And on it goes...

IN the interests of fairness, I offer Jake DeSantis' letter of resignation to AIG, which the NY Times published as an Op-ed piece. Dear A.I.G., I Quit!, which reads in part:

"After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

"I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down"

The on-going immorality

You've presided over the biggest corporate failure in history and help oversee a company that is a financial blackhole so large that $170 billion of tax payer money has not yet been able to fill it. Yet, unlike Lehman Bros. and Bear Stearns, but like Hank Paulson's own beloved Goldman Sachs and Citibank, you have been deemed to be too big to fail. So, what do you deserve? Your super-sized welfare payment, of course! That is why A.I.G., despite being on federally funded life-support, is doling out $165 million to their clueless, slack-jawed executives who did their part to guarantee the demise of our financial system.

I think it only fair that you are rewarded for your monumental effort that led to losing $61.7 billion in the fourth quarter of last year. A loss like that, which is the biggest in corporate history, certainly deserves a reward. It could've been worse, the fourth quarter loss could've been $61.8 billion, or $61.865 billion, thus recouping the amount their bonuses. Hey, I am a coffer's-not-as-empty-as-it-could- be kinda guy!

While there is much that is very fundamental about which I disagree with Jon Stewart, he was spot-on in his interview with Jim Cramer. Here is the three part, unedited, interview:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 1

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 3

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Yeah, yeah, yeah, Madoff pleaded guilty to 11 counts, but he and his wife are still worth over $800 million. What really infuriates me is that he is under no obligation to talk or disclose anything. Stewart's take away quote is worth taking to heart: "When are we going to realize in this country that our wealth is work?"

Mortgaging our future

In an article written for the Wall Street Journal entitled The World Won't Buy Unlimited U.S. Debt: We're asking others to sacrifice for our 'stimulus', Peter Schiff ponders our immediate and intermediate economic future. In the process of doing so he gives a very straightforward and realistic analysis of the proposals on offer from the Obama Administration. The sad thing is that there is no change here and without change there can be little hope that we will fix what is fundamentally wrong with our economy, which flows from what is wrong with us. The economy is not something apart from us.

I tackled one aspect of Schiff's analysis in a post on my blog, Καθολικός διάκονος, entitled What sacrifice? I tackled another issue in a previous post here on Cahiers back in November, Debt. This is a point that is rarely addressed, it was not even addressed by either economist who participated in the panel discussion that comprised part of the New York Encounter that was, in turn, part of our National Diakonia last weekend, Finance and the Economy at a New Crossroads: Different Models or a Different Vision. This discussion, with the exception of Prof. Freeman's refreshing presentation, was exclusively about new models and who is to blame, but there was no new vision on offer, just as there is no new vision on offer in Washington, despite the change of administrations. What the economists almost completely ignored is the fundamental fact that the economy exists for the human person and not the human person for the economy. Due to the inevitable human factor involved, economies do not follow laws as in physics.

The discussion was also disappointing because not one panelist addressed the crisis wrought by the irresponsibility of financial institutions in light of what we should have learned from the Savings and Loan crisis of the 1980s, which demonstrated both the need for an updated regulatory regime and that de-regulation was a bad idea. In other words, we spent a few hours pretending that nobody could've seen this coming. Well, the truth of the matter is that plenty of people saw this train wreck coming, it's just that their opinions did not matter because they were not part of the revolving door, Ivy League elite. The same elite whose education, as was observed months ago on Paper Clippings, consists almost exclusively of "empirically-oriented knowledge directed at problem solving," to the neglect of "philosophy," which entails "grappling in a systematic fashion with questions of truth and meaning".

Anyway, this quote from Schiff gets to the heart of the matter, which our economic and political elites continue to evade for reasons of personal gain and political expediency:

"The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall."

It should be shocking to us all that 70% of our Gross Domestic Product is consumer spending and not only consumer spending, but spending that depends almost wholly on consumer borrowing, to include draining the equity out of our homes. To use an old observation, the chickens have come home to roost. This state-of-affairs has proven to be unsustainable. Hence, we cannot seek to replicate it moving forward. This seems like a common sense observation, but that is exactly what is on offer, more of the same. At least it will continue to be a bi-partisan effort. I read a book quite a few years ago, the thesis of which strikes me as more relevant now than when it was published, Pete Peterson's Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It.

Schiff observes that we will no longer be able, as less than 5% of the world's population, to account for 25%of global GDP. You know what? This contraction, while somewhat painful, is a necessary correction not only for economy, but for our humanity. This is the truth of the matter. Stated simply, hope for a better economic future cannot be realized if we fail to address this truth, this fact, verified by the reality we are experiencing. There is no hope in falsehood. President Obama was correct in his inaugural address, we must put away childish things.

Medaille on Republicans and the Economy

John Médaille at The Distributist Review has a thoughtful piece on the question of what the Republican party stands for and where the conservatives are.

So what is wrong with the Republican Party? Let me suggest that the problem is that they have no idea of what they ought to conserve; they have no idea of what constitutes liberty. Indeed, the only common theme among the factions is economic, and in that what they are trying to conserve is economic liberalism, the doctrine of laissez-faire capitalism. They have forgotten that this was the very doctrine that destroyed conservatism in the 19th century, and while it is now over 200 years old, it will never be conservative.

What conservatism ought to conserve is the proper scale of things; government at its lowest possible level, strong families as the foundation of society, small manufacturing, small farms, strong communities. Low taxes, to be sure, but taxes commensurate with the tasks we ask government to perform. We know that the key to lowering taxes is to localize government as much as possible and reduce its scale. But you cannot have localized governments in the face of commercial institutions that are bigger than most states—indeed, bigger than most nations. These institutions declare themselves “too big to fail,” when in truth they are too big to succeed without massive government support. Republicans since Reagan have tried to grow government, shrink taxes, and deregulate everything. Alas, they have been all too successful.

Distributists know that the key to shrinking government and ending oppressive taxation is to shrink the need for government. Great and global institutions require big government and large military and regulatory apparatuses. And these require big taxes. And while they create great wealth, for some, they create great dependency for the mass of men, a dependency that expresses itself as the welfare state. The small farm is better for food, but it is also better for community; the small manufacturer, tied by bonds of economy and affection to his locality is the basis of a sane economy

Conservatives are out there; they're just not represented by a political party at the present time.

But because America has no conservative party does not mean she has no conservatives. Indeed, The left wing is scratching its head over the fact that the Black Obama voters in California voted solidly for a ban on gay marriage. At heart, America is a conservative country, not only in the South and Midwest, but in the Northeast, Northwest, and even in the great cities that are regarded as the strongholds of liberalism. Indeed, much of the new liberalism today involves a certain nostalgia for the land, for the community, and for a more human scale to the economy and to politics. It is a natural conservatism that spans race and age and gender. Indeed, the newcomers are more authentically conservative than many of the older population. But American conservatism lacks any real institutional support, and any real ideology. It picks up what older liberals have discarded and calls it conservative, and then is very surprised when it turns out liberal.

The economic crisis may be the opportunity for recovering a more healthy social and economic model, if the recovery plan assists local economies rather than enabling the failures of supersized institutions.  And the Republican party's defeat can be the occasion for a new direction, if it doesn't continue to favor large corporate interests and discredited economic theories.

An Ideal for the World Economy

Pope Benedict XVI issued his World Day of Peace message for this year on the theme "Fighting Poverty to Build Peace". The text takes up issues of globalization, development, finance, population and more. Above all, it emphasizes a guiding perspective on the world economy that recognizes the human race as a family:

[T]he reference to globalization should also alert us to the spiritual and moral implications of the question, urging us, in our dealings with the poor, to set out from the clear recognition that we all share in a single divine plan: we are called to form one family in which all – individuals, peoples and nations – model their behaviour according to the principles of fraternity and responsibility.

If there is a temptation to minimize abortion as the primary unjustice, the message here is clear. These are the poorest of the poor. "The extermination of millions of unborn children, in the name of the fight against poverty, actually constitutes the destruction of the poorest of all human beings."

The Pope notes that population, rather than being a deterrent to well-being, has helped development, as the poverty rate of the world which was 40% in 1981 has been halved since then. He emphasized the vulnerability of children and the need to combat AIDS with a holistic approach that factors in the dignity of the person in sexual matters. The problem of the diversion of resources into armament is addressed, another in a long series of papal pleas.

The Holy Father spoke positively of financial markets as a necessary means to achieve economic stability for the future, but urged an "ethical approach to economics".

Objectively, the most important function of finance is to sustain the possibility of long-term investment and hence of development. Today this appears extremely fragile: it is experiencing the negative repercussions of a system of financial dealings – both national and global – based upon very short-term thinking, which aims at increasing the value of financial operations and concentrates on the technical management of various forms of risk. The recent crisis demonstrates how financial activity can at times be completely turned in on itself, lacking any long-term consideration of the common good. This lowering of the objectives of global finance to the very short term reduces its capacity to function as a bridge between the present and the future, and as a stimulus to the creation of new opportunities for production and for work in the long term. Finance limited in this way to the short and very short term becomes dangerous for everyone, even for those who benefit when the markets perform well....

While it has been rightly emphasized that increasing per capita income cannot be the ultimate goal of political and economic activity, it is still an important means of attaining the objective of the fight against hunger and absolute poverty. Hence, the illusion that a policy of mere redistribution of existing wealth can definitively resolve the problem must be set aside. In a modern economy, the value of assets is utterly dependent on the capacity to generate revenue in the present and the future. Wealth creation therefore becomes an inescapable duty, which must be kept in mind if the fight against material poverty is to be effective in the long term.

The preference for the poor was emphasized, and the Pope noted that the gap between rich and poor has also widened in developed countries. Practical solutions are not sufficient in front of the whole need of the person.

As my venerable Predecessor Pope John Paul II had occasion to remark, globalization “is notably ambivalent”[14] and therefore needs to be managed with great prudence. This will include giving priority to the needs of the world's poor, and overcoming the scandal of the imbalance between the problems of poverty and the measures which have been adopted in order to address them. The imbalance lies both in the cultural and political order and in the spiritual and moral order. In fact we often consider only the superficial and instrumental causes of poverty without attending to those harboured within the human heart, like greed and narrow vision. The problems of development, aid and international cooperation are sometimes addressed without any real attention to the human element, but as merely technical questions – limited, that is, to establishing structures, setting up trade agreements, and allocating funding impersonally. What the fight against poverty really needs are men and women who live in a profoundly fraternal way and are able to accompany individuals, families and communities on journeys of authentic human development.

We are not off the hook of our responsibility by simply offering charitable aid. A more comprehensive change is proposed to us.

Faithful to this summons from the Lord, the Christian community will never fail, then, to assure the entire human family of her support through gestures of creative solidarity, not only by “giving from one's surplus”, but above all by “a change of life-styles, of models of production and consumption, and of the established structures of power which today govern societies”.

Banking on an Oligarchy

Deacon Scott Dodge cites two recent editorials during the interregnum between Bush and Obama, one from Thomas Friedman, "The Great Unravelling", and the other a poignant reflection from The New Republic, "Important People" (clipped at Paper Clippings). Unravelling is the word for it because the dynasties have been in place and on the take for a long time.

Friedman compares Madoff's actions with Wall Street generally:

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?

And Leon Wieseltier is by turns angry and philosophical:

In a society as wounded as our own, there is something repellent about the assertions of elitism. Its most awful expression, of course, is the acquiescence of almost everybody in the dynastic ambitions of the Kennedys. I can almost not imagine a more obvious mutilation of the meritocratic ideal than the appointment of Caroline Kennedy to the United State Senate. A Senate seat is a fucking valuable thing, you just don't give it away for nothing. But of course it will not be given away for nothing: the princess and her family will be delighted to pay for it. Ever since this democratic indignity was broached, the really smart talking point has been that she has the money for her eventual campaigns....

A society may be measured by whom it admires. No class of Americans has done more to damage America than the financial class. A generalization is an ugly thing, but every day's newspaper refreshes my impression that the titans, the insiders, the big players, the boldfacers, the movers and the shakers-the hoshover menschen, as we say where I come from-have been, many of them, fools or thieves....

In these days of dread I prefer to linger over all the people who have never been able to facilitate a favor. The media that used to be fascinated by the pleasures of the rich is now fascinated by the pains of the rich, but the fascination is the same, and it contributed to the bubble that burst in all our faces, and it interferes now with what we really need to know. When I read the papers I skip guiltlessly over the desperate sales of jewels and summer homes and go straight to the accounts of unglamorous desperation, of ordinary people helping each other because otherwise they would be even more powerless than they are.

I add the Deacon's comments as a judgment because the economy is a human endeavor and must be managed as such; the consumeristic credit-heavy model is unreasonable, unjust, unstable and ultimately unsatisfying.

Who besides Bernard Madoff, who turned himself in, has even been indicted? Did nothing untoward or illegal occur in the respective collapses of Lehman Brothers and Bear Stearns? What about that hole in A.I.G. that $125 billion of taxpayer money has not been able to fill? Given that, why not chuck $14 billion, a mere 11.2% of what's been flushed down the A.I.G. toilet, Detroit's way? For that matter, what about Mr. Paulson and his oh so urgent bailout, which appears to be nothing but another brazen executive power-grab by the Bush Administration? Dear Hank, what has your scheme to keep those whom you personally deem to be important people afloat corrected, fixed, or gotten headed in the right direction, how many foreclosures has it forestalled? Why is the only fix I ever hear mentioned more consumer spending? Isn't this ridiculous, given that more and more people do not even have jobs? Besides, isn't out-of-control spending, lending, and borrowing what got us into this mess in the first place? If I understand this idiotic reasoning correctly, we do not need regulatory reform and sounder national economic policies, consumer education, better personal financial discipline, and higher overall savings rate. No, our broken and shattered economy will be fixed by everyone buying new microwaves and iPods on our credit cards; that's like saying our greenhouse gas emission problem will be solved by everyone returning to the use of coal furnances and barbecuing with charcoal brickettes every night, while idling our cars in our driveways. Hey, it's almost Christmas and, as Ricky Bobby might say, "Baby Jesus needs a new pair of shoes!" Let's go for broke! Wait! We're already broke! Well, it was fun while it lasted.

Black Friday and Consumer Denial

Black Friday, the traditional post-Thanksgiving kickoff to the Christmas shopping season, drew more scrutiny this year due to the economic downturn. Although the name originally came from Philadelphia because of the traffic snarl, the term was changed to refer to the time of year when retail stores would move from red to black on their accounting sheets. The stores open early in the morning, and some shoppers spend the night in line, sometimes foregoing their Thanksgiving dinner to be first to buy some hot items limited in quantity.

This year the holiday shopping spree was supposed to be subdued given rising unemployment rates and strained credit card limits. The National Retail Federation had predicted an 11% drop for the weekend. Half the people surveyed said they would spend less this year. Mothers planned to forego clothes for themselves so that they could buy toys for their children. It happened otherwise, at least for now. Store shoppers spent 3% more this year than last over the weekend, taking advantage of deep discounts. Including online buyers, 192 million customers spent an average of $372 over the four days, up 7.2% from last year. The frenzy turned deadly when one New York Wal-Mart employee died as a crowd rushed the doors at 5:00 am.

The weekend was perhaps an indicator of deep denial. Trillions of dollars are being pumped into the tottering markets. The worst unemployment in three decades is expected. Local charities cannot keep up with all the new clients needing food, shelter and help paying heating and electric bills. It remains to be seen if people will continue to spend throughout the season, but for all the hand-wringing about the need to save and pay off debt, frugality was not in evidence.

Americans have been encouraged to spend for decades. After the 9/11 attacks, President Bush exhorted the nation to continue to shop and even to go to Disney World. "Take your families and enjoy life, the way we want it to be enjoyed." As Professor Andrew Bacevich points out, we were not called to make sacrifices as is normal during a time of war. The drive for more cheap things is not just a personal or cultural addiction, but fully two-thirds of the economy is driven by such purchases. Consumerism, which is practically identified with American freedoms, has no robust opponent as it did briefly in the counter-culture sixties. Even the rebellious symbols of black leather and silver spikes have been absorbed into the market through specialty stores like Hot Topic. Still, the mentality has its critics.

David Schindler, editor of the quarterly Communio, points out the hidden dangers of consumption: "Western (economic) liberalism is pernicious in a way that Communism is not, because liberalism fills culture with its vision so imperceptibly and invisibly. Cultures embrace Western freedom, only to discover--too late?--that they've been made unfree by Western consumerism. People know they've lost their freedom when they've been run over by a tank. They are not so quick to notice the loss of freedom that comes from enervation of the soul and slavery to appetite."

Then Cardinal Joseph Ratzinger in 1985 described the vulnerability of economic systems which leave aside a moral framework: "It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse."

From all indicators, our consumption habits are on a collision course with reality; we can only hope for a softer landing. Ironically, October 29, 1929, the day the stock market crashed signaling the Great Depression, was named Black Tuesday.

Published at Il Sussidiario.Net in translation.

Financial Advice for Low-Income Mothers

Lately I'm sure it's dawned on those of us who have retirement accounts that these are products that have been sold to us. In fact, they're not for everybody. An economist, offering volunteer financial advice at a women's shelter, has a counterintuitive perspective on spending priorities. Some of these principles would make sense for middle-class families as well.

First, though, I was impressed by the fact that she did not presume to make the choices for her clients or even to volunteer for the purpose of "helping".

I said I volunteered because I thought that learning about how these women respond to their extreme financial constraints would be interesting. Everyone else said they thought their experiences would be helpful (most were lawyers or in human resources). I realised I was the only one who did not say I was there to help homeless women. I wondered if that made me a bad person. But (and I may be rationalising here) I found something presumptuous about the idea I could swoop in from my comfortable life and sort out these women’s financial woes. I might know about economics and finance, but I know nothing of what it’s like to be a homeless single mother. I genuinely hope to help these women, but expecting that I can feels naive.

While the lead volunteer stated that cell phones were a luxury, the mothers disagreed for reasons of safety and the need for contact with day care. Instead, the economist suggested using pre-paid plans which are much cheaper than the standard contract plans. There was a lot to unravel with these clients. A young pregnant woman she was helping was maxing out credit cards instead of going on welfare, a recipe for ruin.

IRAs and education funds for college have been marketed to the poor as well which only exacerbate their financial burdens. Her advice to parents on schooling is particularly interesting, which is to put their resources into education while the children are young and to rely on state aid later.

The poor have different saving needs from the rest of us. They do not need to save much (if at all) for retirement because the state provides them with a generous pension relative to their lifetime income. They also have less incentive to save for their children’s education. American universities practice nearly perfect price discrimination: having few assets entitles poor students to more financial aid. Resources are better spent on education while a child is young, ensuring he’s well prepared for university in the future. The women at the shelter have low or no income and children to support. Saving might be a better idea in the future, when they have some income and are less dependent on state benefits.

Debt

In my post yesterday, which was what I like to call comprehensive (i.e., long), I wrote the following:

"Over eight disastrous years it has become all too clear that [the current Administration and many members of Congress] could care less about workers and average homeowners. In their view we are but consumers, programmed to mistake what we want for what we need, the result of which confusion only serves to put more and more money into the pockets of the wealthiest of the wealthy, thus increasing the gap between those who have and those who have not. No longer does anyone worry about savings rates, about putting and keeping our economy on a solid footing, an endeavor in which we all share responsibility. Of course, we bear no small of amount responsibility for this state of affairs. No one can take away our freedom. Hence, we bear responsibility."

Today, I received a Loose Change calendar at work. The quote for December 2009 is by a man named Earl Wilson, who I had never heard of before looking at this calendar. Mr. Wilson writes,
"Today, there are three kinds of people: the have's, the have not's, and the have-not-paid-for-what-they- have's." While I may never have heard of him before today, Mr. Wilson is correct. Too many of us being the last kind of people is what got us into our current economic mess. So, it is a judgment of reason that more of the same kind of consumerism is not going to get us out of it, let alone put us on solid footing either individually or collectively.

A Victory of Confidence

Since the late September Wall Street meltdown, a spiraling contagion of financial fear, John McCain's candidacy began to founder. The Arizona senator briefly suspended his campaign and stated that he would not attend the first presidential debate in order to focus on the crisis, although he did show up in the end. That move was not perceived to be serious but rather evasive. After the bailout measure was passed with the support of both candidates, McCain and running-mate Sarah Palin focused a negative campaign against Senator Barack Obama to associate him with the far-left and to stoke the fear of radicalism. While this energized the conservative base, who had been suspicious of McCain, it repelled independents and more moderate Republicans who began to publicly endorse Obama. "No Drama" Obama, as he has been called by his advisors, only needed to stay positive and confident to support the nation's shaky nerves. Even the Wall Street bankers started to endorse Obama, who came to symbolize stability rather than the tax-gouging socialist portrayed by the Republicans. The securities and investment industry ponied up 43% more cash to Obama's campaign than to that of his rival. The fact that both candidates' plans according to economists were infeasible was secondary to the perception of calm that has been the hallmark of Obama's campaign since his difficult win over Hillary Clinton.

Even without the roiling financial markets, McCain had an uphill battle against Obama thanks to the unpopular reign of his predecessor, George W. Bush, who has an approval rating of under 30%. Obama only had to remind his audiences that McCain had voted with the president 90% of the time. Although McCain repeatedly referred to himself as the maverick who would shake hands with opponents across the aisle, he was still identified with discredited Republican agendas, both foreign and domestic. Barack Obama, despite his well-publicized liberal voting record, managed to seize the center, more so as McCain and Palin became entrenched with the right-wing of the party in the last desperate month of the contest. A record 130 million citizens showed up at their polling places, with the highest percentage of registered voters in decades at 64%. Obama won over women, minorities, and young voters who came out in force. In addition to his commited base, McCain still won a majority of the white vote. Republicans also lost at least eleven House seats, five Senate seats and one governorship.

For Catholics, this was the election where the Church's pastors were most vocal on the voting criterion. In addition to the "Faithful Citizenship" letter issued by the bishops' conference about the moral factors in the election, at least fifty bishops issued pastoral letters on the primacy of the protection of innocent human life over any other consideration. Despite the public wrangling over priorities, Catholics voted for Obama by 54-45%, a shift from the 2004 Bush-Kerry contest where Bush won the Catholic vote by 52-46%.

A look at some of the ballot measures on life and marriage issues across the country are revealing as to how voters view these social questions. In Florida, Arizona and (probably) California, constitutional bans were passed on same-sex marriage, and in Arkansas adoption to same-sex couples was barred. Life issues took a big hit across the country, as voters in Washington state approved doctor-assisted suicide, and in Colorado and South Dakota bills limiting abortion were defeated. Also, Michigan approved a bill allowing stem-cell research. While the constituency responds to the claims of the gay lobby with reserve, the life issues have become more abstract, clouded by ideologies of the right and left. For the span of three and a half decades since the Supreme Court decision of Roe v. Wade, the pro-life cause has been tied to the fortunes of conservative Republican economic and foreign policy creeds, both of which were roundly repudiated this election cycle. Meanwhile, the rhetoric of choice has obscured the real human toll. Clearly more educational groundwork is needed before a political impact can be registered.

As for conservative concerns, it remains to be seen how far Obama will push the country toward social engineering or how his party might hamper the educational and charitable work of religious organizations. On the other hand, his administration may be so mired in the immediate economic crisis and wars they have inherited as to render any dramatic shift impractical. The young and inexperienced Barack Obama by many accounts is on over his head, which may open an opportunity before a second term. Today the Republicans begin to prepare for the next election. As was heard often during this campaign, they still look to their star Ronald Reagan as their model, a president who, if anything, exuded confidence.

[Published in translation at ilsussidiario.net]

Charles Morris on Student Lending

Charles Morris in The Trillion Dollar Meltdown (the 2nd edition paperback at the printer's now reads "Two Trillion") covers the gambit of financial woes generated by the free hands of financial wizards. Don't read this book at bedtime: it is one long nightmare. Beyond the discussion of spurious new financial instruments, national debt and foreign investors and the unraveling of the markets, Morris asks some questions about human values that don't fit so neatly into the all-encompassing free-market ideology, including such social benefits as health and education.

Morris titles the section on college lending "Class Warfare" because of the correlation between education and economic opportunity. Sallie Mae, originally a government entity for offering student loans, became SLM Corp. and was privatized in 2004, a year in which it made a 37% profit.

Why are its profits so high? Because it is the beneficiary of extraordinary privileges. For one thing, 90 percent of the loans it makes are guaranteed by the taxpayer... Student lenders are exempted from all state usury laws; if a student defaults, fees, penalty interest, and collection charges skyrocket. Loan servicing by the student lenders is reputed to be very poor, and there are widespread reports of defaults occurring because student lenders make little or no effort to contact debtors when repayment periods start. Collection of student loans and credit card and other debts is now a separate SLM business line, and it racked up about $800 million in debt management fees in 2005.

Morris goes on to argue that there are smarter ways to finance higher education which offer more social benefit by taking it away from the profit-taking private sector. The direct federal loan program offers the same service for half the price, but the program has been contracted in recent years. He argues: "If all loans were financed through the direct loan program, the savings could finance full tuition grants for another million students." He also cites the historical precedents which show our traditional commitment to higher education, including Lincoln's land-grant college system and the GI Bill after World War II.

Subprime Scam

A popular explanation for the subprime meltdown is that too many loans were made to uncreditworthy borrowers. Not necessarily.

"In New York City in 2005 and 2006 ... black "affinity marketing" mortgage brokers fanned out through the poorer areas, targeting homeowners with substantial equity in their homes. Edward Jordan, a seventy-eight-year-old retired postal worker, has owned his home since 1975 and was just a few years from paying off his mortgage. He was approached by a broker who told him that he was overpaying; she could get him a rate of only 1 percent. Jordan sought out another broker, who confirmed that that was so, and placed a mortgage for him with Countrywide. Total fees were $20,000.

"After the deal was closed, Jordan, who had trusted the brokers, discovered that the interest rate would quickly escalate to as high as 9.95 percent. When he complained to Countrywide, the firm's loss-mitigation group offered him an interest-only alternative, but at a higher rate, and with steadily escalating principal, so monthly payents would eventually rise to several times Jordan's income. Jordan, who lives solely on his pension, is now afraid he will lose his home. He also happens to have a credit score of 800, which places him among the 13 percent best credit risks in the country. On any construction of the deal, he was robbed by Countryside. The files of the legal services organization in the area where Jordan lives are bulging with cases like these. And the most active lenders were the big national players, like Countrywide, New Century (now bankrupt), and Fremont General."

The Trillion Dollar Meltdown, Charles R. Morris (70-71)

See also "Blaming the Poor" at Commonweal.

QOTD: Government and the Common Good

"Government is the exercise of the virtue of prudence in the enactment of legislative and executive measures capable of directing social activity towards the common good. The principle of subsidiarity requires that governments and large international agencies ensure solidarity on the national and global levels and between generations."

Archbishop Celestino Migliore, permanent observer of the Holy See to the United Nations, 10/31/08

Young People in Debt

In a previous article here, "The Financial Risks of College", I offered some numbers on the increasing debt load of college students. Of the two-thirds of students who finance their education, the average accumulation by 2003-4 was $20,000. Interest rates offered by private financing can be as high as 20%, which in the worst cases are severely compounded by default fees. About 10% of students are defaulting over a ten year period, and for those with loads higher than $15,000, the default rate doubles. It's a grim start at a time when young people are preparing to start their own families.

Graphic from National CrossTalk.

November Theme: Economy, Debt

This month, Cahiers Péguy is introducing a new format of a monthly theme inviting closer analysis on topics of cultural, social and political interest. Each theme will start from a broad field and will focus in on a discrete topic. This format will provide an emphasis, and won't preclude the regular programming that arises in response to current events.

For our first month, we will take the economy as a category and put household debt under the lens. While the recent economic meltdown has generated a sense of helplessness, addressing the question of using money opens up a more human response to the crisis. As free individuals, we can manage resources and seek the common good in our economic relationships. As educators, we can propose a more healthy economic mentality which puts money in the context of a tool rather than an end for life.

Graphic from The American Prospect.

An articulation of something we hold dear

"Capitalism without humanity, solidarity and justice has no morals and no future," H.E. Reinhard Marx, Archbishop of Munich und Freising, in his new book Kapital: A Plea for Man, due out next month.

The Newer Economy

The exuberant service-based New Economy unbound from regulations and cushioned with federal currency interventions was first chastened by the fall of the dot-coms. In the current global crisis, the apparatus will be overhauled for a more modest and regulated model. Economist Paul Krugman, newest Nobel laureate, credits British prime minister Gordon Brown with the more workable model of semi-nationalization of banks to bridge the crisis which U.S. Treasury Secretary Henry Paulson has now come around to. David Brooks outlines the expected tab for the meltdown, including bailouts, stimulus packages and tax cuts, which will far exceed a deficit of 5% of GDP. Interventions themselves are not unprecedented in the US, as banks, railways, and industries have been nationalized at various times of crisis. While this new phase of a now globally-interdependent financial system is ushered in, the question remains on what basis we will rebuild: with a system favoring the maximum profit for the clever few or a welfare state encouraging dependence. A third way is open: to foster stable local initiatives, while keeping a particular concern for the most vulnerable.

Lies and Videotape

The rate of flying rumors the last few weeks seems to be increasing exponentially. Some are spun in a spiraling stock market in hopes of profit, others are meant to sow doubt in the last weeks of a bitter presidential campaign. Fox News was taken to task for admitting a questionable character, Andy Martin, on air with unsubstantiated claims about Barack Obama. Other persistent rumors include the claim that Obama's birth certificate has been forged and that he is a secret Muslim, a fear fanned by a connection with Bill Ayers, a radical academic. Such spurious tactics distract from a serious assessment of a candidate's qualifications and positions. The highly-charged emotional atmosphere as seen at some Republican political rallies last week, added to a deepening economic crisis, may escalate if cooler heads don't prevail.

Confidence in the Future

The common assumption about the current economic crisis is that bad loans were made and there is not enough money coming in. But this is only part of the problem. The real breakdown is one of confidence.

This is what a credit crisis looks like. It's not like a stock market crisis, where the scary plunge of stocks is obvious to all. The credit crisis has played out in places most people can't see. It's banks refusing to lend to other banks — even though that is one of the most essential functions of the banking system. It's a loss of confidence in seemingly healthy institutions like Morgan Stanley and Goldman — both of which reported profits even as the pressure was mounting. It is panicked hedge funds pulling out cash. It is frightened investors protecting themselves by buying credit-default swaps — a financial insurance policy against potential bankruptcy — at prices 30 times what they normally would pay. (Washington Post)

* * *

We are in the midst of what the academic Charles Kindleberger called the "revulsion stage" of a crisis - indiscriminate and contagious selling of distressed assets that leads "banks to stop lending on the collateral of such assets."

When such fear grips the markets, investors (and speculators) are quick to generalize, punishing many for the sins of few. That's the most dangerous phase of any crisis - when market implosions start to take on a self-reinforcing life of their own.

The most important thing about financial panics is that they are all temporary. They either die of exhaustion or are overwhelmed by the heavy artillery of government policies. (Washington Post)

This is a particular kind of crisis of confidence. I can think of others that are more basic and really endemic at this time: e.g. the fear to commit to marriage or to have a(nother) child.

Despite the freefall of retirement savings accounts, there is a fair amount of equanimity. Anger yes, but not as much panic, at least on Main Street as we now know it.

Tom Grant, editor of The Metro Spirit in Augusta (as quoted at a friend's blog) observed that we would do well to invest in a real future:

Now, as we mortgage our grandchildren with some $10 trillion in national debt, it’s time to reassess. We invested in self interest and it failed us. Those leaders who took multi-million dollar checks then led their companies to ruin look little like great role models today.Rather, I think you’ll find a better model in the likes of teachers, youth pastors, little league coaches and scouting leaders — all of whom invest their time, energy and money in the people who will have to pay our debts: our children.

Karen Blumenthal at the Wall Street Journal also puts the situation into a more human light.

Put your losses in perspective. This isn't easy. I know: I'm feeling genuine pain after losing my entire investment in Washington Mutual and watching a mutual fund I bought in March for one of my retirement accounts drop by 36% -- and that's before this week. I absolutely cannot bear to tally up all my losses.

This is my reality check: For more than a decade, I have gone to my local elementary school to tutor. There I spend time reading with children who own no books of their own, whose families can't afford school supplies and who have never been to a dentist. For the price of 45 minutes a week, I return to my desk feeling as wealthy as any one person needs to be.

Only the State Can Solve the Crisis, Kitson

An interview with Professor Michael Kitson of Cambridge was published today at Il Sussidiario.Net on the current economic crisis.

Kitson (Cambridge): only State can solve the financial crisis

INT.

Michael Kitson

venerdì 3 ottobre 2008

Professor Kitson, what is your opinion on the present financial crisis in the United States: is it due to structural factors or is it to be considered as a conjunctural turmoil?

The present crisis is due to structural problems in finacial markets caused by excessive and over leveraged lending. Financial markets have become increasing deregulated over the past twenty years allowing many financial institutions to pursue excessive profits without taking due care to evaluate risk. Once borrowers started to default, such as in the USA subprime market, the financial markets could no longer undertake two of their primary tasks: to price financial assets and to provide liquidity to the market.

To face this lasting crisis several governments are taking actions that seem to increase the weight of the state in economy. Do you think that this kind of state intervention is the only possible solution or there are other ways to answer the problem in a possibly long-lasting way and not just as a sort of contingency plan?

State intervention is the only way of dealing with the crisis. The market has ceased up and cannot sort itself out. State intervention is required in two areas. First, in terms of crisis management such as the bank rescue plan in the USA. Second, and for the long-term, new forms of financial regulation need to be established to maintain financial stability and to prevent excessive and irresponsible lending in the future.

The present course of action entails many threats to competition and a substantial acceptance of moral hazard. Is it to be concluded that politics only can "protect" competition? Or may we keep thinking that this is primarily a task of the economy players and - if so - in which way should they act to this aim?

Moral hazard is a reality of financial markets. It is a problem, but not as big a problem as systemic risk whereby if one bank fails then many more will fail as depositors rush to get their money out. It should be the job of the regulators to carefully assess the activities of financial institutions to limit moral hazard and to put in place schemes whereby if a bank fails it is the financial market that picks up the cost and not the taxpayer.

In your opinion have regional bodies some role to play or can the crisis be faced and solved only on global level?

Financial markets are now global and the best response would be new forms of regulation organised at a global level.

You personally have a privilege in being involved in both UK and US Cambridge universities. Considering the present crisis, which are in your opinion the main differences between the United States, the United Kingdom and the continental Europe?

Although the crisis is global in dimension, its impact has been greater in the USA and the UK because banks and other financial institutions in these two countries have taken more risks with their approach to lending. Many banks in continental Europe have been more careful and have therefore not been exposed to the full extent of the panic.

Considering magnitude and depth of the present crisis many observers are arguing about the possible end of an economic system - at least as to the financial aspects - and the beginning of a new one. What is your opinion on this debate and - in case of a new system - which would these new features be?

History tells us that a global financial crisis will lead to significant changes in the economic system. The Great Depression in the 1930s led to a reassessment of the global economy and the creation of the Bretton Woods system which underpinned global prosperity in the 1950s and 1960s. The present crisis will lead to significant changes in the global economy including a much tighter regulation of financial markets and possibly a rebuilding of global financial architecture with changes to institutions such as the IMF and the World Bank.