Frontline's "The Warning" explains the roots of the financial crisis

PBS's brilliant Frontline really needs to be commended for its work in exposing the causes of the financial crisis. In a time when we can question the motivations of many in the news media, Frontline is not pulling any punches and is clearly party-neutral with respect to identifying the culprits in this calamity.

This week's program, "The Warning," chronicles the efforts of Brooksley Born, then the new head of the Commodity Futures Trading Commission (CFTC), to gain approval in the late 1990s to regulate credit default swaps and other types of complex derivatives that were largely responsible for the recent financial system meltdown. Her efforts were thwarted, however, due to heavy opposition from Clinton's triad of senior financial advisors: Secretary of the Treasury, Robert Rubin, his Deputy Secretary, Larry Summers, and Fed Chairman, Alan Greenspan.

Thanks to documentaries such this, it becomes painfully clearer all the time that we simply don't learn from our mistakes. Even though Ms. Born's concerns were proven to be valid during the very time that Congress was holding hearings on her powers -- thanks to the trillion-dollar meltdown of Long-Term Capital Management, the then-darling of the hedge fund industry -- the CFTC's regulatory authority was never expanded, and now we all know the consequences. Making matters worse, Obama has put virtually the same team that opposed Ms. Born into powerful positions in his own administration. Is there any wonder why more than a year has passed since the meltdown and no financial reforms have been implemented?

Here's a little additional background to keep in mind as you watch the episode:

1. Prior to becoming Sec'y of the Treasury, Robert Rubin was the CEO of Goldman Sachs. Hank Paulson, Bush's last Treasury Secretary, was also the former CEO of Goldman Sachs. Goldman's power and influence in Washington are extensive! Predictably, Goldman Sachs was the largest contributor to the Obama campaign, and continues to be the most blatantly opportunistic firm on Wall Street with respect to taking advantage of the absence of regulatory reform.
2. Two of Rubin's disciples, Tim Geithner and Gary Gensler (also ex-Goldman), are now, respectively, Secretary of the Treasury and head of the CFTC, which, again, is the agency that should be regulating derivatives, but isn't.
3. Rubin moved on from the Treasury to Citigroup, which was one of the sickest of the sick in the meltdown, with the result being the U.S. government supplying $100 billion in emergency aid and taking a 34% equity stake.
4. Following Clinton's final term, Summers moved on to the presidency of Harvard, where he was embroiled in one controversy after another. He was ultimately ousted by the faculty through a vote of no confidence. Too bad they didn't act sooner, though, as Summers' recommendations regarding investments in derivatives cost the Harvard endowment over $1 billion.
5. Summers made over $5 million last year from Wall Street connections, supposedly for doing speaking engagements and consulting approximately one day a week. He is now Obama's senior financial advisor, and frequent mouthpiece on financial policy. (Follow my "Larry Summers" link on the right to read some of my additional thoughts about Summers).
6. Greenspan ultimately retired, with his reputation now in tatters. He admitted this year before Congress that many of his most fundamental beliefs concerning regulation and the self-correcting powers of the markets, upon which his key decisions as Fed chief were based, were simply wrong.
   

Watch "The Warning" and draw your own conclusions. I'm sure you can probably guess, however, how I feel about our current president surrounding himself with a cast of characters who were so toxic to our way of life, and who seem to be in no particular hurry to put fixes in place.

Also outstanding is this video timelime of the events that set the stage for the financial crisis. Again, big kudos to Frontline.

Click here for Frontline's timeline.

It's About Principles: What the Republican Party Must Do

The following are the stated principles of the Republican Party:

• The Republican Party, like our nation's founders, believes that government must be limited so that it never becomes powerful enough to infringe on the rights of individuals.
• The Republican Party supports low taxes because individuals know best how to make their own economic and charitable choices.
• The Republican Party is supportive of logical business regulations that encourage entrepreneurs to start more businesses so more individuals can enjoy the satisfaction and fruits of self-made success.
• The Republican Party is committed to preserving our national strength while working to extend peace, freedom and human rights throughout the world.

I believe strongly in all of these principles, and yet, I have never voted for a Republican presidential candidate. (I haven’t always voted for the Democrat either, instead choosing to let my abstention speak for itself.) One would think that I would be easy game for the GOP, so why haven’t they been able to win me over? It’s not because their core principles are not brilliantly clear, sensible and powerful. Rather, it’s because Republicans never actually make their core principles the foundation of their platform, nor are they ever even able to achieve a unified vision of their platform across the various factions within their party.

The trouble with Republicans is not their passion for their core principles. It’s that they are usually even more passionate as individuals about something else, and they don’t know where to draw the line between beliefs about governance and beliefs about deeply personal life choices. What is especially unsavory to independent moderates about the conflation of these beliefs is that the personal beliefs that are most loudly proclaimed are often based on some form of intolerance, and they reek of hypocrisy in that they typically conflict with the core principles’ themes of individual responsibility, personal freedom, and limited government. Intolerance and hypocrisy also set you up to be a bad joke, as depicted in this video:





Rather than painting a clear picture of how legislation based on their core principles would create a better America, Republicans allow themselves to become fractured over issues concerning, for example, religion, abortion, gay rights, and in the case of Mitt Romney’s candidacy, whether they could accept a Mormon president, as if Mr. Romney’s faith mattered in the least to his potential job performance. Simply put, the Party has been a mess for a very long time, and it can only win the Oval Office when the Democrats hand it to them on a silver platter, as LBJ did with his aimless mishandling of Vietnam, as Carter did with his mishandling of the economy and our national defenses, and as Clinton did with his indiscretions, which elevated “moral values” to the #1 reason why people voted for George Bush in 2000. Winning by unifying against another’s weaknesses simply isn’t a sustainable long-term plan, because you have no strategy once the other guy is gone and you’re in control. You need a vision of your own, which is where core principles come into play. No principles, no identity. It’s that simple.

It took millions of independent moderates to put President Obama into office. I was among them. We all had our reasons for voting for him, but the lack of a good alternative was probably foremost. That, by no means, makes for a strong support base. Indeed, recent polls are showing that millions of independent moderates have withdrawn their support. Again, I am among them. This is going to open a door for Hillary in 2012 and for the GOP.

I believe that a healthy two-party system is critical, and that moderates need a voice within that system. Moderates are the swing vote, yet they are without a home. That needs to change, which is why I would like to see the Republican Party reform. If the GOP is going to become a viable alternative for moderates, it needs to have courage in its convictions and build a fortress around its core principles. Party members need to agree among themselves to shelve the social issues that ultimately divide the party and create an unacceptable environment for moderates. Accordingly, they need to develop a platform that focuses exclusively on matters concerning the prosperity, defense and welfare of the people. The GOP will never win if it is known as the anti-abortion, or anti-gay, or pro-prayer-in-school party. Certain right-wing factions within the Party would love such monikers, but they would be the kiss of death for the GOP. Party leadership needs to take control, purge intolerance from the agenda, and put the focus of the platform on the sound administration of the country. They need to go back to basics and stick to business. If they do, they might have a chance, and we might have an alternative for moderates.

Has the "Obama Bubble" Reached its Peak?

Having endured dot-com mania and the housing/credit crisis, we’re all starting to get pretty good at recognizing the signs of a bubble: lots of hype, no sense of proportion, free-flowing accolades and unearned reverence, irrational behavior, and endless exhibitions of wretched excess. Certainly, some of these bubblelicious signs apply to our president.

I really don’t think President Obama has anguished over how to inflate his image and get himself placed on a pedestal, but that’s precisely where many people, especially those overseas, have placed him. His charisma and promise of hope have bought him a very low bar. I'm sure, upon honest reflection, most people would admit that there has been little objective evaluation of his work thus far. However, we reached a tipping point today. The gap between his image and his qualifications and actual results became too wide and clear to be denied. With his premature “winning” (as if he actually wanted it) of the Nobel Peace Prize today, I think the pitfalls of this leader-as-pop-icon situation that the public has created have finally hit home, even with many of his most devoted supporters. Especially coming on the heels of the IOC "malfunction" in Copenhagen, one can’t help but wonder if today may have been the top for Obama – just like NASDAQ at 5132.52 on March 10th, 2000 – and that it may be all downhill from here. Of course, the Right expressed plenty of outrage today about the win being undeserved. However, I think this eerie feeling that the Obama bubble has been pricked is what’s giving so many others more of a feeling of loss today, rather than outrage. Truly, it’s sad when bubbles finally burst.

I think the obvious-to-all absurdity of today’s award was a wake-up call. It reminds us that we need to be realistic in our expectations and rigorous in our evaluations. Moreover, it reminds us that people in lofty places (e.g., the Nobel judges) can make foolish decisions or ones that are motivated to serve their own political aims, and that the rest of us need to stay awake at the switch in order to detect when they do. President Obama and the rest of our politicians are only human. They have strengths and weaknesses like the rest of us, and as our public servants, we should treat them with respect and realize that they’ll never do everything perfectly. Importantly, however, as we do with employees in the workplace, we must also diligently monitor and evaluate their work, and hold them accountable for their actions. Questioning is not a sign of being unsupportive. It’s helpful, as we learn from it, and it’s essential if we want to be our very best.

With the bloom off the rose a bit now, maybe we can take some of the emotion, dogma, and tribal warfare out of this presidency and get down to the objective administration of this great republic. Today may have actually been an important turning point for the better.

The Whole Foods Health Care Flap

So, this is the article from Whole Foods' CEO that created the big flap. Three main themes: government frugality, individual responsibility, and personal choice. How controversial! In order to consider these ideas some kind of betrayal of Whole Foods' customers' values, it seems to me that those who have their undies in a twist are making some very thin connections: healthy eating = progressiveness = liberalism = blind agreement with Obama's agenda. None of those connections are 1:1 (exclusive). Obviously, Mackey's experience leads him to have a different opinion about how to create a healthier America. Why not respect that, and use it as an input when evaluating our options? At least his experience is based on real-world interactions with real people who have experience using both socialized and free market health care systems. I wish we could say that Obama and Congress have experience grounded in reality, but we know that simply isn't true.

Click here for Wall St. Journal article.

Goldman CEO Warns Employees to Keep a Low Profile

From the New York Post:

Goldman Sachs CEO Lloyd Blankfein has warned his employess to avoid making big-ticket, high-profile purchases as the gold-plated Wall Street firm hunkers down amid a firestorm of public and political anger over outsize bonus payments.

According to sources at the bank, Blankfein has told Goldman staff that spending should be toned down in light of the billions in bailout money that banks, including Goldman, have gotten from Uncle Sam.

A source within the bank said Blankfein first began calling for an end to the conspicuous consumption late last year, but has stepped up his campaign in recent weeks as the White House has sought to rein in compensation and as the firm has gotten dinged by a pair of high-profile magazine articles.

"This is a sensitive time for us, and [Blankfein] wants to make sure that we're not being seen living high on the hog," said one Goldman exec.

Indeed, the exec said that senior managers were ordered to tell their staffs that just because Goldman made a record second-quarter profit of $2.3 billion, they shouldn't bank on getting a fat bonus just yet. Blankfein was quoted as reminding staff that bonuses are based on full-year results, and that the year is far from over.

Blankfein's admonishing of workers about profligate spending comes as the firm has been hit with a barrage of negative press lately over its uncanny ability to make money not only in the best of times -- but also the worst.

A Rolling Stone article referred to the firm as "a great vampire squid wrapped around the face of humanity," while a recent New York magazine piece floated the idea that Goldman benefited from the rescue of troubled insurance giant American International Group.

A spokeswoman declined to comment.

Goldman's speedy recovery in the wake of the global recession and the demise of many of its rivals has drawn more outrage than awe.

Observers question everything from the bank's massive pay to its uncanny ability to serve as a incubator for Washington policymakers. Goldman alumni include former Treasury Secretaries Henry Paulson and Robert Rubin, and Jon Corzine, the current New Jersey governor and former US senator.

Goldman accepted $10 billion in rescue funds from Uncle Sam to help it stay afloat last year amid a crisis of confidence on Wall Street but quickly repaid the money thanks to record revenues.

The Goldman exec said that while Blankfein was cajoling workers to cut back on their spending to avoid negative publicity, he was also playing cheerleader.

In a company-wide voice mail left last week, the CEO assured employees that management is "focused on addressing the negative news and that [Goldman] remains committed to integrity and excellence."

"I know you're all working hard," he added.

If this seems familiar, perhaps you're recalling the scene from Goodfellas in which Robert De Niro admonishes his crew members for going on spending sprees following their big Lufthansa heist. For your enjoyment:

Finally! Congress is Waking Up to Wall St. Market Manipulation

Everyone knows that Wall Street firms are using high frequency trading platforms to frontrun their own clients, yet no one is speaking out against it...until now. Thank you, Senator Schumer.



Click here for related article.

Daniel Hannan speaks about U.K. Health Care System

I love this guy. He's one of the most articulate and clearest-thinking politicians I know of. I wish he were American.

His cautionary tale about how Canada's "public option" morphed into a government-only program is very much in line with what I believe will happen here.