That is why it was all the more bewildering to have Sen. Dodd come to the gymnasium of the Cornwall Consolidated School on a beautiful spring afternoon for two hours and somehow manage not to utter a single word about the controversies surrounding his role as chairman of the Senate Banking Committee.
These are not exactly state secrets. There was the widely reported sweetheart or VIP mortgage loan from Countrywide Financial to the senator as well as the six-figure campaign contributions from the American Insurance Group whose executives, according to language Sen. Dodd wrote into a bailout bill, were entitled to large bonuses paid for with our tax dollars.
The organizer and moderator of Saturday’s forum, Harriet Dorsen, a member of the local Democratic Party committee, told the Lakeville Journal newspaper last week, “I think there are going to be a lot of tough questions.”
There weren’t. They were all softballs. Instead of the usual give and take, with citizens speaking their minds, all the questions had to be written out in advance on index cards and then submitted to the moderators. A contingent from the Lakeville Journal (including my wife, Cynthia, who is the newspaper’s executive editor) was on hand, armed with probing questions.
Category: History
On China’s Flying Culture
My trip was significantly less copacetic – due to “fog” (read: noxious pollution) at Pudong no planes were landing. Our evening flight was cancelled, and the the next day’s flight delayed three or four hours. We ended up circling in Shanghai, landing in Hangzhou first, deplaning, and only later flying back to Shanghai. Total trip time: 23 hours.
I observed in my flight mates a similar kind of resignation that you saw – but I don’t think it is due to any sort of calmness. Instead I saw a powerlessness in front of authority. Again and again people on the plane turned to me and asked me to call my embassy – saying “they will pay attention to you. But they don’t care about us Chinese”. One passenger (shanghainese) demanded that they hurry us to Shanghai because we had so many foreigners on the plane, and it was a major loss of face for China. The awareness and sensitivity to the poor treatment of local travelers reached a fever pitch when the biscuits and water came to us as we cooled our heels in Hangzhou. One passenger erupted in fury “Where did that Japanese tour group go? Have you given them better food? Have you given them *noodles*? How dare you!”
(The gate attendant’s response is a topic for a whole other post. She, a young and pretty woman with trendy heavy glasses and a bejeweled mobile phone, turned to the angry passenger and said “of course we haven’t given the Japanese noodles! We will never forget the Nanjing Massacre!”….)
East Germany, Up Close and Personal
When a West German photographer set off on a trip to the East German island of Rügen just after the Wall fell in the spring of 1990, he captured a world that would soon disappear forever. Twenty years after the epochal event, he looks back on his journey in a first-person account.
I remembered the painting from art class in school: The Chalk Cliffs on Rügen, by Caspar David Friedrich. It seemed legendary to me. On the one hand, I was fascinated by the colors, the pinks, the grays, the greens, and the shimmering blue of the water contrasting with the luminous white chalkstone. On the other hand, I was convinced that although I could always see the painting, I would never be able to contemplate the same scenery in reality. I wondered whether the landscape on the island of Rügen truly resembled the painting. It was a mystery to me.
McCain in Hong Kong & Vietnam
His performance in Vietnam was particularly intriguing. He knows the country well and is treated almost as a celebrity – a reflection of both the quirks of history, and his moral and political courage, qualities that helped propel his White House run.
Senator McCain spent five years as a prisoner of war in Hanoi at the height of the Vietnam conflict, having been shot down and crashing his jet fighter into a lake on the edge of the capital. His vivid descriptions of being tortured – he refused offers of early release as the son of a leading admiral – did not stop his efforts years later. He not only returned to enemy territory but, as a prominent and hawkish Republican, played a key role through the late 1980s and 1990s in America’s long delayed reconciliation and normalisation with its victorious opponent.
In his political twilight, Senator McCain could be forgiven for resting easy during his first return to the Vietnamese capital in five years. Despite political and social differences, the two countries are open to trade and investment, and have taken the first steps to a military relationship – a pipe dream just a decade ago.
He remains restless, however. In a speech to the country’s diplomatic academy, he passionately urged both nations to get even closer. “Today, the hardest work of normalisation is behind us. The time has come, I believe, for us to move from the normalisation of our ties commensurate with Vietnam’s rising status in the region and the world. We should not simply rest on our laurels and allow the relationship to plateau. It is time to take the next step.”
Pirates and the CIA: What would Thomas Jefferson have done?
“It was the sixth such attack this week and one of 66 this year by Somali pirates, a collection of shrewd businessmen and daring opportunists who have pulled off a series of spectacular seizures using high- and low-tech gear, from satellite phones and rocket-propelled grenades to battered wooden skiffs and rickety ladders,” the Washington Post reported today about the attack on a U.S.-operated container ship. “In the past year, their booty has included the MV Faina, a Ukrainian ship loaded with tanks and antiaircraft guns, and the MV Sirius Star, a 300,000-ton, 1,000-foot-long Saudi oil tanker that is the largest ship to be seized in history.”
For months, a former senior CIA officer has been telling me that pirate activity off Somalia was a problem that needed to be aggressively dealt with. By chance, I had a meeting with him yesterday as the Maersk Alabama hijacking was unfolding. Here’s what he had to say (he updated his remarks today):
The American response to date has been incredibly naïve and woefully ineffective. Now, predictably, you have an American taken hostage. All of which should have been prevented. You’ve got a failed state in Somalia and pirates operating in an area of ocean that is larger than the state of Texas but we’ve been trying to deal with this from the ocean side, by sending the navy and with a limited application of technology, such as satellites and drones. We can’t afford to patrol that big a piece of the ocean; it’s too expensive to leave a naval task force out there.
The Quiet Coup
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
Fed & Treasury: Putting off Hard Choices with Easy Money (and Probable Chaos)
Brief remark – from early reports regarding the toxic assets plan, it appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 7% of the purchase price, with the TARP matching that amount – the remainder being “non-recourse” financing from the Fed and FDIC. This essentially implies that the government would grant bidders a put option against 86% of whatever price is bid. This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.
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Last week, the Federal Reserve announced its intention to purchase a trillion dollars worth of Treasury debt by creating the little pieces of paper in your pocket that have “Federal Reserve Note” inscribed at the top. In effect, the Fed intends to monetize the Treasury debt in an amount that exceeds the entire pre-2008 monetary base of the United States.
Apparently, the Fed believes that absorbing part of the massively expanding government debt and maybe lowering long-term rates by a fraction of a percentage point will increase the capacity and incentive of the markets to purchase risky and toxic debt. Bernanke evidently believes that the choice between a default-free investment and one that is entirely open to principal loss comes down to a few basis points in interest. Even now, the expansion of federal spending as a fraction of GDP has clear inflationary implications looking a few years out, so any expectation that long-term Treasury yields will fall in response to the Fed’s buying must be coupled with the belief that investors will ignore those inflation risks.
How Rich Countries Die
This is a book report on The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, by Mancur Olson. There isn’t a whole lot about how nations pulled themselves out of their medieval stagnation (see A Farewell to Alms for that), so a better title for this still-in-print book from 1982 would be “How Rich Countries Die.”
Table 1.1 shows annual rates of growth in per-capita GDP for each of three decades, the 1950s, 60s, and 70s, in a range of rich countries. Contrary to our perception of the U.S. as a growth dynamo and the Europeans as sclerotic, France and Germany tremendously outperformed the U.S., as did most of the other countries. If we have grown larger it is because our population has expanded much faster than the European countries.
Chapter 2 summarizes Olson’s groundbreaking work on how interest groups work to reduce a society’s efficiency and GDP. Some of this work seems obvious in retrospect and indeed Adam Smith noted that businessmen rarely met without conspiring against the public interest. There are a handful of automobile producers and millions of automobile consumers. It makes sense for an automobile company, acting individually, to lobby Congress for tariffs. The company will reap 20-40 percent of the benefits of the tariff. It doesn’t make sense for an individual consumer, however, to lobby Congress. It will cost him millions of dollars to lobby against Congress and preventing the tariff will save him only a few thousand dollars on his next car purchase. The economy suffers because some resources that would have been put to productive use are instead hanging around Washington and because cars are more expensive than they should be.
Slaughtering sacred cows: it’s the turn of the unsecured creditors now
Why are the unsecured creditors of banks and quasi-banks like AIG deemed too precious to take a hit or a haircut since Lehman Brothers went down? From the point of view of fairness they ought to have their heads on the block. It was they who funded the excessive leverage and risk-taking of banks and shadow banks. From the point of view of minimizing moral hazard – incentives for future excessive risk taking – it is essential that they pay the price for their past bad lending and investment decisions. We are playing a repeated game. Reputation matters.
Three arguments for saving the unworthy hides of the unsecured creditors are commonly presented:
Buffett Speaks Against the Obama Splurge
BUFFETT: …And, Joe, it–if you’re in a war, and we really are on an economic war, there’s a obligation to the majority to behave in ways that don’t go around inflaming the minority. If on December 8th when–maybe it’s December 7th, when Roosevelt convened Congress to have a vote on the war, he didn’t say, `I’m throwing in about 10 of my pet projects … [snip] …
JOE: Yeah, but you might–might not have fixed…
BUFFETT: But I say…
JOE: You might not–you might not have fixed global warming the day after–the day after D-Day, Warren.
BUFFETT: Absolutely. And I think that the–I think that the Republicans have an obligation to regard this as an economic war and to realize you need one leader and, in general, support of that. But I think that the–I think that the Democrats–and I voted for Obama and I strongly support him, and I think he’s the right guy–but I think they should not use this–when they’re calling for unity on a question this important, they should not use it to roll the Republicans all.
More from Shailagh Murray.