THE SHORT GAME AND THE LONG GAME

    By Oxy Mora on Wed, 12/08/2010 - 10:28am |

    Obama took office in the midst of an economic crisis. I leave it to others to explain how in two years he might have impacted the high unemployment numbers and poor economy enough to stave off reversal in the midterm election. The fact is he is now facing a recalcitrant HR which will be levered by the Tea Party who want to see the economy fail. Chaos and high unemployment are fertile fields for the Tea Party. It is the purpose of the Tea Party to prevent stimulus and to enact contractionary policies where possible.

    The short game is to out maneuver the Tea Party over the next two years by getting employment up. The President's package is a jobs bill and a back door stimulus. About $150B of the $900B expenditures will go to the rich--which I think is repulsive, but even so it is partially stimulative. The rest of the package will assist the economy. I operate a small business and I guarantee you I will buy equipment and take advantage of that 100% write-off and most likely do some hiring.

    The Long game. The banks must be broken up into pieces that are not too big to fail. How long will it take? It will take a lot longer if the economy doesn't improve enough to re-elect a Democrat. I was happy to see the name of Richard Levin floated to replace Summers. Levin stated in April that the banks should have been broken up. Now I want to see a Russell Crowe appointed to head the CFPB.

    The Long game will consist of a fight between the middle class and the wealthy to see who is going to pay for the deficit. Obviously the short term game of awarding additional gifts to the wealthy is in the wrong direction. But keeping the long game in mind, does the package position Obama better or worse for 2012? I think it positions him better than if the deal is not done. Will Democrats break with him over this? Maybe so, hard to tell what two more years will bring. Will Obama make the good fight from here on out and in 2012? That is the $64K question.

    At dinner last night I was with four lower information voters who voted for Obama and who didn't have a clue about any of this discussion except they were happy about the unemployment benefits. I asked them if there was anything Obama could do to lose their vote in 2012. The answer was no.

    I don't like the way Obama's first two years went. He was too lenient on the banks. The question is what do we do now--both long term and short term. I accept the short term package. After January I want to see the long term fight spelled out and I want Obama to speak his mind forcibly.

    Comments

    Yes, if and only if you believe that Obama wants to break up the banks and that he believes that the rich should pay most of the long term deficit tab.  I suspect he's done all he's going to do with the banks and that he believes the deficit will require "shared sacrifice."

    your long game strategy makes sense, what I don't see is evidence that it's Obama's long game.


    by Michael Maiello on Wed, 12/08/2010 - 10:57am

    Good post, offering a substantive argument, and I agree with destor's comment.  Where, or what, exactly is this President's North Star?  That's what I would like to know.  Because if I knew that, it could help me resolve a bunch of questions sooner rather than later.  Which of course is why he isn't going to tell anyone much specific about what his North Star is.  Like former US SCOTUS judge Potter Stewart in re to pornography, he knows it when he sees it, perhaps.


    by AmericanDreamer on Wed, 12/08/2010 - 11:10am

    Dreamer, I agree, we just don't know. I'm hoping for too much probably. But I think this package is prelude for a tune which hasn't been fully written. If he can get this package behind him and have some sense the economy will generate jobs it creates a different picture than if he can't get the stimulus.

    Even though Obama was using his serious tones for his own supporters rather than his enemies, I still liked the tone. Maybe we will see more of that tone as the Tea Party attempts to sabotage his Presidency.It would be a winning composition.


    by Oxy Mora on Wed, 12/08/2010 - 1:54pm

    Well, we'll see.  (The motto of the wonderful Philip Seymour Hoffman character in "Charlie Wilson's War"; I'm on a movie-quoting spree lately).  FWIW and IIRC Stiglitz's understanding, which he wrote in Freefall, was that Obama had concluded that bank size/too big to fail per se was not the main problem, but rather the nature of the products they were selling, reflected in the derivatives provisions that made it into the law passed earlier this year.  Stiglitz thinks the problem has not been solved and specifically agrees that too big to fail means too big (in fact it probably was in his book, which I finished recently and highly recommend after you read Blowing Smoke, that I came upon that phrase).

    Of course, it could make a hell of a difference if Obama were actually to, you know, *hire* Stiglitz to work in his WH so that he could be hearing from someone who really knows what he's talking about on a regular basis.  Instead of having to have little people like me write, often to no one in particular, that he really ought to take seriously and listen to Stiglitz's views (among others) on these matters.  Just a thought.

    Instead, rumor has it Roger Altman is Summers' likely replacement.  So, again, no evidence whatsoever that I am aware of, and some to the contrary, suggesting that although these may be good policy and good politics, they are not Obama's idea of good policy and politics.  As of today.  No reason to refrain from offering and advocating constructive suggestions, because who knows...? 


    by AmericanDreamer on Wed, 12/08/2010 - 4:18pm

    I just wrote a considered answer but my comment box is acting up and deleting my comment, then telling me I didn't have a comment. UGH. maybe it's a sign. But I did read your comments and let's journey on. The NYT articles are great, referenced below by AT. My objective was simply to see if the Bank downsizing could represent a focus for Democrats, one that would be more intuitive than taxing the wealthy and which might accomplish many of the same ends.


    by Oxy Mora on Wed, 12/08/2010 - 6:06pm

    Correction--earlier in this thread I'd written:

    FWIW and IIRC Stiglitz's understanding, which he wrote in Freefall, was that Obama had concluded that bank size/too big to fail per se was not the main problem, but rather the nature of the products they were selling, reflected in the derivatives provisions that made it into the law passed earlier this year.  

    What I read on this was in Michael Hirsh's excellent Capital Offense.  The statement "if they're too big to fail, they're too big" is attributed to...Alan Greenspan!  The relevant parts (pp. 299-300):

    Now the biggest issue was the too-big-to-fail problem.  The major players had all been saved (with the exception of Lehman and Bear Stearns), and Washington's policies were communicating this implicit message both to investors and to the rest of the world: we'll save them again someday.  Why shouldn't they all start taking risks with the world's savings once again?  Greenspan himself, his ideology shattered, was so bothered by the implications of the too-big-to-fail problem that he repudiated utterly what he had written nearly forty years before, as one of the contributors to Ayn Rand's 1961 book, Capitalism: The Unknown Ideal.  Then he had derided antitrust law--"the entire structure of anti-trust statutes in this country is a jumble of irrationality and ignorance," he wrote--and he praised Standard Oil's dominance of 80 percent of refining capacity at the turn of the century as something that "made economic sense and accelerated the growth of the American economy."  Now Greenspan called for a breakup of the biggest banks for fear that, otherwise, the market system couldn't function.  Greenspan was grappling with the same dilemma that Rubin had in the aftermath.  "If they're too big to fail, they're too big," Greenspan said.  "In 1911 we broke up Standard Oil--so what happened?  The individual parts became more valuable than the whole.  Maybe that's what we need to do."

    Yet somehow the fundamental questions were never addressed.  Obama appeared to be channeling Geithner, for the most part.  "The president and his economic team explicitly decided not to break up all big financial institutions," Goolsbee said.  Obama decided that the cause of the crisis "wasn't primarily about size.  The most dangerous failures--Bear Stearns, Lehman--were not even close to being the biggest.  You could have broken the largest financial institutions into, literally, five pieces and each of them would still have been bigger than Bear Stearns.  The main danger to the economy was interconnection, not raw size."...[By the fall of 2009] The horror movie that the financial system became seemed to be over.  But as in one of those cliched Hollywood endings, the monster in the story wasn't really dead, even if most people had forgotten about him.

    The one man who seemed to understand this, if only sporadically, was Barack Obama himself..."Wait, let me get this straight," Obama said at a meeting in December.  "These guys are reserving record bonuses because they're profitable, and they're profitable only because we rescued them," according to an economic advisor.  "He was incredulous."...

    Obama was increasingly perceived as being on the wrong side of the issue...

     


    by AmericanDreamer on Thu, 12/09/2010 - 7:11pm

    Thanks, Destor. I don't know about the banks but the consideration of Richard Levin gives me some hope. The one thing you can compliment Repubs on is their ability to have one message and stick to it. I think a comparable message for Dems is to Decentralize Banks and I think it has wide appeal-just about everyone can relate to the excesses caused by the privilege of "too big to fail" for about 20 of the largest banks. I think Decentralizing Banks is an excellent wedge strategy which would achieve many other objectives for Democrats.


    by Oxy Mora on Wed, 12/08/2010 - 1:44pm

    Taking a page from Stardust I'm going to comment on myself.

    Why the fuck didn't Obama Decentralize the banks when he had the opportunity. Fuckhead. Now it's harder and longer.


    by Oxy Mora on Wed, 12/08/2010 - 1:57pm

    Look, just because he didn't do it THEN doesn't mean he can't do it NOW. You might want to think about Justice Potter Stewart, by the way.


    by Oxy Mora on Wed, 12/08/2010 - 1:59pm

    I think I've figured out why he won't decentralize the banks -- because no one else in the world will dexcentralize theirs.  You could break Citigroup into a hundred or more regional banks and then Barclays would crush them all.  You could break Goldman Sachs into fourdistinct companies (asset management, investment banking, broker-dealer, consultancy) and they'd all get smooshed by BNP Paribas.

    It's actually something the developed world needs to do together but nobody will go first.

    I'm not saying I buy that, but it's the logic.


    by Michael Maiello on Wed, 12/08/2010 - 2:26pm

    Destor, I think the international competition  is the one that was used when they allowed investment banking back in. But there must be some countervailing arguments, maybe the President of Yale has given it some thought. I'd be happy now just to try it out on Bof A. 


    by Oxy Mora on Wed, 12/08/2010 - 3:03pm

    You're good at this devil's advocate thing, destor. I'm beginning to think maybe the devil isn't such a bad guy, after all. Wink


    by Atheist (not verified) on Wed, 12/08/2010 - 3:08pm

    A, acknowledging the devil is a slippery slope.


    by Oxy Mora on Wed, 12/08/2010 - 3:15pm

    There are days when I find it much easier to believe the devil exists than to believe his opposite does.


    by Atheist (not verified) on Wed, 12/08/2010 - 3:39pm

    Letter's From The Earth is one of the most important books I've ever read...


    by Michael Maiello on Wed, 12/08/2010 - 3:25pm

    That's probably an argument the big banks would make and it seems not obviously wrong, albeit self-serving, to me.  So--just a thought--perhaps Obama could talk to the heads of state of other countries with the other comparably too big to fail banks, some of whom are really po'd at the US, and said so, about what almost happened, and seek an agreement to adopt legislation or regulations or grand poobah royal plenipotentiary decrees or whatever the hell has to happen to break up the big banks to a not-too-big-to-fail size, and to enforce those new rules.  Maybe a G-20 agenda item, if it can wait that long.

    It seems to me that, seeing as the US-based big banks were the bad guys in this latest reality-show installment of "who can be the first to completely bring down the entire global economy?" the ball would be in our court insofar as other countries are concerned, and that they would welcome a US initiative to this effect.  Heads of state don't generally like situations where their entire economies can be blown up by what big banks in another country do and don't do.


    by AmericanDreamer on Wed, 12/08/2010 - 4:37pm

    Given their past behaviors, it would seem more probable that the Repubs will outsource and privatize our Treasury Department and our banking regulatory apparatus to Goldman Sachs long before the Dems would actually move on anything like legitimate finReg reforms. And Obama will go on the teevee box to explain that he really wanted finReg reform - honest he did! - but he needed to compromise on this one because otherwise the banks and the Repubs were going to hold their breath until they turned blue if he didn't give them what they wanted.


    by SleepinJeezus on Wed, 12/08/2010 - 2:06pm

    Sleepin, I know I'm prolly gullible as hell. In my senior year in high school I was voted "most cooperative", a nomenclature which has been a life long curse. But I'm witholding my verdict until I see if this package is passed and then how strongly he is going to take up apopulist position on the banks. I do think he is in a vastly different predicament with respect to 2012 than he ever thought he would be and he might decide to go for the Repub's jugular.


    by Oxy Mora on Wed, 12/08/2010 - 2:19pm

    It's not a hard issue to explain, either, another advantage: Too big to fail means too big.  Period.  No need to say a whole lot more when it comes to public communication, except, maybe "tired of bending over?" 


    by AmericanDreamer on Wed, 12/08/2010 - 2:15pm

    Dreamer, I think part of Dem's problem is that they simply can't convince people the rich don't create jobs. Part of the reason is that FOX is up 24 hours a day saying otherwise. Anyhow, I'm tired of trying to make the argument.


    by Oxy Mora on Wed, 12/08/2010 - 2:25pm

    Yeah. People have grown up on that fairytale.


    by Michael Maiello on Wed, 12/08/2010 - 2:27pm

    Detstor, you just hit a key point. How much of what we operate on day in and day out is based on fairytale? Or call it folk lore, or whatever. And this particular belief is well ingrained. That is why I'm advocating an attack on the "institution" of banking instead of the wealthy individual per se. The only argument against downsizing the banks is a lack of competivness in world markets--but there are plenty of countervailing arguments. And there must be a good fairy tale about too big to fail banks.    


    by Oxy Mora on Wed, 12/08/2010 - 2:46pm

    Perhaps.  But there a lot of non-huge banks in communities all over the country who are getting killed by what the big banks have been doing and the huge scale at which they have come to operate.  And they are in a powerful position to make the case that our system as it is currently operating is making it much harder for job-creating small and medium businesses in these communities to get loans.  I think there is a divide-and-conquer strategy vis a vis the banks that is well worth serious consideration.


    by AmericanDreamer on Wed, 12/08/2010 - 3:28pm

    Too big to fail means too big.  Period.

    Back in the day, I think they used to have a word for that. I think it was "monopoly" (or oligopoly, as the case may be).


    by Atheist (not verified) on Wed, 12/08/2010 - 2:41pm

    Right, A. And there is precedent for trust busting a la Teddy Roosevelt. In a sense Teddy Roosevelt is lore, so why not use it.


    by Oxy Mora on Wed, 12/08/2010 - 2:49pm

    Exactly. It seems so obvious I feel like I must be missing something, but other than the cynical view that Congress (and Obama, for that matter, as I don't hear him beating that drum) are corrupt, I cannot for the life of me figure out what else it might be.


    by Atheist (not verified) on Wed, 12/08/2010 - 2:56pm

    I think it has to do with the government intervention and control of the financial sector (as well as other sectors), which smacks many as being on the slippery slope to socialism/communism, a fear still threaded into many (sub)consciousnesses in this country.  Once you give the government the power to decide this is too big and can be broken up, there will be no stopping the bureaucrats from going after other companies in the name of something like social engineering or whatnot. 


    by Elusive Trope on Wed, 12/08/2010 - 3:18pm

    AT, I don't really have an answer to it. But here are a couple of points. We are not talking all banks or any of the largest non-banking multi-national corporations. The specific targets are the 20 too big to fail banks. They just became too big to fail in recent history. Look on it as an aberration which needs to be corrected. And banks are special entities. They are the lifeblood of a domestic economy. It's not the same as taking over U.S. Steel. In fact, over time there may not be a need for the government to take an actual hand in the specific decentralization. BofA just acquired Merril Lynch. Spin it off again. Maybe tax policy would achieve the ends we want, make the incentives in favor of decentralization.


    by Oxy Mora on Wed, 12/08/2010 - 3:38pm

    I agree.  Somehow we need to be find a way to ajust this country's belief that private enterprise always trump public enterprise.  Although at times, given how DC conducts themselves, one can understand fearing government intervention and control of something like a bank. 

    Today at the New York Times, the debate question is Sholuld Megabanks Be Broken Apart? 

     


    by Elusive Trope on Wed, 12/08/2010 - 4:13pm

    AT, great reference and answers some questions we have been discussing here. I recommend this series of articles.


    by Oxy Mora on Wed, 12/08/2010 - 5:10pm

    Maybe tax policy would achieve the ends we want,

    Yup. Like Britain, who have implemented a tax on size - big banks pay a punitive tax on the size of their balance sheet. It's very small as it stands, but it's the kind of thing that becomes an attractive source of revenue when bank profits are high.


    by Obey on Wed, 12/08/2010 - 4:28pm

    Apparently Swiss regulators plan on increasing capital requirements of UBS and Credit Suisse. Capital must increase to 19% by 2019. Nine percent of that would be in mandatory convertible debt should the bank get in trouble. In effect this lessens the requirement to be "bailed out".

    Recommend the NYT articles. Lots of great ideas.Remove the "implicit subsidy" and encourage them to shrink.


    by Oxy Mora on Wed, 12/08/2010 - 5:18pm

    Remember Obama taught at University of Chicago.  Even though he was not part of the business school, the Chicago school of economics was in the air he breathed every day, maybe even in the (bottled) water he drank and certainly firmly embedded in the psyches of his friends and associates as accepted truths.  When adding up the pluses and minuses of voting for Obama, his having taught at Chicago was a big minus. 

    Has anyone researched how the most influential media figures will be affected by the expiration of the tax cuts?  Should any recuse themselves from covering the issue because of personal bias?  Fat chance, eh?


    by EmmaZahn on Wed, 12/08/2010 - 2:02pm

    Thanks, E.Z., I had forgotten about the Chicago teaching experience. And I think the reporters, etc.,  should recuse themselves, but they won't. But the matter of the rich creating jobs is hard to dispell, partially because it's partially true.

    I think Obama's options were different when there was systemic risk--at least it would have been difficult to stake a Presidency on the assumption that letting the banks fail would not bring down the entire economy. I can tell you it's scary when you're running a business based on a credit line you've had for 10 years and the bank calls and tells you they are cancelling it--I went through such a situation and thought my world was going to come crashing down. But we're past that, the options are different and if Obama doesn't see that much of the "anger" out here is based on the knowledge that the system is rigged in favor of the financial industry, and that still hasn't been taken off the table, he's not as smart and adaptable as I think he is.  


    by Oxy Mora on Wed, 12/08/2010 - 3:11pm

    Remember Obama taught at University of Chicago (law school). 

    I was a student there, well before Obama was there.  You can see how much the air of which you speak affected me. :<)  Students in my class organized a vaguely pro-Mondale, but really more anti-Reagan, petition (that was 1984, for those following along at home who were in diapers at the time) that got the signatures of about 60% of that class of roughly 170.  

    That was before large percentages of them went on to become partners in law firms, some after clerking for a judge for their first year or two, which does not necessarily imply that their politics changed much along with that. 

    Jim Comey was a classmate and sent his unspoiled kids to the same northern Virginia public schools as our kids went to before taking a job with a really wealthy Connecticut-based hedge fund not long ago.  He is a very nice guy who showed integrity and guts in the Ashcroft hospital room incident which has been much written about.  Although he tends to adopt a nonpartisan "all politicians are crooks" tough-guy persona, I wish he were squarely on our side in his personal political views, as this would increase the cumulative spinal bone mass of our party's senior officials by probably about 1/3 or so, I am guessing. 

    There were certainly faculty members with conservative political views, including a number who associated themselves with the "law and economics" school of thought, which is very much influenced by orthodox neoclassical economics, including the Chicago school variant.  There was also a sizable Federalist Society membership among the law students, not close to a majority by any means. That is a powerful right-wing political network, as many here know.

    Such "ideological indoctrination" that I experienced during those years, which was not thought of as ideological indoctrination, was to try to make every point of view and argument appear grayer, for obvious career-relevant reasons.  This very much included being forced to argue in favor of points of view with which, inevitably, one sometimes disagreed, sometimes strongly.  I figure if I can argue the other side's view better than they can, I've probably got a pretty decent shot at winning the argument. 

    Sometimes it seems as though Obama is too good at winning himself over to the point of view of his opponents.  He clearly seems to go to lengths not just to understand accurately what they are saying but also to try to find common ground and make a deal if at all possible.  At Chicago he would have been exposed to articulate conservative points of view (and the culture of the place greatly values civility and mutual respect among those with opposing views).  That would also have been true had he taught at any number of other places.


    by AmericanDreamer on Wed, 12/08/2010 - 3:18pm

    Sorry if you were offended but its not as though I said nothing good can come from Nazareth Chicago.  ;)

    We are all 'ideologically indoctrinated' every single day and not just by the media or our schools but by our friends, family and co-workers.  It is a totally human thing.  That is why I try very hard to understand the context of a politician. 

     


    by EmmaZahn on Wed, 12/08/2010 - 4:04pm

    Aah, your sunny optimism goes down like a cool glass of vodka. ... Make that a tumbler!

    There's just that premise underlying the way you put 'Obama' and 'fight' in the same sentence that has me wondering what you're drinking, Oxy...

    ;0)

    Kinda kidding, but I don't think Obama wants what you think he wants, or what you want tout court.

    Break up the banks? What? If he does that I'll do the chicken dance in a banana hammock on youtube. It would be nice, however, if he did something other than dither on the whole mortgage clusterfuck. He seems too afraid of upsetting the banks. One thing he could do - if you're more right about his values than I - is ease the procedures necessary for investors to put back all the bad MBS. That way the mortgages will be on the banks' own books, something that makes them MUCH more inclined to seriously restructure the loan.


    by Obey on Wed, 12/08/2010 - 3:18pm

    Obey, back to reality--those bad MBS. Well, if the banks got them back again they would again have to be stress--tested and found to be insolvent. Now that is sounding like two years ago when there were some actual ideas of restructuring the banks--good banks, bad banks, etc.

    Anyway, good points. I'll have another vodka on the rocks and hope for the best.


    by Oxy Mora on Wed, 12/08/2010 - 4:27pm

    My particular favorite of the Obama economic team, Larry Summers, is out screaming that the sky is falling, and warning of a double-dip recession if his boss's tax plans ain't passed.  Now, given that lots of economists are predicting the same thing because of state defaults, sovereign debt boomerang, and failure to fix all the clouded MERS mortagages, take your pick...it's pretty funny that this is part of the team that Obama credited with 'fixing the financial crisis for just a portion of what the S&L crisis cost' (which is to my mind the most fucked of the many fucked things he's said).

    I was trying to find a Black/Wray plan that addressed the TBTF banks, and prescribing an orderly was to straighten things out, while they werre still open for commercial business, where necessary, but i couldn't find it.  But I did find this, wich at least slightly on topic.

    http://neweconomicperspectives.blogspot.com/2010/10/no-mr-president-larry-summers-did-not.html

    I was going to comment on Obey's well-thought piece on Obama, and who he serves and all that, but bugger if i could remember whose blog it was on.  I just have been thinking about it, and ended up going back to the idea that we hired him to do a job for us.  Now it was by committee, or whatever, but we interviewed him, made him debate his fellow applicants, dug into his life and his family's lives, interviewed him again, and then cast our votes because of what he said he believed, and what he'd do in office.  Much of the team that backed him gave our time and our dollars and our writing and our sweat to get him the job.  No matter that latecomers may have voted against McCain and Palin; OUR TEAM WON. 

    Our team's guy won because a plurality of us decided that the guy before had priorities that sucked, and had done away with regulations even more than the guy before him; his team defunded regulatory bodies in which there were still regulations in place, and involved us in bogus wars that weren't about keeping us safe.  They broke the laws of our land, and broke international law, and screwed up education for our kids.

    And here came Our Guy, and we expected him to do things as he said he would.  We didn't worry that he wanted to be the President for all Americans, because he had told us he knew how best to do that, to enact fair trade laws, and pass EFCA, and enact bold fin-reg laws.  He told us he'd be the Education President, and the Sustainable Energy President, talk to our enemies in a bold new non-confrontational way.  We cheered him, and said we'd help.

    He disabled the network for his election, and didn't allow us to help push for things that would bring the country back to health.  We didn't name the things Left, Moderate, Libertarian, but SANE.

    And even when he chose Clinton retreads for his cabinet, and left lots of Republicans in his cabinet, we were sure he'd add some opposing viewpoints into his team.  The ones he did add, he allowed to resign if anyone objected to them from the Right.  Collectively, as time went on, most of us gave him a pass, full of the knowledge that he was playing chess, always a longer view in mind.  We collectively criticized the ones on our team who cried, "Whoa, Nellie; what's up with that?"  We enabled him for two years collectively.  And here we are today, pissed that he's still negotiating with the visions in his head, or now fully integrated into neo-Liberal economics frame of mind; who the hell knows?

    But the guy we hired just hasn't performed well for the nation, he hasn't used the crisis well.  And that's just wrong.  IMO, of course.  ;o)

    p.s. I don't know what a banana hammock is, but I'd love to see obey do any sort of chicken dance, especially Chicken-Scratch.


    by we are stardust on Wed, 12/08/2010 - 5:10pm

    Star, so Summers is out there selling the package. That should be enough to kill it.


    by Oxy Mora on Wed, 12/08/2010 - 5:30pm

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