The right eloquence needs no bell to call the people together and no constable to keep them. ~ Emerson

Monday, March 30, 2009

Bellowing at Populism

During the end of the 2008 Presidential campaign, Republicans attempted to besmirch Democratic candidate Obama as an economic socialist. The charge seemed too excessive and desperate. It never caught on outside the GOP core.

However, since the widespread public backlash over AIG and other TARP recipients paying out bonuses, as well as the backlash against the backlash by pro-business pundits, conservatives may have found a more effective brush with which to tar the Obama Administration by accusing them of radical populism.

If you are a Republican governor and considering a run for President in 2012, the latest way to demonstrate rock-solid conservative principles is to refuse part of the federal TARP funds – even in the face of criticism from others in your state and Party.

Back on March 11, Governor Mark Sanford of South Carolina was the first to announce his intention to accept only some federal money. Now Governor Sarah Palin of Alaska, writing in the Anchorage Daily this past weekend, will turn down some of the funds for her state.

In my own state of Ohio, the Campaign to Protect Ohio’s Future, a coalition of health, human-services and education organizations, commissioned Hart Research Associates to conduct a poll about voter attitudes toward state taxes and social services. Ohio has cut income tax rates by twenty-one percent since 2005. Fifty-seven percent of those surveyed favored “a budget proposal that would roll back some recent cuts in state income taxes, increase income taxes on those with incomes over $200,000, and increase some business taxes to avoid service cuts.”

Under the state budget currently under consideration, there would be cuts in aid for mental-health services, child protective services, home nurse visits to at-risk infants and subsidized childcare for working poor parents. What is more, many consider aid for food banks insufficient to meet the unprecedented demand.

Rather than embracing majority support for a potentially politically unpopular move, the Columbus Dispatch reports Democratic Governor Ted Strickland has recoiled from it instead. “The Governor does not believe a tax increase at this time would be productive,” stated a spokesperson. “He believes we have to live within our means.”

One of the things Republicans have done very successfully over the past three decades is to caste populism as foolish and irresponsible, rooted in extremist fringe viewpoints and militant rage. Almost on cue, Washington Post columnist E.J. Dionne pops up this morning to defend the Obama Administration against such a charge. Despite a plethora of new regulations on business proposed by Treasury Secretary Tim Geithner last week, Dionne reassures that Obama and his crew are not practicing a form of anti-capitalism but rather pragmatism.

For example, Geithner’s plan to get billions of dollars in toxic assets off bank ledgers involves extending huge low-risk loans to private investors so they can buy high-risk assets at a discount with the chance of making big profits. Yet leverage is exactly what ended up making these assets so toxic in the first place. What gives?

Economist John Geanakoplos of Yale University argues the economy regularly experiences “leverage cycles.” When credit tightens, the market overreacts to the easy borrowing and repayment terms prevalent during better times. Per Geanakoplos, we are currently in the midst of the harshest leverage cycle since World War II. Geithner’s approach is to avoid trading one extreme for another, instead, replacing previously out-of-control borrowing with pragmatic levels that would have prevented a panic-driven collapse.

It all sounds good in theory but many progressives worry that Democratic politicians are too in love with the idea of moderate sensibility and this may be holding back the Obama Administration from doing enough to enact the change they promised and won election to deliver.

Columnist Paul Krugman continued his grump in the New York Times last Friday. “It has become increasingly clear over the past few days that top officials in the Obama Administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.”

Charles Geisst, the author of several book on Wall Street and debt, suggested in the Washington Post two Sundays ago that just as there are leverage cycles, so there may be populist cycles as well. Public outcry against greedy businesspeople and corporate behemoths is nothing new but companies usually seem to weather hostile periods without any permanent harm. Cycles of greedy stupidity by business, followed by short periods of excoriation by the public, and completed by a broad amnesia that allows repetition are common and perhaps unavoidable.

Conservative policies of recent decades, whatever else they may have done, were beneficial in failing to demonstrate beyond repute that small government and deregulation would cause business to police itself, a phenomenon the increased competition of globalization would only encourage. Why then are so many finding support when resisting increased government regulation and intervention? One answer is the effective demonization of populism by the right.

Another answer may be the perversion of one of the most useful inventions of capitalism and free markets – the publicly held/traded corporation. A Board of Directors is the ultimate authority in such businesses, meant to ensure that management remains answerable to ownership (i.e. shareholders). In practice, Boards have often become buffers, used to obfuscate management intentions and place obstacles before owners’ attempts at intervention.

Billionaire financier Carl Ichan, noted in Saturday’s New York Times, “Perhaps one silver lining to [the AIG] debacle is that it will finally alert Washington to the lamentable state of corporate governance in America . . . the rights of the shareholders are quite circumscribed . . . The legal landscape is filled with devices designed by state legislators and courts to prevent shareholders from influencing how companies are run and so allow management free rein.”

Ichan believes three simple changes could cut through much of the red tape. First, the SEC should allow “proxy access,” whereby shareholders could solicit votes for the election of their nominees to a company’s Board of Direction by including the names and other relevant information about those nominees in the company’s annual proxy statement. Second, allow “say on pay” resolutions, voted upon by shareholders, which would more than merely advisory. Third, permit shareholders to move the corporations they own to another state, one with less entangling laws designed to protect management, by a simple majority vote.

Granted, there are dangers involved in moving from free-market capitalism to a kind of social democracy. Crowds are easy to sway in the tumult of the moment in ways that contracts and long-established procedure resist.

What is more, the unwashed masses are no less likely than the privileged and powerful to desire having things both ways. For example, Rasmussen Reports recently found that eighty-one percent of Americans oppose Congress raising taxes retroactively. Yet fifty-seven percent simultaneously favor enacting taxes designed to wipe out AIG and other bailout bonuses.

Still, conservatives eager to save us from ourselves fiscally have seldom shied from populism when it favored them. Even as courts, reflecting changing social norms, steadily affirm equal rights and equal protections for homosexuals, social conservatives have been quick to jump on hot button issues, such as gay marriage, in populist state constitution referendums, often in the name of protecting values or higher moral standards.

Opening up the misbehavior that sometimes happens in business to greater transparency and oversight is likely to catch it more quickly and deal with it more effectively than attempting to restrict it out of existence, as columnist Gordon Crovitz argues in today’s Wall Street Journal.

And as his liberal colleague Thomas Frank wrote last Wednesday, “The mountebanks and charlatans are not the populists but the responsible-looking CEOs who ran the country's financial institutions into the ground . . . and who will demand to do business the old way as long as they have breath to bellow.”

Friday, March 27, 2009

A Bulls-Eye on Their Backs

Earlier this week, Treasury Secretary Tim Geithner attempted to lure investors, such as hedge funds, into partnering with the federal government to buy toxic assets off the books of financial institutions by offering to split the profits if they gained in value, while pushing up to ninety-three percent of the risk onto taxpayers if they did not. Yesterday, he laid out the real price to Wall Street for past improprieties in the form of extensive new market regulations.

The Obama Administration previously laid out restrictions on compensation and other rules for firms receiving bailout money. Geithner’s new proposals were far more substantial and aimed at “restoring faith in the financial system,” according to one official.

Just as many deemed AIG “too big to fail,” hedge funds are pivotal to the Obama Administration’s plans to clean up toxic assets. They attract the only investors likely willing to assume the huge risks associated with buying these securities. As expected, hedge fund managers reacted positively to Geithner’s taxpayer underwritten purchase program. They were not hostile but decidedly cautious about new regulations.

“You don't want to paint a bulls-eye on your back,” Steven Persky, Managing Partner of Dalton Investments, a Los Angeles hedge fund, joked nervously.

If Wall Street is doubtful about new regulations but feeling too chastised to complain, conservative thinkers are feeling no such restraint. Just as AIG bonuses triggered a populist backlash, rightwing pundits are now lashing back against the backlash.

On Thursday, Wall Street Journal columnist Daniel Henninger was blunt and vitriolic. Between Congress’s attempts to tax AIG bonuses out of existence and the White House’s proposed regulations, Henninger declares, “The national Democratic Party has disconnected itself entirely from the private sector . . . how it works or what it needs to function.”

Henninger sees an out-of-control progressivism that goes even beyond the current populist anger in the streets. “A Democratic Party that was always anti-Wall Street is becoming anti-Main Street.”

One day earlier, Jake DeSantis, an Executive Vice-President in AIG’s troubled Financial Products unit, anointed himself poster boy for the populist backlash’s backlash when he submitted his resignation to AIG CEO Edward Liddy in the pages of the New York Times.

DeSantis is one of those who received a $1 million plus bonus and now asked to give it back or face government retribution. He considers others and himself “betrayed by AIG” and “unfairly persecuted by elected officials.” DeSantis explains he was never responsible for any of the credit default swaps that brought down AIG and imperiled the entire economy.

In 2008, AIG placed him in the Financial Products unit and asked to help clean up the mess by dismantling it. DeSantis agreed to do so for an annual salary of $1, with the understanding he would receive a large bonus upon completing the twelve-month assignment.

DeSantis notes, “Like many others here, I lost a significant portion of my life savings in the form of deferred compensation invested in the capital of AIG.” He regards this as a risk fairly taken that failed to pan out. However, the loss of his bonus represents a broken contract/promise, creating “too much bad blood” for him to continue.

If you have not read DeSantis’s resignation letter in full, I urge you to do so. It is remarkable in its frankness, its civility, and its attempt at fairness. Having lost my own job in 2007, after twenty-three years with my company, I understand how hard the combination of lost income and trust must have hit DeSantis.

However, I took special note of other excerpts within his letter as well.

“On March 16, I received a [bonus] payment from AIG amounting to $742,00 after taxes . . . The profitability of the businesses with which I was associated clearly supported my compensation.”

“I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust.”

“Many of [us] have, in the past six months, turned down job offers from more stable employers.”

Forty former co-workers in my old company will lose their jobs next week. They spent their careers creating software that allowed clients to assure revenue streams from their customers. There was no question about the quality of their work and their unit always made a modest profit. However, the push for lower rates from clients resulted in the decision to replace them with cheaper, offshore India contractors.

Unlike DeSantis, few of them face the prospect of multiple job offers from other, more stable employers. Most can expect to be unemployed for months.

Unlike DeSanits, few have adequate savings to make mortgage payments or continue their healthcare coverage premiums through COBRA while unemployed. Many will have no option but turn to credit cards and other forms of debt almost immediately.

Particularly unlike DeSantis, I guarantee not one of them ever had a post-tax annual salary equal to even one-tenth of his disputed bonus.

DeSantis is correct that AIG made a decision that betrayed him but he has misidentified the decision. It came not when AIG bowed to hostile political winds and asked for the return of his bonus. Instead, it came when AIG bowed to hostile economic winds and chose to accept federal bailout money to avoid bankruptcy. DeSantis made his contract with AIG but is now calling on taxpayers to honor it.

I view DeSantis as a decent man. He is a case of a Wall Street executive with a bulls-eye painted on his back. However, it is clear he has at least three feet of straw and cotton padding underneath his bulls-eye; he can take quite a few arrows without feeling any pain beyond his own indignation. My former co-workers just got bulls-eyes painted on their backs and the first well-aimed arrow will pierce a vital organ on them.

I fully empathize with DeSantis but have extremely little sympathy for him. This is a triage situation, where degree of need alone dictates who receives treatment and who waits, who gets the morphine and who suffers. No matter how deeply his experience cut DeSantis, there are bodies lying on the floor all around him, missing limbs and spewing arterial blood. That he has a year-old piece of paper promising him a band-aid for being a good soldier ought not to be our top concern.

As regards his bonus, DeSantis announced his “intent is to keep none of the money myself.” However, rather than turn it back in, DeSantis plans to donate it “directly to organizations that are helping people who are suffering from the global downturn.” He explains this course of action by saying, “I at least deserve to dictate how my earnings are spent.”

He also adds the following disclaimer, “In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less – in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to ninety percent stands.” Whatever happens, rest assured DeSantis will be all right. He has been on top of the food chain too long to engage in altruism without first hedging his bets.

The unintentional, subconscious hubris in DeSantis’s well-intention proclamation is exactly why President Obama is correct in saying a sense of entitlement, combined with greed, is the true root cause of the current crisis.

In his resignation, DeSantis notes with pride that he comes from poor, working-class parents and achieved success through education and hard work. “I . . . fulfilled my American dream,” he proclaims. In a fairer world, he would get his reward. Unfortunately, it is not a fair world. Unlike DeSantis, many have not achieved their dreams and more still lacked even a chance to start following theirs.

So if you find a bulls-eye painted on your back, consider it may mark you as one of the lucky ones. And if you happen to work in high finance, look on the bright side – a bulls-eye is probably the only bull that Wall Street is likely to see in the immediate future.

Wednesday, March 25, 2009

Fear of Commitment

Late night talk show host David Letterman married his girlfriend Regina Lasko last weekend and was back to work Monday night to announce it on the air. Nothing unusual there – people get married impromptu all the time. The two have a five-year-old son together. Nothing unusual there either – many couples establish a stable home life before making their togetherness official these days.

On his program, Letterman mentioned that Lasko and he began dating in February of 1986. Twenty-three years and one month of dating before deciding to tie the knot? Now that is a bit unusual. Letterman is surely the epitome of an old stereotype – a male with a fear of commitment.

Letterman showed plenty of staunchness after finally making up his mind. When the couple’s truck got stuck in the mud on the way to a Montana courthouse – a scenario providing an easy out for a queasy groom – Letterman walked two miles into a headwind to find a phone and call roadside assistance. If you know his bio, Letterman’s feelings for Lasko were not the source of his hesitation but rather lingering trepidation over his first go at wedlock.

In 1969, Letterman married his college sweetheart. The marriage was reportedly very unhappy and ended with a bitter divorce in 1977. An intelligent and naturally gloomy man, the episode poisoned Letterman on the idea of marriage. It took many decades for the toxic assets accumulated on his ledger to finally clear out and allow optimistic commitment to flow freely again.

U.S. Treasury Secretary Tim Geithner revealed himself as a man of economic romance this week, pitching woo to private investors to get banks and other financial institutions lending again – a key development necessary to jump-start our ailing economy. He is likely to find a fear of commitment in investors that David Letterman could readily appreciate.

After the housing bubble burst, U.S. banks found their ledgers filled with bad mortgages and other toxic assets – dubbed “legacy assets” by the Obama Administration – that dampened their willingness to write new loans. This disrupted the flow of capital necessary to finance the entire economy.

Geithner’s plan is to form a partnership between the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation that will buy up $1 trillion of the estimated $2 trillion toxic assets currently held by banks. However, the plan also relies on private money from institutional investors, such as hedge funds. For every dollar of toxic assets purchased, the private sector would put up seven percent, the government would match another seven percent, and a government loan would cover the bulk.

By collaborating with private investors and loaning the money rather than just purchasing the assets outright, the government attempts to minimize risk to taxpayer money. What is more, if the value of the toxic assets increases over time, government would split the profits with investors, providing an incentive for them to participate.

Even so, the plan is expensive. Geithner will use $75 billion to $100 billion of the remaining $700 billion TARP money to pay for it. And it might not work. If the value of toxic assets fails to rise or even declines, both taxpayers and private investors would eat the losses. After getting burned by bad mortgages in recent years, investors may be too uneasy to cuddle up in a long-term relationship with them now.

Two factors complicate matters further. First, it is extremely difficult to price these toxic assets. Writer Hernando de Soto explains why in an op/ed piece for today’s Wall Street Journal. In 2000, there was about $100 trillion worth of commercial paper floating around the economy, mostly representing tangible goods. Since then, financiers have issued nearly $1 quadrillion worth of new paper, mostly in the form of derivatives, such as mortgage-backed securities and credit default swaps. Unlike other commercial paper, derivatives are unregulated and untraceable back to the assets they represent.

Second, whatever these toxic assets are really worth, we can depend upon banks and the other financial institutions holding them to insist they are worth far more than speculative investors are likely willing to pay for them.

None of this deterred Geithner from going down on bended knee Monday in the pages of the Wall Street Journal and begging private investors to make him the happiest man in the world. “We still have a diverse and resilient financial system,” Geithner affirmed. “However, the financial system as a whole is still working against recovery . . . While this crisis was caused by banks taking too much risk, the danger now is that they will take too little.”

“Over time, by providing a market for [toxic] assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets.”

To be sure, the congregation cheered the announcement of the bans. The Dow was up nearly five hundred points on Monday and retained about three-quarters of it despite a drop on Tuesday. However, there was plenty of murmuring among parishioners over their doubts of hearing any actual wedding bells.

John Irons, Research and Policy Director at the Economic Policy Institute, tried to put on a glad face while remaining realistic. “The new plan could work. There was once a vast amount of money in these assets and restoring that market through risk-sharing and guarantees could help stabilize the financial system. But it could also fizzle – the assets might really be worthless (or close to it) and no public-private plan can change that.”

Shannon Zimmerman, Senior Analyst at the Motley Fool, was less inclined to mince words. “There's a Snake River Canyon-size chasm between the value banks claim for their toxic assets and the sum any sentient, non-daredevil investor would pay.”

Then there were the Dutch aunts and uncles of Congress. This group had no interest in the details of the ceremony; their focus was indignation at the price of renting a decent hall these days.

House Minority Whip, Eric Cantor of Virginia, complained that Geithner’s plan offered “little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer.” Cantor continues to favor an earlier, cheaper Republican proposal to set up a government-sponsored insurance program for mortgage-related securities.

Finally, there was an outraged parent, played by Paul Krugman of the New York Times. Krugman is a traditionalist, albeit a liberal one, and he feels that when a young man acts irresponsibly and leaves his partner knocked up with unwanted assets on her books, the quickest and most effective means to get him to the altar is the business end of a shotgun.

Krugman bewailed Geithner’s plan as “disappointing. In fact, it fills me with a sense of despair.” He argues it is merely a recycling of the Bush Administration’s “cash for trash” plan, proposed and subsequently abandoned by former Treasury Secretary Hank Paulson. Krugman does not share Geithner’s optimism about the economy’s soundness or that toxic assets will rise again in value. “Financial executives literally bet their banks on the belief that there was no housing bubble and the related belief that unprecedented levels of household debt were no problem. They lost that bet.”

Although Geithner spent the last two days speaking strongly about the need for greater market regulation and asking Congress for new powers to oversee non-banking institutions, this does not go far enough for Krugman. He desires intervention much more aggressive, up to and including nationalization. “There’s a time-honored procedure for dealing with the aftermath of widespread financial failure. [Government] takes temporary control of truly insolvent banks, in order to clean up their books.”

Despite their understanding that marriage is no panacea, especially when entered into with a squeamish partner, Obama and Geithner believe the risks and costs involved are less than those associated with doing nothing.

In an interview with CNBC, Geithner said the alternative to his plan would be letting toxic assets remain on banks’ balance sheets, which he argued would create a “much longer, deeper recession.” His reasoning is sound. Hoping banks would work toxic assets off their balance sheets naturally over time wound up prolonging Japan’s economic downturn a full decade.

Geithner is using enthusiasm to make up what he lacks in suavity in order to sell his plan. What is left of his once-considerable reputation is riding on his success. He will march before an altar or likely find himself sacrificed atop one. He faces two daunting tasks – convincing nervous investors to join him and then convincing an incredulous Congress to give him still more money. Both parties are suffering from fear of commitment.

Perhaps Geithner can take heart from Letterman. Now that Dave has finally decided to take the plunge, he must be oozing optimism about wedded bliss. On Monday night, he gushed, “Well, things are going pretty good, let’s just see what happens in about ten years.”

Hmmm . . . maybe not. On the other hand, something tells me Geithner will not have nearly so long to wait for his answer.

Monday, March 23, 2009

The Color of Money

During the 2008 Presidential campaign, many argued forcefully that racism is no longer a significant issue in America. When the Obama campaign complained about what it viewed as a prejudicial remark, it was likely to receive criticism in return for “playing the race card.” During the Reverend Wright controversy, some even suggested the only real racism left was reverse racism by a separatist black minority, with the bulk of white Americans “moved beyond” such hate-filled beliefs and rhetoric.

John McWhorter, an African-American linguist and Senior Fellow at the Manhattan Institute, was not quite willing to declare the end of racism when writing in Forbes magazine last November. Nonetheless, he was quick to dismiss it as something intelligent people need no longer worry about. “The question is whether the total eclipse of racism is either possible or necessary. It is neither and . . . The very fact that the President is now black is a clear sign that it is no longer our main problem and that we can, even as morally informed and socially concerned citizens, admit it.”

Certainly, the Republican opposition, by the end of the campaign, professed itself far more frightened and angered by what it saw as Obama’s socialist proclivities than by the color of his skin. This charge has persisted since Obama took office. He is an enemy of capitalism, a re-distributor of wealth, charge alarmed conservatives.

Even if one agrees that racial divides continue shrinking over the past decades, the gap in wealth is doing just the opposite, growing unchecked at a disturbing rate.

A 2006 analysis by the Economic Policy Institute found the net worth held by the top one percent of households grew from 125 times to 190 times the median wealth in the United States since 1960. Likewise, the net worth held by the top twenty percent of households grew from 15 times to 23 times median wealth over the same period.

Another 2007 study by the University of Michigan study showed the net worth of the top two percentile of American families nearly doubled, from $1.1 million in 1984 to $2.1 million in 2005. Conversely, the bottom quarter of American families ended up with their 2005 net worth below their 1984 net worth, as measured in constant 2005 dollars.

The translation is straightforward but chilling. In America, the land of opportunity, where any poor child can conceivably grow up to become a millionaire or, at the least, any honest, hard-working person can build a better life for their children and themselves, we have become increasingly class-bound, with the rich getting richer and the poor getting poorer.

In recent years, the negative aspects of this trend have become systemic beyond the upper echelons. The net worth of the average American family is less today than it was in 2001.

Doubtless, many assume this gap, no matter how worrisome, has no significant connection to any lingering racism. The invisible hand of free markets is as colorblind as it is colorless, after all.

But then along come the persistent, nagging voices, like the one belonging to Meizhu Lui, a longtime union and community activist, whose current title is Director of the Closing the Racial Wealth Gap Initiative at the Insight Center for Community Economic Development in Oakland California.

Writing in today’s Washington Post, Lui notes the Federal Reserve has just released its 2007 Survey of Consumer Finances. Breaking down the wealth gap by demographics clearly reveals the gap between the wealth of white Americans and African Americans has grown. For every dollar of wealth held by an average white family, an average black family has only one dime, down from twelve cents in 2004.

White families are five times as likely as black families to have bank accounts and access to responsible loan terms. Twenty-four percent of black families do not own a car, as opposed to only seven percent for white families and seventeen percent for Latino families.

There is nothing new about this. Back in 2004, the last time the Fed compiled its survey, with the economy growing positively out of a relatively mild recession, unemployment stood at a little over five for whites but nine percent for African-Americans.

Lui postulates that our society focuses too much on wealth as a function of income rather than as an accumulation of assets. In many cases, improvements in employment (i.e. income level) for impoverished families result in a sudden and dramatic loss of entitlements/assistance. Income goes up a little but expenses go up a lot and negative saving results, with families finding they are further in debt than ever.

This situation has not only been permitted but often encouraged by both government and the financial sector,

The Fed survey found African Americans and other people of color were more than three times as likely as white borrowers to be steered toward high-interest loans, even when they qualified for a prime loan.

A Harvard University study showed that a high-income African American family in Massachusetts was more likely than a low-income white family to get a sub-prime loan.

The University of Michigan study mentioned earlier discovered an eighteen percent drop among black families owning stock from 2003 to 2005, as compared to an only twelve percent drop for white families during the same period. Likewise, short-term debt increased by seven percent among black families as compared to only two percent for white families.

All of this causes Lui to conclude in a recent interview, “So the dirty little secret of our economy is that it has really been built on the debt of ordinary folks.”

About now, some conservatives are probably ready to consign Lui to the ranks of “radical socialist.” Some of her beliefs, such as a higher capital gains tax rate, a more progressive tax system, and a capped mortgage interest deduction available to non-itemizing tax filers, certainly fit that emblem.

However, Lui is also quick to attack those who pressure/criticize state and local officials hesitant to accept their full share of federal bailout money, saying, “There is a need for a lot of education about how the economy works and to get people to understand that sometimes their common sense is actually more correct than what the so-called experts are saying.” While she understands the need for some wealth redistribution, Lui believes the best way to allow communities to start building real assets is to prevent money from flowing out of them, in any form, in the first place.

None of this is to suggest that the wealth gap along racial lines is a result of direct, intentional racism. However, patterns and cycles – even unintentional ones – can be extremely difficult to break and cause extensive damage. Much as we might wish, we cannot judge ourselves solely on our good intentions. We must face up to results achieved as well.

In this light, Lui is sadly on target when she writes, “The overhyped political term ‘post-racial society’ becomes patently absurd when looking at [the] economic numbers.” It should also help us all understand why some African Americans continue to feel a lingering bitterness over racism that has far more immediacy and relevance than old memories of slavery, lynchings, and segregation.

Through a series of aggressive proposed initiatives, President Obama is looking to improve quality and reduce costs for such common daily expenses as heating and fuel, healthcare, and retirement benefits. If successful, these could allow asset accumulation without the need for exorbitant income increases and reverse the long-standing trend of negative savings in this country.

To that extent, perhaps Obama has actually had a “Black agenda” all along. It is only that he is smart enough to realize it is not strictly a black or white issue. Instead, the pertinent color here is the color of money and making sure we are all a little greener in a lasting way.

Friday, March 20, 2009

Ceterum Censeo Talibanem Esse Delendam

Like their Roman counterparts in days of old, the two great elder hawks of our own Senate – John McCain, in the role of Cato the Censor, and Joe Lieberman, playing the ever-loyal Fabius – graced the editorial pages of yesterday’s Washington Post to proclaim with Sabine austerity, Ceterum censeo Talibanem esse delendam (i.e. “Moreover, I advise that the Taliban must be destroyed.”).

McCain and Lieberman profess themselves “troubled by calls in some quarters for the President to adopt a ‘minimalist’ approach toward Afghanistan.”

Perhaps they were referring to an article in the current edition of Newsweek by Rajan Menon, a Professor of International Relations at Lehigh University. Menon predicts President Obama’s recent decision to send seventeen thousand more troops to Afghanistan “will push the United States deeper into a quagmire.” He suggests six alternative strategies for Afghanistan.

First, make it clear the U.S. seeks no permanent military bases/presence in Afghanistan. Second, offer the Taliban a ceasefire on a reciprocal basis. Third, convene a Loya Jirga (i.e. “grand assembly”) to reform the dysfunctional political system in ways that empower outlying regions. Fourth, involve Afghanistan’s neighbors, including Iran, Russia, China, and Pakistan. Fifth, pledge not to attack Afghanistan, providing it refrains from hosting terrorism. Sixth, help to finance rebuilding Afghanistan and improving its quality of life.

McCain and Lieberman are having none of this. “Just as in Iraq,” they conclude, “there is no shortcut to success, no clever ‘middle way’ that allows us to achieve more by doing less. A minimalist approach in Afghanistan is a recipe not for winning smarter but for losing slowly at tremendous cost in American lives, treasure and security.”

Several of McCain’s and Lieberman’s postulates invite skepticism. “A narrow, short-term focus on counter-terrorism . . . would repeat the mistakes made for years in Iraq before the troop surge,” they warn at one point in their article.

When exactly did the U.S. ever define our mission in Iraq as strictly counter-terrorism? After the initial invasion and our failure to find large, widespread caches of WMDs (and even before it for that matter), former President Bush promised the overthrow of Iraq’s brutal totalitarian Ba’ath regime and its replacement by a secular constitutional democracy.

If McCain and Lieberman believe “we need a comprehensive civil-military counterinsurgency approach” in Afghanistan, they should be heartened to learn that, rather than falling down on the job, the Obama Administration appears to be anticipating their concerns. “Top aides to President Obama are recommending that the United States combine a boost in military deployments with a steep increase in civilian experts to combat a growing insurgency in Afghanistan,” the Associated Press reported yesterday.

One part of the plan will involve naming former senior American diplomats to key posts in Afghanistan as well as adding hundreds of civilian aides under the U.S. Ambassador and his top staffers. White House officials described the concept as similar to “the Surge” in Iraq but accomplished with political/diplomatic forces as well as military ones.

McCain and Lieberman further maintain that Afghan civilians will risk their lives to help U.S. forces “only if they believe we are committed to staying and protecting them from the insurgents and helping to improve their lives.”

Fouad Ajami, a professor of Middle East Studies at Johns Hopkins University School of Advanced International Studies, reaches the same conclusion from a different direction. In today’s Wall Street Journal, he insists, “Anbar turned only when the Sunni insurgents had grown convinced that the Americans were there to stay.”

Yet these assertions are at odds with polls that have consistently reflected two-thirds to three-quarters of Iraqis favoring (imminent) U.S. withdrawal for the past several years. Moreover, many analysts fear stepping up air strikes and other military operations in Afghanistan will result in more civilian deaths, increasing anti-U.S. sentiment and benefiting the Taliban, despite that group’s policy of deliberately staging attacks designed to increase civilian casualties.

“I've been very concerned about an open-ended commitment of increasing numbers of troops for a variety of reasons, including the size of our footprint in Afghanistan, and my worry that the Afghans come to see us as not their partners and allies, but as part of their problem,” Secretary of Defense Roberts Gates confessed recently.

McCain and Lieberman define military success in Afghanistan as “a stable, secure, self-governing [nation] that is not a terrorist sanctuary.” They assert their belief such an environment is achievable there. A conservative peer seems to dispute them and claim it already achieved.

Wall Street Journal columnist Bret Stephens shares the two Senators’ concerns that the U.S. is losing its commitment to Afghanistan. Yet when he describes the “circumstances that define Afghanistan today,” it is apparent he sees their entirely empty glass as half full.

It is true, he concedes, that the Taliban is resurgent militarily and “much of the countryside is unsafe.” However, he approves the cities as mostly safe. What is more, statistics just published by Jason Campbell, Michael O’Hanlon, and Jeremy Shapiro of the Brookings Institution show that while Afghan public support for the U.S. and their own government have fallen in half over the past two years, an equivalent decline occurred for their support of the Taliban from its highest levels in 2007.

Stephens finds Afghan President Hamid Karzai weak “but he is legitimate.” He considers Afghanistan’s government and infrastructure dysfunctional and corrupt “but at least there's a system.”

Stephens argues that although NATO was slow in training the Afghan army and police, this is finally starting to happen. Official U.S. source in Afghanistan reported just this morning that Afghan and international forces killed thirty-four militants and destroyed a cache of bomb equipment over the past two days.

Secretary of State Hillary Clinton told reporters the Obama Administration was working on “an integrated strategy” to train the Afghan military and police as well as to support “governance, rule of law, judicial systems, and economic opportunities.”

Finally, Stephens admits the opium trade is flourishing and growing in Afghanistan but notes its government still officially condemns it as unacceptable and a criminal operation.

None of this impresses McCain and Lieberman because success not brought about directly by overwhelming military victory is inconceivable to them. Stephens humorously explains their intransigence as a rejection of the liberal logic reductio ad Vietnam, in which any long-term U.S. military conflict is presumed to end in failure.

Stephens goes on to wonder how his peer Bob Herbert of the New York Times could term Afghanistan “a quagmire” in 2009 after previously denouncing the Bush Administration in 2006 for “taking its eye off the real enemy.” It never seems to occur to Stephens that, rather than being diametrically opposed, Herbert’s current observation directly follows from the accuracy of his previous one.

Much like Cato before him, McCain views his beloved country as the victor in two previous Punic Wars, with Afghanistan and Iraq respectively. He now wishes to exhort his more timid fellow citizens on to a third engagement. Disregarding the appropriateness of the appellation “victorious” as applied to Iraq for a moment, McCain is completely ignoring the fact that Afghanistan is not a new war.

None of this means to suggest the United States faces no future significant military challenges in Afghanistan and probably Pakistan as well. We must diminish the Taliban’s current level of influence as well as locate and contain al-Qaida forces hiding in the mountains for far too long.

Yet neither of these goals augurs a huge, bloody, and years-long military occupation that transforms Afghanistan into a democracy made in our own image as the only means to attain success. This is the lesson of Iraq we would do best to learn from and avoid.

McCain and Lieberman are correct that “a comprehensive overhaul of our war plan is needed and quickly.” Luckily, it appears the Obama Administration is engaged in this very activity and developing a strategy far superior to their stentorian admonitions.

Wednesday, March 18, 2009


I posted on Monday that while populist outrage over incidents like bailout recipient AIG paying $165 million in executive bonuses was understandable, it did little productive in dealing with the hard choices imposed by our current financial crisis.

New York Times columnist Thomas Friedman stuck a similar note yesterday. “It is dangerous for so many reasons but most of all because this real anger about AIG could overwhelm the still really difficult but critically important things we must do in the next few weeks to defuse this financial crisis.”

The Obama Administration has a bailout plan that “makes sense and, if done right, it might even make profits for U.S. taxpayers,” adds Friedman. “But in this climate of anger, it will take every bit of political capital in Obama’s piggy bank . . . to sell it to Congress and the public.”

More to the point, public sentiment may endanger Obama’s attempts to sell his plan to investors. The Washington Post reports this morning that Federal Reserve and Treasury Department officials are worried all the anger out there could discourage investors from joining government efforts to revive lending as well as a separate plan that relies on private money to buy toxic assets from banks.

“Am I afraid of the populist outrage? Yes,” said Lynn Tilton, CEO of Patriarch Capital, one such private-equity firm that has weighed making an investment.

AIG is not alone in earning wrath for paying bonuses. Government officials previously excoriated bailout recipient Morgan Stanley for the practice as well as Merrill Lynch, which paid bonuses to its executives while its sale to bailout recipient Bank of America Corp was pending. Even so, AIG is particularly subject to public ire as a series of revelations have proven it far weaker than anyone previously feared.

Rather than seeking to cool populist fury, Congress increasingly resembles a lynch mob itself. Several pending bills vow to tax the AIG bonuses out of existence if not revoked by the Obama Administration or voluntarily surrendered by AIG executives. Republican Senator Chuck Grassley of Iowa went so far as to suggest AIG management ought to be noble Romans and kill themselves, which is pretty strong stuff, even when just speaking rhetorically.

The hubbub was sufficient for AIG Chairman and CEO Edward Liddy to pen an editorial in today’s Washington Post defending himself and his company.

Of our own initiative, we suspended our federal lobbying activities and halted corporate political contributions. We also restricted executive compensation. In all, total 2008 compensation for the top forty-seven executives is fifty-six percent lower than their total 2007 compensation. My annual salary is $1.

To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees [in the Financial Products unit] based on a compensation system that prior management put in place.

Taxpayers should also know that AIG has a plan to return money to the government and we are making progress.

Washington Post
columnist Ruth Marcus was eager to buy into these arguments. “Hammering the AIG employees to give back their bonuses risks costing the government more than honoring the contracts would . . . Driving away the very people who understand how to fix this complicated mess may make everyone else feel better but it isn't particularly cost-effective.”

Her colleague Harold Meyerson was quick to disagree, ruing, “[Treasury Secretary] Geithner's indulgence of bankers' indulgences is fast becoming the Obama Administration's Achilles' heel.”

Some in Congress, sensing a weakest link quality in Geithner, charge that he should have prevented the bonuses before their payment and suggest he ought to resign for failing to do so.

As it turns out, Geithner was more than aware of the pending bonuses and urged CEO Liddy to renegotiate the contracts requiring them. He backed off when AIG lawyers insisted the contracts existed prior to the bailouts, leaving the company and government open to lawsuits by disgruntled executives if revoked retroactively.

“He recognized that you can't just abrogate contracts willy-nilly,” Council of Economic Advisors chief Lawrence Summers told the Associated Press in an interview Tuesday.

The President continues to stand by Geithner but also ordered the Treasury Department to “pursue every single legal avenue” to recover the AIG bonus payments.

If the Obama Administration hopes to maintain the trust necessary to carry out its plans – and likely appropriate billions more from Congress in order to do so – then it must stifle the mob’s outcry for draconian vengeance by taking reasonable but forceful actions of its own. Bailouts will never be popular but restoration of public faith outweighs any potential damages from punishing AIG.

Lawrence Cunningham, a Professor at George Washington University Law School, writing yesterday in the New York Times, wisely notes, “Moral outrage and public rebuke do not provide legal grounds for backing out of a contract.” Yet he also notes that AIG attorneys “must do more than say nonpayment would expose AIG to damages or penalties. Nor is it enough to invoke the sanctity of contracts.”

The most obvious way to stop bonus payments under the contracts would be any finding of fraud against the employees involved or if AIG terminated or is likely to terminate any of its employees for cause. But Cunningham also sees “at least some chance, given AIG’s functional insolvency and the government takeover, that these agreements may be rescinded either on the basis of impracticability or by virtue of unforeseeable and uncontrollable circumstances.”

In other words, the bailouts are such large and extraordinary responses by government to such a large and extraordinary crisis that they cancel out preexisting contractual arrangements made in earlier, more ordinary times. There is existing precedent within the bailout itself for such reasoning.

Bankruptcy judges now have the power to force lenders to accept less on defaulted mortgages if the renegotiated principals allow overextended borrowers to keep their homes. The UAW was told it must concede several important previously won contractual concessions as part of securing bailout money for the auto industry.

Ruth Marcus had ready counterarguments to both of these examples. “[Auto] renegotiations mostly involve the future terms of employment . . . That's different from telling AIG employees they're not getting the amount on which they agreed for work they've already performed.”

However, both AIG specifically and the financial services industry in general have repeatedly argued the bonus payments are less rewards for previous (bad) services and more a retention program to ensure management is not lost for future (hopefully better) services. Judged from this standard, the Wall Street/Detroit analogy is very comparable and the stated purpose of the bonuses is a bust.

New York State Attorney General Andrew Cuomo charged after investigations that of the seventy-three AIG executives receiving $1 million plus bonuses, at least eleven have already left the company.

A former AIG senior executive told the Washington Post that the Financial Products unit was a shrinking division no longer seeking new business. “The guys who are getting paid all the big money are not really the ones who are important to the company,” he said. Even CEO Liddy admits that if he had been in charge at the time, “I would never have approved the retention contracts that were put in place more than a year ago.”

In the case of renegotiated mortgages, Marcus argues, “Bankruptcy is a legal mechanism designed precisely for the abrogation of contracts” that is not readily extendable to the AIG situation. She has a point here. A well-established process, which parallels bankruptcy, exists for liquidating troubled banks through the Federal Deposit Insurance Corporation. No such process exists for dealing with the collapse of other kinds of financial institution, such as AIG.

While Marcus is correct “It is intellectually consistent to support expanding the power of bankruptcy courts to rewrite mortgages,” it is important to remember that government would never have permitted the expansion of these powers without the current crisis. That which justified expansion of powers in one area may well justify them in others.

The public’s desire for retribution and punishment, no matter how keen, should not override the Rule of Law. At the same time, the best way to ensure minimum populist rebellion is for the public to see the Rule of Law as a straightforward path to justice as opposed to a series of loopholes to circumvent it. This will never happen if government permits the AIG bonuses to stand.

Rather like the French Revolution as imagined by Charles Dickens, taxpayers seem more callously villainous than sympathetically wronged when they sit without pity, like Madame Defarge over her knitting, counting aristocratic executive heads as they role.

Still, it is easy to understand their frustration when the guilty not only avoid punishment, due to the exigencies of the crisis, but receive rewards for their malfeasance as well. In this version of the story, not only does noble Charles Darnay escape prison and return to his beloved Lucie but his uncle, the wicked Marquis St. Evrémonde, receives bailout money to repair his damaged coach.

The restraint counseled by Geithner toward Wall Street has its logic. The more difficult the times, the more wiggle room firms may need to escape them. Kicking a person while they are down is more likely to keep them down than incent them to rise.

In this case, it seems a swift kick may be necessary to remind those down that they got in this position by their own actions. Furthermore, government is not imposing this bailout upon them; Wall Street came begging for the money of their own volition. The power of free markets to fix all ills went the way of the dodo last fall.

Taxpayers will doubtless have to fund these bailouts through future tax increases or, at an absolute minimum, far fewer tax cuts than that for which Republicans are constantly calling. Even so, our children and we will face red ink in the federal government’s ledger for many more decades to come. This is our sacrifice to ensure the global economy’s continued stability.

Foregoing promised bonuses is the sacrifice for executives at AIG and other bailout corporations. The Obama Administration should enforce such sacrifices when not made voluntarily.

Government must not allow its sovereignty pushed aside by an angry mob but it must do something constructive to address the mob’s collective howl of pain and outrage.

Monday, March 16, 2009

Off to the Races

President Obama has governed little like a populist so far but he sometimes campaigned as such and he certainly owes much of his election to populist outrage over the previous eight years of Republican policies. Turnabout is fair play and the Obama Administration is now starting to experience a populist backlash regarding its policies to stem the financial crisis.

Most Republicans and a growing number of Independents are certain Obama is spending too much. Far-left progressives within Obama’s own Party worry he is not spending nearly enough. Still others fret not over the amount of spending but if we are directing it in the right/best places. Whatever the motivation, concern and discontent is rapidly beginning to spill over into outright hostility.

Such was the scene yesterday in my hometown of Cincinnati Ohio, when a vocal crowd assembled downtown for a “Tea Party,” designed to show disapproval for what protestors viewed as wasteful government spending. Signs declared outrage and defiance, with slogans such as, “Give us Liberty, not Debt,” “Where's My Free Pony?” and “Honk if I’m Paying Your Mortgage.”

Cincinnati Police estimated the crowd at about four thousand, less than the six to seven thousand that organizers had predicted. It was also largely white, which, given Cincinnati’s demographics, strongly suggests it was comprised mostly of people driving in from outlying, heavily Republican townships and suburbs rather than city residents. Unsurprisingly, these protestors were the portion of Hamilton County least inclined to vote for Obama in the first place.

However, Obama is now their President too and this makes the intensity of their disgruntlement problematic for him and his economic agenda.

Doubtless, this and other protests were fueled by news that financial giant AIG, which has received $170 billion in federal government assistance to date and is now eighty percent owned by U.S. taxpayers, nonetheless paid out a whopping $165 million in executive bonuses last week.

The Obama Administration attempted to distance themselves from such practices, with multiple spokespeople condemning AIG over the news talk circuit this weekend. Unfortunately, they undercut themselves by continuing to insist that AIG was one of a handful of companies too important to U.S. economic stability to allow their failure as well as questioning the government’s ability to forbid the bonuses, many of which represented contractual agreements existing prior to bailouts.

The government’s ineffectualness in this situation is especially regrettable, as it strongly overshadowed the good news Obama and his lieutenants had to report. Citigroup, another bailout recipient, announced it operated at a profit for the first two months of 2009 and does not require more government aid, consumer spending appears to have stabilized, housing inventories are starting to decline, and key credit spreads are substantially narrower than they were last fall.

Obama stressed yesterday how this could domino, in a positive way, to a group of CEOs.

“There's a young family out there right now who’s thinking about buying a home and if we can get them credit, they're going to buy that home. And if they buy that home, then a construction worker, maybe he comes in and remodels the kitchen and that means that he can buy a computer for his kid at school. And we’re off to the races.”

It is hard to judge whether this is the type of cheerleading that some suggest the President needs to do more or if it sounds naïvely and feebly optimistic in the face of populist wrath. Michael Kazin, a professor at Georgetown University, notes the anger over bailouts is merely one expression of “a free-floating economic anxiety.”

Robert Samuelson echoes that sentiment in today’s Washington Post. “We live in the shadow of the Great Depression,” he writes. “There is . . . an amorphous anxiety that we are falling into a deep economic ravine from which escape will be difficult.”

Peggy Noonan observed a similar phenomenon in the Wall Street Journal last Friday. “People are in a kind of suspended alarm, waiting for the future to unspool and not expecting it to unspool happily.” However, Noonan also sees America’s potential depression as not merely economic but also psychological. “People sense something slipping away, a world receding . . . a world of old structures, old ways and assumptions.”

This is a supremely conservative reaction, as one would expect from Noonan. On the other hand, many of those who voted for Obama as a repudiation of the GOP still maintain highly traditional morals and values. Protestors at populist rallies may be directing their anger at bankers and government but it reflects broader fears over what constitutes a re-definition of the American Dream for many, particularly given the broad and ambitious initiatives in energy, healthcare, and entitlement reform Obama seems determined to implement simultaneously with his stimulus package.

In that sense, Treasury Secretary Geithner and National Economic Council Chairman Summers are off the mark by insisting they can still provide social and economic justice by giving wealthy executives a bonus at the office but then raising their taxes at home. The American public vaguely appreciates that wealth has been accumulating inequitably in this country for the past several decades but they clearly and readily understand that rewarding malfeasance, stupidity, and greed is unacceptable.

The continued presence of AIG and others as trusted legal entities really is as important for U.S. and international economic stability as the Obama Administration argues; their management teams, however, not so much. Obama needs to be far more aggressive at holding the feet of bailout recipients to the fire and even firing the worse culprits.

At the same time, Obama needs to be more aggressive about holding all of our feet to the fire as well. Populist outrage will only become widespread politically dangerous to Obama if his critics permit the majority of voters to see themselves as entirely innocent victims of corporate shenanigans and progressive government largesse.

As one sign at yesterday’s rally in downtown Cincinnati read, “I live off what I make,” implying that banks and the federal government need to do the same. There is no arguing with the sign’s conclusion. Its postulate, however, is highly questionable when applied toward all-too-many Americans.

Obama is calling us to the races. We do not want to run but it has nothing to do with track conditions or the direction in which he wishes us to sprint. The problem is that running is hard work. We want continue sitting in the stands, getting rich by making bets that paid off so often they hardly qualified as risk.

In the 1980s and 1990s, we watched the stock market soar, fueled by bubbles first among high tech stocks and then the housing market. Later, we learned many of the companies ranked as top performers by Wall Street were cooking their books. Finally, we believed it when told we could fight two major wars and cut taxes if everybody just shopped more.

After the tragedy of September 11, both conservatives and liberals yearned publicly for more of a sense of shared sacrifice. Today, Obama hands us sacrifice and we jerk back at the prospect of sharing.

It is easy to oppose Obama along these lines. It is more than just the fact that the President is more popular personally than many of his policies. As Washington Post columnist David Broder adroitly pointed out on Sunday, “Despite his popularity, Obama is not an intimidating figure,” preferring consensus to intimidation.

Forcing angry voters in revolt to listen to him is Obama’s onus. However, mob mentalities seldom correspond with wisdom and those with complaints, no matter how legitimate, are making a mistake if they think because Obama is easy to ignore, he is not telling them something important that they need to hear just as much as he needs to hear them.

The race for long-term economic stability is not one between Republicans and Democrats, between conservatism and progressivism, or between small government and socialism; it is a race between making hard choices versus shaking our fists at those telling us we need to make them.

And they’re off . . .

Thursday, March 12, 2009

The Dow(n)

Bristol Palin, teenage mom and first daughter to Alaska Governor Sarah Palin, has broken up with “fiancé” Levi Johnston, according to People magazine. This development contradicts interviews from less than a month ago, when a summer 2009 wedding still appeared on schedule for the pair. Bristol told Greta Van Susteren of FOX News that she and her baby’s father both wanted to get married. Thus, despite the indicators, it appears Palin’s honeymoon is over before it could even begin.

If anyone can relate to this latest episode of teen romantic angst à la Juneau 99801, it is President Obama. Although his approval ratings and popularity remain high, continuing financial woes threaten to steal what small honeymoon Congressional critics from both sides of the aisle were willing to cede him. His political fortunes seem mirrored in the recently volatile and all-too-often plunging Dow Jones Industrial Average.

After a big one-day rally earlier this week, the Dow closed slightly up yesterday, at just above 6,900 points. Unfortunately, for every big gain since last fall, one can point to at least a dozen corresponding substantial one-day drops. What is more, the Dow’s current level is only about half its all-time 13,000+ points high less than a year ago.

Obama has said he refuses to allow the Dow’s daily roller coaster trajectory dictate the direction of his economic policies. The rest of us can only hope his lack of faith in the index turns out correct. The Dow has lost fourteen percent of its value between Obama’s election and inauguration. The only other President who comes close to this is FDR, for whom the Dow fell twelve percent during the same interval.

The Dow then gained a colossal seventy-five percent within the first year of FDR assuming office. A gain of such magnitude is unlikely for Obama in 2009 for a variety of reasons but many voters will look to the Dow for signs of proof that Obama’s stimulus package and other economic policies are working.

As many financial analysts will agree, they could not look to a worse index. The Dow represents a scaled average from the stock prices of thirty large and supposedly highly stable U.S. corporations. Moreover, the impact of any one company on the index as a whole depends more heavily on its share price than its total market capitalization.

Numerous other indices exist that reflect far broader sample sizes and classes of assets, including the Standard & Poors 500, NASDAQ, Russell 2000, Wilshire 5000, Morgan Stanley Capital International, and Shearson Lehman Aggregate Bonds.

In spite of their broader basis, none of these indices is a single ideal market predictor because each tends to focus, consciously or otherwise, on a common factor that makes them insufficiently diverse. For example, the S&P is still mostly larger companies while the Russell is generally small-cap ones. The NASDAQ is heavy on technology companies, while Morgan Stanley and Shearson Lehman, by definition, track only international companies and bonds respectively.

Scott Brown, senior economist with Raymond James Financial of St. Petersburg, is strongly disdainful of using the Dow as a measure for broader economic performance, preferring the slope of the yield curve, the difference between long-term and short-term rates, and the money supply.

Writing in Slate magazine last October, Brandon Fuller maintained the Dow or any stock index is an especially poor measure of the current financial crisis, which results primarily from an unwillingness to extend credit. Fuller argues a measure called the TED Spread is superior because it measures credit conditions directly.

The “T” in TED Spread stands for “Treasury bills” and the “ED” for “Eurodollar contracts,” which are loans between international banks. The TED Spread represents the difference between riskier interbank loans versus loans to the U.S. government. Traditionally hovering at 0.5% or less, the TED Spread jumped to 1.0% in August 2007 and rose above 3.0% by the time of the Emergency Economic Stabilization Act last fall. The reason is all of the toxic assets still held by various financial institutions that make them unattractive to other lenders.

Even Dow Jones & Company states, “It’s not our intention to create an index to shape consumer confidence.” As a measure of stock price performance, the Dow is more a lagging indicator than a leading one.

When the economy begins heading downward, the Dow tends hold its value because it contains mainly blue chip stocks that investors tend to keep in their portfolios to shore them up against bad times.

Yet the reverse is also true. Following the mild recession from 2000 to 2002, the Dow, S&P 500, and NASDAQ were all slower than the portfolios of smart, diversified investors to recoup their lost values.

Still worse, the Dow has twice expanded from its original twelve companies and swapped companies in and out on numerous occasions to reflect their changing fortunes. For example, the Dow bounced Goodyear, Sears, and Union Carbide in 1999 and replaced them with Intel, Microsoft, and SBC Communications. In 2004, Kodak exited in favor of AIG. Altria Group left in 2005 for Bank of America. Today, many believe desperately ailing General Motors is on the way out.

The previous moves took advantage of the high tech and housing bubbles while ignoring the failures of traditional domestic manufacturers. They kept the Dow high but did not reflect the true strength and stability of the U.S. economy, even after the 1990s boom.

The problem here is that many investors are not smart. Driven more by their fears than sound economic analysis, they look for simple, straightforward measures, such as the Dow, to tell them what to do. The dangers of a lagging indicator driving the economy are obvious – it tends to first ignore warning signs and then exacerbate and drag out recovery from downturns.

There seems little doubt the Dow is too entrenched an institution to vanish altogether, even in the transformational economy promised by the Obama Administration. Yet its accuracy in measuring the success of that transformation may require it to change its formula as well as its component parts.

Washington Post columnist Harold Meyerson suggests this morning, “The market fundamentalism to which we've adhered for the past thirty years has – by its own criterion of increasing shareholder value – totally failed.” Per Meyerson, we must adopt “a capitalism more attuned to our national concerns.” Our old manufacturing economy profited from U.S. improvements to infrastructure and education in ways unfelt by our current economy, based on finance and globalization.

While not suggesting full-scale retrograde return to antediluvian industries, Meyerson does maintain, “U.S. ratios of production to consumption and wealth creation to debt creation have gotten dangerously out of whack” and needs correction. Key to this renovation is a promotion of long-term business policies and holding back market pressures for short-term profits of the sort not only expected but also demanded over the past two decades. In addition, corporations must legally answer not just to shareholders but also to stakeholders, including employees and their unions as well as communities in which they operate.

Meyerson notes this form of capitalism requires an investment in upgrading the skills and wages of workers in retail and service sectors, laws easing unionization, and holding such jobs to higher standards and higher value. He also notes it requires “a larger public sector than we have had in recent years.”

Conservatives are apt to label such proposals as outright socialism and the death of the American Dream. Yet as Thomas Frank points out in yesterday’s Wall Street Journal, no Administration was more committed to the concept “government should be market-based” than that of former President Bush. During his Presidency, the number of direct federal government employees shrank, thanks to outsourcing. In spite of this, federal spending grew “pretty significantly” and corruption by contractors ran amok.

To the extent the far-reaching visions of Obama for energy, transportation, communications, and healthcare begin realization, corporate giants such as Boeing, Exxon Mobil, Pfizer, and even General Electric – the only remaining original member of the Dow index – may find themselves joining GM in suffering the fates of the American Cotton Oil Company, Distilling & Cattle Feeding Company, Laclede Gas Light Company, National Lead Company, U.S. Leather Company and other former Dow stalwarts.

The Dow is down, despite all its inherent and premeditated stratagems to buffer itself. That means our economy is not currently working. However, any accurate measure of recovery means it will have to re-invent itself as much as our economy. Luckily, this is one thing at which the Dow has proven itself very good indeed. Let us hope we can say the same for our economy. In Obama’s short honeymoon rests the key to the long-term stability of our Union.

Friday, March 6, 2009

Fools Rush In

Love him or hate him, Rush Limbaugh is a prominent and certainly a strident voice within conservative circles. However, we must now evaluate a new claim to his celebrity that, for once, does not emanate from Rush himself. Suddenly, Democrats everywhere, including the Obama White House, are insisting Limbaugh is the voice and de facto leader of the Republican Party.

First brought up by Chief of Staff Rahm Emanuel during an appearance on CBS’s Face the Nation last Sunday, former Obama campaign manager David Plouffe fully set forth the argument Wednesday in the pages of the Washington Post.

“It would appear that [Republicans] missed the unmistakable signals [of the 2008 election]. Instead, Rush Limbaugh has become their leader. Limbaugh, of course, told his radio listeners that he's rooting for President Obama to fail – and hoping the President's ideas for bolstering our economy fail with him. For many Americans, hungry for leadership and cooperation, this sounded like fingernails on a chalkboard.”

House Minority Leader John Boehner angrily replied the very next day.

“In a carefully calculated campaign, operatives and allies of the Obama Administration are seeking to divert attention toward radio host Rush Limbaugh and away from a debate about our alternative solutions on the economy and the irresponsible spending binge they are presiding over.”

Each side accuses the other of the same political scheming. New York Times columnist Timothy Egan writes, “But therein lies the main tactic of Limbaugh, an old demagogue technique – create a straw man, then tear it down. The latest example was when Limbaugh presented himself as the defender of capitalism, liberty and unfettered free markets . . . . [and Obama as] waging a war on capitalism.”

For his part, Boehner charges, “[Democrats are] desperately try to change the subject by creating straw men – called ‘the party of no’ – to rally against.” Limbaugh himself echoes this accusation, saying, “[Democrats] need a demon about whom they can lie so as to persuade average Americans that they're the good guys, the benevolent good guys, and the mean SOBs are their enemies trying to stop this great young little President from doing miraculous and wonderful things.”

The bottom line is that both sides are correct.

Numerous reports have surfaced that the sound bites against Limbaugh are the contrived product of senior White House officials and various Democratic strategists, including Paul Begala, James Carville, George Stephanopoulos, and Stan Greenberg, to keep the GOP looking as unattractive as possible to moderate and Independent voters.

“It may be counterproductive. I'll give you that,” admitted Press Secretary Robert Gibbs to reporters’ questions about the Administration’s war of words against Limbaugh.

It is more than that; it is grossly hypocritical. As David Harsanyi cogently argues in Reason, “After eight years of seething hatred – plenty of it deserved – for George W. Bush, this brand of contrived indignation touches a new level of creative dishonesty.” Turnabout may be poetic justice in this situation but it is not fair play. Hoping that the President and/or his policies fail is not the same thing as wishing for the economy and the country to fail.

Calling Limbaugh the head of the Republican Party is equally untrue but refuting this charge is a murkier undertaking because Republicans themselves seem so determined at times to act as though he were. In doing so, they make just as big a mistake as Democrats.

There is no question that Limbaugh wields very real and substantial political power. The Republican Party dubbed him a “national precinct captain” during its 1994 Congressional victory. National Review magazine called Limbaugh “The Leader of Conservative Principles” during the Clinton Administration.

During the 2008 Democratic primaries, Limbaugh initiated “Operation Chaos,” which resulted in sixteen thousand Ohio Republicans and an unknown number of Texas Republicans crossing political lines and voting for Clinton against Obama.

Recently, Republican leaders who directly or indirectly criticized Limbaugh over his failure comments, including Governor Mark Sanford of South Carolina, Representative Phil Gingrey of Georgia, and, most notably, newly elected RNC Chairman Michael Steel, have been forced to issue public retractions/apologies.

Limbaugh himself insists, with mock humility, “I am an average citizen . . . I have a microphone. I am not in charge of one Republican policy.” Yet earlier this year he exulted, “[Obama is] obviously more frightened of me than he is Mitch McConnell. He’s more frightened of me, than he is of, say, John Boehner.”

Others seem to agree with that assessment. Conservative organizer Richard Viguerie told the Washington Times that the “Rushification of the GOP is inevitable . . . because no one else is acting like a Republican leader. Limbaugh has something to say. He actually believes in something. He has the confidence of his convictions. He doesn't cower in fear of the President's popularity.”

Even so, all this unquestioned political power does not automatically make someone a Republican Party leader, even if their views coincide exclusively with those of that Party. The conventional wisdom is to view Limbaugh as a kind of career ideological rabble-rouser, with groups such as or, more recently, Americans United for Change as his liberal counterparts. This is also a mistake.

Limbaugh is not a conservative activist. He is a radio news host in the style of Paul Harvey – a journalistic entertainer who seamlessly transitions from unvarnished facts to filtered facts to speculative opinion without any disclaimers of such or changes in presentation style. Limbaugh is not a creature of the Republican Party; he created himself to satisfy the unmet needs of a previously untapped conservative audience. He owes his living not to contributions from any Party or his listeners but rather from the support of his advertisers.

Limbaugh has survived a number of potential career-ending gaffes – from mocking actor Michael J. Fox’s Parkinson’s symptoms to revelations about his addiction to painkiller medications to comments concerning “phony soldiers” to ridiculing Obama as “Barack the magic Negro” – because of the same phenomenon that Obama currently enjoys. To wit, Limbaugh is often more personally popular with his listeners than are his views on any specific issue.

Limbaugh has been able to build up this “journalistic/entertainment capital” for several reasons. He usually ensures that even his most outrageous positions have at least some basis in Truth and that the conclusions he draws from this starting point seem reasonable and logically consistent, at least to biased listeners. Most importantly, he knows how to give his audience what it wants, which is a perpetual fight against the Democratic Party and liberalism in general.

This is what makes Limbaugh such a dangerous figurehead or spokesperson for Republicans. He may be happy when the public perceives him as having won an argument but he does not especially desire victory. Victory only buys him a few days of gloating before listeners get bored with it. Conversely, a good ongong, unresolved argument provides him weeks, months, and even years of political fodder to chew up and spit out as invective.

As such, Limbaugh’s first interest is what will keep him employed and on the air rather than what is best for the Republican Party or best for America. I am not accusing him of outright hypocrisy or lack of patriotism. The latter things may indeed be important to him but, by needs, they must rank lower than the former.

The exact size of Limbaugh’s audience is unclear. Limbaugh himself routinely describes them as numbering twenty million. Others place its size as “at least sixteen million,” while Arbitron ratings found a minimum weekly average of thirteen and a half million listeners. Any of these numbers still leaves Limbaugh with the largest radio audience in the nation.

However, the main problem with Limbaugh’s audience is not its size but its demographics. Polling data consistently establishes his listeners are overwhelmingly die-hard Republicans, overwhelmingly white, and overwhelmingly male. The more Limbaugh’s political power forces Republican leaders to adhere to the brand of angry, antagonistic conservatism Limbaugh has found profitable to sell, the more they estrange themselves from the Independent voters, women voters, and minority voters they want and need to bring into their tent.

Conservative writer David Frum explains it nicely. “If you’re a talk radio host [with an audience of thirteen to twenty million people] and there are fifty million people who hate you, you make a nice living. If you’re the Republican Party, you’re marginalized.”

Former Secretary of State Colin Powell adds that the only way for the Republican Party to reconnect with average Americans is to stop “shouting at the world.” Limbaugh, of course, owes his multi-million per year salary for his ability never to stop shouting at everybody about everything.

In the end, Minority Leader Boehner is the one who deserves the last word on this topic. “Something is wrong when the discourse in Washington is more focused on a political sideshow than [solutions],” he wisely observes. “These diversionary tactics will not create a single job or help a single family struggling in today's economic crisis. And that is where our focus should be.”

Quite right. Talking about Rush Limbaugh, even to criticize him, is inherently counter-productive. Limbaugh knows that, for him, it is arguments and not solutions that pay the bills and keep him pumping out his personal agenda to millions. Only fools rush in to take on Rush. You cannot out-shout him. Some of that “talent on loan from God” he always brags about includes (literal) deafness, a bullhorn voice, and a love/craving for controversy.

The only way to marginalize Limbaugh and the thing he fears most is for all of us to leave him in silence.

Wednesday, March 4, 2009

Schrödinger's Stoned Cat

The two things Acea Schomaker, a twenty-year-old resident of Omaha Nebraska, loved most in life were smoking marijuana and his cat Shadow. One day, Shadow became “hyper,” to use Schomaker’s term for it, and none of his efforts could calm her down. Therefore, he did what any pothead worth his salt would do in such a situation and built a bong.

But not just any bong. This bong consisted of a piece of garden hose attached to a small plastic box. Then Schomaker stuffed Shadow into the box and began smoking.

The stuffing-the-cat-into-the-box part of the operation raised enough of a ruckus for neighbors to alert the sheriff’s office. When deputies arrived, they released Shadow and arrested Schomaker, charging him with misdemeanor animal cruelty and releasing him after he paid a $400 fine. Schomaker still faces possible drug charges.

To Schomaker’s credit, his device did ultimately calm down the marijuana-infused Shadow. “This cat was just dazed,” a deputy reported. “She was on the front seat of the cop car, wrapped in a blanket, and never moved all the way to the humane society.”

It struck me that if any person might find a metaphor in this bizarre little saga for their own situation, it would be Governor Kathleen Sebelius of Kansas, whom President Obama just tapped as his backup pick for Secretary of Health and Human Services. Obama introduced Sebelius, along with Nancy-Ann DeParle, who will head the White House Office for Health Reform, in advance of a White House summit on healthcare, involving lawmakers from both Parties, the health insurance industry, and consumer groups.

Everybody is generally favorable about the twin goals of keeping down healthcare costs and expanding coverage. It is likely the kitty litter will hit the fan when it comes down to specifics over how to do it.

Republicans in Congress have made their position clear. They want to avoid increasing deficits and expanding government bureaucracies like Medicaid. They see tax reform, malpractice litigation reform, tax-free private health savings accounts, and increased private sector choices as preferred methods for “leveling the playing field” to make healthcare more affordable.

Obama and the Democrats take a far more ambitious path, aimed at universal coverage. As with other items in his budget, Obama is willing to spend and spend big on healthcare reform. He has already announced he will release $155 million in the $787 billion economic stimulus measure to support over one hundred new health centers, giving people more access to primary and preventive healthcare services. The President further proposes $634 billion over ten years as a down payment on a total package that could ultimately cost $1 trillion or more.

To help pay for all this, Obama proposes, among other things, raising taxes for those earning over $250,000 per year while cutting taxes or at least remaining neutral as regards middle class and poorer Americans. This idea of wealth redistribution raised cries of “socialist!” toward Obama during the campaign and critics have used “socialized medicine” as a boogeyman against healthcare reform for decades.

In Monday’s Washington Post, E.J. Dionne takes the progressive position and argues it all comes down to a question of basic equality. “Do [politicians] believe that a fairer distribution of capitalism's bounty is essential to repairing a sick economy? Everything else is a subsidiary issue.”

David Brooks lays out the case for moderates and conservatives in Tuesday’s New York Times. He describes a vision “in which burdens are shared broadly, rather than simply inflicted upon a small minority . . . that does not try to build prosperity on a foundation of debt . . . that puts competitiveness and growth first, not redistribution.”

Much as I generally admire moderation, I have to go with the progressives on the solution to this problem and much of the problems facing our nation today. The sheer scope of the current healthcare crisis demands it.

Health costs consume sixteen percent of the economy and threaten to reach twenty percent by 2017 at their current rate of growth. In spite of this, an estimated forty-eight million people are uninsured and this number continues growing as well. Compounding the problem, falling tax revenues, thanks to massive tax cuts, are pushing Medicare into insolvency by 2016, a mere five years after the first Baby Boomers qualify for its services.

The healthcare system we have today is rather like a giant bong we have constructed or, more accurately, cobbled together in our collective attempt to satisfy all of our varied and sometimes conflicting self-interests. It does not really solve the problem but a hit on it now and then it makes us feel good about ourselves for a little while.

Those of us with good jobs that provide (partially) subsidized healthcare and enough income to afford co-payments and many other non-covered expenses, are analogous to Mr. Schomaker from Nebraska. Life is good. The noisy, nervous cat is quiet and we are feeling mellow. Everybody else is stuck in the role of Shadow the cat, squeezed into a box not quite big enough to accommodate us.

Rather like another cat in a box – an imaginary one belonging to Austrian physicist Erwin Schrödinger – there is a probabilistic chance we are actually receiving necessary healthcare services as needed and when we do it too often is just opiate for the masses that really does not make us better or our condition tolerable. Anyone who has trouble grasping the concept of verschränkung (“entanglement”) need only deal with an insurance claims office to realize the paradox of having coverage and simultaneously not being covered.

This is the problem with the conservative approaches. Even if we finally figured out the right way to do them, they will be insufficient for the task. It is not enough merely to think outside the box anymore – we need to tear down the box/bong, let the cat out, and start building something genuinely useful in its place. The rebuilding process need not necessarily be expensive, although this seems likely, but it must be far-reaching in scope. Obama seems to understand this.

“There's no easy formula for fixing our health care system,” he conceded when announcing Sebelius’s appointment. “[But] I didn't come to Washington to take the easy route . . . I came here to work for the American people. I came here to deliver the sweeping change that they demanded when they went to the polls in November.”

Obama and the rest of Washington had better prepare themselves because they will face growing discontent as more and more Americans find themselves relocating from the position of Schomaker to that of the cat in the bong/box. Never mind the uninsured or welfare recipients, we are talking about formerly insured workers and retirees who have seen benefits reduced or lost altogether. This group regards healthcare as an earned right, not a granted entitlement, even if not all of them have yet reconciled themselves to paying for it through their taxes rather than their tax cuts.

As Washington Post columnist Richard Cohen observes, “[Americans today] are soft, coddled. We actually thought we could have [it all ways] and that it would all somehow work out. This keeps being called the American dream. It was actually the American delusion . . . Obama will either figure out how to channel [the rage that follows] as FDR did or he will be flattened by it as Lyndon Johnson was.”

What is more, the people who, above all others, must hope the new healthcare system is not only better but also bigger than the current one are the affluent. If current trends continue unchecked, even they will eventually cease smoking the bong and find themselves in the role of Schrödinger’s stoned cat. As everyone knows, the hardest cat to stuff into a small box is a fat cat.

Monday, March 2, 2009

Page . . . Through

In later life, Paul Aurandt liked to say he that literally grew up in radio newsrooms. As with most things connected to him, this made for good copy but was more hyperbole with some basis in truth as opposed to literal fact.

In reality, Paul was the son of Harry Harrison Aurandt, a Pennsylvania man whose family had been Baptist ministers for five generations and Anna (nee Christensen) Aurandt, his Danish immigrant wife. Paul and older sister Frances were born and raised in Tulsa Oklahoma, where Harry Aurandt became a police officer. It was a typical childhood . . . for the first three years.

In 1921, Harry Aurandt was rabbit hunting with a friend, another police officer, when four armed robbers waylaid the two men. A gun battle ensued. Aurandt’s friend was shot below the knee in both legs, crippling him for life. Despite bullet wounds in his leg, lung, and liver, Aurandt managed to drive the other man and himself to a nearby farmhouse for help. He died from his injuries two days later.

Paul Aurandt’s own infancy coincided with that of radio. As a youth, the fatherless boy built homemade radio receivers in the family’s basement. At age fifteen, with encouragement from one of his high school teachers, he began working at a local radio station. He worked his way up to larger markets in Oklahoma City, Saint Louis, and then Chicago before ultimately going national.

In 1940, Aurandt traveled to the then-highly exotic location of Hawaii to cover the U.S. Navy and the concentration of its Pacific Fleet. Recalled to the mainland from this assignment, Aurandt was on a ship two days out of Pearl Harbor when the Japanese attacked.

In 1943, Aurandt enlisted in the Army but received a discharge a mere three months later. Rumors circulated it was a psychiatric discharge for deliberately wounding himself in the heel.

Aurandt told two different stories of the incident. In one, he signed up under the impression he was joining the Air Corps but ended up placed in the Infantry instead. After an argument with his superior about it, he was “thrown out.” In another version, Aurandt insisted he received an honorable medical discharge over “a little training accident . . . a minor cut on the obstacle course” but also conceded, “I cannot tell you the exact wording on my discharge.”

In 1951, looking to make a big name for himself, he became obsessed with what he regarded as negligent security at the Argonne National Laboratory in Chicago, where nuclear research was taking place. Authorities caught him attempting to scale a wall of the facility at midnight. A grand jury investigated but then threw out the case when naval officials swore Aurandt had told them in advance of his intentions.

In the 1950s, Aurandt told his ever-growing listening audience that he hated Senator Joseph McCarthy but professed himself a fan of the basic goals of McCarthyism. He published a column entitled “Eisenhower Wins” two weeks before the election to demonstrate his journalistic courage and foresight. However, he largely cancelled out any points he won on that episode by his certain prediction that Elvis Presley’s popularity was a fad and would not last a year.

In the 1960s, he see-sawed over the Vietnam War, staunchly defending the U.S. military presence there but sometimes fretting over our government’s aims and finally reversing himself when President Nixon widened the war. George Wallace’s 1968 Presidential campaign seriously considered him for its V.P. slot.

Aurandt once proclaimed, “The news media overthrew the United States government.” The subject here was not the election of Barack Obama, however. It was the 1970s and the target of his ire the Watergate scandal and Nixon’s subsequent resignation.

Long known for his conservative bent, Aurandt remained popular with many for his mainstream, common sense folksiness. This commentary from 2005, ruminating over a feared loss of U.S. greatness, makes it clear that as conservatism moved ever right over the decades, Aurandt moved right with it.

We sent men with rifles into Afghanistan and Iraq and we kept our best weapons in their silos. Even now, we're standing there dying, daring to do nothing decisive because we've declared ourselves better than our terrorist enemies, more moral, more civilized. Our image is at stake, we insist.

But we didn't come this far because we are made of sugar candy. Once upon a time, we elbowed our way onto and into this continent by giving smallpox-infected blankets to Native Americans. Yes, that was biological warfare. And we used every other weapon we could get our hands on, to grab this land from whomever, and we grew prosperous. And yes, we greased the skids with the sweat of slaves.

And so it goes with most great nation-states, which feeling guilty about their savage pasts, eventually civilize themselves out of business, and wind up invaded and ultimately dominated by the lean, hungry, up-and-coming who are not made of sugar candy.

Comments like these singled him out for a Presidential Medal of Freedom later that same year from George W. Bush.

To his credit, Aurandt never claimed to be a reporter. He saw himself as a journalistic personality, freely mixing facts with his own ideas and opinions. In this sense, he was a forerunner for contemporary radio personalities divergent as Rush Limbaugh to Don Imus.

One might consider that a questionable legacy all on its own. However, many have questioned the “factual” side of Aurandt’s programs, which he always stridently defended. He stands accused of reporting quotes and details out of context or even cherry-picking stories to make them better fit his interpretations and worldview.

Aurandt himself once said, “I don't think of myself as a profound journalist. I think of myself as a professional parade watcher who can't wait to get out of bed every morning and rush down to the teletypes and pan for gold.”

Jan Brunvand, a writer and expert on urban legends, carefully scoured a 1991 book of some of Aurandt’s favorite/most famous stories and anecdotes. He found at least nine known and debunked myths reported not only as true but also authenticated.

Whatever else his critics may say about Aurandt, he created a distinctive on-air persona that was all his own . . . except it wasn’t.

Multiple students of journalism history have noted distinct similarities between Aurandt’s on-air style and that of sportscaster Bill Stern, host of the popular Colgate Sports Reel, including a clipped staccato delivery with mid-sentence dramatic pauses. Stern introduced the later segments in his show as “Reel Two” and “Reel Three,” similar to Aurandt’s use of “Page Two” and “Page Three.” Stern even invented a segment he called “The Rest of the Story” that Aurdant made his own trademark.

I have spoken of Paul Aurdant in the past tense because he died this weekend in Phoenix Arizona, surrounded by family and friends, at the age of ninety from undisclosed causes. On the air, Paul always identified himself by his middle name, which was Harvey. This was my attempt at telling you a little bit of the rest of his story.

Aurdant did not use his family surname because his mother disapproved of radio as a career and wanted her son to be a doctor. Or it was because his father’s semi-martyrdom remained known in Tulsa and young Paul was determined to succeed on his own. Or maybe he was ashamed of his Danish mother and was determined to present himself as an all-American boy.

Which one of these reasons is the truth? Are any of them? Does it matter? They are all great stories. As the man who first used populist horse sense to blur the lines between reporting and commentary, Paul Harvey might never admit it but he could only agree the truth should never get in the way of a great story.

Page . . . through!