A French-American perspective on politics, culture, current events, religion, languages, and education
Friday, February 27, 2009
Picture of the week.
Don't you love it?
A carnival float depicting a flying U.S. President Obama with Europe being dragged along is seen during the traditional carnival parade in Duesseldorf, Germany, on Monday, Feb. 23, 2009. Rose-Monday-Parades in the carnival strongholds of Duesseldorf, Mainz and Cologne are watched by hundreds of thousands of revelers and mark the highlights of Germany's carnival season. (AP Photo/Frank Augstein)
In case you are also getting fed up with the anti-government-intervention/anti-regulation rhetoric of the conservative free-marketer Republicans who have nothing better to offer as a remedy for the economic crisis than more of the same (tax cuts, and tax cuts and even… more tax cuts! - where does it end, no one knows...), here are a few facts and dates that show the correlation between deregulation and the current financial meltdown to throw at them :
-1999 : the Gramm-Leach-Bliley Act eliminated the Glass-Steagall Act of 1933 which controlled speculation and separated investment and commercial banking activities, opening up competition among banks, securities companies and insurance companies (law was passed to legalize mergers like Citibank and Travelers Group, an insurance company, and in 1998)
Other restrictions which prohibited bank holding companies from owning non-financial institutions were also repealed by the same law.
-2000 : The 2000 Commodity Futures Modernization Act, “regulatory relief” provided deregulation for products offered by banking institutions. The law was partly written by Texas Sen. Phil Gramm, the free-marketer Republican chairman of the Senate Banking Committee AND lobbyists for Enron (the bill also exempted from regulation energy trading on electronic platforms - see the Enron scandal)
- 2004 : On April 28 the SEC (Securities and Exchange Commission) ruled that investment banks got rid of the Net Capital Rule which allowed "voluntary" inspection of the SEC and also meant that banks could essentially determine their own net capital. (In late September 2008, the commission decided to end the 2004 program of voluntary regulation.).
In fact, corporate self-regulation was the philosophical cornerstone of the Bush economic (and environmental) policy. But following the meltdown, even Christopher Cox, the former U.S. Securities Exchange Commission Chairman and longtime proponent of deregulation admitted lack of oversight helped cause the financial crisis.
"The last six months have made it abundantly clear that voluntary regulation does not work," Cox said in a statement, adding that the program had been shut down and authority to regulate investment banks had been transferred to the Federal Reserve. (NYTimes)
Don’t get me wrong: I’m all for capitalism (since there is no alternative anyway) and freedom but not free-market anarchism. Regulated capitalism is and has always been the right way to go and it suits our philosophy on this blog that true solutions come with moderation and that excess is often bad.
I’m always wary of incongruous and easy historical parallels but nonetheless I find it somewhat ironic than the Great Depression also followed a period of more laissez-faire economic policies in the 1920s (doing away with the regulations of the Wilsonian progressive era) during which the top tax rate was lowered to 25 percent and the stock market began its spectacular rise.
It is basically the same recipe and only the ingredients have changed a bit: too much borrowing, too much speculation with other people's money, and too little regulation.
In 2006 we wrote a post on the now-famous derogatory term McMansions and how the size of American homes had more then "doubled since 1950 with a median single-family home at 2,349 square feet (218 sq meters) against 1,570 square feet in 1980."
This increase in house size is also true in Europe but to a lesser extent (927.85 square feet or 86.2 m² in 2000- a rise from the 731.9 square feet or 68 m2 in 1970).
Well, it looks like the current economic crisis is taking its toll on big houses. According to this week's Economist, "Small is now Beautiful".
The trend is to scale back. According to the Census Bureau, the median size of home starts dropped to 2,114 square feet in the fourth quarter of 2008, down more than 100 square feet from the first quarter of the year. And 100 square feet is a significant slice of space.
The other trend in housing may be to favor renting over owning homes.
Here the word "reshape" should be taken literally in its physical and geographical sense for Mr Florida makes a link between the economy and geography :
To a surprising degree, the causes of this crash are geographic in nature, and they point out a whole system of economic organization and growth that has reached its limit. Positioning the economy to grow strongly in the coming decades will require not just fiscal stimulus or industrial reform; it will require a new kind of geography as well, a new spatial fix for the next chapter of American economic history. He even sees the end of suburbanization and low-density sprawl and because "the economy is driven by key urban areas; a different geography is required".
Mr Florida also sort of debunks the myth of ownership as part of the "American Dream":
If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there.
I don't necessarily agree with him on this. I think it has been part of the American Dream since the Letters of an American Farmer and Jefferson's dream of an ownership society. However, faced with this crisis, the Americans may have to reshape their Dream indeed and be a bit more creative and flexible with regard to their "pursuit of happinness" .
Unfortunately such outbursts have become rather common on MSNBC (think of Joe Scarborough, Chris Matthews or even Keith Olbermann) but Santelli’s resentment is so typical of what we have heard from other divisive right-wing disconnected populists over the last decade (the Rugh Limbaughs and other Sean Hannitys) that it gets really REALLY old and tiring – especially in hard times when other people should really be angry.
Those free-market ideologues should have the decency of keeping a low profile since it is precisely their extreme elitists’ ideologies of deregulation and Wall Street values of making an easy buck that got us into this mess.
It is not the government that’s promoting bad behavior, Mr Santelli, it is THE BORKERS, THE BANKS, WALL SREET and DEREGULATION and GREEDY POPULISTS like you that have been promoting bad behavior.
But Mr Santelli lives and breathes through Wall Street and sees nothing else. His world is a world made only of losers and winners (in which he is a winner), and of course if you happen to be a “loser”, it’s because you deserve it. If you are behind in your mortgage, you must be a loser so why “Subsidize the losers’ mortgages”?
Santelli should leave the trading floor every once in a while and see what the world is like out there.
No, not everyone behind on their mortgage knowingly took out a loan they were incapable of making payments on. In this day and age, job losses happen (in addition to the usual divorce, sudden illness, and so forth).
For Santelli to turn to a room full of brokers and traders making (not long ago anyway) six figures and say “This is America” is very telling of his disconnect from the rest of us.
As he put it later when he was grilled by Chris Matthews, there is indeed a “philosophical” issue here, and his view is indeed typical of extreme right-wing ideologues of his kind who think that just because some people might (emphasis on “some” and “might”) take advantage of the system (any system) then there should be no system – no healthcare, no welfare, no bailout, no nothing! Those who can’t make it may as well deserve death.
This economic and financial crisis is having such a great impact on our society that many of the free-market ideologues are bound to be either in denial, or become liars, schizophrenic or victims of post-traumatic stress - it is after all Hank Paulson, who under G. W Bush (both big fans of deregulation) first nationalized the cost of bad loans made by financial institutions.
And for the Republicans to now complain about government spending and get away with it is something else - as you can see on this chart, the debt has tripled under Reagan, it shrank under Clinton, and went up again with Bush now reaching about 8.7 times its 1980 level.
I suppose it is ok when the spending goes to phony star-war programs or unnecessary wars but not so much to help lower-middle class Americans who are losing their homes!
The good thing is that Santelli is so far out there that his call for a “tea party” from the trading floor of the Chicago Mercantile Exchange will be the laugh of the nation.
The moral of the story ? It is that there is nothing moral about it. Populism and anger still pay off in America :
Santelli, who doesn't have an agent, said he already has heard from several publishers, a prospect that interests him. And he previously has enjoyed doing talk radio. That said, he noted, "I'm pretty happy with what I do."
If nothing else, his value to CNBC has increased demonstrably with the exposure his commentary on the housing plan has brought to the cable network owned by General Electric's NBC Universal. His video has set a record at CNBC.com, scoring many times as many page views as the site's previous leader, a 2007 rant by Jim Cramer.
"I've been associated with them 14 years, 10 years on the payroll, and you never see me much in commercials and whatnot," Santelli said. "Boy, has that changed in the last 36 hours."
On Friday the market fell to a 6-year low. It did not seem to like the idea of nationalizing the banks. In fact, it had fallen even deeper earlier (down to an 11-year low) when the head of the Senate Banking Committee said that some banks might have to be nationalized for a while. (NPR)
I can understand that Wall Street loathes the mere idea of nationalization , but what about the rest of America?
President Obama on Friday linked the economic concept of "nationalization" to "culture" when he compared the situation in the U.S. to that of Sweden in the 90s (a country that "took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again") :
Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America's different. And we want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country. (ABC)
I am not an economist but when many of them, including Nobel prize winner Paul Krugman, say nationalization is the only way out of the current financial crisis, given that the nation's largest banks are now carrying a crushing half a trillion dollars in bad debt (ABC), I tend to listen.
And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out. Oh, and not a week goes by without the FDIC taking several smaller banks into receivership. Nationalization is actually as American as apple pie. (Paul Krugman, NYTimes)
Personally, I like the pragmatic approach of the British. They may still fail, but it seems to me that they had the merit of being flexible and did not let free-market ideology blind them (they started nationalizing some of their banks as early as last October simply because they had to). I think the U.S. has suffered enough from an all-ideological approach.
Other Europeans, such as the French have always had a very complicated love-hate relationship with nationalization, and the French have been divided over this question along party lines, although it is not a concept as frightening to the French people as to a lot of Americans.
Interestingly the current conservative government in France (whose platform included precisely the privatization of the remains of the public sector) has agreed that nationalization may be necessary - just for a while anyway.
Nationalization is "not a dirty word", French Finance Minister Christine Lagarde told Reuters on the sidelines of an event at Columbia University in New York.
"It's sometimes a tool and a way to restore a situation for a temporary period of time -- and then there's privatization again." (Reuters)
Somewhere beneath all the inane clichés that politicians and the media bandy about, there lies a true Franco-American relationship that stems from a deep appreciation and fascination with each other's language, culture and society. This is where we live, below the radar, exploring the mundane, finding pleasure in the details, and sharing our passion for another culture with our students. We are educators, teaching English in Paris and French in Boston. Trained and training at the Sorbonne and Harvard, respectively, we choose here to let our café conversation spill out onto the sidewalk. Others should feel free to eavesdrop or join the conversation through comments.