Thursday, July 28, 2011

Whither Statecraft? (There’s Only One Way to Avoid a Downgrade to U.S. Credit) Why Is "Bully Pulpit" Empty? Is JP Morgan Going Down? BP Leads the Way!

(Sign Located at Guilford Courthouse at Revolutionary War Battleground - Greensboro, NC)
Statecraft. It's almost a term from a different world. Or is it just a long-ago discarded concept that's not necessary in the building of an empire now? (Thanks for all you do, Tony!)
Whatever Happened To Statesmanship? Political crises usually come with whoopee cushions: interludes of unwitting comedy that cut through the pomp, and point us to what's really going on. Sure enough, the three big cliffhangers of the past week have each had a whoopee moment – and they're worth noting. Let's begin at the White House last Friday. Crunch talks on how much the government can borrow have broken down and America faces the prospect of defaulting on its loans. Barack Obama addresses the nation – only, rather than sounding like the leader of the free world, he comes off like Carrie Bradshaw griping about a boyfriend. The Republican he's been negotiating with, John Boehner, won't return his phone calls and the president's "been left at the altar . . . a couple of times". The captain of the No 1 superpower has been defeated by rightwing commitment phobia. Obama has a plaintive question for Republicans: "Can they say yes to anything?" Next, the phone-hacking scandal. John Bercow tells this newspaper on Saturday that, in taking on the Murdochs, MPs have "rediscovered their collective balls". The speaker means this as a good thing, yet questions inevitably bubble up: just where did said orbs go, and who wielded the offending secateurs? Finally, to Brussels on Thursday. Angela Merkel and other European leaders have struck a deal to save the euro. The most intriguing leaked section declares a "Marshall Plan" for Greece. Really? Roosevelt's programme to rebuild war-torn Europe cost around 5% of US GDP – the lofty comparison only underlines the puniness of the euro version and elicits a snort of derision from newsrooms and trading floors across Europe. By the agreement's official release, any reference to a Marshall Plan has been scrubbed out. These moments of light relief have a common theme. They illustrate how one missing word haunts all of these dramas. Its absence helps explain both the US and European debt crises and why, with only a little squinting, Westminster has come to resemble a government of the Murdoch clan, for the Murdoch clan, by the Murdoch clan. The word is statecraft. True, it's a dated term. Statecraft doesn't even get its own entry in Wikipedia, and when it's pressed into service at all, it's in reference to summitry or wars. But its original meaning is the practice of using the levers of the state and of government to get difficult things done that otherwise wouldn't happen. The power to bang tables and knock heads together and face down opponents. The ability, in short, to govern. What would statecraft look like now? In both Europe and America, it would revolve around public spending. Seen in political terms, government debt is a form of state power: using the national balance sheet to do something in the public good. So Obama could stop bending over backwards to appease Republican "nutters" (as Vince Cable calls them) and pitch an argument directly to voters. America's economy is stuck in first gear, he could say, and one in 10 of you are out of work. Changing that will mean raising the debt ceiling for a time – as the head of the US central bank and top economists agree. And the euro crisis? Cast your mind back to last spring, when the financial crisis was confined largely to tiny Greece. Had Merkel and Sarkozy stepped in then to renegotiate terms with Athens' creditors, to sort out European banks and put in place a recovery plan for stricken economies, they could have stopped one nation's sickness turning into a costly continental pandemic. As for Britain, any prime minister who meets News International executives 24 times in just over a year, as David Cameron admitted this month, is at least partly in the business of appeasement rather than government. Nor were the previous lot much better; it was Tony Blair's chief of staff who wrote here last week of his boss's relations with the press: "It was a battle for power and one we could not win." Which isn't to say that the Westminster classes are completely or always impotent. The last great moment of statecraft was three years ago, when Alistair Darling hauled in crisis-hit bankers for what Fred Goodwin described as a "drive-by shooting", and all but nationalised the two biggest high-street names. Yet Labour never matched it, or even followed through. Taxpayers own RBS and Lloyds, but they have little say in how they are run. The demise of statecraft goes hand in hand with the rise of neoliberalism, and its creed that whatever can be done by the private sector should. The political implications of that belief were best summed up by Ronald Reagan in his quip that the nine most terrifying words in the English language were: "I'm from the government and I'm here to help." Modern politicians have internalised that lesson – and the result is a would-be governing class out of practice at deploying power. Sure, they can still fuss and fiddle over small things. But as the current crop of crises demonstrates, when it comes to tackling really big problems, today's ministers haven't had the training. They lack the muscle memory for government. Instead they fret about "markets" or "credit-rating agencies" or the "voters": disparate individuals and institutions there to be tackled or negotiated with, yet who ministers conflate into monolithic objects impeding progress. What is government without statecraft? A kind of displacement activity – forever looking for someone else to blame for your own inertia.
If you haven't figured the following out yet . . . it's almost too late (unless you call your Congress people NOW!). Barry Ritholtz* has some thoughts he wants to share with us, and it's rarely a bad time to listen to his advice.
There’s Only One Way to Avoid a Downgrade to U.S. Credit
According to Reuters, a majority of economists now think that U.S. credit will be downgraded.

The debt ceiling plans being proposed likely will not avoid a debt downgrade.

Indeed, as Zero Hedge notes, the cuts being proposed in the debt ceiling proposals would be offset by the costs of the downgrade:

The US downgrade alone, now virtually taken for granted by everyone, will offset any beneficial impact from any deficit reduction that will have to happen for the debt ceiling to be increased.

Indeed, many are starting to say that a downgrade is inevitable.

In truth and in fact, we could still avoid a downgrade . . . but only if we immediately:

(1) End the imperial wars, which reduce – rather than strengthen – national security (and see this and this);

(2) End the never-ending bailouts for Wall Street;

(3) Prosecute fraud and claw back ill-gotten gains;

(4) End the Bush tax cuts, which Ronald Reagan’s budget director David Stockman said were the worst fiscal mistake in history; and

(5) Slash pensions for public employees, at least when they are pegged to an artificially “spiked” final year’s salary.

The talking heads will say that these actions are not politically feasible.

However, as I’ve previously noted, that phrase is just code for:

The powers-that-be don’t want it, even if the people overwhelmingly and passionately support it.

Please read the Comments. Robert Reich asks the question of the hour:
The Empty Bully Pulpit Robert Reich How did we get into this mess? I thought I’d seen Washington at its worst. I was there just after Watergate. I was there when Jimmy Carter imploded. I was there during the government shut-down of 1995.

But I hadn’t seen the worst. This is the worst.

How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?

Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed.

Part of the answer is the continuing gravitational pull of the Great Recession.

But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.

Barack Obama is one of the most eloquent and intelligent people ever to grace the White House, which makes his failure to tell the story of our era all the more disappointing and puzzling. Many who were drawn to him in 2008 (including me) were dazzled by the power of his words and insights — his speech at the 2004 Democratic convention, his autobiography and subsequent policy book, his talks about race and other divisive issues during the campaign.

We were excited by the prospect of a leader who could educate — an “educator in chief” who would use the bully pulpit to explaini what has happened to the United States in recent decades, where we must go, and why.

But the man who has occupied the Oval Office since January, 2009 is someone entirely different — a man seemingly without a compass, a tactician who veers rightward one day and leftward the next, an inside-the Beltway dealmaker who doesn’t explain his compr(om)ises in light of larger goals.

In his inaugural address, Obama warned that “the nation cannot prosper long when it favors only the prosperous.” In private, he professes to understand that the growing concentration of income and wealth at the top has robbed the middle class of the purchasing power it needs to keep the economy going. And it has distorted our politics.

He is well aware that the Great Recession wiped out $7.8 trillion of home values, crushing the nest eggs and eliminating the collateral that had allowed the middle class to keep spending despite declining real wagesa decrease in consumption that’s directly responsible for the anemic recovery.

But instead of explaining this to the American people, he joins the GOP in making a fetish of reducing the budget deficit, and enters into a hair-raising game of chicken with House Republicans over whether the debt ceiling will be raised.

Never once does he tell the public why reducing the deficit has become his number one economic priority. Americans can only conclude that the Republicans must be correct — that diminishing the deficit will somehow revive economic growth and restore jobs.

Instead of powerful explanations we get the type of bromides that issue from every White House. America must “win the future,” Obama says, by which he means making public investments in infrastructure, education, and basic R&D. But then he submits a budget proposal that would cut nondefense discretionary spending (of which these investments constitute more than half) to its lowest level as a share of gross domestic product in over half a century.

A president can be forgiven for compromising, if his base understands why he is doing so. That the health-care law doesn’t include a public option, that financial reform doesn’t limit the size of the biggest Wall Street banks, even that cuts may have to be made to Medicare or Social Security — all could be accepted in light of the practical necessities of politics, if only we understood where the President is leading us.

Why is Obama not using the bully pulpit? Perhaps he’s too embroiled in the tactical maneuvers that pass for policy making in Washington, or too intent on preserving political capital for the next skirmish, or cynical about how the media will relay or distort his message. He may also disdain the repetition necessary to break through the noise and drive home the larger purpose of his presidency. I have known (and worked for) presidents who succumbed to all these, at least for a time.

A more disturbing explanation is that he simply lacks the courage to tell the truth. He wants most of all to be seen as a responsible adult rather than a fighter. As such, he allows himself to be trapped by situations — the debt-ceiling imbroglio most recently — within which he tries to offer reasonable responses, rather than be the leader who shapes the circumstances from the start.

Obama cannot mobilize America around the truth, in other words, because he is continuously adapting to the prevailing view. This is not leadership.

This article was published at Nation of Change.
And what's happening over at JP Morgan with the fabled Jamie Di(a)mon(ds)?
Is Jamie Dimon’s JPM the BP of Banking?
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* Barry Ritholtz, Curriculum Vitae

Barry L. Ritholtz is one of the few strategists who saw the the coming housing implosion and derivative mess far in advance. Ritholtz issued warnings about the market collapse and recession in time for his clients and readers to seek safe harbor.

Dow Jones Market Talk noted that “many market observers predict tops and bottoms, but few successfully get their timing right. Jeremy Grantham and Barry Ritholtz sit in the latter category…” For the prescience of his market calls in 2009, he was named Yahoo Tech Ticker’s Guest of the Year. (A summary of major market calls can be found here) His observations are unique in that they are the result of both quantitative data AND behavioral economics.

In 2010, Barry L. Ritholtz was named one of the “15 Most Important Economic Journalists” in the United States. Ritholtz writes a column on Investing for The Washington Post (His WaPo columns are here); he also contributes occasional column to Barron’s and Bloomberg (See The Myth of Uncertainty). Previously, he authored the popular “Apprenticed Investor” columns at, a series geared towards educating novice and intermediate investors. Mr. Ritholtz has published more formal market analyses at Wall Street Journal, Barron’s, The Economist, and Mr. Ritholtz is a frequent commentator on economic data and financial markets. He is a regular guest on CNBC, Bloomberg, Fox, CNN, ABC, CBS, NBC, PBS, MSNBC, and C/SPAN. He has appeared on numerous shows, including Nightline, ABC World News Tonight, NBC Nightly News with Brian Williams, Fast Money, Kudlow & Co, and Power Lunch, and has guest-hosted Squawk Box on numerous occasions. He appears regularly on radio for Bloomberg, NPR, CBS, and other broadcasters.

Ritholtz has been profiled in the Wall Street Journal’s Quite Contrary column (August 3, 2004; Page C3), and was the subject of a Barron’s interview, titled A Leading Bear Turns Bullish, Sort of (December 8, 2008) and again in the Fall of 2010 Ritholtz is Modestly Bullish Again (October 26, 2010). His market perspectives are quoted regularly in the New York Times, Wall Street Journal, Barron’s, GQ, Forbes, Fortune, Smart Money, Kiplingers, and other print media.

In 2008-09, Ritholtz wrote the book Bailout Nation, which was published by Wiley in Summer 2009; In 2010, the updated paperback was published. Bailout Nation has become the best reviewed book on the bailouts to date. The New York Times called it “Irreverent,” and “an important book about a complicated subject, and yet you could still read it at the beach.The Wall Street Journal noted “If you want to know how we got into this mess and what might still be coming, this is the book for you.” And Bloomberg praised it as “A valuable new contribution to our understanding of how we arrived at this sorry juncture.” Bailout Nation was named “Investment Book of the Year” by Stock Trader’s Almanac, and won a First Amendment Award for Outstanding Journalism: Best Book. Numerous media — USA Today, Miami Herald, Marketplace Radio — named it as one of the best finance/business books of 2009.

In his day job, Mr. Ritholtz is CEO and Director of Equity Research at Fusion IQ, an online quantitative research firm. The firm makes its institutional strength number crunching available to individual traders and investors. This marks the first time an institutional grade quant research product is available to the public at an affordable price. Previously, Mr. Ritholtz was Chief Market Strategist for Maxim Group a New York Investment bank, managing over $5 Billion in clients assets.

Ritholtz was honored to be the dedicatee of the The 2007 Stock Trader’s Almanac‘s 40th Anniversary edition. He is a sought after speaker, and regularly speaks to investor conferences, media panels and graduate Schools.

Beyond his commentary and published articles, Mr. Ritholtz also authors The Big Picture — a leading financial weblog, generating several million page views per month. The Big Picture covers Investing & Trading to Macro Economics, and everything else in between. The blog has quickly amassed ~70 million visitors. The Big Picture, was featured in the 10th annual New York Times magazine “Year in Ideas,” under the topic DIY Economics, in 2010.

Media accolades for The Big Picture have come from the NYT (“Trenchant economic commentary”), the WSJ (“What the In-Crowd Knows). The Journal cited The Big Picture as the Economic “Blog Insiders Read to Stay Current;” Business Week noted its “insightful calls on the direction of the stock market” (Blogging For Dollars). Hailed as a “bright and savvy fellow” by Alan Abelson’s Up and Down Wall Street column (Barron’s), and by CNBC’s Larry Kudlow, who called The Big Picture “very helpful and addictive — the best stock market blog there is.” Numerous traffic sites rank The Big Picture as one of the most trafficked Markets/Economic’s blogs on the web.

Mr. Ritholtz performed his graduate studies at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, where he focused on Economics, Anti-Trust and Corporate Law. He was a member of the Law Review, and graduated Cum Laude with a 3.56 GPA. His undergraduate work was at Stony Brook University, where on a Regents Scholarship, he focused on Mathematics and Physics, graduating with an Bachelor Arts & Sciences degree in Political Science. He was a member of the Stony Brook Equestrian Team, and competed successfully in the National Championships (1981) of the Intercollegiate Horse Show Association. In addition to writing the National Affairs column for the campus weekly (The Stony Brook Press), he was elected Vice-President of the student body.

Ritholtz has been an angel investor in early stage technology companies. He is on the Board of Directors of Democrasoft, whose Collaborize Classroom is radically remaking US education. He is also an investor in StockTwits, a Twitter based stock community.


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