Was Hillary Right?

I am surprised to see recent polls showing McCain and Obama going into their conventions virtually tied among the voting public (NY Times.com 8/20, Fox News.com 8/21). How can that be possible? When I see the candidates on the evening news, I see one man as the picture of Enlightenment clear thinking, rationality, sincerity, and compassion; the other a grotesque self-caricature sputtering empty slogans.

McCain yesterday vowed that he would bring the troops home from Iraq “with honor and victory,” while, he said, Obama prefers forfeiture. Does McCain think the war is an Olympic event? What is “victory?” Didn’t we achieve victory 24 hours after invading the country in 2003? What is forfeiture? Returning a sovereign country to its rightful owners? I cannot fathom how his mind works when he talks like that.

Voters polled said McCain was more prepared to be commander in chief. But why? Haven’t they read his Foreign Affairs article? (http://political-innocence.blogspot.com/2007/11/mccain-on-foreign-affairs.html). It is frightening. Wouldn’t we rather have a pro-peace president?

Of course voters have not read McCain’s Foreign Affairs article, or much of anything else either, and that’s the problem. Obama may be too far out in front of the crowd to be a natural leader. You can’t lead from a mountaintop; only from five paces ahead. And maybe Hillary was that leader. Maybe I was wrong about her. I have a long history of being a contrary indicator.

The Demo convention will be a tragedy if the pro-Clinton forces and the roll call vote turn into an anti-Obama self-indulgence. I think “Barry” (as Maureen Dowd calls him) could overcome such a fiasco and go on to win in November because the choice is so stark that I do not believe many voters will change sides. This is rural vs urban, educated vs uneducated, and that’s not going to change. But it could hurt turnout, which Obama must have oceans of.

It may be that Hillary was right insisting that she was the “electable” candidate. Looking back at the primaries now, where she won big, she may have been right.

I still believe Obama would be a president of a higher order, like this country has not seen in two or three generations; while another self-obsessed Clinton White House would be excruciating and dangerous for America. But the first step in the recipe for making rabbit stew is 1: Catch a rabbit.

Obama Gets Oily

According to the Los Angeles Times, (http://www.latimes.com/news/ politics/la-na-campaign5-2008aug05, 0,4069072.story), Barack Obama said today that the nation should draw down its strategic oil reserves to lower the price of gasoline, and that he has also recently agreed that some offshore drilling might be acceptable.

He will surely get the flip-flop badge of the week.

Historically, every time the strategic oil reserves have been tapped, gasoline prices have dropped soon thereafter. Voters want lower gasoline prices, so it would seem to be an easy, cheap palliative gesture, with the added virtues that House Speaker Nancy Pelosi has been calling for such a move, and President Bush is against it. Points are scored all around.

But releasing strategic oil is not an energy strategy, only a symbolic gesture. Gasoline prices are falling anyway. A little more relief would be welcome, but the oil-reserves effect would be a blip, and do nothing for the strategic problem. The same can be said for “drilling on the beaches.”

According to the San Francisco Chronicle (http://www.sfgate.com/ cgi-bin/article.cgi?f=/c/a/ 2008/07/22/MN6M11SN60.DTL) there might be 11 years worth of oil on the US continental shelf, based on federal government estimates, 12% of it off the coast of California, the rest in the Gulf of Mexico and Alaska. But since offshore drilling has been banned since 1982, in memory of the horrible oil spill at Santa Barbara in 1969, the estimates are not solid.

The compromise energy proposal released by the "Gang of 10" senators just before the summer recess would allow drilling off Virginia and other areas of the southeast (with states' permission), and provide substantial funding for alternative energy and conservation. Obama favors this proposal.

It is widely acknowledged by everyone, even drill nuts and oil companies, that opening the shorelines to drilling could not possibly have any effect on gasoline prices before 2030. To call for offshore drilling “to lower prices at the pump,” during an election campaign, is nothing but poll-driven pandering. So what is Obama up to?

I think he is up to poll-driven pandering. I hate to see him do it. If he really was determined that America “break its addiction to oil,” as he says on his web site, he would be content to leave the price of gasoline high and instead, emphasize a rehabilitation plan. But American voters are not strategic. They are “all me, right now.”

The good news is that Obama is getting some political experience. My greatest doubt about him is whether he actually realizes that not everyone is rational. In fact, most people are not. It is futile, actually counterproductive, possibly dangerous, to confront irrationality with reason. Most people react on the basis of emotion, habit, tradition, and superstition. Obama’s recent policy shift is a sign that if he did not know that before, he is learning it now.

I have the same doubts about him in the foreign policy arena, when he sometimes talks as if he thinks he can sit down and work out international differences over a cup of coffee. Does he really not understand that there are people who cannot be spoken to? I worry that he suffers from the delusion that most people will respect evidence and reason. That would make for a disastrous presidency.

Obama’s campaign may be stalled. He still trails the Democratic Party in the polls by double digits, which means he is not really seen as the leader of the Democratic party. And the reason, I think, is that voters keep him at emotional arm’s length. Sure, he is likeable and smart, that is obvious. But only when he responds to popular concerns with political gestures that directly acknowledge and meet those concerns, voters can believe, “he gets it.”

Obama's new policy tack is not even about oil. It has nothing to do with gasoline prices. It’s about demonstrating, showing, not just saying, “I feel your pain.”

Obama needs to do more of that. He needs to show that he is not a Promethean god who would bestow wisdom, but a normal man who sometimes acts from fear, pride, pain, anxiety, and other irrational motives, “like me.”

Look how far irrational reactivity got George W. Bush. Irrationality often leads to heartbreak, of course, but Obama needs to let just a little of it leak out in a controlled way. His recent shifts in energy policy, superficial though they are, may be just the prescription.

Is John McCain the New Bob Dole?

I remember watching the 1996 Republican primaries with intense interest. Bob Dole was the leading contender for the nomination, but then the fundamentalist preacher Pat Buchanan won unexpected early victories in New Hampshire, Louisiana, and Alaska. Even though he was an extremist, transparent demagogue, one should never underestimate the gullibility of the American voter, so I was worried. I thought he was dangerous. It seemed possible that he could withstand the charm and charisma of Bill Clinton.

I was enormously relieved when Dole locked the nomination by winning every primary after North Dakota. I knew Clinton would easily beat Dole. Why? Three impressions brought me to that conclusion. First, Dole (and his party) were fixated on the past. They wanted to rediscover the Reagan era and they talked endlessly about supply-side economics and reactionary social values. But the country was looking for a change. That was obvious.

Second was the personal factor. Dole was much older than Clinton, and pale and frail-looking. He had zero charisma and was not a compelling speaker. He was slow moving and slow talking, with stiff gestures and awkward head movements. He looked like he would never live to serve out a full term. Despite his admirable record of government service, he did not seem convincingly “presidential.”

Finally, Dole seemed to be a default choice, the one guy the power brokers could agree on. There were more interesting candidates the Republicans could have promoted, including Colin Powell, Lamar Alexander, and others, but none of them could support a consensus, so Dole was the last man standing. Like any choice made to please a committee, he did not have many particularly strong features.

I saw McCain giving a speech on TV recently and he looked tired, old, frail, jerky, and distracted. He seemed to have trouble stringing his sentences together. He was talking about the banking crisis but didn't seem to understand the words he was saying. The gist of most of his political statements is about conserving the present and avoiding anything new. How did McCain get the nomination? Basically by being the anodyne choice of a fractionated party. My immediate thought was, “McCain is the next Bob Dole.”

If true, we should expect Obama to trounce McCain in November. Clinton beat Dole by over 8 million votes, or 8.5%, the record so far in presidential elections for a margin of victory. Obama has the race issue, but that works both ways and may net out neutral. So notwithstanding that Democrats are exceptionally creative at clutching defeat from the jaws of victory, I don’t think this one is going to be close.

Is the Fed Political?

The Fed is supposed to be independent of the political process, but in reality that is probably not possible, given that its head is a political appointee. The chairman of the Federal Reserve Board, Ben Bernanke, was appointed by George W. Bush in 2006. You don’t appoint someone who is not on your team.

At this week’s FOMC meeting, the fed had to decide whether inflation was getting strong enough to justify an interest rate hike, or whether such a hike would depress the domestic economy too much. They decided to talk tough but actually do nothing.

By failing to raise rates, Bernanke allows inflation to creep up, saying (in deed, not in words), “we are not worried about it.” That means he doesn’t care if the weak dollar gets even weaker, eaten away by inflation. But since oil is priced internationally in dollars, failure to make a rate hike, even a small one, raises the price of oil. And that’s exactly what happened. It is up as much as $4 a barrel today to around $138.

The justification I have read for the Fed’s decision is that “core” inflation (exclusive of energy and food) is relatively manageable. Of course that begs the question of what planet FOMC members live on where energy and food “don’t count.”

But I think there was a more sinister motive at work, related to the fact that Bernanke is on the Bush team. To raise rates, even a quarter percent, would likely have prolonged the housing crisis. It would have raised mortgage rates and reduced the number of buyers, stifling any nascent recovery in the housing market.

The housing market is a huge domestic political issue. If housing does not recover by November, the Republicans are toast for sure. Inability to sell a house is not an abstract economic issue. It could mean that you are paying two mortgages, or it could mean you have to turn down a job that involves a relocation. If your mortgage is higher than what your house is worth, you can only pray for recovery of the housing market before you are forced into foreclosure. Big corporations like the new home builders are also feeling the pain. Lennar today posted large quarterly losses.

High gas prices hurt voters too, especially the less well-off who pay a higher percentage of their income on fuel. One of my students says she pays $130 to fill up her SUV and does that three times a week. That is a serious dent in anybody's budget. (Naturally I want to yell at her: “What are you doing with a stupid SUV?” But that’s like saying to a child who is in a fix, “You should have thought of that earlier!” Not helpful.).

But who is to blame for high gas prices? Why, it’s those pesky Arabs! And slithering speculators. And don’t forget those greasy oil companies!

Obviously then, for Bernanke, if he lets the dollar decline further, oil prices go up further, but it’s not his fault! It’s not the government’s fault. It’s not the Republicans’ fault. It’s somebody else’s fault. Easy choice to make.

But if he had raised rates, even a tiny bit, there would have been an effect on the housing market, probably negligible and short term, but the housing crisis then could clearly be pinned on him. Unacceptable choice. Because that means the housing crisis is the fault of the government and that would have repercussions at the ballot box in November. So Bernanke chose the course that least harms his political party.

Paradoxically, even if his choice was politically motivated, it will have a counterproductive effect. At some point of pain, which we are fast approaching, voters will realize that Republicans have no energy policy (other than to drill for oil on beaches and in national parks). That will kill them in November.

Oil and Tax

The high price of gas has politicians in a tizzy, perhaps more so than ordinary consumers. Sure, the recent price increases are unpleasant, but I haven’t seen riots in the street because of it. Instead, we hear about the demise of the Hummer, not a bad thing. High oil prices also hurt in indirect ways, such as higher fertilizer and freight costs and pricier airline tickets, but again, it seems like the economy is absorbing the shock so far. We should consider that the price of gas is double, over $8 a gallon in Europe. That seems to be the point at which people, or at least truckers, riot in the streets.

Although it hurts my wallet, I am hopeful that the high price of fuel will continue and eventually strain the economy severely enough that the government is forced to develop a rational energy policy.

The recent Democratically sponsored bill to increase taxes on US oil companies failed to reach the senate floor when it was blocked by Republicans. The bill would have eliminated $17 billion in tax breaks for oil companies who are reporting historically high profits in the trillions of dollars. It seems reasonable on the face of it that they could afford to pay the true costs of production.

The bill also threatened further tax punishment if the oil companies did not invest in new energy sources soon. That provision seems less obvious, as we know that honey works better than vinegar, but again, given that companies are awash in money right now, it could possibly work.

However, if I were a senator, even a Democratic senator, I think I would have voted with the Republicans on this one. The bill was a simple-minded, short term, knee-jerk response to perceived voter unhappiness over gasoline costs, even though it is psychologically satisfying to vilify those fat-cat oil companies. It also wouldn’t hurt in the fall elections to say “we did something for you,” (or tried to, at least).

The proposed senate legislation did nothing to address fundamental issues, such as inadequate refining capacity, unwillingness to pressure the auto industry to raise fuel economy standards, fund alternative energy sources, develop a nationwide plan for oil conservation, and so on. How about a tax on plastic and synthetic fibers?

Closing tax loopholes for the oil companies is a good idea in principle, but it needs to be part of a comprehensive energy policy. For example, would the revenue from the oil company tax go to fund clean coal technology or public transportation? No such ideas were mooted. And on the down side, taxing oil companies right now might inhibit construction of new refining capacity and at the margins, diminish exploration and production among the smaller, hi-tech companies, leading to higher gasoline prices.

Of course oil companies are among the largest political donors in the country, especially on the Republican side, so corruption no doubt played a role in the vote’s outcome. Still, I think the Republicans were on the right side of this vote in terms of long term strategy. The senate bill seemed more of a political stunt than a well though-out solution to basic problems. The price at the gas pump is only a symptom of a much larger energy problem.

I wonder, though, if I could have voted with the Republicans on this one, if I were a Democratic senator. Would it be career-limiting? Would Harry Reid send over someone to break my legs? I wonder how it works when your own party promotes a hare-brained scheme.

Surrender?

Recently I saw on television John McCain give a campaign speech referring to the Democratic candidates’ plan to pull US troops out of Iraq as quickly as feasible.

To this, McCain vowed, “I will never surrender in Iraq!” As the crowd cheered and applauded, he yelled full-throat, “I will never surrender!”

But what does he mean? We invade and occupy someone else’s country then vow to never surrender it? Does that mean McCain intends to keep Iraq as a permanent U.S. possession?

To surrender is to give up possession of some thing or some power to someone else who asserts a claim to it; to relinquish control. McCain vows he will never do that.

Does McCain propose to occupy Iraq forever? He has already stated that he is prepared for the U.S. to stay there 100 years. Maybe he has now extended his thinking to forever.

What’s even more frightening and bizarre than McCain himself is the roaring crowd apparently agreeing with him. What could they possibly be thinking?

Arugula-Eater?

New York Times columnist Frank Rich humorously reported Senator Clinton’s characterization of Barack Obama as an “elite and condescending arugula eater.”

Relatively uneducated white voters in the lower economic classes do not see their values reflected in Obama. Somehow, they see themselves to a greater degree in Clinton. Why?

Senator Clinton is well-educated, and no voter paying attention to the primaries thinks otherwise. She is obviously not a member of the blue collar, working class. The policy differences between the two candidates is negligible. If gender were the issue, it would work against Clinton. So why is she a better mirror than Obama? Hmmm…

In West Virginia, 20 percent of respondents said that race was a factor in their decision and those voters, by overwhelming number, backed Mrs. Clinton.

“Downscale” white voters (as the pundits call those with little formal education and few financial assets) are afraid, or at least suspicious of Obama, because of what his color suggests about non-mainstream ethnic, religious, political and cultural values. His “funny” name reinforces the idea that he is “not one of us.” Some of these voters have said as much to pollsters.

Obama’s color is taken by these voters as a pointer to alien social and cultural values. The Reverend Wright episode reinforces that view for them. We can’t elect somebody we don’t even know! What if he sold the Louisiana Purchase back to France?

Consider also that 80% of black voters now support Obama. You might expect black voters to divide between the candidates much as white voters do. Even allowing that median incomes and educational levels may be lower for black voters, you would have a hard time explaining 80% favoritism on the basis of demographics.

It’s racism, just as it is for the downscale whites, but for black voters brown skin is a symbol for brotherhood and shared values. Both groups make the error of taking skin color as an index to who the person is. Blacks especially, should know better.

When downscale whites tell pollsters they are “uncomfortable” with Obama, they are expressing their true feelings based on their limited experience. I don’t think they are hate-mongers, just uninformed people with narrow life experience and limited conceptual skill. You wouldn’t blame an elephant for being an elephant and it’s hard to blame these people for their racism. (I know that sounds like I eat arugula).

Can Obama do anything to persuade these voters, who have so far preferred Clinton? I don’t think it is effective to dramatize the “plain folks” stereotype as Clinton so insincerely has. She probably believes that worked for her, but it is her white skin that worked.

The Bubba voter does not want to see Obama bowl again or watch him throw back a shot of Jim Beam. They might take notice if Obama revealed his values and the reasons for them. Voters want him to say, in plain terms, not vapid abstractions, what he really believes and why he believes it, about educational priorities, farm subsidies, military readiness, industry regulation, gun control, social security, taxation, carbon capture, the electricity infrastructure, government corruption by big money, oil dependency, the “war” on drugs, immigration, and so on. They do not want platitudes and policy statements, but the personal thought processes that brought the man to those beliefs. Actually, I would like that too.

Is Obama Like Me?

On Friday, major pundit and New York Times columnist David Brooks assessed the impact of Obama’s “bitterness” remark, on PBS’s The News Hour. Brooks said that the tin-eared remark was damaging because it made people step back from the candidate and wonder if he really is like the “plain folks” he is trying to appeal to in Pennsylvania, or if he is condescending to them. And, Brooks concludes, throwing in the Reverend Wright episode for good measure, when that assessment is made, the plain folks will conclude, “he is not like me.”

This is treacherous ground for Brooks, or any commentator to tread, for “not like me” is the heart of xenophobia, which is the core of racism. Racism today is no longer about hooded sheets and a noose. It is about the intellectual and emotional capacity, or lack of it, to get past one’s discomfort with the unfamiliar to understand that the other person is, in fact, “like me.”

People do differ in their socialization history and demographic status, and that does produce variations in point of view. I have no doubt that Obama is more educated, more self-aware, and more articulate than most of the Pennsylvania voters he courts. He is indeed, “different” from them in those ways and that makes his campaign a tricky business.

Obama’s political mistake was in the word “cling,” which implies a desperate helplessness and lack of dignity. That implication is indeed demeaning (even if true) and he should have retracted it. Instead, he blindly spun his use of “bitterness,” which is defensible and even could be construed as a compassionate attribution. Nobody in his camp seems to have gotten the social phenomenology of his remark right.

But why should a minor discourse error be elevated to the existential question, “Is he like me?” What is the logic that gets you from “I am offended by your remark,” to “You are alien to all people like me”? It is the logic of class difference, xenophobia, and the logic of racism.

Hilary Clinton is not at all like me in social class, education or even gender. I do not want to have a beer with her. In fact I am offended by her shameless, inauthentic pandering. But I would still vote for her on the basis of her social values and perceived competence to govern. That’s all Obama asks for himself, but the racial issue lurks just beneath the surface ready to trip him up. A smart guy like Brooks should be more aware of that particular tiger pit.

We should generously assume Brooks was speaking for the Pennsylvania rural voter, not for himself, when he concludes that Obama is "not like me." And in that assessment, Brooks might be correct. But he did not qualify his comments carefully, so missed an opportunity to raise the quality of political discourse in this country. Pity that.

Candidates Speak on the Housing Crisis

The three major presidential contenders gave speeches on the economy between March 25-27, 2008. Transcripts are at http://www.pbs.org/newshour/vote2008/ and on the candidates’ web sites.

Comparison of the three speeches illuminates the candidates, their similarities and differences.

Clinton’s View:

Clinton’s speech was all about helping families that face foreclosure on their homes because they can’t make the payments. She endorses Barney Frank’s and Chris Dodd’s proposed legislation that would have the federal government guarantee those loans. That would make the financial markets that deal in mortgage-backed securities liquid once again, putting an end to the housing-based credit crunch.

Clinton asserts (as does Frank) that the plan is self-financing, which means it would cost no taxpayer money. That’s probably a pipe dream. It assumes that most, or at least some of the homeowners would not default, so the government would not have to cover those mortgages. Of those that did default, the government would own those mortgages, but the thought is that over time the housing market would recover and the government could sell them at par, if not a profit (ignoring the time value of money).

It is a lovely fairy tale. It could happen. More likely though, most of the homeowners would default because the bottom line is, they simply cannot make the payments. That is the fundamental problem. Why would that change? Where are these families going to get the money to meet their balloons? So the government guarantee amounts essentially to a bail-out of the banks who made the loans and have to make good on the packages of them that they sold on to the financial markets.

Does it help families keep their homes? Sure it does. The government just bought their homes for them. What a deal. Lesson learned: home ownership is sacred in America. Buy a home even if you can’t afford it because the government will make the payments for you!

The Frank legislation is ultimately a giant bluff. If the financial markets believe the mortgage-backed securities are “good” again (because of the government guarantee), then the derivatives based on them are also good, so they can be valued at face and traded normally again and the credit markets can recover. Nobody loses money if everybody pretends there is no money lost!

I don’t think it will work like that and besides, it is probably too late. UBS Bank, for example, one of the firms most-exposed to these securities, has taken $40 billion in writedowns, so those mortgage backed securities, most of them derivatives, are now worthless. It would be impossible to re-value them at anything other than zero just because the government guarantees the original mortgages, because there is no audit trail from the derivatives back to the primary mortgage. So this plan will bail out the local mortgage originators but will probably not alleviate the system-wide credit crunch.

Clinton also proposes an “Emergency Working Group” to determine if this plan would even work or if some other, additional steps would be needed. It could be headed, she suggests, by Alan Greenspan, for example. Excuse me? The Alan Greenspan who as Fed Chairman presided over two massive financial bubbles and their catastrophic collapses? There must be something funny in Clinton’s Kool-Aid.

Clinton also suggests (but has not yet proposed) legislation to protect the mortgage-originating banks from lawsuits if they renegotiate the terms of mortgages they have already made. Who might sue them? The financial markets that hold the old (now worthless) versions of the mortgages. They want their money. But Clinton would allow the local banks to redo the mortgages to cut their losses. Let the Wall Street traders in mortgage backed securities suffer! (Anyway, nearly 2/3 of the subprime mortgages were not made by banks.)

Finally, for good measure, Clinton would just donate $30 billion of taxpayer money to cities and towns to do with whatever they like, from buying foreclosed housing, to building new roads, to hiring more police. That nonsequitur just looks like cynical election year vote-buying, to me.


Obama’s View:

Obama gave his speech in New York City to a room full of financial types, and was introduced by Mayor Michael Bloomberg. Contrast that to Clinton, who gave her speech to an audience at the University of Pennsylvania (the state where the next important primary elections are to be held). Clinton is politicking for votes. Obama is trying to address the fundamental issues. I think that difference in choice of venue alone tells us a lot about these two candidates.

No one takes the high ground like Obama. Whereas Clinton starts out with effusive praise for the Governor of Pennsylvania (who recently endorsed her) and then jumps right in to her theme song, “We’ve got trouble right here in River City!” Obama begins by considering the argument between Alexander Hamilton and Thomas Jefferson over the proper nature of a free market economy. Hamilton favored government intervention from time to time, as when he nationalized the debt of the Revolutionary War.

And that is the main theme of Obama’s speech. He sees the origins of the current financial crisis in the 1999 repeal of the Glass-Steagall Act which deregulated the banking industry and which allowed untrammeled greed to get us to where we are today. He comes within a hair’s breadth of accusing the government of abject corruption in repealing that act (and other similar actions, such as the deregulation of the telecommunications and energy industries that led to the Worldcom and Enron fiascos). I think he is absolutely right to focus on the root cause the those crises, and of this current credit crisis: rampant government corruption.

“…we've lost that sense of shared prosperity. … It's because of decisions made in boardrooms, on trading floors and in Washington. Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.”

“… instead of establishing a 21st century regulatory framework, we simply dismantled the old one - aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight. In doing so, we encouraged a winner take all, anything goes environment that helped foster devastating dislocations in our economy.”

This kind of talk may not resonate with mythical Joe Sixpack, who probably would not understand a word of it, but the bottom line is that Joe Sixpack does not vote. Polls show that only 50% of Americans are paying any attention at all to the primary race. Government data show that only 50% of eligible voters even bother to vote in a presidential election. That means every educated vote counts double what it should, so it makes sense for Obama to speak to the people who are actually listening.

But what about a specific fix for the problem of Joe Sixpack losing his house? Obama, like Clinton, endorses the Dodd-Frank proposal to have the government guarantee the subprime mortgages that are the proximal stimulus for the credit crunch. As I noted above, it is not a bad idea in principle, but I am quite skeptical that it would actually solve the problem. Clinton’s ideas are more concrete, such as indemnification of mortgage originators who choose to renegotiate their loans. But I have to say, Obama understands the root causes, whereas Clinton gives no indication that she does.

Obama has some concrete, targeted proposals of his own though, and they tend to focus on causes. He looks upstream of the crisis. He is not about throwing money for the sake of throwing money.

For example, he would impose penalties on fraudulent lenders. He would allow a 10% tax credit on mortgage interest, which would proportionately reduce the mortgage burden more for those facing huge interest balloon payments. That’s minimally intrusive, yet elegantly precise. But first and foremost, he would revamp the regulatory framework dealing with financial markets. He gives five specific proposals for that revamp, all of them imminently sensible anti-corruption measures.

Obama ends by reminding listeners that he is still connected to the average person. He would “provide an income tax cut of up to $1000 for a working family, and eliminate income taxes altogether for any retiree making less than $50,000 per year. To make health care affordable for all Americans, we'll cut costs and provide coverage to all who need it. To put more Americans to work, we'll create millions of new Green Jobs and invest in rebuilding our nation's infrastructure. To extend opportunity, we'll invest in our schools and our teachers, and make college affordable for every American.”

The weak spot in this generally fabulous speech is that it is not at all clear how the President of the United States could clean up corruption in congress, which is where all this crooked legislation is made. The bully pulpit is a useful device, but I am doubtful that it is stronger than the lure of money and power. Still, we are voting for president here, not congress, so at least having a president who knows what he’s talking about would seem to be a plus.


McCain’s View:

McCain’s admirably short speech is simple, and simple-minded. There was a housing bubble, it burst. Tough luck, take your lumps.

Why was there a bubble? “A bubble occurs when prices are driven up too quickly, speculators move into markets, and these players begin to suspend the normal rules of risk and assume that prices can only move up.”

That’s not wrong, but it overlooks the original question: Why was there a bubble?In my opinion, there was a bubble because of unregulated, greedy, socially irresponsible financial practices, from the predatory mortgage originators right up through the highly leveraged traders in mortgaged backed derivatives. But McCain is blind to all that. In fact, he suggests that the root cause was greedy individuals trying to buy homes they could not really afford.

“Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million are doing what is necessary -- working a second job, skipping a vacation, and managing their budgets -- to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?... Homeowners should be able to understand easily the terms and obligations of a mortgage. In return, they have an obligation to provide truthful financial information and should be subject to penalty if they do not.”

That analysis is stunning in its naivety. Of course there is some truth to it, yet financial education is virtually non-existent in America. People do not know what they can and cannot afford, and lenders are in the financial, not the education business. Blaming the victim is not a very edifying way to understand the problem.

In any case, what would McCain do about the current financial crisis? Basically nothing! He says,

I will not play election year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now. …I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.

He will “consider and evaluate” any proposals that come his way. That is hardly reassuring.

McCain offers a few concrete proposals of his own. One is to require an increase in the minimum down payment for getting a mortgage. That certainly would eliminate the “interest-only” loans that cause a lot of trouble, but it would do nothing about people currently facing foreclosure, and it would limit access to housing by those in the lower economic strata.

Anyway, I don’t think there is anything wrong with interest-only loans, as long as the costs and payment schedules are clear and the borrower is qualified to make the payments. The whole idea of housing equity as an off-the-books savings account is a concept that needs to be questioned. The problem with subprime mortgages is not the concept of interest only loans, but fraudulent lending practices. McCain has misidentified even the most obvious source of the problem.

More promisingly, McCain would increase capitalization requirements for financial institutions, but predictably, he would accomplish that not with actual regulation, but by “removing regulatory, accounting and tax impediments to raising capital.” Of course! More tax breaks for the wealthy! McCain would also eliminate “the Alternative Minimum Tax that the middle class was never intended to pay; [and] improve the ability of our companies to compete by reducing our corporate tax rate” No election year politics here!

How would McCain proceed with his suggested reform? Well first, he would do the obvious thing, call in the accountants! He would “convene a meeting of the nation's accounting professionals to discuss the current mark to market accounting systems.”

Then he would “convene a meeting of the nation's top mortgage lenders. Working together, they should pledge to provide maximum support and help to their cash-strapped, but credit worthy customers.”

Ah yes, a “pledge” from the predatory lenders to do better next time. That should do it!

McCain proposes no legislation and, heaven forbid, not even any new regulation on the financial systems.

McCain has said that the economy is not his strong suit, and this speech gives ample evidence of that.

Obama on Race

Illinois Senator and presidential candidate Barack Obama delivered a speech on race in America, on March 18, 2008, in Philadelphia. The speech has been analyzed extensively in the media. It is widely available online, but in case you can’t find it, I have saved a copy at the URL at the end of this article.

News commentators predictably, witlessly, and cynically ask their pundits, “Has he put this issue behind him now?” As if the most divisive social issue in our nation’s history could be “put behind” anyone who lives here. The writers of the U.S. constitution could not “put it behind them” and had to finesse the issue of slavery, granting the states twenty years to come up with a solution. They didn't and the civil war broke out. Slavery was finally outlawed but not racism, which continued. The civil rights act of 1964 outlawed overt manifestations of racism, but of course, not racist attitudes, which persist to this day.

The analysts and pundits are ostensibly talking about Obama’s minister, Jeremiah Wright, who has a history of making flamboyant remarks from the pulpit, critical of American government and American white society for (in his view) deliberately and systematically oppressing the black populace, historically and even now. Many of his assertions are plainly demagogic and deliberately hyperbolic, and some are just ignorant, such as his claim that AIDS is promulgated by the government to decimate the black population.

What are the implications?
• Are we supposed to think that Obama believes the government is deliberately spreading AIDS?
• Are we to understand that Obama believes all white people are racist?
• Are we to suppose that Obama believes the 9-11 attacks were self-inflicted?
• Does Obama’s membership in the church imply that he is a racist?
• Does Obama’s friendship with the reverend prove that Obama hates America?

These are ludicrous suggestions, so ludicrous that no one would dare speak them. Instead they remain unspoken innuendo. Ridiculous though they are, they persist for two reasons:

1. The news media are racist and love racism. They highlight it as luridly as possible whenever they can. Why? Because we live in a capitalist society. The job of the news media is primarily to sell advertising and only incidentally to be informative. Since separating people from their money is best done with emotion, not rationality, and since racism incites emotion, it follows as night follows day that the media prefer to display, not analyze racism.

2. Racism is endemic in the society. Not overt KKK terrorism, but the subtle fears and doubts we all have about anyone who is different. Alas, skin color is the scarlet letter of ethnicity. You see it coming and you react before you have a chance to discover the person. Not everyone has the mental skill to analyze that reaction, to break through the egocentric bubble that insulates us from anything that is not a mirror-image.

Obama, more than most people, certainly more than Hilary Clinton, has shown himself in public. He is giving us the opportunity to look behind the outer shell. But many people only see shells. So despite one of the most eloquent speeches ever given about race in America, many people still react only, or mainly, to skin color.

Will Obama’s speech change any minds about him? Not among those who lack the capacity for self-reflection. Racism (as with any form of xenophobia) is irrational, so by definition, no rational argument exists that can change it. But I personally have talked to two people who have changed their affiliation from Clinton to Obama because of that speech. Both individuals were impressed by its honesty and thoughtfulness. “Nobody could make that stuff up,” said one. “Even if you wanted to BS about race, you couldn’t think of those things to say.”

With this speech, Obama has revealed himself more than he ever has. I admire him for it. But to be honest myself, I wonder if it was politic. Up to now he had been pretending that he had no color and that we were color blind. Of course that couldn’t last. But he has such charm, intelligence, self-confidence, and oratorical gifts, I wonder if he couldn’t have bluffed his way past the color question. Because now that it has been articulated, we confront naked racism, not the malicious “I’m gonna git you” kind, but the instinctive fear of an image that takes a moment to recognize as oneself.

Obama's speech:
http://members.bainbridge.net/~bill.adams/Race%20in%20America.htm.