Bill's Big Diamond Blog

Hosie Miller: Shirley Sherrod's Father

Philadelphia blogger Will Bunch adds context to Shirley Sherrod's civil rights work. How much more amazing that she struggles for understanding and reconciliation after her father was murdered in a racially-tinged dispute... and no authority even opened a case to redress it.

The 99ers— Over a Million and Growing

As if we had to ask, here's how bad it is (according to Annie Lowrie's piece in the Washington Independent):

The joblessness crisis — in the average duration of unemployment, if not the absolute unemployment rate — is unprecedented in the postwar United States. Of the 15 million unemployed in America, over 7 million have been out of work for more than six months, nearly 5 million for a year and over 1 million for two years — the worst statistics since the government started keeping count in 1948.

Souter Speaks on How the Court Decides

Linda Greenhouse hopes that retired SC Justice David Souter will continue to share his thoughts in public as a guide to his thinking on the bench. His recent Harvard commencement address included the following statement on why the court does more than parse the Constitution for a "fair reading:"

The reasons that constitutional judging is not a mere combination of fair reading and simple facts extend way beyond the recognition that constitutions have to have a lot of general language in order to be useful over long stretches of time. Another reason is that the Constitution contains values that may well exist in tension with each other, not in harmony. Yet another reason is that the facts that determine whether a constitutional provision applies may be very different from facts like a person’s age or the amount of the grocery bill; constitutional facts may require judges to understand the meaning that the facts may bear before the judges can figure out what to make of them.

To Regulate or to Break Up the Banks

Paul Krugman writes today about financial services reform and the debate among those who support it over whether "too big to fail" is the real issue. Krugman comes down on the side that TBTF isn't the issue, that the real problem is the lack of regulation. On the other hand, Krugman notes that former Fed Chairman Paul Volcker believes that the rise of megabanks has created the problems that led to the crisis of 2007-8.

Those who want to understand financial reform should read Simon Johnson and James Kwak's new book, 13 Bankers , which suggests that both issues need to be confronted. The rise of the megabanks evolved out of a constant loosening of bank regulation over the period from the mid 1970s onward, sped by the Reagan Revolution and a financial industry intelligentsia that believed in free markets as the answer to any question. These minds had the attention of the Reaganites, who wanted to unleash the power of the markets in all areas and hated regulation per se.

Out of this era, we got a constant drip of new products like derivatives and "innovative" mortgages, securitization of mortgages, eventually leading to "synthetic" securities, that related to the price of real securities based on real mortgages no longer held by the banks who lent the money originally. No one really tightened up on any banking activities, even after the savings and loan crash of the 1980's, when the regulatory agency that let the S&Ls run amok was replaced by another regulatory agency that let their successors run amok.

But then the whole banking industry changed even more since the 1990's, when the financial moguls were allowed to merge all of the operations of investment houses and old-fashioned retail banking into the megabanks. The combination of the companies we used to know in the United States into six enormous financial services giants has now been accomplished. What's more, their share of the economy has increased to the point where there is more activity around money than is healthy for a nation built on industry, not banking. It's not surprising that a sector that's become too large to serve the real economy has to create more and more complex products (like those that brought down the markets), in order to sell them to an economy that, relative to banking, isn't growing.

So, in a nutshell, Johnson, the former head economist at the IMF, and his colleague Kwak, an economist and former McKinsey and Company consultant, argue that both old-fashioned regulation and limiting bank size are necessary together. While Krugman would argue in favor of regulation alone, Johnson and Kwak point out that regulation works less and less well as the regulated industry grows bigger and more powerful. In our case, financial services fees actually fund the regulators, while companies have a choice as to which of the many agencies they'd like to be regulated by, making it nearly impossible for the agencies to get tough on their funders.

What's needed, Johnson and Kwak say, is a new turn in our economic and political belief system, similar to the one Teddy Roosevelt pushed a century ago, when he argued for breaking up the trusts. If the US moves towards a system of well-regulated and boring banking, like the kind we had for half a century in the post-depression economy, coupled with a willingness to limit the size of any banking institution to that which is less than "too big to fail," we may once again step back from the brink of bubble and bust economics.

Healthcare Reform- The Tea Party Viewpoint

It's likely that today will finally be the decisive vote on healthcare reform. Over thirty million Americans currently lack health coverage and a good many more are losing insurance along with their jobs. Beyond this, lots of people who pay for health coverage find their insurance won't compensate them when they need it most, either through rescission or because their illnesses are categorized as pre-existing conditions. The reform bill will address these conditions.

While healthcare reform could have done more to lower costs and provide an affordable public option, the moderate provisions that remain in the bill are still intensely controversial. The resistance to reform has engendered a backlash on the right that has taken to the streets. Erick Stoll and Chase Whiteside, two students at Wright State University, produced this terrific coverage of the last Tea Party gathering against healthcare reform in Washington this past week. It's worth a few minutes to check out the sort of sloganeering that's passed for argument in opposition to any serious reform of the system.

If you value Stoll and Whiteside's coverage, support their work here.

Reform in the Balance

Paul Krugman sums up the situation on health care reform nicely in his column today. It's decision-time. A few months back, we almost had an imperfect, but enormously significant reform which had passed both houses of Congress. Now, we might just get almost the same package passed, finally. It's up to a few members of Congress to step up.

The alternative, as Krugman points out, is more of the same bone-crunching cruelty that is health insurance today in America. People get thrown off the rolls when they become ill, are undercovered or not covered at all when they are well (or at least think they are), and are paying premiums without knowing whether they'll be honored when it counts.

This weekend should finally tell whether the United States joins the ranks of every other developed nation in providing for reasonably universal coverage, whether imperfectly or not.

One way or another, the fate of health care reform is going to be decided in the next few days. If House Democratic leaders find 216 votes, reform will almost immediately become the law of the land. If they don’t, reform may well be put off for many years — possibly a decade or more.

Regulating Derivatives

Anyone who has spent time trying to understand the financial meltdown of 2008 has learned about derivatives and credit default swaps. What the general public probably hasn't learned is that nothing has happened since the markets went haywire to make the complicated and opaque derivatives market safer. No new regulatory legislation has passed and the legislation that has been introduced has loopholes big enough to burst a bubble in.

Today's NY Times editorial sheds some additional light on why derivatives need to be regulated and how the financial lobby has worked to prevent effective regulation from getting in the way of their lucrative— and unsafe— market in exotic products:

A big part of the problem is that derivatives are traded as private one-on-one contracts. That means big profits for banks since clients can’t compare offerings. Private markets also lack the rules that prevail in regulated markets — like capital requirements, record keeping and disclosure — that are essential for regulators and investors to monitor and control risk...

The big banks claim that derivatives are used to hedge risk, not for excessive speculation. The best way to monitor that claim is to execute the transactions on fully regulated exchanges, pass rules and laws to ensure stability, and appoint and empower regulators with independence and good judgment to enforce compliance.

Without effective reform, the derivative-driven financial crisis in the United States that exploded in 2008, and the Greek debt crisis, circa 2010, will be mere way stations on the road to greater calamities.

Putting the Fear Back in Fundraising

If you were wondering what's wrong with Washington, check out this little tidbit. While creating jobs and keeping Americans in their homes has taken a backseat to posturing over who's to blame, election-year fundraising is in the ascendancy.

Case in point:

A Republican left RNC Finance Chairman Rob Bickhart's how-to-fundraise Powerpoint presentation in a hotel ballroom in Florida on February 18. Politico's Ben Smith reports on its contents.

In neat PowerPoint pages, it lifts the curtain on the often-cynical terms of political marketing, displaying an air of disdain for the party’s donors that is usually confined to the barroom conversations of political operatives...

The presentation explains the Republican fundraising in simple terms.

"What can you sell when you do not have the White House, the House, or the Senate...?" it asks.

The answer: "Save the country from trending toward Socialism!”...

In a section called "RNC Marketing 101," the following categories and motivations for giving were outlined:

"...small donors who are the targets of direct marketing are described under the heading “Visceral Giving.” Their motivations are listed as “fear;” “Extreme negative feelings toward existing Administration;” and “Reactionary.”

Major donors, by contrast, are treated in a column headed “Calculated Giving.”

Their motivations include: “Peer to Peer Pressure”; “access”; and “Ego-Driven.”

Scott Brown

Frank Bruni's NY Times Magazine piece on Scott Brown makes one think more gently of the new Senator from Massachusetts. While Brown says little in his interview with Bruni to change a general impression of intellectual shallowness and political opportunism, he is nonetheless a subject engendering personal sympathy. I'm not sure that's what Brown was going for as he embarked on a career in the US Senate, but while the Republican flavor-of-the-month isn't going to win any policy initiative contests, his personal history makes for great copy.

The weird stuff we've all heard about, the Cosmo centerfold, the reckless insinuations about the President's parentage, setting up the general public with his daughters, this stuff isn't really better understood after reading Bruni's piece. What is interesting, however, is the illumination of a childhood seriously lacking in male role models, coupled with Brown's ability to overcome lots of emotional (and physical) blows to his young pysche. Brown, like Bill Clinton or any number of love-starved political stars, seems to have started out as the kind of kid you couldn't help rooting for, a boy who managed, despite a troubled childhood, to make good and to win over teachers and neighbors, who helped him to become a successful adult.

One wonders if we wouldn't all be better off if guys like Brown (or Clinton) ended up as grownups helping to resolve the personal and societal issues that made them who they are, perhaps publicizing efforts to combat domestic violence or promoting summer educational programs, instead of looking for substitute love from the electorate. But, hey, that's American politics— and we'll probably see guys like Brown forever, till we get off the politics-as-celebrity kick...assuming that ever happens. Meanwhile, we're taking bets that Brown's dysfunctional story hasn't completely played out in public yet...

Check it out here.

Media Economics Coverage Needs Overhaul

Henry Banta at the Nieman Watchdog blog has written an important piece on assessing the media's role in responding to the current economic mess we are in. It's must-reading and points to how we must demand more good coverage of smart economic thinking, especially now that the free markets/efficient markets mantra has led us to rack and ruin. Here's an excerpt:

What seems most difficult for the media to comprehend is that the economic collapse was an intellectual failure. It followed from an unquestioning faith in an economic theory that was simply wrong. It produced an economic policy that was explicitly grounded on false assumptions. But the nostrums of this failed policy have been the unquestioned basis of our economic policy for thirty years. They were translated into political mantras that were endlessly chanted by our political and economic leaders. The notion that they led us into a disaster has not sunk in to the public mind, much less that of the media. The media find it safer to avoid the basic economic issue and treat it all as a matter of politics. We have yet to hear David Gregory on Meet the Press, or any of his colleagues, ask a Republican leader how their current policies differ from those of George W. Bush or why we should expect them to produce different results.