Recovery?

The stock market is doing great, especially the financials. GDP was up last quarter. The recession is over — right?

Technically. Maybe.

The stock market is doing well because corporate earnings are up — but not because of increased sales, because of decreased costs. When you fire half your workers and force those who remain to work twice as hard, costs are way down, and suddenly you're profitable again. With the Fed holding interest rates at rock bottom levels (should you happen to be a large corporation and not an individual consumer), it is much cheaper to replace labor with new capital.

So far, though, all we've seen is the supply side. The demand side doesn't look nearly so rosy.

Henry Ford is remembered for his decision to pay his workers well enough so that they could afford to buy his company's cars. Somewhere along the line, that idea was forgotten. As unemployment continues to rise and wages continue to be depressed, demand for everything but luxury goods has to decline. The Wall Street execs may continue to buy their $15 million condos and $18 thousand wristwatches, but who's going to be buying the Fords?

In the meanwhile, regulatory reform looks like it's going nowhere. Flush with taxpayer subsidized profits, the banks have successfully lobbied the teeth out of proposed legislation that still might not pass. It looks pretty certain that derivatives will remain largely unregulated, and that capital requirements won't be increased enough to significantly reduce risk. Chris Dodd's plan to consolidate regulation into a single agency (that is not the Fed) is dead in the water, because no Congressional committee supervising the current assortment of agencies will be willing to give up its power. I suspect a good deal of his populist stand is an attempt to get us to kind of forget about the extra-favorable treatment he got from Countrywide Finance.

As for Obama, Emmanuel, and company — I don't think they're too anxious to give up the vast contributions coming in from those generous folks at Goldman-Sachs and the like. Don't look for leadership from the White House.

Outsiders

As of this writing, nobody has interviewed Nadal Malik Hasan, the Ft. Hood shooter. Nevertheless, I think I'll stick my neck out and make a prediction. From what I've heard and read so far, I suspect that Hasan had a lot more in common with Dylan Klebold and Eric Harris — the teenagers responsible for the 1999 shootings at Columbine High School — than with Mullah Omar or Abu Nidal.

An army post. A high school. In groups. Outsiders. Makes sense to me.

Corruption!

I don't have much to say about yesterday's elections, although I suspect that John Corzine's tenure at Goldman-Sachs didn't do him much good. Hell, even fat-cat Mike Bloomberg didn't do as well as everybody who counts the money expected.

Actually, I was thinking about the non-election in Afghanistan. If there were something less prestigious than "third world," I guess Afghanistan would qualify, and if there is a country more corrupt, well...

Okay — so what is corruption? In Afghanistan, the men with wealth and power buy and coerce their way to more wealth and more power. Hmmm... does that sound a little familiar? And if your Supreme Court says that strong-arming the political class with vast infusions of money is not corrupt — that, in fact, it is free speech — does that make it any less corrupt?

Obama told Karzai he has to clean up the Afghani government. Yeah, right. Let's see if Karzai takes any action against his brother — or, if family ties are too strong, Abdul Rashid Dostum, or Muhammed Qasim Fahim. Wake me up when it happens. I need a long nap — a very long nap.

You also can wake me up when the government steps in to stop Goldman-Sachs from buying tax exemptions — at deeply discounted prices — from Fannie and Freddie.

Face it: capitalism and corruption are inseparable, and it doesn't matter if the source of wealth is opium or derivatives, nor if the country is first world or third. All hail the plutocrats!

Not My Fault!

Okay, at the beginning of the week I proclaimed that the market improvement we've seen recently looked like just another bubble to me — then, at the end of the week, all the indices take big hits.

Honest, though, I didn't do it. Blame somebody whose blog actually has readers. (I do this for the sake of posterity or, more to the point, so I can check on how right or wrong I've been over the years.)

Okay, again — and for the sake of "posterity" — I still think the markets are overpriced by 15 to 20 percent. When the financials finally are forced to write down their losses, I can't see how the markets won't wind up taking another big hit. If Congress and the Administration ever agree on a financial regulatory bill with some real teeth, that will impact the numbers as well. With some sensible reserve requirements, the big banks won't be able to play quite so fast nor so loose.

Continuing in my usual pessimistic vein, I'll also predict that the recent rise in GDP will fall off again — that the "recession is over" news was the product of a little stimulus package and a big statistical blip. I just hope the upcoming bad news is not sufficient to inspire voters to give the Republicans another try in 2010 — the goddamned Democrats are bad enough.

Economic reform?

Why are the stock markets doing so "well" lately? Clearly, it's not because the businesses whose shares the markets trade are posting increased profits. Some of the increase in stock prices may be accounted for by the falling value of the dollar — as the dollar weakens, it takes more dollars to buy anything — but that's not the whole story.

Who, we may wonder, is bidding up the price of stocks, and where are they getting the money to do it in this economic environment? Look no further than the investment branches of our banking behemoths, using cheap, government guaranteed credit. To me, it's looking like another bubble — and given the poor shape of a lot of American businesses, it seems pretty obvious that their price to earnings ratios over the past few months have been falling like it's the nineties again.

A lot of people are blaming a handful of conservative Democratic senators for the lame, half baked efforts coming out of Congress for reforming the financial system. I suppose they have their part to play, but the real fault lies with the White House.

If the Obama administration genuinely wanted to bring Wall Street to heel, it could be making a far more aggressive effort than we've seen. Fiddling with executive pay packages may score a few populist points, but in the long run (or even the short run), it means nothing. Some of us remember that the whole corrupt bonus system arose out of efforts to rein in executive pay during the Carter administration.

As for regulating derivatives, there are enough holes in the proposed legislation to accommodate every rat looking for a way through — and damned near as many in the proposal for the consumer protection agency. Instead of breaking up the institutions that were "too big to fail," government has helped them grow even larger through mergers and acquisitions.

Paul Volcker has been out there, crying in the wilderness for genuine reform — rolling back the Clinton administration's gutting of whatever remained of Glass-Steagall, and separating banking's commercial and investment sectors again. The White House will not be doing that anytime soon — at least not as long as two of the three Clintonistas who engineered that gutting remain in power. Robert Rubin may be gone, but he left Larry Summers and Tim Geithner behind to look after the interests of the Wall Street power brokers.

Well, viva Volcker. The White House is ignoring him, but at least he's getting some attention in the press.

The Peace Prize??!!

Everybody knows the Nobel Peace Prize has been politicized for quite a while now. Every once in a while, the political aspect seems to coincide with a genuine contribution to peace, like when it was awarded to Muhammad Yunis in 2006, or Médecins Sans Frontières in 1999. Nobody can deny that Begin and Sadat deserved the 1978 prize for negotiating the only lasting peace agreement in the Middle East that any of us can recall, and that Jimmy Carter's role in that agreement plus the work of the Carter Center in succeeding years qualified him for the 2002 prize. Speaking of lifetime achievement, Martti Ahtisaari, the 2008 laureate also was no slouch.

When Al Gore won the prize in 2007, mostly for a PowerPoint presentation, it was pretty silly — but, at least, he'd done something. So what did Barack Obama do?

So far, nothing. Maybe the committee was hoping awarding him the Nobel would encourage him to continue resisting McChrystal and refrain from escalating the war in Afghanistan. If so, I suspect they'll be disappointed. Our President, in all likelihood, will continue in his wishy-washy, distinctly non-heroic pattern of splitting the difference.

More likely, though, Obama was awarded the prize for one simple reason: he's not George W. Bush.

Hey, Norwegians! I'm not George W. Bush either! Where's my million-and-a-half bucks?

Obama and the Generals

It is heartening to see Obama taking some time before responding to McChrystal's request for another 40,000 troops for Afghanistan. The Biden proposal apparently has been altered a bit, to my disappointment, in that troop reductions seem to be out of the picture at the moment; but it seems we truly are lucky not to have President McCain, who seems to believe that anything a general asks for should be delivered immediately.

My guess is that the real holdup is the lack of a viable Afghanistani partner due to Karzai's almost laughably transparent manipulation of the election results. Can Obama hang in there and do little or nothing until that mess is straightened out? Maybe.

His first order of business, though, must be pulling back the undermanned, isolated outposts in the south to cut back the alarming increase in American fatalities. The Taliban — or whoever is organizing the attacks on those outposts — is demonstrating considerable military skill and determination, with well planned assaults rather than spontaneous raids.

As for McChrystal and the generals, Obama must bear in mind that they are military men who automatically think of military solutions for every problem — and as the Soviets learned some years back, a military solution might not be a solution at all.