The truism that "Americans love an underdog" enjoys widespread belief and application. The Tea-Party phenomenon fuels underdog challenges to established political elites (although given their "astroturf" status, one wonders whose interests these challenges actually represent). Scott Brown commands the underdog-loving spotlight. Whenever an establishment appears to be challenged by an outsider, the image of populists vs. elitists seems to follow within instants.

Thomas Frank, however, whose What's the Matter With Kansas explains the Tea Party phenomenon at least as well as any other analysis, thinks that Scott Brown's victory should ignite a populist fire within the Obama Administration. Writing before President Obama's State of the Union Address and his subsequent appearance with the House GOP in Baltimore, Frank challenged the President to expose the GOP's faux-populism--expressing rage over the bailouts while also blocking efforts at financial reform--by challenging them over this very set of issues:

What you need to do now is pick a fight, preferably one that forces the obstructionists of the right to take the side of privilege. You need a battle that will expose their populism and their protest for the pretenses they are. Your target is obvious: the financial industry, from Wall Street to the credit card companies. Yes, taking them on will cost you campaign contributions for 2012, but take Wall Street down a few pegs and Americans might start to remember what it was their grandparents loved about Democrats all those years ago.

TIME magazine thinks that Obama is following this script. Their piece, "Can Bashing the Banks Help Obama?" oozes with outsider vs. establishment/elite face-offs. Noting that earlier Administration jibes at Wall Street bankers had produced few policy changes, TIME's Grunwald and Scherer nevertheless state that "the latest bank-bashing does indicate a new strategic approach to [Obama's] second year, inspired by the same public wrath that produced [Scott] Brown's upset."

That means more populism and confrontation, less deference to Congress. It's a shift from an inside game to an outside game, from passive leader of a divided party to active agitator for change. The idea is to take an uncompromising stand, make a clear case to the public and then force lawmakers to choose sides — as opposed to announcing general principles, letting Congress hash out its own details at its own pace and then desperately cutting deals to try to cobble together 60 Senators.

Additionally:

So now they want to draw bright lines: Are you with us or Wall Street, with ordinary families or greedy titans? They figure that if they can't get a legislative victory, they'll get a potent political issue.

But Republicans are already accusing Obama of sacrificing reform on the altar of politics, and it's true that the bright-line strategy could scuttle whatever chances there might have been to build bipartisan consensus in the Senate

We saw this in both the State of the Union Address, when Obama challenged the GOP Senate leadership to assist in governing, and again in Baltimore, where the President repeatedly drew distinctions between House Republican and Administration policy preferences. (Hmm. Recall, this is potentially a very polarizing device [see, particularly, the last paragraph].)

TIME says:

It's no coincidence that the day before Obama announced his latest push to crack down on big banks, his confidants David Axelrod and Valerie Jarrett met with Troubled Asset Relief Program (TARP) watchdog Elizabeth Warren, the intellectual mother of the consumer agency and the most prominent populist advocate for financial reform. "They made it very clear that Wall Street needs to stop acting like nothing has changed," Warren told TIME.

(For more on Warren's views, see this awesome clip from the Daily Show. And, yes, I want to make out with her, too.)

Also, the White House seems to have remembered that they have ex-Federal Reserve Board chairman Paul Volcker lurking around the Executive Branch, for, as TIME notes:

It's also no coincidence that the President made his announcement while standing next to the unlikeliest populist advocate for financial reform, 82-year-old former Federal Reserve chairman Paul Volcker, a previously marginalized Obama adviser who had chastised the Administration for making insufficient efforts to limit the size and risk profiles of big banks. The White House is tired of complaints that its economic team — especially Treasury Secretary Timothy Geithner, the former New York Fed president who helped bail out AIG and other failing firms — is too close to Wall Street. Bringing the legendary gray eminence in from the cold — Obama called his plan to ban proprietary trading by commercial banks "the Volcker rule" — not only lent capitalist gravitas to populist bank-bashing but also reinforced the message that the Administration will not be outflanked in its assaults on Big Finance.

The details of the Volcker rule will be more fully explained as early as Tuesday, although it is clear Mr. Volcker advocates a strict separation between commercial banking and other financial services activity:

The BBC has obtained a recent article by Mr. Volcker for a specialist magazine, OMFIF (Official Monetary and Financial Institutions Forum). In it, Mr. Volcker made it clear that he wants a complete separation of commercial banks from the financial markets.

"We simply cannot afford further financial market breakdowns," said Mr. Volcker's article.

"I favour a separation of commercial banking activities that are essential to the functioning of our financial system from more speculative trading-oriented capital markets activities that are not.

"To lower the risk and vulnerability of commercial banks, I favour prohibiting their ownership or sponsorship of hedge funds, private equity funds, and large-scale purely proprietary trading activities in securities, derivatives or commodity markets.

"These measures would directly eliminate potential areas of risk, reduce conflicts of interest and focus management attention on the core functions of banking."

The BBC points out that Volcker's ideas enjoy traction among banking analysts:

His ideas are strongly supported by many people who follow retail banking, who feel the reckless property related-lending that led to the crisis was a result of the swashbuckling culture of Wall Street investment bankers that now control finance.

"The investment bankers had effectively achieved something extraordinary in a period of as little as 20 years - control over many of the largest retail deposit-taking institutions in the world," says Michael Lafferty, chairman of Lafferty Group, a global banking research house.

"My personal view is that retail banking and investment banking are like oil and water - and will never really mix.

"We have at last the opportunity to return banking to real bankers, concerned about customers and with a proper appreciation of risk, and to help markets break out of their extreme tendency for booms and busts of the past three decades."

Awareness of popular anger at the global financial elite extends even to the World Economic Forum in Davos, Switzerland, where bankers focused concern on the "real economy."

Despite the bankers' recognition of the need for reform, specific criticisms of the Volcker rule have been expressed:

The IMF's Strauss-Kahn called for a speeding up of new rules on capital requirements for banks.

"The question of coordinating this financial sector reform is top priority. We're not going exactly in the right direction," Strauss-Kahn said in an oblique reference to Obama's proposals to bar commercial banks from proprietary trading and ties with hedge funds and private equity funds.

Discussions at the Davos meetings, in fact, challenged the necessity of regulating institutions deemed "too big to fail," suggesting instead the creation of a transnational resolution fund to prevent future financial crises, although it should be recognized that "finding a consensus on how to limit the potential cost to taxpayers of emergency bail-outs could lead to critical delays."

At a bigger picture level, the issue of populist appeals generated a pseudo-exchange between David Brooks of The New York Times and Matt Taibbi of Rolling Stone.

Brooks, in a piece called "The Populist Addiction" pretty much outlines the worst aspects of populism, describing more European fascism than the nineteenth century Populist movement from whence the notion—populism—takes its name. He does, however, nicely differentiate the left- and right-wing versions of the contemporary populist beast, but he sees populist appeals as attempts by political elites to gain more power:

Ever since I started covering politics, the Democratic ruling class has been driven by one fantasy: that voters will get so furious at people with M.B.A.'s that they will hand power to people with Ph.D.'s. The Republican ruling class has been driven by the fantasy that voters will get so furious at people with Ph.D.'s that they will hand power to people with M.B.A.'s.

Taibbi responds pretty forcefully, calling Brooks' piece "a passionate defense of the rich" while claiming to be the target of the shot Brooks takes at the end of his fourth paragraph when he argued that "with the populist narrative, you can just blame Goldman Sachs [for the entire financial crisis]." Taibbi did, after all, call Goldman Sachs "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

On the one hand, at least some elements of the journalistic and economic elites have perceived that citizens/consumers/voters in the West perceive those elites to be completely out of touch with the lives normal citizens/consumers/voters live. They can either accept reform or generate even more cynicism, though if the return are high enough, they might yet gamble that citizens/consumers/voters and their interests are not worthy of action to stop the boom and the bust. So that's what's on the other hand: How much reform will the banking elites who constitute Thomas Friedman's Electronic Herd be willing to consider in the public interest of the political communities where they profit?

Pakistan Under Seige

Terrorists/militants struck multiple targets on multiple occasions this week in Pakistan.

Pakistani Army HQ was attacked by gunmen. These gunmen seized hostages. Pakistani commandos surrounded and then stormed Army HQ, freeing the remaining/surviving hostages.

A suicide bombing in Peshawar is interpreted as a warning to the Pakistani government.

The Pakistani government vowed an anti-Taliban campaign in the region surrounding Peshawar. Some argue this should embolden the U.S. in its own campaign against the Taliban.

Then, today (Thursday), multiple coordinated attacks rocked Pakistan again, with terrorists/militants dressed in police uniforms assaulting multiple law enforcement agencies in Lahore. The Taliban claimed responsibility.

Some Pakistani police forces blamed India's intelligence service for the attacks.

Interestingly enough, Afghanistan's ambassador to the United States blamed Pakistan's intelligence service, the ISI, for an attack on India's embassy in Afghanistan.

Global Economic Future

In case you missed it, The Economist ran a special report about the global economic future. It is not particularly happy reading, since recovery from a deep recession to a "new normal" may involve lower output and (thus) higher unemployment:

In a recession firms shed labour and mothball capital. If workers are left on the shelf too long, their skills will atrophy and their ties to the world of work will weaken. When spending revives, the recovery will leave them behind. Output per worker may get back to normal, but the rate of employment will not.

Something similar can happen to the economy’s assembly lines, computer terminals and office blocks. If demand remains weak, firms will stop adding to this stock of capital and may scrap some of it. Capital will shrink to fit a lower level of activity. Moreover, if the financial system remains in disrepair, savings will flow haltingly to companies and the cost of capital will rise. Firms will therefore use less of it per unit of output.

The result is a lower ceiling on production. In the IMF’s latest World Economic Outlook, its researchers count the cost of 88 banking crises over the past four decades. They find that, on average, seven years after a bust an economy’s level of output was almost 10% below where it would have been without the crisis.

This is an alarming gap. If replicated in the years to come, it would blight the lives of the unemployed, diminish the fortunes of those in work and make the public debt harder to sustain.

Additionally:

This special report will argue that although a “new normal” for the world economy is now in sight, it will be different from the old normal in a number of ways. Demand in rich countries will remain weak and emerging economies will not be able to compensate. The report will explain why many governments will have to keep their stimulus packages going for longer than expected, or face entrenched unemployment that will permanently lower their economic potential. Public debt will rise so that private debt can fall. The banks, the report will show, will remain cautious about lending again, which will slow up the recovery but also make companies more careful about their investment; and the securitisation markets that became so fashionable during the boom will recede, though not disappear altogether.

A persistent shortfall in demand will weigh on supply. By the time this crisis is over, as many as 25m people may have lost their jobs in the 30 rich countries that belong to the Organisation for Economic Co-operation and Development (OECD). The danger is that several million may never regain them. The mobilisation of capital will be fitful as the financial system copes with past mistakes and impending regulation. The travails of finance, in turn, may prevent the recovering economy from backing and exploiting innovations.

Like Japan’s bubble years, the years that led to the global financial crisis have left a heavy legacy of debt on the balance-sheets of banks and households, especially in Britain and America.

Something to Consider

Two--no, three--articles to consider:

The failure of economists to predict Depression 2.0. (And some questions about financial economics.

Robert Lucas rebuts here.

My half-witted take: the efficient-markets hypothesis rests on...never having interacted with real people or something...seriously, how much irrationality dances in front of your eyes every day when walking around in the world?...have you watched people drive lately?)

How/why economists failed in predicting Depression 2.0. Krugman writes long but well.

Remember Keynes

Some self-referential B.S., but remember this stuff when evaluating GOP economics analysis/arguments.

Capitalism American Style

It's not in very good shape, regardless of any sort of "recovery". By that, I mean the structure of capitalism is morphing, not really into right-wing fears of incipient "socialism" (there isn't much government ownership of the means of production, after all), but into plutocracy. Adam Smith wasn't envisioning plutocracy, by any means. Evidence follows---

While intervening in financial crises that threaten to sink the whole economy is understandable, this is ridiculous:

Last October, Congress passed the Emergency Economic Stabilization Act of 2008, putting $700 billion into the hands of the Treasury Department to bail out the nation’s banks at a moment of vanishing credit and peak financial panic. Over the next three months, Treasury poured nearly $239 billion into 296 of the nation’s 8,000 banks. The money went to big banks. It went to small banks. It went to banks that desperately wanted the money. It went to banks that didn’t want the money at all but had been ordered by Treasury to take it anyway. It went to banks that were quite happy to accept the windfall, and used the money simply to buy other banks. Some banks received as much as $45 billion, others as little as $1.5 million. Sixty-seven percent went to eight institutions; 33 percent went to the rest. And that was just the money that went to banks. Tens of billions more went to other companies, all before Barack Obama took office. It was the largest single financial intervention by Treasury into the banking system in U.S. history.

But once the money left the building, the government lost all track of it. The Treasury Department knew where it had sent the money, but nothing about what was done with it. Did the money aid the recovery? Was it spent for the purposes Congress intended? Did it save banks from collapse? Paulson’s Treasury Department had no idea, and didn’t seem to care. It never required the banks to explain what they did with this unprecedented infusion of capital.

And then there's this analysis:

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

This is all particularly galling when the same corporate interests who picked the Treasury's pockets also spend large sums of money to lobby against national health insurance.

Bush Legacy Watch: Shoe Thrower

I wonder if W. even realizes the significance of shoes being thrown at him by an Arab.

During the invasion U.S. soldiers witnessed Iraqis throwing shoes at murals of Saddam Hussein: it is an act of profound disrespect.

Apparently, the reporter who threw his shoes at President George W. Bush hates both the U.S. and Iranian role in Iraq.

More Apologies and a Very Sad Explanation

I apologize for the lack of posts, but my time with the blogosphere has become limited due to tragic circumstances at my workplace.

As noted, "Some Defunct Economist" waits tables. The restaurant I work at is something of a local institution. A few of the servers have been there for years, and one in particular has worked there since the late '70s.

This last weekend she went to the hospital with some chest pains and learned that she has multiple health problems, including cancer, which has metastasized.

She won't be back to work.

Since we are a small organization, the rest of us on the schedule have had to alter our schedules. I and a couple of other servers will be pretty much living there for the next few weeks.

I am very depressed by these events, such that even when I find time in front of my roommate's laptop I don't even want to think about stuff outside my direct line of sight.

I apologize for my current lack of zeal. Perhaps in a couple of weeks I'll do more than simply complain, but until then, keep the faith by doing two things: reading Krugman and expressing overt exasperation with both neoconservatives and supply side charlatans.

Thanks,

JJV

Apologies & Some Summarizing, Updated

My apologies: posting is light at I am again having some computer issues involving a spastic video card that is producing double vision. I will try to produce something later today/night but between my work schedule and my bum machine I will not be posting too much until one or another of the situations resolves itself.

It is 11 degrees here and snowing.

On to other news.

David Gregory is the new host of Meet the Press.

Obama is promising big infrastructure projects, while Krugman, who advocates such policies, worries that they will take a while--up to a year--to rally the real economy since they take time to plan and execute. So, hopefully, extended unemployment benefits and food stamps for the short-term? They provide the best bang for the buck, anyway.

Obama, being no idiot, knows this, and honestly admits that the economy will get worse before it gets better.

Obama's honesty is quite refreshing, but also states the incredibly obvious: American citizens read/heard/watched on Friday, when the latest jobs report announced that over a half-million jobs had been "lost" in November alone.

Robert Reich wonders if we can call Depression 2.0 a Depression yet. When professional economists are freaking out, well, things are pretty grim.

It may not look like it at first, but the fact the Senate refuses to let Vice President-Elect Joe Biden join in its deliberations is probably a very good thing for those sensitive to separation of powers, checks and balances, a non-tyrannical executive branch, civil liberties, and the overall general reasons constitutional republics are preferable to banana republics.

The AP reports on Freddie Mac's drive to free itself of regulatory control. Wow, they spared no expense.

George Will often makes no sense. Here, he continues in the same vein, inventing a new ideology, reactionary liberalism, and then ascribing it some curious goals. Ysglesias' take on Will's column is here. My fascination is this: it was conservatives not liberals who turned "liberal" into a dirty word by doing exactly what Will does here, which is to make stuff up and rhetorically link liberals to it. Will's market fundamentalism might be amusing were he not so insistent on not learning anything at all from recent economy history.

Well, back to watching the Vikings try to end the Lions' winless streak and then off to work.