Tidbits Quotations on July 29, 2010
To Accompany the July 29, 2010 edition of Tidbits
http://www.trinity.edu/rjensen/tidbits/2010/tidbits072910.htm
Bob Jensen at Trinity University

This is not a forwarded politically-biased message since David Walker is leading a very bipartisan effort to save the United States from economic disaster. Former Andersen Partner David Walker was appointed U.S. Comptroller General by President Bill Clinton and retained in the same position under President Bush ---
http://en.wikipedia.org/wiki/David_M._Walker_(U.S._Comptroller_General)

In his government position David Walker became staggered by the pending economic doom of the United States.

At the American Accounting Association 2010 annual meetings in San Francisco in August, David Walker will be the only person inducted this year into the Accounting Hall of Fame. Since leaving government service, David became the CEO of the Peterson Foundation that is trying to aid our government in saving the United States from entitlements bankruptcy. (By the way, as I read it, the Peterson Foundation supported the latest health care legislation that, in theory, will reduce deficit spending, although I personally think it should’ve been a full-fledged national health plan).

President Obama has appointed a joint task force to find ways of preventing total economic disaster of the United States that exists not so much because of current trillion dollar deficits as the threat of unfunded future entitlements obligations, with Medicare being the biggest unfunded entitlement as baby boomers retire.

Before viewing the Town Hall video, you might want to view the following earlier video:

You can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).  

 This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.

Video

Watch National Town Meetings
http://www.pgpf.org/

Video on IOUSA Bipartisan Solutions to Saving the USA

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).
This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.

I thought the show was pretty balanced from a bipartisan standpoint and from the standpoint of possible solutions.

Many of the possible “solutions” are really too small to really make a dent in the problem. For example, medical costs can be reduced by one of my favorite solutions of limiting (like they do in Texas) punitive damage recoveries in malpractice lawsuits. However, the cost savings are a mere drop in the bucket. Another drop in the bucket will be the achievable increased savings from decreasing medical and disability-claim frauds. These are important solutions, but they are not solutions that will save the USA.

The big possible solutions to save the USA are as follows (you and I won’t particularly like these solutions):

• Extend retirement age significantly (75 years maybe?).
  When Social Security was enacted, life expectancy was slightly over 65 years of age.
  Now it is well over 75 years of age.
   

• Hit Medicare retirees like me with higher fees for physicians, hospital services, and Medicare D drug payments.
  Perhaps this should be on a scale based upon wealth/income levels such that people, like me, who can afford to pay more must pay more.
   

• Greatly curb the biggest cost of Medicare --- keeping dying people alive in expensive hospitals for a few weeks or maybe even a few months. Sometimes dying people must be kept alive in ICU units costing over $10,000 per day when there is no hope of recovery. There was not any hint of suggesting euthanasia as an alternative. But dying people can be allowed to die more naturally and pain free.
  http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
  (wait for the commercials to play out)
   

• Limit the National Debt is some way. It’s now more common in Europe to limit national debt to 60% of GDP. Various other means of constraining our National Debt were discussed in the CNN longer version of the IOUSA Solutions video.

Watch for the other possible solutions in the 30-minute summary video ---
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)

Here is the original (and somewhat dated video that does not delve into solutions very much)
IOUSA (the most frightening movie in American history) ---
(see a 30-minute version of the documentary at www.iousathemovie.com )

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

Watch the World Premiere of I.O.U.S.A.: Solutions on CNN
Saturday, April 10, 1:00-3:00 p.m. EST or Sunday, April 11, 3:00-5:00 p.m. EST

Watch for the other possible solutions in the 30-minute summary video ---
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/
(Scroll Down a bit)

CBS Sixty minutes has a great video on the enormous cost of keeping dying people artificially alive:
High Cost of Dying --- http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)

U.S. Debt/Deficit Clock --- http://www.usdebtclock.org/

"The Looming Entitlement Fiscal Burden," by Gary Becker, The Becker-Posner Blog, April 11, 2010 ---
http://uchicagolaw.typepad.com/beckerposner/2010/04/the-looming-entitlement-fiscal-burdenbecker.html

"The Entitlement Quandary," by Richard Posner, The Becker-Posner Blog, April 11, 2010 ---
http://uchicagolaw.typepad.com/beckerposner/2010/04/the-entitlement-quandaryposner.html

David Walker --- http://en.wikipedia.org/wiki/David_M._Walker_(U.S._Comptroller_General)

Niall Ferguson --- http://en.wikipedia.org/wiki/Niall_Ferguson

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
Niall Ferguson, "An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1
Please note that this is NBC’s liberal Newsweek Magazine and not Fox News or The Wall Street Journal.

. . .

In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman.

. . .

Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times the stated federal debt.

Continued in article --- http://www.newsweek.com/id/224694/page/1

Niall Ferguson is the Laurence A. Tisch professor of history at Harvard University and the author of The Ascent of Money. In late 2009 he puts forth an unbooked discounted present value liability of $104 trillion for Social Security plus Medicare. In late 2008, the former Chief Accountant of the United States Government, placed this estimate at$43 trillion. We can hardly attribute the $104-$43=$61 trillion difference to President Obama's first year in office. We must accordingly attribute the $61 trillion to margin of error and most economists would probably put a present value of unbooked (off-balance-sheet) present value of Social Security and Medicare debt to be somewhere between $43 trillion and $107 trillion To this we must add other unbooked present value of entitlement debt estimates which range from $13 trillion to $40 trillion. If Obamacare passes it will add untold trillions to trillions more because our legislators are not looking at entitlements beyond 2019.

The Meaning of "Unbooked" versus "Booked" National Debt
By "unbooked" we mean that the debt is not included in the current "booked" National Debt of $12 trillion. The booked debt is debt of the United States for which interest is now being paid daily at slightly under a million dollars a minute. Cash must be raised daily for interest payments. Cash is raised from taxes, borrowing, and/or (shudder) the current Fed approach to simply printing money. Interest is not yet being paid on the unbooked debt for which retirement and medical bills have not yet arrived in Washington DC for payment. The unbooked debt is by far the most frightening because our leaders keep adding to this debt without realizing how it may bring down the entire American Dream to say nothing of reducing the U.S. Military to almost nothing.

Niall Ferguson, "An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1

This matters more for a superpower than for a small Atlantic island for one very simple reason. As interest payments eat into the budget, something has to give—and that something is nearly always defense expenditure. According to the CBO, a significant decline in the relative share of national security in the federal budget is already baked into the cake. On the Pentagon's present plan, defense spending is set to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028.

Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16 percent to 33 percent of GDP (some of the money presumably is going to keep me from expiring even sooner). But spending on everything other than health, Social Security, and interest payments drops from 12 percent to 8.4 percent.

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that cutting the deficit in half by the end of the president's first term should be the administration's most important task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.

Entitlements Warnings --- http://www.cs.trinity.edu/~rjensen/temp/Entitlements7-21-10%20-%20EOTM%20-%20Twilight.pdf
Thank you for giving me permission to post this Michael Cembalest [michael.cembalest@jpmorgan.com]
Michael Cembalest, Chief Investment Officer, J.P. Morgan Private Banking

"Peter G. Peterson: Tax Aversion Syndrome and Our Deficit Future:  We've run out of painless options. Higher taxes and reduced entitlement benefits for the well-off are the only solutions," The Wall Street Journal, July 24, 2010 ---
http://online.wsj.com/article/SB10001424052748703720504575376743805475282.html

People fret about the current public debt rising to 60% of GDP, which many economists believe should be the maximum debt level. But they ignore Congressional Budget Office (CBO) projections that, under current policies, the public debt will reach a staggering 233% of GDP in 30 years and nearly 500% in 50 years.

This is an unthinkable and unsustainable path. In less than 50 years, for example, the CBO projects that interest payments on the national debt alone will represent nearly 20% of the entire U.S. economy and consume 100% of government revenues. This leaves not a penny for any government programs, including critically needed education, R&D and infrastructure. With plummeting savings rates, already 47% of the public debt is held by foreign nations. Borrowing trillions more from China, the Middle East and elsewhere will leave us more beholden to lenders whose interests may not align with our own. Given the growing concerns about the global debt crisis, we need to build confidence we are getting our fiscal house in order. This added confidence will help our recovery.

Continued in article

Blessed are the young, for they shall inherit the national debt.
Herbert Hoover --- http://www.brainyquote.com/quotes/quotes/h/herberthoo110353.html

Historic Political Humor --- http://myloc.gov/exhibitions/hopeforamerica/Pages/default.aspx

Video:  Steve Wynn Takes On Washington  --- http://www.infowars.com/steve-wynn-takes-on-washington/

"Obama's Economic Fish Stories:  On unemployment, the president claims that the stimulus bill was several times more potent than his chief economic adviser estimates. Such statements hurt his credibility," by Michael J. Boskin, The Wall Street Journal, July 21, 2010 ---
http://online.wsj.com/article/SB10001424052748703724104575378751776758256.html?mod=djemEditorialPage_t

A president's most valuable asset—with voters, Congress, allies and enemies—is credibility. So it is unfortunate when extreme exaggeration emanates from the White House.

All presidents wind up saying some things that make even their own economists cringe (often the brainchild of political advisers unconstrained by economic principles, facts or arithmetic). Usually, economic advisers manage to correct these problematic statements before delivery. Sometimes they get channeled into relatively harmless nonsense, such as President Gerald Ford's "Whip Inflation Now" buttons. Other times they produce damaging policies, such as President Richard Nixon's wage and price controls. The most illiterate statement was President Jimmy Carter's late-1970s plea to the Federal Reserve to lower interest rates to combat high inflation, the exact opposite of what it should do. Not surprisingly, the value of the dollar collapsed.

President Obama says "every economist who's looked at it says that the Recovery Act has done its job"—i.e., the stimulus bill has turned the economy around. That's nonsense. Opinions differ widely and many leading economists believe that its impact has been small. Why? The expectation of future spending and future tax hikes to pay for the stimulus and Mr. Obama's vast expansion of government are offsetting the direct short-run expansionary effect. That is standard in all macroeconomic theories.

So, as I and others warned in 2008, the permanent government expansion and higher tax rate agenda is a classic example of what not to do during bad economic times. Worse yet, all the subsidies, bailouts, regulations and mandates are forcing noncommercial decisions on the economy, which now awaits literally thousands of new diktats as a result of things like ObamaCare and the financial reform bill. The uncertainty is impeding investment and hiring.

The president does not say that economists agree that the high future taxes to finance the stimulus will hurt the economy. (The University of Chicago's Harald Uhlig estimates $3.40 of lost output for every dollar of government spending.) Either the president is not being told of serious alternative viewpoints, or serious viewpoints are defined as only those that support his position. In either case, he is being ill-served by his staff.

Mr. Obama's economic statements are increasingly divorced not only from competing viewpoints but from those of his own economic advisers. It is surprising how many numerically challenged pronouncements come from this most scripted and political of White Houses. One slip is eventually forgiven, but when a pattern emerges, no one believes it is an accident.

For example, on the anniversary of the stimulus bill, Mr. Obama declared, "It is largely thanks to the Recovery Act that a second Depression is no longer a possibility." Yet his Council of Economic Advisers just estimated the stimulus bill's effect on GDP at its trough was 1%-2%.

The most common definition of a depression is a long period in which GDP or consumption declines at least 10%. The decline in GDP in the recent recession was 3.8%, in consumption 2%. No one disputes the recession was severe, but to reach a 10% GDP decline requires tripling the administration's estimate (three times their 2% effect) added to the actual 3.8% decline. On the alternative consumption standard, the math is even more absurd. The depression statement isn't credible. The stimulus bill has assumed certain mystic powers in administration discourse, but revoking the laws of arithmetic shouldn't be one of them.

The recession would have been worse if not for the Fed's monetary policy and quantitative easing. Also important were the unmentioned automatic stabilizers—taxes falling more than income, cushioning declines in after-tax incomes and consumption—which were far larger than the spending and tax rebates in the stimulus bill. Arguing that all these policies (including injecting capital into banks, which was necessary but done poorly) may have prevented a depression is perhaps still an exaggeration but at least is within hailing distance of plausibility. On that scale, the effect of the stimulus was puny.

On his recent "Recovery Tour," Mr. Obama boasted, "The stimulus bill prevented the unemployment rate from "getting up to . . . 15%." But the president's own chief economic adviser, Christina Romer, has estimated that the stimulus bill reduced peak unemployment by one percentage point—i.e., since the unemployment rate peaked at 10.1%, it prevented the unemployment rate from rising to just over 11%. So Mr. Obama claims that the stimulus bill was several times more potent than his chief economic adviser estimates.

Perhaps the most serious disconnect concerns the impending expiration of the 2001 and 2003 tax cuts, which will raise the top two income tax rates and the rates on dividends and capital gains. If these growth inhibiting tax increases occur—about $75 billion in tax increases next year, $1.4 trillion over 10 years—there will be serious economic damage.

In the most recent issue of the American Economic Review, Ms. Romer (and her husband David H. Romer) conclude that "tax increases are highly contractionary . . . tax cuts have very large and persistent positive output effects." Their estimates imply the tax increases would depress GDP by roughly half the growth rate in this so-far-anemic recovery.

If Mr. Obama is really serious about a second stimulus, by far the best thing he can do is have Congress quickly extend the expiring Bush tax cuts, combined with real spending cuts set to take effect as the economy improves.

The president badly needs to make more realistic pronouncements. No one expects him to say his policies have failed (although most have delivered far less than claimed at large cost). A little candor about the results of experimentation in uncharted waters would go a long way. But at the very least, his staff needs to avoid putting these exaggerations on the teleprompter. It undermines confidence and raises concerns about competence. It's doing nobody any good—not the economy and certainly not Mr. Obama.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Harvard professor says economists are a huge part of the problem --- http://www.trinity.edu/rjensen/2008Bailout.htm#LiquidityBubble
Stephen A. Marglin is a professor of economics at Harvard University. His latest book is The Dismal Science: How Thinking Like an Economist Undermines Community (Harvard University Press, 2007).

July 25, 2010 message from Zafar Khan [zkhan@EMICH.EDU]

"Too many Americans are out of work. We need to address their hardships with targeted stimulus initiatives such as extending unemployment benefits, which are a very small part of our current deficit. But we cannot continue to ignore our gargantuan longer-term structural deficits. These deficits will soar even after our economy is strong again, and they are the real threat to America's future. We must combine short-term stimulus with a meaningful plan to tackle our long-term structural deficits that would go into effect after our economy has recovered sufficiently."

The question to ponder is why are too many Americans out of work? The conservative answer is that these are lazy bums who are too spoiled by the culture of entitlements to work the jobs that are available.

Zafar

Zafar Khan, Ph.D.
Professor Eastern Michigan University

July 25, reply from Bob Jensen

Really Zafar,

If the conservatives viewed the unemployed as worthless workers, unemployment rates would be high at all phases of the economic cycle. Aside from the hardcore workers that are unemployed even in boom times, I think most employers view their workers as very good workers and dreaded having to lay them off when the economy collapsed.

Now the problem is really that employers, especially small businesses, do not see enough bright outlook to hire these workers back full time --- this is certainly what is happening now with the many small inns, restaurants, and other tourist businesses in New England. The tourism industry has fallen off up here with not many bright prospects for the future. I see this first hand in an inn/restaurant that asked me to consult with them. And it's not that government is not trying some initiatives. The State of New Hampshire taxpayers are now footing a large portion of the cost of a new heating plant in this inn just to keep it from going out of business entirely. This is a hardship grant and is not a loan that must be paid back to the State.

What we're finding is that the struggling inns are now hiring almost all part time help whereas five years ago the staff was much more heavily full time with fringe benefits (after the first year of full time service). The full-time jobs aren't coming back until more tourists elect to come back, and tourists are slow in coming back because many of them are facing hard economic times in their home states. And even the locals are not going out as much to expensive restaurants relative to ten years ago.

To the contrary, the former full time workers in New Hampshire's tourism industry were viewed by employers as mostly very good workers. The problem is that tourist business that used to pay their wages has dropped as much as 30-40 percent for some of the inns and related tourist businesses.

And we're lucky that New Hampshire still has a relatively low 5.9% unemployment rate compared to other tourist-dependent states like Nevada with a 14.2% unemployment rate in June 2010 --- http://www.bls.gov/web/laus/laumstrk.htm

No Zafar, most sensible liberals and conservatives only view the hard core unemployed (maybe 2%) as poor workers. The others are great workers caught up in a trillion-dollar stimulus package that thus far is not doing much to stimulate small business and large business prospects for recovering boom times. We're throwing a lot of money at the problem and not getting much bang for the buck. Most of the jobs that have been created are temporary --- like road and bridge repair contracts. What our good workers really want are full-time careers. At this point debates rage as to whether to double the annual deficit (to over two trillion dollars) or to reduce business taxes (for small corporations now having no income to tax?).

We really don't seem to have good choices at the moment, but one thing is certain --- the interest on our National Debt will soon hit a point where it swamps America entirely. This is why President Obama formed a high-powered commission to tackle the looming entitlements disaster. We used to look down on heavy entitlements nations like Germany and France only to belatedly discover that our own looming entitlements disaster is far worse than anything in Europe. And nations without looming entitlements, Brazil, Russia, India, and China (the BRICs), are commencing to eat our lunch in global markets.

Bob Jensen

Eight Plants to Close Under Chrysler Bankruptcy ---
http://www.autoblog.com/2009/05/01/eight-plants-to-close-under-chrysler-bankruptcy/

Chrysler will assemble new Dodge RAM trucks in Saltillo Plant Mexico, distrito Federal --- Click Here
http://www.maquilaportal.com/news/index.php/blog/show/Chrysler-will-assemble-new-Dodge-RAM-trucks-in-Saltillo-Plant.html

For years, Fiat has dreamed of building a manufacturing plant in Mexico that would give it a link to the U.S. market. Now, the Italian automaker's freshly announced plan to take a stake in Chrysler may mean such a plan will come to pass. There's reason to believe that the wildly popular little Fiat 500 could be built at Chrysler's Toluca, Mexico, plant before the year is out.
New Chrysler Link Could Bring Fiat Cars to U.S. via Mexico --- http://www.insideline.com/chrysler/new-chrysler-link-could-bring-fiat-cars-to-us-via-mexico.html

This is one of the few times I've seen a Harvard accounting faculty member contribute to the daily Harvard Business Review Blog that has a steady flow of contributions form management, marketing, and finance faculty that sustain this blog.

"Dodd-Frank Financial Commentary from HBS Faculty," Harvard Business Review Blog, July 20, 2010 ---
http://blogs.hbr.org/hbsfaculty/2010/07/dodd-frank-commentary-from-hbs.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE

A Much, Much, Much Better Commentary
"Five Major Defects of the Financial Reform Bill," by Nobel Laureate Gary Becker, Becker-Posner Blog, July 11, 2010 --- 
http://www.becker-posner-blog.com/2010/07/five-major-defects-of-the-financial-reform-bill-becker.html 

A 2300 page bill is usually an indication of many political compromises. The Dodd-Frank financial reform bill is no exception, for it is a complex, disorderly, politically motivated, and not well thought out reaction to the financial crisis that erupted beginning with the panic of the fall of 2008. Not everything about the bill is bad-e.g., the requirement that various derivatives trade through exchanges may be a good suggestion- but the disturbing parts of the bill are far more important. I will concentrate on five major defects, including omissions.

1. The bill adds regulations and rules about many activities that had little or nothing to do with the crisis. For example, it creates a consumer financial protection bureau to be housed at the Fed that is supposed to protect consumers from fraud and other abusive financial practices. Yet it is not apparent that many consumers were victimized during the financial boom years, or that consumer behavior had anything of importance to do with the crisis. For example, consumers who took out subprime mortgages that required almost no down payments and had low interest rates were not victimized since these conditions enabled them to cheaply own houses, at least for a while. The “victims” were the banks, and especially Fannie Mae and Freddie Mac, that were foolishly willing to hold such risky mortgages.

The bill gives the Fed authority to limit interchange or “swipe” fees that merchants pay for each debit-card transaction, although these fees had not the slightest connection to the financial crisis. Such price controls are in general undesirable, and hardly seem to require the attention of the Federal Reserve. The bill also gives the SEC authority to empower stockholders to run their own candidates for corporate boards of directors. Corporate boards often receive some blame for the crisis-mainly unjustified in my opinion- but stockholder election of some members will not improve corporate governance, and will probably make that worse.

2. The Dodd-Frank bill gives several government agencies considerable additional discretion to try to forestall another crisis, even though they already had the authority to take many actions. The Fed could have tightened the monetary base and interest rates as the crisis was developing, but chose not to do so. The SEC and various Federal Reserve banks-especially the New York Fed- had the authority to stop questionable lending practices and increase liquidity requirements. These and other government bodies did not use their authority to try to head off the crisis partly because they got caught up in the same bubble hysteria as did banks and consumers. In addition, regulators are often “captured” by the firms they are regulating, not necessarily because the regulators are corrupt, but because they are mainly exposed to arguments made by the banks and other groups they are regulating.

Despite the fact that regulators failed to use the powers they already had, the bill mainly adds not clear rules of behavior for banks, but additional governmental discretionary power. For example, the bill creates the Financial Stability Oversight Council, a nine-member panel drawn from the Fed, SEC, and other government agencies, that is supposed to monitor Wall Street’s largest companies and other market participants to spot and respond to any emerging growth in systemic risk in the economy. With a two-thirds vote this Council could impose higher capital requirements on lenders and place hedge funds and dealers under the Fed’s authority. Given the regulators reluctance to use the power they already had to forestall the crisis, it seems highly unlikely that this Council will act decisively prior to the emergence of a crisis, especially when a two thirds majority is required.

3. Insufficient capital relative to bank assets was an important cause of the financial crisis. The bill does reduce the ability of banks to count as bank capital certain risky assets, such as trust preferred securities, and gives the Fed authority to impose additional capital and liquidity requirements on banks and non-bank financial companies, including insurers. I would have preferred a simple rule that raised capital requirements of banks relative to their assets, especially capital of larger and more interconnected banks. As suggested by Raghu Rajan and the Squam Lake group of economists, the bill probably should have required larger banks to issue “contingent” capital, such as debt that automatically converts to equity when the banks are experiencing large losses, or when a bank’s capital to asset ratio falls below a certain level.

4. One of the most serious omissions is that the bill essentially says nothing about Freddie Mac or Fannie Mae. In 2008 these organizations were placed into conservatorship of the Federal Housing Finance Agency. During the run up to the crisis, Barney Frank and others in Congress encouraged Freddie and Fannie to absorb most of the subprime mortgages. In 2008 they held over half of all mortgages, and almost all the subprimes. They have absorbed even a larger fraction of the relatively few mortgages written after 2008. Freddie and Fannie deserve a considerable share of the blame for the crisis, but they continue to have strong political support. I would like to see both of them eventually dissolved, but that is unlikely to happen. Instead we are promised that they will be dealt with in future legislation, but I am skeptical that anything will be done to terminate either organization, or even improve their functioning.

5. Many proposals in the bill will have highly uncertain impacts on the economy. These include, among many other provisions, the requirement that originators of mortgages and other assets retain at least 5% of the assets they originate, that many derivatives go on organized exchanges (may be an improvement but far from certain), that hedge funds become more closely regulated, and that consumer be “protected” from their financial decisions.

Most of these and other changes in the bill are not based on a serious analysis of what contributed to the financial crisis, but rather are the result of political and emotional reactions to the crisis. Usually, such reactions do more harm than good. That is likely to be the fate of the great majority of the provisions of the Dodd-Frank bill.

Bob Jensen's threads on the economic crisis are at
http://www.trinity.edu/rjensen/2008Bailout.htm

"The Yo-Yo Market and You The stock market will suffer dizzy spells until the fog of monetary policy uncertainty is lifted," by Andy Kessler, The Wall Street Journal, July 16, 2010 --- http://online.wsj.com/article/SB10001424052748703792704575366642167190202.html?mod=djemEditorialPage_t

Bull markets, it is said, climb a wall of worry. Smart investors buy in early when worries about profits or inflation or wars scare away the faint of heart. Latecomers then bid up stocks as each worry becomes unfounded, until there is nothing left to worry about. Once there is only good news, the market peaks as there is no one left to buy.

Bear markets, on the other hand, fall into what I like to call the pit of doom. Forget about worries—actual bad stuff happens, until nothing bad is left to happen and the market bottoms as there is no one left to sell.

From early May through last week, the market dropped 1500 points into the pit, on the backs of gushing BP oil, riots in Europe, a 30% drop in pending home sales and the news that maybe your next door neighbor is a Russian spy. But now we've seen 680 Dow points added over seven straight up days before a slight decline yesterday. What the heck is going on?

Call it the yo-yo market—from the top of the wall to the bottom of the pit and back—and you better get used to it. It's hard to tell which market moves are real and based on prospects for better profits, as opposed to moves that are driven by all the extraordinary government measures to prop up the world economy. Until a few things are resolved, you'd better learn the yo-yo sleeper trick—that is, keep spinning at the bottom without going up.

ZIRP: We live in abnormal times. The Fed is running what is essentially a zero interest rate policy, aka ZIRP. The stock market lacks a compass, a true north, to find its way.

Good news, like the private sector adding 80,000 workers in May, or container shipping up 12% over last year, is truly good news. Bad news, like Portugal's debt downgrade or a 10.8% drop in auto sales in June, suggests the economy is slowing. No wonder the market can't figure out which is the dominant trend. And so it goes up and down, up and down.

To make things worse, the Fed's zero policy is wreaking havoc in the real world, not just on Wall Street. In most companies, projects are funded when expected returns are higher than the risk-free rate of return, i.e., investing in T-bills.

But the risk-free rate today is a big fat zero! Every project makes sense, which can't possibly be right, so corporate planners sit on their hands and companies just sit on their piles of cash. The sooner we zip the ZIRP, the sooner we return to some sort of normal.

Crutches: We all know that the economy is being held up on crutches—the biggest being the Fed printing dollars, a quantitative easing that saw the monetary base jump to $2 trillion today from $800 billion in September 2008. That program stopped March 31 and at some point has to reverse. May's 33% drop in home sales, despite record low mortgage rates, happened because an $8,000 tax credit expired at the end of April. Auto sales are down as "Cash for Clunkers" expired eight months ago.

But we still have the crutch of the remaining funds (about half) from the 2009 stimulus bill. And now the Europeans are threatening a new round of euro printing. The stock market won't believe that growth and profits are real until it sees the economy without these crutches. Until then, the yo-yo.

Taxes/Seizures: January 2011 will most likely see the expiration of the Bush tax cuts. ObamaCare means higher levies on most Americans. There is talk of a value-added tax and a lame duck Congress porkfest.

What is even more troubling is the prospect of government seizures built into the Dodd-Frank financial bill. This is much like the seizure of property from auto industry bond holders (denounced as speculators) in the bankruptcy of GM and Chrysler.

Dodd-Frank also provides government leeway to seize firms it considers a systemic risk, without really defining what that systemic risk is. Why anyone would provide debt to large financial institutions (or auto makers) is beyond me, certainly not without demanding a huge premium for the seizure risk. The cost of capital for the U.S. economy is sure to rise, slowing growth.

Until public policy returns to some semblance of stability, or at least more certainty, get used to 1000 point swings. Get used to the fans of gold and canned goods leading us to the pit of doom one week and bullish optimists up the wall of worry the next. For me, I like to get my bad news over with.

I'm waiting for Spain to melt down the World Cup to pay off its debts, or more seriously, real defaults from Spain, Greece and maybe California and New York. Let's get on with it and put the structural reforms behind us. That would be a true buy signal.

 

General Moters:  Robbing Sam to Pay Sam
"The Flight of the Money: Where Has It Gone?," by David Kennedy, Townhall, July 17, 2010 ---
http://townhall.com/columnists/DanKennedy/2010/07/17/the_flight_of_the_money_where_has_it_gone

Two months ago, the “new” General Motors made possible by government bailouts, theft of shareholders’ equity for forced re-distribution to unions, and managerial change at government’s gunpoint, was held up as shining example of success – it was even repaying its debt to Uncle Sam early.

But the week of the Independence Day, GM announced its urgent need to borrow five billion dollars, to use in re-paying debt (ie. paying its VISA bill with a new MasterCard) and as cash reserves to counter anticipated slumping sales.

As Arte Johnson used to say on “Laugh-In:” v-e-r-y interesting.

If you go to a movie set, you will see perfect-looking streets, each building front rich in detail, looking as real as real can be. Yet its only façade. One thin piece of painted sheetrock propped up. Walk around behind it, there’s nothing there.

That’s GM. State pension funds in 30-plus states people are counting on, upside down in toto by trillions. Obama’s stimulus. There are signs stuck here or there with his logo on them, proclaiming the dirt mound or torn up street his “stimulus at work.” The sign-maker was stimulated. Who else? That’s this entire economy. A façade. Walk around behind it: there’s nothing there. No real job creation, no business investment, no real estate investment, nothing much happening but very un-hopeful hoarding. Where has all the money gone?

There is flight of capital. Companies like Ford and Microsoft moving hundreds of millions of dollars to investments overseas. Mega-investors like Buffett are breaking long-standing, self-imposed prohibition on investing in non-U.S. companies in foreign lands. Insurers and health care companies are quietly buying up land beyond our borders.

A major business story going unreported: the long, long list of iconic American brand companies closing countless stores, shops and restaurant locations here while expanding and opening outlets like mad in other countries. That means they are draining money out of local economies here and moving it over there. Starbucks. Wal-Mart. Etc. Can’t you hear this giant sucking sound?

There is capital on strike. An estimated $2-trillion of excess cash reserves in companies other than financial institutions – although they are hoarding rather than lending, too. And this is calculated from examining big, public companies. As somebody intimately in touch with thousands of small business owners, I can personally assure you, their reluctance to invest or spend is profound, and, in aggregate, they are likely keeping trillions more inactive.

Continued in article

"How "journolists" tried to suppress the news," by James Taronto, The Wall Street Journal, July 21, 2010 ---
http://online.wsj.com/article/SB10001424052748703724104575379200412040286.html?mod=djemEditorialPage_t 

The "Journolist" scandal has deepened with new revelations that participants in the now-defunct email list for ideologically approved journalists--no conservatives allowed--engaged in efforts to suppress news damaging to then-candidate Barack Obama.

The Daily Caller reports ABC News's "tough questioning" of Obama at a 2008 debate with Hillary Clinton "left many of [the Journolist participants] outraged":

"George [Stephanopoulos]," fumed Richard Kim of the Nation, is "being a disgusting little rat snake."

Others went further. According to records obtained by The Daily Caller, at several points during the 2008 presidential campaign a group of liberal journalists took radical steps to protect their favored candidate. Employees of news organizations including Time, Politico, the Huffington Post, the Baltimore Sun, the Guardian, Salon and the New Republic participated in outpourings of anger over how Obama had been treated in the media, and in some cases plotted to fix the damage.

Most damning is a long quote from a Spencer Ackerman, who worked for something called the Washington Independent:

I do not endorse a Popular Front, nor do I think you need to. It's not necessary to jump to Wright-qua-Wright's defense. What is necessary is to raise the cost on the right of going after the left. In other words, find a rightwinger's [sic] and smash it through a plate-glass window. Take a snapshot of the bleeding mess and send it out in a Christmas card to let the right know that it needs to live in a state of constant fear. Obviously I mean this rhetorically.

And I think this threads the needle. If the right forces us all to either defend Wright or tear him down, no matter what we choose, we lose the game they've put upon us. Instead, take one of them--Fred Barnes, Karl Rove, who cares--and call them racists. Ask: why do they have such a deep-seated problem with a black politician who unites the country? What lurks behind those problems? This makes *them* sputter with rage, which in turn leads to overreaction and self-destruction.

Smashing somebody's [sic] through a plate-glass window seems like an odd way to thread a needle, but atrocious prose is the least of the problems here. The problem here isn't bias, either. Assuming Ackerman was an opinion writer rather than a straight-news reporter, he was entitled not only to hold his opinions but to express them.

But Ackerman was not engaging in a public debate; he was privately strategizing about how to suppress the news. And his fellow journolists, while disagreeing with him, did so "only on strategic grounds":

"Spencer, you're wrong," wrote Mark Schmitt, now an editor at the American Prospect. "Calling Fred Barnes a racist doesn't further the argument, and not just because Juan Williams is his new black friend, but because that makes it all about character. The goal is to get to the point where you can contrast some _thing_--Obama's substantive agenda--with this crap." . . .

Kevin Drum, then of Washington Monthly, also disagreed with Ackerman's strategy. "I think it's worth keeping in mind that Obama is trying (or says he's trying) to run a campaign that avoids precisely the kind of thing Spencer is talking about, and turning this into a gutter brawl would probably hurt the Obama brand pretty strongly. After all, why vote for him if it turns out he's not going [to] change the way politics works?"

But it was Ackerman who had the last word. "Kevin, I'm not saying OBAMA should do this. I'm saying WE should do this."

If anybody on the list objected in principle to Ackerman's idea of slandering people, including a fellow journalist, as racist, the Caller missed that part of the story. (We'll be happy to report it if a Journolist member would care to supply us with the evidence.) What Ackerman proposed was to carry out a political dirty trick in order to suppress the news and thereby aid a candidate for public office. That's about as unethical as journalism can get.

The final product of this debate was a pathetic "open letter," which, as we noted at the time, was signed by 41 self-described "journalists and media analysts," nearly all of whom were affiliated with universities, left-wing publications or left-wing think tanks. The letter does seem to have been more of a collaborative effort than we guessed back then: the Caller lists eight people who contributed to its drafting. Even so, what self-respecting journalist shares a byline with 40 other guys?

"The letter caused a brief splash and won the attention of the New York Times," the Caller reports, but thereafter was deservedly forgotten until now. Obama weathered the Wright revelations, but it seems a stretch to give Journolist the credit (or, if you prefer, the blame) for that. On the other hand, are there other stories they did succeed in suppressing? We cannot know as long as the full Journolist archives are secret.

These revelations also belie Journolist founder (and now Washington Post commentator) Ezra Klein's defense of the enterprise back in March 2009:

As for sinister implications, is it "secret?" No. Is it off-the-record? Yes. The point is to create a space where experts feel comfortable offering informal analysis and testing out ideas. Is it an ornate temple where liberals get together to work out "talking points?" Of course not. Half the membership would instantly quit if anything like that emerged.

This statement is true only if parsed as a denial that an email list is an ornate temple. Plainly the list was a forum where liberals got together to work out talking points, as evidenced by that "open letter." Worse, it was a forum where people employed as journalists conspired to suppress the news--and, by doing so "off the record," used journalistic ethics as cover.

In 2009 Klein wrote that Journolist's policy of excluding conservatives was "not about fostering ideology but preventing a collapse into flame war. The emphasis is on empiricism, not ideology."

"Call them racists." That's empiricism for you!

Equal Opportunity Destroyer
The NAACP's double secret resolution condemning "racist elements" in the Tea Party has led, indirectly, to the firing of a U.S. Department of Agriculture official for expressing allegedly racist views. The twist: The ex-official, Shirley Sherrod, is black and was speaking at an NAACP event.

Sherrod's downfall occurred yesterday, after Andrew Brietbart posted a video excerpt of Sherrod's speech on BigGovernment.com. Acording to the video, Sherrod told this story at an NAACP banquet on March 27:

The first time I was faced with having to help a white farmer save his farm, he took a long time talking, but he was trying to show me he was superior to me. I know what he was doing. But he had come to me for help. What he didn't know while he was taking all that time trying to show me he was superior to me, was I was trying to decide just how much help I was going to give him.

I was struggling with the fact that so many black people had lost their farmland, and here I was faced with having to help a white person save their land. So, I didn't give him the full force of what I could do. I did enough so that when he--I assumed the Department of Agriculture had sent him to me, either that or the Georgia Department of Agriculture. And he needed to go back and report that I did try to help him.

So I took him to a white lawyer that had attended some of the training that we had provided, because Chapter 12 bankruptcy had just been enacted for the family farmer. So I figured if I take him to one of them that his own kind would take care of him.

That's when it was revealed to me that it's about the poor versus those who have, and not so much about white--it is about white and black, but it's not--you know, it opened my eyes, because I took him to one of his own.

CNN reports what happened next:

Sherrod, who resigned Monday as the department's director of rural development for Georgia, told CNN she had four calls telling her the White House wanted her to resign.

"They asked me to resign, and in fact they harassed me as I was driving back to the state office from West Point, Georgia, yesterday," she said. The last call "asked me to pull to the side of the road and do it [resign]," she said.

"I don't feel good about it, because I know I didn't do anything wrong," she said. ". . . During my time at USDA, I gave it all I had."

The NAACP issued a statement in support of Sherrod's sacking:

"Racism is about the abuse of power. Sherrod had it in her position at USDA. According to her remarks, she mistreated a white farmer in need of assistance because of his race," said Benjamin Todd Jealous, president and CEO of the civil rights group. "We are appalled by her actions, just as we are with abuses of power against farmers of color and female farmers."

It seems to us that Sherrod got a bum deal in all this. While her description of her attitude toward the white farmer is indeed appalling, even in Breitbart's video it is clear by the end that the story was one of having learned the error of her ways. Her evident continuing resentment of "those who have" is to her discredit, but it's not as invidious as racial resentment.

Further, Sherrod tells CNN that the incident occurred in 1986, when she was working for a nonprofit, long before she went to work for the USDA. (This is consistent with the story she tells in the video. Chapter 12 bankruptcy was indeed enacted in 1986.) CNN even tracks down the white farmer's wife, Eloise Spooner, who credits Sherrod with "getting in there and doing all she could do to help us."

It seems clear that both the administration's decision to put her out to pasture and the NAACP's to accuse her of racism were political ones. And in a way it's progress that charges of racism have become an equal-opportunity destroyer. We hope, however, that the lesson the president and his supporters, including the NAACP, take from all this is to be more circumspect about leveling the charge against their opponents.

Suing for Votes
"President Obama and his political aides privately acknowledge that the government's decision to sue Arizona over its new immigration law is helping to fuel an anti-immigration fervor that could benefit some Republicans in elections this fall," the Washington Post reports:

But White House officials have concluded that, over the long term, the Republicans' get-tough message is a major political miscalculation. They predict it will ultimately alienate millions of Latinos, the fastest-growing minority group in the nation.

West Wing strategists argue that the president's call for legislation that acknowledges the role of immigrants and goes beyond punishing undocumented workers will help cement a permanent political relationship between Democrats and Hispanics -- much as civil rights and voting rights legislation did for the party and African Americans in the 1960s.

As a result, although the president is unlikely to press for comprehensive immigration reform this year, he has urged his allies to keep up the pressure on Republican lawmakers.

The Democrats' evaluation of the political effects of all this seem right to us. Most of the country is with Arizona, but Hispanics are not, and they are likelier to have longer memories of what they perceive as a discriminatory effort at their expense.

But the administration's cynicism is also striking. In the Post's telling, Obama is merely giving lip service to comprehensive immigration reform in order to win votes, no matter that the administration's divisive actions have destroyed any prospects for its passage. And one subject the story never takes up is the merit of the Arizona lawsuit. It's hard to escape the suspicion that the Justice Department is being inappropriately politicized.

Administration Hits Reset Button

• "Biden: Expect a November 'Shock' by the Democrats"--headline, USA Today website, July 18
• "Parachuting Donkey Shocks Russian Beachgoers"--headline, Agence France-Presse, July 20

The Two Leaders Agreed to Exercise More and Watch Their Salt Intake
"As Cameron and Obama Meet, BP Will Be Top Issue"--headline, New York Times, July 20

Life Imitates 'South Park'

• "Upon investigation, Kyle and Cartman find that [Magic] Johnson sleeps regularly with huge piles of cash in his bedroom, because he does not trust banks, which eventually prove to have the ability to neutralize HIV. Laboratory scientists experiment with a concentrated dose of 'about $180,000 shot directly into the bloodstream' on the boys, which forces the HIV to disintegrate."--Wikipedia page on "Tonsil Trouble," aired March 12, 2008
• "In another piece of progress against AIDS, a separate, large study in Malawi sponsored by the World Bank, and made public on Sunday, found that if poor schoolgirls and their families received small monthly cash payments, the girls had sex later, less often and with fewer partners. A year and a half after the program started, the girls were less than half as likely to be infected with the AIDS or herpes viruses than were girls whose families got no payments."--New York Times, July 20, 2010

The Lonely Lives of Scientists
"Scientists Develop Mobile Phone That Doesn't Need Reception"--headline, Turkish Weekly, July 20

Where Did They Go?
"California Blacks Split Over Marijuana Measure"--headline, New York Times, July 20

Though It's Even Harder With a Narrow One
"It's Hard to Paint Everyone With a Broad Brush"--headline, Milwaukee Journal Sentinel, July 19

World's Oddest Namesake
"British Teenager Named After Hotel Balcony Fall"--headline, Daily Telegraph (London), July 19

Though Not as Bad as Hotel Balcony Fall
"Sex Pistols Was a Rotten Name: Johnny"--headline, Daily Telegraph (Australia), July 19

What About Trees?
"Law Bans 'Debarking' of Canines and Cats"--headline, Boston Globe, July 20

'Oh,' She Said, 'but They're Such Intelligent, Friendly Creatures!'
"Dolphin Charged With Battery Against Girlfriend"--headline, Associated Press, July 19

Questions Nobody Is Asking

• "Hillary's New Hairstyle: 'Do or Don't? (PHOTOS, POLL)"--headline, Puffington Host, July 19
• "Can a Squirrel Get Heat Stroke?"--headline, Toronto Star, July 16
• "Facebook as Popular as Filing Taxes--What?"--headline, PCWorld.com, July 20
• "No Holds Barred: What's Up With Tom Friedman?"--headline, Jerusalem Post, July 19
• "Want to Join the Voluntary Human Extinction Movement?"--headline, Grist.org, July 19
• "Lada Gaga the New Face of Tea?"--headline, ITN website (Britain), July 20
• "Who Is Barack Obama?"--headline, Washington Post, July 20

Answers to Questions Nobody Is Asking

• "How Steve Jobs Turned a Finger Spot Into a Death Grip"--headline, Fortune.CNN.com, July 19
• "Why Fairs Continue to Draw Steady Crowds Across West Michigan"--headline, Grand Rapids Press, July 20
• "Why Lindsay Lohan Should Record in Prison"--headline, Broward/Palm Beach (Fla.) New Times website, July 20

It's Always in the Last Place You Look
"Bowls of Human Fingers and Teeth Found in Mayan Tomb"--headline, LIveScience.com, July 19

News of the Tautological
"CRIME REPORT: Man Tries to Flee After Hit-and-Run Accident"--headline, Commercial Appeal (Memphis, Tenn.), July 19

News of the Scatological
"Islamic Body: Cat Poo Coffee OK"--headline, News24.com (South Africa), July 20

News You Can Use

• "Review: Justin Bieber Fever Not Worth Catching in Oakland"--headline, Oakland Tribune, July 18
• "The Secret to a Good Bee Beard: Queen Bee and Vaseline"--headline, Toronto Star, July 18
• "Rent a Friend for £6.50 an Hour"--headline, Daily Telegraph (London), July 19
• "Please Remain Calm: The Earth Will Heal Itself"--headline, Globe and Mail (Toronto), July 19

Bottom Stories of the Day

• "Detroit Cops Probe Fatal Nightclub Shooting"--headline, Detroit Free Press, July 19
• "Biden: Pelosi Most Powerful Person in U.S. Politics--Except Obama"--headline, Roll Call, July 19
• "UN Still Corrupt"--headline, Commentary website, July 20
• "Top Judiciary Republican to Oppose Kagan"--headline, Associated Press, July 20

If You Have a Self-Esteem Problem, Vote for Me
Sen. Carte Goodwin will be out of a job come November. The West Virginia Democrat was sworn in today to fill Robert Byrd's empty nest, the same day the Legislature in Charleston passed a law setting an August primary, which means the special election won't have to wait till 2012.

Gov. Joe Manchin, who appointed Goodwin, announced that he'll seek the seat:

"I only hope I would be able to follow in his footsteps and continue to help the people of West Virginia," Manchin said of Byrd, who died last month at age 92.

"I intend, with the opportunity, to work as hard in Washington as I've worked in West Virginia," he said. "I believe in you more than you believe in yourself."

That's an odd message, isn't it? We guess if Virginia is for lovers, West Virginia is for self-loathers.

Hillary Really Didn't Have Much of a Chance in the Press
"The Vast Left-Wing Media Conspiracy:  Everyone knew most of the press corps was hoping for Obama in 2008. Newly released emails show that hundreds of them were actively working to promote him," by Fred Barnes, The Wall Street Journal, July 22, 2010 ---
http://online.wsj.com/article/SB10001424052748704684604575381083191313448.html?mod=djemEditorialPage_t

When I'm talking to people from outside Washington, one question inevitably comes up: Why is the media so liberal? The question often reflects a suspicion that members of the press get together and decide on a story line that favors liberals and Democrats and denigrates conservatives and Republicans.

My response has usually been to say, yes, there's liberal bias in the media, but there's no conspiracy. The liberal tilt is an accident of nature. The media disproportionately attracts people from a liberal arts background who tend, quite innocently, to be politically liberal. If they came from West Point or engineering school, this wouldn't be the case.

Now, after learning I'd been targeted for a smear attack by a member of an online clique of liberal journalists, I'm inclined to amend my response. Not to say there's a media conspiracy, but at least to note that hundreds of journalists have gotten together, on an online listserv called JournoList, to promote liberalism and liberal politicians at the expense of traditional journalism.

My guess is that this and other revelations about JournoList will deepen the distrust of the national press. True, participants in the online clubhouse appear to hail chiefly from the media's self-identified left wing. But its founder, Ezra Klein, is a prominent writer for the Washington Post. Mr. Klein shut down JournoList last month—a wise decision.

It's thanks to Tucker Carlson's Daily Caller website that we know something about JournoList, though the emails among the liberal journalists were meant to be private. (Mr. Carlson hasn't revealed how he obtained the emails.) In June, the Daily Caller disclosed a series of JournoList musings by David Weigel, then a Washington Post blogger assigned to cover conservatives. His emails showed he loathes conservatives, and he was subsequently fired.

This week, Mr. Carlson produced a series of JournoList emails from April 2008, when Barack Obama's presidential bid was in serious jeopardy. Videos of the antiwhite, anti-American sermons of his Chicago pastor, the Rev. Jeremiah Wright, had surfaced, first on ABC and then other networks.

JournoList contributors discussed strategies to aid Mr. Obama by deflecting the controversy. They went public with a letter criticizing an ABC interview of Mr. Obama that dwelled on his association with Mr. Wright. Then, Spencer Ackerman of The Washington Independent proposed attacking Mr. Obama's critics as racists. He wrote:

"If the right forces us all to either defend Wright or tear him down, no matter what we choose, we lose the game they've put upon us. Instead, take one of them—Fred Barnes, Karl Rove, who cares—and call them racists. . . . This makes them 'sputter' with rage, which in turn leads to overreaction and self-destruction."

No one on JournoList endorsed the Ackerman plan. But rather than object on ethical grounds, they voiced concern that the strategy would fail or possibly backfire.

Among journalists in general, there's always been a herd instinct. Eugene McCarthy, the Minnesota senator and Democratic presidential candidate, once described political writers as birds on a telephone wire. When one bird flew to the wire across the street, they all did. In Mr. Ackerman's case, I'm glad none of the birds joined him across the street.

We've often seen media groupthink in campaigns. In 1980, most of the media decided that President Jimmy Carter was being mean-spirited in his re-election effort with his harsh denunciations of Ronald Reagan, his Republican opponent. The media turned the meanness issue into major story. In 1992, journalists treated the economy as if it were dead in the water, though a recovery from a mild recession had begun early the previous year. I could go on.

I think JournoList is—or was—fundamentally different, and not simply because one of its members proposed to make palpably false accusations. As best I can tell, those involved in JournoList considered themselves part of a team. And their goal was to make sure the team won. In 2008, this was Mr. Obama's team. More recently, the goal seems to have been to defeat the conservative team.

Until JournoList came along, liberal journalists were rarely part of a team. Neither are conservative journalists today, so far as I know. If there's a team, no one has asked me to join. As a conservative, I normally write more favorably about Republicans than Democrats and I routinely treat conservative ideas as superior to liberal ones. But I've never been part of a discussion with conservative writers about how we could most help the Republican or the conservative team.

My experience with other conservative journalists is that they are loners. One of the most famous conservative columnists of the past half-century, the late Robert Novak, is a good example. I knew him well for 35 years. He didn't tell me what stories he was working on nor ask what I was planning to write. He never mentioned how we might promote Republicans or aid the conservative cause, nor did I.

What was particularly pathetic about the scheme to smear Mr. Obama's critics was labeling them as racists. The accusation has been made so frequently in recent years, without evidence to back it up, that it has little effect. It's now the last refuge of liberal scoundrels.

The first call I got after the Daily Caller unearthed the emails involving me was from Karl Rove. He said he wanted to talk to his "fellow racist." We laughed about this. But the whole episode was also sad. I didn't sputter at the thought of being called a racist. But it was sad to see what journalism, or at least a segment of it, had come to.

 

http://chronicle.com/blogPost/Ridiculating-Sarah-Palin/25669/

"A hidden world, growing beyond control," by Dana Priest and William M. Arkin, The Washington Post, July 19, 2010 ---
http://projects.washingtonpost.com/top-secret-america/articles/a-hidden-world-growing-beyond-control/ 
Thank you David Albrecht for the heads up.

The top-secret world the government created in response to the terrorist attacks of Sept. 11, 2001, has become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work.

These are some of the findings of a two-year investigation by The Washington Post that discovered what amounts to an alternative geography of the United States, a Top Secret America hidden from public view and lacking in thorough oversight. After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine.

The investigation's other findings include:

* Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States.

* An estimated 854,000 people, nearly 1.5 times as many people as live in Washington, D.C., hold top-secret security clearances.

* In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons or 22 U.S. Capitol buildings - about 17 million square feet of space.

Continued in article