Obama, Wall Street, & Public Perception

The Necessity of Choosing Sides

The guerilla wins if he does not lose. The conventional army loses if it does not win.

--Henry Kissinger

What does Kissinger's famous maxim about guerilla warfare have to do with Barack Obama and Wall Street?

That in every great engagement, there are always two battles being waged: the real one, and the one over people's perceptions.

It's this latter war that Barack Obama is losing badly vis a vis Wall Street (although the real war -- to tame and hold Wall Street to account -- ain't going so great, either).

The New York Times' Frank Rich cuts to the quick of Obama's problem:

Since Obama has neither aggressively pursued the crash’s con men nor compellingly explained how they gamed the system, he sometimes looks as if he’s fronting for the industry even if he’s not. Voters are not only failing to give the White House credit for its economic successes but finding it guilty of transgressions it didn’t commit.

--Frank Rich, "What Happened to Change We Can Believe In?"; The New York Times (10/24/2010)

Exactly.

President Obama, time to (re)read your Machiavelli (and Kissinger).

P.S.: best line from "Inside Job," reviewed on this blog previously: asked why there’s been no systematic investigation of the 2008 crash, economist Nouriel Roubini answers: “because then you’d find the culprits.” Graphic (above) from NY Times.

Obama & Wall Street: 'Moderation in the Pursuit of Justice'

The Limits of Triangulating

Now that Congress has passed financial reform legislation, aren't people upset about past Wall Street abuses just being scolds and cranks?

Shouldn't they -- we -- just get over ourselves?

My answer is "no," because the abuses aren't past.

On the contrary, shockingly little has changed (never mind accountability for misdeeds).

Financial Reform Scorecard

To review, here is a litany of all the things that went wrong leading up to the crash:

Wall Street actively encouraged subprime lenders to lower their already low standards — and then bought those loans knowing they were likely to default, but not caring. Traders up and down Wall Street made millions in bonuses selling products that were “ticking time bombs.” Moody’s, one of the three big credit ratings agency, quadrupled its profits in seven years by handing out triple-A ratings like candy. Regulators ignored impassioned entreaties to investigate fraudulent lending practices and excessive leverage. These were not anomalies. This was standard operating procedure in the years before the crisis.

--Joe Nocera, "Still Stuck in Denial on Wall Street"; The New York Times (10/2/2010)

So all that's different now, right?

Not exactly.

The big banks aren’t being broken up, the way they were in the 1930s. Bankers aren’t being hauled off to jail. No serious effort has been made to rein in executive compensation — or even to claw back millions of dollars in bonuses that were based on what turned out to be illusory profits. Most of the financial practices and products that brought us to the brink remain legal under the new Dodd-Frank legislation — though they will, finally, be regulated.

--Joe Nocera, "Still Stuck in Denial on Wall Street"

Splitting the Difference

When confronted with knotty social issues -- gays in the military, abortion, immigration policy, etc. -- splitting the difference (dubbed "triangulating" in the Clinton years) is smart politics.

When confronted with overwhelming evidence of egregious lawbreaking and greed, the consequences of which have cost millions of people their jobs, homes, and savings -- triangulating is a terrible political strategy.

FDR understood that when he said, "“Wall Street is unanimous in its hate for me — and I welcome their hatred."

So did Barry Goldwater, that bleeding heart Socialist, who famously said: 'extremism in the defense of liberty is no vice. And moderation in the pursuit of justice is no virtue.'

Obama, Lincoln, & Financial Reform

George McClellan Redux?

Politicos will recall that much was made of Barack Obama's admiration of Abraham Lincoln during and just after the 2008 Presidential campaign.

In particular, Obama was said to have been influenced by Doris Kearns Goodwin's book, "Team of Rivals," which studied Lincoln's management style.

Clearly, in picking former adversaries like Hillary Clinton for his Cabinet, Obama showed that he subscribes to a similar philosophy.

Ironies

Almost two years later, the parallels with Lincoln's administration look apposite, indeed.

Unfortunately for Obama, the historical figure he is starting to most resemble isn't Lincoln, but George B. McClellan, Lincoln's top general during the early stages of the Civil War.

Like Obama, McClellan was a hugely popular figure; also like Obama, he lacked the "go for the jugular" instinct needed to vanquish a mortal enemy (Lincoln famously said of McClellan, "if General McClellan does not want to use the army, I would like to borrow it for a time").

Of course, Obama's foe isn't the Confederacy.

Rather, it's Wall Street -- and the rigged, stupefyingly complex financial system it designed and (still) sits astride.

The turning point in the Civil War only arrived once Lincoln installed Ulysses S. Grant and William Tecumseh Sherman as his top generals (after running through a series of others).

It remains to be seen who will be the U.S. Grant and William Sherman of financial reform, circa 2010.

U.S. Presidents & NFL Football Players

Obama: More Like Kevin Garnett -- or Kwame Brown (Kwame who??)

Even after all the interviews, debates, and due diligence, the choice is ultimately still a crap shoot, taking years before it's apparent whether the choice is a Hall of Famer or a bust.

The NFL draft?

Try, picking U.S. presidents.

Just as in pro sports, sometimes consensus first picks turn out to be busts -- and sometimes lowly ranked players (or walk-on's!) end up being Hall of Famer's.

At least in my view, here are the four categories that (most) U.S. Presidents fall into:

1. Consensus 1st Pick: 'What You See is What You Get'

George Washington, Dwight D. Eisenhower: both highly regarded national leaders who literally were drafted to serve as President. Their successful Presidencies were characterized by the same leadership skills, judgment, etc. they exhibited prior to their election.

2. 1st Round Busts: U.S. Grant, Warren G. Harding.

Both men were central casting's idea of what a U.S. President should look like -- and disappointments (or worse) in office.

Call them the "Ryan Leaf's" of presidential politics (Leaf was chosen second by the San Diego Chargers in 1998, right after Peyton Manning -- and never heard from again).

3. Late Round (or undrafted) Hall of Famer: Abraham Lincoln, Harry Truman.

Lincoln had achieved some measure of fame debating Stephen Douglas, but was largely unknown nationally prior to his election. He emerged in 1860 only because the leading Republican contenders (William Seward, Salmon Chase) deadlocked.

"Plain-speaking" Harry Truman emerged from FDR's shadow to become a near-great (and favorite underdog) President.

4. Late Round (or undrafted) Bust: Jimmy Carter. Obscure former Georgia Governor with a squeaky clean image that was especially appealing after Nixonian sleaze.

Great ex-President, mediocre President.

So where does that leave Barack Obama and George W. Bush?

Obama is like the high school phenom so talented that they skipped college and went directly to the pro's -- as the very first pick, no less.

Time will tell whether he turns out be another Kevin Garnett or LeBron James -- or Kwame Brown (Kwame who?).

George W. Bush, meanwhile, is like the walk-on who got installed as starting NFL quarterback not because of a stellar college career -- but because he was the owner's son.

Obama Seeks White House "Short Sale"; Creditors Balk

White House "Short Sale"

Washington, D.C. (April 1, 2010) --President Barack Obama today announced plans to sell the White House as part of the government's ongoing efforts to reduce the national debt. However, with an estimated fair market value of $200 million, secured by a $13 trillion mortgage, President Obama acknowledged that, at present, the White House was deeply "underwater."

"We believe it is in the best interests of our creditors -- China, Japan, and various OPEC members -- to reduce the principal balance on the White House, rather than risk an even greater loss by forcing the property into foreclosure," President Obama said.

Representatives of the various creditor governments were reportedly studying the proposal. A spokesman for Chinese Premier Wen Jiabao said, "Before we consider such a dramatic write-off, we, of course, will require the United States to provide a complete and candid picture of its financial situation -- something that it has not offered to date," the spokesman said.

Ross Kaplan, Edina Realty City Lakes, has the listing.

Tom Friedman: 'Nation Building in America'

Best Tom Friedman piece I've read in awhile in today's Sunday NY Times.

I liked everything but the title, "The Fat Lady Has Sung."

My alternative: 'Nation Building in America.'

Brown, Black, or White? No, Just Unemployed

Year in Review: Top Stories

Regular readers of this blog are already familiar with all the ways I believe this country has been weakened, especially financially, by Wall Street greed and recklessness (again).

But there's one way -- surprisingly un(der)remarked -- in which I think this country is immeasurably stronger than it was 20 years ago -- or 100.

That's in the realm of race relations.

The election of Barack Obama, the nation's first African American President, would seem to mark the beginning of the end of a centuries-long rift between Whites and Blacks in this country -- the healing of what many call "America's original sin."

Instead of "white America" and "black America," it feels like there's now just one America (at least when it comes to race).

Post-Racial America

As a 50 year-old, middle class white male, I don't presume to speak for African-Americans, and whether or not they experience less racial prejudice today.

And there's no denying that African Americans as a group are (still) less well off than their white counterparts, according to virtually every measurable gauge there is (employment, income, life expectancy, educational achievement, etc.).

And still . . . somehow the tone in race relations seems different: the grievances less intense, the hopes a little brighter.

New Divide?

There's a new status quo, I submit, only when everyone takes it for granted.

So, it's reassuring that nowhere in the opprobrium heaped on Tiger Woods the last few weeks is there a whiff of racial invective (at least I haven't detected it). And no, I don't think it's because Tiger is also part-Asian.

The biggest risk to this country now, as I see it, just as it is finally healing a centuries-old fissure between White and Black, is the prospect of a new divide -- equally deep and profound -- threatening to split it into two again.

No, it's not "Red States" vs. "Blue States," or North vs. South.

Rather, it's the divide between all the financially struggling Americans -- White, Black, and Other -- and the financial elite on Wall Street who effectively run the country (or at least its finances).

So, maybe we owe Wall Street a debt of gratitude (on top of the very real trillions we owe because of it): it's united everyone against it.

Obamas' Hyde Park Home

Now That's a Tough Comp

Not since Richard M. Nixon lived in a New York City apartment has the market tried to assess the value of immediate proximity to the president in a dense, urban neighborhood.

--Susan Saulny, "Hyde Park House for Sale Comes With a View: The Obamas; The NY Times (9/15/09)

As I've been posting recently, pricing a home -- whether it's done by a Buyer, Seller, or appraiser -- is all about the comp's.

The magic number is three -- as in three, recently closed homes similar in style, size, and condition to what's called the "subject home."

To clients, their home is always "one of a kind"; to them, there's nothing as inviting, beautiful, functional, etc.

Usually, they're wrong about that.

Not this time.

Complicating matters further in the case of the Obamas' neighbor (pictured above): the home is a complete 'fixer (as in fixer upper).

FDR, Obama & the Cost of Consensus

The Age of Regulatory Capture

Millions of Americans lose their homes and jobs, Wall Street devours trillions in government bailouts while its leaders pay themselves billions . . . and there's still no discussion of meaningful financial reform?

Incredible.

Here's a quote from one of the best Op-Ed piece I've seen this Summer, contrasting the style and attitude of FDR then and Obama now:

The principal legislative innovations of the 1930s were enacted over the vigorous opposition of a deeply entrenched minority. Majority rule, as Roosevelt saw it, did not require his opponents’ permission.

When Roosevelt asked Congress to establish the Tennessee Valley Authority to provide cheap electric power for the impoverished South, he did not consult with utility giants like Commonwealth and Southern. When he asked for the creation of a Securities and Exchange Commission to curb the excesses of Wall Street, he did not request the cooperation of those about to be regulated. When Congress passed the Glass-Steagall Act divesting investment houses of their commercial banking functions, the Democrats did not need the approval of J. P. Morgan, Goldman Sachs or Lehman Brothers.

--Jean Edward Smith, "Roosevelt: The Great Divider"; The New York Times (9/3/09)

Too many details?

How about, "you can't make an omelette without breaking some eggs."

"Half-Decade" Mentality

"Obama Saw Successes, Then Harder Times"

I've read (or skimmed) Barack Obama's two autobiographical books, and followed his political rise, so the above headline in today's Wall Street Journal caught my eye: was there some, heretofore hidden chapter in his life?

Nah.

The "successes" referred to Obama's first three months in office; the "harder times" the second three months.

Glad the journalist has a sense of perspective . . .

P.S.: Once upon a time, a "half-decade" referred to 5 years.

Bank "Stress Test" Results

The "Muddle-Through Strategy"

What we’re really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health . . . maybe we can let the economy fix the banks instead of the other way around.

--Paul Krugman, "Stressing the Positive"; The New York Times (5/8/09)

No, there's been no official pronouncement, but as Krugman details, the administration has clearly adopted what pundits are calling "the muddle-through strategy."

A similar approach worked in the early '90's, after U.S. banks suffered from the collapse of commercial real estate.

Will it this time?

Again, Krugman cuts to the quick.

Whether or not you benefit from Washington's solicitous approach to the big banks "depends on who you are: a banker, or someone trying to make a living in another profession."

Saying "No"

Who are Obama's Air Traffic Controllers?

One of the things I remember about the beginning of the Reagan administration -- yes, I'm old enough to remember very well -- was the abrupt change in tone from the Carter administration.

Suddenly, the country's leadership seemed capable of saying "no."

One of the first important constituencies to find that out were the air traffic controllers. When they went out on strike in 1981, Reagan summarily fired them. The move was unpopular, but it very likely was the turning point in the fight against wage inflation, which was then spiraling out of control. (Of course, Reagan's first "no" was to negotiating with Iran over the release of U.S. hostages.)

The other turning point was Fed Reserve Chairman Paul Volcker's decision to raise interest rates to over 14% (this was the monetary policy equivalent of "No"). Volcker made the move in the face of almost incredible political pressure, and the immediate result was the worst recession -- at least until now -- since The Great Depression.

However, within a year, inflation was vanquished, and the stage was set for two decades of unmatched prosperity (and yes, every expansion sows the seeds of its own demise).

The contrast between President Reagan then and President Obama now is striking.

So far, at least, no one seems to have been told "no." Not Detroit, not AIG creditors, and certainly not Wall Street (assuming there's a difference between it and AIG creditors).

As Reagan demonstrated, it's a lot easier to say "yes" once you've credibly said "no," then to get tough once you're pegged as being weak. The best example of the latter problem would be . . . the Carter administration.

P.S.: of course, Reagan's other big "no" was to detente with the former Soviet Union.