Thursday, September 18, 2008

The smartest guys in several rooms!

I believe that anyone who would understand the latest developments on Wall Street stemming from the sub prime housing debacle should watch the documentary: The Enron Story: The Smartest Guys in the Room. This documentary can be understood on several levels but the message to me was simple: The desire to bend the rules in order to amass huge amounts of money and power cannot be kept in check by professional canons or by regulations that are not kept up to date with the latest sophisticated financial innovations.

The boys and girls at Enron concocted a financial house of cards that seemingly generated unheard of profits. Anyone whose judgment was not clouded by the opportunity to personally and corporately profit would have seen it as something that was too good to be true. Almost no one on whom the rest of us rely for information was able to see it for what it was. Law firms, accounting firms, financial institutions, investment bankers, Security and Exchange Commission, and the corporate officers themselves, all of them went along. Some even actively participated by providing opinions (financial and legal) that were perhaps narrowly correct but substantially inaccurate. They went along, it seems to me, because each of them had its percentage piece of the pie. When billions of dollars are involved, it doesn't take much of a percentage share to amount to real money.

One could simply lay the blame on the greed of those involved. The housing crisis, however, helps us see that there is a systemic problem with greed that requires some type of systemic solution. While the Enron manipulation affected millions of people, it involved a relatively small number of people in the actual manipulation. In the housing crisis, the financial institutions found a way of implicating those millions in the manipulation itself. Not only were business organizations involved (real estate developers, home builders, real estate sales) but this time millions of individual citizens. This last feature insured that if (or when) the house of cards came crashing down, the government could be counted on to bail out the system. The fact that main line financial investment institutions took the bait of exotic investment instruments based on the sub prime mortgages only sweeten the deal and made government back up all the more inevitable.

This arose not just from the greed of individual actors but from the sense of entitlement to ever increasing wealth among the wealthiest Americans. Over the alst eight years, the gap between the wealthiest five percent of Americans and the rest of us has been widening. Those top five percent have seen their incomes and wealth appreciate markedly while the rest of us have been barely able to keep up with inflation. It has gotten to the point where the wealtheist feel that they not only ahve a right but a responsibility to become a wealthy as possible regardless of what happens to the rest of us. How else can one explain the making of millions of loans to people who did not qualify? This could only happen because of a real estate bubble; in fact, it continued and accelerated that bubble. All bubbles burst! What the weathiest know and knew was that they are relatively immune to those busts. They play with wealth money not income money, the money the rest of use to pay our living expenses: mortgages, transporation, education, health care, food expenses. They could make money by stimulating the desire of those less wealthy to live as though they were wealthy. Once the bubble burst, the wealthy walk away with their earnings and outsized bonus payments while the rest of us sink back into the reality that we are not and probably never will be wealthy and we do this in rental housing.

This culture of entitlement wasn't created by government action but it has been given steroids by the Bush tax cuts, the gutting of oveersight regulation, increasing tax favored treatment for corporations, and blathering about the "ownership society." Clearly this is time for a change.

Friday, September 12, 2008

New York State Fiscal Mess

With all the attention given to the presidential campaign, I have only recently focused on the New York State races. There is no gubernatorial race but our assembly persons and senators are running. In the vast majority of cases, incumbents are re-elected. Surprise, surprise. Each year both incumbents and challengers rail against the broken New York government and promise the voters that they will lead the effort to "clean up Albany." Nothing much happens except finger pointing a variety of scapegoats. In my twenty plus years in New York, I have distinct impression that our elected representatives are powerless even if motivated to change things.

Now, however, the situation has become so desperate that those running for office must come up with workable solutions to a worsening fiscal problem. Here is an outline of the situation:

  1. New York routinely ranks first or second among the states in the percent of personal income paid in state and local taxes: income, property, sales, and others.
  2. New York ranks far from second in the basic social indicators of a healthy state: poverty, health, and education.
  3. This year the governor called the legislature into special session to deal with projected deficits in the billions of dollars. When an agreement was finally reached, the governor and the leaders of the legislature proudly announced that they had made progress without raising taxes. They made that progress by drastically reducing state funding for health care, child care, education along with most other social services. The governor has indicated that more cuts will be needed and clearly these same areas will be hit the hardest.
  4. New York's total tax burden is highly regressive. The lowest twenty percent of families int terms of income pay 12 percent of their income in state and local taxes while the highest twenty percent pay 6.5 percent. The tax cuts of the late nineties massively benefited the highest income families while providing almost no relief to low income families and marginal benefits to middle income families. This is consistent with national tax policy that provided massive decreases to the wealthiest. As is true at the national level, New Yorkers in the low and middle income levels have seen very little growth income while costs continue to rise. Over the past year, this situation has worsened appreciably. The situation is even worse if state sponsored gambling is included. Given the demographics of participation, the state lottery is simply another regressive tax on lower income families.
  5. In fiscal 2007 the budget included $200,000,000 in what are called "member items." This is the New York terms for "pork barrel" or "earmarks." In New York, this has been raised to a high level. The budget includes a single comprehensive item. $80 million goes to the head of the Assembly and $80 million to the head of the Senate. These funds are allocated in some mysterious fashion to individual members and are major factors in party leaders maintaining control over members in each body. The governor received another $40 million to allocate in some equally mysterious fashion. There is no publicly available list of projects. When information is sought under public information laws, only individual grants are disclosed, not the name of the legislator responsible. These funds are used for very specific organizations/projects. This allows them to tell constituents that they have delivered funds back to their home district. There are no guidelines, no priorities, and no accountability. In fact, I have heard that some legislators have had their names placed on structures as though they had contributed their own money. My own state senator lists his member items on his web site. This is a step in the right direction. However a reform is needed so that this $200 million can be allocated in some rational way to address major state priorities rather than multitudinous local projects.
My concern in this state election is not how much money someone delivers back home but what will he or she do to right this precarious fiscal ship. We must elect people who have the courage to think anew about the way in which New York government and governments are funded. To continue tinkering and cutting will only make matters worse. I have not yet heard any one address the above issues in a realistic way.

If we think we need change in Washington, we clearly need change in Albany.

Friday, September 5, 2008

McCain showed me a lot and not so much

I watched John McCain's acceptance speech last night and was impressed with his story which I had never really heard before. I knew about the war record, the prisoner of war experience, and his public service but I was not aware of his conversion experience during his imprisonment. He told that story in a convincing and touching way. In the Christian tradition, it was a story of death and resurrection. He was forced to confront his radical individualism by being placed in a position of weaknesses and utter helplessness. His fellow prisoners kept him alive since he could not even feed himself. He learned that going it alone was not the path to a full human life, a life of meaning. Even when his captors broke him, he found through another prisoner the strength to continue on with the full knowledge that he was human and thus breakable. Out of those horrid experiences, he came to a realization that his life had meaning only in service to others. His life since then has certainly been consistent with that realization. He is a true hero, not because he served his country so courageously but because he faced his own humanity in a way that resulted in commitment to service, compassion, and honesty. This is a story that speaks to all of us and the ways in which each of us must likewise confront our humanity and grow because of it.

If, as McCain's campaign manager had said, this election were not about issues, the choice between Obama and McCain would a difficult one for me. But this campaign and election is about issues and policies. Both men are deeply devoted to America and the promise it holds for us and the world community. Both men place "country first." To suggest that only McCain does is frankly an insult to Obama, to his supporters, and to me. Let us differ about policy and direction but not about our commitment to our country.

When both candidates are such exemplary human beings, it is even more essential to be guided by the political parties of each. The Twentieth Century brought us Social Security, Medicare, federally funded health research, space exploration, rebuilding of Europe and Japan, federal aid in so many ways to education, the end of segregation, expansion of civil rights, etc. because democrat presidents led the way. Harry Truman's 1948 acceptance speech reads as if it could be given today in terms of the issues he saw as important to our country. The democrats have remained largely faithful to that heritage. The republicans have typically been the opposition in those fights. They continue today to argue for a lessening of the government's role in these programs and the impact they have on ordinary people. The result has been a definitive increase in income inequality during the Bush years; the rich have gotten even richer and the lower and the middle classes have fallen behind.

Regardless of the enthusiasm of party loyalists on both sides, it is incumbent on us to be clear headed about the policies and issues. This is too important an election to be ourselves be swayed by personal stories, clever slogans, and appeals to our fears.

Monday, September 1, 2008

Vice Presidential Choice of Palin Will Backfire

McCain has made a serious miscalculation in his choice for vice president.

There is very little that qualifies her to become a potential president; given McCain's age and health history this is much more serious that bush's selection of Dan Quail who was also unqualified. Palin has no foreign policy experience and to date has demonstrated very little foreign policy knowledge. She has served as mayor of a small town. For two years she has served as governor of a small state and one that faces almost no fiscal issues. Any state that has enough money to pay people to live there does not have the kind of fiscal issues that plague larger states and the federal government. She is largely unknown to the leadership of the national Republican party and thus has little ability to be a player in governance. Even trying to envision her as president of the Senate is a stretch.

Politically this gamble will not pay off. I cannot imagine a female supporter of Hilary Clinton rushing to support an inexperienced woman with retro position on women's right to choose. Her actual gun-toting membership in the NRA may energize the far right but will be a huge negative with women in general. Several female members of my own family--Republican and Democrats alike-- find it disconcerting that a mother of five, including a special needs infant, would presume to devote her time and attention to politics, especially national politics. She is young and has time to put her family first and then engage in the demanding challenges of national politics.

By choosing her McCain will actually alienate most women who will see this as an affront to the role of women pioneered by Hilary and others. Hilary gained support from women not just because she was a woman but because she was a QUALIFIED woman! This is clear evidence that McCain just doesn't get this issue as he fails to get so many others. With so many qualified and experienced Republican women to choose from, why would he select someone with no experience? Her only plus seems to be ideological. Haven't we had enough of that from the current administration?

This choice is just one more piece of evidence that McCain does not have considered judgment and is subject to impetuousness based on his view that he alone knows best. How else to explain the fact that she did not go through a careful vetting process?

Of course, a cynical view would be that the Republicans don't want to waste a competitive candidate in a race they are doomed to lose.