Smoke and Mirrors

So, it's finally happening - the bubble has burst and the economy is in a melt down. This comes as no surprise to many of us. Paul Krugman anticipated it in August of 2005.

Well, last week Mr Greenspan warned us about the very condition his smoke and mirrors economics had created and Paul Krugman explains.
Greenspan and the Bubble

What he did say, after emphasizing the recent economic importance of rising house prices, was that "this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent." And he warned that "history has not dealt kindly with the aftermath of protracted periods of low-risk premiums." I believe that translates as "Beware the bursting bubble."

Like everything else, the economic policy of the Bush administration has been driven by politics. The so called "recovery" has not created new wealth, only debt and Alan Greenspan has been a good Republican soldier first and an economist last. A recovery based only on debt is not a recovery and can't be sustained. As Krugman points out Greenspan is now warning us about the very things he was encouraging less than a year ago.

But as recently as last October Mr. Greenspan dismissed talk of a housing bubble: "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely."

Wait, it gets worse. These days Mr. Greenspan expresses concern about the financial risks created by "the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages." But last year he encouraged families to take on those very risks, touting the advantages of adjustable-rate mortgages and declaring that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late. There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.

In June of 2005 Eric Englund discussed the The Austrian Theory of the Trade Cycle.

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy's capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.

Since busts are not politically acceptable credit was eased to create a new boom:

Alan Greenspan, of course, would not tolerate a recession. Accordingly, the Federal Reserve went on a money and credit creation binge and eventually brought short-term interest rates down to 1% (in 2003). The Federal Reserve, in total, cut interest rates 13 times between 2001 and 2003. With interest rates so seductively low, Americans went on a borrowing and spending spree which pulled Uncle Sam out of the recession – at least for now.

As Murray Rothbard explains, in The Austrian Theory of the Trade Cycle, America’s debt-driven "prosperity" is a mirage built upon the opiate of easy credit. Alan Greenspan’s multiple interest rate cuts, as Dr. Rothbard conveys, is nothing new in the field of central banking:

… the point is that the credit expansion is not one-shot; it proceeds on and on, never giving consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in costs in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit.

Well nearly three years later many more are catching on.
How Real Was the Prosperity?
We're just beginning to figure out how much of the nation's recent growth was the result of a credit-induced frenzy. Here are some guideposts

The housing markets, of course, overshot as too many buyers took out subprime mortgages they couldn't afford. The outcome will be a decline in home values, with prices in some areas already down.

But the economic writedown is likely to go far beyond housing. Household spending, consumer debt, financial sector profits: All may need a retrenchment, sudden or gradual, to get back to sustainable levels. That's bad news for investors and the global economy, which still depends heavily on U.S. consumption for growth.

There may even be a reassessment of whether recent productivity gains were fueled by excess credit. If growth in productivity slows, the economy will stagnate, real wages will weaken, corporate earnings targets will be harder to meet, and inflationary risks will increase.

Hale "Bonddad" Stewart has more:
The Illusion of the Bush Economy's Growth is Revealed
The current mess was predicted but was politically inevitable.

Storm Clouds

The House and the Senate are about to send another SCHIP bill to Bush who will veto it. There is every indication that the veto will be sustained in the house. Now the veto and refusal by the House has nothing to do with children's health, a few million dollars or a cigarette tax. It is all about a growing storm that threatens the bottom line of the insurance industry. In an opinion piece that received little attention the New York Times describes this storm front.
America’s Lagging Health Care System

Americans are increasingly frustrated about the subpar performance of this country’s fragmented health care system, and with good reason. A new survey of patients in seven industrialized nations underscores just how badly sick Americans fare compared with patients in other nations. One-third of the American respondents felt their system is so dysfunctional that it needs to be rebuilt completely — the highest rate in any country surveyed. The system was given poor scores both by low-income, uninsured patients and by many higher-income patients.

The survey, the latest in a series from the Commonwealth Fund, is being published today on the Web site of Health Affairs, a respected health policy journal. Researchers interviewed some 12,000 adults in Australia, Canada, Germany, the Netherlands, New Zealand, the United Kingdom and the United States.

While the American people think the health care system is in need of a major overhaul they are not alone. Many of America's largest corporations agree.

As we have seen on other issues when the Republicans don't have the facts on their side they simply lie and make stuff up. Paul Krugman describes the latest example in:
Prostates and Prejudices

“My chance of surviving prostate cancer — and thank God I was cured of it — in the United States? Eighty-two percent,” says Rudy Giuliani in a new radio ad attacking Democratic plans for universal health care. “My chances of surviving prostate cancer in England? Only 44 percent, under socialized medicine.”

It would be a stunning comparison if it were true. But it isn’t. And thereby hangs a tale — one of scare tactics, of the character of a man who would be president and, I’m sorry to say, about what’s wrong with political news coverage.

Yes it's all about Rudy Giuliani lying and making stuff up.

Let’s start with the facts: Mr. Giuliani’s claim is wrong on multiple levels — bogus numbers wrapped in an invalid comparison embedded in a smear.

Mr. Giuliani got his numbers from a recent article in City Journal, a publication of the conservative Manhattan Institute. The author gave no source for his numbers on five-year survival rates — the probability that someone diagnosed with prostate cancer would still be alive five years after the diagnosis. And they’re just wrong.

You see, the actual survival rate in Britain is 74.4 percent. That still looks a bit lower than the U.S. rate, but the difference turns out to be mainly a statistical illusion. The details are technical, but the bottom line is that a man’s chance of dying from prostate cancer is about the same in Britain as it is in America.

So Mr. Giuliani’s supposed killer statistic about the defects of “socialized medicine” is entirely false. In fact, there’s very little evidence that Americans get better health care than the British, which is amazing given the fact that Britain spends only 41 percent as much on health care per person as we do.

This is not to say the British program isn't flawed, it is. But no one is suggesting the US adopt the British model.

Anyway, comparisons with Britain have absolutely nothing to do with what the Democrats are proposing. In Britain, doctors are government employees; despite what Mr. Giuliani is suggesting, none of the Democratic candidates have proposed to make American doctors work for the government.

As a fact-check in The Washington Post put it: “The Clinton health care plan” — which is very similar to the Edwards and Obama plans — “has more in common with the Massachusetts plan signed into law by Gov. Mitt Romney than the British National Health system.” Of course, this hasn’t stopped Mr. Romney from making similar smears.

Fear Tactics And Lies

At one level, what Mr. Giuliani and Mr. Romney are doing here is engaging in time-honored scare tactics. For generations, conservatives have denounced every attempt to ensure that Americans receive needed health care, from Medicare to S-chip, as “socialized medicine.”

Part of the strategy has always involved claiming that health reform is suspect because it’s un-American, and exaggerating health care problems in other countries — usually on the basis of unsubstantiated anecdotes or fraudulent statistics. Opponents of reform also make a practice of lumping all forms of government intervention together, pretending that having the government pay some health care bills is just the same as having the government take over the whole health care system.

Krugman then goes on to point out that the media has given Rudy a free pass to lie - his bogus data and what that indicates about his character is never brought up.

And much of the coverage seems weirdly diffident. Memo to editors: If a candidate says something completely false, it’s not “in dispute.” It’s not the case that “Democrats say” they’re not advocating British-style socialized medicine; they aren’t.

The fact is that the prostate affair is part of a pattern: Mr. Giuliani has a habit of saying things, on issues that range from health care to national security, that are demonstrably untrue. And the American people have a right to know that.

The only thing to fear is the fear mongers

Paul Krugman hits a home run again. Of course it helps that it is primarily about my latest target, Rudy Giuliani.
Fearing Fear Itself

Consider, for a moment, the implications of the fact that Rudy Giuliani is taking foreign policy advice from Norman Podhoretz, who wants us to start bombing Iran “as soon as it is logistically possible.”

Mr. Podhoretz, the editor of Commentary and a founding neoconservative, tells us that Iran is the “main center of the Islamofascist ideology against which we have been fighting since 9/11.” The Islamofascists, he tells us, are well on their way toward creating a world “shaped by their will and tailored to their wishes.” Indeed, “Already, some observers are warning that by the end of the 21st century the whole of Europe will be transformed into a place to which they give the name Eurabia.”

Do I have to point out that none of this makes a bit of sense?

A figment of the neocon imagination

For one thing, there isn’t actually any such thing as Islamofascism — it’s not an ideology; it’s a figment of the neocon imagination. The term came into vogue only because it was a way for Iraq hawks to gloss over the awkward transition from pursuing Osama bin Laden, who attacked America, to Saddam Hussein, who didn’t. And Iran had nothing whatsoever to do with 9/11 — in fact, the Iranian regime was quite helpful to the United States when it went after Al Qaeda and its Taliban allies in Afghanistan.

Beyond that, the claim that Iran is on the path to global domination is beyond ludicrous. Yes, the Iranian regime is a nasty piece of work in many ways, and it would be a bad thing if that regime acquired nuclear weapons. But let’s have some perspective, please: we’re talking about a country with roughly the G.D.P. of Connecticut, and a government whose military budget is roughly the same as Sweden’s.

Meanwhile, the idea that bombing will bring the Iranian regime to its knees — and bombing is the only option, since we’ve run out of troops — is pure wishful thinking. Last year Israel tried to cripple Hezbollah with an air campaign, and ended up strengthening it instead. There’s every reason to believe that an attack on Iran would produce the same result, with the added effects of endangering U.S. forces in Iraq and driving oil prices well into triple digits.

But Podhoretz may not be the "Bull Goose Loony

Mr. Podhoretz, in short, is engaging in what my relatives call crazy talk. Yet he is being treated with respect by the front-runner for the G.O.P. nomination. And Mr. Podhoretz’s rants are, if anything, saner than some of what we’ve been hearing from some of Mr. Giuliani’s rivals.

Thus, in a recent campaign ad Mitt Romney asserted that America is in a struggle with people who aim “to unite the world under a single jihadist Caliphate. To do that they must collapse freedom-loving nations. Like us.” He doesn’t say exactly who these jihadists are, but presumably he’s referring to Al Qaeda — an organization that has certainly demonstrated its willingness and ability to kill innocent people, but has no chance of collapsing the United States, let alone taking over the world.

And Mike Huckabee, whom reporters like to portray as a nice, reasonable guy, says that if Hillary Clinton is elected, “I’m not sure we’ll have the courage and the will and the resolve to fight the greatest threat this country’s ever faced in Islamofascism.” Yep, a bunch of lightly armed terrorists and a fourth-rate military power — which aren’t even allies — pose a greater danger than Hitler’s panzers or the Soviet nuclear arsenal ever did.

All of this would be funny if it weren’t so serious.

The unreasoning fear of the 28 percenters

In the wake of 9/11, the Bush administration adopted fear-mongering as a political strategy. Instead of treating the attack as what it was — an atrocity committed by a fundamentally weak, though ruthless adversary — the administration portrayed America as a nation under threat from every direction.

Most Americans have now regained their balance. But the Republican base, which lapped up the administration’s rhetoric about the axis of evil and the war on terror, remains infected by the fear the Bushies stirred up — perhaps because fear of terrorists maps so easily into the base’s older fears, including fear of dark-skinned people in general.

And the base is looking for a candidate who shares this fear.

Just to be clear, Al Qaeda is a real threat, and so is the Iranian nuclear program. But neither of these threats frightens me as much as fear itself — the unreasoning fear that has taken over one of America’s two great political parties.

Yes Rudy will appeal to the fear mongered - the Weekly Standard crowd who think that Fred Barnes actually has a brain and that Bill Kristol is always right. Let's just hope they reamin the 28 percenters!

Another Failed Experiment

In a paper presented just before his death, Mr. Gramlich wrote that “the subprime market was the Wild West. Over half the mortgage loans were made by independent lenders without any federal supervision.” What he didn’t mention was that this was the way the laissez-faire ideologues ruling Washington — a group that very much included Mr. Greenspan — wanted it. They were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing.

Unfortunately, assertions that unregulated financial markets would take care of themselves have proved as wrong as claims that deregulation would reduce electricity prices.

We are just beginning to realize the impact of the subprime lending crisis will be. Today Paul Krugman explains how the crisis was predicted and how it could have been prevented but wasn't.
A Catastrophe Foretold

“Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.” So declared Edward M. Gramlich, a Federal Reserve official.

These days a lot of people are saying things like that about subprime loans — mortgages issued to buyers who don’t meet the normal financial criteria for a home loan. But here’s the thing: Mr. Gramlich said those words in May 2004.

And it wasn’t his first warning. In his last book, Mr. Gramlich, who recently died of cancer, revealed that he tried to get Alan Greenspan to increase oversight of subprime lending as early as 2000, but got nowhere.

So why was nothing done to avert the subprime fiasco?

That question is of course answered above. Nothing was done because the officials in charge believe in unfettered laissez-faire capitalism and that any form of government regulation is bad. That was Herbert Hoovers belief in the 20's and so when he did nothing the result was the great depression. That was the first experiment. Some 80 years latter a new crop of laissez-faire ideologues were in charge and we have the sub prime lending crisis.

Both borrowers and investors got scammed

I’ve written before about the way investors in securities backed by subprime loans were assured that they were buying AAA assets, only to suddenly find that what they really owned were junk bonds. This shock has produced a crisis of confidence in financial markets, which poses a serious threat to the economy.

But the greater tragedy is the one facing borrowers who were offered what they were told were good deals, only to find themselves in a debt trap.

In his final paper, Mr. Gramlich stressed the extent to which unregulated lending is prone to the “abusive lending practices” he mentioned in his 2004 warning. The fact is that many borrowers are ill-equipped to make judgments about “exotic” loans, like subprime loans that offer a low initial “teaser” rate that suddenly jumps after two years, and that include prepayment penalties preventing the borrowers from undoing their mistakes.

Yet such loans were primarily offered to those least able to evaluate them. “Why are the most risky loan products sold to the least sophisticated borrowers?” Mr. Gramlich asked. “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.” And “the predictable result was carnage.”

How many more failed experiments do we need.

The incompetent mob

Paul Krugman hits a home run with his op ed today. He says the GOP in it's present form is dead and very few a sad about it. I'm sure John Cole would agree. In the Death of the Machine Krugman reminds us that for the first time since anyone can remember the Republicans are far behind the Democrats in cash.

Karl Rove has often described Hanna as his role model. And predictions that Mr. Rove and his disciples would succeed in creating a permanent Republican majority — I have a whole bookshelf of volumes with titles like “One Party Nation” and “Building Red America” — depended crucially on the assumption that the G.O.P. would have vastly more money than its opponents. It might even, some thought, match the 10-to-1 advantage Hanna gave William McKinley when he ran against William Jennings Bryan.

Oops. According to data collected by the Center for Responsive Politics, in the current election cycle every one of the top 10 industries making political donations is giving more money to Democrats. Even industries that have in the past been overwhelmingly Republican, like insurance and pharmaceuticals, are now splitting their donations more or less evenly. Oil and gas is the only major industry that the G.O.P. can still call its own.

So why might that be?

To some extent it’s a matter of cold political calculation. Polls, plus a wave of G.O.P. retirements, suggest that next year the Democrats will expand their majority in the House, which is already bigger than anything the Republicans ever had during their 12-year reign. Of the 34 Senate seats up for election, 22 are held by Republicans, and major Democratic gains seem all but inevitable.

Add to this the weakness of the Republican presidential field, and it’s not surprising that lobbyists are casting in their lot with the likely winners. But that’s not the whole story.

There’s also disgust, even in the corporate world, with the corruption and incompetence of the Bush years. People on the left often describe the Bush administration as an agent of corporate America; that’s giving it too much credit.

The truth is that while the administration has lavished favors on some powerful, established corporations, the biggest scandals have involved companies that were small or didn’t exist at all until they started getting huge contracts thanks to their political connections. Thus, Blackwater USA was a tiny business until it somehow became the leading supplier of mercenaries for the War on Terror™.

And the lethal amateurishness of these loyal Bushies on the make horrifies the corporate elite almost as much as it horrifies ordinary Americans.

Last but not least, even corporations are relieved to see the end of what amounted to a protection racket.

Mike Malloy refers to it as the Bush Crime Family and George H.W. must be ashamed of his son for turning it into an incompetent crime family at that. But it wasn't just Bush.
The Santorum Factor

In a classic 2003 article in The Washington Monthly, Nicholas Confessore (now at The New York Times) described the efforts of people like former Senator Rick Santorum to turn K Street into an appendage of the Republican Party — not the other way around. “The corporate lobbyists who once ran the show, loyal only to the parochial interests of their employer,” wrote Mr. Confessore, “are being replaced by party activists who are loyal first and foremost to the G.O.P.”

But corporations weren’t happy. According to The Politico, “many C.E.O.’s” used the term “extortion” to describe “the annual shakedowns by committee chairmen with jurisdiction over their industries.” And now that Mr. Santorum is out of office, heading the America’s Enemies program at a right-wing think tank, the faint sound you hear from K Street is that of lobbyists singing: “Ding, dong, the witch is dead.”

But as Krugman points out the future may not be all that rosy.

All of this greatly increases the odds that the Republicans, far from establishing a permanent majority, will be out of power for quite a while. But it also raises the question of what Democratic rule will really mean.

Right now all the leading contenders for the Democratic nomination are running on strongly progressive platforms — especially on health care. But there remain real concerns about what they would actually do in office.

Here’s an example of the sort of thing that makes you wonder: yesterday ABC News reported on its Web site that the Clinton campaign is holding a “Rural Americans for Hillary” lunch and campaign briefing — at the offices of the Troutman Sanders Public Affairs Group, which lobbies for the agribusiness and biotech giant Monsanto. You don’t have to be a Naderite to feel uncomfortable about the implied closeness.

I’d put it this way: many progressives, myself included, hope that the next president will be another F.D.R. But we worry that he or she will turn out to be another Grover Cleveland instead — better-intentioned and much more competent than the current occupant of the White House, but too dependent on lobbyists’ money to seriously confront the excesses of our new Gilded Age.

This worries me. Hillary Clinton is a creature of the DLC. The DLC is composed of people like Marshall Wittmann, as much a neocon as Joe Lieberman. As I pointed out here Hillary often sounds much like a neocon. And the DLC is corporate driven. The Democrats in control with corporate backing may simply be more of the same with a little less insanity.

Privatize It All

When I did the posts on Blackwater here and here I was thinking that is should be no surprise that the Bush/Cheney cabal would use mercenaries in Iraq - they have attempted to privatize everything else and the results have been equally disastrous. Well today Paul Krugman is thinking virtually out loud in:
Hired Gun Fetish

Sometimes it seems that the only way to make sense of the Bush administration is to imagine that it’s a vast experiment concocted by mad political scientists who want to see what happens if a nation systematically ignores everything we’ve learned over the past few centuries about how to make a modern government work.

Thus, the administration has abandoned the principle of a professional, nonpolitical civil service, stuffing agencies from FEMA to the Justice Department with unqualified cronies. Tax farming — giving individuals the right to collect taxes, in return for a share of the take — went out with the French Revolution; now the tax farmers are back.

And so are mercenaries, whom Machiavelli described as “useless and dangerous” more than four centuries ago.

Yes it's just what you would expect the Bush administration to do. And Krugman points out what I mentioned below - Blackwater is responsible for the deaths of US soldiers.

Iraqis aren’t the only victims of this behavior. Of the nearly 4,000 American service members who have died in Iraq, scores if not hundreds would surely still be alive if it weren’t for the hatred such incidents engender.

And the actions of Blackwater will in part be responsible for the inevitable bad outcome in Iraq.

And the danger out-of-control military contractors pose to American forces has been obvious at least since March 2004, when four armed Blackwater employees blundered into Fallujah in the middle of a delicate military operation, getting themselves killed and precipitating a crisis that probably ended any chance of an acceptable outcome in Iraq.

So why are they still there?

But it’s also worth noting that the Bush administration has tried to privatize every aspect of the U.S. government it can, using taxpayers’ money to give lucrative contracts to its friends — people like Erik Prince, the owner of Blackwater, who has strong Republican connections. You might think that national security would take precedence over the fetish for privatization — but remember, President Bush tried to keep airport security in private hands, even after 9/11.

So the privatization of war — no matter how badly it works — is just part of the pattern.

Members of the Bush administration should not only be impeached but jailed for the rest of their lives for acts of high treason against the people of the United States.

First Aid for Legacies

As George W. Bush tries to salvage what will be his own misrable legacy those associated with his administration are trying to do the same by distancing themselves from him. One of those is Alan Greenspan. As Paul Krugman points out it's too little too late. He had plenty of opportunities over the last six plus years and didn't.
Sad Alan’s Lament

When President Bush first took office, it seemed unlikely that he would succeed in getting his proposed tax cuts enacted. The questionable nature of his installation in the White House seemed to leave him in a weak political position, while the Senate was evenly balanced between the parties. It was hard to see how a huge, controversial tax cut, which delivered most of its benefits to a wealthy elite, could get through Congress.

Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee.

Until then Mr. Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man.

Suddenly, his greatest concern — the “emerging key fiscal policy need,” he told Congress — was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts. And the floodgates were opened.

As it turns out, Mr. Greenspan’s fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And Mr. Greenspan has just published a book in which he castigates the Bush administration for its fiscal irresponsibility.

Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.

Mr. Greenspan now says that he didn’t mean to give the Bush tax cuts a green light, and that he was surprised at the political reaction to his remarks. There were, indeed, rumors at the time — which Mr. Greenspan now says were true — that the Fed chairman was upset about the response to his initial statement.

But the fact is that if Mr. Greenspan wasn’t intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight when it could have made a difference.

His first big chance to clarify himself came a few weeks after that initial testimony, when he appeared before the Senate Committee on Banking, Housing and Urban Affairs.

Here’s what I wrote following that appearance: “Mr. Greenspan’s performance yesterday, in his first official testimony since he let the genie out of the bottle, was a profile in cowardice. Again and again he was offered the opportunity to say something that would help rein in runaway tax-cutting; each time he evaded the question, often replying by reading from his own previous testimony. He declared once again that he was speaking only for himself, thus granting himself leeway to pronounce on subjects far afield of his role as Federal Reserve chairman. But when pressed on the crucial question of whether the huge tax cuts that now seem inevitable are too large, he said it was inappropriate for him to comment on particular proposals.

“In short, Mr. Greenspan defined the rules of the game in a way that allows him to intervene as he likes in the political debate, but to retreat behind the veil of his office whenever anyone tries to hold him accountable for the results of those interventions.”

I received an irate phone call from Mr. Greenspan after that article, in which he demanded to know what he had said that was wrong. In his book, he claims that Robert Rubin, the former Treasury secretary, was stumped by that question. That’s hard to believe, because I certainly wasn’t: Mr. Greenspan’s argument for tax cuts was contorted and in places self-contradictory, not to mention based on budget projections that everyone knew, even then, were wildly overoptimistic.

Like many others he was all for George W. Bush until it became obvious to a majority that Bush policies were a disaster. He was not alone of course.

In retrospect, Mr. Greenspan’s moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr. Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.

Like many others who bet their legacy on George W. Bush Mr Greenspan's legacy will suffer and a mea culpa now won't save it.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

New Slogan but still no strategy

The only Iraq strategy we saw this week was an attempt to avoid losing even more support for Bush's failed occupation. The congressional testimony of Petraeus and Crocker and Geroge W. Bush's speech to the base turned out to be nothing but more spin and deception directed at the diminishing base so that Bush can buy time and pass his latest mess onto the next administration. The paper of record, the New York Times, which is partly responsible for selling the ill conceived invasion and occupation of Iraq has an excellent analysis today.
No Exit, No Strategy

This was the week in which Americans hoped they would get straight talk and clear thinking on Iraq. What they got was two exhausting days of Congressional testimony by the American military commander, hours of news conferences and interviews, clouds of cut-to-order statistics and a speech from the Oval Office — and none of it either straight or clear.

The White House insisted that President Bush had consulted intensively with his generals and adapted to changing circumstances. But no amount of smoke could obscure the truth: Mr. Bush has no strategy to end his disastrous war and no strategy for containing the chaos he unleashed.

Last night’s speech could have been given any day in the last four years — and was delivered a half-dozen times already. Despite Mr. Bush’s claim that he was offering a way for all Americans to “come together” on Iraq, he offered the same divisive policies — repackaged this time with the Orwellian slogan “return on success.”

That's right - the only thing new was the slogan.
Reality VS Spin

Before he spoke, Iraq’s brutal reality had debunked the claims of political and military success made by Gen. David Petraeus, the top American commander in Iraq, and Ryan Crocker, the ambassador in Baghdad. First, The Times reported that the only sliver of political progress — a tortuous compromise on sharing oil revenues — was evaporating. Then came news of the assassination of the Anbar tribal leader whose decision to fight alongside the Americans was cited by Mr. Bush as proof that the war’s tide was turning — even though it had nothing to do with the increase in forces.

Mr. Bush’s claims last night about how well the war is going are believable only if you use Pentagon numbers so obviously cooked that they call to mind the way Americans were duped into first supporting this war.[see below]

If Bush were serious

If Mr. Bush were serious about ending the war, rather than threatening Iran and Syria, he would make a serious effort to persuade them that they too have a lot to lose from a disintegrating Iraq. And he would enlist the help of the leaders of Britain, France and Germany for serious negotiations. Then, perhaps, Mr. Bush’s promise from January to stanch the flow of men and weapons into Iraq from Iran and Syria would not have sounded so hollow.

Once again, it is clear that Mr. Bush refuses to recognize the truth of his failure in Iraq and envisions a military commitment that has no end. Congress must use its powers to expose the truth and demand a real change in strategy. Democratic leaders, forever parsing polls, are backing away from proposals to impose a deadline for withdrawal and tinkering with small ideas that mostly sound like ways to enable the president’s strategy of delay.

While this is a good editorial it once again takes Paul Krugman to get to the meat.

Now here’s the thing: Ray L. Hunt, the chief executive and president of Hunt Oil, is a close political ally of Mr. Bush. More than that, Mr. Hunt is a member of the President’s Foreign Intelligence Advisory Board, a key oversight body.

Some commentators have expressed surprise at the fact that a businessman with very close ties to the White House is undermining U.S. policy. But that isn’t all that surprising, given this administration’s history. Remember, Halliburton was still signing business deals with Iran years after Mr. Bush declared Iran a member of the “axis of evil.”

No, what’s interesting about this deal is the fact that Mr. Hunt, thanks to his policy position, is presumably as well-informed about the actual state of affairs in Iraq as anyone in the business world can be. By putting his money into a deal with the Kurds, despite Baghdad’s disapproval, he’s essentially betting that the Iraqi government — which hasn’t met a single one of the major benchmarks Mr. Bush laid out in January — won’t get its act together. Indeed, he’s effectively betting against the survival of Iraq as a nation in any meaningful sense of the term.

The smart money, then, knows that the surge has failed, that the war is lost, and that Iraq is going the way of Yugoslavia. And I suspect that most people in the Bush administration — maybe even Mr. Bush himself — know this, too.

After all, if the administration had any real hope of retrieving the situation in Iraq, officials would be making an all-out effort to get the government of Prime Minister Nuri Kamal al-Maliki to start delivering on some of those benchmarks, perhaps using the threat that Congress would cut off funds otherwise. Instead, the Bushies are making excuses, minimizing Iraqi failures, moving goal posts and, in general, giving the Maliki government no incentive to do anything differently.

And for that matter, if the administration had any real intention of turning public opinion around, as opposed to merely shoring up the base enough to keep Republican members of Congress on board, it would have sent Gen. David Petraeus, the top military commander in Iraq, to as many news media outlets as possible — not granted an exclusive appearance to Fox News on Monday night.

All in all, Mr. Bush’s actions have not been those of a leader seriously trying to win a war. They have, however, been what you’d expect from a man whose plan is to keep up appearances for the next 16 months, never mind the cost in lives and money, then shift the blame for failure onto his successor.

In fact, that’s my interpretation of something that startled many people: Mr. Bush’s decision last month, after spending years denying that the Iraq war had anything in common with Vietnam, to suddenly embrace the parallel.

Here’s how I see it: At this point, Mr. Bush is looking forward to replaying the political aftermath of Vietnam, in which the right wing eventually achieved a rewriting of history that would have made George Orwell proud, convincing millions of Americans that our soldiers had victory in their grasp but were stabbed in the back by the peaceniks back home.

What all this means is that the next president, even as he or she tries to extricate us from Iraq — and prevent the country’s breakup from turning into a regional war — will have to deal with constant sniping from the people who lied us into an unnecessary war, then lost the war they started, but will never, ever, take responsibility for their failures.

Now I think that this is about right but as I said below I don't think it will work.

Now don't get me wrong, I think the neocons and Republicans will try to hang this on the Dems but using the Vietnam example it won't stick. There is a very vocal minority who still think we could have won in Vietnam and blame the Democrats for the defeat. They are very vocal but they are very much the minority.

This Bush is owned by George W. Bush and the neocons. Like Vietnam a majority of Americans have had it with this war and see it as a mistake - Mr Bush's mistake. They recognize that it will be unpleasant when we leave but also recognize we simply can't do anything about it.

Krugman gets it right

Paul Krugman says it's
Time to Take a Stand
but the Democrats won't.
What Petraeus will say:

Here’s what will definitely happen when Gen. David Petraeus testifies before Congress next week: he’ll assert that the surge has reduced violence in Iraq — as long as you don’t count Sunnis killed by Sunnis, Shiites killed by Shiites, Iraqis killed by car bombs and people shot in the front of the head.

What the Democrats will do:

Here’s what I’m afraid will happen: Democrats will look at Gen. Petraeus’s uniform and medals and fall into their usual cringe. They won’t ask hard questions out of fear that someone might accuse them of attacking the military. After the testimony, they’ll desperately try to get Republicans to agree to a resolution that politely asks President Bush to maybe, possibly, withdraw some troops, if he feels like it.

What the Democrats should remember:

First, no independent assessment has concluded that violence in Iraq is down. On the contrary, estimates based on morgue, hospital and police records suggest that the daily number of civilian deaths is almost twice its average pace from last year. And a recent assessment by the nonpartisan Government Accountability Office found no decline in the average number of daily attacks.

So how can the military be claiming otherwise? Apparently, the Pentagon has a double super secret formula that it uses to distinguish sectarian killings (bad) from other deaths (not important); according to press reports, all deaths from car bombs are excluded, and one intelligence analyst told The Washington Post that “if a bullet went through the back of the head, it’s sectarian. If it went through the front, it’s criminal.” So the number of dead is down, as long as you only count certain kinds of dead people.

Oh, and by the way: Baghdad is undergoing ethnic cleansing, with Shiite militias driving Sunnis out of much of the city. And guess what? When a Sunni enclave is eliminated and the death toll in that district falls because there’s nobody left to kill, that counts as progress by the Pentagon’s metric.

And then there is the issue of the credibility of General Petraeus which I have discussed here and here. Krugman also looks at the General's credibility:

Second, Gen. Petraeus has a history of making wildly overoptimistic assessments of progress in Iraq that happen to be convenient for his political masters.

I’ve written before about the op-ed article Gen. Petraeus published six weeks before the 2004 election, claiming “tangible progress” in Iraq. Specifically, he declared that “Iraqi security elements are being rebuilt,” that “Iraqi leaders are stepping forward” and that “there has been progress in the effort to enable Iraqis to shoulder more of the load for their own security.” A year later, he declared that “there has been enormous progress with the Iraqi security forces.”

But now two more years have passed, and the independent commission of retired military officers appointed by Congress to assess Iraqi security forces has recommended that the national police force, which is riddled with corruption and sectarian influence, be disbanded, while Iraqi military forces “will be unable to fulfill their essential security responsibilities independently over the next 12-18 months.”

The Democrats have the American people on their side:

Finally, the public hates this war and wants to see it ended. Voters are exasperated with the Democrats, not because they think Congressional leaders are too liberal, but because they don’t see Congress doing anything to stop the war.

In light of all this, you have to wonder what Democrats, who according to The New York Times are considering a compromise that sets a “goal” for withdrawal rather than a timetable, are thinking. All such a compromise would accomplish would be to give Republicans who like to sound moderate — but who always vote with the Bush administration when it matters — political cover.

And six or seven months from now it will be the same thing all over again. Mr. Bush will stage another photo op at Camp Cupcake, the Marine nickname for the giant air base he never left on his recent visit to Iraq. The administration will move the goal posts again, and the military will come up with new ways to cook the books and claim success.

One thing is for sure: like 2004, 2008 will be a “khaki election” in which Republicans insist that a vote for the Democrats is a vote against the troops. The only question is whether they can also, once again, claim that the Democrats are flip-floppers who can’t make up their minds.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

David Petraeus - the partisan General?

A few weeks ago I wrote the following over at The Gun Toting Liberal:

To reach the rank of general you have to be part politician, it has always been that way. A good general is always a general first and a politician second. Those who had been generals first have over the last six years have been driven from the service by Donald Rumsfeld and the Bush administration. What we have left are men like General Petraeus. Not only a politician but a political hack. We know what he’s going to say in September because he said it all yesterday on wingnut radio, The Hugh Hewitt Show. On cue from Hugh he recited all the administration/neocon talking points. Glenn Greenwald does a good job of documenting how General Petraeus has been talking the neocon/administration talking points on Iraq from day one and not unlike William Kristol has been proven wrong over and over again. But in the media Petraeus is still sold as the brilliant saviour of Bush’s failed occupation of Iraq.

Before General David Petraeus gives his much anticipated report on Iraq in less than two weeks everyone should read his September 26, 2004 op-ed in the Washington Post, Battling for Iraq, to judge his credibility.

BAGHDAD -- Helping organize, train and equip nearly a quarter-million of Iraq's security forces is a daunting task. Doing so in the middle of a tough insurgency increases the challenge enormously, making the mission akin to repairing an aircraft while in flight -- and while being shot at. Now, however, 18 months after entering Iraq, I see tangible progress. Iraqi security elements are being rebuilt from the ground up.

The institutions that oversee them are being reestablished from the top down. And Iraqi leaders are stepping forward, leading their country and their security forces courageously in the face of an enemy that has shown a willingness to do anything to disrupt the establishment of the new Iraq.

In recent months, I have observed thousands of Iraqis in training and then watched as they have conducted numerous operations. Although there have been reverses -- not to mention horrific terrorist attacks -- there has been progress in the effort to enable Iraqis to shoulder more of the load for their own security, something they are keen to do.

[....]

I meet with Iraqi security force leaders every day. Though some have given in to acts of intimidation, many are displaying courage and resilience in the face of repeated threats and attacks on them, their families and their comrades. I have seen their determination and their desire to assume the full burden of security tasks for Iraq.

There will be more tough times, frustration and disappointment along the way. It is likely that insurgent attacks will escalate as Iraq's elections approach. Iraq's security forces are, however, developing steadily and they are in the fight. Momentum has gathered in recent months. With strong Iraqi leaders out front and with continued coalition -- and now NATO -- support, this trend will continue. It will not be easy, but few worthwhile things are.

Yes, that was three years ago. He was wrong then and Paul Krugman explains that it was a partisan and political commentary in Snow Job in the Desert.

But, say the usual suspects, General Petraeus is a fine, upstanding officer who wouldn’t participate in a campaign of deception — apparently forgetting that they said the same thing about Mr. Powell.

First of all, General Petraeus is now identified with the surge; if it fails, he fails. He has every incentive to find a way to keep it going, in the hope that somehow he can pull off something he can call success.

And General Petraeus’s history also suggests that he is much more of a political, and indeed partisan, animal than his press would have you believe. In particular, six weeks before the 2004 presidential election, General Petraeus published an op-ed article in The Washington Post in which he claimed — wrongly, of course — that there had been “tangible progress” in Iraq, and that “momentum has gathered in recent months.”

Is it normal for serving military officers to publish articles just before an election that clearly help an incumbent’s campaign? I don’t think so.

So here we go again. It appears that many influential people in this country have learned nothing from the last five years. And those who cannot learn from history are, indeed, doomed to repeat it.

History has shown us that General Petraeus has no more credibility than George W. Bush, Bill Kristol or Joe Lieberman when it comes to Iraq. If you don't believe them you shouldn't believe the General.

Update
Steve Clemons correctly points out that Krugman is incorrect when he compares Petraeus to Collin Powell.

Paul Krugman in his piece, "Snow Job in the Desert" fillets Michael O'Hanlon and Kenneth Pollack for their role in the effort and compares the non-empirical assertions of Colin Powell on WMDs to Petraeus's coming assertions that the surge is working.

A difference I'd suggest to Krugman between Powell and Petraeus is that Powell was lied to by the administration for which he worked and was told that the intel in hand had come from multiple credible sources -- and not just the single, questionable source, later identified as "Curveball." Petraeus, in contrast, is actually a working part of the information collection and marketing operation on the surge.

Clones

Paul Krugman wonders if the country is really ready for another totally self centered President - a clone of George W. Bush. He points out that it would appear that two of the candidates fit that mold very well. George W Bush was at least a little subtle about his narcissism, Mitt Romney and Rudy Giuliani are not.
It’s All About Them

Ask not what your country can do for you — ask what you can do for your father’s political campaign.

Last week, at one of Mitt Romney’s “Ask Mitt” forums, a woman in the audience asked Mr. Romney whether any of his five sons are serving in the military and, if not, when they plan to enlist.

The candidate replied with a rambling attempt to change the subject, but near the end he let his real feelings slip. “It’s remarkable how we can show our support for our nation,” he said, “and one of the ways my sons are showing support for our nation is helping to get me elected, because they think I’d be a great president.”

Wow. The important point isn’t the fact that Mr. Romney’s sons aren’t in uniform — although it is striking just how few of those who claim to believe that we’re engaged in a struggle for our very existence think that they themselves should be called on to make any sacrifices. The point is, instead, that Mr. Romney apparently considers helping him get elected an act of service comparable to putting your life on the line in Iraq.

Yet the week’s prize for most self-centered remark by a serious presidential contender goes not to Mr. Romney, but to his principal rival for the G.O.P. nomination.

Rudy Giuliani has lately been getting some long-overdue criticism for his missteps both before and after 9/11. For example, The Village Voice reports that he insisted that the city’s emergency command center — which included a personal suite with its own elevator that he visited “often, even on weekends, bringing his girlfriend Judi Nathan there long before the relationship surfaced” — be within walking distance of City Hall. This led to the disastrous decision to locate the center in the World Trade Center, an obvious potential terrorist target.

At the same time, Mr. Giuliani is being attacked for his failure to take adequate precautions to protect those who worked on the cleanup at ground zero from the hazards at the site. Many workers have since been sickened by the dust and toxic materials.

For a politician whose entire campaign is based on the myth of his leadership that fateful day — as The Onion put it, Mr. Giuliani is running for “president of 9/11” — anything that challenges his personal legend is a big problem. So here’s what Mr. Giuliani said last week in response: “I was at ground zero as often, if not more, than most of the workers. ... I was exposed to exactly the same things they were exposed to. So in that sense, I’m one of them.”

Real ground zero workers, who were digging through the toxic rubble while Mr. Giuliani held photo ops, were understandably outraged. So the next day Mr. Giuliani tried to recover, claiming that “what I was trying to say yesterday is that I empathize with them because I feel like I have that same risk.” But thanks to the wonders of YouTube, we can all watch Mr. Giuliani’s actual demeanor as he delivered the original remarks. Empathy had nothing to do with it.

What’s striking about these unintentional moments of self-revelation is how much Mr. Romney and Mr. Giuliani sound like the current occupant of the White House.

After six and a half years the nation has come to realize that compassionate conservatism only applies to the very rich and in fact George W. Bush cares about no body but himself. Is the nation going to get more of the same from the Republicans this time around?

It has long been clear that President Bush doesn’t feel other people’s pain. His self-centeredness shines through whenever he makes off-the-cuff, unscripted remarks, from his jocular obliviousness in the aftermath of Hurricane Katrina to the joke he made last year in San Antonio when visiting the Brooke Army Medical Center, which treats the severely wounded: “As you can possibly see, I have an injury myself — not here at the hospital, but in combat with a cedar. I eventually won. The cedar gave me a little scratch.”

What’s now clear is that the two men most likely to end up as the G.O.P. presidential nominee are cut from the same cloth.

This probably isn’t a coincidence. Arguably, the current state of the Republican Party is such that only extreme narcissists have a chance of getting nominated.

To be a serious presidential contender, after all, you have to be a fairly smart guy — and nobody has accused either Mr. Romney or Mr. Giuliani of being stupid. To appeal to the G.O.P. base, however, you have to say very stupid things, like Mr. Romney’s declaration that we should “double Guantánamo,” or Mr. Giuliani’s dismissal of the idea that raising taxes is sometimes necessary to pay for things like repairing bridges as a “Democratic, liberal assumption.”

So the G.O.P. field is dominated by smart men willing to play dumb to further their personal ambitions. We shouldn’t be surprised, then, to learn that these men are monstrously self-centered.

All of which leaves us with a political question. Most voters are thoroughly fed up with the current narcissist in chief. Are they really ready to elect another?

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

Credibility Shortage

The DOW lost nearly 400 points yesterday and opened over 100 points down this morning. And it's not just the US.
Fears of global liquidity crisis grip markets

LONDON (Reuters) - Fears of a global liquidity crisis intensified on Friday, knocking stocks and high-yielding currencies, while the European Central Bank and Asian authorities acted to calm surging short-term borrowing costs.

What started as trouble with risky U.S. residential mortgages is gripping world financial markets as the fallout hits banks globally, squeezes once ample liquidity and threatens to damage world growth.

World stocks have shed over seven percent since they hit record highs only a month ago. Investors rushed to buy safe-haven government bonds, unwind yen-financed carry trades and moved to scale back expectations for interest rate hikes by some major central banks this year.

Emergency action by central banks -- with the ECB acting for the second time on Friday -- underlined that the risk of a global liquidity crunch was more serious than anticipated.

"What we have at the moment is just an all-round sense of panic," said Marc Ostwald, bond analyst at Insinger de Beaufort in London.

So what do you need at a time like this? Someone with credibility - something we don't have.

Very Scary Things
By PAUL KRUGMAN

In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what’s happening now. During the crisis in ’98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. “What can we do about it?” asked one participant. “Pray,” replied the Fed official.

Our prayers were answered. The Fed coordinated a rescue for L.T.C.M., while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided.

Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly tried to reassure the markets. But Mr. Bush is, let’s say, a bit lacking in credibility. On the other hand, it’s not clear that anyone could do the trick: right now we’re suffering from a serious shortage of saviors. And that’s too bad, because we might need one.

What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.

This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.

It's not like we didn't see this coming. The Bush "recovery", like everything else in his administration, has been done with smoke and mirrors. It was based entirely on lots of credit and lots of bad loans. It's now time to pay the piper.

The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.

Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, a k a junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.

Then reality hit — not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45 percent higher than that on government bonds; now the spread is well over 4 percent.

Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average — the rule rather than the exception for the past two weeks.

But yesterday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” — that is, there are no buyers.

When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C — and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.

And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.

The Fed normally responds to economic problems by cutting interest rates — and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100 percent. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.

But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.

There are other, more exotic things the Fed and, more important, the executive branch of the U.S. government could do to contain the crisis if the standard policies don’t work. But for a variety of reasons, not least the current administration’s record of incompetence, we’d really rather not go there.

Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

Compassionate Conservatism in a nutshell

Paul Krugman reminds us today that George W. Bush's "Compassionate Conservatism" is An Immoral Philosophy and that Bush and other conservatives oppose the Schip program because they fear it will work.

It must be about philosophy, because it surely isn’t about cost. One of the plans Mr. Bush opposes, the one approved by an overwhelming bipartisan majority in the Senate Finance Committee, would cost less over the next five years than we’ll spend in Iraq in the next four months. And it would be fully paid for by an increase in tobacco taxes.

The House plan, which would cover more children, is more expensive, but it offsets Schip costs by reducing subsidies to Medicare Advantage — a privatization scheme that pays insurance companies to provide coverage, and costs taxpayers 12 percent more per beneficiary than traditional Medicare.

Strange to say, however, the administration, although determined to prevent any expansion of children’s health care, is also dead set against any cut in Medicare Advantage payments.

So what kind of philosophy says that it’s O.K. to subsidize insurance companies, but not to provide health care to children?

Well, here’s what Mr. Bush said after explaining that emergency rooms provide all the health care you need: “They’re going to increase the number of folks eligible through Schip; some want to lower the age for Medicare. And then all of a sudden, you begin to see a — I wouldn’t call it a plot, just a strategy — to get more people to be a part of a federalization of health care.”

Now, why should Mr. Bush fear that insuring uninsured children would lead to a further “federalization” of health care, even though nothing like that is actually in either the Senate plan or the House plan? It’s not because he thinks the plans wouldn’t work. It’s because he’s afraid that they would. That is, he fears that voters, having seen how the government can help children, would ask why it can’t do the same for adults.
And there you have the core of Mr. Bush’s philosophy. He wants the public to believe that government is always the problem, never the solution. But it’s hard to convince people that government is always bad when they see it doing good things. So his philosophy says that the government must be prevented from solving problems, even if it can. In fact, the more good a proposed government program would do, the more fiercely it must be opposed.

There is no greater enemy to the modern conservative than a government program that works. The six and a half years of the Bush administration has been all about proving government doesn't work. Some of it intentional, the gutting of FEMA - think Katrina, and some of it unintentional - the invasion and occupation of Iraq.

But it has taken the fight over children’s health insurance to bring the perversity of this philosophy fully into view.

There are arguments you can make against programs, like Social Security, that provide a safety net for adults. I can respect those arguments, even though I disagree. But denying basic health care to children whose parents lack the means to pay for it, simply because you’re afraid that success in insuring children might put big government in a good light, is just morally wrong.

Denial isn't just a river in Africa

After reaching a new high about a week ago the market is diving for the second day in a row.

NEW YORK (Reuters) - Stocks fell on Friday as persistent concern about financing for corporate takeovers amid a broadening deterioration in credit markets offset positive data on economic growth.

Comments by Treasury Secretary Henry Paulson briefly lent some support, but the underlying tone on Wall Street remained nervous, a day after equities suffered their second worst decline of the year.

Thursday's selling wiped out more than $300 billion in the value of the S&P 500.

Paul Krugman reminds us that this should not be a surprise to anyone who was paying attention but apparently a lot of people weren't.
The Sum of Some Fears (TS)

Yesterday’s scary ride in the markets wasn’t a full-fledged panic. The interest rate on 10-year U.S. government bonds — a much better indicator than stock prices of what investors think will happen to the economy — fell sharply, but even so, it ended the day higher than its level as recently as mid-May, and well above its levels earlier in the year. This tells us that investors still consider a recession, which would cause the Fed to cut interest rates, fairly unlikely.

So it wasn’t the sum of all fears. But it was the sum of some fears — three, in particular.

The first is fear of bad credit. Back in March, after another market plunge, I spun a fantasy about how a global financial meltdown could take place: people would suddenly remember that bad stuff sometimes happens, risk premiums — the extra return people demand for holding bonds that aren’t government guaranteed — would soar, and credit would dry up.

Well, some of that happened yesterday. “The risk premium on corporate bonds soared the most in five years,” reported Bloomberg News. “And debt sales faltered as investors shunned all but the safest debt.” Mark Zandi of Moody’s Economy.com said that if another major hedge fund stumbles, “That could elicit a crisis of confidence and a global shock.”

I saw that one coming. But what’s really striking is how much of the current angst in the market is over two things that I thought had been obvious for a long time: the magnitude of the housing slump and the persistence of high oil prices.

I’ve written a lot about housing over the past couple of years, so let me just repeat the basics. Back in 2002 and 2003, low interest rates made buying a house look like a very good deal. As people piled into housing, however, prices rose — and people began assuming that they would keep on rising. So the boom fed on itself: borrowers began taking out loans they couldn’t really afford and lenders began relaxing their standards.

Eventually the bubble had to burst, and when it did it left us with prices way out of line with reality and a huge overhang of unsold properties. This in turn has caused a plunge in housing construction and a lot of mortgage defaults. And the experience of past boom-and-bust cycles in housing tells us that it should be several years at least before things return to normal.

If the implosion of the housing market was obvious the supply and demand of oil should have been even more obvious. I wrote about it here over three years ago. Krugman supplies a reality check.

I’ve written less about oil prices, so let me emphasize two points about the oil situation. First, we’re now in our third year of very high oil prices by historical standards — prices as high, even when adjusted for inflation, as those that prevailed in the early 1980s, after the Islamic revolution in Iran. Second, unlike the energy crises of the past, this price surge has happened even though there hasn’t been any major disruption in world oil supply.

It’s pretty clear what’s happening: economic development is colliding with geology.

The “peak oil” theorists may or may not be right in asserting that world oil production is already as high as it will ever go — anyone who really knows what’s going in Saudi Arabia’s fields, please drop me a line — but finding new oil is getting a lot harder. Meanwhile, emerging economies, especially in Asia, are burning ever more oil as they get richer. With demand soaring and supply growth sluggish at best, high prices are what you get.

Denial

So why did people seem so shocked by a few more bad housing and oil numbers? What I guess I didn’t realize was how deep the denial still runs.

Over the last couple of years a peculiar conviction emerged among some analysts — mainly, for some reason, among those with right-wing political leanings — that the housing bubble was a myth and that the real bubble was in oil prices.

Each new peak in oil prices was met with declarations that it was all speculation — like the 2005 prediction by Steve Forbes that oil was in a “huge bubble” and that its price would be down to $35 or $40 a barrel within a year. And on the other side, as recently as this January, National Review’s Buzzcharts column declared that we were having a “pop-free” housing slowdown.

I didn’t think many people believed this stuff, but the market’s sudden freakout over housing and oil suggests that I was wrong.

Anyway, now reality is settling in. And there’s one more thing worth mentioning: the economic expansion that began in 2001, while it has been great for corporate profits, has yet to produce any significant gains for ordinary working Americans. And now it looks as if it never will.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

Confident???

As Eugene Robinson reported George W. Bush was described as "confident" buy a group of conservative pundits who were given an audience. Robinson suggested this should terrify us especially the messianic nature of his confidence. Earlier in the week Harold Meyerson talked about the spineless Republican senators who talk the talk but won't walk the walk when it come to opposing Bush's Iraq policy. Paul Krugman puts it all together today in one of his best commentaries recently.
All the President’s Enablers (TS)

In a coordinated public relations offensive, the White House is using reliably friendly pundits — amazingly, they still exist — to put out the word that President Bush is as upbeat and confident as ever. It might even be true.

What I don’t understand is why we’re supposed to consider Mr. Bush’s continuing confidence a good thing.

Remember, Mr. Bush was confident six years ago when he promised to bring in Osama, dead or alive. He was confident four years ago, when he told the insurgents to bring it on. He was confident two years ago, when he told Brownie that he was doing a heckuva job.

Now Iraq is a bloody quagmire, Afghanistan is deteriorating and the Bush administration’s own National Intelligence Estimate admits, in effect, that thanks to Mr. Bush’s poor leadership America is losing the struggle with Al Qaeda. Yet Mr. Bush remains confident.

Sorry, but that’s not reassuring; it’s terrifying. It doesn’t demonstrate Mr. Bush’s strength of character; it shows that he has lost touch with reality.

Actually, it’s not clear that he ever was in touch with reality. I wrote about the Bush administration’s “infallibility complex,” its inability to admit mistakes or face up to real problems it didn’t want to deal with, in June 2002. Around the same time Ron Suskind, the investigative journalist, had a conversation with a senior Bush adviser who mocked the “reality-based community,” asserting that “when we act, we create our own reality.”

People who worried that the administration was living in a fantasy world used to be dismissed as victims of “Bush derangement syndrome,” liberals driven mad by Mr. Bush’s success. Now, however, it’s a syndrome that has spread even to former loyal Bushies.

As we saw below in Republicans we should listen to the "Bush derangement syndrome" has certainly spread to a number of prominent Republicans. But he still has enablers.

Yet while Mr. Bush no longer has many true believers, he still has plenty of enablers — people who understand the folly of his actions, but refuse to do anything to stop him.

This week’s prime example is Senator Richard Lugar of Indiana, who made headlines a few weeks ago with a speech declaring that “our course in Iraq has lost contact with our vital national security interests.” Mr. Lugar is a smart, sensible man. He once acted courageously to head off another foreign policy disaster, persuading a reluctant Ronald Reagan to stop supporting Ferdinand Marcos, the corrupt leader of the Philippines, after a stolen election.

Yet that political courage was nowhere in evidence when Senate Democrats tried to get a vote on a measure that would have forced a course change in Iraq, and Republicans responded by threatening a filibuster. Mr. Lugar, along with several other Republicans who have expressed doubts about the war, voted against cutting off debate, thereby helping ensure that the folly he described so accurately in his Iraq speech will go on.

I discussed General Patraeus over at The Gun Toting Liberal and Krugman comes to about the same conclusion.

Thanks to that vote, nothing will happen until Gen. David Petraeus, the top commander in Iraq, delivers his report in September. But don’t expect too much even then. I hope he proves me wrong, but the general’s history suggests that he’s another smart, sensible enabler.

I don’t know why the op-ed article that General Petraeus published in The Washington Post on Sept. 26, 2004, hasn’t gotten more attention. After all, it puts to rest any notion that the general stands above politics: I don’t think it’s standard practice for serving military officers to publish opinion pieces that are strikingly helpful to an incumbent, six weeks before a national election.

In the article, General Petraeus told us that “Iraqi leaders are stepping forward, leading their country and their security forces courageously.” And those security forces were doing just fine: their leaders “are displaying courage and resilience” and “momentum has gathered in recent months.”

In other words, General Petraeus, without saying anything falsifiable, conveyed the totally misleading impression, highly convenient for his political masters, that victory was just around the corner. And the best guess has to be that he’ll do the same thing three years later.

As I suggested over at GTL, Petraeus has a long history of being a political hack first and a general second.

Krugman is right when he concludes that it's time to stop blaming Bush and time to start blaming all of his enablers. It's no secret that both Bush and Cheney are delusional if not insane even among those who enable the insanity.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

If you say it enough

The standard operating procedure for conservatives and Republicans has been to repeatedly tell a lie until people believe it. This has certainly been the case with health care delivery in the US. In order to protect the insurance industry they repeat over and over again that the US has the best health care in the world. As Paul Krugman points out today we don't.
The Waiting Game (TS)

Being without health insurance is no big deal. Just ask President Bush. “I mean, people have access to health care in America,” he said last week. “After all, you just go to an emergency room.”

This is what you might call callousness with consequences. The White House has announced that Mr. Bush will veto a bipartisan plan that would extend health insurance, and with it such essentials as regular checkups and preventive medical care, to an estimated 4.1 million currently uninsured children. After all, it’s not as if those kids really need insurance — they can just go to emergency rooms, right?

O.K., it’s not news that Mr. Bush has no empathy for people less fortunate than himself. But his willful ignorance here is part of a larger picture: by and large, opponents of universal health care paint a glowing portrait of the American system that bears as little resemblance to reality as the scare stories they tell about health care in France, Britain, and Canada.

The claim that the uninsured can get all the care they need in emergency rooms is just the beginning. Beyond that is the myth that Americans who are lucky enough to have insurance never face long waits for medical care.

I have had two friends, who had health insurance, who suffered and eventually died because they could not get required medical attention when it was needed. This was the result of insurance company beauracrats refusing care that had been requested by their physicians. That is representative of the myth of US health care.

Actually, the persistence of that myth puzzles me. I can understand how people like Mr. Bush or Fred Thompson, who declared recently that “the poorest Americans are getting far better service” than Canadians or the British, can wave away the desperation of uninsured Americans, who are often poor and voiceless. But how can they get away with pretending that insured Americans always get prompt care, when most of us can testify otherwise?

A recent article in Business Week put it bluntly: “In reality, both data and anecdotes show that the American people are already waiting as long or longer than patients living with universal health-care systems.”

A cross-national survey conducted by the Commonwealth Fund found that America ranks near the bottom among advanced countries in terms of how hard it is to get medical attention on short notice (although Canada was slightly worse), and that America is the worst place in the advanced world if you need care after hours or on a weekend.

We look better when it comes to seeing a specialist or receiving elective surgery. But Germany outperforms us even on those measures — and I suspect that France, which wasn’t included in the study, matches Germany’s performance.

Besides, not all medical delays are created equal. In Canada and Britain, delays are caused by doctors trying to devote limited medical resources to the most urgent cases. In the United States, they’re often caused by insurance companies trying to save money.

This can lead to ordeals like the one recently described by Mark Kleiman, a professor at U.C.L.A., who nearly died of cancer because his insurer kept delaying approval for a necessary biopsy. “It was only later,” writes Mr. Kleiman on his blog, “that I discovered why the insurance company was stalling; I had an option, which I didn’t know I had, to avoid all the approvals by going to ‘Tier II,’ which would have meant higher co-payments.”

He adds, “I don’t know how many people my insurance company waited to death that year, but I’m certain the number wasn’t zero.”

To be fair, Mr. Kleiman is only surmising that his insurance company risked his life in an attempt to get him to pay more of his treatment costs. But there’s no question that some Americans who seemingly have good insurance nonetheless die because insurers are trying to hold down their “medical losses” — the industry term for actually having to pay for care.

On the other hand, it’s true that Americans get hip replacements faster than Canadians. But there’s a funny thing about that example, which is used constantly as an argument for the superiority of private health insurance over a government-run system: the large majority of hip replacements in the United States are paid for by, um, Medicare.

That’s right: the hip-replacement gap is actually a comparison of two government health insurance systems. American Medicare has shorter waits than Canadian Medicare (yes, that’s what they call their system) because it has more lavish funding — end of story. The alleged virtues of private insurance have nothing to do with it.

The bottom line is that the opponents of universal health care appear to have run out of honest arguments. All they have left are fantasies: horror fiction about health care in other countries, and fairy tales about health care here in America.

Don't believe the lies. Insurance companies kill people to protect the bottom line and waste 20% of the US health care dollars doing it.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

From the people that brought you Enron

Paul Krugman explains that the meltdown in the sub prime home lending market is the responsibility of the same folks who are responsible for Enron, S.& P., Moody’s and Fitch, the bond-rating agencies.
Just Say AAA

What do you get when you cross a Mafia don with a bond salesman? A dealer in collateralized debt obligations (C.D.O.’s) — someone who makes you an offer you don’t understand.

Seriously, it’s starting to look as if C.D.O.’s were to this decade’s housing bubble what Enron-style accounting was to the stock bubble of the 1990s. Both made investors think they were getting a much better deal than they really were. And the new scandal raises two obvious questions: Why were the bond-rating agencies taken in (again), and where were the regulators?

What you see is not what you get or Enron redux.

To understand the fuss over C.D.O.’s, you first have to realize that in the later stages of the great 2000-2005 housing boom, banks were making a lot of dubious loans. In particular, there was an explosion of subprime lending — home loans offered to people who wouldn’t normally have been considered qualified borrowers.

For a while, the risks of subprime loans were masked by the housing bubble itself: as long as prices kept going up, troubled borrowers could raise more cash by borrowing against their rising home equity. But once the bubble burst — and the housing bust is turning out to be every bit as nasty as the pessimists predicted — many of these loans were bound to go bad.

Yet the banks making the loans weren’t stupid: they passed the buck to other people. Subprime mortgages and other risky loans were securitized — that is, banks issued bonds backed by home loans, in effect handing off the risk to the bond buyers.

In principle, securitization should reduce risk: even if a particular loan goes bad, the loss is spread among many investors, none of whom takes a major hit. But with the collapse of the $800 billion market in bonds backed by subprime mortgages — the price of a basket of these bonds has lost almost 40 percent of its value since January — it’s now clear that many investors who bought these securities didn’t realize what they were getting into.

And it’s also becoming clear that in addition to failing to appreciate the risks of subprime loans, many investors were fooled by fancy financial engineering — those collateralized debt obligations — into believing they had protected themselves against risk, when they had actually done no such thing.

Like Enron before it the bond rating agencies gave these bonds AAA ratings giving investors a false sense of security.

The details of C.D.O.’s are complicated, but basically they’re supposed to transfer most of the risk of bad loans to a small group of sophisticated investors, who are compensated for that risk with a high rate of return, while leaving other investors with a “synthetic” asset that is, well, safe as houses.

S.& P., Moody’s and Fitch, the bond-rating agencies, have gone along with the premise, telling investors that the synthetic assets created by C.D.O.’s are equivalent to high-quality corporate bonds. And investors have, in the words of a recent Bloomberg story, “snapped up” these securities “because they typically yield more than bonds with the same credit ratings.”

But the securities were never as safe as advertised, because the risk transfer wasn’t anywhere near big enough to protect investors from the consequences of a burst housing bubble. It’s not quite the metaphor I would have come up with, but here’s what the legendary bond investor Bill Gross had to say about C.D.O.’s in Pimco’s latest “Investment Outlook”:

“AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a ‘tramp stamp.’ Many of these good-looking girls are not high-class assets worth 100 cents on the dollar.”

But we shouldn't just blame the bond agencies, the Federal Reserve should have known what was going on. In fact they probably did but chose to do nothing because politically connected people were making lots of money and the sub prime market was the smoke and mirrors that made the Bush economy look like something it wasn't - a success.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.

Authentic politician

Yes I know, authentic politician is the ultimate oxymoron. But that didn't prevent the tabloid press from making a rich New England frat boy with a phony Texas drawl into an "authentic" good old boy you would like to have a beer with. Today Paul Krugman looks at authenticity.

Authentic? Never Mind

Rich liberals who claim they’ll help America’s less fortunate are phonies.

Let me give you one example — a Democrat who said he’d work on behalf of workers and the poor. He even said he’d take on Big Business. But the truth is that while he was saying those things, he was living in a big house and had a pretty lavish summer home too. His favorite recreation, sailing, was incredibly elitist. And he didn’t talk like a regular guy.

Clearly, this politician wasn’t authentic. His name? Franklin Delano Roosevelt.

Luckily, that’s not how the political game was played 70 years ago. F.D.R. wasn’t accused of being a phony; he was accused of being a “traitor to his class.” But today, it seems, politics is all about seeming authentic. A recent Associated Press analysis of the political scene asked: “Can you fake authenticity? Probably not, but it might be worth a try.”

What does authenticity mean? Supposedly it means not pretending to be who you aren’t. But that definition doesn’t seem to fit the way the term is actually used in political reporting.

Fred Thompson, authentic or phony?

On the other hand, consider the case of Fred Thompson. He spent 18 years working as a highly paid lobbyist, wore well-tailored suits and drove a black Lincoln Continental. When he ran for the Senate, however, his campaign reinvented him as a good old boy: it leased a used red pickup truck for him to drive, dressed up in jeans and a work shirt, with a can of Red Man chewing tobacco on the front seat.

But Mr. Thompson’s strength, says Lanny Davis in The Hill, is that he’s “authentic.”

And what about Rudy Giuliani?

And where do you start with Rudy Giuliani? We keep being told that he has credibility on national security, because he seemed so reassuring on 9/11. (Some firefighters have condemned his actual performance that day, saying that rescue efforts were uncoordinated and that firemen died because he provided them with faulty radios. “All he did was give information on the TV,” said a deputy fire chief whose son died at the World Trade Center. “He did nothing.” And the nation’s largest firefighters’ union has condemned his handling of recovery efforts in the weeks following 9/11.)

But he’s spent the years since then cashing in on terrorism, and his decisions about Giuliani Partners’ personnel and clients raise real questions about his seriousness. His partners, as The Washington Post pointed out, included “a former police commissioner later convicted of corruption, a former F.B.I. executive who admitted taking artifacts from ground zero and a former Roman Catholic priest accused of covering up sexual abuse in the church.”

So forget "authentic".

The point is that questions about a candidate shouldn’t be whether he or she is “authentic.” They should be about motives: whose interests would the candidate serve if elected? And think how much better shape the nation would be in if enough people had asked that question seven years ago.

But that of course is not what will get in the infotainment the corporate media try to pass of as news.

FAIR USE NOTICE

This article contains copyrighted material, the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of democracy, economic, environmental, human rights, political, scientific, and social justice issues, among others. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this article is distributed without profit for research and educational purposes.