The Brand New Deal: Obama's Economic Recovery Plan

I've opposed every one of the bailouts that has been proposed and implemented this year. Bear Stearns. The Wall Street bailout in October. I'm opposed in concept to the Detroit bailout currently under consideration, although I think it would definitely be the most meritorious case to date.

But the Economic Recovery Plan proposed Saturday by President-Elect Barack Obama (boy do I like saying that!) is like finding water after wandering in the desert. It's the best idea for addressing this crisis that I've yet seen and it's what we should have done from the start.

Here's the relevant text from Obama's proposal:

I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 - a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We'll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.

-- President-Elect Barack Obama, November 23, 2008

Note for grammar geeks only (others please skip this paragraph): I altered the punctuation from the official report because I thought it was wrong. The last sentence in the original transcription read:

We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.

It's a "Brand New Deal". Obama may just be our FDR indeed, just as we all thought. The original argument made last spring against infrastructure spending for stimulus -- that it would take too long to be put into action -- never held much water, but in any event has been conclusively proven wrong by the length and depth of the economic crisis. Projects under construction can be sped up. Projects "on the shelf and ready to go" can break ground. Projects under consideration can be transformed into concrete proposals.

Let's just look at this in terms of rail projects here in California. The State of California just passed a $10 billion bond measure for the construction of a high-speed rail line cutting the trip between San Francisco and Los Angeles to two and a half hours, connecting through San Jose and the Central Valley, with future extensions planned to Sacramento and San Diego. Meanwhile, Santa Clara County just passed a sales tax to fund the extension of BART into San Jose, and Los Angeles County just passed a sales tax to fund, amongst other things, the Subway to the Sea, connecting with scores of other new light rail lines and Rapid bus routes. Two rail major rail lines are already under construction in the city of Los Angeles right now, one to East Los Angeles and the other going west to Santa Monica.

I'm sure there are a thousand other similar scenarios nationwide.

The downside? It basically comes down to deficits and dollars.

Contrary to Dick Cheney, "deficits do matter". The question is when and for what purpose? Running huge deficits during good economic times in order prosecute illegal and unjust wars in distant lands is not a good idea. Increasing government spending on public infrastructure, education and health care in order prevent mass unemployment and suffering during bad economic times is a (very) good idea. It's called Keynesian economics and it pulled our nation out of the Great Depression and into decades of post-war prosperity.

More fundamentally, I disagreed with the Wall Street bailouts for a very capitalist reason: I recognize the importance of Creative Destruction to the proper functioning of the free market system.

If we are to have a successfully functioning capitalist system, failure must be recognized just as much as success. Propping up failed companies with taxpayer dollars is probably the worst use of public funds possible. I think it would actually be unconstitutional under Article XVI of California Constitution:

SEC. 6. The Legislature shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the State . . . in aid of or to any person, association, or corporation . . . or to pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever; nor shall it have power to make any gift or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever . . . and it shall not have power to authorize the State . . . to subscribe for stock, or to become a stockholder in any corporation whatever . . .

A gift of public funds is public spending on private goods. Public spending on private goods = bad. But, public spending on public goods = good. Public spending on private goods is bad, corrupt, ideologically bankrupt, crony Republicanism. Obama's proposal is for public spending on public goods, i.e. public infrastructure, public education, public health.

OK, maybe some of these funds will go to support private initiatives in areas like alternative energy, universal health care, fighting climate change. The federal government can at very least direct its own purchasing efforts in ways that support the development of such initiatives. But supporting new private companies struggling to help our nation achieve broader social goals is fundamentally different than throwing money at failing, outdated enterprises with little redeeming social value.

We are all racking up huge deficits. Already, over $8.5 trillion in commitments have been made. There is a very real risk that bigger deficits will lead to higher interest rates on our debts and overburden our children and grandchildren with too much debt. Even the most hard-core deficit hawks, however, recognize that it is better to run deficits than suffer a depression, and the issue of intergenerational justice can be solved by making smart investments in our common future.

The value of the dollar may diminish in relative terms internationally, but that may not be a bad thing.

First off, the value of the dollar-denominated debts that have overburdened not only the federal government, but our entire society will be reduced in absolute terms.

More importantly, however, a depressed currency acts as a massive subsidy to homegrown industry and tax on foreign imports. There are a number of key American industries that would absolutely benefit from a lower dollar value: agricultural exports, Hollywood, almost all kinds of manufacturing starting with Detroit, tourism. A lower dollar may mean more jobs and higher wages.

China by way of example has been deliberately depressing the value of the yuan as a matter of state policy for the past decade at least.

Our largest vulnerability in terms of a reduced dollar is probably our thirst for petroleum and other sources of imported energy. The cost of oil will go back up again, particularly as measured in dollar terms. The flip side is that a reduction in the relative value of the dollar may also expedite our transition to alternative energy technologies.

But no matter. It is likely that we can make tough choices about printing dollars at another point in time. Right now, we are a long, long ways away from paying for federal expenses with printed dollars. Short-term interest rates on U.S. Treasury bonds are effectively zero. People all over the world are willing to give us their money for free on the promise that it will be returned. Even long-term rates are at historic lows. The dollar has actually been rising, even as this crisis has unfolded. The price of oil has plummeted.

The only real risk IMHO is that the negative effects of too much spending might come suddenly instead of gradually, leaving us without an opportunity to respond. But the chances of that being the case seem much smaller at this point than the chances of us otherwise continuing to sink further and further into economic ruin and even if it doesn't work at all in terms of spurring on new economic activity, much of what will be built will be public goods in and of themselves. More high-speed rail and transit, repaired roads and bridges, better schools and hospitals, improved energy efficiency, those are all good things in and of themselves. The money won't have been "wasted", although it should be spent as efficiently and effectively as possible.

But in all likelihood, it will work. Millions of new workers will circulate their earnings through local economies. There will also be billions in contracting opportunities, millions of spin-off jobs and businesses.

You would be surprised just how far federal spending can go in sustaining entire communities. Go visit Los Alamos County, NM, the richest county in America. Los Alamos has had only one major employer for all of its 65+ years in existence: the federally-funded Las Alamos National Laboratory, the birthplace of the atomic bomb.

Silicon Valley didn't spring up out of the fertile California soil by accident. There were massive federal contacts for military and space-related technologies being fulfilled at places such as Moffett Field in Mountain View.

The biggest challenge is to make sure that the projects to be funded are smart projects that will be wise investments in our future. It's too late in the game ecologically for us to build 20 Century "white elephants". Decisions need to be made quickly, but with the input from those who know what will work best on the ground. We the people need to stay active in order to make sure that these dollars are directed toward their "highest and best" uses. Obama has taken up the gauntlet of a "Brand New Deal". It's up to us to help make it successful.

No to Bailing Out Global Capital and Yes to a Progressive Alternative

Under threat of Bush's veto, the proposed Wall Street "rescue" includes a provision providing for purchases of foreign assets held by foreign firms. Here's the text:

SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.

The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.

There are other things that we can do. The problem on Wall Street is that the banks are weighted down with too many bad debts and not enough good assets. For nearly all other companies in the U.S., that's called bankruptcy.

If the federal government were to force these companies into bankruptcy proceedings, the current owners could be wiped out in favor of the creditors, who exchange their debt for equity. The new company can then open for business the following day debt-free with new shareholders and management, or purchased by more solvent firm as was demonstrated by the immediate purchases of WaMu and Wachovia just within the past week.

As a former WaMu account holder, I can testify to the fact that the transition was completely seamless. But supposedly, the companies that stand to receive the bailout are "too big to fail", i.e they cannot be allowed to go bankrupt because the global economy would be irreparably damaged beyond repair. Karl Denninger has some of the better ideas I've heard about why this is not true:



There's also the House Democratic Progressive Caucus' "Bailout Alternative":

DRAFT

No BAILOUTS Act

Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.

This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines [sic] have traditionally done will immediately correct the capital shortfalls experienced by many institutions.

2. Require the Securities and Exchange Commission to restricting naked short sells permanently

This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.

3. Require the Securities and Exchange Commission to restore the up-tick rule permanently.

This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.

4. "Net Worth Certificate Program"

This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not [sic] cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.

Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.
In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.

5. Increase the FDIC Insurance limit from $100,000 to $250,000.

The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

I'm not completely in favor of their plan. For example, the accounting rule suspension actually promotes the kind of funny accounting that led to this crisis, where firms refuse to acknowledge their current financial position leading to distrust between them. Banning short-selling is kind of a "kill the messenger" move. But any discussion of alternatives cannot help but be a good thing right now.

But regardless of which way we want to go, we have to get away from the "core" of the Paulson Plan, which is to send $700 billion cash to Wall Street in return for untold truckloads of paper, the value of which has been determined by the free market to be zero. The bill as it now stands includes that essential core.

And if we can save $700 billion in public funds by forcing these firms into bankrutcy, we could still dedicated some federal funds to helping Main Street deal with the fallout with:

1. Direct loans to bona fide distressed homeowners.

2. Grants to municipalities for the purchase of foreclosed and abandoned properties.

3. Job-producing investments in public infrastructure.

And, of course, this is not to dismiss every other positive, progressive possibility that we should preserve our ability to someday implement, but these just relate to the particular crisis at issue.

So please, people, communicate with your representatives. Let them know what your priorities are.

The Financial Crisis: An Alternative "Bottom-Up" Proposal

Instead of giving $700 billion in taxpayer funds to Wall Street bazillionaires, how about a federal program to make loans available to homeowners who need help getting and staying current on their mortgage payments? The loans could be secured with a lien against the property due on sale, with no prepayment penalties, interest to accrue on outstanding balances. Participation in the program would be limited to a maximum of, say, two years (enough time to either sell, refinance or otherwise improve your financial situation), and of course only bona fide owner-occupants would be eligible.

This would address both the root cause of and the real human suffering that has resulted from, this crisis: people losing their homes through foreclosure. A federal intervention to help homeowners avoid defaulting on their mortgages would mean that the securities backed by these loans could again be bought and sold again freely in the capital markets. This would also decrease the pressure on all the trillions of dollars in credit default insurance that has been issued on these loans. The program would be temporary in nature, only remaining in place until the credit markets returned to a state of relative normality.

Of course, there would continue to be significant defaults, mostly due to the ineligibility of house flippers and speculators. That's OK. Some homeowners are in too far over their heads to be helped even by this program. That's OK. Those who took the biggest risks in all of this, should take the biggest losses. The continuing defaults in would remain a problem on Wall Street, but not a cataclysmic one.

The cost? By my rough estimates, it would be a fraction of the trillions being sought by Paulson and most of it would be very likely to be recouped sooner or later by the federal government, with interest. There are probably about $200-300 billion dollars worth of outstanding mortgages in some stage of arrears right now. If you take 1% of that as the average monthly payment (i.e. a $100,000 loan would at most have a $1,000 monthly payment), then you are talking about total payments of $2-3 billion a month, more than half of which would likely still be covered by the homeowners in question. At most we're talking about $20 billion a year, and the program shouldn't have to last more than 2-3 years.

Most importantly, however, the money would go to where it would actually make the most difference in terms of improving the lives of actual people. It could be argued that some homeowners might be getting a windfall compared to others who acted more prudently. But as a homeowner myself, I can't imagine feeling envy at another citizen who has a lien by the federal government against their house.

Thoughts?

The Democratic "Alternative Bailout": Lipstick on a Pig

Let's be straight about what this bailout involves. Banks made a bunch of bad loans where there was no down payment and no documentation of the borrower's income because such loans were mega-profitable as long as housing values were going up. A lot of other financial products were sold based on these loans, which were also mega-profitable as long as housing values were going up.

Now that housing values have gone, and continue to go, down, all of these loans and financial products are worth a small fraction of their original value. Nobody wants to admit these losses because to do so would expose the fact that a lot of people don't have as much money as they and others thought they did. Because of this, nobody really knows exactly how much unrecognized losses are out there, but it's clearly measured in trillions.

For a while, the banks just kind of ignored the presence of these unrecognized losses on the books and kept doing business as if they weren't there. But as the losses piled up, the weaker players became unable to cover their day-to-day expenses, and the bankruptcies, bailouts and buyouts began. Now, people don't want to do business with anybody with these losses on their books because they don't know who's going to go down next and leave their creditors holding the bag.

So, now Mr. Paulson, the former chair of Goldman Sachs, is riding to their rescue with trillions of federal dollars (potentially) in tow. The money is to be used to pay these banks presumably something close to the full original value for these loans, thereby converting the losses from private Wall Street losses to public federal government losses.

The problem is that the federal government can no more afford to take these losses than Wall Street. The federal debt is already approaching 10 trillion dollars, with another 500 billion being added annually. The bill for the Iraq War continues to mount, with the veteran's costs just starting. "Crisis" or not, Social Security and Medicare payouts are rising faster than tax receipts. Our infrastructure has been neglected for decades.

Taking on trillions in additional debt (and no $700 billion is not the limit, that's just the limit at any one time, the authorization allows the Treasury to take on new debt as old debt is sold off) will be devastating to the federal budget. If we're lucky, it will simply mean that there will be no new money for federal programs for a generation, no universal health care, no "Apollo" alternative energy project, middle-class tax relief, etc. If Obama is elected, he'll inherit nothing more than a pile of debt to find a way to service, and the "progressive agenda" will be a moot point.

If we're unlucky, the foreign investors who we rely upon to buy $2 billion a day in Treasury notes will decide that the U.S. federal government is itself no longer a safe bet to make good on its obligations. That would mean a federal bankruptcy, something that has never before happened in our nation's history, not even during the Great Depression. It's impossible to know what a federal bankruptcy would look like, but I have to believe that it would be 100 times worse than anything that would result from a few more Wall Street bankruptcies.

It seems crystal clear to me that this is the final play in the cynical Republican strategy to "starve the beast" of government by removing so much money from the Treasury that there is simply no money left for anything progressive. Having granted themselves two trillion dollar tax breaks, then wasted probably another three or four trillion on various post-9/11 activities, not the least of which is the Iraq War, which have not made us safer, now with mere weeks left in his term, they want to siphon off the last couple of trillion left in the coffers (or at least under our debt capacity) for one final gorging of cash at the trough for their friends and cronies.

Why in the world any Democrat would even think of going along with this I have no idea. What good could it possible do if we were to inherit a bankrupt federal government in January? Why would we participate in this scheme to bankrupt our government in order to prevent Wall Street from collapsing of the weight of its own greed and stupidity? And even to the extent that this measure does stave off a bit of suffering for a few more weeks, doesn't that just help McCain?

But I hear Chris Dodd on NPT this morning praising Secretary Paulson as a fine public servant, boasting about how closely Democrats are working with Republicans on his plan, and pledging to pass it before the Congressional recess, scheduled for next week. I cannot imagine a more stupid and self-defeating line to be taking right now. The Democrats cannot go along with this. Please call your Senator, your Congresspeople, the Obama campaign, Sen. Biden, and let's put a stop to this before it puts a stop to us!!!

Oh...and if you want an alternative...Let the chips fall where they may on Wall Street and use a fraction of those billions to create a federal program to give grants and loans to municipalities and nonprofit organizations to buy vacant and abandoned foreclosed properties, fix them up, and either sell or rent them at affordable rates depending on the conditions of the local market.

Obama, Wright and Building a Progressive Majority

Even though I am a stalwart Obama supporter, I believe that the Reverend Wright issue does in fact represent a fundamental threat to his campaign. Yes, it's a "distraction" from the "issues," but let's be real here folks; the American people do not elect Presidents based on issues. If that were the case we would have had nothing but Democratic Presidents from FDR until the present. They vote based on personality, or to put it in a better light -- leadership, character and integrity.

If we remind ourselves of the Rovian school of politics, you take your opponents greatest strengths, and by hook or by crook, you turn them into weaknesses. Thus, the textbook example would be the "Swift-boating" of John Kerry, who I think we can all agree won the Democratic nomination because of his record of military service and was then turned into a traitor.

If we can summarize Obama's greatest strengths, it has to be his unique ability to bring people together across racial, political and other divides, his "Mr. Smith Goes to Washington" sort of image as a non-politician politician who has not yet sold his soul to the ways of politics, and his judgment. Reverend Wright is a living, breathing fundamental threat to all of those claims . . .

We are, of course, well acquainted with the first aspect of Reverend Wright's challenge to Obama's candidacy -- his status as a racial conciliator. Obama responded with his "race" speech, which seemed to quell things. For myself, I must admit that I thought that speech was his first major mistake of the campaign in that he racialized the issue with Wright, i.e. made it into an issue between white America and black America, whereas it should've just been an issue with a cranky old preacher who sometimes says things that make no sense and our way outside the bounds of acceptable political discourse, something that many religious leaders, white and black, tend to do. Here the things that Obama said instead that I find problemmatic:

Like other predominantly black churches across the country, Trinity embodies the black community in its entirety - the doctor and the welfare mom, the model student and the former gang-banger. Like other black churches, Trinity's services are full of raucous laughter and sometimes bawdy humor. They are full of dancing, clapping, screaming and shouting that may seem jarring to the untrained ear. The church contains in full the kindness and cruelty, the fierce intelligence and the shocking ignorance, the struggles and successes, the love and yes, the bitterness and bias that make up the black experience in America.

And this helps explain, perhaps, my relationship with Reverend Wright. As imperfect as he may be, he has been like family to me. He strengthened my faith, officiated my wedding, and baptized my children. Not once in my conversations with him have I heard him talk about any ethnic group in derogatory terms, or treat whites with whom he interacted with anything but courtesy and respect. He contains within him the contradictions - the good and the bad - of the community that he has served diligently for so many years.

I can no more disown him than I can disown the black community. I can no more disown him than I can my white grandmother - a woman who helped raise me, a woman who sacrificed again and again for me, a woman who loves me as much as she loves anything in this world, but a woman who once confessed her fear of black men who passed by her on the street, and who on more than one occasion has uttered racial or ethnic stereotypes that made me cringe.

These people are a part of me. And they are a part of America, this country that I love.

. . .

The fact is that the comments that have been made and the issues that have surfaced over the last few weeks reflect the complexities of race in this country that we've never really worked through - a part of our union that we have yet to perfect. And if we walk away now, if we simply retreat into our respective corners, we will never be able to come together and solve challenges like health care, or education, or the need to find good jobs for every American.

Understanding this reality requires a reminder of how we arrived at this point. As William Faulkner once wrote, "The past isn't dead and buried. In fact, it isn't even past." We do not need to recite here the history of racial injustice in this country. But we do need to remind ourselves that so many of the disparities that exist in the African-American community today can be directly traced to inequalities passed on from an earlier generation that suffered under the brutal legacy of slavery and Jim Crow.

. . .

This is the reality in which Reverend Wright and other African-Americans of his generation grew up. They came of age in the late fifties and early sixties, a time when segregation was still the law of the land and opportunity was systematically constricted.

. . .

For the men and women of Reverend Wright's generation, the memories of humiliation and doubt and fear have not gone away; nor has the anger and the bitterness of those years. That anger may not get expressed in public, in front of white co-workers or white friends. But it does find voice in the barbershop or around the kitchen table. At times, that anger is exploited by politicians, to gin up votes along racial lines, or to make up for a politician's own failings.

And occasionally it finds voice in the church on Sunday morning, in the pulpit and in the pews. The fact that so many people are surprised to hear that anger in some of Reverend Wright's sermons simply reminds us of the old truism that the most segregated hour in American life occurs on Sunday morning. That anger is not always productive; indeed, all too often it distracts attention from solving real problems; it keeps us from squarely facing our own complicity in our condition, and prevents the African-American community from forging the alliances it needs to bring about real change. But the anger is real; it is powerful; and to simply wish it away, to condemn it without understanding its roots, only serves to widen the chasm of misunderstanding that exists between the races.

Not to overly simplify matters, but Barack essentially said that we should give Reverend Wright a pass on the statements in question because of his race. For a minute it seemed to work, and everyone congratulated Obama on having made an amazingly adult and poignant speech about our nation's "original sin" -- the problem of race that has never been adequately addressed, and it was true. It was an amazing speech on race, probably the best given by a major public figure since the 1960's. The only problem was that it did not address the issue at hand: Jeremiah Wright's statements were outside the bounds of acceptable political discourse in America, no matter the race of who said them.

I don't know the inside story of course, but based on the succeeding events, I gather that Reverend Wright did not take kindly to Obama's characterization of him as some old, out of touch black man still caught up in the resentments of the past, while at the same time white working class voters in Pennsylvania didn't buy that Reverend Wright's comments were nothing more than a good starting point for a long-neglected national conversation about race.

Now, believe me, I do not blame Barack for his approach. The truth of the matter is that there is a lot of truth in Reverend Wright's words, both as a matter of factual history, and in so far as he is expressing the frustration and bitterness that is part of the black experience in America. But unfortunately, that has nothing to do with politics, particularly politics of the variety in which Barack is currently engaged. Barack is looking to build a new progressive majority of Americans of all kinds that can bring about fundamental changes in our government. Reverend Wright's rhetoric does not help in that cause, because that is not the cause to which Reverend Wright owes his allegiance.

Which brings us to the second and potentially even more damaging aspect of Reverend Wright's threat when he told the National Press Club that Barack's disassociation with him was just based on politics:

Politicians say what they say and do what they do based on electability, based on sound bites, based on polls, Huffington, whoever's doing the polls. Preachers say what they say because they're pastors. They have a different person to whom they're accountable.

Not only was Reverend Wright casting doubt on Obama's identity as a racial conciliator, but he was now basically calling him a typical lying politician to boot. The mythic quality of this situation is almost too much to believe. It's a very old story, the mentor father figure who becomes jealous as his mentee far exceeds him in fame and power and undercuts him at his most vulnerable moment. It finally became clear to Barack that Jeremiah Wright may be a part of this country, but his rhetoric and his views were plainly antithetical to everything that Obama was seeking to accomplish:

His comments were not only divisive and destructive, but I believe that they end up giving comfort to those who prey on hate, and I believe that they do not portray accurately the perspective of the black church.

They certainly don’t portray accurately my values and beliefs. And if Reverend Wright thinks that that’s political posturing, as he put it, then he doesn’t know me very well. And based on his remarks yesterday, well, I may not know him as well as I thought either.

Now, I’ve already denounced the comments that had appeared in these previous sermons. As I said, I had not heard them before. And I gave him the benefit of the doubt in my speech in Philadelphia, explaining that he has done enormous good in the church. He has built a wonderful congregation. The people of Trinity are wonderful people, and what attracted me has always been their ministries reach beyond the church walls.

But when he states and then amplifies such ridiculous propositions as the U.S. government somehow being involved in AIDS, when he suggests that Minister Farrakhan somehow represents one of the greatest voices of the 20th and 21st centuries, when he equates the United States wartime efforts with terrorism, then there are no excuses.

They offend me. The rightly offend all Americans. And they should be denounced. And that’s what I’m doing very clearly and unequivocally here today.

I consider this a potentially seminal moment in the history of the progressive movement in America. The trap that Barack fell into with Reverend Wright is a trap that has ensnared many of us. Where do we draw the line between speaking out about the injustices and wrongs of our nation and our government and engaging in divisive, unproductive and unnecessarily inflammatory rhetoric that gets us no closer to our goals? Even more complex is how do we draw those lines in a way that works for people on all sides of our racial divides?

The fundamental lesson that I think Barack and the rest of us should take from this episode is that the answer to the question of whether Jeremiah Wright gets a pass on his rhetoric of anger and frustration because he's black is a resounding, "No!" If we are going to build a true progressive majority for social change in America, there has to be established boundaries of discourse, and those boundaries have to apply to everyone, regardless of race, religion, class, etc. Now reasonable minds can of course disagree about what those boundaries are, and that's completely fine. But the larger point is that the transgressions of those boundaries cannot be excused by reference to the racial background of the speaker in question.

Of course there's always free speech and freedom of religion, etc. People are free to say whatever they want, but not if they want to be a part of the movement to build a progressive majority for change. And if you don't want to be a part of that, then please don't pretend to be. You are marginal (by your own choice) to this political cause. If you can gather enough people behind your version of the world, more power to you.

What does this mean for Barack going forward? In the end, this will come down to the third aspect of Jeremiah Wright's threat to Obama's candidacy: the question of judgment, i.e. why did he join this church and stay there for twenty years? Personally, I don't blame Barack for falling into this trap, which was set long before he came upon the scene. He met Jeremiah Wright when he was 27 years old, and living for the first time in his life in a black community. For a young politically-motivated, religious skeptic like Barack, Jeremiah Wright's brand of socially and politically conscious faith understandably must've have been a powerful attraction. As the years went by after that, I'm sure Barack may have had increasing second thoughts about his choice of religious institution, but how do you just leave the church where you were baptised, married, and where your kids were baptised because of something your pastor said?

Hopefully, however, Barack's final rejection of and disassociation from Jeremiah Wright will prove to be his "Sista Souljah" moment, the point in time when he conclusively demonstrated to America that he will be a President for all of Americans, not just black people. I think many Americans are well aware that we have far more to gain by helping Barack build a progressive majority for change than by reverting to the kind of unproductive rhetoric that Reverend Wright seems intent on bringing us back to. Barack has only to lead the way and we will follow. Barack has been making lemonade out of lemons throughout this whole campaign, and this is certainly the ultimate lemon. I, for one, am very thirsty.

Why We’re Screwed on Global Warming: Reason No. 5726

An anecdote from the trenches…

In my day job, I work as an environmental and transportation advocate for low-income people in Los Angeles. Recently, I was fairly stunned by a meeting I attended organized by local environmental groups to discuss the Los Angeles County Metropolitan Transportation Authority’s (MTA) Long Range Transportation Plan (LRTP). The “bottom line” in the LTRP can be found at page 53, wherein it is stated that if all goes as planned, L.A. will spend tens of billions of dollars on transportation improvements over the next twenty-plus years, only to see surface transportation-related greenhouse gas emissions in L.A. County will rise from 72,670 metric tons per day as of 2004 to 98,900 metric tons per day in 2030. According to the MTA's own numbers, that total represents a less than 1% reduction as against what would would happen if we did absolutely nothing.

What you might find even more amazing is that this plan will likely enjoy the support of the so-called “environmental” community here in Los Angeles, because it includes a plethora of long-sought after multi-billion-dollar rail projects. See, an unholy alliance between MTA planners, rail advocates and housing developers (hereinafter collectively referred to as “rail fetishists”) have framed the debate about public transit in LA as exclusively about whether or not we could find the funds to build this or that billion-or multi-billion dollar rail project, while any further expansion or improvement of bus services are quickly dismissed as not financially feasible, even though improving basic bus service has shown itself to be the most cost-effective way to improve public transit ridership in Los Angeles and other similarly laid out cities around the country and the world. Many of these same groups supported, or at least failed to oppose, a draconian fare increase proposal last spring.

Now, don’t get me wrong. I love riding trains. I happen to own a home within walking distance of new rail line currently under construction. I went to planning school at Berkeley and recognize that every mode of transportation has a place within a well-functioning transportation system. But at the same time, there are few things in life that I find more disturbing than watching a “snow job,” i.e. a presentation of opinion masquerading as fact. And that’s exactly what happened at this meeting. The fact that rail fetishists such as MTA and the Transit Coalition would present the debate on transit in LA in such a fashion is not particularly newsworthy. What I find particularly disturbing was the presentation of such as the perspective of the environmental community.

I’m not sure how this is all going to shake out, but from my perspective, the MTA’s LRTP by its own terms does almost nothing to address the environmental challenges that we face here in Los Angeles. They are projecting that twenty years from now, the mode share between private automobiles and alternative modes will be exactly the same as it is now and that emissions will be reduced by less than 1% not from where they are now, but from the increase that they project to occur were we to do nothing. These numbers utterly fail to fulfill LA County’s responsibilities in terms of global climate change pursuant to a landmark anti-global warming law (AB 32) signed by Governor Schwartzenegger last year.

When pressed on this point, the MTA called on the environmental community to help them to magically bring about some kind of “behavior modification” whereby people would become so guilt-ridden about their emissions-spewing ways that they would just stop driving so much.

I asked a question during the meeting about why an expansion of the very popular and cost-effective “Rapid Bus” program was not in the plans. FYI, “Rapid Bus” is a program of introducing greatly improved service on heavily used transit lines in Los Angeles that has lured thousands of new riders with very modest investments (essentially the cost of additional buses at approximately $500,000 each), while simultaneously vastly improving mobility for the transit-dependent. The answer was very revealing, I thought: in the bizarro world of MTA, the Rapid Bus lines are a problem because they tend to stimulate ridership. Yes, you read that correctly. The MTA had hoped that the Rapid Buses would be revenue-neutral because the faster service would require fewer buses to move the same number of people. In fact, however, because the reduced travel times led to increased ridership, they have not seen the cost savings they were hoping for.

So, here we have MTA planning to spend tens of billions on wonderful new rail lines that are not projected to result in a shift in mode share or significant reduction in pollution, while leaving it up to divine intervention to somehow get people out of their cars. At the same time, simple and inexpensive improvements in bus service with proven effectiveness at luring people onto transit are casually dismissed as infeasible due to the financial effects of that increased ridership. And this is something that the environmental community appears ready to get behind? My head was spinning, indeed.

Thankfully, the LA Times published an article on Thursday morning that reassured me that I am not bat-shit crazy. The Column One article for that day’s paper entitled “London’s levy for sins of emission,” detailed the measures being taken by that city to effect the kind of “behavior modification” that we can apparently do nothing more than pray for here in Los Angeles. The solution there is exceeding simple: charge people who drive (upwards of $50 a day under the latest proposal) and apply the proceeds toward improved bus service: “Much of the $252 million a year raised under the existing congestion management charge has been poured into the city’s bus system, which has undergone a remarkable transformation and now offers citizens clean, reliable and frequent transit alternatives.”

So there you have it, all ye rail fetishists! Even a city that boasts one of the world’s best rail systems, when pressed to actually reduce pollution and congestion, has devoted the lion’s share of new transit resources to building a better bus system! No longer must we gaze in envy at Europe or the East Coast, or even our lovely City by the Bay to the north, wishing that if only we had a decent rail system, then maybe we could do something about getting people out of their cars. No, we can do something right now, and it’s very simple: adequately fund the damn buses!

I suppose, maybe my personal perspective grows out of my own personal experience with Metro Line 212/312. The “212” is essentially the La Brea Avenue bus. I live near the corner of Rodeo and La Brea, so I take it a lot. It’s a pretty great bus line actually, in terms of where you can go. It connects Hollywood and Inglewood, and travels through quite a few densely-populated and very walkable communities along the way. It also crosses paths with a lot of the major East-West bus lines in the city and it even connects with the Red Line, the Green Line, and soon, the Expo Line as well. You can take care of business in downtown Inglewood’s civic center, party in Hollywood, shop in the Fairfax district, recreate at Rancho La Cienega, and so much more, all within mere steps of Line 212 bus steps.

I’m not the only person enamored with the 212 -- it’s very popular. The 212, however, is a local bus and thus stops at every other corner. The 312 is supposedly a “limited” but I’ve seen a 212 beat a 312 plenty of times, so I have no idea what the limited designation really stands for. One could say that it’s limited in the sense that it won’t stop for you if it’s already full, but that is the case with the 212 as well. And this is what happens all day every day on this line: the bus gets even fuller than it’s usual sardine can-like state, and the bus driver has no choice but to drive right past stops crowded with riders.

All day every day there is a battle between the bus driver and the passengers, with the bus driver urging the passengers to “move back,” and the passengers trying to not get crammed too deep into the rear of the bus. My natural inclination to give up my seat to elderly passengers or those with young children in tow is rendered quite meaningless when at any given time there are twenty such passengers standing on the bus.

But according to the current MTA LTRP, when I walk out of my house in 2025, I can expect to be dealing with the exact same bus service, local or “limited” only, except that I can also expect that the car traffic with which the bus must compete for road space will have gotten progressively worse, and thus my ride will likely be even slower and more crowded than it is now. There are no plans in the medium- or long-distance for a Rapid Bus on La Brea. If I’m “lucky”, I might get an articulated bus, running at decreased intervals. What a lovely vision of the future indeed!

So it kind of rubs me the wrong way when I hear mainstream environmentalists and MTA staffers baying on about what kinds of magic words need be spoken in order to finally guilt people into leaving their cars at home. That’s not the problem right now on Line 212, nor is it the problem on hundreds of other bus lines across LA County. Nor is it the problem, by the MTA’s own admission, on those bus lines that have gone “Rapid.”

There’s no magic to getting people out of their cars in Los Angeles, or lots of other places for that matter. The solution has already been proven. Better bus service equals more ridership. In a sane world, increased ridership would lead to more frequency. More frequency leads to a further increase in ridership and so on and so forth. And this is not even to get into the proven effect that radical fare reductions have also had on ridership in Los Angeles (see the 1980’s three-year experiment with 50 cent fares that was used to sell one of the half-cent sales tax that we’re now so thankful for).

I do understand the environmental concern about emissions from our naturally gas-fueled buses, which, while significantly better than diesel, are not perfect. To this I would say two things. First, it seems clear that the technology for zero-emission buses is close at hand. Hydrogen fuel buses are on the roads today, as are all-electric ones. With the automobile industry seemingly on the brink of a major shift toward hybrids, this technology can only get even better, cheaper, and more effective within the 20-year planning horizon of the LTRP. Secondly, rail has its own significant environmental costs as well. Aside from the fact that we’re still getting 80-90% of our electricity from non-renewable sources, there’s also the environmental destruction that comes with the construction process itself. Trees and vegetation must be cleared, houses and businesses too at times. Millions of tons of concrete are poured and even more steel is riveted into place, all of which in the long-term will end up as pollution somewhere.

There’s also the growth-stimulating effect of the lines themselves, which actually goes to the central point around which this whole global warming debate really revolves: growth vs. sustainability. I see this all over the place in my work – planners treat growth as an inevitability, and they then work to accommodate it. This then becomes a self-fulfilling prophecy, however, as we in fact not only accommodate growth, but also enable it. Rail seems at first glance to be an environmentally friendly alternative, and compared to new or expanded highways, it is (though there’s plenty of those in the MTA plan as well). But in actually, rail grows out of the same paradigm of accommodating growth, only with recognition that as the city urbanizes, there is just not enough space to accommodate growth by building highways.

There is an immediately poignancy to all of this long-range planning because transit advocates in Los Angeles are right now organizing to place an initiative on the November ballot for a new tax or fee for transit, the money from which would dedicated to implementing the LTRP. As things now stand, I’m not sure that I would support such a tax. The fact is that Los Angeles County has been collecting similar taxes for the past twenty-plus years, and yet, year after year, the situation gets worse. The roads are more congestion, the buses more crowded, the air smoggier (with any improvements in air quality coming not from reduced traffic flow, but instead for better technology) and the trains are just never going to do a particularly great job of covering our 400 square mile wide metropolitan area.

The MTA’s main objection to expanded bus service seems to be that it’s too operationally expensive, and that most new money (federal and state) is for capital projects, not operations. If the problem in our transit system is that we don’t have enough money to operate more buses, then why not dedicate the new money to that? If the new money is going to do nothing other than implement the MTA LTRP, as currently constituted, what are we really offering to the voters of Los Angeles? Doing our part to combat global warming? No, not when the plan contemplates a huge increase in emissions in the County, even given full implementation. Reducing congestion? Not in the cards under the current plan either.

My alternative would be to come up with something that, if it goes as planned, will actually solve the problem by providing an inexpensive, efficient, clean-air transit system that can take riders anywhere they want to go in the County in a reasonable amount of time? I believe that such a system could be implemented for a fraction of the cost and in a fraction of the time of the proposed expansions of the rail network. With the same money, we could reduce fares, bring top-level Rapid bus service to every major street in LA County, and phase in a new clean fleet of buses running purely on electricity or hydrogen. Add in some additional freeway express buses and local circulators, along with a greatly improved pedestrian and bicycle infrastructure and I think we’d be in business. If a radically progressive federal government ever comes into being, maybe they would allocate the tens of billions that it would take to build out our rail network.

For those of you who are in the LA area and want to comment on the draft LRTP, go here.

Bernanke's Wall Street Welfare

I've spent a number of years working as a lawyer in the general area of housing finance, so I believe that I understand a bit about what's going on with the recent federal actions. And I don't like it. Hundreds of billions of our tax dollars have been put at risk by the recent actions of the Federal Reserve Bank under Ben Bernanke's leadership, and nobody seems to care how the decision is justified.

Part of the reason, I believe, that nobody is challenging this giant theft of our national treasury is that very few people aside from those who directly benefit from it actually understand it. So in the interest of doing my small part to spread the word, here's my take on it...

The origins of this mess can be found in the ability of Wall Street to package mortgages and the risks associated with them in a variety of ways to meet the needs of every kind of investor. Traditionally, if you wanted to buy a house, you went to your local bank and, if you were credit-worthy, and had a sufficient down payment given the price of the house (typically 20%), they would give you the loan and they would receive the payments.

In or around the 1990's or so, banks discovered that they could package these loans and sell them to investors from around the world, thereby raising more money for additional rounds of lending. As that market got more sophisticated, they invented various forms of ratings and insurance and default contracts and other fancy bells and whistles that, in theory, allowed the risk to be allocated exactly to those who could most afford to bear it.

The system worked pretty well, actually, and with the stock market doldrums that set in after the dot-com crash, a lot of money began to flow into real estate. With these sophisticated mechanisms in place, there was plenty of money available for lending. In fact, the appetite for these packaged loans became so intense that the credit-worthiness of the buyer was not that important so long as the loan amount was ever so slightly below the market value of the house, and, more importantly, so long as prices were rising fast enough such that any financial difficulty encountered by the buyer could be immediately solved by a refinance with a cash out of accrued equity.

As housing prices continued to rise at an incredible rate, the loan packages became a huge cash cow for Wall Street, with investment houses buying and selling them by the billions, and the total amounts actually went into the trillions when you added in all of the related exotic financial instruments also being sold that were backed ultimately by these loans and the wonderful little houses on which they were issued.

Of course, like all bubbles, the whole apparatus worked great only because prices were rising. I don't have as much personal knowledge of this as others, but based on my own experience, I'm willing to bet that there was a lot of laziness built into the system during the frenzy. People created a lot of paperwork covering all kinds of "what if" scenarios that would never come to pass in 99% of the cases because the ultimate insurance policy was in place: rising prices and easy refinancing. The sloppiness gets papered over when the worst case scenarios never come to pass.

Well, at some point you get into the "froth" of the bubble. Loans were being made to anybody with a pulse, no down payment, no verified income, houses being appraised for way above prices that could ever be sustained across the entire market (as opposed to the small percentage of houses that sell in any one given year). A substantial number of "sub-prime" borrowers just couldn't make those payments, and they started to default.

When that news hit Wall Street, everyone knew that the "jig was up" and the only question was who was going to get caught holding the bag. Suddenly, investors were no longer interested in buying these loans, and those holding them could not sell them. This ended the availability of sub-prime loans at the retail level, which ended the housing boom. With no loans available, prices started to drop.

For those "holding the bag", the question quickly became: what is that bag really worth? How many people would walk away from their loans, having put no money down in the first place? What would the houses actually be worth if they had to be foreclosed on? Unfortunately, these questions remain more or less unanswerable because until the market hits bottom, there's no way to predict with any degree of uncertainty the answer to those kinds of questions.

Therefore, everyone just kinds of stands still, at best trying to prevent the infection from spreading to the better classes of mortgages. Unfortunately, it has because (1) it's not always clear that a given package consists exclusively of one type or the other (the rating agencies themselves have come under fire for failing to do their job); and (2) with housing prices falling even a fairly credit-worthy individual may still decide that making payments that are three times the cost of rent when the price of the house is falling and he/she has no equity is not a smart thing to do.

And thus, we arrive at Bear Stearns, March 2008. Bear was a big loser in the game of who was left holding the bag, having gone into these mortgages in a bigger way than most of the others and, apparently, being late in the game in terms of heading for the exits. They were vulnerable, and on Wall Street, there's no pity, only opportunity for advantage.

By way of analogy, I visited an aquarium recently and there was an enclosed exhibit of Alaskan King Crabs. For whatever reason, I happened to witness a huge crab attack a "vulnerable" crab and literally rip apart its shell, dig into it with its huge claws and eat it alive, while three or four other crabs watched from the sidelines. It was really ugly, and the funny thing was that ten minutes later after the victim had been removed, we came back to see that each of the remaining crabs was occupying the corners of the exhibit with their backs to the wall, eyeing the others.

This is what happened during the week leading up to and including Sunday afternoon on Wall Street. Bear Stearns showed some weakness, and the rest of Wall Street got the hell away from them as quickly as possible, while the biggest crab in the cage (JP Morgan) went in for the kill.

Now that is all fine and dandy, American capitalism at its dog-eat-dog best. And if that was the end of the story, I could go on with my life without feeling the need to write this diary. But no, here comes Mr. Bernanke with hundreds of billions of our hard-earned dollars at his disposal. Actually, specifically, he apparently has approximately $800 billion dollars in Treasury notes that he can apply to this crisis (beyond that and we're getting into federal bankruptcy territory). Treasury notes, are, if you don't already know, almost just like cash, because everyone on this planet knows that, no matter what else happens, all of us G-d fearing Americans will be paying our federal taxes in full come hell or high water.

For at least six months, Bernanke had been trotting out the usual strategy for these kinds of situations, which is to lower interest rates just to keep the money flowing. This, of course, lowers the value of the dollar, which is dropping anyways, so no we won't be taking many exotic vacations anytime soon, or buying foreign cars, or even Swiss chocolate I suppose. It sucks that he's going to kill the dollar in order to keep these banks out of default, but I could live with it. I'm happy to stay and buy local. I could just chalk that up to one more consequence of the colossal FUBAR that is the Bush Administration.

Unfortunately for Bernanke, however, lowering interest rates hasn't done the trick. If the loans on the books are worthless, who wants to start making new ones, even if the terms are favorable? So now, he has gone to some new, more extreme, strategies and it is these that I really have an issue with. Here's what he's done just in the past two weeks:

1. He offered to trade $200 billion in Federal Treasury Notes for God knows how much in sub-prime loans (and how could you know being that there's no market for them?). So the ultimate answer to "who's going to be holding the bag" has found an answer and it is of course, the taxpayer. We the taxpayers will not collect much on these worthless loans, but we will make good on our obligations to these same bankers in paying the Treasury Notes. This is truly a case where someone else has a huge party, and leave us to clean up the mess and pay the caterers.

2. He gave a $30 billion loan guarantee to JP Morgan in order to entice it to buy Bear Stearns. So, JP Morgan takes over all of Bear Stearns assets and obligations and to the extent that people default on moneys that were owed to them, i.e. subprime borrowers, so long as it doesn't amount to more than $30 billion, we the tax payers will take care of it. Again, the "holding the bag" question is answered with the taxpayer.

3. He's opened up the Federal Reserves's "Discount Lending Window" to investment banks, so that these private fiefdom's of the very rich can now access our tax monies at the best possible rate -- the rate that for the last 70 years has been available only to commercial banks...you know the kind that you or me might actually be able to do business with. Tens of billions of dollars were so accessed in the first week.

I'd just like to hear a good argument in support of this. I suspect that the argument is that the cost to all of "us" collectively of the failure of a major investment bank, or of radically-discounted sales of these loan packages, or of investment banks lacking the liquidity to meet their obligations, would be far more than the $230 billion and counting that we're putting ourselves on the hook for in order to prevent that from happening. But I've not seen Mr. Bernanke make any such argument. Or anyone else.

For myself, I don't buy it. This is a pretty exotic little world here, and a market which as I mentioned above didn't even exist for the most part not that long ago. Was the market for mortgages so bad in 1990 that we can't afford to return to that?

And morally, it just burns me up to think that Bush gave these same guys not one but two trillion dollar tax cuts just a few years ago, then they made billions pumping up this market and luring millions into loans that they couldn't afford based on radically inflated house values (incidentally pricing out all but the most foolhardy), and now that the inexorable fall comes, well, the taxpayer must pay or the nation will crumble.

What would I do instead? I'd probably leave Wall Street to its own devices, and instead set up a federal program to buy the foreclosed houses and turn them over to nonprofit organizations for resale and/or use as affordable housing. The originators of the loans deserve to lose their money, and the borrowers deserve to lose their homes. But the rest of us deserve to be insulated from suffering the negative effects of having lots of vacant homes littering our neighborhoods, and the program I've described would accomplish that.