September 23, 2008
Op-Ed Columnist
The Establishment Lives!
By DAVID BROOKS
Once, there was a financial elite in this country. During the first two-thirds of the 20th century, middle-aged men with names like Mellon and McCloy led Wall Street firms, corporate boards and white-shoe law firms and occasionally emerged to serve in government.
Starting in the 1960s, that cohesive elite began to fall apart. Liberal interest groups took control of Democratic economic policy. Supply-side think tankers and Southern conservatives dominated the GOP.
In the 1980s, the old power structures frayed, even on Wall Street. Corporate raiders took on the old business elite. Math geeks created complicated financial instruments that the top executives couldn’t control or understand. (The market for credit-default swaps alone has exploded to $45.5 trillion, up from $900 billion in 2001.)
Year followed year, and the idea of a cohesive financial establishment seemed increasingly like a thing of the past.
No more. Over the past week, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Tim Geithner of the New York Fed have nearly revived it. At its base, the turmoil wracking the world financial markets is a crisis of confidence. What Paulson, et al. have tried to do is reassert authority — the sort that used to be wielded by the Mellons and Rockefellers and other rich men in private clubs.
Inspired in part by Paul Volcker, Nicholas Brady and Eugene Ludwig, and announced last week, the Paulson plan is a pure establishment play. It would assign nearly unlimited authority to a small coterie of policy makers. It does not rely on any system of checks and balances, but on the wisdom and public spiritedness of those in charge. It offers succor to the investment banks that contributed to this mess and will burn through large piles of taxpayer money. But in exchange, it promises to restore confidence. Somebody, amid all the turmoil, will occupy the commanding heights. Somebody will have the power to absorb debt and establish stability.
Liberals and conservatives generally dislike the plan. William Greider of The Nation writes: “If Wall Street gets away with this, it will represent an historic swindle of the American public — all sugar for the villains, lasting pain and damage for the victims.”
He approvingly quotes the conservative economist Christopher Whalen of Institutional Risk Analytics: “The joyous reception from Congressional Democrats to Paulson’s latest massive bailout proposal smells an awful lot like yet another corporatist love fest between Washington’s one-party government and the Sell Side investment banks.”
Thanks to their criticism, the plan will be pinned back. Oversight will be put in place. But the plan will probably not be stopped. The markets would tank. There is a hunger for stability, which only the Treasury and the Fed can provide.
So we have arrived at one of those moments. The global financial turmoil has pulled nearly everybody out of their normal ideological categories. The pressure of reality has compelled new thinking about the relationship between government and the economy. And lo and behold, a new center and a new establishment is emerging.
The Paulson rescue plan is one chapter. But there will be others. Over the next few years, the U.S. will have to climb out from under mountainous piles of debt. Many predict a long, gray recession. The country will not turn to free-market supply-siders. Nor will it turn to left-wing populists. It will turn to the safe heads from the investment banks. For Republicans, people like Paulson. For Democrats, the guiding lights will be those establishment figures who advised Barack Obama last week — including Volcker, Robert Rubin and Warren Buffett.
These time-tested advisers, or more precisely, their acolytes, are going to make the health and survival of the financial markets their first order of business, because without that stability, the entire economy will be in danger. Beyond that, they will embrace a certain sort of governing approach.
The government will be much more active in economic management (pleasing a certain sort of establishment Democrat). Government activism will provide support to corporations, banks and business and will be used to shore up the stable conditions they need to thrive (pleasing a certain sort of establishment Republican). Tax revenues from business activities will pay for progressive but business-friendly causes — investments in green technology, health care reform, infrastructure spending, education reform and scientific research.
If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism. We’re not entering a phase in which government stands back and lets the chips fall. We’re not entering an era when the government pounds the powerful on behalf of the people. We’re entering an era of the educated establishment, in which government acts to create a stable — and often oligarchic — framework for capitalist endeavor.
After a liberal era and then a conservative era, we’re getting a glimpse of what comes next.
FORMS OF GOVERNANCE
September 26, 2008
Op-Ed Contributors
What the World Wants to Know
By ASIF ALI ZARDARI, MICHELLE BACHELET, BERNARD-HENRI LÉVY, HU SHULI, RORY STEWART, LILIA SHEVTSOVA, ENRIQUE KRAUZE, YOICHI FUNABASHI, PAUL MARTIN, VICENTE FOX, RAMACHANDRA GUHA and IVAN KRASTEV
Well, there’s supposed to be a presidential debate tonight in Oxford, Miss. And it’s supposed to be about foreign policy. With that in mind, the Op-Ed editors asked leaders and writers from around the world to pose questions they’d like to hear John McCain and Barack Obama answer.
How would you work with America’s allies in the Muslim world to turn around the widely held misperception there, as evidenced in opinion polls, that the global war against terrorism is actually a war against Islam?
ASIF ALI ZARDARI, the president of Pakistan
Many developing countries — mine included — have made sacrifices to carry out tough economic reforms and have sought “trade and not aid.” To succeed, we need to compete on a level playing field with more developed economies. Is the United States ready to shoulder some of the burden by advocating the elimination or tempering of protectionism and subsidies? The United Nations by itself, with its faults and many achievements, does not lead. Nation-states do. American commitment and leadership is a must for effective multilateral cooperation. Will you demonstrate a renewed commitment to multilateralism and the rule of international law? Will you negotiate actively to agree on a post-Kyoto treaty on global warming and seek to join the United Nations Human Rights Council? Lastly, what would you do to regain the trust of your allies who would like to see the United States engaging in respectful dialogue and leading the way in the fight not merely against terrorism — which must be done — but also against world hunger, poverty, inequality and disease?
MICHELLE BACHELET, the president of Chile
American foreign policy is now inextricably tied to the financial situation in the United States and to the image this crisis gives the country in the eyes of the world. How, for example, will this financial tsunami change your Iraq policy and its timetable? How will you manage both the horribly high cost of rescuing the banking system and the no less exorbitant cost of the American military presence in Baghdad? What will you say to all those countries the United States has so long lectured on the right way to govern their economies and that now see that America has refused its own medicine? The rest of the world is absorbing America’s deficits. How do you plan to convince them to continue doing so as though nothing has happened? Has the place of America in the world changed in your view? Can its role be the same? Will the America you are going to lead still be the great power it was before last week?
BERNARD-HENRI LÉVY, the author of “Left in Dark Times: A Stand Against the New Barbarism”
Do you view China simply as an emerging great power, or as an emerging great power with a conflicting ideology? And how will this perception shape your China policy?
HU SHULI, the editor of the Chinese business magazine Caijing
Why do you think that terrorism is the No. 1 strategic threat to the United States? How does it compare to the threat from an economic meltdown, from an environmental catastrophe, or from another nation? Should the United States continue to put hundreds of times more effort and investment into Afghanistan than into Pakistan, Egypt or Iran? China is now too wealthy and powerful to be intimidated by the United States. What are America’s interests in the Asia-Pacific region? How should you protect them?
RORY STEWART, the author of “The Places in Between,” a former British foreign service officer, and the chief executive of Turquoise Mountain, a foundation in Afghanistan
When their presidencies began, both Bill Clinton and George W. Bush were enthusiastic toward Russia, but by the end relations were decidedly cooler. What measures can you propose that would ensure that your presidency ends more constructively? How can the United States encourage transformation in the new independent states, especially Ukraine and Georgia, without further alienating Russia?
LILIA SHEVTSOVA, a senior associate at the Carnegie Endowment for International Peace in Moscow
Do you think the American embargo of Cuba is a mistake? Does the ascension of Raúl Castro, Fidel Castro’s brother, represent an opportunity to open relations with that country? Wouldn’t better relations with Cuba help neutralize Hugo Chávez, whose anti-Americanism is finding support in Latin America?
ENRIQUE KRAUZE, the editor of the magazine Letras Libres and the author of “Mexico: Biography of Power”
How do you plan to formulate American policy with respect to the nuclear ambitions of North Korea and Iran? In particular, what steps would you take to deal with North Korea’s nuclear threat if its regime collapses? In what specific ways would you try to lower the United States’ carbon dioxide emissions to achieve the goals each of you have outlined in your campaigns?
YOICHI FUNABASHI, the editor of the Japanese newspaper Asahi Shimbun
The Group of 8 was set up as a steering committee of the world’s most powerful economies. Do you believe that to make globalization work, such a steering committee is required? If so, do you believe that the group in its current configuration, without the presence of the major emerging economies, fits the bill? Deforestation, which causes at least 20 percent of global greenhouse-gas emissions each year, is a leading cause of climate change. The world needs to protect its rain forests — for example in the Congo and Amazon basins — but not at the expense of the desperately poor people who live in them. Do you believe that any plan to combat climate change must include measures to compensate the people of the world’s tropical rainforests, to make these forests more valuable standing rather than cut down?
PAUL MARTIN, the prime minister of Canada from 2003 to 2006
Free trade and immigration have made the United States the world’s richest nation. But many of your country’s friends worry that you may react to the current financial crisis, and to a rise in protectionist sentiment and immigrant-bashing, by turning inward. As president, would you work to allow freer movement of guest workers and trade in our hemisphere? Would you support the continuation and expansion of the North American Free Trade Agreement? Mexico is a thriving democracy that buys more goods and products from the United States than do the four leading economies of Europe combined, while President Felipe Calderón leads an all-out war on narco-traffickers to make our country safer. Given this progress, do you support the $1.4 billion package to fight narco-terrorism that Presidents Bush and Calderón proposed last year? Shouldn’t we mutually strengthen our countries, rather than feuding about issues that divide us, like immigration?
VICENTE FOX, the president of Mexico from 2000 to 2006
How would you work to restructure the United Nations to make it more representative as well as more effective? Clearly, the makeup of the Security Council is anachronistic. Would you support the expansion of its permanent membership to include (among other countries) Brazil, India, Japan and South Africa?
RAMACHANDRA GUHA, the author of “India After Gandhi”
It is important to know not only what the next president will do, but also why he will do it. I am somewhat puzzled by the absence of “why” questions in the presidential campaign. Why, for example, do you, Mr. McCain, advocate the expulsion of Russia from the Group of 8? Do you believe that this will change Moscow’s behavior? Or do you believe that undemocratic states should not be members of the group? Also, why do both of you support Georgia’s and Ukraine’s membership in the North Atlantic Treaty Organization? Do you believe this policy would expand the West’s sphere of influence? Are you convinced that it would be good for the alliance, or do you think NATO has lost its centrality in American foreign policy? Is it possible that each of you advocates the same policy for very different reasons?
IVAN KRASTEV, the editor of the Bulgarian edition of Foreign Policy magazine
Op-Ed Contributors
What the World Wants to Know
By ASIF ALI ZARDARI, MICHELLE BACHELET, BERNARD-HENRI LÉVY, HU SHULI, RORY STEWART, LILIA SHEVTSOVA, ENRIQUE KRAUZE, YOICHI FUNABASHI, PAUL MARTIN, VICENTE FOX, RAMACHANDRA GUHA and IVAN KRASTEV
Well, there’s supposed to be a presidential debate tonight in Oxford, Miss. And it’s supposed to be about foreign policy. With that in mind, the Op-Ed editors asked leaders and writers from around the world to pose questions they’d like to hear John McCain and Barack Obama answer.
How would you work with America’s allies in the Muslim world to turn around the widely held misperception there, as evidenced in opinion polls, that the global war against terrorism is actually a war against Islam?
ASIF ALI ZARDARI, the president of Pakistan
Many developing countries — mine included — have made sacrifices to carry out tough economic reforms and have sought “trade and not aid.” To succeed, we need to compete on a level playing field with more developed economies. Is the United States ready to shoulder some of the burden by advocating the elimination or tempering of protectionism and subsidies? The United Nations by itself, with its faults and many achievements, does not lead. Nation-states do. American commitment and leadership is a must for effective multilateral cooperation. Will you demonstrate a renewed commitment to multilateralism and the rule of international law? Will you negotiate actively to agree on a post-Kyoto treaty on global warming and seek to join the United Nations Human Rights Council? Lastly, what would you do to regain the trust of your allies who would like to see the United States engaging in respectful dialogue and leading the way in the fight not merely against terrorism — which must be done — but also against world hunger, poverty, inequality and disease?
MICHELLE BACHELET, the president of Chile
American foreign policy is now inextricably tied to the financial situation in the United States and to the image this crisis gives the country in the eyes of the world. How, for example, will this financial tsunami change your Iraq policy and its timetable? How will you manage both the horribly high cost of rescuing the banking system and the no less exorbitant cost of the American military presence in Baghdad? What will you say to all those countries the United States has so long lectured on the right way to govern their economies and that now see that America has refused its own medicine? The rest of the world is absorbing America’s deficits. How do you plan to convince them to continue doing so as though nothing has happened? Has the place of America in the world changed in your view? Can its role be the same? Will the America you are going to lead still be the great power it was before last week?
BERNARD-HENRI LÉVY, the author of “Left in Dark Times: A Stand Against the New Barbarism”
Do you view China simply as an emerging great power, or as an emerging great power with a conflicting ideology? And how will this perception shape your China policy?
HU SHULI, the editor of the Chinese business magazine Caijing
Why do you think that terrorism is the No. 1 strategic threat to the United States? How does it compare to the threat from an economic meltdown, from an environmental catastrophe, or from another nation? Should the United States continue to put hundreds of times more effort and investment into Afghanistan than into Pakistan, Egypt or Iran? China is now too wealthy and powerful to be intimidated by the United States. What are America’s interests in the Asia-Pacific region? How should you protect them?
RORY STEWART, the author of “The Places in Between,” a former British foreign service officer, and the chief executive of Turquoise Mountain, a foundation in Afghanistan
When their presidencies began, both Bill Clinton and George W. Bush were enthusiastic toward Russia, but by the end relations were decidedly cooler. What measures can you propose that would ensure that your presidency ends more constructively? How can the United States encourage transformation in the new independent states, especially Ukraine and Georgia, without further alienating Russia?
LILIA SHEVTSOVA, a senior associate at the Carnegie Endowment for International Peace in Moscow
Do you think the American embargo of Cuba is a mistake? Does the ascension of Raúl Castro, Fidel Castro’s brother, represent an opportunity to open relations with that country? Wouldn’t better relations with Cuba help neutralize Hugo Chávez, whose anti-Americanism is finding support in Latin America?
ENRIQUE KRAUZE, the editor of the magazine Letras Libres and the author of “Mexico: Biography of Power”
How do you plan to formulate American policy with respect to the nuclear ambitions of North Korea and Iran? In particular, what steps would you take to deal with North Korea’s nuclear threat if its regime collapses? In what specific ways would you try to lower the United States’ carbon dioxide emissions to achieve the goals each of you have outlined in your campaigns?
YOICHI FUNABASHI, the editor of the Japanese newspaper Asahi Shimbun
The Group of 8 was set up as a steering committee of the world’s most powerful economies. Do you believe that to make globalization work, such a steering committee is required? If so, do you believe that the group in its current configuration, without the presence of the major emerging economies, fits the bill? Deforestation, which causes at least 20 percent of global greenhouse-gas emissions each year, is a leading cause of climate change. The world needs to protect its rain forests — for example in the Congo and Amazon basins — but not at the expense of the desperately poor people who live in them. Do you believe that any plan to combat climate change must include measures to compensate the people of the world’s tropical rainforests, to make these forests more valuable standing rather than cut down?
PAUL MARTIN, the prime minister of Canada from 2003 to 2006
Free trade and immigration have made the United States the world’s richest nation. But many of your country’s friends worry that you may react to the current financial crisis, and to a rise in protectionist sentiment and immigrant-bashing, by turning inward. As president, would you work to allow freer movement of guest workers and trade in our hemisphere? Would you support the continuation and expansion of the North American Free Trade Agreement? Mexico is a thriving democracy that buys more goods and products from the United States than do the four leading economies of Europe combined, while President Felipe Calderón leads an all-out war on narco-traffickers to make our country safer. Given this progress, do you support the $1.4 billion package to fight narco-terrorism that Presidents Bush and Calderón proposed last year? Shouldn’t we mutually strengthen our countries, rather than feuding about issues that divide us, like immigration?
VICENTE FOX, the president of Mexico from 2000 to 2006
How would you work to restructure the United Nations to make it more representative as well as more effective? Clearly, the makeup of the Security Council is anachronistic. Would you support the expansion of its permanent membership to include (among other countries) Brazil, India, Japan and South Africa?
RAMACHANDRA GUHA, the author of “India After Gandhi”
It is important to know not only what the next president will do, but also why he will do it. I am somewhat puzzled by the absence of “why” questions in the presidential campaign. Why, for example, do you, Mr. McCain, advocate the expulsion of Russia from the Group of 8? Do you believe that this will change Moscow’s behavior? Or do you believe that undemocratic states should not be members of the group? Also, why do both of you support Georgia’s and Ukraine’s membership in the North Atlantic Treaty Organization? Do you believe this policy would expand the West’s sphere of influence? Are you convinced that it would be good for the alliance, or do you think NATO has lost its centrality in American foreign policy? Is it possible that each of you advocates the same policy for very different reasons?
IVAN KRASTEV, the editor of the Bulgarian edition of Foreign Policy magazine
Denial of basic capitalist principles caused meltdown
David Warren
Calgary Herald
Sunday, September 28, 2008
I trust no reader will take me as a financial maven -- indeed the whizbangs in question are out of favour at the moment -- but I did once edit a business magazine in the Third World and learned some of the jargon.
Indulge me a moment longer and I will tell you the magazine was Business in Thailand (not quite a threat to Forbes or Fortune, or even Euromoney -- my bedside reading at the time, though it hasn't been through the decades since).
In this job I developed a tremendous admiration for (overseas) Chinese business practices. I thought these men (and women: some matriarchs, too) the purest and best of capitalists. I met several "CEOs" of surprisingly large trading firms, founded on such romantic commodities as vegetable seed oil.
What did I admire? First, the modesty of these people. No matter how wealthy and powerful, each was incapable of forgetting, for example, the Swatow noodle shop from which he rose. I met, for instance, a man who commanded a substantial fleet of cargo ships. He worked in the tropical heat, under an oil-dripping ceiling fan -- in a singlet, at an ancient splintered school desk. He had always used that for his table, and saw no need to replace it. It had brought him very good luck, after all. Its small surface area was further reduced by an abacus.
Second, such a man could be counted on. His yea meant yea, his nay meant nay and his handshake bound him better than any contract enforceable in law. In the ethical world he inhabited, a single default was the end of his reputation, and thus the end of his livelihood. No second chances.
Third, I will mention the competitive zeal. Without spreadsheets, without quarterly reports, with no more than accurate inventories and current prices juggling in his head, he could deliver huge volumes of product to a buyer, "just in time," at profit margins sometimes less than one per cent. And get and stay rich doing this.
Sad to say, I am speaking of business methods that are almost extinct, even in East Asia (although the memory of them remains a fine influence today). More happily, I am able to remember big businessmen who did not give themselves airs, who did not cultivate the vanity and "charisma" we have come to associate with high-profile public traders and moneylenders.
Moreover, I think -- indeed, I know -- that behind the facade of every successful businessman is this man in a singlet, ignoring the heat of the day. "Raw capitalism," let us call it, is an honest dealing with the materials of the world.
It is the kind of sweaty laborious capitalism that supplies us with clothing, shelter, food and drink. I am therefore suspicious of most "free market" talk; of every attempt to reformulate immortal "raw capitalism" as a fashionable ideology or creed.
I am appalled by the (purported) $700 billion bailout U.S. President George W. Bush and Treasury Secretary Henry Paulson have organized, yet cannot reasonably oppose it at a moment when the markets are close to a true meltdown.
I am further appalled by the spectacle of the Democrats in the U.S. Congress, exploiting the emergency to affix massive quantities of poorly disguised pork to the blunderbuss bill.
And finally, appalled by the media and chattering heads calling the whole mess a "crisis of capitalism" when the plain facts show the opposite. The whole "subprime mortgage" instrument was invented by bankers specifically to assuage heavy-handed Congressional demands to swell the number of minority and low-income homeowners, 20 years ago. Fannie Mae and Freddie Mac were already bloated quasi-government bureaucracies, dangerously freed from many conventional market disciplines. And among the chief beneficiaries of the current bailout are the most extravagant contributors to the Democrat party.
As one of my more knowing correspondents put it: "Wall Street loves money but hates free markets, because free markets distribute economic benefits to those who earn them, rather than to those best able to seize them."
The capitalist investment bankers stand accused, rightly, of having invented brilliant kiting schemes -- ultimately to deliver credit to customers who hadn't earned it.
Their "greed" is irrelevant -- everyone is trying to make money.
The point is that the schemes themselves were basically unsound. The lesson is, when home ownership is considered a "right" instead of a privilege, it is not only the housing market that goes bottom up.
This is a lesson no one wants to learn, so it will take time to sink in.
But any attentive reader of the Wall Street Journal can know today what his neighbours may never even hear tomorrow: that this market crack-up, like every other, came not from observing the basic principles of capitalism, but from trying to deny them in the face of nature.
David Warren is a columnist with the Ottawa Citizen
© The Calgary Herald 2008
****
September 28, 2008
Economic View
What’s Free About Free Enterprise?
By PETER L. BERNSTEIN
THERE was a time, in my childhood during the Great Depression, when the streets of Manhattan were filled with unshaven men in threadbare clothes, their coat collars turned up against the cold, their shoes stuffed with newspaper to plug holes in the soles. And there were bank failures.
A huge bailout plan is being hammered out in Washington precisely to avert this kind of economic calamity. The plan is needed, and it needs to be put in place quickly. But at the same time, we need to ask how the financial system came to require a rescue of this magnitude.
This time around, assets are evidently so rotten in so many places that no financial institution wants to risk doing business with any other financial institution without a government backstop.
Such fear recently threw a huge bucket of sand into the wheels of commerce, because business cannot function without credit and banks cannot function without the ability to draw on one another’s resources as needed. Some radical, comprehensive step from government was necessary, or else outcomes as bad as — and perhaps even worse than — those of 1931 and 1932 would have been inescapable.
Naturally, a plan of this magnitude has stirred a storm of commentary, but two important potential results deserve more attention than they have received.
The first is the risk of moral hazard within the bailout itself. That is, if government is going to make good so many losses throughout the system, why would anyone set limits on future risk-taking? The situation could turn into a free-for-all that makes the recent disregard of risk look like child’s play.
The second problem is more philosophical, involving what the bailout plan reveals about the functioning of the free enterprise system. This raises disturbing questions. Although I agree with President Bush’s observation that “the risk of not acting would be far higher,” we should be aware of the secondary effects of what we are getting into.
More and a video at:
http://www.nytimes.com/2008/09/28/busin ... nted=print
****
September 28, 2008
Op-Ed Columnist
Green the Bailout
By THOMAS L. FRIEDMAN
Many things make me weep about the current economic crisis, but none more than this brief economic history: In the 19th century, America had a railroad boom, bubble and bust. Some people made money; many lost money. But even when that bubble burst, it left America with an infrastructure of railroads that made transcontinental travel and shipping dramatically easier and cheaper.
The late 20th century saw an Internet boom, bubble and bust. Some people made money; many people lost money, but that dot-com bubble left us with an Internet highway system that helped Microsoft, I.B.M. and Google to spearhead the I.T. revolution.
The early 21st century saw a boom, bubble and now a bust around financial services. But I fear all it will leave behind are a bunch of empty Florida condos that never should have been built, used private jets that the wealthy can no longer afford and dead derivative contracts that no one can understand.
Worse, we borrowed the money for this bubble from China, and now we have to pay it back — with interest and without any lasting benefit.
Yes, this bailout is necessary. This is a credit crisis, and credit crises involve a breakdown in confidence that leads to no one lending to anyone. You don’t fool around with a credit crisis. You have to overwhelm it with capital. Unfortunately, some people who don’t deserve it will be rescued. But, more importantly, those who had nothing to do with it will be spared devastation. You have to save the system.
But that is not the point of this column. The point is, we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering. We need to get back to a world where people are able to realize the American Dream — a house with a yard — because they have built something with their hands, not because they got a “liar loan” from an underregulated bank with no money down and nothing to pay for two years. The American Dream is an aspiration, not an entitlement.
When I need reminding of the real foundations of the American Dream, I talk to my Indian-American immigrant friends who have come here to start new companies — friends like K.R. Sridhar, the founder of Bloom Energy. He e-mailed me a pep talk in the midst of this financial crisis — a note about the difference between surviving and thriving.
“Infants and the elderly who are disabled obsess about survival,” said Sridhar. “As a nation, if we just focus on survival, the demise of our leadership is imminent. We are thrivers. Thrivers are constantly looking for new opportunities to seize and lead and be No. 1.” That is what America is about.
But we have lost focus on that. Our economy is like a car, added Sridhar, and the financial institutions are the transmission system that keeps the wheels turning and the car moving forward. Real production of goods that create absolute value and jobs, though, are the engine.
“I cannot help but ponder about how quickly we are ready to act on fixing the transmission, by pumping in almost one trillion dollars in a fortnight,” said Sridhar. “On the other hand, the engine, which is slowly dying, is not even getting an oil change or a tuneup with the same urgency, let alone a trillion dollars to get ourselves a new engine. Just imagine what a trillion-dollar investment would return to the economy, including the ‘transmission,’ if we committed at that level to green jobs and technologies.”
Indeed, when this bailout is over, we need the next president — this one is wasted — to launch an E.T., energy technology, revolution with the same urgency as this bailout. Otherwise, all we will have done is bought ourselves a respite, but not a future. The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats.
In a green economy, we would rely less on credit from foreigners “and more on creativity from Americans,” argued Van Jones, president of Green for All, and author of the forthcoming “The Green Collar Economy.” “It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America. ... You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.”
The Bush team says that if this bailout is done right, it should make the government money. Great. Let’s hope so, and let’s commit right now that any bailout profits will be invested in infrastructure — smart transmission grids or mass transit — for a green revolution. Let’s “green the bailout,” as Jones says, and help ensure that the American Dream doesn’t ever shrink back to just that — a dream.
David Warren
Calgary Herald
Sunday, September 28, 2008
I trust no reader will take me as a financial maven -- indeed the whizbangs in question are out of favour at the moment -- but I did once edit a business magazine in the Third World and learned some of the jargon.
Indulge me a moment longer and I will tell you the magazine was Business in Thailand (not quite a threat to Forbes or Fortune, or even Euromoney -- my bedside reading at the time, though it hasn't been through the decades since).
In this job I developed a tremendous admiration for (overseas) Chinese business practices. I thought these men (and women: some matriarchs, too) the purest and best of capitalists. I met several "CEOs" of surprisingly large trading firms, founded on such romantic commodities as vegetable seed oil.
What did I admire? First, the modesty of these people. No matter how wealthy and powerful, each was incapable of forgetting, for example, the Swatow noodle shop from which he rose. I met, for instance, a man who commanded a substantial fleet of cargo ships. He worked in the tropical heat, under an oil-dripping ceiling fan -- in a singlet, at an ancient splintered school desk. He had always used that for his table, and saw no need to replace it. It had brought him very good luck, after all. Its small surface area was further reduced by an abacus.
Second, such a man could be counted on. His yea meant yea, his nay meant nay and his handshake bound him better than any contract enforceable in law. In the ethical world he inhabited, a single default was the end of his reputation, and thus the end of his livelihood. No second chances.
Third, I will mention the competitive zeal. Without spreadsheets, without quarterly reports, with no more than accurate inventories and current prices juggling in his head, he could deliver huge volumes of product to a buyer, "just in time," at profit margins sometimes less than one per cent. And get and stay rich doing this.
Sad to say, I am speaking of business methods that are almost extinct, even in East Asia (although the memory of them remains a fine influence today). More happily, I am able to remember big businessmen who did not give themselves airs, who did not cultivate the vanity and "charisma" we have come to associate with high-profile public traders and moneylenders.
Moreover, I think -- indeed, I know -- that behind the facade of every successful businessman is this man in a singlet, ignoring the heat of the day. "Raw capitalism," let us call it, is an honest dealing with the materials of the world.
It is the kind of sweaty laborious capitalism that supplies us with clothing, shelter, food and drink. I am therefore suspicious of most "free market" talk; of every attempt to reformulate immortal "raw capitalism" as a fashionable ideology or creed.
I am appalled by the (purported) $700 billion bailout U.S. President George W. Bush and Treasury Secretary Henry Paulson have organized, yet cannot reasonably oppose it at a moment when the markets are close to a true meltdown.
I am further appalled by the spectacle of the Democrats in the U.S. Congress, exploiting the emergency to affix massive quantities of poorly disguised pork to the blunderbuss bill.
And finally, appalled by the media and chattering heads calling the whole mess a "crisis of capitalism" when the plain facts show the opposite. The whole "subprime mortgage" instrument was invented by bankers specifically to assuage heavy-handed Congressional demands to swell the number of minority and low-income homeowners, 20 years ago. Fannie Mae and Freddie Mac were already bloated quasi-government bureaucracies, dangerously freed from many conventional market disciplines. And among the chief beneficiaries of the current bailout are the most extravagant contributors to the Democrat party.
As one of my more knowing correspondents put it: "Wall Street loves money but hates free markets, because free markets distribute economic benefits to those who earn them, rather than to those best able to seize them."
The capitalist investment bankers stand accused, rightly, of having invented brilliant kiting schemes -- ultimately to deliver credit to customers who hadn't earned it.
Their "greed" is irrelevant -- everyone is trying to make money.
The point is that the schemes themselves were basically unsound. The lesson is, when home ownership is considered a "right" instead of a privilege, it is not only the housing market that goes bottom up.
This is a lesson no one wants to learn, so it will take time to sink in.
But any attentive reader of the Wall Street Journal can know today what his neighbours may never even hear tomorrow: that this market crack-up, like every other, came not from observing the basic principles of capitalism, but from trying to deny them in the face of nature.
David Warren is a columnist with the Ottawa Citizen
© The Calgary Herald 2008
****
September 28, 2008
Economic View
What’s Free About Free Enterprise?
By PETER L. BERNSTEIN
THERE was a time, in my childhood during the Great Depression, when the streets of Manhattan were filled with unshaven men in threadbare clothes, their coat collars turned up against the cold, their shoes stuffed with newspaper to plug holes in the soles. And there were bank failures.
A huge bailout plan is being hammered out in Washington precisely to avert this kind of economic calamity. The plan is needed, and it needs to be put in place quickly. But at the same time, we need to ask how the financial system came to require a rescue of this magnitude.
This time around, assets are evidently so rotten in so many places that no financial institution wants to risk doing business with any other financial institution without a government backstop.
Such fear recently threw a huge bucket of sand into the wheels of commerce, because business cannot function without credit and banks cannot function without the ability to draw on one another’s resources as needed. Some radical, comprehensive step from government was necessary, or else outcomes as bad as — and perhaps even worse than — those of 1931 and 1932 would have been inescapable.
Naturally, a plan of this magnitude has stirred a storm of commentary, but two important potential results deserve more attention than they have received.
The first is the risk of moral hazard within the bailout itself. That is, if government is going to make good so many losses throughout the system, why would anyone set limits on future risk-taking? The situation could turn into a free-for-all that makes the recent disregard of risk look like child’s play.
The second problem is more philosophical, involving what the bailout plan reveals about the functioning of the free enterprise system. This raises disturbing questions. Although I agree with President Bush’s observation that “the risk of not acting would be far higher,” we should be aware of the secondary effects of what we are getting into.
More and a video at:
http://www.nytimes.com/2008/09/28/busin ... nted=print
****
September 28, 2008
Op-Ed Columnist
Green the Bailout
By THOMAS L. FRIEDMAN
Many things make me weep about the current economic crisis, but none more than this brief economic history: In the 19th century, America had a railroad boom, bubble and bust. Some people made money; many lost money. But even when that bubble burst, it left America with an infrastructure of railroads that made transcontinental travel and shipping dramatically easier and cheaper.
The late 20th century saw an Internet boom, bubble and bust. Some people made money; many people lost money, but that dot-com bubble left us with an Internet highway system that helped Microsoft, I.B.M. and Google to spearhead the I.T. revolution.
The early 21st century saw a boom, bubble and now a bust around financial services. But I fear all it will leave behind are a bunch of empty Florida condos that never should have been built, used private jets that the wealthy can no longer afford and dead derivative contracts that no one can understand.
Worse, we borrowed the money for this bubble from China, and now we have to pay it back — with interest and without any lasting benefit.
Yes, this bailout is necessary. This is a credit crisis, and credit crises involve a breakdown in confidence that leads to no one lending to anyone. You don’t fool around with a credit crisis. You have to overwhelm it with capital. Unfortunately, some people who don’t deserve it will be rescued. But, more importantly, those who had nothing to do with it will be spared devastation. You have to save the system.
But that is not the point of this column. The point is, we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering. We need to get back to a world where people are able to realize the American Dream — a house with a yard — because they have built something with their hands, not because they got a “liar loan” from an underregulated bank with no money down and nothing to pay for two years. The American Dream is an aspiration, not an entitlement.
When I need reminding of the real foundations of the American Dream, I talk to my Indian-American immigrant friends who have come here to start new companies — friends like K.R. Sridhar, the founder of Bloom Energy. He e-mailed me a pep talk in the midst of this financial crisis — a note about the difference between surviving and thriving.
“Infants and the elderly who are disabled obsess about survival,” said Sridhar. “As a nation, if we just focus on survival, the demise of our leadership is imminent. We are thrivers. Thrivers are constantly looking for new opportunities to seize and lead and be No. 1.” That is what America is about.
But we have lost focus on that. Our economy is like a car, added Sridhar, and the financial institutions are the transmission system that keeps the wheels turning and the car moving forward. Real production of goods that create absolute value and jobs, though, are the engine.
“I cannot help but ponder about how quickly we are ready to act on fixing the transmission, by pumping in almost one trillion dollars in a fortnight,” said Sridhar. “On the other hand, the engine, which is slowly dying, is not even getting an oil change or a tuneup with the same urgency, let alone a trillion dollars to get ourselves a new engine. Just imagine what a trillion-dollar investment would return to the economy, including the ‘transmission,’ if we committed at that level to green jobs and technologies.”
Indeed, when this bailout is over, we need the next president — this one is wasted — to launch an E.T., energy technology, revolution with the same urgency as this bailout. Otherwise, all we will have done is bought ourselves a respite, but not a future. The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats.
In a green economy, we would rely less on credit from foreigners “and more on creativity from Americans,” argued Van Jones, president of Green for All, and author of the forthcoming “The Green Collar Economy.” “It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America. ... You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.”
The Bush team says that if this bailout is done right, it should make the government money. Great. Let’s hope so, and let’s commit right now that any bailout profits will be invested in infrastructure — smart transmission grids or mass transit — for a green revolution. Let’s “green the bailout,” as Jones says, and help ensure that the American Dream doesn’t ever shrink back to just that — a dream.
September 29, 2008
Editorial Notebook
A Cure for Greed
By EDUARDO PORTER
Of course, it’s all Gordon Gekko’s fault! “Greed and irresponsibility,” blasted Barack Obama. “Greed and excess and corruption,” charged John McCain. President Luiz Inácio Lula da Silva could tell from as far away as Brazil that the “boundless greed of a few” blew up the American financial system. Why didn’t I think of that?
With the eureka moment behind us, I would suggest that this insight offers a way to try to restore the abused financial markets to health. If greed is to blame, the question is whether we can line up a reasonable array of alternative incentives — and disincentives — to do away with greed for good.
This will be no easy task. From populist opprobrium to elitist disdain — standard social behavioral devices have proved unable to dent humanity’s greedy nature.
The Soviet Union deployed the entire power of the state to stamp out greed — and ensured that the state was the greediest actor of all. Even religion’s not insubstantial powers of persuasion (think Hell) and coercion (think Inquisition) have proved insufficient to blot out this insidious sin.
The free market, it should be obvious by now, hasn’t been up to the task either. Capitalism, in all its cleverness, decided that what you can’t beat, you should use. It worked to harness greed. To be able to discuss it in polite company, economists renamed it “maximization of utility,” and built a theory of the world that everyone benefits when we seek to maximize our own individual welfare.
Greed reached its zenith in the 1980s, when the Reagan Revolution brought us supply-side economics and its bedrock belief that the path to prosperity for all required removing every obstacle to utility maximization, including most regulations and taxes. Then financial markets crashed. On the campaign trail, the Rev. Jesse Jackson lambasted America’s greedy corporations. And one survey found that 83 percent of Americans blamed “unmitigated greed” for the financial crisis. A few years later the markets were again soaring; greed was back in style.
Yet despite the consistent failure to temper our greedy nature, I still have hopes. Because there is a crucial brake that has been missing from the edifice of high-tech financial capitalism — a counterbalance at the other end of the scale from where utility gets maximized. That piece is fear. My suggestion, then, is to put fear back in the picture. When the banker who loses his or her bank also loses his or her shirt, greed will be tempered. At least for a while. EDUARDO PORTER
Editorial Notebook
A Cure for Greed
By EDUARDO PORTER
Of course, it’s all Gordon Gekko’s fault! “Greed and irresponsibility,” blasted Barack Obama. “Greed and excess and corruption,” charged John McCain. President Luiz Inácio Lula da Silva could tell from as far away as Brazil that the “boundless greed of a few” blew up the American financial system. Why didn’t I think of that?
With the eureka moment behind us, I would suggest that this insight offers a way to try to restore the abused financial markets to health. If greed is to blame, the question is whether we can line up a reasonable array of alternative incentives — and disincentives — to do away with greed for good.
This will be no easy task. From populist opprobrium to elitist disdain — standard social behavioral devices have proved unable to dent humanity’s greedy nature.
The Soviet Union deployed the entire power of the state to stamp out greed — and ensured that the state was the greediest actor of all. Even religion’s not insubstantial powers of persuasion (think Hell) and coercion (think Inquisition) have proved insufficient to blot out this insidious sin.
The free market, it should be obvious by now, hasn’t been up to the task either. Capitalism, in all its cleverness, decided that what you can’t beat, you should use. It worked to harness greed. To be able to discuss it in polite company, economists renamed it “maximization of utility,” and built a theory of the world that everyone benefits when we seek to maximize our own individual welfare.
Greed reached its zenith in the 1980s, when the Reagan Revolution brought us supply-side economics and its bedrock belief that the path to prosperity for all required removing every obstacle to utility maximization, including most regulations and taxes. Then financial markets crashed. On the campaign trail, the Rev. Jesse Jackson lambasted America’s greedy corporations. And one survey found that 83 percent of Americans blamed “unmitigated greed” for the financial crisis. A few years later the markets were again soaring; greed was back in style.
Yet despite the consistent failure to temper our greedy nature, I still have hopes. Because there is a crucial brake that has been missing from the edifice of high-tech financial capitalism — a counterbalance at the other end of the scale from where utility gets maximized. That piece is fear. My suggestion, then, is to put fear back in the picture. When the banker who loses his or her bank also loses his or her shirt, greed will be tempered. At least for a while. EDUARDO PORTER
September 30, 2008
Op-Ed Columnist
Revolt of the Nihilists
By DAVID BROOKS
In 1933, Franklin Roosevelt inherited an economic crisis. He understood that his first job was to restore confidence, to give people a sense that somebody was in charge, that something was going to be done.
This generation of political leaders is confronting a similar situation, and, so far, they have failed utterly and catastrophically to project any sense of authority, to give the world any reason to believe that this country is being governed. Instead, by rejecting the rescue package on Monday, they have made the psychological climate much worse.
George W. Bush is completely out of juice, having squandered his influence with Republicans as well as Democrats. Treasury Secretary Henry Paulson is a smart moneyman, but an inept legislator. He was told time and time again that House Republicans would not support his bill, and his response was to get down on bended knee before House Speaker Nancy Pelosi.
House leaders of both parties got wrapped up in their own negotiations, but did it occur to any of them that it might be hard to pass a bill fairly described as a bailout to Wall Street? Was the media darling Barney Frank too busy to notice the 95 Democrats who opposed his bill? Pelosi’s fiery speech at the crucial moment didn’t actually kill this bill, but did she have to act like a Democratic fund-raiser at the most important moment of her career?
And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.
I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
We’re living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.
What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up.
The Congressional plan was nobody’s darling, but it was an effort to assert some authority. It was an effort to alter the psychology of the markets. People don’t trust the banks; the bankers don’t trust each other. It was an effort to address the crisis of authority in Washington. At least it might have stabilized the situation so fundamental reforms of the world’s financial architecture could be undertaken later.
But the 228 House members who voted no have exacerbated the global psychological free fall, and now we have a crisis of political authority on top of the crisis of financial authority.
The only thing now is to try again — to rescue the rescue. There’s no time to find a brand-new package, so the Congressional plan should go up for another vote on Thursday, this time with additions that would change its political prospects. Leaders need to add provisions that would shore up housing prices and directly help mortgage holders. Martin Feldstein and Lawrence Lindsey both have good proposals of the sort that could lead to a plausible majority coalition. Loosening deposit insurance rules would also be nice.
If that doesn’t happen, the world could be in for some tough economic times (the Europeans, apparently, have not even begun to acknowledge their toxic debt) — but also tough political times.
The American century was created by American leadership, which is scarcer than credit just about now.
*****
September 30, 2008
Op-Ed Contributor
The Swill Is Gone
By BEE WILSON
London
THE milk was marketed as pure and wholesome, and it looked fine to the naked eye. How were the mothers to know they were poisoning their babies? They had paid good money for it on the open market. It would take thousands of sick children before lawmakers did anything to stop it.
China in 2008? No, New York City in 1858. Missing from the coverage of the current Chinese baby formula poisoning, in which more than 53,000 babies have been sickened and at least four have died, is how often it has happened before.
The disaster unfolding now in China — and spreading inevitably to its trading partners — is eerily similar to the “swill milk” scandal that rumbled on in New York for several decades of the 19th century.
In a city growing fast, but lacking refrigeration, it was hard to provide sufficient milk. Fresh milk was brought in from Westchester and Orange Counties, but not enough to meet demand. In 1853, it was found that 90,000 or so quarts of cow’s milk entered the city each day, but that number mysteriously increased to 120,000 quarts at the point of delivery.
Some of the increase was due to New York dairymen padding their milk with water, and then restoring its richness with flour — just like their latter-day Chinese counterparts, who increased the protein levels in watered-down milk by adding the noxious chemical melamine. But the greater part was swill milk, a filthy, bluish substance milked from cows tied up in crowded stables adjoining city distilleries and fed the hot alcoholic mash left from making whiskey. This too was doctored — with plaster of Paris to take away the blueness, starch and eggs to thicken it and molasses to give it the buttercup hue of honest Orange County milk. This newspaper attributed the deaths of up to 8,000 children a year to this vile fluid.
In China, journalists have known of the poison milk for months, but weren’t allowed to spread the news because of the Olympics. Even worse, it has been only four years since China’s last baby formula scandal, when fraudsters in Anhui Province manufactured fake formula from sugar and starch, killing at least 13 babies. In the case of swill milk, the New York dairymen had been informed for decades that their milk was unsafe.
As early as 1842, a temperance crusader named Robert Hartley warned that city milk could be catastrophically tainted. Throughout the 1850s, newspapers published exposés of the distillery dairies and called for the city to close them. Some of the cows were so diseased from their alcoholic diet that their teeth rotted and their tails fell off. Their udders were frequently ulcerated, but they would be milked regardless.
Finally, in 1858, Tammany Hall sent Alderman Michael Tuomey to “investigate” a notorious swill milk dairy on West 16th Street. Tuomey sat down with the dairy owners and drank a glass or two of whiskey. He concluded that swill milk was just as good for children as ordinary milk, and anyone who refused to drink it simply had a “prejudice.”
Again, there are echoes with China. The Chinese government had exempted several of the nation’s biggest dairies from inspections, one of the reasons the scare was allowed to spread unchecked from baby formula to yogurt to the whole of the Chinese dairy industry and its exports. (The British candy maker Cadbury announced yesterday, for instance, that it had discovered melamine in some of its Chinese-made milk chocolates.) This isn’t just laissez-faire — it’s an approach to the food supply that is so deliberately hands off that it amounts to an invitation to swindling. Heads are rolling now, but too late for the sick babies.
The similarities between China today and New York 150 years ago shouldn’t come as a great surprise. Adulteration on such a scandalous scale occurs in societies with a toxic combination of characteristics: a fast-growing capitalist economy coupled with a government unable or unwilling to regulate the food supply. In such get-rich-quick societies, there is a huge temptation to tamper with food, particularly when margins are low. The rewards are instant, and it’s not always easy for consumers to detect the difference between the pure and the doctored — particularly with a substance like milk, which we have been taught to trust implicitly.
Such scandals are not bad luck. They are symptomatic of a deep failure of politics. Prime Minister Wen Jiabao’s hasty gestures — punishing the dairies, forcing the head of the food quality agency to resign — have done nothing to deal with the underlying regulatory vacuum.
In the end, New York milk was cleaned up. It took stronger food laws, better policing, the advent of pasteurization and the passage of the Food and Drug Act in 1906, 50 years after the worst of swill milk. Above all, it took decades, not months or years. China faces many more food scandals — to add to recent alarms like pesticide-laced dumplings and lard made from sewage — before it reaches the point where its citizens can routinely trust what they eat.
The American food supply is still flawed, as this year’s panic over salmonella in produce showed. But it’s worth remembering that it has been far worse. China’s present is America’s past.
Bee Wilson is the author of “Swindled: The Dark History of Food Fraud From Poisoned Candy to Counterfeit Coffee.”
Op-Ed Columnist
Revolt of the Nihilists
By DAVID BROOKS
In 1933, Franklin Roosevelt inherited an economic crisis. He understood that his first job was to restore confidence, to give people a sense that somebody was in charge, that something was going to be done.
This generation of political leaders is confronting a similar situation, and, so far, they have failed utterly and catastrophically to project any sense of authority, to give the world any reason to believe that this country is being governed. Instead, by rejecting the rescue package on Monday, they have made the psychological climate much worse.
George W. Bush is completely out of juice, having squandered his influence with Republicans as well as Democrats. Treasury Secretary Henry Paulson is a smart moneyman, but an inept legislator. He was told time and time again that House Republicans would not support his bill, and his response was to get down on bended knee before House Speaker Nancy Pelosi.
House leaders of both parties got wrapped up in their own negotiations, but did it occur to any of them that it might be hard to pass a bill fairly described as a bailout to Wall Street? Was the media darling Barney Frank too busy to notice the 95 Democrats who opposed his bill? Pelosi’s fiery speech at the crucial moment didn’t actually kill this bill, but did she have to act like a Democratic fund-raiser at the most important moment of her career?
And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.
I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
We’re living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.
What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up.
The Congressional plan was nobody’s darling, but it was an effort to assert some authority. It was an effort to alter the psychology of the markets. People don’t trust the banks; the bankers don’t trust each other. It was an effort to address the crisis of authority in Washington. At least it might have stabilized the situation so fundamental reforms of the world’s financial architecture could be undertaken later.
But the 228 House members who voted no have exacerbated the global psychological free fall, and now we have a crisis of political authority on top of the crisis of financial authority.
The only thing now is to try again — to rescue the rescue. There’s no time to find a brand-new package, so the Congressional plan should go up for another vote on Thursday, this time with additions that would change its political prospects. Leaders need to add provisions that would shore up housing prices and directly help mortgage holders. Martin Feldstein and Lawrence Lindsey both have good proposals of the sort that could lead to a plausible majority coalition. Loosening deposit insurance rules would also be nice.
If that doesn’t happen, the world could be in for some tough economic times (the Europeans, apparently, have not even begun to acknowledge their toxic debt) — but also tough political times.
The American century was created by American leadership, which is scarcer than credit just about now.
*****
September 30, 2008
Op-Ed Contributor
The Swill Is Gone
By BEE WILSON
London
THE milk was marketed as pure and wholesome, and it looked fine to the naked eye. How were the mothers to know they were poisoning their babies? They had paid good money for it on the open market. It would take thousands of sick children before lawmakers did anything to stop it.
China in 2008? No, New York City in 1858. Missing from the coverage of the current Chinese baby formula poisoning, in which more than 53,000 babies have been sickened and at least four have died, is how often it has happened before.
The disaster unfolding now in China — and spreading inevitably to its trading partners — is eerily similar to the “swill milk” scandal that rumbled on in New York for several decades of the 19th century.
In a city growing fast, but lacking refrigeration, it was hard to provide sufficient milk. Fresh milk was brought in from Westchester and Orange Counties, but not enough to meet demand. In 1853, it was found that 90,000 or so quarts of cow’s milk entered the city each day, but that number mysteriously increased to 120,000 quarts at the point of delivery.
Some of the increase was due to New York dairymen padding their milk with water, and then restoring its richness with flour — just like their latter-day Chinese counterparts, who increased the protein levels in watered-down milk by adding the noxious chemical melamine. But the greater part was swill milk, a filthy, bluish substance milked from cows tied up in crowded stables adjoining city distilleries and fed the hot alcoholic mash left from making whiskey. This too was doctored — with plaster of Paris to take away the blueness, starch and eggs to thicken it and molasses to give it the buttercup hue of honest Orange County milk. This newspaper attributed the deaths of up to 8,000 children a year to this vile fluid.
In China, journalists have known of the poison milk for months, but weren’t allowed to spread the news because of the Olympics. Even worse, it has been only four years since China’s last baby formula scandal, when fraudsters in Anhui Province manufactured fake formula from sugar and starch, killing at least 13 babies. In the case of swill milk, the New York dairymen had been informed for decades that their milk was unsafe.
As early as 1842, a temperance crusader named Robert Hartley warned that city milk could be catastrophically tainted. Throughout the 1850s, newspapers published exposés of the distillery dairies and called for the city to close them. Some of the cows were so diseased from their alcoholic diet that their teeth rotted and their tails fell off. Their udders were frequently ulcerated, but they would be milked regardless.
Finally, in 1858, Tammany Hall sent Alderman Michael Tuomey to “investigate” a notorious swill milk dairy on West 16th Street. Tuomey sat down with the dairy owners and drank a glass or two of whiskey. He concluded that swill milk was just as good for children as ordinary milk, and anyone who refused to drink it simply had a “prejudice.”
Again, there are echoes with China. The Chinese government had exempted several of the nation’s biggest dairies from inspections, one of the reasons the scare was allowed to spread unchecked from baby formula to yogurt to the whole of the Chinese dairy industry and its exports. (The British candy maker Cadbury announced yesterday, for instance, that it had discovered melamine in some of its Chinese-made milk chocolates.) This isn’t just laissez-faire — it’s an approach to the food supply that is so deliberately hands off that it amounts to an invitation to swindling. Heads are rolling now, but too late for the sick babies.
The similarities between China today and New York 150 years ago shouldn’t come as a great surprise. Adulteration on such a scandalous scale occurs in societies with a toxic combination of characteristics: a fast-growing capitalist economy coupled with a government unable or unwilling to regulate the food supply. In such get-rich-quick societies, there is a huge temptation to tamper with food, particularly when margins are low. The rewards are instant, and it’s not always easy for consumers to detect the difference between the pure and the doctored — particularly with a substance like milk, which we have been taught to trust implicitly.
Such scandals are not bad luck. They are symptomatic of a deep failure of politics. Prime Minister Wen Jiabao’s hasty gestures — punishing the dairies, forcing the head of the food quality agency to resign — have done nothing to deal with the underlying regulatory vacuum.
In the end, New York milk was cleaned up. It took stronger food laws, better policing, the advent of pasteurization and the passage of the Food and Drug Act in 1906, 50 years after the worst of swill milk. Above all, it took decades, not months or years. China faces many more food scandals — to add to recent alarms like pesticide-laced dumplings and lard made from sewage — before it reaches the point where its citizens can routinely trust what they eat.
The American food supply is still flawed, as this year’s panic over salmonella in produce showed. But it’s worth remembering that it has been far worse. China’s present is America’s past.
Bee Wilson is the author of “Swindled: The Dark History of Food Fraud From Poisoned Candy to Counterfeit Coffee.”
October 1, 2008
Op-Ed Columnist
Rescue the Rescue
By THOMAS L. FRIEDMAN
I was channel surfing on Monday, following the stock market’s nearly 800-point collapse, when a commentator on CNBC caught my attention. He was being asked to give advice to viewers as to what were the best positions to be in to ride out the market storm. Without missing a beat, he answered: “Cash and fetal.”
I’m in both — because I know an unprecedented moment when I see one. I’ve been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis; in 1963, with the assassination of J.F.K.; on Sept. 11, 2001; and on Monday, when the House Republicans brought down the bipartisan rescue package.
But this moment is the scariest of all for me because the previous three were all driven by real or potential attacks on the U.S. system by outsiders. This time, we are doing it to ourselves. This time, it’s our own failure to regulate our own financial system and to legislate the proper remedy that is doing us in.
I’ve always believed that America’s government was a unique political system — one designed by geniuses so that it could be run by idiots. I was wrong. No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it.
This is dangerous. We have House members, many of whom I suspect can’t balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don’t understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can’t deal with this crisis this way.
This is a credit crisis. It’s all about confidence. What you can’t see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy’s assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.
Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.
I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don’t deserve it. Otherwise, you’re saying: I’m going to hold my breath until that Wall Street fat cat turns blue. But he’s not going to turn blue; you are, or we all are. We have to get this right.
My rabbi told this story at Rosh Hashana services on Tuesday: A frail 80-year-old mother is celebrating her birthday and her three sons each give her a present. Harry gives her a new house. Harvey gives her a new car and driver. And Bernie gives her a huge parrot that can recite the entire Torah. A week later, she calls her three sons together and says: “Harry, thanks for the nice house, but I only live in one room. Harvey, thanks for the nice car, but I can’t stand the driver. Bernie, thanks for giving your mother something she could really enjoy. That chicken was delicious.”
Message to Congress: Don’t get cute. Don’t give us something we don’t need. Don’t give us something designed to solve your political problems. Yes, Hank Paulson and Ben Bernanke need to accept strict oversights and the taxpayer must be guaranteed a share in the upside profits from all rescued banks. But other than that, give them the capital and the flexibility to put out this fire.
I always said to myself: Our government is so broken that it can only work in response to a huge crisis. But now we’ve had a huge crisis, and the system still doesn’t seem to work. Our leaders, Republicans and Democrats, have gotten so out of practice of working together that even in the face of this system-threatening meltdown they could not agree on a rescue package, as if they lived on Mars and were just visiting us for the week, with no stake in the outcome.
The story cannot end here. If it does, assume the fetal position.
Op-Ed Columnist
Rescue the Rescue
By THOMAS L. FRIEDMAN
I was channel surfing on Monday, following the stock market’s nearly 800-point collapse, when a commentator on CNBC caught my attention. He was being asked to give advice to viewers as to what were the best positions to be in to ride out the market storm. Without missing a beat, he answered: “Cash and fetal.”
I’m in both — because I know an unprecedented moment when I see one. I’ve been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis; in 1963, with the assassination of J.F.K.; on Sept. 11, 2001; and on Monday, when the House Republicans brought down the bipartisan rescue package.
But this moment is the scariest of all for me because the previous three were all driven by real or potential attacks on the U.S. system by outsiders. This time, we are doing it to ourselves. This time, it’s our own failure to regulate our own financial system and to legislate the proper remedy that is doing us in.
I’ve always believed that America’s government was a unique political system — one designed by geniuses so that it could be run by idiots. I was wrong. No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it.
This is dangerous. We have House members, many of whom I suspect can’t balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don’t understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can’t deal with this crisis this way.
This is a credit crisis. It’s all about confidence. What you can’t see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy’s assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.
Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.
I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don’t deserve it. Otherwise, you’re saying: I’m going to hold my breath until that Wall Street fat cat turns blue. But he’s not going to turn blue; you are, or we all are. We have to get this right.
My rabbi told this story at Rosh Hashana services on Tuesday: A frail 80-year-old mother is celebrating her birthday and her three sons each give her a present. Harry gives her a new house. Harvey gives her a new car and driver. And Bernie gives her a huge parrot that can recite the entire Torah. A week later, she calls her three sons together and says: “Harry, thanks for the nice house, but I only live in one room. Harvey, thanks for the nice car, but I can’t stand the driver. Bernie, thanks for giving your mother something she could really enjoy. That chicken was delicious.”
Message to Congress: Don’t get cute. Don’t give us something we don’t need. Don’t give us something designed to solve your political problems. Yes, Hank Paulson and Ben Bernanke need to accept strict oversights and the taxpayer must be guaranteed a share in the upside profits from all rescued banks. But other than that, give them the capital and the flexibility to put out this fire.
I always said to myself: Our government is so broken that it can only work in response to a huge crisis. But now we’ve had a huge crisis, and the system still doesn’t seem to work. Our leaders, Republicans and Democrats, have gotten so out of practice of working together that even in the face of this system-threatening meltdown they could not agree on a rescue package, as if they lived on Mars and were just visiting us for the week, with no stake in the outcome.
The story cannot end here. If it does, assume the fetal position.
October 2, 2008
Op-Ed Columnist
Save the Fat Cats
By NICHOLAS D. KRISTOF
In the early 1990s, when I was a foreign correspondent looking for my next overseas posting with The Times, I sought Japan. At the time, Tokyo was an awe-inspiring economic titan, arguably the most important capital outside the United States.
Then Japanese politicians, acting with the same sublime ineptitude that our own House of Representatives displayed this week, ignored a growing banking crisis and dithered on a bailout. And so I watched from Tokyo as a mighty economy melted like an iceberg in the Caribbean.
Japan’s failure to respond urgently and decisively to its banking mess caused the country to endure a “lost decade” of economic stagnation. If America wants to avoid Japan’s decline, the House should follow the Senate’s lead and approve the bailout — immediately.
Just as in the U.S. today, most Japanese did not initially appreciate how devastating a banking crisis could be to the real economy. Banks and real estate tycoons in Japan were corrupt, profligate and unsympathetic figures, and no one wanted to help them. On corporate expense accounts, they sipped coffee with gold leaf and patronized “no-panties shabu-shabu” restaurants, which had mirrored floors and miniskirted waitresses.
In short, the businessmen involved were jerks. And, whether in Japan or the U.S., it’s challenging for politicians to frame a bailout with the slogan: Save the jerks!
Japanese politicians didn’t want to rescue such unpopular fat cats and didn’t see any emergency. So Japan’s economy slowly lost air, and the biggest losers were the small futon makers who couldn’t get credit and the farmers on remote islands who lost ferry service when the government eventually had to cut back on spending.
For those of you accustomed to bull markets, who think we’re sure to come out of this quickly, remember this: Japan’s main stock index is still less than one-third of its level of 19 years ago.
In 1993, after Japanese stocks had already tumbled for several years, an American friend told me that he was going to invest in Japanese stocks. “I don’t know what they’re going to do for the next couple of years,” he said, “but we all know that over five years they’ll recover and do better than American stocks.” Since then, Japanese stocks have lost another 40 percent of their value.
The Federal Reserve chairman, Ben Bernanke, is an expert on Japan’s lost decade, and the president of the New York Fed, Timothy Geithner, lived in Tokyo during that debacle, and their experience no doubt is one reason for the urgency of Washington’s response. The lesson from Japan is pretty clear: Hold your nose and support a bailout, in particular to clean up banking assets.
All this said, critics of the bailout have reason to be furious. It is profoundly unfair that working-class American families lose their homes, their jobs, their savings, while plutocrats who caused the problem get rescued.
If the Congressional critics of the bailout want to do some lasting good, they should come back in January — after approving the bailout now — with a series of tough measures to improve governance and inject more fairness in the economy.
A starting point would be to remove tax subsidies on executive pay and allow courts to restructure mortgages as they do other kinds of debt. The Institute for Policy Studies in Washington estimates that U.S. taxpayers every year provide more than $20 billion in tax subsidies for executive pay.
Among the strongest critics of inflated executive pay have been Warren Buffett and the late management guru, Peter Drucker, who argued that C.E.O. salaries should peak at no more than 20 or 25 times those of the average worker. (Last year, C.E.O.’s got an average of 344 times the wages of the typical worker.)
The truth is that with the complicity of boards of directors, C.E.O.’s hijack shareholder wealth in ways that are unconscionable. As The Wall Street Journal reported in June, if Eugene Isenberg, the 78-year-old C.E.O. of Nabors Industries, were to drop dead one of these days, his estate would be entitled to a “severance payment” of at least $263 million — more than the firm’s first-quarter net earnings.
With such greed oozing out of the corporate suite, and with financial companies enjoying the confidence of only 10 percent of Americans today (down from 36 percent in 2000), it’s no wonder that voters are repulsed by the idea of helping banks. Wall Street urgently needs to undertake its own housecleaning, for the public revulsion toward it undermines its own long-term interests.
But, for now, the priority is to get credit flowing again in the arteries of commerce, even if that means saving the jerks. Otherwise, we risk becoming Japan.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
Gail Collins is off today.
Op-Ed Columnist
Save the Fat Cats
By NICHOLAS D. KRISTOF
In the early 1990s, when I was a foreign correspondent looking for my next overseas posting with The Times, I sought Japan. At the time, Tokyo was an awe-inspiring economic titan, arguably the most important capital outside the United States.
Then Japanese politicians, acting with the same sublime ineptitude that our own House of Representatives displayed this week, ignored a growing banking crisis and dithered on a bailout. And so I watched from Tokyo as a mighty economy melted like an iceberg in the Caribbean.
Japan’s failure to respond urgently and decisively to its banking mess caused the country to endure a “lost decade” of economic stagnation. If America wants to avoid Japan’s decline, the House should follow the Senate’s lead and approve the bailout — immediately.
Just as in the U.S. today, most Japanese did not initially appreciate how devastating a banking crisis could be to the real economy. Banks and real estate tycoons in Japan were corrupt, profligate and unsympathetic figures, and no one wanted to help them. On corporate expense accounts, they sipped coffee with gold leaf and patronized “no-panties shabu-shabu” restaurants, which had mirrored floors and miniskirted waitresses.
In short, the businessmen involved were jerks. And, whether in Japan or the U.S., it’s challenging for politicians to frame a bailout with the slogan: Save the jerks!
Japanese politicians didn’t want to rescue such unpopular fat cats and didn’t see any emergency. So Japan’s economy slowly lost air, and the biggest losers were the small futon makers who couldn’t get credit and the farmers on remote islands who lost ferry service when the government eventually had to cut back on spending.
For those of you accustomed to bull markets, who think we’re sure to come out of this quickly, remember this: Japan’s main stock index is still less than one-third of its level of 19 years ago.
In 1993, after Japanese stocks had already tumbled for several years, an American friend told me that he was going to invest in Japanese stocks. “I don’t know what they’re going to do for the next couple of years,” he said, “but we all know that over five years they’ll recover and do better than American stocks.” Since then, Japanese stocks have lost another 40 percent of their value.
The Federal Reserve chairman, Ben Bernanke, is an expert on Japan’s lost decade, and the president of the New York Fed, Timothy Geithner, lived in Tokyo during that debacle, and their experience no doubt is one reason for the urgency of Washington’s response. The lesson from Japan is pretty clear: Hold your nose and support a bailout, in particular to clean up banking assets.
All this said, critics of the bailout have reason to be furious. It is profoundly unfair that working-class American families lose their homes, their jobs, their savings, while plutocrats who caused the problem get rescued.
If the Congressional critics of the bailout want to do some lasting good, they should come back in January — after approving the bailout now — with a series of tough measures to improve governance and inject more fairness in the economy.
A starting point would be to remove tax subsidies on executive pay and allow courts to restructure mortgages as they do other kinds of debt. The Institute for Policy Studies in Washington estimates that U.S. taxpayers every year provide more than $20 billion in tax subsidies for executive pay.
Among the strongest critics of inflated executive pay have been Warren Buffett and the late management guru, Peter Drucker, who argued that C.E.O. salaries should peak at no more than 20 or 25 times those of the average worker. (Last year, C.E.O.’s got an average of 344 times the wages of the typical worker.)
The truth is that with the complicity of boards of directors, C.E.O.’s hijack shareholder wealth in ways that are unconscionable. As The Wall Street Journal reported in June, if Eugene Isenberg, the 78-year-old C.E.O. of Nabors Industries, were to drop dead one of these days, his estate would be entitled to a “severance payment” of at least $263 million — more than the firm’s first-quarter net earnings.
With such greed oozing out of the corporate suite, and with financial companies enjoying the confidence of only 10 percent of Americans today (down from 36 percent in 2000), it’s no wonder that voters are repulsed by the idea of helping banks. Wall Street urgently needs to undertake its own housecleaning, for the public revulsion toward it undermines its own long-term interests.
But, for now, the priority is to get credit flowing again in the arteries of commerce, even if that means saving the jerks. Otherwise, we risk becoming Japan.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
Gail Collins is off today.
October 5, 2008
Op-Ed Columnist
Racism Without Racists
By NICHOLAS D. KRISTOF
One of the fallacies this election season is that if Barack Obama is paying an electoral price for his skin tone, it must be because of racists.
On the contrary, the evidence is that Senator Obama is facing what scholars have dubbed “racism without racists.”
The racism is difficult to measure, but a careful survey completed last month by Stanford University, with The Associated Press and Yahoo, suggested that Mr. Obama’s support would be about six percentage points higher if he were white. That’s significant but surmountable.
Most of the lost votes aren’t those of dyed-in-the-wool racists. Such racists account for perhaps 10 percent of the electorate and, polling suggests, are mostly conservatives who would not vote for any Democratic presidential candidate.
Rather, most of the votes that Mr. Obama actually loses belong to well-meaning whites who believe in racial equality and have no objection to electing a black person as president — yet who discriminate unconsciously.
“When we fixate on the racist individual, we’re focused on the least interesting way that race works,” said Phillip Goff, a social psychologist at U.C.L.A. who focuses his research on “racism without racists.” “Most of the way race functions is without the need for racial animus.”
For decades, experiments have shown that even many whites who earnestly believe in equal rights will recommend hiring a white job candidate more often than a person with identical credentials who is black. In the experiments, the applicant’s folder sometimes presents the person as white, sometimes as black, but everything else is the same. The white person thinks that he or she is selecting on the basis of nonracial factors like experience.
Research suggests that whites are particularly likely to discriminate against blacks when choices are not clear-cut and competing arguments are flying about — in other words, in ambiguous circumstances rather like an electoral campaign.
For example, when the black job candidate is highly qualified, there is no discrimination. Yet in a more muddled gray area where reasonable people could disagree, unconscious discrimination plays a major role.
White participants recommend hiring a white applicant with borderline qualifications 76 percent of the time, while recommending an identically qualified black applicant only 45 percent of the time.
John Dovidio, a psychologist at Yale University who has conducted this study over many years, noted that conscious prejudice as measured in surveys has declined over time. But unconscious discrimination — what psychologists call aversive racism — has stayed fairly constant.
“In the U.S., there’s a small percentage of people who in nationwide surveys say they won’t vote for a qualified black presidential candidate,” Professor Dovidio said. “But a bigger factor is the aversive racists, those who don’t think that they’re racist.”
Faced with a complex decision, he said, aversive racists feel doubts about a black person that they don’t feel about an identical white. “These doubts tend to be attributed not to the person’s race — because that would be racism — but deflected to other areas that can be talked about, such as lack of experience,” he added.
Of course, there are perfectly legitimate reasons to be against a particular black candidate, Mr. Obama included. Opposition to Mr. Obama is no more evidence of racism than opposition to Mr. McCain is evidence of discrimination against the elderly or against war veterans. And at times, Mr. Obama’s race helps him: it underscores his message of change, it appeals to some whites as a demonstration of their open-mindedness, and it wins him overwhelming black votes and turnout.
Still, a huge array of research suggests that 50 percent or more of whites have unconscious biases that sometimes lead to racial discrimination. (Blacks have their own unconscious biases, surprisingly often against blacks as well.)
One set of experiments conducted since the 1970s involves subjects who believe that they are witnessing an emergency (like an epileptic seizure). When there is no other witness, a white bystander will call for help whether the victim is white or black, and there is very little discrimination.
But when there are other bystanders, so the individual responsibility to summon help may feel less obvious, whites will still summon help 75 percent of the time if the victim is white but only 38 percent of the time if the victim is black.
One lesson from this research is that racial biases are deeply embedded within us, more so than many whites believe. But another lesson, a historical one, is that we can overcome unconscious bias. That’s what happened with the decline in prejudice against Catholics after the candidacy of John F. Kennedy in 1960.
It just might happen again, this time with race.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and to join me on Facebook at www.facebook.com/kristof.
****
October 5, 2008
Op-Ed Columnist
Swedish Spoken Here
By THOMAS L. FRIEDMAN
I was talking to friend in New York City the other day about the current financial crisis, and she told me about a scene she had just witnessed in the lobby of the Warwick Hotel. Four Swedish tourists, who clearly had been on a shopping spree in Manhattan, fueled by the still cheap dollar, were trying to cram all their purchases into four suitcases. They had bought a hand-held scale — one of those you just grip onto the suitcase and lift — to make sure all their American goodies were not overweight for the flight home.
Another friend of mine in the ship-supply business in Baltimore, Alan Kotz, told me about a German customer who recently put in double his normal order. When Alan asked him if he was aware of how much he had ordered, the German brushed his question away and laughed: “Alan, nevermind, everything for us is half price.”
And a good thing it is. Even though the dollar has strengthened a bit lately, we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis — and they are going to need us to be healthy as well. In the process, we are going to become even more intertwined and dependent on the rest of the world.
Sarah Palin won’t have to worry that she doesn’t know what the Bush doctrine is. No one really knew what it meant. But it had something to do with the unilateral exercise of American power, and the next president’s ability to act unilaterally on anything other than vital national security issues is going to be reduced. As the old saying goes: He who has the gold makes the rules. Well, we no longer have as much gold, and until we get some, we will have to pay more heed to the rules of those who lend us theirs.
At a time when the U.S. government gets half its borrowings from abroad, at a time when the U.S. household savings rate is hovering around zero and China alone is already holding around $1 trillion in U.S. Treasury notes and Fannie Mae and Freddie Mac bonds — yes, that’s how you got that cheap subprime mortgage — it can’t be any other way.
Somebody better tell John McCain: We are all Swedes now. Forget about “Live Free or Die.” Until we get our financial act together, our motto is going to be: “Swedish spoken here — or Arabic or Chinese or German ...”
I would also bet that more and more of the foreign investors who come our way are going to want to buy hard, tangible assets — skyscrapers, real estate and real companies — not just mutual funds, T-bills, bank stocks or other equities. No problem. Americans own assets all over the world; foreigners have long owned substantial positions in U.S. companies. That’s globalization — and now you are going to see globalization and financial integration on steroids. It should help us, but also change us.
“The next round of capital that comes in from abroad is going to be much more demanding and move into real assets,” argued Jeffrey Garten, professor of trade and finance at the Yale School of Management. “Being a bigger debtor nation means losing even more of our sovereignty. It means conducting our economic policies with an eye toward whether others approve. It means bearing the advice and criticism that we have dispensed ad nauseam to other countries for over half a century. It means far more intensive consultations with other capitals on our fiscal policies and our monetary policies.”
At the same time, added Garten, “Corporate decisions will become more sensitive to international factors, in part because more non-Americans will be on the governing boards.” Ultimately, this could make American industry even more globally competitive — but for those who can’t pass global muster or enlist global collaborators, the consequences could be harsh.
Of course, neither Barack Obama nor John McCain dare talk about this now. They want to pretend nothing has really changed. The minute one of them steps into the Oval Office, they will tell us otherwise. That will be the January surprise.
There was a lot of talk after Russia invaded Georgia that globalization was over and we were seeing the return of “history” and the primacy of politics over economics. I think not. Politics and economics are always inextricably intertwined. History-making is rarely free. The Russian stock market has been hammered as a result of its invasion of Georgia, and the global slowdown has sunk Russian oil and gas earnings. No country is an island today.
Making history is not simply about the will to do so. It’s also about the way — the resources you have to achieve your ends. Whatever wills the next American president comes to office with, he is going to find that his ways have been diminished and restricted — until we roll up our sleeves and work our way out of this mess.
Op-Ed Columnist
Racism Without Racists
By NICHOLAS D. KRISTOF
One of the fallacies this election season is that if Barack Obama is paying an electoral price for his skin tone, it must be because of racists.
On the contrary, the evidence is that Senator Obama is facing what scholars have dubbed “racism without racists.”
The racism is difficult to measure, but a careful survey completed last month by Stanford University, with The Associated Press and Yahoo, suggested that Mr. Obama’s support would be about six percentage points higher if he were white. That’s significant but surmountable.
Most of the lost votes aren’t those of dyed-in-the-wool racists. Such racists account for perhaps 10 percent of the electorate and, polling suggests, are mostly conservatives who would not vote for any Democratic presidential candidate.
Rather, most of the votes that Mr. Obama actually loses belong to well-meaning whites who believe in racial equality and have no objection to electing a black person as president — yet who discriminate unconsciously.
“When we fixate on the racist individual, we’re focused on the least interesting way that race works,” said Phillip Goff, a social psychologist at U.C.L.A. who focuses his research on “racism without racists.” “Most of the way race functions is without the need for racial animus.”
For decades, experiments have shown that even many whites who earnestly believe in equal rights will recommend hiring a white job candidate more often than a person with identical credentials who is black. In the experiments, the applicant’s folder sometimes presents the person as white, sometimes as black, but everything else is the same. The white person thinks that he or she is selecting on the basis of nonracial factors like experience.
Research suggests that whites are particularly likely to discriminate against blacks when choices are not clear-cut and competing arguments are flying about — in other words, in ambiguous circumstances rather like an electoral campaign.
For example, when the black job candidate is highly qualified, there is no discrimination. Yet in a more muddled gray area where reasonable people could disagree, unconscious discrimination plays a major role.
White participants recommend hiring a white applicant with borderline qualifications 76 percent of the time, while recommending an identically qualified black applicant only 45 percent of the time.
John Dovidio, a psychologist at Yale University who has conducted this study over many years, noted that conscious prejudice as measured in surveys has declined over time. But unconscious discrimination — what psychologists call aversive racism — has stayed fairly constant.
“In the U.S., there’s a small percentage of people who in nationwide surveys say they won’t vote for a qualified black presidential candidate,” Professor Dovidio said. “But a bigger factor is the aversive racists, those who don’t think that they’re racist.”
Faced with a complex decision, he said, aversive racists feel doubts about a black person that they don’t feel about an identical white. “These doubts tend to be attributed not to the person’s race — because that would be racism — but deflected to other areas that can be talked about, such as lack of experience,” he added.
Of course, there are perfectly legitimate reasons to be against a particular black candidate, Mr. Obama included. Opposition to Mr. Obama is no more evidence of racism than opposition to Mr. McCain is evidence of discrimination against the elderly or against war veterans. And at times, Mr. Obama’s race helps him: it underscores his message of change, it appeals to some whites as a demonstration of their open-mindedness, and it wins him overwhelming black votes and turnout.
Still, a huge array of research suggests that 50 percent or more of whites have unconscious biases that sometimes lead to racial discrimination. (Blacks have their own unconscious biases, surprisingly often against blacks as well.)
One set of experiments conducted since the 1970s involves subjects who believe that they are witnessing an emergency (like an epileptic seizure). When there is no other witness, a white bystander will call for help whether the victim is white or black, and there is very little discrimination.
But when there are other bystanders, so the individual responsibility to summon help may feel less obvious, whites will still summon help 75 percent of the time if the victim is white but only 38 percent of the time if the victim is black.
One lesson from this research is that racial biases are deeply embedded within us, more so than many whites believe. But another lesson, a historical one, is that we can overcome unconscious bias. That’s what happened with the decline in prejudice against Catholics after the candidacy of John F. Kennedy in 1960.
It just might happen again, this time with race.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and to join me on Facebook at www.facebook.com/kristof.
****
October 5, 2008
Op-Ed Columnist
Swedish Spoken Here
By THOMAS L. FRIEDMAN
I was talking to friend in New York City the other day about the current financial crisis, and she told me about a scene she had just witnessed in the lobby of the Warwick Hotel. Four Swedish tourists, who clearly had been on a shopping spree in Manhattan, fueled by the still cheap dollar, were trying to cram all their purchases into four suitcases. They had bought a hand-held scale — one of those you just grip onto the suitcase and lift — to make sure all their American goodies were not overweight for the flight home.
Another friend of mine in the ship-supply business in Baltimore, Alan Kotz, told me about a German customer who recently put in double his normal order. When Alan asked him if he was aware of how much he had ordered, the German brushed his question away and laughed: “Alan, nevermind, everything for us is half price.”
And a good thing it is. Even though the dollar has strengthened a bit lately, we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis — and they are going to need us to be healthy as well. In the process, we are going to become even more intertwined and dependent on the rest of the world.
Sarah Palin won’t have to worry that she doesn’t know what the Bush doctrine is. No one really knew what it meant. But it had something to do with the unilateral exercise of American power, and the next president’s ability to act unilaterally on anything other than vital national security issues is going to be reduced. As the old saying goes: He who has the gold makes the rules. Well, we no longer have as much gold, and until we get some, we will have to pay more heed to the rules of those who lend us theirs.
At a time when the U.S. government gets half its borrowings from abroad, at a time when the U.S. household savings rate is hovering around zero and China alone is already holding around $1 trillion in U.S. Treasury notes and Fannie Mae and Freddie Mac bonds — yes, that’s how you got that cheap subprime mortgage — it can’t be any other way.
Somebody better tell John McCain: We are all Swedes now. Forget about “Live Free or Die.” Until we get our financial act together, our motto is going to be: “Swedish spoken here — or Arabic or Chinese or German ...”
I would also bet that more and more of the foreign investors who come our way are going to want to buy hard, tangible assets — skyscrapers, real estate and real companies — not just mutual funds, T-bills, bank stocks or other equities. No problem. Americans own assets all over the world; foreigners have long owned substantial positions in U.S. companies. That’s globalization — and now you are going to see globalization and financial integration on steroids. It should help us, but also change us.
“The next round of capital that comes in from abroad is going to be much more demanding and move into real assets,” argued Jeffrey Garten, professor of trade and finance at the Yale School of Management. “Being a bigger debtor nation means losing even more of our sovereignty. It means conducting our economic policies with an eye toward whether others approve. It means bearing the advice and criticism that we have dispensed ad nauseam to other countries for over half a century. It means far more intensive consultations with other capitals on our fiscal policies and our monetary policies.”
At the same time, added Garten, “Corporate decisions will become more sensitive to international factors, in part because more non-Americans will be on the governing boards.” Ultimately, this could make American industry even more globally competitive — but for those who can’t pass global muster or enlist global collaborators, the consequences could be harsh.
Of course, neither Barack Obama nor John McCain dare talk about this now. They want to pretend nothing has really changed. The minute one of them steps into the Oval Office, they will tell us otherwise. That will be the January surprise.
There was a lot of talk after Russia invaded Georgia that globalization was over and we were seeing the return of “history” and the primacy of politics over economics. I think not. Politics and economics are always inextricably intertwined. History-making is rarely free. The Russian stock market has been hammered as a result of its invasion of Georgia, and the global slowdown has sunk Russian oil and gas earnings. No country is an island today.
Making history is not simply about the will to do so. It’s also about the way — the resources you have to achieve your ends. Whatever wills the next American president comes to office with, he is going to find that his ways have been diminished and restricted — until we roll up our sleeves and work our way out of this mess.
Protecting democracy
Preston Manning
For The Calgary Herald
Monday, October 06, 2008
Democratic elections are not just about party leaders and leadership from the top. They are also an opportunity for leadership from the people -- from citizens themselves -- who have the ultimate say in who gets elected to Parliament and government and who does not.
You are all in one way or another connected personally and through your Association to the petroleum industry whose future will be very much affected by the same public opinions and attitudes that are at play in electing our next government.
But you are also citizens of Canada, and I would like to call upon you to exercise leadership in that capacity as well, particularly in convincing your friends and associates -- and especially your young people -- that participating in elections and democratic processes is essential in free societies and those who choose not to involve themselves in the politics of their country are destined to be governed by those who do.
If you find the current state of democratic politics in Canada unattractive, that is not a legitimate excuse for non-involvement. I urge you to take the tools democracy gives us all -- freedom of speech, freedom of association, freedom to persuade your friends and neighbours to support this cause or that -- and use them to change the national agenda and our politics for the better.
Of course there are the usual objections. "I have other priorities." "What good can my vote do?" "I don't trust any of them." "How do I vote for 'none of the above?" These are the attitudes and opinions that lead to a 60 per cent voter turnout (or worse) in elections and the 20 per cent (and falling) voter turnout among 18-24 years olds.
There is, however, a broader, older and more inspiring side to the democracy story, which may inspire the next generation not only to participate in elections but also to reform those aspects of democracy that have fallen into disrepair.
This story of democracy began more than 27 centuries ago -- some say around the campfire of a Greek frontier settlement. There the independence of the settlers, the natural equality of the frontier and the absence of fixed institutions of governance combine to ignite the first democratic flame.
A torchbearer carries the precious flame to the city-state of Athens where she is welcomed and given a home. Pericles declares, "We are a democracy, for the administration of our affairs is in the hands of the many and not of the few."
But Democracy has her enemies -- tyranny, war, and that insidious enemy, indifference. The friends of Athenian democracy are defeated in battle and the bearer of the democratic torch is driven from Greece to wander Europe friendless and alone.
She seeks acceptance in the Roman Republic, but again tyranny and war make her a refugee. She knocks on the door of the church, but the church has embraced theocracy. She seeks shelter in palaces, but kings and princes believe in aristocracy and turn her away.
In the hearts of the common people, however, she slowly wins acceptance. Thus whenever anyone stands up for dignity and rights of the governed or the ancient ideals of democratic freedom and discourse, she steps from the shadows and offers the flickering light of her torch -- to the signatories of the Magna Charta, to Luther as he nails his liberating theses to the door of the church and to the scholars of the Renaissance who rediscover her virtues in the ancient texts.
When the downtrodden of France rise in revolt, Democracy rushes to their side. But in their anger and excess they seize and abuse her. Her friends in England provide a more secure habitat -- institutions and processes by which she is nursed to health and strength. Seeking greater freedom, she boards a ship for the new world. There in America she finds her most enduring home, a statue of a torch-bearing woman being erected in her honour at the entrance to New York harbour.
In America she moves westward and northward. In the colonies destined to become Canada, she is at first regarded with suspicion. But Nova Scotia pioneers a democratic assembly and, in Upper and Lower Canada, government by anti-democratic compacts slowly gives way to responsible democratic government.
On the western frontier, where rugged independence, natural equality and unstructured opportunities for self-government evoke memories of her ancient birthplace, Democracy is welcomed and embraced.
Never, even in modern times, is Democracy free from the threats of those who oppose the values she represents. But now, when threatened by war, tyranny and the ideology of oppressors, she does not flee but fights -- against the Kaiser in World War I, against Hitler and the Nazis, against Stalin and his Cold War successors, against the caste system in India, against apartheid in South Africa, against ethnic cleansing in the Balkans, against Islamic fundamentalism in the Middle East, against dictatorship and oppression wherever it rears its ugly head.
At great cost, she triumphs and lives in our lifetime to bring tyrants to trial for crimes against humanity, to dance on the Berlin Wall as it crumbles beneath her feet and to grasp the hand of Nelson Mandela as he emerges from his prison cell into the sunlight of a new day.
When we identify ourselves as followers, carriers and re-kindlers of the democratic flame, when we feel her warmth and govern ourselves by her light, when we employ her freedoms and tools to advance ideas and common interests, this is the great human drama in which we are participating.
And I for one cannot think of a greater drama of which to be a part. Can you?
Preston Manning is a former leader of Her Majesty's loyal opposition and is the President of the Manning Centre for Building Democracy. This column is an excerpt from an address Manning gave to the Canadian Petroleum Association of Landmen, in Victoria, B.C. last month.
© The Calgary Herald 2008
Preston Manning
For The Calgary Herald
Monday, October 06, 2008
Democratic elections are not just about party leaders and leadership from the top. They are also an opportunity for leadership from the people -- from citizens themselves -- who have the ultimate say in who gets elected to Parliament and government and who does not.
You are all in one way or another connected personally and through your Association to the petroleum industry whose future will be very much affected by the same public opinions and attitudes that are at play in electing our next government.
But you are also citizens of Canada, and I would like to call upon you to exercise leadership in that capacity as well, particularly in convincing your friends and associates -- and especially your young people -- that participating in elections and democratic processes is essential in free societies and those who choose not to involve themselves in the politics of their country are destined to be governed by those who do.
If you find the current state of democratic politics in Canada unattractive, that is not a legitimate excuse for non-involvement. I urge you to take the tools democracy gives us all -- freedom of speech, freedom of association, freedom to persuade your friends and neighbours to support this cause or that -- and use them to change the national agenda and our politics for the better.
Of course there are the usual objections. "I have other priorities." "What good can my vote do?" "I don't trust any of them." "How do I vote for 'none of the above?" These are the attitudes and opinions that lead to a 60 per cent voter turnout (or worse) in elections and the 20 per cent (and falling) voter turnout among 18-24 years olds.
There is, however, a broader, older and more inspiring side to the democracy story, which may inspire the next generation not only to participate in elections but also to reform those aspects of democracy that have fallen into disrepair.
This story of democracy began more than 27 centuries ago -- some say around the campfire of a Greek frontier settlement. There the independence of the settlers, the natural equality of the frontier and the absence of fixed institutions of governance combine to ignite the first democratic flame.
A torchbearer carries the precious flame to the city-state of Athens where she is welcomed and given a home. Pericles declares, "We are a democracy, for the administration of our affairs is in the hands of the many and not of the few."
But Democracy has her enemies -- tyranny, war, and that insidious enemy, indifference. The friends of Athenian democracy are defeated in battle and the bearer of the democratic torch is driven from Greece to wander Europe friendless and alone.
She seeks acceptance in the Roman Republic, but again tyranny and war make her a refugee. She knocks on the door of the church, but the church has embraced theocracy. She seeks shelter in palaces, but kings and princes believe in aristocracy and turn her away.
In the hearts of the common people, however, she slowly wins acceptance. Thus whenever anyone stands up for dignity and rights of the governed or the ancient ideals of democratic freedom and discourse, she steps from the shadows and offers the flickering light of her torch -- to the signatories of the Magna Charta, to Luther as he nails his liberating theses to the door of the church and to the scholars of the Renaissance who rediscover her virtues in the ancient texts.
When the downtrodden of France rise in revolt, Democracy rushes to their side. But in their anger and excess they seize and abuse her. Her friends in England provide a more secure habitat -- institutions and processes by which she is nursed to health and strength. Seeking greater freedom, she boards a ship for the new world. There in America she finds her most enduring home, a statue of a torch-bearing woman being erected in her honour at the entrance to New York harbour.
In America she moves westward and northward. In the colonies destined to become Canada, she is at first regarded with suspicion. But Nova Scotia pioneers a democratic assembly and, in Upper and Lower Canada, government by anti-democratic compacts slowly gives way to responsible democratic government.
On the western frontier, where rugged independence, natural equality and unstructured opportunities for self-government evoke memories of her ancient birthplace, Democracy is welcomed and embraced.
Never, even in modern times, is Democracy free from the threats of those who oppose the values she represents. But now, when threatened by war, tyranny and the ideology of oppressors, she does not flee but fights -- against the Kaiser in World War I, against Hitler and the Nazis, against Stalin and his Cold War successors, against the caste system in India, against apartheid in South Africa, against ethnic cleansing in the Balkans, against Islamic fundamentalism in the Middle East, against dictatorship and oppression wherever it rears its ugly head.
At great cost, she triumphs and lives in our lifetime to bring tyrants to trial for crimes against humanity, to dance on the Berlin Wall as it crumbles beneath her feet and to grasp the hand of Nelson Mandela as he emerges from his prison cell into the sunlight of a new day.
When we identify ourselves as followers, carriers and re-kindlers of the democratic flame, when we feel her warmth and govern ourselves by her light, when we employ her freedoms and tools to advance ideas and common interests, this is the great human drama in which we are participating.
And I for one cannot think of a greater drama of which to be a part. Can you?
Preston Manning is a former leader of Her Majesty's loyal opposition and is the President of the Manning Centre for Building Democracy. This column is an excerpt from an address Manning gave to the Canadian Petroleum Association of Landmen, in Victoria, B.C. last month.
© The Calgary Herald 2008
October 7, 2008
Op-Ed Columnist
The Testing Time
By DAVID BROOKS
Every few years, the world seems to face a new testing time. After Sept. 11, leaders had to figure out how to respond to Islamic extremism. Now we face another test. Today, leaders around the world have to figure out how to stabilize economies amid volatile global capital flows.
This test is rooted in a global shift in economic power. The rise of China, the vast wealth of the petro-powers and easy monetary policies created an ocean of excess savings that had no obvious place to go.
This money was entrusted to a few thousand traders who sloshed it around the world in search of the highest returns. These traders live in a high-tech version of Plato’s cave. They do not see reality directly. Instead they see the shadow of reality as it dances around in numbers on their computer screens. They form perceptions about other people’s perceptions of where the smart money is going next, so they’re three or four psychological levels removed from normal economic activity.
These traders are driven to take big risks because the glory goes to the biggest stars. And because they are human, they assuage their ensuing uncertainty with self-deceptions. They develop an excessive faith in “value at risk” computer models, which seem to calculate their exposure in soothingly rigorous terms. They adopt accounting techniques that tell them they’re on firm footing. They go in for complicated financial instruments that promise “riskless risk” by dispersing risk into a million small pieces and casting them into the ether.
The economists talk about “mispriced risk” and “illiquidity” in the system. But many economists are trained to downplay emotion, social psychology and moral norms, and so produce bloodless and incomplete descriptions of what’s going on. The truth is, decision-making is an inherently emotional process, and the traders in charge of these trillions become bipolar as a result of their uncertainty.
When things are going well, they don’t think they’re just lucky and riding a wave. They’re infused with a sense that they have it all figured out. When these traders are in their manic phase, they flood countries and economic sectors with capital. Without meaning to, they dissolve the moral fabric and spoil their own profit zones.
Easy money severs actions from their consequences. National leaders find they can run up huge deficits with no negative effects. Congressmen lean on Fannie Mae and Freddie Mac to acquire more and more risk. Highly regulated banks find they have money to lend far and wide, and everyone else finds credit is easy. Families decide they can afford homes and lifestyles beyond their means.
It all feels great until it doesn’t. Then when things go bad, the social contagion sweeps the other way (the computer risk models never quite get this). One minute there’s an ocean of credit, the next minute there’s barely a drop. Once ebullient traders become paranoid, realizing how little they know about their trading partners. They refuse to acknowledge the true value of their portfolios. Everything stops.
At these moments, central bankers and Treasury officials leap in to try to make the traders feel better. Officials pretend they’re coming up with policy responses, but much of what they do is political theater. In reality, they’re trying to cajole, bluff and calm their audience of global money-sloshers.
This is more than a mortgage problem. We live in a world in which trillions of dollars can move instantly, but they are in the hands of human beings who are, by nature, limited in knowledge, and subject to self-deceptions and social contagions. By one count, financial crises are twice as prevalent now as they were 100 years ago.
In his astonishingly prescient book, “The World Is Curved: Hidden Dangers to the Global Economy,” David M. Smick argues that we have inherited an impressive global economic system. It, with the U.S. as the hub, has produced unprecedented levels of global prosperity. But it has now spun wildly out of control. It can’t be fixed with the shock and awe of a $700 billion rescue package, Smick says. The fundamental architecture needs to be reformed.
It will take, he suggests, a global leadership class that can answer essential questions: How much leverage should be allowed? Can we preserve the development model in which certain nations pile up giant reserves and park them in the U.S.?
Until these and other issues are addressed, the global markets will lack confidence in asset values. Bankers will cower, afraid to lend. America’s role as the global hub will be threatened. Europeans will drift toward nationalization. Neomercantilists will fill the vacuum.
This is the test. This is the problem that will consume the next president. Meanwhile, the two candidates for that office are talking about Bill Ayers and Charles Keating.
Op-Ed Columnist
The Testing Time
By DAVID BROOKS
Every few years, the world seems to face a new testing time. After Sept. 11, leaders had to figure out how to respond to Islamic extremism. Now we face another test. Today, leaders around the world have to figure out how to stabilize economies amid volatile global capital flows.
This test is rooted in a global shift in economic power. The rise of China, the vast wealth of the petro-powers and easy monetary policies created an ocean of excess savings that had no obvious place to go.
This money was entrusted to a few thousand traders who sloshed it around the world in search of the highest returns. These traders live in a high-tech version of Plato’s cave. They do not see reality directly. Instead they see the shadow of reality as it dances around in numbers on their computer screens. They form perceptions about other people’s perceptions of where the smart money is going next, so they’re three or four psychological levels removed from normal economic activity.
These traders are driven to take big risks because the glory goes to the biggest stars. And because they are human, they assuage their ensuing uncertainty with self-deceptions. They develop an excessive faith in “value at risk” computer models, which seem to calculate their exposure in soothingly rigorous terms. They adopt accounting techniques that tell them they’re on firm footing. They go in for complicated financial instruments that promise “riskless risk” by dispersing risk into a million small pieces and casting them into the ether.
The economists talk about “mispriced risk” and “illiquidity” in the system. But many economists are trained to downplay emotion, social psychology and moral norms, and so produce bloodless and incomplete descriptions of what’s going on. The truth is, decision-making is an inherently emotional process, and the traders in charge of these trillions become bipolar as a result of their uncertainty.
When things are going well, they don’t think they’re just lucky and riding a wave. They’re infused with a sense that they have it all figured out. When these traders are in their manic phase, they flood countries and economic sectors with capital. Without meaning to, they dissolve the moral fabric and spoil their own profit zones.
Easy money severs actions from their consequences. National leaders find they can run up huge deficits with no negative effects. Congressmen lean on Fannie Mae and Freddie Mac to acquire more and more risk. Highly regulated banks find they have money to lend far and wide, and everyone else finds credit is easy. Families decide they can afford homes and lifestyles beyond their means.
It all feels great until it doesn’t. Then when things go bad, the social contagion sweeps the other way (the computer risk models never quite get this). One minute there’s an ocean of credit, the next minute there’s barely a drop. Once ebullient traders become paranoid, realizing how little they know about their trading partners. They refuse to acknowledge the true value of their portfolios. Everything stops.
At these moments, central bankers and Treasury officials leap in to try to make the traders feel better. Officials pretend they’re coming up with policy responses, but much of what they do is political theater. In reality, they’re trying to cajole, bluff and calm their audience of global money-sloshers.
This is more than a mortgage problem. We live in a world in which trillions of dollars can move instantly, but they are in the hands of human beings who are, by nature, limited in knowledge, and subject to self-deceptions and social contagions. By one count, financial crises are twice as prevalent now as they were 100 years ago.
In his astonishingly prescient book, “The World Is Curved: Hidden Dangers to the Global Economy,” David M. Smick argues that we have inherited an impressive global economic system. It, with the U.S. as the hub, has produced unprecedented levels of global prosperity. But it has now spun wildly out of control. It can’t be fixed with the shock and awe of a $700 billion rescue package, Smick says. The fundamental architecture needs to be reformed.
It will take, he suggests, a global leadership class that can answer essential questions: How much leverage should be allowed? Can we preserve the development model in which certain nations pile up giant reserves and park them in the U.S.?
Until these and other issues are addressed, the global markets will lack confidence in asset values. Bankers will cower, afraid to lend. America’s role as the global hub will be threatened. Europeans will drift toward nationalization. Neomercantilists will fill the vacuum.
This is the test. This is the problem that will consume the next president. Meanwhile, the two candidates for that office are talking about Bill Ayers and Charles Keating.
October 12, 2008
Op-Ed Columnist
The Post-Binge World
By THOMAS L. FRIEDMAN
My friend Rob Watson, the head of EcoTech International, has a saying about Mother Nature that goes like this: “Mother Nature is just chemistry, biology and physics. That’s all she is.” And because of that, says Rob, you cannot spin Mother Nature. You cannot bribe Mother Nature. You cannot sweet talk her, and you cannot ignore her. She’s going to do with the climate whatever chemistry, biology and physics dictate. And Mother Nature always bats last, and she always bats a thousand.
There is a parallel with markets. At their core, markets are propelled by fear and greed. They’re just the balance at any given moment of those two impulses. Over the long run, you cannot spin the market. You cannot sweet talk it into going up or beg it not to go down. It’s going to do whatever it’s going to do — whichever way greed and fear tug it. And the market always bats last and it always bats a thousand.
What am I saying? We are where we are today because we went on a credit binge and we’re now paying the price. Because it was the biggest credit binge the world has ever been on, a lot of wealth is going to be wiped out. Now what you’re witnessing is the market re-evaluating and re-pricing every asset in the world, without mercy, telling each stock, bond and bank what its value is in a post-credit binge world.
So why, despite the Congressional bailout, haven’t banks started lending again?
You have to go back to the beginning of the problem. After the fall of the Berlin Wall, virtually every economy in the world moved to a capitalist system, which eventually made the world awash with money looking for investments. It didn’t take long for financial engineers to figure out how to move home mortgages and commercial loans from a transaction between you and your local bank — or between your company and a syndicate of banks — to something much more diffused and fragmented. While your bank may have initiated the mortgage or the corporate loan, it was quickly sold to an aggregator who turned these different loans into bonds and then sold them all over the world in small pieces to banks and money market and pension funds.
The good news about this democratization of finance is that it powered enormous growth around the world. More people than ever grew out of poverty faster — or got rich faster. But the process became so lucrative that people — imbeciles — who should not have been selling these things got into the food chain of selling them. Banks and insurance companies that should not have even nibbled on them, gorged on them. And companies that should not have been dependent on raising capital through them became dependent.
So when some of these loans inevitably turned bad, the whole financial system got infected. Eventually everyone stopped lending to everyone else because no one knew what the other bank’s assets were worth. Indeed, if all the banks were really honest about the value of these toxic assets on their balance sheets, many of them would be under water.
The whole story of the last few months has been about different government plans to get the banks lending again. But the market is not waiting. It just keeps saying to the big banks and insurance companies: “We think you’re carrying a lot of junk on your books, and if you don’t mark it all the way down and re-price it to what it is really worth today, we will re-price you — fairly or not.” The market is going to do what it is going to do.
So what could ease this crisis? “There is going to have to be a workout,” said the financial strategist David Smick, author of “The World Is Curved,” a book about the hidden dangers in today’s global economy. “There will have to be a restructuring of all these institutions to clean up their balance sheets and recapitalize them.” Banks and insurance companies will have to be reconstituted, merged or left to die, until these toxic assets are properly priced and off the books.
The government’s job — which it is still trying to figure out exactly how to do — will be to provide a safety net of guarantees for the surviving banks, so they will be honest about pricing their assets, and then, once they have been, to help recapitalize them. “Government’s other job,” added Smick, “is to quickly establish the new rules of the road for truth-in-lending on a global basis. We still need these kind of lending facilities if the economy is going to grow again.”
This workout promises to be painful, complicated and protracted. Government will have to do its part. But it must regulate the excesses without smothering the underlying innovative, entrepreneurial and risk-taking attributes of our economy, which are what will ultimately bail us out — as they always have.
“I have no idea what the stock market is going to do next month or six months from now,” Warren Buffett told CNBC on Friday. “I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.”
Nicholas D. Kristof is off today.
Op-Ed Columnist
The Post-Binge World
By THOMAS L. FRIEDMAN
My friend Rob Watson, the head of EcoTech International, has a saying about Mother Nature that goes like this: “Mother Nature is just chemistry, biology and physics. That’s all she is.” And because of that, says Rob, you cannot spin Mother Nature. You cannot bribe Mother Nature. You cannot sweet talk her, and you cannot ignore her. She’s going to do with the climate whatever chemistry, biology and physics dictate. And Mother Nature always bats last, and she always bats a thousand.
There is a parallel with markets. At their core, markets are propelled by fear and greed. They’re just the balance at any given moment of those two impulses. Over the long run, you cannot spin the market. You cannot sweet talk it into going up or beg it not to go down. It’s going to do whatever it’s going to do — whichever way greed and fear tug it. And the market always bats last and it always bats a thousand.
What am I saying? We are where we are today because we went on a credit binge and we’re now paying the price. Because it was the biggest credit binge the world has ever been on, a lot of wealth is going to be wiped out. Now what you’re witnessing is the market re-evaluating and re-pricing every asset in the world, without mercy, telling each stock, bond and bank what its value is in a post-credit binge world.
So why, despite the Congressional bailout, haven’t banks started lending again?
You have to go back to the beginning of the problem. After the fall of the Berlin Wall, virtually every economy in the world moved to a capitalist system, which eventually made the world awash with money looking for investments. It didn’t take long for financial engineers to figure out how to move home mortgages and commercial loans from a transaction between you and your local bank — or between your company and a syndicate of banks — to something much more diffused and fragmented. While your bank may have initiated the mortgage or the corporate loan, it was quickly sold to an aggregator who turned these different loans into bonds and then sold them all over the world in small pieces to banks and money market and pension funds.
The good news about this democratization of finance is that it powered enormous growth around the world. More people than ever grew out of poverty faster — or got rich faster. But the process became so lucrative that people — imbeciles — who should not have been selling these things got into the food chain of selling them. Banks and insurance companies that should not have even nibbled on them, gorged on them. And companies that should not have been dependent on raising capital through them became dependent.
So when some of these loans inevitably turned bad, the whole financial system got infected. Eventually everyone stopped lending to everyone else because no one knew what the other bank’s assets were worth. Indeed, if all the banks were really honest about the value of these toxic assets on their balance sheets, many of them would be under water.
The whole story of the last few months has been about different government plans to get the banks lending again. But the market is not waiting. It just keeps saying to the big banks and insurance companies: “We think you’re carrying a lot of junk on your books, and if you don’t mark it all the way down and re-price it to what it is really worth today, we will re-price you — fairly or not.” The market is going to do what it is going to do.
So what could ease this crisis? “There is going to have to be a workout,” said the financial strategist David Smick, author of “The World Is Curved,” a book about the hidden dangers in today’s global economy. “There will have to be a restructuring of all these institutions to clean up their balance sheets and recapitalize them.” Banks and insurance companies will have to be reconstituted, merged or left to die, until these toxic assets are properly priced and off the books.
The government’s job — which it is still trying to figure out exactly how to do — will be to provide a safety net of guarantees for the surviving banks, so they will be honest about pricing their assets, and then, once they have been, to help recapitalize them. “Government’s other job,” added Smick, “is to quickly establish the new rules of the road for truth-in-lending on a global basis. We still need these kind of lending facilities if the economy is going to grow again.”
This workout promises to be painful, complicated and protracted. Government will have to do its part. But it must regulate the excesses without smothering the underlying innovative, entrepreneurial and risk-taking attributes of our economy, which are what will ultimately bail us out — as they always have.
“I have no idea what the stock market is going to do next month or six months from now,” Warren Buffett told CNBC on Friday. “I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.”
Nicholas D. Kristof is off today.
Gratitude is on the menu today
Sharing our blessings is best way to mark Thanksgiving
Calgary Herald
Monday, October 13, 2008
As Calgarians take time out from the busy rounds of daily life to gather with family and friends for Thanksgiving dinner, the federal election Tuesday should lend even more poignancy to the deeper meanings of this day.
We are deeply fortunate to live in a country where the election process unfolds peaceably, by the rule of law, and people are free to cast their votes without fear for their lives.
No strife will mark the ascension of whichever party is declared the victor after the ballots are counted tomorrow night.
No blood will be shed, no dread of tyranny stalks the citizens of this country.
Nobody will be jailed for daring to exercise their choice at the polls.
How different the scenario is in so many other parts of the world -- most recently Thailand, where protests by groups seeking to overthrow the government led to the ugliest civil unrest seen in Bangkok in nearly two decades.
Here in Canada, we go about a transition in government secure in the knowledge that it will be an orderly process and all will be well.
Despite ideological differences, despite deeply held beliefs and loyalties to one political platform or another, we know that divisiveness will lead only to civilized debate and dissent.
Not one weapon will be grabbed up, not one drop of blood will be spilled to settle political differences in this democracy we are so fortunate to live in.
Calgarians may have their complaints, as well, about the vicissitudes of urban life -- the traffic congestion, the increase in crime that is an inevitable byproduct of this city's growth, the proper allocation of their tax money by three levels of government.
However, those issues must be kept in perspective -- the denizens of Zimbabwe, for example, or Georgia, would consider themselves blessed if traffic jams were the extent of their worries.
The vast majority of Calgarians are safe, warm, well-fed, well-housed and have clean water to drink and clean air to breathe.
The less fortunate in our city, too, are blessed to have people like Pat Nixon of the Mustard Seed, Dermot Baldwin of the Drop-In Centre, the numerous church volunteers with Inn from the Cold and so many others who work so lovingly with the homeless and the needy, to care for them.
Thanksgiving is traditionally a time to be grateful for the reaping of an abundant harvest.
In Calgary, and all across Canada for that matter, the abundance is about far more than crops.
Canada has indeed reaped a bountiful harvest -- of peace, democratic principles, freedoms that are the envy of oppressed peoples in so many countries, and material comforts that millions in other nations can only dream of.
That does not mean Thanksgiving should be an occasion for smugness or complacency.
It is only by the amazing luck of the draw that we are so fortunate as to be able to call ourselves Canadians -- whether we were born here or immigrated here.
Such knowledge of our great good fortune should humble us.
And it should be an incentive to us to strive even harder to help those less fortunate, whether in our own city or across the globe.
Being so richly blessed creates an obligation for us to share our blessings, one which we shirk at our own peril.
As we sit down today to turkey dinner with loved ones and friends, we should rise above our relatively mundane tribulations to be thankful for the greater blessings we enjoy.
The Herald, too, is grateful to you, our readers, and wishes you and yours a happy Thanksgiving.
Sharing our blessings is best way to mark Thanksgiving
Calgary Herald
Monday, October 13, 2008
As Calgarians take time out from the busy rounds of daily life to gather with family and friends for Thanksgiving dinner, the federal election Tuesday should lend even more poignancy to the deeper meanings of this day.
We are deeply fortunate to live in a country where the election process unfolds peaceably, by the rule of law, and people are free to cast their votes without fear for their lives.
No strife will mark the ascension of whichever party is declared the victor after the ballots are counted tomorrow night.
No blood will be shed, no dread of tyranny stalks the citizens of this country.
Nobody will be jailed for daring to exercise their choice at the polls.
How different the scenario is in so many other parts of the world -- most recently Thailand, where protests by groups seeking to overthrow the government led to the ugliest civil unrest seen in Bangkok in nearly two decades.
Here in Canada, we go about a transition in government secure in the knowledge that it will be an orderly process and all will be well.
Despite ideological differences, despite deeply held beliefs and loyalties to one political platform or another, we know that divisiveness will lead only to civilized debate and dissent.
Not one weapon will be grabbed up, not one drop of blood will be spilled to settle political differences in this democracy we are so fortunate to live in.
Calgarians may have their complaints, as well, about the vicissitudes of urban life -- the traffic congestion, the increase in crime that is an inevitable byproduct of this city's growth, the proper allocation of their tax money by three levels of government.
However, those issues must be kept in perspective -- the denizens of Zimbabwe, for example, or Georgia, would consider themselves blessed if traffic jams were the extent of their worries.
The vast majority of Calgarians are safe, warm, well-fed, well-housed and have clean water to drink and clean air to breathe.
The less fortunate in our city, too, are blessed to have people like Pat Nixon of the Mustard Seed, Dermot Baldwin of the Drop-In Centre, the numerous church volunteers with Inn from the Cold and so many others who work so lovingly with the homeless and the needy, to care for them.
Thanksgiving is traditionally a time to be grateful for the reaping of an abundant harvest.
In Calgary, and all across Canada for that matter, the abundance is about far more than crops.
Canada has indeed reaped a bountiful harvest -- of peace, democratic principles, freedoms that are the envy of oppressed peoples in so many countries, and material comforts that millions in other nations can only dream of.
That does not mean Thanksgiving should be an occasion for smugness or complacency.
It is only by the amazing luck of the draw that we are so fortunate as to be able to call ourselves Canadians -- whether we were born here or immigrated here.
Such knowledge of our great good fortune should humble us.
And it should be an incentive to us to strive even harder to help those less fortunate, whether in our own city or across the globe.
Being so richly blessed creates an obligation for us to share our blessings, one which we shirk at our own peril.
As we sit down today to turkey dinner with loved ones and friends, we should rise above our relatively mundane tribulations to be thankful for the greater blessings we enjoy.
The Herald, too, is grateful to you, our readers, and wishes you and yours a happy Thanksgiving.
Canadian freedoms clothe the Muslim body politic
Irshad Manji October 14,
2008 The Globe and Mail
Is it just me or has precious little vision been conveyed in this campaign
for the future of Canada? Despite our aching financial portfolios, questions
bigger than bailouts help us appreciate what Canadians still have - and why we remain more blessed than almost anybody else.
Among those questions: How do we balance being a nation of open minds while standing by a core set of values? As a Canadian without borders, I take my cues from my travels. Let me start at home. Recently, I received an e-mail from an angry Ontarian. He said he wished he were "brave"
enough to rip the head scarves off Muslim immigrants and remind them they now live in a free society.
The contradiction of his statement apparently escaped him. Forcing women to be free gives freedom a hideous name. I love my liberties too much to deny other Canadians theirs. Fact is, not all Muslim women who wear the hijab are oppressed into doing so.
It took a trip outside of Canada to understand this. Nearly four years ago,
in the same week that a Dutch Muslim murdered Theo van Gogh for making a film featuring a half-naked woman, I toured Paris with my book.
At one of the city's largest bookstores - ironically named Virgin - I saw a
massive table displaying manifestos by Muslim women. Those written by older women asked their daughters, "Why are you wearing that God-awful head scarf when we fought so hard so you do not have to?" The books written by younger women shot back, "You fought hard for my choice. And like it or not, this is my choice."
But if many Muslim women are volunteering to cover, the reality persists
that many others are not. On the eve of the law banning head scarves in
France's state-funded schools, pollsters there asked Muslim women how they felt about the proposal. A majority of those anonymously surveyed replied they approved of the ban. Asked why, most said it's not because they oppose Islam, it's because they oppose the harassment, intimidation and violence to which they will be subjected by men in their communities if they do not wear head scarves.
Then there's Yemen, a democracy in which almost every woman wraps herself from top to toe in black. No law makes her do it. Cultural pressure does.
While in Yemen to film my documentary, several well-educated Muslim women invited me to their private parties. After the guests slipped off their
body-length chadors, I witnessed fashion-conscious females exult in their
embrace of life - laughing, singing, smoking, wiggling, jiggling.
Wanting to share their humanity with the world, I switched on my video
camera to capture the image of bare feet dancing. No bellies, breasts or
behinds. Feet only. In each of the parties at which I tried this, my camera
had been rolling for less than 10 seconds when different women stepped in to block my lens. "Turn it off," came the instructions.
I bargained. "Don't you want Western audiences to know that you're capable of having fun? That there's more to you than your chador?"
Their answers stunned me. According to one woman, "If our men see us
dancing, they will assume we are too emotional to handle important decisions like voting. We have struggled so long for our democracy that we cannot risk having our rights taken away."
At another party, a sympathetic woman pulled me aside to whisper her
thoughts. "In this society," she confided, "we are so objectified by the
chador that we will not come to terms with our own bodies. Your camera
threatens us. If the women in this room were honest with you, they would say that they cannot stand to view themselves in the mirror."
Just as we cannot force Muslim women to be free, so we cannot lay all
misunderstanding at the feet of the West. Clearly, Muslim women do not speak with one voice.
But fear - of their physical selves, of social stigma, even of political
disenfranchisement - prevents too many of them from speaking their personal truths. That is what needs to change. And that is the great gift Canada offers to immigrants. How refreshing it would be for our leaders to exercise their liberties by reminding newcomers of theirs.
All the rest is cosmetic.
Irshad Manji, director of the Moral Courage Project at New York University,
is author of The Trouble with Islam Today and creator of the documentary
Faith Without Fear.
Irshad Manji October 14,
2008 The Globe and Mail
Is it just me or has precious little vision been conveyed in this campaign
for the future of Canada? Despite our aching financial portfolios, questions
bigger than bailouts help us appreciate what Canadians still have - and why we remain more blessed than almost anybody else.
Among those questions: How do we balance being a nation of open minds while standing by a core set of values? As a Canadian without borders, I take my cues from my travels. Let me start at home. Recently, I received an e-mail from an angry Ontarian. He said he wished he were "brave"
enough to rip the head scarves off Muslim immigrants and remind them they now live in a free society.
The contradiction of his statement apparently escaped him. Forcing women to be free gives freedom a hideous name. I love my liberties too much to deny other Canadians theirs. Fact is, not all Muslim women who wear the hijab are oppressed into doing so.
It took a trip outside of Canada to understand this. Nearly four years ago,
in the same week that a Dutch Muslim murdered Theo van Gogh for making a film featuring a half-naked woman, I toured Paris with my book.
At one of the city's largest bookstores - ironically named Virgin - I saw a
massive table displaying manifestos by Muslim women. Those written by older women asked their daughters, "Why are you wearing that God-awful head scarf when we fought so hard so you do not have to?" The books written by younger women shot back, "You fought hard for my choice. And like it or not, this is my choice."
But if many Muslim women are volunteering to cover, the reality persists
that many others are not. On the eve of the law banning head scarves in
France's state-funded schools, pollsters there asked Muslim women how they felt about the proposal. A majority of those anonymously surveyed replied they approved of the ban. Asked why, most said it's not because they oppose Islam, it's because they oppose the harassment, intimidation and violence to which they will be subjected by men in their communities if they do not wear head scarves.
Then there's Yemen, a democracy in which almost every woman wraps herself from top to toe in black. No law makes her do it. Cultural pressure does.
While in Yemen to film my documentary, several well-educated Muslim women invited me to their private parties. After the guests slipped off their
body-length chadors, I witnessed fashion-conscious females exult in their
embrace of life - laughing, singing, smoking, wiggling, jiggling.
Wanting to share their humanity with the world, I switched on my video
camera to capture the image of bare feet dancing. No bellies, breasts or
behinds. Feet only. In each of the parties at which I tried this, my camera
had been rolling for less than 10 seconds when different women stepped in to block my lens. "Turn it off," came the instructions.
I bargained. "Don't you want Western audiences to know that you're capable of having fun? That there's more to you than your chador?"
Their answers stunned me. According to one woman, "If our men see us
dancing, they will assume we are too emotional to handle important decisions like voting. We have struggled so long for our democracy that we cannot risk having our rights taken away."
At another party, a sympathetic woman pulled me aside to whisper her
thoughts. "In this society," she confided, "we are so objectified by the
chador that we will not come to terms with our own bodies. Your camera
threatens us. If the women in this room were honest with you, they would say that they cannot stand to view themselves in the mirror."
Just as we cannot force Muslim women to be free, so we cannot lay all
misunderstanding at the feet of the West. Clearly, Muslim women do not speak with one voice.
But fear - of their physical selves, of social stigma, even of political
disenfranchisement - prevents too many of them from speaking their personal truths. That is what needs to change. And that is the great gift Canada offers to immigrants. How refreshing it would be for our leaders to exercise their liberties by reminding newcomers of theirs.
All the rest is cosmetic.
Irshad Manji, director of the Moral Courage Project at New York University,
is author of The Trouble with Islam Today and creator of the documentary
Faith Without Fear.
October 15, 2008
Op-Ed Columnist
Why How Matters
By THOMAS L. FRIEDMAN
I have a friend who regularly reminds me that if you jump off the top of an 80-story building, for 79 stories you can actually think you’re flying. It’s the sudden stop at the end that always gets you.
When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image. We thought we were flying. Well, we just met the sudden stop at the end. The laws of gravity, it turns out, still apply. You cannot tell tens of thousands of people that they can have the American dream — a home, for no money down and nothing to pay for two years — without that eventually catching up to you. The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America.
Our financial bubble, like all bubbles, has many complex strands feeding into it — called derivatives and credit-default swaps — but at heart, it is really very simple. We got away from the basics — from the fundamentals of prudent lending and borrowing, where the lender and borrower maintain some kind of personal responsibility for, and personal interest in, whether the person receiving the money can actually pay it back. Instead, we fell into what some people call Y.B.G. and I.B.G. lending: “you’ll be gone and I’ll be gone” before the bill comes due.
Yes, this bubble is about us — not all of us, many Americans were way too poor to play. But it is about enough of us to say it is about America. And we will not get out of this without going back to some basics, which is why I find myself re-reading a valuable book that I wrote about once before, called, “How: Why How We Do Anything Means Everything in Business (and in Life).” Its author, Dov Seidman, is the C.E.O. of LRN, which helps companies build ethical corporate cultures.
Seidman basically argues that in our hyperconnected and transparent world, how you do things matters more than ever, because so many more people can now see how you do things, be affected by how you do things and tell others how you do things on the Internet anytime, for no cost and without restraint.
“In a connected world,” Seidman said to me, “countries, governments and companies also have character, and their character — how they do what they do, how they keep promises, how they make decisions, how things really happen inside, how they connect and collaborate, how they engender trust, how they relate to their customers, to the environment and to the communities in which they operate — is now their fate.”
We got away from these hows. We became more connected than ever in recent years, but the connections were actually very loose. That is, we went away from a world in which, if you wanted a mortgage to buy a home, you needed to show real income and a credit record into a world where a banker could sell you a mortgage and make gobs of money upfront and then offload your mortgage to a bundler who put a whole bunch together, chopped them into bonds and sold some to banks as far afield as Iceland.
The bank writing the mortgage got away from how because it was just passing you along to a bundler. And the investment bank bundling these mortgages got away from how because it didn’t know you, but it knew it was lucrative to bundle your mortgage with others. And the credit-rating agency got away from “how” because there was just so much money to be made in giving good ratings to these bonds, why delve too deeply? And the bank in Iceland got away from how because, hey, everyone else was buying the stuff and returns were great — so why not?
“UBS bank’s motto is: ‘You and us.’ But the world we created was actually ‘You and nobody’ — nobody was really connected in value terms,” said Seidman. “Parts of Wall Street got disconnected from investing in human endeavor — helping business to scale and take up new ideas.” Instead, they started to just engineer money from money. “So some of the smartest C.E.O.’s did not know what some of their smartest people were doing.”
Charles Mackay wrote a classic history of financial crises called “Extraordinary Popular Delusions and the Madness of Crowds,” first published in London in 1841. “Money ... has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
And so it must be with us. We need to get back to collaborating the old-fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications and thinking about how — not just how much.
Op-Ed Columnist
Why How Matters
By THOMAS L. FRIEDMAN
I have a friend who regularly reminds me that if you jump off the top of an 80-story building, for 79 stories you can actually think you’re flying. It’s the sudden stop at the end that always gets you.
When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image. We thought we were flying. Well, we just met the sudden stop at the end. The laws of gravity, it turns out, still apply. You cannot tell tens of thousands of people that they can have the American dream — a home, for no money down and nothing to pay for two years — without that eventually catching up to you. The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America.
Our financial bubble, like all bubbles, has many complex strands feeding into it — called derivatives and credit-default swaps — but at heart, it is really very simple. We got away from the basics — from the fundamentals of prudent lending and borrowing, where the lender and borrower maintain some kind of personal responsibility for, and personal interest in, whether the person receiving the money can actually pay it back. Instead, we fell into what some people call Y.B.G. and I.B.G. lending: “you’ll be gone and I’ll be gone” before the bill comes due.
Yes, this bubble is about us — not all of us, many Americans were way too poor to play. But it is about enough of us to say it is about America. And we will not get out of this without going back to some basics, which is why I find myself re-reading a valuable book that I wrote about once before, called, “How: Why How We Do Anything Means Everything in Business (and in Life).” Its author, Dov Seidman, is the C.E.O. of LRN, which helps companies build ethical corporate cultures.
Seidman basically argues that in our hyperconnected and transparent world, how you do things matters more than ever, because so many more people can now see how you do things, be affected by how you do things and tell others how you do things on the Internet anytime, for no cost and without restraint.
“In a connected world,” Seidman said to me, “countries, governments and companies also have character, and their character — how they do what they do, how they keep promises, how they make decisions, how things really happen inside, how they connect and collaborate, how they engender trust, how they relate to their customers, to the environment and to the communities in which they operate — is now their fate.”
We got away from these hows. We became more connected than ever in recent years, but the connections were actually very loose. That is, we went away from a world in which, if you wanted a mortgage to buy a home, you needed to show real income and a credit record into a world where a banker could sell you a mortgage and make gobs of money upfront and then offload your mortgage to a bundler who put a whole bunch together, chopped them into bonds and sold some to banks as far afield as Iceland.
The bank writing the mortgage got away from how because it was just passing you along to a bundler. And the investment bank bundling these mortgages got away from how because it didn’t know you, but it knew it was lucrative to bundle your mortgage with others. And the credit-rating agency got away from “how” because there was just so much money to be made in giving good ratings to these bonds, why delve too deeply? And the bank in Iceland got away from how because, hey, everyone else was buying the stuff and returns were great — so why not?
“UBS bank’s motto is: ‘You and us.’ But the world we created was actually ‘You and nobody’ — nobody was really connected in value terms,” said Seidman. “Parts of Wall Street got disconnected from investing in human endeavor — helping business to scale and take up new ideas.” Instead, they started to just engineer money from money. “So some of the smartest C.E.O.’s did not know what some of their smartest people were doing.”
Charles Mackay wrote a classic history of financial crises called “Extraordinary Popular Delusions and the Madness of Crowds,” first published in London in 1841. “Money ... has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
And so it must be with us. We need to get back to collaborating the old-fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications and thinking about how — not just how much.
Same wage for all setup abandoned by Cuba
Reuters
Friday, October 17, 2008
Cuba is pushing state-run companies to adopt new wage policies by 2009 that would allow workers and managers to earn as much as they can, local media said Thursday, as President Raul Castro seeks to improve economic performance.
The labour ministry, in conjunction with Castro's closest military economic advisers, issued instructions to managers this week on how to design the new system. He ordered it be fully discussed with workers and ready by December, after they failed to meet an August deadline, said Ariel Terrero, Cuba's most popular economic commentator.
There is little difference in wage scales set by central planners so someone who does little earns almost as much as someone who works hard, including managers.
The plan would replace the current across-the-board egalitarian system with one based on piece work and concrete conditions in each workplace.
Cubans make an average salary of about $17 per month but they receive subsidized food and utilities, transportation, health, education and, in some cases, collective bonuses. The Cuban state controls more than 90 per cent of the economy.
"The goal is to put an end once and for all to these egalitarian concepts that are so damaging for the economy and socialism and that have done more harm than good during these years," Terrero said.
© The Calgary Herald 2008
Reuters
Friday, October 17, 2008
Cuba is pushing state-run companies to adopt new wage policies by 2009 that would allow workers and managers to earn as much as they can, local media said Thursday, as President Raul Castro seeks to improve economic performance.
The labour ministry, in conjunction with Castro's closest military economic advisers, issued instructions to managers this week on how to design the new system. He ordered it be fully discussed with workers and ready by December, after they failed to meet an August deadline, said Ariel Terrero, Cuba's most popular economic commentator.
There is little difference in wage scales set by central planners so someone who does little earns almost as much as someone who works hard, including managers.
The plan would replace the current across-the-board egalitarian system with one based on piece work and concrete conditions in each workplace.
Cubans make an average salary of about $17 per month but they receive subsidized food and utilities, transportation, health, education and, in some cases, collective bonuses. The Cuban state controls more than 90 per cent of the economy.
"The goal is to put an end once and for all to these egalitarian concepts that are so damaging for the economy and socialism and that have done more harm than good during these years," Terrero said.
© The Calgary Herald 2008
October 19, 2008
Op-Ed Columnist
The Great Iceland Meltdown
By THOMAS L. FRIEDMAN
London
Who knew? Who knew that Iceland was just a hedge fund with glaciers? Who knew?
If you’re looking for a single example of how the globalization of finance helped get us into this mess and how it will help get us out, you need look no further than British newspapers last week and their front-page articles about the number of British citizens, municipalities and universities — including Cambridge — that are in a tizzy today because they had savings parked in Icelandic banks, through online banking services like Icesave.co.uk.
As Dave Barry would say, I’m not makin’ this up.
When I went to the Icesave Web site to see what it was all about, the headline read: “Simple, transparent and consistently high-rate online savings accounts from Icesave.” But then, underneath in blue letters, I found the following note appended: “We are not currently processing any deposits or any withdrawal requests through our Icesave Internet accounts. We apologize for any inconvenience this may cause our customers.”
Any “inconvenience?” When you can’t withdraw savings from an online bank in Iceland, that is more than an inconvenience! That’s a reason for total panic.
So what’s the story? Around 2002, Iceland began to free its banks from state ownership. According to The Wall Street Journal, the three banks that make up almost the entire banking system in Iceland “grew quickly on easy credit” and “their combined assets rose tenfold in five years.” The Icelandic banks, while not invested in U.S. subprime mortgages, had gone on their own borrowing and lending binges, wooing savers from across Europe with 5.45 percent interest savings accounts.
In a flat world, money can easily seek out the highest returns, and when word got around about Iceland, deposits poured in from Britain — some $1.8 billion. Unfortunately, though, when global credit markets closed up, and the krona fell, “the Icelandic banks were unable to finance their debts, many of which were denominated in foreign currencies,” The Times reported. When depositors rushed to get their money out, the Icelandic banking system had too little reserves to cover withdrawals, so all three banks melted down and were nationalized.
It turns out that more than 120 British municipal governments, as well as universities, hospitals and charities had deposits stranded in blocked Icelandic bank accounts. Cambridge alone had about $20 million, while 15 British police forces — from towns like Kent, Surrey, Sussex and Lancashire — had roughly $170 million frozen in Iceland, The Telegraph reported. Even the bobbies were banking in Iceland!
So think about it: Some mortgage broker in Los Angeles gives subprime “liar loans” to people who have no credit ratings so they can buy homes in Southern California. Those flimsy mortgages get globalized through the global banking system and, when they go sour, they eventually prompt banks to stop lending, fearful that every other bank’s assets are toxic, too. The credit crunch hits Iceland, which went on its own binge. Meanwhile, the police department of Northumbria, England, had invested some of its extra cash in Iceland, and, now that those accounts are frozen, it may have to reduce street patrols this weekend.
And therein lies the central truth of globalization today: We’re all connected and nobody is in charge.
Globalization giveth — it was this democratization of finance that helped to power the global growth that lifted so many in India, China and Brazil out of poverty in recent decades. Globalization now taketh away — it was this democratization of finance that enabled the U.S. to infect the rest of the world with its toxic mortgages. And now, we have to hope, that globalization will saveth.
The real and sustained bailout from the crisis will happen when the strong companies buy the weak ones — on a global basis. It’s starting. Last week, Credit Suisse declined a Swiss government bailout and instead raised fresh capital from Qatar, the Olayan family of Saudi Arabia and Israel’s Koor Industries. Japan’s Mitsubishi bank bought a stake in Morgan Stanley, possibly rescuing it from bankruptcy and preventing an even steeper decline in the Dow. And Spain’s Banco Santander, which was spared from the worst of this credit crisis by Spain’s conservative banking regulations, is purchasing America’s Sovereign Bankcorp.
I suspect we will soon see the same happening in industry. And, once the smoke clears, I suspect we will find ourselves living in a world of globalization on steroids — a world in which key global economies are more intimately tied together than ever before.
It will be a world in which America will not be able to scratch its ear, let alone roll over in bed, without thinking about the impact on other countries and economies. And it will be a world in which multilateral diplomacy and regulation will no longer be a choice. It will be a reality and a necessity. We are all partners now.
Op-Ed Columnist
The Great Iceland Meltdown
By THOMAS L. FRIEDMAN
London
Who knew? Who knew that Iceland was just a hedge fund with glaciers? Who knew?
If you’re looking for a single example of how the globalization of finance helped get us into this mess and how it will help get us out, you need look no further than British newspapers last week and their front-page articles about the number of British citizens, municipalities and universities — including Cambridge — that are in a tizzy today because they had savings parked in Icelandic banks, through online banking services like Icesave.co.uk.
As Dave Barry would say, I’m not makin’ this up.
When I went to the Icesave Web site to see what it was all about, the headline read: “Simple, transparent and consistently high-rate online savings accounts from Icesave.” But then, underneath in blue letters, I found the following note appended: “We are not currently processing any deposits or any withdrawal requests through our Icesave Internet accounts. We apologize for any inconvenience this may cause our customers.”
Any “inconvenience?” When you can’t withdraw savings from an online bank in Iceland, that is more than an inconvenience! That’s a reason for total panic.
So what’s the story? Around 2002, Iceland began to free its banks from state ownership. According to The Wall Street Journal, the three banks that make up almost the entire banking system in Iceland “grew quickly on easy credit” and “their combined assets rose tenfold in five years.” The Icelandic banks, while not invested in U.S. subprime mortgages, had gone on their own borrowing and lending binges, wooing savers from across Europe with 5.45 percent interest savings accounts.
In a flat world, money can easily seek out the highest returns, and when word got around about Iceland, deposits poured in from Britain — some $1.8 billion. Unfortunately, though, when global credit markets closed up, and the krona fell, “the Icelandic banks were unable to finance their debts, many of which were denominated in foreign currencies,” The Times reported. When depositors rushed to get their money out, the Icelandic banking system had too little reserves to cover withdrawals, so all three banks melted down and were nationalized.
It turns out that more than 120 British municipal governments, as well as universities, hospitals and charities had deposits stranded in blocked Icelandic bank accounts. Cambridge alone had about $20 million, while 15 British police forces — from towns like Kent, Surrey, Sussex and Lancashire — had roughly $170 million frozen in Iceland, The Telegraph reported. Even the bobbies were banking in Iceland!
So think about it: Some mortgage broker in Los Angeles gives subprime “liar loans” to people who have no credit ratings so they can buy homes in Southern California. Those flimsy mortgages get globalized through the global banking system and, when they go sour, they eventually prompt banks to stop lending, fearful that every other bank’s assets are toxic, too. The credit crunch hits Iceland, which went on its own binge. Meanwhile, the police department of Northumbria, England, had invested some of its extra cash in Iceland, and, now that those accounts are frozen, it may have to reduce street patrols this weekend.
And therein lies the central truth of globalization today: We’re all connected and nobody is in charge.
Globalization giveth — it was this democratization of finance that helped to power the global growth that lifted so many in India, China and Brazil out of poverty in recent decades. Globalization now taketh away — it was this democratization of finance that enabled the U.S. to infect the rest of the world with its toxic mortgages. And now, we have to hope, that globalization will saveth.
The real and sustained bailout from the crisis will happen when the strong companies buy the weak ones — on a global basis. It’s starting. Last week, Credit Suisse declined a Swiss government bailout and instead raised fresh capital from Qatar, the Olayan family of Saudi Arabia and Israel’s Koor Industries. Japan’s Mitsubishi bank bought a stake in Morgan Stanley, possibly rescuing it from bankruptcy and preventing an even steeper decline in the Dow. And Spain’s Banco Santander, which was spared from the worst of this credit crisis by Spain’s conservative banking regulations, is purchasing America’s Sovereign Bankcorp.
I suspect we will soon see the same happening in industry. And, once the smoke clears, I suspect we will find ourselves living in a world of globalization on steroids — a world in which key global economies are more intimately tied together than ever before.
It will be a world in which America will not be able to scratch its ear, let alone roll over in bed, without thinking about the impact on other countries and economies. And it will be a world in which multilateral diplomacy and regulation will no longer be a choice. It will be a reality and a necessity. We are all partners now.
October 23, 2008
Op-Ed Columnist
Rebranding the U.S. With Obama
By NICHOLAS D. KRISTOF
The other day I had a conversation with a Beijing friend and I mentioned that Barack Obama was leading in the presidential race:
She: Obama? But he’s the black man, isn’t he?
Me: Yes, exactly.
She: But surely a black man couldn’t become president of the United States?
Me: It looks as if he’ll be elected.
She: But president? That’s such an important job! In America, I thought blacks were janitors and laborers.
Me: No, blacks have all kinds of jobs.
She: What do white people think about that, about getting a black president? Are they upset? Are they angry?
Me: No, of course not! If Obama is elected, it’ll be because white people voted for him.
[Long pause.]
She: Really? Unbelievable! What an amazing country!
We’re beginning to get a sense of how Barack Obama’s political success could change global perceptions of the United States, redefining the American “brand” to be less about Guantánamo and more about equality. This change in perceptions would help rebuild American political capital in the way that the Marshall Plan did in the 1950s or that John Kennedy’s presidency did in the early 1960s.
In his endorsement of Mr. Obama, Colin Powell noted that “the new president is going to have to fix the reputation that we’ve left with the rest of the world.” That’s not because we crave admiration, but because cooperation is essential to address 21st-century challenges; you can’t fire cruise missiles at the global financial crisis.
In his endorsement, Mr. Powell added that an Obama election “will also not only electrify our country, I think it’ll electrify the world.” You can already see that. A 22-nation survey by the BBC found that voters abroad preferred Mr. Obama to Mr. McCain in every single country — by four to one over all. Nearly half of those in the BBC poll said that the election of Mr. Obama, an African-American, would “fundamentally change” their perceptions of the United States.
Europe is particularly intoxicated by the possibility of restoring amity with America in an Obama presidency. As The Economist put it: “Across the Continent, Bush hatred has been replaced by Obama-mania.”
Steven Kull, director of the Program on International Policy Attitudes, which conducted the BBC poll, said that at a recent international conference he attended in Malaysia, many Muslims voiced astonishment at Mr. Obama’s rise because it was so much at odds with their assumptions about the United States. Remember that the one thing countless millions of people around the world “know” about the United States is that it is controlled by a cabal of white bankers and Jews who use police with fire hoses to repress blacks. To them, Mr. Obama’s rise triggers severe cognitive dissonance.
“It’s an anomaly, so contrary to their expectation that it makes them receptive to a new paradigm for the U.S.,” Mr. Kull said.
Europeans like to mock the vapidity of American politics, but they also acknowledge that it would be difficult to imagine a brown or black person leading France or Germany.
As for Africa, Mr. Obama’s Kenyan father was of the Luo tribe, a minority that has long suffered brutal discrimination in both Kenya and in Uganda (where it is known as the Acholi). The bitter joke in East Africa is that a Luo has more of a chance of becoming president in the United States than in Kenya.
Yet before we get too far with the self-congratulations, it’s worth remembering something else.
In the western industrialized world, full of university graduates and marinated in principles of egalitarianism, the idea of electing a member of a racial minority to the highest office seems an astonishing breakthrough. But Jamaica’s 95 percent black population elected a white man as its prime minister in 1980, and kept him in office throughout that decade.
Likewise, the African nation of Mauritius has elected a white prime minister of French origin. And don’t forget that India is overwhelmingly Hindu but now has a Sikh prime minister and a white Christian as president of its ruling party, and until last year it had a Muslim in the largely ceremonial position of president.
Look, Mr. Obama’s skin color is a bad reason to vote for him or against him. Substance should always trump symbolism.
Yet if this election goes as the polls suggest, we may find a path to restore America’s global influence — and thus to achieve some of our international objectives — in part because the world is concluding that Americans can, after all, see beyond a person’s epidermis. My hunch is that that is right, and that we’re every bit as open-minded about racial minorities as Jamaicans already were a quarter-century ago.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
Op-Ed Columnist
Rebranding the U.S. With Obama
By NICHOLAS D. KRISTOF
The other day I had a conversation with a Beijing friend and I mentioned that Barack Obama was leading in the presidential race:
She: Obama? But he’s the black man, isn’t he?
Me: Yes, exactly.
She: But surely a black man couldn’t become president of the United States?
Me: It looks as if he’ll be elected.
She: But president? That’s such an important job! In America, I thought blacks were janitors and laborers.
Me: No, blacks have all kinds of jobs.
She: What do white people think about that, about getting a black president? Are they upset? Are they angry?
Me: No, of course not! If Obama is elected, it’ll be because white people voted for him.
[Long pause.]
She: Really? Unbelievable! What an amazing country!
We’re beginning to get a sense of how Barack Obama’s political success could change global perceptions of the United States, redefining the American “brand” to be less about Guantánamo and more about equality. This change in perceptions would help rebuild American political capital in the way that the Marshall Plan did in the 1950s or that John Kennedy’s presidency did in the early 1960s.
In his endorsement of Mr. Obama, Colin Powell noted that “the new president is going to have to fix the reputation that we’ve left with the rest of the world.” That’s not because we crave admiration, but because cooperation is essential to address 21st-century challenges; you can’t fire cruise missiles at the global financial crisis.
In his endorsement, Mr. Powell added that an Obama election “will also not only electrify our country, I think it’ll electrify the world.” You can already see that. A 22-nation survey by the BBC found that voters abroad preferred Mr. Obama to Mr. McCain in every single country — by four to one over all. Nearly half of those in the BBC poll said that the election of Mr. Obama, an African-American, would “fundamentally change” their perceptions of the United States.
Europe is particularly intoxicated by the possibility of restoring amity with America in an Obama presidency. As The Economist put it: “Across the Continent, Bush hatred has been replaced by Obama-mania.”
Steven Kull, director of the Program on International Policy Attitudes, which conducted the BBC poll, said that at a recent international conference he attended in Malaysia, many Muslims voiced astonishment at Mr. Obama’s rise because it was so much at odds with their assumptions about the United States. Remember that the one thing countless millions of people around the world “know” about the United States is that it is controlled by a cabal of white bankers and Jews who use police with fire hoses to repress blacks. To them, Mr. Obama’s rise triggers severe cognitive dissonance.
“It’s an anomaly, so contrary to their expectation that it makes them receptive to a new paradigm for the U.S.,” Mr. Kull said.
Europeans like to mock the vapidity of American politics, but they also acknowledge that it would be difficult to imagine a brown or black person leading France or Germany.
As for Africa, Mr. Obama’s Kenyan father was of the Luo tribe, a minority that has long suffered brutal discrimination in both Kenya and in Uganda (where it is known as the Acholi). The bitter joke in East Africa is that a Luo has more of a chance of becoming president in the United States than in Kenya.
Yet before we get too far with the self-congratulations, it’s worth remembering something else.
In the western industrialized world, full of university graduates and marinated in principles of egalitarianism, the idea of electing a member of a racial minority to the highest office seems an astonishing breakthrough. But Jamaica’s 95 percent black population elected a white man as its prime minister in 1980, and kept him in office throughout that decade.
Likewise, the African nation of Mauritius has elected a white prime minister of French origin. And don’t forget that India is overwhelmingly Hindu but now has a Sikh prime minister and a white Christian as president of its ruling party, and until last year it had a Muslim in the largely ceremonial position of president.
Look, Mr. Obama’s skin color is a bad reason to vote for him or against him. Substance should always trump symbolism.
Yet if this election goes as the polls suggest, we may find a path to restore America’s global influence — and thus to achieve some of our international objectives — in part because the world is concluding that Americans can, after all, see beyond a person’s epidermis. My hunch is that that is right, and that we’re every bit as open-minded about racial minorities as Jamaicans already were a quarter-century ago.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
October 25, 2008
Editorial
Rescuing Capitalism
It would be fairly easy to dismiss the gleeful boast by President Nicolas Sarkozy of France that American-style capitalism is over, to file it with French critiques of fast food and American pop culture.
Except that the United States government now owns stakes in the nation’s biggest banks. It controls one of the biggest insurance companies in the world. It guarantees more than half the mortgages in the country. Finance — the lifeblood of capitalism — has to a substantial degree been taken over by the state.
Even Alan Greenspan, the high priest of unfettered capitalism and a former chairman of the Federal Reserve, conceded this week that he had “found a flaw” in his bedrock belief of “40 years or more” that markets would regulate themselves. “I made a mistake,” he said.
The question is what new direction capitalism should take. In a globally interconnected world, the United States cannot simply march back to the gray flannel capitalism of the 1950s and 1960s when regulations were tough and coddled monopolies dominated the corporate world. Still, the next president will have a chance, not to be missed, to re-evaluate some tenets of the freewheeling, deregulated version of a market economy that has dominated America since the Reagan administration.
Financial deregulation enabled our boom-and-bust dynamic — removing barriers to capital flows, allowing unrestricted trading of abstruse financial products and letting financial institutions take on more and more debt. Cheap money, from China or the Federal Reserve, fueled the fire. But America’s virtually unregulated shadow financial institutions — brokerages, hedge funds and other nonbank banks — played a particularly important role at the center of this process.
The solution will require rethinking the rules of finance. The amount of capital that banks must keep in reserve will have to rise; deregulated financial institutions will have to be regulated. Yet much more will be needed than just putting the bridle back on American banks.
The next government must re-establish some notion of equity of opportunity. Investment is desperately needed in health care, education, infrastructure. The social contract and the government’s role in it should be examined anew. Addressing these challenges will be an enormous task — especially amid the bitter recession that most economists expect over the next year or so. But they must be faced. Fixing finance is merely the start.
Editorial
Rescuing Capitalism
It would be fairly easy to dismiss the gleeful boast by President Nicolas Sarkozy of France that American-style capitalism is over, to file it with French critiques of fast food and American pop culture.
Except that the United States government now owns stakes in the nation’s biggest banks. It controls one of the biggest insurance companies in the world. It guarantees more than half the mortgages in the country. Finance — the lifeblood of capitalism — has to a substantial degree been taken over by the state.
Even Alan Greenspan, the high priest of unfettered capitalism and a former chairman of the Federal Reserve, conceded this week that he had “found a flaw” in his bedrock belief of “40 years or more” that markets would regulate themselves. “I made a mistake,” he said.
The question is what new direction capitalism should take. In a globally interconnected world, the United States cannot simply march back to the gray flannel capitalism of the 1950s and 1960s when regulations were tough and coddled monopolies dominated the corporate world. Still, the next president will have a chance, not to be missed, to re-evaluate some tenets of the freewheeling, deregulated version of a market economy that has dominated America since the Reagan administration.
Financial deregulation enabled our boom-and-bust dynamic — removing barriers to capital flows, allowing unrestricted trading of abstruse financial products and letting financial institutions take on more and more debt. Cheap money, from China or the Federal Reserve, fueled the fire. But America’s virtually unregulated shadow financial institutions — brokerages, hedge funds and other nonbank banks — played a particularly important role at the center of this process.
The solution will require rethinking the rules of finance. The amount of capital that banks must keep in reserve will have to rise; deregulated financial institutions will have to be regulated. Yet much more will be needed than just putting the bridle back on American banks.
The next government must re-establish some notion of equity of opportunity. Investment is desperately needed in health care, education, infrastructure. The social contract and the government’s role in it should be examined anew. Addressing these challenges will be an enormous task — especially amid the bitter recession that most economists expect over the next year or so. But they must be faced. Fixing finance is merely the start.
October 26, 2008
Op-Ed Columnist
Ceding the Center
By DAVID BROOKS
There are two major political parties in America, but there are at least three major political tendencies. The first is orthodox liberalism, a belief in using government to maximize equality. The second is free-market conservatism, the belief in limiting government to maximize freedom.
But there is a third tendency, which floats between. It is for using limited but energetic government to enhance social mobility. This tendency began with Alexander Hamilton, who created a vibrant national economy so more people could rise and succeed. It matured with Abraham Lincoln and the Civil War Republicans, who created the Land Grant College Act and the Homestead Act to give people the tools to pursue their ambitions. It continued with Theodore Roosevelt, who busted the trusts to give more Americans a square deal.
Members of this tradition have one foot in the conservatism of Edmund Burke. They understand how little we know or can know and how much we should rely on tradition, prudence and habit. They have an awareness of sin, of the importance of traditional virtues and stable institutions. They understand that we are not free-floating individuals but are embedded in thick social organisms.
But members of this tradition also have a foot in the landscape of America, and share its optimism and its Lincolnian faith in personal transformation. Hamilton didn’t seek wealth for its own sake, but as a way to enhance the country’s greatness and serve the unique cause America represents in the world.
Members of this tradition are Americanized Burkeans, or to put it another way, progressive conservatives.
This tendency thrived in American life for a century and a half, but it went into hibernation during the 20th century because it sat crossways to that era’s great debate — the one between socialism and its enemies. But many of us hoped this Hamilton-to-Bull Moose tradition would be reborn in John McCain’s campaign.
McCain shares the progressive conservative instinct. He has shown his sympathy with the striving immigrant and his disgust with the colluding corporatist. He has an untiring reform impulse and a devotion to national service and American exceptionalism.
His campaign seemed the perfect vehicle to explain how this old approach applied to a new century with new problems — a century with widening inequality, declining human capital, a fraying social contract, rising entitlement debt, corporate authoritarian regimes abroad and soft corporatist collusion at home.
In modernizing this old tradition, some of us hoped McCain would take sides in the debate now dividing the G.O.P. Some Republicans believe the G.O.P. went astray by abandoning its tax-cutting, anti-government principles. They want a return to Reagan (or at least the Reagan of their imaginations). But others want to modernize and widen the party and adapt it to new challenges. Some of us hoped that by reforming his party, which has grown so unpopular, McCain could prove that he could reform the country.
But McCain never took sides in this debate and never articulated a governing philosophy, Hamiltonian or any other. In Sunday’s issue of The Times Magazine, Robert Draper describes the shifts in tactics that consumed the McCain campaign. The tactics varied promiscuously, but they were all about how to present McCain, not about how to describe the state of country or the needs of the voter. It was all biography, which was necessary, but it did not clearly point to a new direction for the party or the country.
The Hamiltonian-Bull Moose tendency is the great, moderate strain in American politics. In some sense this whole campaign was a contest to see which party could reach out from its base and occupy that centrist ground. The Democratic Party did that. Senior Democrats like Robert Rubin, Larry Summers and Jason Furman actually created something called The Hamilton Project to lay out a Hamiltonian approach for our day.
McCain and Republicans stayed within their lines. There was a lot of talk about earmarks. There was a good health care plan that was never fully explained. And there was Sarah Palin, who represents the old resentments and the narrow appeal of conventional Republicanism.
As a result, Democrats now control the middle. Self-declared moderates now favor Obama by 59 to 30, according to the New York Times/CBS News poll. Suburban voters favor Obama 50 to 39. Voters over all give him a 21 point lead when it comes to better handling the economy and a 14 point lead on tax policy, according to the Wall Street Journal/NBC News poll.
McCain would be an outstanding president. In government, he has almost always had an instinct for the right cause. He has become an experienced legislative craftsman. He is stalwart against the country’s foes and cooperative with its friends. But he never escaped the straightjacket of a party that is ailing and a conservatism that is behind the times. And that’s what makes the final weeks of this campaign so unspeakably sad.
****
October 26, 2008
Op-Ed Columnist
If Larry and Sergey Asked for a Loan ...
By THOMAS L. FRIEDMAN
The hardest thing about analyzing the Bush administration is this: Some things are true even if George Bush believes them.
Therefore, sifting through all his steps and missteps, at home and abroad, and trying to sort out what is crazy and what might actually be true — even though George Bush believes it — presents an enormous challenge, particularly amid this economic crisis.
I felt that very strongly when listening to President Bush and Treasury Secretary Hank Paulson announce that the government was going to become a significant shareholder in the country’s major banks. Both Bush and Paulson were visibly reluctant to be taking this step. It would be easy to scoff at them and say: “What do you expect from a couple of capitalists who hate any kind of government intervention in the market?”
But we should reflect on their reluctance. There may be an important message in their grimaces. The government had to step in and shore up the balance sheets of our major banks. But the question I am asking myself, and I think Paulson and Bush were asking themselves, is this: “What will this government intervention do to the risk-taking that is at the heart of capitalism?”
There is a fine line between risk-taking and recklessness. Risk-taking drives innovation; recklessness drives over a cliff. In recent years, we had way too much of the latter. We are paying a huge price for that, and we need a correction. But how do we do that without becoming so risk-averse that start-ups and emerging economies can’t get capital because banks with the government as a shareholder become exceedingly cautious.
Let’s imagine this scene: You are the president of one of these banks in which the government has taken a position. One day two young Stanford grads walk in your door. One is named Larry, and the other is named Sergey. They each are wearing jeans and a T-shirt. They tell you that they have this thing called a “search engine,” and they are naming it — get this — “Google.” They tell you to type in any word in this box on a computer screen and — get this — hit a button labeled “I’m Feeling Lucky.” Up comes a bunch of Web sites related to that word. Their start-up, which they are operating out of their dorm room, has exhausted its venture capital. They need a loan.
What are you going to say to Larry and Sergey as the president of the bank? “Boys, this is very interesting. But I have the U.S. Treasury as my biggest shareholder today, and if you think I’m going to put money into something called ‘Google,’ with a key called ‘I’m Feeling Lucky,’ you’re fresh outta luck. Can you imagine me explaining that to a Congressional committee if you guys go bust?”
And then what happens if the next day the congressman from Palo Alto, who happens to be on the House banking committee, calls you, the bank president, and says: “I understand you turned down my boys, Larry and Sergey. Maybe you haven’t been told, but I am one of your shareholders — and right now, I’m not feeling very lucky. You get my drift?”
Maybe nothing like this will ever happen. Maybe it’s just my imagination. But maybe not ...
“Government bailouts and guarantees, while at times needed, always come with unintended consequences,” notes the financial strategist David Smick. “The winners: the strong, the big, the established, the domestic and the safe — the folks who, relatively speaking, don’t need the money. The losers: the new, the small, the foreign and the risky — emerging markets, entrepreneurs and small businesses not politically connected. After all, what banker in a Capitol Hill hearing now would want to defend a loan to an emerging market? Yet emerging economies are the big markets for American exports.”
Don’t get me wrong. I am not criticizing the decision to shore up the banks. And we must prevent a repeat of the reckless bundling and securitizing of mortgages, and excessive leveraging, that started this mess. We need better regulation. But most of all, we need better management.
The banks that are surviving the best today, the ones that are buying others and not being bought — like JPMorgan Chase or Banco Santander, based in Spain — are not surviving because they were better regulated than the banks across the street but because they were better run. Their leaders were more vigilant about their risk exposure than any regulator required them to be.
Bottom line: We must not overshoot in regulating the markets just because they overshot in their risk-taking. That’s what markets do. We need to fix capitalism, not install socialism. Because, ultimately, we can’t bail our way out of this crisis. We can only grow our way out — with more innovation and entrepreneurship, which create new businesses and better jobs.
So let’s keep our eyes on the prize. Save the system, install smart regulations and get the government out of the banking business as soon as possible so that the surviving banks can freely and unabashedly get back into their business: risk-taking without recklessness.
Op-Ed Columnist
Ceding the Center
By DAVID BROOKS
There are two major political parties in America, but there are at least three major political tendencies. The first is orthodox liberalism, a belief in using government to maximize equality. The second is free-market conservatism, the belief in limiting government to maximize freedom.
But there is a third tendency, which floats between. It is for using limited but energetic government to enhance social mobility. This tendency began with Alexander Hamilton, who created a vibrant national economy so more people could rise and succeed. It matured with Abraham Lincoln and the Civil War Republicans, who created the Land Grant College Act and the Homestead Act to give people the tools to pursue their ambitions. It continued with Theodore Roosevelt, who busted the trusts to give more Americans a square deal.
Members of this tradition have one foot in the conservatism of Edmund Burke. They understand how little we know or can know and how much we should rely on tradition, prudence and habit. They have an awareness of sin, of the importance of traditional virtues and stable institutions. They understand that we are not free-floating individuals but are embedded in thick social organisms.
But members of this tradition also have a foot in the landscape of America, and share its optimism and its Lincolnian faith in personal transformation. Hamilton didn’t seek wealth for its own sake, but as a way to enhance the country’s greatness and serve the unique cause America represents in the world.
Members of this tradition are Americanized Burkeans, or to put it another way, progressive conservatives.
This tendency thrived in American life for a century and a half, but it went into hibernation during the 20th century because it sat crossways to that era’s great debate — the one between socialism and its enemies. But many of us hoped this Hamilton-to-Bull Moose tradition would be reborn in John McCain’s campaign.
McCain shares the progressive conservative instinct. He has shown his sympathy with the striving immigrant and his disgust with the colluding corporatist. He has an untiring reform impulse and a devotion to national service and American exceptionalism.
His campaign seemed the perfect vehicle to explain how this old approach applied to a new century with new problems — a century with widening inequality, declining human capital, a fraying social contract, rising entitlement debt, corporate authoritarian regimes abroad and soft corporatist collusion at home.
In modernizing this old tradition, some of us hoped McCain would take sides in the debate now dividing the G.O.P. Some Republicans believe the G.O.P. went astray by abandoning its tax-cutting, anti-government principles. They want a return to Reagan (or at least the Reagan of their imaginations). But others want to modernize and widen the party and adapt it to new challenges. Some of us hoped that by reforming his party, which has grown so unpopular, McCain could prove that he could reform the country.
But McCain never took sides in this debate and never articulated a governing philosophy, Hamiltonian or any other. In Sunday’s issue of The Times Magazine, Robert Draper describes the shifts in tactics that consumed the McCain campaign. The tactics varied promiscuously, but they were all about how to present McCain, not about how to describe the state of country or the needs of the voter. It was all biography, which was necessary, but it did not clearly point to a new direction for the party or the country.
The Hamiltonian-Bull Moose tendency is the great, moderate strain in American politics. In some sense this whole campaign was a contest to see which party could reach out from its base and occupy that centrist ground. The Democratic Party did that. Senior Democrats like Robert Rubin, Larry Summers and Jason Furman actually created something called The Hamilton Project to lay out a Hamiltonian approach for our day.
McCain and Republicans stayed within their lines. There was a lot of talk about earmarks. There was a good health care plan that was never fully explained. And there was Sarah Palin, who represents the old resentments and the narrow appeal of conventional Republicanism.
As a result, Democrats now control the middle. Self-declared moderates now favor Obama by 59 to 30, according to the New York Times/CBS News poll. Suburban voters favor Obama 50 to 39. Voters over all give him a 21 point lead when it comes to better handling the economy and a 14 point lead on tax policy, according to the Wall Street Journal/NBC News poll.
McCain would be an outstanding president. In government, he has almost always had an instinct for the right cause. He has become an experienced legislative craftsman. He is stalwart against the country’s foes and cooperative with its friends. But he never escaped the straightjacket of a party that is ailing and a conservatism that is behind the times. And that’s what makes the final weeks of this campaign so unspeakably sad.
****
October 26, 2008
Op-Ed Columnist
If Larry and Sergey Asked for a Loan ...
By THOMAS L. FRIEDMAN
The hardest thing about analyzing the Bush administration is this: Some things are true even if George Bush believes them.
Therefore, sifting through all his steps and missteps, at home and abroad, and trying to sort out what is crazy and what might actually be true — even though George Bush believes it — presents an enormous challenge, particularly amid this economic crisis.
I felt that very strongly when listening to President Bush and Treasury Secretary Hank Paulson announce that the government was going to become a significant shareholder in the country’s major banks. Both Bush and Paulson were visibly reluctant to be taking this step. It would be easy to scoff at them and say: “What do you expect from a couple of capitalists who hate any kind of government intervention in the market?”
But we should reflect on their reluctance. There may be an important message in their grimaces. The government had to step in and shore up the balance sheets of our major banks. But the question I am asking myself, and I think Paulson and Bush were asking themselves, is this: “What will this government intervention do to the risk-taking that is at the heart of capitalism?”
There is a fine line between risk-taking and recklessness. Risk-taking drives innovation; recklessness drives over a cliff. In recent years, we had way too much of the latter. We are paying a huge price for that, and we need a correction. But how do we do that without becoming so risk-averse that start-ups and emerging economies can’t get capital because banks with the government as a shareholder become exceedingly cautious.
Let’s imagine this scene: You are the president of one of these banks in which the government has taken a position. One day two young Stanford grads walk in your door. One is named Larry, and the other is named Sergey. They each are wearing jeans and a T-shirt. They tell you that they have this thing called a “search engine,” and they are naming it — get this — “Google.” They tell you to type in any word in this box on a computer screen and — get this — hit a button labeled “I’m Feeling Lucky.” Up comes a bunch of Web sites related to that word. Their start-up, which they are operating out of their dorm room, has exhausted its venture capital. They need a loan.
What are you going to say to Larry and Sergey as the president of the bank? “Boys, this is very interesting. But I have the U.S. Treasury as my biggest shareholder today, and if you think I’m going to put money into something called ‘Google,’ with a key called ‘I’m Feeling Lucky,’ you’re fresh outta luck. Can you imagine me explaining that to a Congressional committee if you guys go bust?”
And then what happens if the next day the congressman from Palo Alto, who happens to be on the House banking committee, calls you, the bank president, and says: “I understand you turned down my boys, Larry and Sergey. Maybe you haven’t been told, but I am one of your shareholders — and right now, I’m not feeling very lucky. You get my drift?”
Maybe nothing like this will ever happen. Maybe it’s just my imagination. But maybe not ...
“Government bailouts and guarantees, while at times needed, always come with unintended consequences,” notes the financial strategist David Smick. “The winners: the strong, the big, the established, the domestic and the safe — the folks who, relatively speaking, don’t need the money. The losers: the new, the small, the foreign and the risky — emerging markets, entrepreneurs and small businesses not politically connected. After all, what banker in a Capitol Hill hearing now would want to defend a loan to an emerging market? Yet emerging economies are the big markets for American exports.”
Don’t get me wrong. I am not criticizing the decision to shore up the banks. And we must prevent a repeat of the reckless bundling and securitizing of mortgages, and excessive leveraging, that started this mess. We need better regulation. But most of all, we need better management.
The banks that are surviving the best today, the ones that are buying others and not being bought — like JPMorgan Chase or Banco Santander, based in Spain — are not surviving because they were better regulated than the banks across the street but because they were better run. Their leaders were more vigilant about their risk exposure than any regulator required them to be.
Bottom line: We must not overshoot in regulating the markets just because they overshot in their risk-taking. That’s what markets do. We need to fix capitalism, not install socialism. Because, ultimately, we can’t bail our way out of this crisis. We can only grow our way out — with more innovation and entrepreneurship, which create new businesses and better jobs.
So let’s keep our eyes on the prize. Save the system, install smart regulations and get the government out of the banking business as soon as possible so that the surviving banks can freely and unabashedly get back into their business: risk-taking without recklessness.
October 30, 2008
Op-Ed Columnist
What? Me Biased?
By NICHOLAS D. KRISTOF
For the last year and a half, a team of psychology professors has been conducting remarkable experiments on how Americans view Barack Obama through the prism of race.
The scholars used a common research technique, the implicit association test, to measure whether people regarded Mr. Obama and other candidates as more foreign or more American. They found that research subjects — particularly when primed to think of Mr. Obama as a black candidate — subconsciously considered him less American than either Hillary Clinton or John McCain.
Indeed, the study found that the research subjects — Californian college students, many of them Democrats supportive of Mr. Obama — unconsciously perceived him as less American even than the former British Prime Minister Tony Blair.
It’s not that any of them actually believed Mr. Obama to be foreign. But the implicit association test measured the way the unconscious mind works, and in following instructions to sort images rapidly, the mind balked at accepting a black candidate as fully American. This result mattered: The more difficulty a person had in classifying Mr. Obama as American, the less likely that person was to support Mr. Obama.
It’s easy to be skeptical of such research, so test for your own unconscious biases at https://implicit.harvard.edu/implicit/demo or at http://backhand.uchicago.edu/Center/ShooterEffect.
Race is a controversial, emotional subject in America, particularly in the context of this campaign. Many Obama supporters believe that their candidate would be further ahead if it were not for racism, while many McCain supporters resent the insinuations and believe that if Mr. Obama were white, he wouldn’t even be considered for the presidency.
Yet with race an undercurrent in the national debate, that also makes this a teachable moment. Partly that’s because of new findings both in neurology, using brain scans to understand how we respond to people of different races, and social psychology, examining the gulf between our conscious ideals of equality and our unconscious proclivity to discriminate.
Incidentally, such discrimination is not only racial. We also have unconscious biases against the elderly and against women seeking powerful positions — biases that affect the Republican ticket.
Some scholars link racial attitudes to a benefit in evolutionary times from an ability to form snap judgments about who is a likely friend and foe. There may have been an evolutionary advantage in recognizing instantaneously whether a stranger was from one’s own tribe or from an enemy tribe. There’s some evidence that the amygdala, a center in the brain for emotions, flashes a threat warning when it perceives people who look “different.”
Yet our biases are probably largely cultural. One reason to think that is that many African-Americans themselves have an unconscious pro-white bias. All told, considerable evidence suggests that while the vast majority of Americans truly believe in equality and aspire to equal opportunity for all, our minds aren’t as egalitarian as we think they are.
“To me, this study really reveals this gap between our minds and our ideals,” said Thierry Devos, a professor at San Diego State University who conducted the research on Mr. Obama, along with Debbie Ma of the University of Chicago. “Equality is very much linked to ideas of American identity, but it’s hard to live up to these ideas. Even somebody like Barack Obama, who may be about to become president — we have a hard time seeing him as American.”
A flood of recent research has shown that most Americans, including Latinos and Asian-Americans, associate the idea of “American” with white skin. One study found that although people realize that Lucy Liu is American and that Kate Winslet is British, their minds automatically process an Asian face as foreign and a white face as American — hence this title in an academic journal: “Is Kate Winslet More American Than Lucy Liu?”
One might argue that Mr. Obama registers as foreign in our minds because he does have overseas family connections, such as his father’s Kenyan ancestry. But similar experiments have found the same outcome with famous African-American sports figures.
Moreover, Professor Devos found that when participants in the latest study were told to focus on the age of each candidate, or on the political party of each candidate, then Mr. Obama and Mr. McCain were perceived as equally American. It was only when people were prompted to focus on skin color and to see Mr. Obama as black that he was perceived as foreign.
This 2008 election is a milestone and may put a black man in the White House. That creates an opportunity for an adult conversation about the murky complexities of race, in part because there’s evidence that when people become aware of their unconscious biases, they can overcome them.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
*****
October 30, 2008
Op-Ed Columnist
American Stories
By ROGER COHEN
Of the countless words Barack Obama has uttered since he opened his campaign for president on an icy Illinois morning in February 2007, a handful have kept reverberating in my mind:
“For as long as I live, I will never forget that in no other country on earth is my story even possible.”
Perhaps the words echo because I’m a naturalized American, and I came here, like many others, seeking relief from Britain’s subtle barriers of religion and class, and possibility broader than in Europe’s confines.
Perhaps they resonate because, having South African parents, I spent part of my childhood in the land of apartheid, and so absorbed as an infant the humiliation of racial segregation, the fear and anger that are the harvest of hurt — just as they are, in Obama’s words, “the brutal legacy of slavery and Jim Crow.”
Perhaps they speak to me because I live in New York and watch every day a miracle of civility emerge from the struggles and fatigue of people drawn from every corner of the globe to the glimmer of possibility at the tapering edge of the city’s ruler-straight canyons.
Perhaps they move me because the possibility of stories has animated my life; and no nation offers a blanker page on which to write than America.
Or perhaps it’s simply because those 22 words cleave the air with the sharp blade of truth.
Nowhere else could a 47-year-old man, born, as he has written, of a father “black as pitch” and a mother “white as milk,” a generation distant from the mud shacks of western Kenya, raised for a time as Barry Soetoro (his stepfather’s family name) in Muslim Indonesia, then entrusted to his grandparents in Hawaii — nowhere else could this Barack Hussein Obama rise so far and so fast.
It’s for this sense of possibility, and not for grim-faced dread, that people look to America, which is why the Obama campaign has stirred such global passions.
Americans are decent people. They’re not interested in where you came from. They’re interested in who you are. That has not changed.
But much has in the last eight years. This is a moment of anguish. The Bush presidency has engineered the unlikely double whammy of undermining free-market capitalism and essential freedoms, the nation’s twin badges.
American luster is gone. The American idea has, in Joyce Carol Oates’s words, become a “cruel joke.” Americans are worrying and hurting.
So it is important to step back, from the last machinations of this endless campaign, and think again about what America is.
It is renewal, the place where impossible stories get written.
It is the overcoming of history, the leaving behind of war and barriers, in the name of a future freed from the cruel gyre of memory.
It is reinvention, the absorption of one identity in something larger — the notion that “out of many, we are truly one.”
It is a place better than Bush’s land of shadows where a leader entrusted with the hopes of the earth cannot find within himself a solitary phrase to uplift the soul.
Multiple polls now show Obama with a clear lead. But nobody can know the outcome and nobody should underestimate the immense psychological leap that sending a black couple to the White House would represent.
What I am sure of is this: an ever more interconnected world, where financial chain reactions spread with the virulence of plagues, thirsts for American renewal and a form of American leadership sensitive to humanity’s tied fate.
I also know that this biracial politician, the Harvard graduate who gets whites because he was raised by them, the Kenyan’s son who gets blacks because it was among them that mixed race placed him, is an emblematic figure of the border-hopping 21st century. He is the providential mestizo whose name — O-Ba-Ma — has the three-syllable universality of some child’s lullaby.
And what has he done? What does his experience amount to? Does his record not demonstrate he’s a radical? The interrogation continues. It’s true that his experience is limited.
But Americans seem to be trusting what their eyes tell them: temperament trumps experience and every instinct of this man, whose very identity represents an act of reconciliation, hones toward building change from the center.
Earlier this year, at the end of a road of reddish earth in western Kenya, I found Obama’s half-sister Auma. “He can be trusted,” she said, “to be in dialogue with the world.”
Dialogue, between Americans and beyond America, has been a constant theme. Last year, I spoke to Obama, who told me: “Part of our capacity to lead is linked to our capacity to show restraint.”
Watching the way he has allowed his opponents’ weaknesses to reveal themselves, the way he has enticed them into self-defeating exhaustion pounding against the wall of his equanimity, I have come to understand better what he meant.
Stories require restraint, too. Restraint engages the imagination, which has always been stirred by the American idea, and can be once again.
Op-Ed Columnist
What? Me Biased?
By NICHOLAS D. KRISTOF
For the last year and a half, a team of psychology professors has been conducting remarkable experiments on how Americans view Barack Obama through the prism of race.
The scholars used a common research technique, the implicit association test, to measure whether people regarded Mr. Obama and other candidates as more foreign or more American. They found that research subjects — particularly when primed to think of Mr. Obama as a black candidate — subconsciously considered him less American than either Hillary Clinton or John McCain.
Indeed, the study found that the research subjects — Californian college students, many of them Democrats supportive of Mr. Obama — unconsciously perceived him as less American even than the former British Prime Minister Tony Blair.
It’s not that any of them actually believed Mr. Obama to be foreign. But the implicit association test measured the way the unconscious mind works, and in following instructions to sort images rapidly, the mind balked at accepting a black candidate as fully American. This result mattered: The more difficulty a person had in classifying Mr. Obama as American, the less likely that person was to support Mr. Obama.
It’s easy to be skeptical of such research, so test for your own unconscious biases at https://implicit.harvard.edu/implicit/demo or at http://backhand.uchicago.edu/Center/ShooterEffect.
Race is a controversial, emotional subject in America, particularly in the context of this campaign. Many Obama supporters believe that their candidate would be further ahead if it were not for racism, while many McCain supporters resent the insinuations and believe that if Mr. Obama were white, he wouldn’t even be considered for the presidency.
Yet with race an undercurrent in the national debate, that also makes this a teachable moment. Partly that’s because of new findings both in neurology, using brain scans to understand how we respond to people of different races, and social psychology, examining the gulf between our conscious ideals of equality and our unconscious proclivity to discriminate.
Incidentally, such discrimination is not only racial. We also have unconscious biases against the elderly and against women seeking powerful positions — biases that affect the Republican ticket.
Some scholars link racial attitudes to a benefit in evolutionary times from an ability to form snap judgments about who is a likely friend and foe. There may have been an evolutionary advantage in recognizing instantaneously whether a stranger was from one’s own tribe or from an enemy tribe. There’s some evidence that the amygdala, a center in the brain for emotions, flashes a threat warning when it perceives people who look “different.”
Yet our biases are probably largely cultural. One reason to think that is that many African-Americans themselves have an unconscious pro-white bias. All told, considerable evidence suggests that while the vast majority of Americans truly believe in equality and aspire to equal opportunity for all, our minds aren’t as egalitarian as we think they are.
“To me, this study really reveals this gap between our minds and our ideals,” said Thierry Devos, a professor at San Diego State University who conducted the research on Mr. Obama, along with Debbie Ma of the University of Chicago. “Equality is very much linked to ideas of American identity, but it’s hard to live up to these ideas. Even somebody like Barack Obama, who may be about to become president — we have a hard time seeing him as American.”
A flood of recent research has shown that most Americans, including Latinos and Asian-Americans, associate the idea of “American” with white skin. One study found that although people realize that Lucy Liu is American and that Kate Winslet is British, their minds automatically process an Asian face as foreign and a white face as American — hence this title in an academic journal: “Is Kate Winslet More American Than Lucy Liu?”
One might argue that Mr. Obama registers as foreign in our minds because he does have overseas family connections, such as his father’s Kenyan ancestry. But similar experiments have found the same outcome with famous African-American sports figures.
Moreover, Professor Devos found that when participants in the latest study were told to focus on the age of each candidate, or on the political party of each candidate, then Mr. Obama and Mr. McCain were perceived as equally American. It was only when people were prompted to focus on skin color and to see Mr. Obama as black that he was perceived as foreign.
This 2008 election is a milestone and may put a black man in the White House. That creates an opportunity for an adult conversation about the murky complexities of race, in part because there’s evidence that when people become aware of their unconscious biases, they can overcome them.
I invite you to visit my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
*****
October 30, 2008
Op-Ed Columnist
American Stories
By ROGER COHEN
Of the countless words Barack Obama has uttered since he opened his campaign for president on an icy Illinois morning in February 2007, a handful have kept reverberating in my mind:
“For as long as I live, I will never forget that in no other country on earth is my story even possible.”
Perhaps the words echo because I’m a naturalized American, and I came here, like many others, seeking relief from Britain’s subtle barriers of religion and class, and possibility broader than in Europe’s confines.
Perhaps they resonate because, having South African parents, I spent part of my childhood in the land of apartheid, and so absorbed as an infant the humiliation of racial segregation, the fear and anger that are the harvest of hurt — just as they are, in Obama’s words, “the brutal legacy of slavery and Jim Crow.”
Perhaps they speak to me because I live in New York and watch every day a miracle of civility emerge from the struggles and fatigue of people drawn from every corner of the globe to the glimmer of possibility at the tapering edge of the city’s ruler-straight canyons.
Perhaps they move me because the possibility of stories has animated my life; and no nation offers a blanker page on which to write than America.
Or perhaps it’s simply because those 22 words cleave the air with the sharp blade of truth.
Nowhere else could a 47-year-old man, born, as he has written, of a father “black as pitch” and a mother “white as milk,” a generation distant from the mud shacks of western Kenya, raised for a time as Barry Soetoro (his stepfather’s family name) in Muslim Indonesia, then entrusted to his grandparents in Hawaii — nowhere else could this Barack Hussein Obama rise so far and so fast.
It’s for this sense of possibility, and not for grim-faced dread, that people look to America, which is why the Obama campaign has stirred such global passions.
Americans are decent people. They’re not interested in where you came from. They’re interested in who you are. That has not changed.
But much has in the last eight years. This is a moment of anguish. The Bush presidency has engineered the unlikely double whammy of undermining free-market capitalism and essential freedoms, the nation’s twin badges.
American luster is gone. The American idea has, in Joyce Carol Oates’s words, become a “cruel joke.” Americans are worrying and hurting.
So it is important to step back, from the last machinations of this endless campaign, and think again about what America is.
It is renewal, the place where impossible stories get written.
It is the overcoming of history, the leaving behind of war and barriers, in the name of a future freed from the cruel gyre of memory.
It is reinvention, the absorption of one identity in something larger — the notion that “out of many, we are truly one.”
It is a place better than Bush’s land of shadows where a leader entrusted with the hopes of the earth cannot find within himself a solitary phrase to uplift the soul.
Multiple polls now show Obama with a clear lead. But nobody can know the outcome and nobody should underestimate the immense psychological leap that sending a black couple to the White House would represent.
What I am sure of is this: an ever more interconnected world, where financial chain reactions spread with the virulence of plagues, thirsts for American renewal and a form of American leadership sensitive to humanity’s tied fate.
I also know that this biracial politician, the Harvard graduate who gets whites because he was raised by them, the Kenyan’s son who gets blacks because it was among them that mixed race placed him, is an emblematic figure of the border-hopping 21st century. He is the providential mestizo whose name — O-Ba-Ma — has the three-syllable universality of some child’s lullaby.
And what has he done? What does his experience amount to? Does his record not demonstrate he’s a radical? The interrogation continues. It’s true that his experience is limited.
But Americans seem to be trusting what their eyes tell them: temperament trumps experience and every instinct of this man, whose very identity represents an act of reconciliation, hones toward building change from the center.
Earlier this year, at the end of a road of reddish earth in western Kenya, I found Obama’s half-sister Auma. “He can be trusted,” she said, “to be in dialogue with the world.”
Dialogue, between Americans and beyond America, has been a constant theme. Last year, I spoke to Obama, who told me: “Part of our capacity to lead is linked to our capacity to show restraint.”
Watching the way he has allowed his opponents’ weaknesses to reveal themselves, the way he has enticed them into self-defeating exhaustion pounding against the wall of his equanimity, I have come to understand better what he meant.
Stories require restraint, too. Restraint engages the imagination, which has always been stirred by the American idea, and can be once again.
November 2, 2008
Op-Ed Columnist
Vote for ( )
By THOMAS L. FRIEDMAN
Here’s what strikes me this election eve: I can’t remember a presidential campaign that was so disconnected from the actual challenges of governing that will confront the winner the morning after. When this election campaign began two years ago, the big issue was how and for how long do we continue nation-building in Iraq. As the campaign comes to a close, the big issue is how and at what sacrifice do we do nation-building in America.
Unfortunately, you’d barely know that from the presidential debates. Watching them in the context of the meltdown of the financial system was like watching a game show where the two contestants were kept off-stage in a soundproof booth and brought out to address the audience without knowing the context.
Since the last debate, John McCain and Barack Obama have unveiled broad ideas about how to restore the nation’s financial health. But they continue to suggest that this will be largely pain-free. McCain says giving everyone a tax cut will save the day; Obama tells us only the rich will have to pay to help us out of this hole. Neither is true.
We are all going to have to pay, because this meltdown comes in the context of what has been “perhaps the greatest wealth transfer since the Bolshevik Revolution in Russia in 1917,” says Michael Mandelbaum, author of “Democracy’s Good Name.” “It is not a wealth transfer from rich to poor that the Bush administration will be remembered for. It is a wealth transfer from the future to the present.”
Never has one generation spent so much of its children’s wealth in such a short period of time with so little to show for it as in the Bush years. Under George W. Bush, America has foisted onto future generations a huge financial burden to finance our current tax cuts, wars and now bailouts. Just paying off those debts will require significant sacrifices. But when you add the destruction of wealth that has taken place in the last two months in the markets, and the need for more bailouts, you understand why this is not going to be a painless recovery.
The Bush team leaves us with another debt — one to Mother Nature. We have added tons more CO2 into the atmosphere these last eight years, without any mitigation effort. As a result, slowing down climate change in the next eight years is going to require even bigger changes and investments in how we use energy.
Given that Times columnists are not allowed to “formally” endorse candidates and given that the context of this election has changed so much from the policy positions the candidates started with, all I can suggest is that you vote for the candidate with these character traits:
First, we need a president who can speak English and deconstruct and navigate complex issues so Americans can make informed choices. We have paid an enormous price for having a president who could not explain and reassure us during this financial meltdown. We wasted a huge amount of time pretending that we could punish Wall Street without punishing Main Street — when, in fact, they are intricately intertwined.
A major money market fund — Reserve Primary — failed in September because the extra interest it offered customers derived, in part, from the $785 million in high-yielding Lehman Brothers commercial paper and notes it was holding. Depositors who told their congressmen to just let that greedy Lehman Brothers fail were shocked to discover this meant that their own money market would be frozen. No, we don’t need a president defending greed on Wall Street, but we do need one who can explain that we are all in the same boat, that a leak at one end can sink everyone and that while we must regulate, we don’t want to kill risk-taking and the rewards that go with that — which are essential to growing our economy.
Second, we need a president who can energize, inspire and hold the country together during what will be a very stressful recovery. We have to climb out of this financial crisis at a time when the baby boomers are about to retire and going to need their Social Security and eventually Medicare. We are all going to be paying the government more and getting less until we grow out of this hole.
Third, we need a president who can rally the world to our side. We cannot get out of this crisis unless China starts consuming more and unless Europe keeps lowering interest rates. Everyone is interconnected, and everyone is still looking to America to lead.
So, bottom line: Please do not vote for the candidate you most want to have a beer with (unless it’s to get stone cold drunk so you don’t have to think about this mess we’re in). Vote for the person you’d most like at your side when you ask your bank manager for an extension on your mortgage.
Vote for the candidate you think has the smarts, temperament and inspirational capacity to unify the country and steer our ship through what could be the rockiest shoals our generation has ever known. Your kids will thank you.
****
November 2, 2008
Op-Ed Columnist
Rejoin the World
By NICHOLAS D. KRISTOF
An unscientific poll of 109 professional historians this year found that 61 percent rated President Bush as the worst president in American history.
A couple of others judged him second-worst, after James Buchanan, whose incompetence set the stage for the Civil War. More than 98 percent of the historians in the poll, conducted through the History News Network, viewed Mr. Bush’s presidency as a failure.
Mr. Bush’s presidency imploded not because of any personal corruption or venality, but largely because he wrenched the United States out of the international community. His cowboy diplomacy “defriended” the United States. He turned a superpower into a rogue country. Instead of isolating North Korea and Iran, he isolated us — and undermined his own ability to achieve his aims.
So here’s the top priority for President Barack Obama or President John McCain: We must rejoin the world.
There are three general ways in which we can signal a new beginning and “refriend” our allies:
• We should not only close the Guantánamo prison but also turn it into an international center for research on tropical diseases that afflict poor countries. It could thus become an example of multilateral humanitarianism.
The new president should also start a Truth Commission to investigate torture and other abuses during the “war on terror.” This should not be a bipartisan panel but a nonpartisan one, dominated by retired generals and intelligence figures like Brent Scowcroft or Colin Powell.
Such a panel would be respected as fair and authoritative in a way that one composed of bickering Democrats and Republicans would not, and it would underscore that we are eager to return to the norms of the civilized world.
• The new president also should signal that we will no longer confront problems just by blowing them up. The military toolbox is essential, but it shouldn’t be the first option for 21st-century challenges. You can’t bomb climate change.
We also have to pay far more attention to public diplomacy and outreach. Our Afghanistan and Pakistan policy is a mess in part because Osama bin Laden’s approval rating in Pakistan (34 percent) is almost double America’s (19 percent). You know we need a new approach when we lose a public relations competition to a fugitive mass murderer.
A new approach means a vigorous effort for peace in the Middle East. We also need to commit to negotiating with odious countries. President Clinton’s engagement policy toward North Korea was a constant headache, for Kim Jong Il was brutally repressive and tried to start a secret uranium program. But North Korea didn’t produce nuclear materials for a single weapon during Mr. Clinton’s years in office; under Mr. Bush, it has produced enough for a half dozen.
So here’s the score: Clinton diplomacy, 0 weapons; Bush fulmination, 6 weapons.
• We must cooperate with other countries on humanitarian efforts, including family planning. One of the Bush follies that has bewildered and antagonized our allies has been the vacuous refusal to support family planning through the United Nations Population Fund.
The upshot of the failure to support contraception has been millions of unwanted pregnancies and abortions. It’s difficult to think of any person alive today whose policies have led to more unnecessary abortions worldwide than Mr. Bush.
For all my criticisms, though, I would rank Mr. Bush more gently than those historians: I would peg him as second worst, after Buchanan. That’s because Mr. Bush has begun effective foreign-aid programs against AIDS and malaria that are saving millions of lives. His AIDS programs have transformed areas of southern Africa, but he so antagonized the world that America never gets adequate credit for this huge achievement.
Look, a friendlier, more multilateral policy will not solve the world’s problems. Iran isn’t going to give up its nuclear program because it likes us, and brawn is necessary to back up brains.
But without global political capital, we don’t have the leverage to organize more muscular persuasion. Without diplomatic heavy lifting, we can’t credibly threaten military heavy smashing.
In the aftermath of World War II, the United States led the international effort to construct global institutions to promote peace and prosperity. These included the United Nations, the World Bank and the International Monetary Fund, and they served our interests. Now, in the aftermath of the cold war, we need to rethink and refurbish this architecture for the next half century or more.
The United States needs to be a part of the International Criminal Court and should lead the push for a new climate change treaty, for example. The new president should be an architect of this emerging order, rather than AWOL as the Bush administration has been.
For eight years, the United States has been in self-imposed exile, and that is one reason Mr. Bush’s presidency has failed on so many levels. After Tuesday, let’s rejoin the world.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
Op-Ed Columnist
Vote for ( )
By THOMAS L. FRIEDMAN
Here’s what strikes me this election eve: I can’t remember a presidential campaign that was so disconnected from the actual challenges of governing that will confront the winner the morning after. When this election campaign began two years ago, the big issue was how and for how long do we continue nation-building in Iraq. As the campaign comes to a close, the big issue is how and at what sacrifice do we do nation-building in America.
Unfortunately, you’d barely know that from the presidential debates. Watching them in the context of the meltdown of the financial system was like watching a game show where the two contestants were kept off-stage in a soundproof booth and brought out to address the audience without knowing the context.
Since the last debate, John McCain and Barack Obama have unveiled broad ideas about how to restore the nation’s financial health. But they continue to suggest that this will be largely pain-free. McCain says giving everyone a tax cut will save the day; Obama tells us only the rich will have to pay to help us out of this hole. Neither is true.
We are all going to have to pay, because this meltdown comes in the context of what has been “perhaps the greatest wealth transfer since the Bolshevik Revolution in Russia in 1917,” says Michael Mandelbaum, author of “Democracy’s Good Name.” “It is not a wealth transfer from rich to poor that the Bush administration will be remembered for. It is a wealth transfer from the future to the present.”
Never has one generation spent so much of its children’s wealth in such a short period of time with so little to show for it as in the Bush years. Under George W. Bush, America has foisted onto future generations a huge financial burden to finance our current tax cuts, wars and now bailouts. Just paying off those debts will require significant sacrifices. But when you add the destruction of wealth that has taken place in the last two months in the markets, and the need for more bailouts, you understand why this is not going to be a painless recovery.
The Bush team leaves us with another debt — one to Mother Nature. We have added tons more CO2 into the atmosphere these last eight years, without any mitigation effort. As a result, slowing down climate change in the next eight years is going to require even bigger changes and investments in how we use energy.
Given that Times columnists are not allowed to “formally” endorse candidates and given that the context of this election has changed so much from the policy positions the candidates started with, all I can suggest is that you vote for the candidate with these character traits:
First, we need a president who can speak English and deconstruct and navigate complex issues so Americans can make informed choices. We have paid an enormous price for having a president who could not explain and reassure us during this financial meltdown. We wasted a huge amount of time pretending that we could punish Wall Street without punishing Main Street — when, in fact, they are intricately intertwined.
A major money market fund — Reserve Primary — failed in September because the extra interest it offered customers derived, in part, from the $785 million in high-yielding Lehman Brothers commercial paper and notes it was holding. Depositors who told their congressmen to just let that greedy Lehman Brothers fail were shocked to discover this meant that their own money market would be frozen. No, we don’t need a president defending greed on Wall Street, but we do need one who can explain that we are all in the same boat, that a leak at one end can sink everyone and that while we must regulate, we don’t want to kill risk-taking and the rewards that go with that — which are essential to growing our economy.
Second, we need a president who can energize, inspire and hold the country together during what will be a very stressful recovery. We have to climb out of this financial crisis at a time when the baby boomers are about to retire and going to need their Social Security and eventually Medicare. We are all going to be paying the government more and getting less until we grow out of this hole.
Third, we need a president who can rally the world to our side. We cannot get out of this crisis unless China starts consuming more and unless Europe keeps lowering interest rates. Everyone is interconnected, and everyone is still looking to America to lead.
So, bottom line: Please do not vote for the candidate you most want to have a beer with (unless it’s to get stone cold drunk so you don’t have to think about this mess we’re in). Vote for the person you’d most like at your side when you ask your bank manager for an extension on your mortgage.
Vote for the candidate you think has the smarts, temperament and inspirational capacity to unify the country and steer our ship through what could be the rockiest shoals our generation has ever known. Your kids will thank you.
****
November 2, 2008
Op-Ed Columnist
Rejoin the World
By NICHOLAS D. KRISTOF
An unscientific poll of 109 professional historians this year found that 61 percent rated President Bush as the worst president in American history.
A couple of others judged him second-worst, after James Buchanan, whose incompetence set the stage for the Civil War. More than 98 percent of the historians in the poll, conducted through the History News Network, viewed Mr. Bush’s presidency as a failure.
Mr. Bush’s presidency imploded not because of any personal corruption or venality, but largely because he wrenched the United States out of the international community. His cowboy diplomacy “defriended” the United States. He turned a superpower into a rogue country. Instead of isolating North Korea and Iran, he isolated us — and undermined his own ability to achieve his aims.
So here’s the top priority for President Barack Obama or President John McCain: We must rejoin the world.
There are three general ways in which we can signal a new beginning and “refriend” our allies:
• We should not only close the Guantánamo prison but also turn it into an international center for research on tropical diseases that afflict poor countries. It could thus become an example of multilateral humanitarianism.
The new president should also start a Truth Commission to investigate torture and other abuses during the “war on terror.” This should not be a bipartisan panel but a nonpartisan one, dominated by retired generals and intelligence figures like Brent Scowcroft or Colin Powell.
Such a panel would be respected as fair and authoritative in a way that one composed of bickering Democrats and Republicans would not, and it would underscore that we are eager to return to the norms of the civilized world.
• The new president also should signal that we will no longer confront problems just by blowing them up. The military toolbox is essential, but it shouldn’t be the first option for 21st-century challenges. You can’t bomb climate change.
We also have to pay far more attention to public diplomacy and outreach. Our Afghanistan and Pakistan policy is a mess in part because Osama bin Laden’s approval rating in Pakistan (34 percent) is almost double America’s (19 percent). You know we need a new approach when we lose a public relations competition to a fugitive mass murderer.
A new approach means a vigorous effort for peace in the Middle East. We also need to commit to negotiating with odious countries. President Clinton’s engagement policy toward North Korea was a constant headache, for Kim Jong Il was brutally repressive and tried to start a secret uranium program. But North Korea didn’t produce nuclear materials for a single weapon during Mr. Clinton’s years in office; under Mr. Bush, it has produced enough for a half dozen.
So here’s the score: Clinton diplomacy, 0 weapons; Bush fulmination, 6 weapons.
• We must cooperate with other countries on humanitarian efforts, including family planning. One of the Bush follies that has bewildered and antagonized our allies has been the vacuous refusal to support family planning through the United Nations Population Fund.
The upshot of the failure to support contraception has been millions of unwanted pregnancies and abortions. It’s difficult to think of any person alive today whose policies have led to more unnecessary abortions worldwide than Mr. Bush.
For all my criticisms, though, I would rank Mr. Bush more gently than those historians: I would peg him as second worst, after Buchanan. That’s because Mr. Bush has begun effective foreign-aid programs against AIDS and malaria that are saving millions of lives. His AIDS programs have transformed areas of southern Africa, but he so antagonized the world that America never gets adequate credit for this huge achievement.
Look, a friendlier, more multilateral policy will not solve the world’s problems. Iran isn’t going to give up its nuclear program because it likes us, and brawn is necessary to back up brains.
But without global political capital, we don’t have the leverage to organize more muscular persuasion. Without diplomatic heavy lifting, we can’t credibly threaten military heavy smashing.
In the aftermath of World War II, the United States led the international effort to construct global institutions to promote peace and prosperity. These included the United Nations, the World Bank and the International Monetary Fund, and they served our interests. Now, in the aftermath of the cold war, we need to rethink and refurbish this architecture for the next half century or more.
The United States needs to be a part of the International Criminal Court and should lead the push for a new climate change treaty, for example. The new president should be an architect of this emerging order, rather than AWOL as the Bush administration has been.
For eight years, the United States has been in self-imposed exile, and that is one reason Mr. Bush’s presidency has failed on so many levels. After Tuesday, let’s rejoin the world.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
November 5, 2008
Op-Ed Columnist
Finishing Our Work
By THOMAS L. FRIEDMAN
And so it came to pass that on Nov. 4, 2008, shortly after 11 p.m. Eastern time, the American Civil War ended, as a black man — Barack Hussein Obama — won enough electoral votes to become president of the United States.
A civil war that, in many ways, began at Bull Run, Virginia, on July 21, 1861, ended 147 years later via a ballot box in the very same state. For nothing more symbolically illustrated the final chapter of America’s Civil War than the fact that the Commonwealth of Virginia — the state that once exalted slavery and whose secession from the Union in 1861 gave the Confederacy both strategic weight and its commanding general — voted Democratic, thus assuring that Barack Obama would become the 44th president of the United States.
This moment was necessary, for despite a century of civil rights legislation, judicial interventions and social activism — despite Brown v. Board of Education, Martin Luther King’s I-have-a-dream crusade and the 1964 Civil Rights Act — the Civil War could never truly be said to have ended until America’s white majority actually elected an African-American as president.
That is what happened Tuesday night and that is why we awake this morning to a different country. The struggle for equal rights is far from over, but we start afresh now from a whole new baseline. Let every child and every citizen and every new immigrant know that from this day forward everything really is possible in America.
How did Obama pull it off? To be sure, it probably took a once-in-a-century economic crisis to get enough white people to vote for a black man. And to be sure, Obama’s better organization, calm manner, mellifluous speaking style and unthreatening message of “change” all served him well.
But there also may have been something of a “Buffett effect” that countered the supposed “Bradley effect” — white voters telling pollsters they’d vote for Obama but then voting for the white guy. The Buffett effect was just the opposite. It was white conservatives telling the guys in the men’s grill at the country club that they were voting for John McCain, but then quietly going into the booth and voting for Obama, even though they knew it would mean higher taxes.
Why? Some did it because they sensed how inspired and hopeful their kids were about an Obama presidency, and they not only didn’t want to dash those hopes, they secretly wanted to share them. Others intuitively embraced Warren Buffett’s view that if you are rich and successful today, it is first and foremost because you were lucky enough to be born in America at this time — and never forget that. So, we need to get back to fixing our country — we need a president who can unify us for nation-building at home.
And somewhere they also knew that after the abysmal performance of the Bush team, there had to be consequences for the Republican Party. Electing McCain now would have, in some way, meant rewarding incompetence. It would have made a mockery of accountability in government and unleashed a wave of cynicism in America that would have been deeply corrosive.
Obama will always be our first black president. But can he be one of our few great presidents? He is going to have his chance because our greatest presidents are those who assumed the office at some of our darkest hours and at the bottom of some of our deepest holes.
“Taking office at a time of crisis doesn’t guarantee greatness, but it can be an occasion for it,” argued the Harvard University political philosopher Michael Sandel. “That was certainly the case with Lincoln, F.D.R. and Truman.” Part of F.D.R.’s greatness, though, “was that he gradually wove a new governing political philosophy — the New Deal — out of the rubble and political disarray of the economic depression he inherited.” Obama will need to do the same, but these things take time.
“F.D.R. did not run on the New Deal in 1932,” said Sandel. “He ran on balancing the budget. Like Obama, he did not take office with a clearly articulated governing philosophy. He arrived with a confident, activist spirit and experimented. Not until 1936 did we have a presidential campaign about the New Deal. What Obama’s equivalent will be, even he doesn’t know. It will emerge as he grapples with the economy, energy and America’s role in the world. These challenges are so great that he will only succeed if he is able to articulate a new politics of the common good.”
Bush & Co. did not believe that government could be an instrument of the common good. They neutered their cabinet secretaries and appointed hacks to big jobs. For them, pursuit of the common good was all about pursuit of individual self-interest. Voters rebelled against that. But there was also a rebellion against a traditional Democratic version of the common good — that it is simply the sum of all interest groups clamoring for their share.
“In this election, the American public rejected these narrow notions of the common good,” argued Sandel. “Most people now accept that unfettered markets don’t serve the public good. Markets generate abundance, but they can also breed excessive insecurity and risk. Even before the financial meltdown, we’ve seen a massive shift of risk from corporations to the individual. Obama will have to reinvent government as an instrument of the common good — to regulate markets, to protect citizens against the risks of unemployment and ill health, to invest in energy independence.”
But a new politics of the common good can’t be only about government and markets. “It must also be about a new patriotism — about what it means to be a citizen,” said Sandel. “This is the deepest chord Obama’s campaign evoked. The biggest applause line in his stump speech was the one that said every American will have a chance to go to college provided he or she performs a period of national service — in the military, in the Peace Corps or in the community. Obama’s campaign tapped a dormant civic idealism, a hunger among Americans to serve a cause greater than themselves, a yearning to be citizens again.”
None of this will be easy. But my gut tells me that of all the changes that will be ushered in by an Obama presidency, breaking with our racial past may turn out to be the least of them. There is just so much work to be done. The Civil War is over. Let reconstruction begin.
Op-Ed Columnist
Finishing Our Work
By THOMAS L. FRIEDMAN
And so it came to pass that on Nov. 4, 2008, shortly after 11 p.m. Eastern time, the American Civil War ended, as a black man — Barack Hussein Obama — won enough electoral votes to become president of the United States.
A civil war that, in many ways, began at Bull Run, Virginia, on July 21, 1861, ended 147 years later via a ballot box in the very same state. For nothing more symbolically illustrated the final chapter of America’s Civil War than the fact that the Commonwealth of Virginia — the state that once exalted slavery and whose secession from the Union in 1861 gave the Confederacy both strategic weight and its commanding general — voted Democratic, thus assuring that Barack Obama would become the 44th president of the United States.
This moment was necessary, for despite a century of civil rights legislation, judicial interventions and social activism — despite Brown v. Board of Education, Martin Luther King’s I-have-a-dream crusade and the 1964 Civil Rights Act — the Civil War could never truly be said to have ended until America’s white majority actually elected an African-American as president.
That is what happened Tuesday night and that is why we awake this morning to a different country. The struggle for equal rights is far from over, but we start afresh now from a whole new baseline. Let every child and every citizen and every new immigrant know that from this day forward everything really is possible in America.
How did Obama pull it off? To be sure, it probably took a once-in-a-century economic crisis to get enough white people to vote for a black man. And to be sure, Obama’s better organization, calm manner, mellifluous speaking style and unthreatening message of “change” all served him well.
But there also may have been something of a “Buffett effect” that countered the supposed “Bradley effect” — white voters telling pollsters they’d vote for Obama but then voting for the white guy. The Buffett effect was just the opposite. It was white conservatives telling the guys in the men’s grill at the country club that they were voting for John McCain, but then quietly going into the booth and voting for Obama, even though they knew it would mean higher taxes.
Why? Some did it because they sensed how inspired and hopeful their kids were about an Obama presidency, and they not only didn’t want to dash those hopes, they secretly wanted to share them. Others intuitively embraced Warren Buffett’s view that if you are rich and successful today, it is first and foremost because you were lucky enough to be born in America at this time — and never forget that. So, we need to get back to fixing our country — we need a president who can unify us for nation-building at home.
And somewhere they also knew that after the abysmal performance of the Bush team, there had to be consequences for the Republican Party. Electing McCain now would have, in some way, meant rewarding incompetence. It would have made a mockery of accountability in government and unleashed a wave of cynicism in America that would have been deeply corrosive.
Obama will always be our first black president. But can he be one of our few great presidents? He is going to have his chance because our greatest presidents are those who assumed the office at some of our darkest hours and at the bottom of some of our deepest holes.
“Taking office at a time of crisis doesn’t guarantee greatness, but it can be an occasion for it,” argued the Harvard University political philosopher Michael Sandel. “That was certainly the case with Lincoln, F.D.R. and Truman.” Part of F.D.R.’s greatness, though, “was that he gradually wove a new governing political philosophy — the New Deal — out of the rubble and political disarray of the economic depression he inherited.” Obama will need to do the same, but these things take time.
“F.D.R. did not run on the New Deal in 1932,” said Sandel. “He ran on balancing the budget. Like Obama, he did not take office with a clearly articulated governing philosophy. He arrived with a confident, activist spirit and experimented. Not until 1936 did we have a presidential campaign about the New Deal. What Obama’s equivalent will be, even he doesn’t know. It will emerge as he grapples with the economy, energy and America’s role in the world. These challenges are so great that he will only succeed if he is able to articulate a new politics of the common good.”
Bush & Co. did not believe that government could be an instrument of the common good. They neutered their cabinet secretaries and appointed hacks to big jobs. For them, pursuit of the common good was all about pursuit of individual self-interest. Voters rebelled against that. But there was also a rebellion against a traditional Democratic version of the common good — that it is simply the sum of all interest groups clamoring for their share.
“In this election, the American public rejected these narrow notions of the common good,” argued Sandel. “Most people now accept that unfettered markets don’t serve the public good. Markets generate abundance, but they can also breed excessive insecurity and risk. Even before the financial meltdown, we’ve seen a massive shift of risk from corporations to the individual. Obama will have to reinvent government as an instrument of the common good — to regulate markets, to protect citizens against the risks of unemployment and ill health, to invest in energy independence.”
But a new politics of the common good can’t be only about government and markets. “It must also be about a new patriotism — about what it means to be a citizen,” said Sandel. “This is the deepest chord Obama’s campaign evoked. The biggest applause line in his stump speech was the one that said every American will have a chance to go to college provided he or she performs a period of national service — in the military, in the Peace Corps or in the community. Obama’s campaign tapped a dormant civic idealism, a hunger among Americans to serve a cause greater than themselves, a yearning to be citizens again.”
None of this will be easy. But my gut tells me that of all the changes that will be ushered in by an Obama presidency, breaking with our racial past may turn out to be the least of them. There is just so much work to be done. The Civil War is over. Let reconstruction begin.
November 9, 2008
Op-Ed Columnist
Obama and the War on Brains
By NICHOLAS D. KRISTOF
Barack Obama’s election is a milestone in more than his pigmentation. The second most remarkable thing about his election is that American voters have just picked a president who is an open, out-of-the-closet, practicing intellectual.
Maybe, just maybe, the result will be a step away from the anti-intellectualism that has long been a strain in American life. Smart and educated leadership is no panacea, but we’ve seen recently that the converse — a White House that scorns expertise and shrugs at nuance — doesn’t get very far either.
We can’t solve our educational challenges when, according to polls, Americans are approximately as likely to believe in flying saucers as in evolution, and when one-fifth of Americans believe that the sun orbits the Earth.
Almost half of young Americans said in a 2006 poll that it was not necessary to know the locations of countries where important news was made. That must be a relief to Sarah Palin, who, according to Fox News, didn’t realize that Africa was a continent rather than a country.
Perhaps John Kennedy was the last president who was unapologetic about his intellect and about luring the best minds to his cabinet. More recently, we’ve had some smart and well-educated presidents who scrambled to hide it. Richard Nixon was a self-loathing intellectual, and Bill Clinton camouflaged a fulgent brain behind folksy Arkansas aphorisms about hogs.
As for President Bush, he adopted anti-intellectualism as administration policy, repeatedly rejecting expertise (from Middle East experts, climate scientists and reproductive health specialists). Mr. Bush is smart in the sense of remembering facts and faces, yet I can’t think of anybody I’ve ever interviewed who appeared so uninterested in ideas.
At least since Adlai Stevenson’s campaigns for the presidency in the 1950s, it’s been a disadvantage in American politics to seem too learned. Thoughtfulness is portrayed as wimpishness, and careful deliberation is for sissies. The social critic William Burroughs once bluntly declared that “intellectuals are deviants in the U.S.”
(It doesn’t help that intellectuals are often as full of themselves as of ideas. After one of Stevenson’s high-brow speeches, an admirer yelled out something like, You’ll have the vote of every thinking American! Stevenson is said to have shouted back: That’s not enough. I need a majority!)
Yet times may be changing. How else do we explain the election in 2008 of an Ivy League-educated law professor who has favorite philosophers and poets?
Granted, Mr. Obama may have been protected from accusations of excessive intelligence by his race. That distracted everyone, and as a black man he didn’t fit the stereotype of a pointy-head ivory tower elitist. But it may also be that President Bush has discredited superficiality.
An intellectual is a person interested in ideas and comfortable with complexity. Intellectuals read the classics, even when no one is looking, because they appreciate the lessons of Sophocles and Shakespeare that the world abounds in uncertainties and contradictions, and — President Bush, lend me your ears — that leaders self-destruct when they become too rigid and too intoxicated with the fumes of moral clarity.
(Intellectuals are for real. In contrast, a pedant is a supercilious show-off who drops references to Sophocles and masks his shallowness by using words like “fulgent” and “supercilious.”)
Mr. Obama, unlike most politicians near a microphone, exults in complexity. He doesn’t condescend or oversimplify nearly as much as politicians often do, and he speaks in paragraphs rather than sound bites. Global Language Monitor, which follows linguistic issues, reports that in the final debate, Mr. Obama spoke at a ninth-grade reading level, while John McCain spoke at a seventh-grade level.
As Mr. Obama prepares to take office, I wish I could say that smart people have a great record in power. They don’t. Just think of Emperor Nero, who was one of the most intellectual of ancient rulers — and who also killed his brother, his mother and his pregnant wife; then castrated and married a slave boy who resembled his wife; probably set fire to Rome; and turned Christians into human torches to light his gardens.
James Garfield could simultaneously write Greek with one hand and Latin with the other, Thomas Jefferson was a dazzling scholar and inventor, and John Adams typically carried a book of poetry. Yet all were outclassed by George Washington, who was among the least intellectual of our early presidents.
Yet as Mr. Obama goes to Washington, I’m hopeful that his fertile mind will set a new tone for our country. Maybe someday soon our leaders no longer will have to shuffle in shame when they’re caught with brains in their heads.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
Op-Ed Columnist
Obama and the War on Brains
By NICHOLAS D. KRISTOF
Barack Obama’s election is a milestone in more than his pigmentation. The second most remarkable thing about his election is that American voters have just picked a president who is an open, out-of-the-closet, practicing intellectual.
Maybe, just maybe, the result will be a step away from the anti-intellectualism that has long been a strain in American life. Smart and educated leadership is no panacea, but we’ve seen recently that the converse — a White House that scorns expertise and shrugs at nuance — doesn’t get very far either.
We can’t solve our educational challenges when, according to polls, Americans are approximately as likely to believe in flying saucers as in evolution, and when one-fifth of Americans believe that the sun orbits the Earth.
Almost half of young Americans said in a 2006 poll that it was not necessary to know the locations of countries where important news was made. That must be a relief to Sarah Palin, who, according to Fox News, didn’t realize that Africa was a continent rather than a country.
Perhaps John Kennedy was the last president who was unapologetic about his intellect and about luring the best minds to his cabinet. More recently, we’ve had some smart and well-educated presidents who scrambled to hide it. Richard Nixon was a self-loathing intellectual, and Bill Clinton camouflaged a fulgent brain behind folksy Arkansas aphorisms about hogs.
As for President Bush, he adopted anti-intellectualism as administration policy, repeatedly rejecting expertise (from Middle East experts, climate scientists and reproductive health specialists). Mr. Bush is smart in the sense of remembering facts and faces, yet I can’t think of anybody I’ve ever interviewed who appeared so uninterested in ideas.
At least since Adlai Stevenson’s campaigns for the presidency in the 1950s, it’s been a disadvantage in American politics to seem too learned. Thoughtfulness is portrayed as wimpishness, and careful deliberation is for sissies. The social critic William Burroughs once bluntly declared that “intellectuals are deviants in the U.S.”
(It doesn’t help that intellectuals are often as full of themselves as of ideas. After one of Stevenson’s high-brow speeches, an admirer yelled out something like, You’ll have the vote of every thinking American! Stevenson is said to have shouted back: That’s not enough. I need a majority!)
Yet times may be changing. How else do we explain the election in 2008 of an Ivy League-educated law professor who has favorite philosophers and poets?
Granted, Mr. Obama may have been protected from accusations of excessive intelligence by his race. That distracted everyone, and as a black man he didn’t fit the stereotype of a pointy-head ivory tower elitist. But it may also be that President Bush has discredited superficiality.
An intellectual is a person interested in ideas and comfortable with complexity. Intellectuals read the classics, even when no one is looking, because they appreciate the lessons of Sophocles and Shakespeare that the world abounds in uncertainties and contradictions, and — President Bush, lend me your ears — that leaders self-destruct when they become too rigid and too intoxicated with the fumes of moral clarity.
(Intellectuals are for real. In contrast, a pedant is a supercilious show-off who drops references to Sophocles and masks his shallowness by using words like “fulgent” and “supercilious.”)
Mr. Obama, unlike most politicians near a microphone, exults in complexity. He doesn’t condescend or oversimplify nearly as much as politicians often do, and he speaks in paragraphs rather than sound bites. Global Language Monitor, which follows linguistic issues, reports that in the final debate, Mr. Obama spoke at a ninth-grade reading level, while John McCain spoke at a seventh-grade level.
As Mr. Obama prepares to take office, I wish I could say that smart people have a great record in power. They don’t. Just think of Emperor Nero, who was one of the most intellectual of ancient rulers — and who also killed his brother, his mother and his pregnant wife; then castrated and married a slave boy who resembled his wife; probably set fire to Rome; and turned Christians into human torches to light his gardens.
James Garfield could simultaneously write Greek with one hand and Latin with the other, Thomas Jefferson was a dazzling scholar and inventor, and John Adams typically carried a book of poetry. Yet all were outclassed by George Washington, who was among the least intellectual of our early presidents.
Yet as Mr. Obama goes to Washington, I’m hopeful that his fertile mind will set a new tone for our country. Maybe someday soon our leaders no longer will have to shuffle in shame when they’re caught with brains in their heads.
I invite you to comment on this column on my blog, www.nytimes.com/ontheground, and join me on Facebook at www.facebook.com/kristof.
November 19, 2008
Op-Ed Columnist
Madam Secretary?
By THOMAS L. FRIEDMAN
So President-elect Barack Obama is considering Hillary Clinton as secretary of state. How should we feel about that?
Mrs. Clinton is a serious person. She is smart, tough, cunning, hard-working and knows the world — all key qualities for a secretary of state. She would also bring a certain star quality to the top of the State Department that can be useful. I don’t know if she is the best person in America for that job right now, or if she’ll get it, but if one is just looking at qualifications, Senator Clinton certainly passes the bar.
What worries me, though, is that much of the media attention today is focused on the wrong relationship question. Everyone is asking how she would manage the relationship with former President Bill Clinton and his own global speaking, fund-raising and philanthropic agendas. You have to believe that they’ll do everything they can to try to figure that out — but it’s not a done deal yet. Obviously, Mr. Clinton would have to restrict some of his activities.
The important question, the answer of which is not at all clear to me, is about the only relationship that matters for a secretary of state — the kind of relationship he or she would have with the new president. My question: Is Obama considering Mrs. Clinton for this job in order to get her off his back or as a prelude to protecting her back?
I covered a secretary of state, one of the best, James A. Baker III, for four years, and one of the things I learned during those years was that what made Baker an effective diplomat was not only his own skills as a negotiator — a prerequisite for the job — but the fact that his boss, President George H.W. Bush, always had Baker’s back. When foreign leaders spoke with Baker, they knew that they were speaking to President Bush, and they knew that President Bush would defend Baker from domestic rivals and the machinations of foreign governments.
That backing is the most important requirement for a secretary of state to be effective. Frankly, Obama could appoint his dear mother-in-law as secretary of state, and if he let the world know she was his envoy, she would be more effective than any ex-ambassador who had no relationship with the president.
Our current president never cared about this, so neither of his secretaries of state were particularly effective. Rather than having Colin Powell’s back, President Bush, Vice President Dick Cheney and Secretary of Defense Donald Rumsfeld delighted in stabbing Powell in the back, particularly when he was on the road. But being close to the president is not enough. Condoleezza Rice had a close relationship with Bush, but Bush had no coherent worldview to animate her diplomacy, so all her travels added up to less than the sum of their miles. The two most impactful secretaries of state in the last 50 years were Baker and Henry Kissinger. Both were empowered by their presidents, and both could candidly talk back to their presidents.
Foreign leaders can spot daylight between a president and a secretary of state from 1,000 miles away. They know when they’re talking to the secretary of state alone and when they are talking through the secretary of state to the president. And when they think they are talking to the president, they sit up straight; and when they think they are talking only to the secretary of state, they slouch in their chairs. When they think they are talking to the president’s “special envoy,” they doze off in midconversation.
“It takes America’s friends and adversaries about five minutes to figure out who really speaks for the White House and who doesn’t,” wrote Aaron D. Miller, a former State Department Middle East adviser and the author of “The Much Too Promised Land.” “If a secretary of state falls into the latter category, he or she will have little chance of doing effective diplomacy on a big issue. More likely, they’ll be played like a finely tuned violin or simply taken for granted.”
When the U.S. secretary of state walks into the room, Miller added in a recent essay in The Los Angeles Times, “his or her interlocutors need to be on the edge of their seats, not comfortably situated in their chairs wondering how best to manipulate the secretary. If anything, they should be worried about being manipulated themselves.”
My question is whether a President Obama and a Secretary of State Clinton, given all that has gone down between them and their staffs, can have that kind of relationship, particularly with Mrs. Clinton always thinking four to eight years ahead, and the possibility that she may run again for the presidency. I just don’t know.
Every word that is said between them in public, and every leak, will be scrutinized for what it means politically and whether there is daylight. That is not a reason not to appoint Mrs. Clinton. But it is a reason for everyone around the president-elect to take a deep breath and ask whether they are prepared to have the kind of air-tight relationship with Mrs. Clinton that is required for effective diplomacy.
When it comes to appointing a secretary of state, you do not want a team of rivals.
Op-Ed Columnist
Madam Secretary?
By THOMAS L. FRIEDMAN
So President-elect Barack Obama is considering Hillary Clinton as secretary of state. How should we feel about that?
Mrs. Clinton is a serious person. She is smart, tough, cunning, hard-working and knows the world — all key qualities for a secretary of state. She would also bring a certain star quality to the top of the State Department that can be useful. I don’t know if she is the best person in America for that job right now, or if she’ll get it, but if one is just looking at qualifications, Senator Clinton certainly passes the bar.
What worries me, though, is that much of the media attention today is focused on the wrong relationship question. Everyone is asking how she would manage the relationship with former President Bill Clinton and his own global speaking, fund-raising and philanthropic agendas. You have to believe that they’ll do everything they can to try to figure that out — but it’s not a done deal yet. Obviously, Mr. Clinton would have to restrict some of his activities.
The important question, the answer of which is not at all clear to me, is about the only relationship that matters for a secretary of state — the kind of relationship he or she would have with the new president. My question: Is Obama considering Mrs. Clinton for this job in order to get her off his back or as a prelude to protecting her back?
I covered a secretary of state, one of the best, James A. Baker III, for four years, and one of the things I learned during those years was that what made Baker an effective diplomat was not only his own skills as a negotiator — a prerequisite for the job — but the fact that his boss, President George H.W. Bush, always had Baker’s back. When foreign leaders spoke with Baker, they knew that they were speaking to President Bush, and they knew that President Bush would defend Baker from domestic rivals and the machinations of foreign governments.
That backing is the most important requirement for a secretary of state to be effective. Frankly, Obama could appoint his dear mother-in-law as secretary of state, and if he let the world know she was his envoy, she would be more effective than any ex-ambassador who had no relationship with the president.
Our current president never cared about this, so neither of his secretaries of state were particularly effective. Rather than having Colin Powell’s back, President Bush, Vice President Dick Cheney and Secretary of Defense Donald Rumsfeld delighted in stabbing Powell in the back, particularly when he was on the road. But being close to the president is not enough. Condoleezza Rice had a close relationship with Bush, but Bush had no coherent worldview to animate her diplomacy, so all her travels added up to less than the sum of their miles. The two most impactful secretaries of state in the last 50 years were Baker and Henry Kissinger. Both were empowered by their presidents, and both could candidly talk back to their presidents.
Foreign leaders can spot daylight between a president and a secretary of state from 1,000 miles away. They know when they’re talking to the secretary of state alone and when they are talking through the secretary of state to the president. And when they think they are talking to the president, they sit up straight; and when they think they are talking only to the secretary of state, they slouch in their chairs. When they think they are talking to the president’s “special envoy,” they doze off in midconversation.
“It takes America’s friends and adversaries about five minutes to figure out who really speaks for the White House and who doesn’t,” wrote Aaron D. Miller, a former State Department Middle East adviser and the author of “The Much Too Promised Land.” “If a secretary of state falls into the latter category, he or she will have little chance of doing effective diplomacy on a big issue. More likely, they’ll be played like a finely tuned violin or simply taken for granted.”
When the U.S. secretary of state walks into the room, Miller added in a recent essay in The Los Angeles Times, “his or her interlocutors need to be on the edge of their seats, not comfortably situated in their chairs wondering how best to manipulate the secretary. If anything, they should be worried about being manipulated themselves.”
My question is whether a President Obama and a Secretary of State Clinton, given all that has gone down between them and their staffs, can have that kind of relationship, particularly with Mrs. Clinton always thinking four to eight years ahead, and the possibility that she may run again for the presidency. I just don’t know.
Every word that is said between them in public, and every leak, will be scrutinized for what it means politically and whether there is daylight. That is not a reason not to appoint Mrs. Clinton. But it is a reason for everyone around the president-elect to take a deep breath and ask whether they are prepared to have the kind of air-tight relationship with Mrs. Clinton that is required for effective diplomacy.
When it comes to appointing a secretary of state, you do not want a team of rivals.
November 21, 2008
Op-Ed Columnist
The Insider’s Crusade
By DAVID BROOKS
Jan. 20, 2009, will be a historic day. Barack Obama (Columbia, Harvard Law) will take the oath of office as his wife, Michelle (Princeton, Harvard Law), looks on proudly. Nearby, his foreign policy advisers will stand beaming, including perhaps Hillary Clinton (Wellesley, Yale Law), Jim Steinberg (Harvard, Yale Law) and Susan Rice (Stanford, Oxford D. Phil.).
The domestic policy team will be there, too, including Jason Furman (Harvard, Harvard Ph.D.), Austan Goolsbee (Yale, M.I.T. Ph.D.), Blair Levin (Yale, Yale Law), Peter Orszag (Princeton, London School of Economics Ph.D.) and, of course, the White House Counsel Greg Craig (Harvard, Yale Law).
This truly will be an administration that looks like America, or at least that slice of America that got double 800s on their SATs. Even more than past administrations, this will be a valedictocracy — rule by those who graduate first in their high school classes. If a foreign enemy attacks the United States during the Harvard-Yale game any time over the next four years, we’re screwed.
Already the culture of the Obama administration is coming into focus. Its members are twice as smart as the poor reporters who have to cover them, three times if you include the columnists. They typically served in the Clinton administration and then, like Cincinnatus, retreated to the comforts of private life — that is, if Cincinnatus had worked at Goldman Sachs, Williams & Connolly or the Brookings Institution. So many of them send their kids to Georgetown Day School, the posh leftish private school in D.C. that they’ll be able to hold White House staff meetings in the carpool line.
And yet as much as I want to resent these overeducated Achievatrons (not to mention the incursion of a French-style government dominated by highly trained Enarchs), I find myself tremendously impressed by the Obama transition.
The fact that they can already leak one big appointee per day is testimony to an awful lot of expert staff work. Unlike past Democratic administrations, they are not just handing out jobs to the hacks approved by the favored interest groups. They’re thinking holistically — there’s a nice balance of policy wonks, governors and legislators. They’re also thinking strategically. As Norman Ornstein of the American Enterprise Institute notes, it was smart to name Tom Daschle both the head of Health and Human Services and the health czar. Splitting those duties up, as Bill Clinton did, leads to all sorts of conflicts.
Most of all, they are picking Washington insiders. Or to be more precise, they are picking the best of the Washington insiders.
Obama seems to have dispensed with the romantic and failed notion that you need inexperienced “fresh faces” to change things. After all, it was L.B.J. who passed the Civil Rights Act. Moreover, because he is so young, Obama is not bringing along an insular coterie of lifelong aides who depend upon him for their well-being.
As a result, the team he has announced so far is more impressive than any other in recent memory. One may not agree with them on everything or even most things, but a few things are indisputably true.
First, these are open-minded individuals who are persuadable by evidence. Orszag, who will probably be budget director, is trusted by Republicans and Democrats for his honest presentation of the facts.
Second, they are admired professionals. Conservative legal experts have a high regard for the probable attorney general, Eric Holder, despite the business over the Marc Rich pardon.
Third, they are not excessively partisan. Obama signaled that he means to live up to his postpartisan rhetoric by letting Joe Lieberman keep his committee chairmanship.
Fourth, they are not ideological. The economic advisers, Furman and Goolsbee, are moderate and thoughtful Democrats. Hillary Clinton at State is problematic, mostly because nobody has a role for her husband. But, as she has demonstrated in the Senate, her foreign-policy views are hardheaded and pragmatic. (It would be great to see her set of interests complemented by Samantha Power’s set of interests at the U.N.)
Finally, there are many people on this team with practical creativity. Any think tanker can come up with broad doctrines, but it is rare to find people who can give the president a list of concrete steps he can do day by day to advance American interests. Dennis Ross, who advised Obama during the campaign, is the best I’ve ever seen at this, but Rahm Emanuel also has this capacity, as does Craig and legislative liaison Phil Schiliro.
Believe me, I’m trying not to join in the vast, heaving O-phoria now sweeping the coastal haut-bourgeoisie. But the personnel decisions have been superb. The events of the past two weeks should be reassuring to anybody who feared that Obama would veer to the left or would suffer self-inflicted wounds because of his inexperience. He’s off to a start that nearly justifies the hype.
Op-Ed Columnist
The Insider’s Crusade
By DAVID BROOKS
Jan. 20, 2009, will be a historic day. Barack Obama (Columbia, Harvard Law) will take the oath of office as his wife, Michelle (Princeton, Harvard Law), looks on proudly. Nearby, his foreign policy advisers will stand beaming, including perhaps Hillary Clinton (Wellesley, Yale Law), Jim Steinberg (Harvard, Yale Law) and Susan Rice (Stanford, Oxford D. Phil.).
The domestic policy team will be there, too, including Jason Furman (Harvard, Harvard Ph.D.), Austan Goolsbee (Yale, M.I.T. Ph.D.), Blair Levin (Yale, Yale Law), Peter Orszag (Princeton, London School of Economics Ph.D.) and, of course, the White House Counsel Greg Craig (Harvard, Yale Law).
This truly will be an administration that looks like America, or at least that slice of America that got double 800s on their SATs. Even more than past administrations, this will be a valedictocracy — rule by those who graduate first in their high school classes. If a foreign enemy attacks the United States during the Harvard-Yale game any time over the next four years, we’re screwed.
Already the culture of the Obama administration is coming into focus. Its members are twice as smart as the poor reporters who have to cover them, three times if you include the columnists. They typically served in the Clinton administration and then, like Cincinnatus, retreated to the comforts of private life — that is, if Cincinnatus had worked at Goldman Sachs, Williams & Connolly or the Brookings Institution. So many of them send their kids to Georgetown Day School, the posh leftish private school in D.C. that they’ll be able to hold White House staff meetings in the carpool line.
And yet as much as I want to resent these overeducated Achievatrons (not to mention the incursion of a French-style government dominated by highly trained Enarchs), I find myself tremendously impressed by the Obama transition.
The fact that they can already leak one big appointee per day is testimony to an awful lot of expert staff work. Unlike past Democratic administrations, they are not just handing out jobs to the hacks approved by the favored interest groups. They’re thinking holistically — there’s a nice balance of policy wonks, governors and legislators. They’re also thinking strategically. As Norman Ornstein of the American Enterprise Institute notes, it was smart to name Tom Daschle both the head of Health and Human Services and the health czar. Splitting those duties up, as Bill Clinton did, leads to all sorts of conflicts.
Most of all, they are picking Washington insiders. Or to be more precise, they are picking the best of the Washington insiders.
Obama seems to have dispensed with the romantic and failed notion that you need inexperienced “fresh faces” to change things. After all, it was L.B.J. who passed the Civil Rights Act. Moreover, because he is so young, Obama is not bringing along an insular coterie of lifelong aides who depend upon him for their well-being.
As a result, the team he has announced so far is more impressive than any other in recent memory. One may not agree with them on everything or even most things, but a few things are indisputably true.
First, these are open-minded individuals who are persuadable by evidence. Orszag, who will probably be budget director, is trusted by Republicans and Democrats for his honest presentation of the facts.
Second, they are admired professionals. Conservative legal experts have a high regard for the probable attorney general, Eric Holder, despite the business over the Marc Rich pardon.
Third, they are not excessively partisan. Obama signaled that he means to live up to his postpartisan rhetoric by letting Joe Lieberman keep his committee chairmanship.
Fourth, they are not ideological. The economic advisers, Furman and Goolsbee, are moderate and thoughtful Democrats. Hillary Clinton at State is problematic, mostly because nobody has a role for her husband. But, as she has demonstrated in the Senate, her foreign-policy views are hardheaded and pragmatic. (It would be great to see her set of interests complemented by Samantha Power’s set of interests at the U.N.)
Finally, there are many people on this team with practical creativity. Any think tanker can come up with broad doctrines, but it is rare to find people who can give the president a list of concrete steps he can do day by day to advance American interests. Dennis Ross, who advised Obama during the campaign, is the best I’ve ever seen at this, but Rahm Emanuel also has this capacity, as does Craig and legislative liaison Phil Schiliro.
Believe me, I’m trying not to join in the vast, heaving O-phoria now sweeping the coastal haut-bourgeoisie. But the personnel decisions have been superb. The events of the past two weeks should be reassuring to anybody who feared that Obama would veer to the left or would suffer self-inflicted wounds because of his inexperience. He’s off to a start that nearly justifies the hype.
November 26, 2008
Op-Ed Columnist
All Fall Down
By THOMAS L. FRIEDMAN
I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.
Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.
So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.
Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.
These are the people whom taxpayers bailed out on Monday to the tune of what could be more than $300 billion. We probably had no choice. Just letting Citigroup melt down could have been catastrophic. But when the government throws together a bailout that could end up being hundreds of billions of dollars in 48 hours, you can bet there will be unintended consequences — many, many, many.
Also check out Michael Lewis’s superb essay, “The End of Wall Street’s Boom,” on Portfolio.com. Lewis, who first chronicled Wall Street’s excesses in “Liar’s Poker,” profiles some of the decent people on Wall Street who tried to expose the credit binge — including Meredith Whitney, a little known banking analyst who declared, over a year ago, that “Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust,” wrote Lewis.
“This woman wasn’t saying that Wall Street bankers were corrupt,” he added. “She was saying they were stupid. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they’d fetch in a fire sale... For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.”
Lewis also tracked down Steve Eisman, the hedge fund investor who early on saw through the subprime mortgages and shorted the companies engaged in them, like Long Beach Financial, owned by Washington Mutual.
“Long Beach Financial,” wrote Lewis, “was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, Calif., a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.”
Lewis continued: Eisman knew that subprime lenders could be disreputable. “What he underestimated was the total unabashed complicity of the upper class of American capitalism... ‘We always asked the same question,’ says Eisman. ‘Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.’ He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S.& P. couldn’t say; its model for home prices had no ability to accept a negative number. ‘They were just assuming home prices would keep going up,’ Eisman says.”
That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services — if we’re lucky.
Maureen Dowd is off today.
Op-Ed Columnist
All Fall Down
By THOMAS L. FRIEDMAN
I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.
Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.
So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.
Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.
These are the people whom taxpayers bailed out on Monday to the tune of what could be more than $300 billion. We probably had no choice. Just letting Citigroup melt down could have been catastrophic. But when the government throws together a bailout that could end up being hundreds of billions of dollars in 48 hours, you can bet there will be unintended consequences — many, many, many.
Also check out Michael Lewis’s superb essay, “The End of Wall Street’s Boom,” on Portfolio.com. Lewis, who first chronicled Wall Street’s excesses in “Liar’s Poker,” profiles some of the decent people on Wall Street who tried to expose the credit binge — including Meredith Whitney, a little known banking analyst who declared, over a year ago, that “Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust,” wrote Lewis.
“This woman wasn’t saying that Wall Street bankers were corrupt,” he added. “She was saying they were stupid. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they’d fetch in a fire sale... For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.”
Lewis also tracked down Steve Eisman, the hedge fund investor who early on saw through the subprime mortgages and shorted the companies engaged in them, like Long Beach Financial, owned by Washington Mutual.
“Long Beach Financial,” wrote Lewis, “was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, Calif., a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.”
Lewis continued: Eisman knew that subprime lenders could be disreputable. “What he underestimated was the total unabashed complicity of the upper class of American capitalism... ‘We always asked the same question,’ says Eisman. ‘Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.’ He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S.& P. couldn’t say; its model for home prices had no ability to accept a negative number. ‘They were just assuming home prices would keep going up,’ Eisman says.”
That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services — if we’re lucky.
Maureen Dowd is off today.
December 2, 2008
Op-Ed Columnist
Continuity We Can Believe In
By DAVID BROOKS
The 2008 election results did not fundamentally change American foreign policy. The real change began a few years ago in Afghanistan and Iraq.
It began with colonels and captains fighting terror on the ground. They found that they could clear a town of the bad guys, but they had little capacity to establish rule of law or quality of life for the people they were trying to help. They quickly realized that the big challenge in this new era is not killing the enemy, it’s repairing the zones of chaos where enemies grow and breed. They realized, too, that Washington wasn’t providing them with the tools they needed to accomplish their missions.
Their observations and arguments filtered through military channels and back home, producing serious rethinking at the highest levels. On Jan. 18, 2006, Condoleezza Rice delivered a policy address at Georgetown University in which she argued that the fundamental threats now come from weak and failed states, not enemy powers.
In this new world, she continued, it is impossible to draw neat lines between security, democratization and development efforts. She called for a transformational diplomacy, in which State Department employees would do less negotiating and communiqué-writing. Instead, they’d be out in towns and villages doing broad campaign planning with military colleagues, strengthening local governments and implementing development projects.
Over the past year, Defense Secretary Robert Gates has delivered a series of remarkable speeches echoing and advancing Rice’s themes. “In recent years, the lines separating war, peace, diplomacy and development have become more blurred and no longer fit the neat organizational charts of the 20th century,” he said in Washington in July.
Gates does not talk about spreading democracy, at least in the short run. He talks about using integrated federal agencies to help locals improve the quality and responsiveness of governments in trouble spots around the world.
He has developed a way of talking about security and foreign policy that is now the lingua franca in government and think-tank circles. It owes a lot to the lessons of counterinsurgency and uses phrases like “full spectrum operations” to describe multidisciplinary security and development campaigns.
Gates has told West Point cadets that more regime change is unlikely but that they may spend parts of their careers training soldiers in allied nations. He has called for more spending on the State Department, foreign aid and a revitalized U.S. Information Agency. He’s spawned a flow of think-tank reports on how to marry hard and soft pre-emption.
The Bush administration began to implement these ideas, but in small and symbolic ways. President Bush called for a civilian corps to do nation-building. National Security Presidential Directive 44 laid out a framework so different agencies could coordinate foreign reconstruction and stabilization. The Millennium Challenge Account program created a method for measuring effective governance.
Actual progress was slow, but the ideas developed during the second Bush term have taken hold.
Some theoreticians may still talk about Platonic concepts like realism and neoconservatism, but the actual foreign policy doctrine of the future will be hammered out in a bottom-up process as the U.S. and its allies use their varied tools to build government capacity in Afghanistan, Pakistan, Lebanon, the Philippines and beyond. Grand strategists may imagine a new global architecture built at high-level summits, but the real global architecture of the future will emerge organically from these day-to-day nation-building operations.
During the campaign, Barack Obama embraced Gates’s language. During his press conference on Monday, he used all the right code words, speaking of integrating and rebalancing the nation’s foreign policy capacities. He nominated Hillary Clinton and James Jones, who have been champions of this approach, and retained Gates. Their cooperation on an integrated strategy might prevent some of the perennial feuding between the Pentagon, Foggy Bottom and the National Security Council.
As Stephen Flanagan of the Center for Strategic and International Studies notes, Obama’s challenge will be to actually implement the change. That would include increasing the size of the State Department, building a civilian corps that can do development in dangerous parts of the world, creating interagency nation-building institutions, helping local reformers build governing capacity in fragile places like Pakistan and the Palestinian territories and exporting American universities while importing more foreign students.
Given the events of the past years, the U.S. is not about to begin another explicit crusade to spread democracy. But decent, effective and responsive government would be a start.
Obama and his team didn’t invent this approach. But if they can put it into action, that would be continuity we can believe in.
Op-Ed Columnist
Continuity We Can Believe In
By DAVID BROOKS
The 2008 election results did not fundamentally change American foreign policy. The real change began a few years ago in Afghanistan and Iraq.
It began with colonels and captains fighting terror on the ground. They found that they could clear a town of the bad guys, but they had little capacity to establish rule of law or quality of life for the people they were trying to help. They quickly realized that the big challenge in this new era is not killing the enemy, it’s repairing the zones of chaos where enemies grow and breed. They realized, too, that Washington wasn’t providing them with the tools they needed to accomplish their missions.
Their observations and arguments filtered through military channels and back home, producing serious rethinking at the highest levels. On Jan. 18, 2006, Condoleezza Rice delivered a policy address at Georgetown University in which she argued that the fundamental threats now come from weak and failed states, not enemy powers.
In this new world, she continued, it is impossible to draw neat lines between security, democratization and development efforts. She called for a transformational diplomacy, in which State Department employees would do less negotiating and communiqué-writing. Instead, they’d be out in towns and villages doing broad campaign planning with military colleagues, strengthening local governments and implementing development projects.
Over the past year, Defense Secretary Robert Gates has delivered a series of remarkable speeches echoing and advancing Rice’s themes. “In recent years, the lines separating war, peace, diplomacy and development have become more blurred and no longer fit the neat organizational charts of the 20th century,” he said in Washington in July.
Gates does not talk about spreading democracy, at least in the short run. He talks about using integrated federal agencies to help locals improve the quality and responsiveness of governments in trouble spots around the world.
He has developed a way of talking about security and foreign policy that is now the lingua franca in government and think-tank circles. It owes a lot to the lessons of counterinsurgency and uses phrases like “full spectrum operations” to describe multidisciplinary security and development campaigns.
Gates has told West Point cadets that more regime change is unlikely but that they may spend parts of their careers training soldiers in allied nations. He has called for more spending on the State Department, foreign aid and a revitalized U.S. Information Agency. He’s spawned a flow of think-tank reports on how to marry hard and soft pre-emption.
The Bush administration began to implement these ideas, but in small and symbolic ways. President Bush called for a civilian corps to do nation-building. National Security Presidential Directive 44 laid out a framework so different agencies could coordinate foreign reconstruction and stabilization. The Millennium Challenge Account program created a method for measuring effective governance.
Actual progress was slow, but the ideas developed during the second Bush term have taken hold.
Some theoreticians may still talk about Platonic concepts like realism and neoconservatism, but the actual foreign policy doctrine of the future will be hammered out in a bottom-up process as the U.S. and its allies use their varied tools to build government capacity in Afghanistan, Pakistan, Lebanon, the Philippines and beyond. Grand strategists may imagine a new global architecture built at high-level summits, but the real global architecture of the future will emerge organically from these day-to-day nation-building operations.
During the campaign, Barack Obama embraced Gates’s language. During his press conference on Monday, he used all the right code words, speaking of integrating and rebalancing the nation’s foreign policy capacities. He nominated Hillary Clinton and James Jones, who have been champions of this approach, and retained Gates. Their cooperation on an integrated strategy might prevent some of the perennial feuding between the Pentagon, Foggy Bottom and the National Security Council.
As Stephen Flanagan of the Center for Strategic and International Studies notes, Obama’s challenge will be to actually implement the change. That would include increasing the size of the State Department, building a civilian corps that can do development in dangerous parts of the world, creating interagency nation-building institutions, helping local reformers build governing capacity in fragile places like Pakistan and the Palestinian territories and exporting American universities while importing more foreign students.
Given the events of the past years, the U.S. is not about to begin another explicit crusade to spread democracy. But decent, effective and responsive government would be a start.
Obama and his team didn’t invent this approach. But if they can put it into action, that would be continuity we can believe in.
December 8, 2008
Kremlin Rules
In Hard Times, Russia Moves In to Reclaim Private Industries
By CLIFFORD J. LEVY
BEREZNIKI, Russia — In late October, one of Vladimir V. Putin’s top lieutenants abruptly summoned a billionaire mining oligarch to a private meeting. The official, Igor I. Sechin, had taken a sudden interest in a two-year-old accident at the oligarch’s highly lucrative mining operations here in Russia’s industrial heartland.
Mr. Sechin, who is a leader of a shadowy Kremlin faction tied to the state security services, said he was ordering a new inquiry into the mishap, according to minutes of the meeting. With a deputy interior minister who investigates financial crime at his side, Mr. Sechin threatened crippling fines against the company, Uralkali.
Startled, the oligarch, Dmitri E. Rybolovlev, pointed out that the government had already examined the incident thoroughly and had cleared the company of responsibility.
He further sought to fend off the inquiry by saying he would pay for some of the damage to infrastructure from the accident, a mine collapse that injured no one but left a gaping sinkhole.
His offer was rebuffed, and it seemed clear why: the Kremlin was maneuvering to seize Uralkali outright.
Mr. Putin, the former president and current prime minister, has long maintained that Russia made a colossal error in the 1990s by allowing its enormous reserves of oil, gas and other natural resources to fall into private hands.
He has acted uncompromisingly — most notably in the case of the Yukos Oil Company in 2003 — to get them back.
Now, the Kremlin seems to be capitalizing on the economic crisis, exploiting the opportunity to establish more control over financially weakened industries that it has long coveted, particularly those in natural resources.
Last month, for example, the government assumed greater influence over Norilsk Nickel, the world’s biggest nickel producer, whose large shareholders, two billionaire oligarchs, have ailing finances. And Mr. Putin said Thursday that he was considering other such interventions.
Yet the Uralkali affair stands out for illustrating with rare clarity the willingness of the authorities to use whatever means necessary to obtain these assets, including subjecting companies to questionable investigations that they have little chance of resisting, financial analysts here say.
At the forefront of these efforts is Mr. Sechin, 48, a deputy prime minister who has been a Putin confidant since the two served in the St. Petersburg city government in the early 1990s. Mr. Sechin almost never gives interviews or speaks publicly, but he is believed to spearhead the use of the secret services and other government arms to capture companies.
“He is the state’s main raider,” said Olga Kryshtanovskaya, a prominent Kremlin expert at the Center for the Study of Elites in Moscow. “He organizes these raider seizures, sometimes to the benefit of the state, or sometimes to the benefit of companies that are friendly to him.”
Mr. Sechin’s role in the Uralkali inquiry immediately caused analysts and investors to presume that the company was in peril. Uralkali’s stock, once highly prized by fund managers, has plunged more than 60 percent since the inquiry began, far more than the broader Russian stock market.
That has caused steep losses for Mr. Rybolovlev, 42, a former medical student who is known as Russia’s fertilizer king because of his dominance of the business of mining potash, a principal fertilizer component. Last June, when Uralkali was soaring, the otherwise low-key Mr. Rybolovlev attracted attention by buying Donald J. Trump’s mansion in Palm Beach, Fla., for $95 million.
The Kremlin has not said when there will be a decision on Uralkali, and the company is hoping to negotiate a settlement that would include a fine of a few hundred million dollars. Analysts emphasized that there was still a chance that Mr. Sechin might pull back after seeing the stock market react so hostilely to the inquiry.
Developments in the overall economy might also give the Kremlin pause. A growing recognition of its outsize influence over business appears to have helped sour the investment climate here, and suggests in part why the Russian stock market has been among the worst performers in the world this year.
Widespread corruption has deepened this mistrust. So it is perhaps not surprising that the Uralkali affair has been marked by what appears to be insider trading.
Around the time of the meeting called by Mr. Sechin on Oct. 29 in Moscow, there was a sharp spike in short selling in Uralkali’s stock on the London Stock Exchange — that is, bets that the stock would fall, according to Data Explorers, an analytical firm that studied the securities data at the request of The New York Times. The meeting itself was not made public until Nov. 7, at which point the stock plummeted.
Mr. Sechin would not comment on the investigation, but a spokesman, Dmitri S. Peskov, said Mr. Sechin’s reputation was not warranted. “The press sometimes has a tendency to demonize people,” Mr. Peskov said.
Last month, a first deputy prime minister, Igor I. Shuvalov, dismissed concerns about the government’s intent.
“No one is going to destroy the company — we need strong business units,” Mr. Shuvalov said. “If after payments the company goes bankrupt, that won’t stop the government. A new owner will be found for Uralkali.”
With the financial crisis jolting economies around the world, Russia is hardly alone in taking ownership stakes in corporations these days. But many governments seem to view this as an uncomfortable role that has been thrust upon them. Russia’s rulers, however, appear to perceive the crisis as a chance to further expand their control over the economy, concentrating ever more power and wealth in the Kremlin.
“We will put capital directly into major companies, in cases when it would be beneficial to the state and eventually to the taxpayer, and in those enterprises that are the basis of the economy of the Russian Federation,” Mr. Putin said in a television appearance on Thursday. “We do not exclude that these tools may be used in a large-scale way.”
What seems to have drawn the Russian leadership’s attention to Uralkali was its impressive balance sheet, which expanded robustly over the last year as the prices of food and commodities shot up. Its revenues swelled to $1.1 billion in the first half of 2008, double the level in the same period the year before. Its profits more than tripled to $550 million.
With that kind of cash flow, the company was better able to ward off any fines and penalties the Kremlin could reasonably levy. But as its revenues have dropped because of the downturn, Uralkali has become more vulnerable.
Russians undoubtedly have ambivalent feelings about oligarchs like Mr. Rybolovlev. They tend to resent the oligarchs’ wealth, believing that it was accumulated through underhanded means in the 1990s. (Mr. Rybolovlev himself was accused of orchestrating the killing of a rival back then, though he was cleared of the charges.)
But they also worry that government officials want to seize these assets for their own venal purposes, and that they will end up mismanaging them, just as in Soviet times.
Here in Berezniki, 750 miles northeast of Moscow in the Ural Mountains, the new investigation has stirred anxiety among some miners, who said in interviews that they would fear lower salaries if the government took the company.
Federal officials have already aroused resentment here among residents who had to move after the 2006 mine accident into new, government-built homes that they said were shoddy.
Vladimir Smirnoff, 48, who drives a transporter in the mine, said workers did not understand the need for the inquiry, given that the earlier one had absolved the company.
The first government inquiry concluded that the mine collapse, which happened with enough warning that all the miners escaped, was caused by “a previously unknown geological anomaly.”
“It seems to us that the authorities simply want to take the company away from Rybolovlev,” Mr. Smirnoff said. “The authorities just can’t watch all that money pass them by.”
Mr. Rybolovlev and other Uralkali executives declined to be interviewed for this article.
The company said last month that “there are no legal or moral grounds” for blaming it for the accident. It said that if the new inquiry found Uralkali responsible, “it will suffer an enormous financial burden. The company’s future and plans would be in doubt.”
Uralkali fears that officials will seek compensation equal to future taxes and fees that the company would have paid to the government if the section of the mine that collapsed had continued operating, a penalty that could amount to well over $1 billion.
The new investigation carries echoes of the case that has come to define Mr. Putin’s tenure — the government’s forcible takeover of Yukos, once the country’s biggest oil company. Mr. Sechin is said to have led that case, and now also serves as chairman of Rosneft, the government-controlled oil company that swallowed up many of Yukos’s assets.
“The Uralkali case says that the government feels it has the power to interfere in any way in these industries,” said Marina Alexeenkova, a vice president at Renaissance Capital, an investment bank in Moscow. “It looks really aggressive and really risky. In general, this has been considered the most serious attack on a company since Yukos.”
The government imprisoned Yukos’s owner — the billionaire oligarch Mikhail B. Khodorkovsky, who had angered Mr. Putin by engaging in politics — on tax charges. It does not appear that Mr. Rybolovlev will suffer a similar punishment.
Like many oligarchs who have heeded Mr. Khodorkovsky’s example, Mr. Rybolovlev has backed the Kremlin, and has spurned pleas for financial support from opposition politicians here in the Perm region.
As the inquiry continued last week, the government sent conflicting signals about its course. It said Wednesday that investigators would need at least two more weeks before forwarding their report to Mr. Sechin, dimming Uralkali’s quest for a settlement. The next day, the natural resources minister, Yuri P. Trutnev, a close friend of Mr. Rybolovlev’s, publicly supported the company. He is not directly involved in the new inquiry, though, and analysts discounted the importance of his statement.
Investigators are now said to be examining whether Uralkali should pay for rerouting 30 miles of railroad track around the sinkhole, as well as for reimbursing the government for resettling people and other costs. But their primary objective is to scrutinize the accident itself and decide whether the company was at fault, which could expose it to heavy penalties.
Here in Berezniki, though, people seem confused about how the investigators are going to do that. It turns out that the part of the mine that collapsed is now completely filled with water, preventing anyone from getting anywhere close to it.
Kremlin Rules
In Hard Times, Russia Moves In to Reclaim Private Industries
By CLIFFORD J. LEVY
BEREZNIKI, Russia — In late October, one of Vladimir V. Putin’s top lieutenants abruptly summoned a billionaire mining oligarch to a private meeting. The official, Igor I. Sechin, had taken a sudden interest in a two-year-old accident at the oligarch’s highly lucrative mining operations here in Russia’s industrial heartland.
Mr. Sechin, who is a leader of a shadowy Kremlin faction tied to the state security services, said he was ordering a new inquiry into the mishap, according to minutes of the meeting. With a deputy interior minister who investigates financial crime at his side, Mr. Sechin threatened crippling fines against the company, Uralkali.
Startled, the oligarch, Dmitri E. Rybolovlev, pointed out that the government had already examined the incident thoroughly and had cleared the company of responsibility.
He further sought to fend off the inquiry by saying he would pay for some of the damage to infrastructure from the accident, a mine collapse that injured no one but left a gaping sinkhole.
His offer was rebuffed, and it seemed clear why: the Kremlin was maneuvering to seize Uralkali outright.
Mr. Putin, the former president and current prime minister, has long maintained that Russia made a colossal error in the 1990s by allowing its enormous reserves of oil, gas and other natural resources to fall into private hands.
He has acted uncompromisingly — most notably in the case of the Yukos Oil Company in 2003 — to get them back.
Now, the Kremlin seems to be capitalizing on the economic crisis, exploiting the opportunity to establish more control over financially weakened industries that it has long coveted, particularly those in natural resources.
Last month, for example, the government assumed greater influence over Norilsk Nickel, the world’s biggest nickel producer, whose large shareholders, two billionaire oligarchs, have ailing finances. And Mr. Putin said Thursday that he was considering other such interventions.
Yet the Uralkali affair stands out for illustrating with rare clarity the willingness of the authorities to use whatever means necessary to obtain these assets, including subjecting companies to questionable investigations that they have little chance of resisting, financial analysts here say.
At the forefront of these efforts is Mr. Sechin, 48, a deputy prime minister who has been a Putin confidant since the two served in the St. Petersburg city government in the early 1990s. Mr. Sechin almost never gives interviews or speaks publicly, but he is believed to spearhead the use of the secret services and other government arms to capture companies.
“He is the state’s main raider,” said Olga Kryshtanovskaya, a prominent Kremlin expert at the Center for the Study of Elites in Moscow. “He organizes these raider seizures, sometimes to the benefit of the state, or sometimes to the benefit of companies that are friendly to him.”
Mr. Sechin’s role in the Uralkali inquiry immediately caused analysts and investors to presume that the company was in peril. Uralkali’s stock, once highly prized by fund managers, has plunged more than 60 percent since the inquiry began, far more than the broader Russian stock market.
That has caused steep losses for Mr. Rybolovlev, 42, a former medical student who is known as Russia’s fertilizer king because of his dominance of the business of mining potash, a principal fertilizer component. Last June, when Uralkali was soaring, the otherwise low-key Mr. Rybolovlev attracted attention by buying Donald J. Trump’s mansion in Palm Beach, Fla., for $95 million.
The Kremlin has not said when there will be a decision on Uralkali, and the company is hoping to negotiate a settlement that would include a fine of a few hundred million dollars. Analysts emphasized that there was still a chance that Mr. Sechin might pull back after seeing the stock market react so hostilely to the inquiry.
Developments in the overall economy might also give the Kremlin pause. A growing recognition of its outsize influence over business appears to have helped sour the investment climate here, and suggests in part why the Russian stock market has been among the worst performers in the world this year.
Widespread corruption has deepened this mistrust. So it is perhaps not surprising that the Uralkali affair has been marked by what appears to be insider trading.
Around the time of the meeting called by Mr. Sechin on Oct. 29 in Moscow, there was a sharp spike in short selling in Uralkali’s stock on the London Stock Exchange — that is, bets that the stock would fall, according to Data Explorers, an analytical firm that studied the securities data at the request of The New York Times. The meeting itself was not made public until Nov. 7, at which point the stock plummeted.
Mr. Sechin would not comment on the investigation, but a spokesman, Dmitri S. Peskov, said Mr. Sechin’s reputation was not warranted. “The press sometimes has a tendency to demonize people,” Mr. Peskov said.
Last month, a first deputy prime minister, Igor I. Shuvalov, dismissed concerns about the government’s intent.
“No one is going to destroy the company — we need strong business units,” Mr. Shuvalov said. “If after payments the company goes bankrupt, that won’t stop the government. A new owner will be found for Uralkali.”
With the financial crisis jolting economies around the world, Russia is hardly alone in taking ownership stakes in corporations these days. But many governments seem to view this as an uncomfortable role that has been thrust upon them. Russia’s rulers, however, appear to perceive the crisis as a chance to further expand their control over the economy, concentrating ever more power and wealth in the Kremlin.
“We will put capital directly into major companies, in cases when it would be beneficial to the state and eventually to the taxpayer, and in those enterprises that are the basis of the economy of the Russian Federation,” Mr. Putin said in a television appearance on Thursday. “We do not exclude that these tools may be used in a large-scale way.”
What seems to have drawn the Russian leadership’s attention to Uralkali was its impressive balance sheet, which expanded robustly over the last year as the prices of food and commodities shot up. Its revenues swelled to $1.1 billion in the first half of 2008, double the level in the same period the year before. Its profits more than tripled to $550 million.
With that kind of cash flow, the company was better able to ward off any fines and penalties the Kremlin could reasonably levy. But as its revenues have dropped because of the downturn, Uralkali has become more vulnerable.
Russians undoubtedly have ambivalent feelings about oligarchs like Mr. Rybolovlev. They tend to resent the oligarchs’ wealth, believing that it was accumulated through underhanded means in the 1990s. (Mr. Rybolovlev himself was accused of orchestrating the killing of a rival back then, though he was cleared of the charges.)
But they also worry that government officials want to seize these assets for their own venal purposes, and that they will end up mismanaging them, just as in Soviet times.
Here in Berezniki, 750 miles northeast of Moscow in the Ural Mountains, the new investigation has stirred anxiety among some miners, who said in interviews that they would fear lower salaries if the government took the company.
Federal officials have already aroused resentment here among residents who had to move after the 2006 mine accident into new, government-built homes that they said were shoddy.
Vladimir Smirnoff, 48, who drives a transporter in the mine, said workers did not understand the need for the inquiry, given that the earlier one had absolved the company.
The first government inquiry concluded that the mine collapse, which happened with enough warning that all the miners escaped, was caused by “a previously unknown geological anomaly.”
“It seems to us that the authorities simply want to take the company away from Rybolovlev,” Mr. Smirnoff said. “The authorities just can’t watch all that money pass them by.”
Mr. Rybolovlev and other Uralkali executives declined to be interviewed for this article.
The company said last month that “there are no legal or moral grounds” for blaming it for the accident. It said that if the new inquiry found Uralkali responsible, “it will suffer an enormous financial burden. The company’s future and plans would be in doubt.”
Uralkali fears that officials will seek compensation equal to future taxes and fees that the company would have paid to the government if the section of the mine that collapsed had continued operating, a penalty that could amount to well over $1 billion.
The new investigation carries echoes of the case that has come to define Mr. Putin’s tenure — the government’s forcible takeover of Yukos, once the country’s biggest oil company. Mr. Sechin is said to have led that case, and now also serves as chairman of Rosneft, the government-controlled oil company that swallowed up many of Yukos’s assets.
“The Uralkali case says that the government feels it has the power to interfere in any way in these industries,” said Marina Alexeenkova, a vice president at Renaissance Capital, an investment bank in Moscow. “It looks really aggressive and really risky. In general, this has been considered the most serious attack on a company since Yukos.”
The government imprisoned Yukos’s owner — the billionaire oligarch Mikhail B. Khodorkovsky, who had angered Mr. Putin by engaging in politics — on tax charges. It does not appear that Mr. Rybolovlev will suffer a similar punishment.
Like many oligarchs who have heeded Mr. Khodorkovsky’s example, Mr. Rybolovlev has backed the Kremlin, and has spurned pleas for financial support from opposition politicians here in the Perm region.
As the inquiry continued last week, the government sent conflicting signals about its course. It said Wednesday that investigators would need at least two more weeks before forwarding their report to Mr. Sechin, dimming Uralkali’s quest for a settlement. The next day, the natural resources minister, Yuri P. Trutnev, a close friend of Mr. Rybolovlev’s, publicly supported the company. He is not directly involved in the new inquiry, though, and analysts discounted the importance of his statement.
Investigators are now said to be examining whether Uralkali should pay for rerouting 30 miles of railroad track around the sinkhole, as well as for reimbursing the government for resettling people and other costs. But their primary objective is to scrutinize the accident itself and decide whether the company was at fault, which could expose it to heavy penalties.
Here in Berezniki, though, people seem confused about how the investigators are going to do that. It turns out that the part of the mine that collapsed is now completely filled with water, preventing anyone from getting anywhere close to it.
December 14, 2008
Op-Ed Columnist
Cars, Kabul and Banks
By THOMAS L. FRIEDMAN
If there is anything I’ve learned as a reporter, it’s that when you get away from “the thing itself” — the core truth about a situation — you get into trouble. Barack Obama will have to make three mammoth decisions after he takes the oath of office — on cars, Kabul and banks — and we have to hope that he bases those decisions on the things themselves, the core truths about each. Because many people will be trying to throw fairy dust in his eyes.
The first issue will be whether to bail out Detroit. What is the core truth about Detroit? Auto executives will tell you that it’s the credit crisis, health care, retirement costs and unions. Sure, those are real. But the core truth is that for way too long Detroit made too many cars that too many people did not want to buy. As even General Motors conceded in its apology ad last week: “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster.” Walk through any college campus today. You don’t see a lot of Buicks.
Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.
The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.
After Detroit, Mr. Obama will be asked to bail out Afghanistan. Watch out. The tide has turned against us there because too many Afghans don’t want to buy our politics, or, more precisely, the politics of our ally, the corrupt government of President Hamid Karzai. That is “the thing itself.”
The main reason our Iraq bailout — a k a “the surge” — has had a positive effect is because Iraqis voted with their own guns and their own lives, taking on both Al Qaeda and pro-Iranian Shiite militants. Iraq has avoided bankruptcy for the moment — a total meltdown — because enough Iraqis wanted what we were selling: freedom from extremists. That is the thing itself, and right now I’m not seeing enough of that thing in Afghanistan. Beware of a Kabul bailout.
But maybe the most flagrant area where we continue to avoid looking at “the thing itself” is with our banks. What we are dealing with there is the effect of a credit bubble that began in the late-1980s with the advent of global securitization — the chopping up and bundling into bonds of everything from home mortgages to student loans to airplane leases, and then selling them around the world.
When you take this much leverage and this much globalization and this much complexity and start it in America, and then blow it up, you have a nuclear financial explosion. The deflating of this credit bubble is so wealth-destroying that even the most prudent banks have been ravaged by it.
What to do? The smartest people I know in banking are praying that Obama’s Treasury Department will tackle “the thing itself.” That is, do a real analysis of what the major banks are worth in a worst-case scenario. Then determine, if, on that basis, they have viable, survivable equity-to-asset ratios.
Those that do should get more government investment. Those that are close should be forced to find new investors and merge. And those not viable should be shut down and have their bad assets bought by a government-owned body (which would sell them over time) and their deposits shifted to healthy banks to make those banks even healthier. Some experts believe we still need to close 1,000 banks.
This process will be painful, but probably by the end of a year the market will clear, investors will come in, and the surviving banks will be ready to lend to each other and you and me. The “thing itself” here is that banks still don’t want to lend because they still don’t know the true value of their own balance sheets, let alone anyone else’s.
The market has to clear. We can do it painfully and quickly, as we did with the dot-coms, or we can be Japan and drag it out.
So whether its cars, Kabul or banks, we have to stop wishing for the worlds we want and start dealing with the things themselves. If Obama does, his first year will be excruciatingly painful, but he could have three years after that to be creative. If he doesn’t, I fear that cars, Kabul and banks will dog his whole presidency.
Op-Ed Columnist
Cars, Kabul and Banks
By THOMAS L. FRIEDMAN
If there is anything I’ve learned as a reporter, it’s that when you get away from “the thing itself” — the core truth about a situation — you get into trouble. Barack Obama will have to make three mammoth decisions after he takes the oath of office — on cars, Kabul and banks — and we have to hope that he bases those decisions on the things themselves, the core truths about each. Because many people will be trying to throw fairy dust in his eyes.
The first issue will be whether to bail out Detroit. What is the core truth about Detroit? Auto executives will tell you that it’s the credit crisis, health care, retirement costs and unions. Sure, those are real. But the core truth is that for way too long Detroit made too many cars that too many people did not want to buy. As even General Motors conceded in its apology ad last week: “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster.” Walk through any college campus today. You don’t see a lot of Buicks.
Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.
The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.
After Detroit, Mr. Obama will be asked to bail out Afghanistan. Watch out. The tide has turned against us there because too many Afghans don’t want to buy our politics, or, more precisely, the politics of our ally, the corrupt government of President Hamid Karzai. That is “the thing itself.”
The main reason our Iraq bailout — a k a “the surge” — has had a positive effect is because Iraqis voted with their own guns and their own lives, taking on both Al Qaeda and pro-Iranian Shiite militants. Iraq has avoided bankruptcy for the moment — a total meltdown — because enough Iraqis wanted what we were selling: freedom from extremists. That is the thing itself, and right now I’m not seeing enough of that thing in Afghanistan. Beware of a Kabul bailout.
But maybe the most flagrant area where we continue to avoid looking at “the thing itself” is with our banks. What we are dealing with there is the effect of a credit bubble that began in the late-1980s with the advent of global securitization — the chopping up and bundling into bonds of everything from home mortgages to student loans to airplane leases, and then selling them around the world.
When you take this much leverage and this much globalization and this much complexity and start it in America, and then blow it up, you have a nuclear financial explosion. The deflating of this credit bubble is so wealth-destroying that even the most prudent banks have been ravaged by it.
What to do? The smartest people I know in banking are praying that Obama’s Treasury Department will tackle “the thing itself.” That is, do a real analysis of what the major banks are worth in a worst-case scenario. Then determine, if, on that basis, they have viable, survivable equity-to-asset ratios.
Those that do should get more government investment. Those that are close should be forced to find new investors and merge. And those not viable should be shut down and have their bad assets bought by a government-owned body (which would sell them over time) and their deposits shifted to healthy banks to make those banks even healthier. Some experts believe we still need to close 1,000 banks.
This process will be painful, but probably by the end of a year the market will clear, investors will come in, and the surviving banks will be ready to lend to each other and you and me. The “thing itself” here is that banks still don’t want to lend because they still don’t know the true value of their own balance sheets, let alone anyone else’s.
The market has to clear. We can do it painfully and quickly, as we did with the dot-coms, or we can be Japan and drag it out.
So whether its cars, Kabul or banks, we have to stop wishing for the worlds we want and start dealing with the things themselves. If Obama does, his first year will be excruciatingly painful, but he could have three years after that to be creative. If he doesn’t, I fear that cars, Kabul and banks will dog his whole presidency.
December 17, 2008
Op-Ed Columnist
The Great Unraveling
By THOMAS L. FRIEDMAN
Hong Kong
The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I’ve never been asked before: “So, just how corrupt is America?”
His question was occasioned by the arrest of the Wall Street money manager Bernard Madoff on charges of running a Ponzi scheme that bilked investors out of billions of dollars, but it wasn’t only that. It’s the whole bloody mess coming out of Wall Street — the financial center that Hong Kong moneymen had always looked up to. How could it be, they wonder, that such brand names as Bear Stearns, Lehman Brothers and A.I.G. could turn out to have such feet of clay? Where, they wonder, was our Securities and Exchange Commission and the high standards that we had preached to them all these years?
One of Hong Kong’s most-respected bankers, who asked not to be identified, told me that the U.S.-owned investment company where he works made a mint in the last decade cleaning up sick Asian banks. They did so by importing the best U.S. practices, particularly the principles of “know thy customers” and strict risk controls. But now, he asked, who is there to look to for exemplary leadership?
“Previously, there was America,” he said. “American investors were supposed to know better, and now America itself is in trouble. Whom do they sell their banks to? It is hard for America to take its own medicine that it prescribed successfully for others. There is no doctor anymore. The doctor himself is sick.”
I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?
Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.
It is both eye-opening and depressing to look at our banking crisis from China. It is eye-opening because it is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system.
How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: “Well, China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.”
Yes, an exaggeration to be sure, but the truth is the differences are starting to blur. For two decades, a parade of U.S. officials came to China and lectured Beijing on the necessity of privatizing its banks, said Qu Hongbin, the chief economist for China at HSBC. “So, slowly we did that, and now, all of a sudden, we see everybody else nationalizing their banks.”
It’s depressing because China in many ways feels more stable than America today, with a clearer strategy for working through this crisis. And while the two countries are looking more alike, they appear to be on very different historical trajectories. China went crazy in the 1970s, with its Cultural Revolution, and only after the death of Mao and the rise of Deng Xiaoping has it managed to right itself, gradually moving to a market economy.
But while capitalism has saved China, the end of communism seems to have slightly unhinged America. We lost our two biggest ideological competitors — Beijing and Moscow. Everyone needs a competitor. It keeps you disciplined. But once American capitalism no longer had to worry about communism, it seems to have gone crazy. Investment banks and hedge funds were leveraging themselves at crazy levels, paying themselves crazy salaries and, most of all, inventing financial instruments that completely disconnected the ultimate lenders from the original borrowers, and left no one accountable. “The collapse of communism pushed China to the center and [America] to the extreme,” said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland.
The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don’t want to kill the animal spirits that necessarily drive capitalism — but I don’t want to be eaten by them either.
Maureen Dowd is off today.
Op-Ed Columnist
The Great Unraveling
By THOMAS L. FRIEDMAN
Hong Kong
The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I’ve never been asked before: “So, just how corrupt is America?”
His question was occasioned by the arrest of the Wall Street money manager Bernard Madoff on charges of running a Ponzi scheme that bilked investors out of billions of dollars, but it wasn’t only that. It’s the whole bloody mess coming out of Wall Street — the financial center that Hong Kong moneymen had always looked up to. How could it be, they wonder, that such brand names as Bear Stearns, Lehman Brothers and A.I.G. could turn out to have such feet of clay? Where, they wonder, was our Securities and Exchange Commission and the high standards that we had preached to them all these years?
One of Hong Kong’s most-respected bankers, who asked not to be identified, told me that the U.S.-owned investment company where he works made a mint in the last decade cleaning up sick Asian banks. They did so by importing the best U.S. practices, particularly the principles of “know thy customers” and strict risk controls. But now, he asked, who is there to look to for exemplary leadership?
“Previously, there was America,” he said. “American investors were supposed to know better, and now America itself is in trouble. Whom do they sell their banks to? It is hard for America to take its own medicine that it prescribed successfully for others. There is no doctor anymore. The doctor himself is sick.”
I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?
Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.
It is both eye-opening and depressing to look at our banking crisis from China. It is eye-opening because it is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system.
How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: “Well, China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.”
Yes, an exaggeration to be sure, but the truth is the differences are starting to blur. For two decades, a parade of U.S. officials came to China and lectured Beijing on the necessity of privatizing its banks, said Qu Hongbin, the chief economist for China at HSBC. “So, slowly we did that, and now, all of a sudden, we see everybody else nationalizing their banks.”
It’s depressing because China in many ways feels more stable than America today, with a clearer strategy for working through this crisis. And while the two countries are looking more alike, they appear to be on very different historical trajectories. China went crazy in the 1970s, with its Cultural Revolution, and only after the death of Mao and the rise of Deng Xiaoping has it managed to right itself, gradually moving to a market economy.
But while capitalism has saved China, the end of communism seems to have slightly unhinged America. We lost our two biggest ideological competitors — Beijing and Moscow. Everyone needs a competitor. It keeps you disciplined. But once American capitalism no longer had to worry about communism, it seems to have gone crazy. Investment banks and hedge funds were leveraging themselves at crazy levels, paying themselves crazy salaries and, most of all, inventing financial instruments that completely disconnected the ultimate lenders from the original borrowers, and left no one accountable. “The collapse of communism pushed China to the center and [America] to the extreme,” said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland.
The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don’t want to kill the animal spirits that necessarily drive capitalism — but I don’t want to be eaten by them either.
Maureen Dowd is off today.