Rand Illusion

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On a lighter note, this is a great clip from the Colbert Report that has a little fun with the new found supporters of the novelist Ayn Rand. Specifically, with all this economic turmoil of late, not to mention a suspected socialist in the White House, right-wing pundits like femmebot Michelle Malkin and fellow Fox-friendly cretin Glenn Beck are looking to “author, philosopher and female comb-over pioneer” Ayn Rand for guidance. Stephen Colbert thinks they should move to an island all their own, where less work gets done on purpose.

On a more serious note, how can a novel that depicts a non-existent world, rallies the darker side of humanity, and intensifies the inequalities in society be held up as a model for American?

NYT: The Geography of a Recession

Over at the Grey Lady, they have created an excellent visual depiction of the geography of the recession. In particular, the map illustrates that job losses have been the most severe in the areas that experienced a big boom in housing, those that depend on manufacturing, and those that already had the highest unemployment rates. To see more click here.

Synopsis-

What does the worst recession in a generation look like? It is both deep and broad. Every state in the country, with the exception of a band stretching from the Dakotas down to Texas, is now shedding jobs at a rapid pace. And even that band has recently begun to suffer, because of the sharp fall in both oil and crop prices.

Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.
The Great Recession of 2008 (and beyond) is hurting men more than women. It is hurting homeowners and investors more than renters or retirees who rely on Social Security checks. It is hurting Latinos more than any other ethnic group. A year ago, a greater share of Latinos held jobs than whites. Today, the two have switched places.

The President Addresses Joint Session of Congress

President Obama lays out his comprehensive approach to addressing both the economic and fiscal crises facing the nation, and stresses the need to end the era of profound irresponsibility that has brought us to where we are today. In my opinion, Obama's first address to the joint session of Congress was excellent--he set a progressive and inclusive vision for our government, focused on the specifics of energy/healthcare/education, and emphasized the necessity for transparency, accountability, and personal responsibility.

Similarly, I am in agreement with the February 27th Editorial in the NYT, which states that "President Obama’s first budget recognizes what most of Washington has been too scared or ideologically blind to admit: to recover from George W. Bush’s reckless economic policies, taxes must go up... A credible pledge to reduce the deficit is imperative. Without it, foreign lenders — who financed the Bush-era deficits and are now paying for the stimulus and bailouts — could lose faith in the nation’s ability or willingness to repay in anything other than rapidly depreciating dollars. That would send interest rates up and the economy down, the worst-case scenario. Controlling the deficit is also necessary to sustain a recovery — when it comes."

The Corporation

This is a thought provoking documentary on the rise of the most dominant institution of our time. Winner of 26 international awards. Including, 10 Audience Choice Awards--2004 Sundance Film Festival.

Since the late 18th century American legal decision, the corporate organizational model has been given the legal equivalency of a person and has become a dominant economic, political, and social force around the world. This film takes an in-depth historical and psychological examination of the organizational behavior of the corporation. What this examination illustrates is that if the corporation were a person, then its behavior would be considered dangerously destructive and border on psychopathic. Furthermore, this film argues that the corporation's behavior has the ability to profoundly threaten our world and our future. However, the film leaves the viewer with hope--people with courage, intelligence, and determination can reorganize society and influence the political system in a positive way. The Corporation includes interviews with 40 corporate insiders and critics - including Noam Chomsky, Naomi Klein, Milton Friedman, Howard Zinn, Vandana Shiva and Michael Moore - plus true confessions, case studies and strategies for change.

FRONTLINE: Inside the Meltdown

I came across this excellent investigative report from FRONTLINE regarding what has happened to the economy. Specifically, the questions at the heart of Inside the Meltdown are--How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? From a more sociological analysis, this investigative report provides evidence that markets presuppose trust between participants and confidence that promises made will be kept. Moreover, it reinforces the insights of Emile Durkheim regarding the dependence of markets on the existence of shared values--the non-contractual basis of contract. I hope you enjoy!

Synopsis-

On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. "There was literally a pause in that room where the oxygen left," says Sen. Christopher Dodd (D-Conn.).

As the housing bubble burst and trillions of dollars' worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.

"Rumors are such that they can just plain put you out of business," Bear Stearns' former CEO Alan "Ace" Greenberg tells FRONTLINE.

The company's stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Federal Reserve Chairman Ben Bernanke acted. "It was clear that this had to be contained. There was no doubt in his mind," says Bernanke's colleague, economist Mark Gertler.

Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. "He more than anybody else appreciated what would happen if it got out of control," Gertler explains.

To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns' questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.

While publicly supportive of the deal, Treasury Secretary Henry Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.

Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.

The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.

"You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns," says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

Paulson pushed Lehman's CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.

FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. "We're no longer talking about mortgages," says economist Gertler. "We're talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading."

"I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems," says former Lehman board member Henry Kaufman.

Paulson was thunderstruck. "This is the utter nightmare of an economic policy-maker," Nobel Prize-winning economist Paul Krugman tells FRONTLINE. "You may have just made the decision that destroyed the world. Absolutely terrifying moment."

In response, Paulson and Bernanke would propose -- and Congress would eventually pass -- a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.

The Crises of Credit

The Crisis of Credit
Movie by Jonathan Jarvis

This two part series visualizes the crisis of credit and makes it very easy to understand. The simple credit crisis story is the following. In the fall of 2008, the credit crunch, which had emerged a little more than a year before, ballooned into Wall Street’s biggest crisis since the Great Depression. As hundreds of billions in mortgage-related investments went bad, mighty investment banks that once ruled high finance have crumbled or reinvented themselves as humdrum commercial banks. The nation’s largest insurance company and largest savings and loan both were seized by the government. The channels of credit, the arteries of the global financial system, have been constricted, cutting off crucial funds to consumers and businesses small and large.

In response, the federal government adopted a $700 billion bailout plan (TARP) meant to reassure the markets and get credit flowing again. But the crisis began to spread to Europe and to emerging markets, with governments scrambling to prop up banks, broaden guarantees for deposits and agree on a coordinated response.

The roots of the credit crisis stretch back to another notable boom-and-bust: the tech bubble of the late 1990’s. When the stock market began a steep decline in 2000 and the nation slipped into recession the next year, the Federal Reserve sharply lowered interest rates to limit the economic damage.

Lower interest rates make mortgage payments cheaper, and demand for homes began to rise, sending prices up. In addition, millions of homeowners took advantage of the rate drop to refinance their existing mortgages. As the industry ramped up, the quality of the mortgages went down.

And turn sour they did, when home buyers had to leverage themselves to the hilt to make a purchase. Default and delinquency rates began to rise in 2006, but the pace of lending did not slow. Banks and other investors had devised a plethora of complex financial instruments to slice up and resell the mortgage-backed securities and to hedge against any risks — or so they thought...

IRAN (is not the problem)

IRAN (is not the problem)-
I came across this excellent documentary about the failure of the American mass media to provide the public with relevant and accurate information about the standoff between the US and Iran, as happened before with the lead up to the invasion of Iraq. We have heard that Iran is a nuclear menace in defiance of the international community, bent on "wiping Israel off the map", supporting terrorism, and unwilling to negotiate. This documentary disputes these claims as they are presented to us and puts them in the context of present and historical US imperialism and hypocrisy with respect to Iran. It looks at the struggle for democracy inside Iran, the consequences of the current escalation and the potential US and/or Israeli attack, and suggests some alternatives to consider. The goal of this movie is to promote dialog and change the debate on Iran, so please consider organizing a screening, big or small, in your area. Enjoy and I look forward to any comments or debate.

High Noon: Geithner v. The American Oligarchs

This is an excellent talk that gives insight into the power struggles taking place among Washington and Wall Street. Former chief economist of the International Monetary Fund (IMF), MIT Sloan School of Management professor and senior fellow at the Peterson Institute for International Economics, Simon Johnson examines President Obama's plan for economic recovery.

February 13, 2009

BILL MOYERS: Welcome to the Journal.

The battle is joined as they say — and here's the headline that framed it: "High Noon: Geithner v. The American Oligarchs." The headline is in one of the most informative new sites in the blogosphere called: baselinescenario.com. Here's the quote that grabbed me:

"There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that — they say — will deliver you back to growth. The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?"

And here's the man who asked that question. Simon Johnson is former chief economist at the International Monetary Fund. He now teaches global economics and management at MIT's Sloan School of Management and is a senior fellow of the Peterson Institute. He is co-founder of that website I quoted — baselinescenario.com — where he analyzes the global economic and financial crisis.

Welcome, Simon Johnson to the Journal....

A Humbler Bonus

This article makes some great points regarding the current Wall St. Bonus dilemma. There are two things that stand out in my eyes. First, there are multiple forms of bonuses, and each includes different forms of payments with different histories, culture, and legal standing. Thus, it is important to look at the context in which these bonuses were formed and implemented in organizations in the market. Second, and more importantly, a bonus gives insight into the structural and social underpinnings of actors in the market. That is, not only are bonuses a specified amount and a particular form but also establish the appropriate social relations between employer and employee. The bonus has become a way for those within organizations to establish social status, social hierarchies, and power. I hope you enjoy the article.

By Viviana A. Zelizer
Llod Cotsen '50 Professor of Sociology at Princeton University

Posted January 31, 2009 | 03:11 PM (EST)

The bonus is being targeted as a villainous currency, a material expression of uncontainable executive greed. How can Wall Street keep dispensing such rewards at the same time it's begging our government for financial support? How could Citigroup pay out $4 billion in bonuses when it lost some $19 billion in 2008? And how can it be, as the New York Times reports, that Citigroup bankers are being so grumpy about their reduced bonuses? This year's bonus, according to one disappointed investment banking associate felt much like a "doorman's tip." Is it simply greed gone mad? Larry Meyers, who works for an Italian securities firm, offered a New York Times (January 30) reporter a different interpretation. "On Main Street, 'bonus' sounds like a gift," Meyers explained "But it's part of the compensation structure of Wall Street. Say I'm a banker and I created $30 million. I should get a part of that."

The bonus is indeed an odd form of payment, not quite a gift, but neither a wage or salary. Yet bonus recipients in all sorts of firms feel entitled to their bonuses. Bonuses, what's more, include different forms of payments with different histories, culture, and legal standing. Consider, for instance, variations among advance inducements to make some major commitments (e.g. enlistment in the army), after-the-fact lump-sum rewards (e.g. veteran's bonuses, retirement bonuses), discretionary rewards by employers (e.g. Christmas bonuses), payments tied to extraordinary individual achievements (e.g. overfulfilling sales quotas, landing a big account, inventions that become company property); payments tied to collective performance (e.g. shares of company profits, group productivity rewards), and more....

TED Talk: The Paradox of Choice

This is an excellent talk by Barry Schwartz regarding the paradoxical situation we face in the advanced industrial societies. As Americans, we assume that more choice means better options and greater satisfaction. But beware of excessive choice: choice overload can make you question the decisions you make before you even make them, it can set you up for unrealistically high expectations, and it can make you blame yourself for any and all failures. In the long run, this can lead to decision-making paralysis. And in a culture that tells us that there is no excuse for falling short of perfection when your options are limitless, too much choice can lead to clinical depression, a loss of community, and the unraveling of the social fabric of our lives.

In particular, Schwartz states that "Autonomy and Freedom of choice are critical to our well being, and choice is critical to freedom and autonomy. Nonetheless, though modern Americans have more choice than any group of people ever has before, and thus, presumably, more freedom and autonomy, we don't seem to be benefiting from it psychologically."

Schwartz integrates various psychological models for happiness showing how the problem of choice can be addressed by different strategies. What is important to note is that each of these strategies comes with its own bundle of psychological complication.

1. Choice and Happiness. Schwartz discusses the significance of common research methods that utilize a Happiness Scale. He sides with the opinion of psychologists David Myers and Robert Lane who independently conclude that the current abundance of choice often leads to depression and feelings of loneliness. Schwartz draws particular attention to Lane's assertion that Americans are paying for increased affluence and freedom with a substantial decrease in the quality and quantity of community. What was once given by family, neighborhood and workplace now must be achieved and actively cultivated on an individual basis. The social fabric is no longer a birthright but has become a series of deliberated and demanding choices.

2. Freedom or Commitment. Schwartz connects this issue to economist Albert Hirschman's research into how populations respond to unhappiness: they can exit the situation, or they can protest and voice their concerns. While free-market governments give citizens the right to express their displeasure by exit, as in switching brands, Schwartz maintains that social relations are different. Instead, we usually give voice to displeasure, hoping to project influence on the situation.

3. Second-Order Decisions. Law professor Cass Sunstein uses the term "second-order decisions" for decisions that follow a rule. Having the discipline to live "by the rules" eliminates countless troublesome choices in one's daily life. Schwartz shows that these second-order decisions can be divided into general categories of effectiveness for different situations: presumptions, standards, and cultural codes. Each of these methods are useful ways people use to parse the vast array of choices they confront.

4. Missed Opportunities. Schwartz finds that when people are faced with having to choose one option out of many desirable choices, they will begin to consider hypothetical trade-offs. Their options are evaluated in terms of missed opportunities instead of the opportunity's potential. Schwartz maintains that one of the downsides of making trade-offs is it alters how we feel about the decisions we face; afterwards, it affects the level of satisfaction we experience from our decision. While psychologists have known for years about the harmful effects of negative emotion on decision making, Schwartz points to recent evidence showing how positive emotion has the opposite effect: in general, subjects are inclined to consider more possibilities when they are feeling happy.