the remains of LTCM actually made a profit on the remaining positions. But LTCM did not have the luxury of waiting out the market once their huge bets went bad leaving them without any cushion to pay off desperate customers. Managing risk is not the same as avoiding risk. And as long as people are using other people’s money, the titans of finance will use money in a way that lines their pockets. As the Milken example shows, even if caught and punished, the rewards are very high.

So what can we expect in the future? Certainly a lesson has been learned, much as investors learned a lesson from the technology stock crash. At this moment, Congressional leaders have realized that the stakes are too high and have agreed in principle to a massive bailout of the financial industry. After watching the failure of Lehman Brothers and the government takeovers of Fannie Mae, Freddie Mac, and AIG, leaders of both parties wanted to send a strong signal that the federal government was going to provide liquidity to markets that were not functioning. It is possible that a meltdown would not have happened without this intervention, but many people did not want to take this risk. Understandably, the public is not happy because the people who caused this mess are not bearing the costs of clean-up. There are currently ongoing FBI investigations of a number of financial institutions to determine whether financial executives lied about the state of their companies. This is going to be tough to prove with perhaps only a couple of cases going to trial. The real problem was that financial leaders were just doing what they were paid to do—seek out more profits and fees for their company. They not only collectively underestimated the risks; they created so many different layers of instruments that few knew where the bad assets were.

After the election, there will be a push for reforms. Despite his recent tough talk, McCain has prided himself as being a deregulator so it is hard to see him pushing for strong limits on what financial institutions can do. While Obama seems to understand that the financial architecture needs to be changed, the political power of financial leaders is very great, even inside the Democratic Party. So reform will be an uphill battle under all circumstances. Certainly we are never going to see the practices that led to the explosion of sub-prime mortgage lending. And the magnitude of this bailout means that people will be hesitant to go down this road again soon. But memories can fade and without a lot more oversight and regulation, we may face another round of financial bubbles bursting a number of years into the future.

Oops, I did it again

contact@thirdway.com (Jim Kessler, Vice President for Policy) — Fri, 19 Sep 2008 08:36:00 -0600

John McCain is proving himself right that the economy is not really his thing. This morning in Wisconsin, he appealed to the LaFollette crowd and announced that the fed should get out of the “bail out business” and get back to monitoring the money supply. Hoover couldn’t have said it better. The consensus among those who say “the economy is my thing” is that the fed is the only thing keeping us from the bread line.

John McCain has many admirable qualities. He is, in my view, a true American hero. He has guts, too – and I mean political guts. He is the only Republican who would even consider Sarah Palin for VP, let alone choose her. But he is also reckless. His comments on the fed – well, let’s face it, if he said this as President the worldwide economy would crumble. At least Bush has had the sense to remain in hiding during the financial crisis.

This economic crisis is not the result of John McCain or anything he has said or done. He is, as he admits, an amateur on this stuff. But a little knowledge can be a dangerous thing, especially when it is tethered to an economic theology that is about to join Zoroastrianism on the ash heap of cosmic truths. It is an economic philosophy that believes in the infallibility of markets and believes government intervention in all cases is wrong. That’s what John McCain said when he told the fed to fiddle while Wall Street and Main Street burns.

John McCain was a hero in his time. But that time has passed.

The Sarah Palin I Know

contact@thirdway.com (Jim Kessler, Vice President for Policy) — Wed, 03 Sep 2008 11:44:00 -0600

Twenty-four years ago, I had my first paying political job. I performed data entry for the Massachusetts Democratic Party. I was paid $5.25 an hour, and I was in heaven. Hey, it beat making mediocre pizzas for $4.75 an hour. The chairman of the state party was Chet Atkins – a great guy and a member of Congress. But as chairman of the party, he was criticized because no African-Americans were on the state party payroll. So he called Mel King, an African-American city councilman and mayoral candidate from Boston and asked Mel to send him his best person to be field director of the Party. “I’ve got just the guy,” said King. “Jim Spencer.” Atkins interviewed Spencer on the phone and he hired him on the spot. That Monday, Jim Spencer showed up for work. He was White.

Like John McCain, six days ago I wouldn’t recognize Sarah Palin if she sat next to me on a bus. In November, we could literally be a heartbeat away from Palin as President.

So this is the Sarah Palin I know. She’s a climber. She befriended political leaders and then removed them from office. Perhaps she’s a crusader for justice – a Republican Ralph Nader – perhaps she’s other-worldly ambitious. I don’t know. Neither do you and neither does John McCain.

She’s very religious. I would say the same thing about Barack Obama. But unlike Obama, I don’t know if she’s tolerant and open to other religions and other viewpoints. I don’t know. Neither do you and neither does John McCain.

She tried to ban certain books from the Wasilla public library. I have no idea what kind of books – were they books about sexual positions or was it The Grapes of Wrath. It sounds a bit creepy to me. But I really don’t know. Neither do you and neither does John McCain.

She’s a self-described “hockey mom.” I know there is a lot of spin out there that she faces typical American family problems, but in my book I don’t think the typical American family has a pregnant teenage daughter. I think it’s an insult to the typical American family, frankly. But the truth is, I don’t know what’s going on in that family. Neither do you and neither does John McCain.

She doesn’t seem to have many views outside of some core, old-school, conservative culture war beliefs. She hasn’t said much about Iraq. She hasn’t really had much of a profile on anything at all. Maybe she has some very interesting and provocative views on the issues of the day. But I’ve never heard them. Neither have you and neither has John McCain.

She loves her state. I love mine. Hey, I’m from Philadelphia and I even love my city! But I never entertained the notion that Pennsylvania should secede from the union. Maybe you have, but I haven’t. We’re not really sure where she has been on the Alaska secessionist movement. I don’t know. Neither do you and neither does John McCain.

Troopergate. She’s had people fired because they didn’t follow her orders about former family members. Her sister’s husband (the trooper) sounds like a creep. But then again, we are left to trust Palin’s version of events. We don’t know if she was acting in the interests of the state or her own personal vendetta agenda. I don’t know. Neither do you and neither does John McCain.

Sarah Palin is a total stranger. McCain has barely met her. She was vetted quickly and sloppily. McCain is not exactly a spring chicken and he’s not a picture of health. Back in 1984, Jim Spencer was hired by Chet Atkins who assumed he was black. As it turns out, the very white Jim Spencer did a helluva job. Maybe Sarah Palin will do a great job. Maybe. But I don’t know. Neither do you and neither does John McCain.

John McCain Goes Medieval

contact@thirdway.com (Matt Bennett, Vice President for Public Affairs) — Tue, 04 Mar 2008 14:08:00 -0700

In ancient medicine, doctors used leeches to drain “excess” blood and “balance the humors” of the human body. (The leech actually gets its name from the word for doctor in Old English: læce). These doctors had basically one approach to medicine: if the patient was ill, drain blood. If things were really bad, drain MORE blood.

That, in short, is the modern conservative’s approach to the economy.

No matter what the condition – the booming markets and record surpluses of the Bill Clinton years or the recession and spiraling deficits under Bush – conservatives offer the same prescription: more tax cuts. As these cuts – the leeches of the modern economy – drain lifeblood from the government and the economy, some conservatives cheer. Grover Norquist, the conservatives’ chief læcer, would love to keep slapping on leeches until the federal government bleeds to death. Many of his counterparts in the conservative movement agree.

Now even John McCain is sounding less like a somewhat responsible maverick and more, well, medieval. No surprise there – his campaign’s top economic adviser is none other than Phil Gramm, a fiscal medievalist if ever there was one. His signature tax cut was called Gramm-Leech-Bile for crying out loud.

Ok, it was Leach-Bliley, but you get the point.

Anyway, in an interview last week with the Wall Street Journal, McCain reiterated his new-found love for George W. Bush’s enormous leech application in 2001 and softened only slightly his new pledge never to raise taxes in office.

This was the same John McCain who railed against the $1.35 trillion Bush tax cuts when they passed in 2001.Before joining Lincoln Chafee as the sole Republican no votes, McCain said on the Senate floor: “I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief.” McCain also voted against Bush’s 2003 tax cuts because they were too tilted toward the rich.

Well, a good conscience is a fleeting thing when one is pandering to the right. Now, as the New York Times recently noted, McCain talks constantly of making those same cuts permanent, rather than letting expire (as they should) in 2010.

This new admiration for metaphorical economic blood-letting goes hand-in-hand with another McCain pander, this one even more directly medieval: his approval of torture. Last month, McCain urged Bush to veto the Intelligence Authorization bill, which includes a ban on the use of torture by the CIA. The bill would prohibit the use of the same techniques currently barred by the Army Field Manual.

This was a world-historic flip-flop. McCain, of course, was against torture (both as a torturee in Vietnam and as a US Senator) before he was for it (as a pandering presidential candidate). Now he apparently believes that that water-boarding is just fine as long as the Army doesn’t do it. His explanation, as the Boston Globe recorded, was about as clear as black bile humor: “What we need is not to tie the CIA to the Army Field Manual, but rather to have a good faith interpretation of the statutes that guide what is permissible in the CIA program.”

John McCain has always had a hard time balancing the humors. But as he tacks farther and farther to the right in an attempt to shore up his base, he’s abandoning what is left of his modern views and is looking more and more like a medieval doctor with a jar full of thirsty blood-suckers.

It was Worse Than I Thought

contact@thirdway.com (Jim Kessler, Vice President for Policy) — Fri, 15 Feb 2008 16:20:00 -0700

Yesterday, I posted on the Clemens food fight and wondered what got into the Republicans. Why did they behave like cheerleading baboons, and how could they have possibly read the evidence and concluded Clemens was au natural during his 4 Cy Young run in the “twilight of his career?” I surmised that perhaps that years of defending Alberto Gonzalez, WMDs, yellow cake in Niger, and Abu Ghraib had permanently distorted their ability discern truth from lies – even when the witness repeatedly used phrases like “misheard” and “misremembered” to explain away 60’ 6”-sized holes in his story.

Now we have an explanation and it’s even worse than I thought. Mark Souder, who is now my favorite Republican from Indiana, spilled the beans. In a moment of refreshing candor, he admitted that he and Tom Davis were the only GOPers to have read the sworn depositions. And then (slapping my forehead with my palm) I realized how stupid I was. If they’re not going to read the National Intelligence Estimate or the 9/11 Commission Report – something that could save or cost the lives of, oh, sentient life on planet earth, how could we expect them to do their homework in preparation for this 4 ½ hour, nationally televised clown-a-thon? Especially when there are no pictures. Well, we can’t can we?

Lanny Breuer and Rusty Hardin had it figured out. Just visit the offices. Sign a couple of balls. Drop a few Bush bombs. Wave a few shiny objects to distract them. And – snap! – we’re mired in an unwinnable and unconscionable conflict in the Middle East … Ooops, I mean we let another 9-figure cheat off the hook.

Shame on Brian McNamee’s lawyers for not preparing their witness. “Brian, realize that half of those buffoons have not read boo of the sworn testimony. And that cranky old feller over there – Burton – rumor says the last book he read began ‘I am Sam. Sam I am.’” Although, what good would it have done really? The fix was in.

Well, it’s February 14th and pitchers and catchers are due to report. Hope springs eternal. Can’t say I feel too good about the Congress though.