What Went Wrong? – The Financial Meltdown and Why We Are Rethinking Everything By Gregory Hilton–
There are a number of villains associated with the current global economic crisis. Plenty of blame can be assigned to Fannie Mae, Freddie Mac, Congress, home buyers, lenders, investment banks and many others. However, it is also true that the vast majority of people involved in the meltdown had good intentions, and they never realized the consequences of their actions. The financial collapse which began in early September totally surprised them, and the arrival of a day of reckoning did not occur to them.
One of the biggest surprises came with the crash of the insurance giant AIG (American International Group) which so far has resulted in a taxpayer outlay of $152 billion, and it has exposed the firm to over $500 billion in liabilities. There has never been an American company to receive so much bailout money from the government.
The problems associated with the five major investment banks, AIG, and the burst housing bubble, have already resulted in massive changes to the American economy. The stock market has been cut in half, Congress has approved a $700 billion bailout plan, the new Obama administration will have its own $775 billion stimulus package, and over $1 trillion in new credit has been pumped into the economy from the Federal Reserve. All of this is designed to avoid a broad credit collapse but few analysts can speak with confidence about the future. Practically everyone has a sad story, and the personal wealth of Americans has declined by $9 trillion in the past year.
The article below is the third installment of a three part “Washington Post” investigation of AIG. The people at AIG and the Wall Street investment banks were truly our best and brightest professionals. They are hard working and dedicated with advanced degrees from Ivy League schools and golden resumes. One reason for not understanding the enormous risks they were creating was because all of their computer simulations indicated it was not possible. They produced what appeared to be brilliant quantitative analysis for managing complex derivatives, but all of it was fatally flawed.
AIG was considered one of the world’s safest companies and it was one of very few firms to have an AAA credit rating. Year after year AIG made a 15% profit, and they started the boom in credit default swaps. According to the “Post”, AIG clearly thought this expansion posed no risk.
In a similar manner, investment bankers confidently sold mortgage backed securities which also had triple A ratings from respected agencies such as Moody’s and Standard & Poor’s. The wizards of Wall Street did not think it was possible to over borrow, and with their staggering annual bonuses they were often referred to as “masters of the universe.”
As the “Washington Post” noted: “At the end, though, the AIG story is not about math and financial formulas. It is a parable about people who thought they could outwit competitors and market forces alike, and who behaved as though they were uniquely positioned to sidestep the disasters that had destroyed so many financial dreams before them.”
Since September the behavior of the average American has been changing. Already we are not buying new cars, and sales will fall from 17 million vehicles annually to 12.2 million. In 1982, the personal U.S. savings rate was 11 percent, but by 2007 it had declined to zero. We have not been saving because of increased home values, and a positive side effect of this behavior was an extra $1 trillion/year in consumer spending. That spending pattern has now largely vanished.
The bottom line is that this recession will make us rethink everything. Bill Clinton was correct in noting, “Wall Street as we knew it no longer exists,” and the conventional wisdom of the past went with it. Many of our top financial experts are still having a difficult time explaining how a subprime problem in America developed into a global financial crisis.
This just hit the bookstores and it has a powerful message which is unfortunately being ignored. Hugo Chavez, the President of Venezuela, has publicly said he wants to bring America to its knees. Already partnered with Cuba, Nicaragua, Bolivia and Ecuador, Chavez is now financing movements to subvert many other Latin American nations.
Fortunately the dramatic drop in oil prices has significantly curtailed Chavez’ ability to export revolution. The Venezuelan public is questioning why the nation is bankrolling other countries when there is so much suffering at home. Under Chavez, Venezuela, once Latin America’s healthiest economy, now has the highest inflation rate and the lowest economic growth in the western hemisphere. There are long lines at the government run grocery stores and meat is now considered a luxury.
Ironically, Chavez has turned Venezuela from an oil exporter to an importer. He long ago squandered the country’s huge cash surplus, and most of money went to foreign revolutionary causes. Venezuela’s armed forces have grown dramatically during the Chavez era. The situation is now so dire that he has borrowed more than $12 billion from the International Monetary Fund.
The co-author is Dr. Douglas E. Schoen, Chairman of Penn Schoen Associates, one of the most respected Democratic Party consulting firms. According to Schoen, “Chavez has more modern weapons than anyone in Latin America. He has strategic alliances with Iran, North Korea, and other enemies of America, yet he has duped many Americans — from influential political and cultural leaders to ordinary citizens who benefit from his oil largess through his state-owned oil company — into believing that he is a friend.”
The Chairman of the House Armed Services Committee, Rep. Ike Skelton (D-MO), clearly understands the threat and the importance of this book. He recommended the book by saying, “It’s time to pay attention to the alarm bells; we should engage with our southern neighbors to address pressing security threats across the hemisphere, including those from Caracas.” I hope this book has a significant impact on Capitol Hill, with the new Administration and in the news media.
My friend Lisa is working with a group that organizes appreciation activities for members of the armed forces, particularly those serving in Iraq and Afghanistan. Her 4 minute Youtube video contains a wide variety of photos to remind us why we owe them so much. The year 2008 is almost over and it will reflect an 86% reduction in terrorist activities in Iraq. The murder rate is now below the pre‑war level.
On January 1, 2009, the International Zone in Baghdad will switch from U.S. to Iraqi control, and the American military will vacate Saddam Hussein’s Presidential Palace on the Tigris River. The U.S. military withdrawal will continue in the months ahead because the Iraq Army is stand up, and they are meeting their obligations as part of Operation Enduring Freedom.
My company is based in San Francisco and I definitely identify with the viewpoint of the above article. A significant amount of our work is in the Silicon Valley which is experiencing a dire recession. According to the author, “In all of 2008 there were just six companies which went public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986. Faced with crushing reporting costs if they go public, new companies are instead selling themselves to big, existing corporations. For the last four years it has seemed that every new business plan in Silicon Valley has ended with the statement ‘And then we sell to Google.’ The venture capital industry is now underwater. . . . For all of this, we can first thank Sarbanes-Oxley. It has essentially killed the creation of new public companies in America, hamstrung the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.”
As the article below demonstrates, we now have further proof free trade agreements will have a low priority in the Obama Administration. Rep. Xavier Becerra (D-CA), the vice chairman of the House Democratic Caucus, has just turned down an offer to be the new United States Trade Representative. Continue reading
COMMENTARY — We found the below article shocking. A New York Times report on this phenomenon was entitled “On Campus a Good Man is Hard to Find.” “Salon” wrote about “The Campus Crusade for Guys,” Newsweek’s cover story was “The Boy Crisis,” and another Times article was “Where The Boys Aren’t: The Gender Gap on College Campuses.”The share of boys in the college applicant pool is now under 40 percent, and many schools are admitting less-qualified boys in order to keep the gender ratio balanced. John Tierney of the Times said “educational success will come back to haunt women as a dearth of educated, eligible husbands turns them into miserable spinsters.” Nation columnist Katha Pollitt responded by asking why, years ago when she was in school and men made up the majority, “no one was worrying about whether they’d find wives.”
12/13/08 The Demise of Dating by Charles M. Blow, New York Times — The paradigm has shifted. Dating is dated. Hooking up is here to stay. (For those over 30 years old: hooking up is a casual sexual encounter with no expectation of future emotional commitment. Think of it as a one-night stand with someone you know.) According to a report released this spring by Child Trends, a Washington research group, there are now more high school seniors saying that they never date than seniors who say that they date frequently. Apparently, it’s all about the hookup. When I first heard about hooking up years ago, I figured that it was a fad that would soon fizzle. I was wrong. It seems to be becoming the norm.
I should point out that just because more young people seem to be hooking up instead of dating doesn’t mean that they’re having more sex (they’ve been having less, according to the Centers for Disease Control and Prevention) or having sex with strangers (they’re more likely to hook up with a friend, according to a 2006 paper in the Journal of Adolescent Research).
To help me understand this phenomenon, I called Kathleen Bogle, a professor at La Salle University in Philadelphia who has studied hooking up among college students and is the author of the 2008 book, “Hooking Up: Sex, Dating and Relationships on Campus.” It turns out that everything is the opposite of what I remember. Under the old model, you dated a few times and, if you really liked the person, you might consider having sex. Under the new model, you hook up a few times and, if you really like the person, you might consider going on a date.
I asked her to explain the pros and cons of this strange culture. According to her, the pros are that hooking up emphasizes group friendships over the one-pair model of dating, and, therefore, removes the negative stigma from those who can’t get a date. As she put it, “It used to be that if you couldn’t get a date, you were a loser.” Now, she said, you just hang out with your friends and hope that something happens.
The cons center on the issues of gender inequity. Girls get tired of hooking up because they want it to lead to a relationship (the guys don’t), and, as they get older, they start to realize that it’s not a good way to find a spouse. Also, there’s an increased likelihood of sexual assaults because hooking up is often fueled by alcohol.
That’s not good. So why is there an increase in hooking up? According to Professor Bogle, it’s: the collapse of advanced planning, lopsided gender ratios on campus, delaying marriage, relaxing values and sheer momentum. It used to be that “you were trained your whole life to date,” said Ms. Bogle. “Now we’ve lost that ability — the ability to just ask someone out and get to know them.” Now that’s sad.
Robert Chandler, a former CBS executive who played a crucial role in creating the highly rated and critically acclaimed weekly newsmagazine “60 Minutes,” died Thursday at his home in Pittsfield, Mass. He was 80. The cause was heart failure, his son Doug said.
Mr. Chandler was a producer and director of documentaries and election coverage in 1966 when his colleague Don Hewitt proposed a new format: a newsmagazine with several segments rather than the standard hourlong documentary.
“In the formative years, he was our biggest fan at CBS,” Mr. Hewitt, who was executive producer of “60 Minutes” for 36 years, said in an interview on Friday. “Chandler pushed ‘60 Minutes’ to replace ‘CBS Reports’ when Fred Friendly and Dick Salant were not enthusiastic about the idea of a weekly newsmagazine.”
Mr. Friendly was president of CBS News from 1964 to 1966 and Mr. Salant led the division from 1966 to 1979. The first “60 Minutes” was broadcast on Sept. 24, 1968. “Bob played a very important part in setting up the format,” Mr. Hewitt said, “and now almost everybody in the world, certainly in Europe and Asia, has a weekly newsmagazine.”
By 1973, Mr. Chandler was vice president for public affairs broadcasting and Mr. Hewitt’s boss, with budget oversight and a voice in story selection. As director of the network’s election unit in the late 1960s, Mr. Chandler created and operated the CBS News Poll. In that capacity, he negotiated the 1976 partnership that established The New York Times/CBS News Poll. He also supervised the network’s coverage of elections and conventions from 1968 through 1974.
Among the documentaries that Mr. Chandler produced, co-produced or wrote in his 22 years at CBS were “Under Surveillance” (1971), a report on the government’s surveillance of dissenters, and “The People of South Vietnam: How They Feel About the War” (1967).
In 1975, Mr. Chandler was promoted to vice president for administration and assistant to the president of CBS News. He retired from the network in 1985, but later worked at NBC and, in 1990, was executive producer of a two-hour PBS documentary, “Learning in America: Schools That Work.”
Robert Zuckerkandle was born in Brooklyn on Sept. 25, 1928, one of two sons of Louis and Minnie Gurin Zuckerkandle. (He chose Chandler as a pen name before legally changing his last name.) Mr. Chandler earned a degree in economics in 1949 at City College of New York, where he was also editor of the college newspaper. In his sophomore year he met Eleanor Reiff; they were married in 1951.
After college, Mr. Chandler was hired by Variety as a music reporter. He served in the United States Army in Germany from 1951 to 1953, then returned to Variety to cover radio and television. In 1961, MGM hired him as publicity director for its television division.
Two years later, he joined CBS as public relations director for the news division. In addition to his wife and his son Doug, Mr. Chandler is survived by another son, Larry; his brother, Martin; and one grandchild.
COMMENTARY By Gregory Hilton
I read the above obituary for Robert Chandler with real sadness. He produced many outstanding documentaries over a long career. I only met him briefly, but I felt I knew him because of my close friendship with his son. Doug Chandler followed his father into journalism.
For many years Doug lived in Israel and was able to reconnect with his family’s religious roots. His parents were always one of his favorite topics. They were married for 57 years, and his mother has also had a remarkable life. The above article mentions just some of Robert Chandler’s accomplishments, but the most significant is his outstanding family. My Dad passed away in May, and Doug and I were both fortunate to have had such wonderful fathers. The Torah tells us that a basic tenet of the Jewish faith is the belief that those who have died will be restored to eternal life. Death is but a temporary hiatus, and we will see them again.
For each purchase from Gucci’s new collection through January 31, the Italian fashion house is donating 25 percent of retail sales to UNICEF. The 4th annual “Gucci Holiday Campaign to Benefit UNICEF” is featuring award winning musical star Rihanna in full page advertisements. Gucci’s total contribution to the UN Children’s Emergency Fund now exceeds $5 million, including cause marketing and grants. UNICEF programs provide lifesaving nutrition, clean water, and education. They save more young lives than any other humanitarian organization in the world.
Madonna, Lucy Liu, Téa Leoni and Gucci Will Co-Host Next UNICEF Ball By Gregory Hilton —
Lucy Liu is shown at her 40th birthday party on Wednesday night with Téa Leoni. The event was held in conjunction with the UNICEF Ball at the Cipriani 42nd Street Restaurant in New York City. I have never seen a movie with either Lucy Liu or Téa Leoni, but they are definitely my favorite actresses.
Many celebrities attend parties, but these performers have demonstrated an incredible commitment to UNICEF. Since 2003 both of them have spent weeks at a time visiting refugee camps and HIV/AIDS treatment centers in Africa and South Asia. Back home and behind the scenes, it is their personal involvement which has made the difference in securing numerous major donations to the children’s charity.
Over 20 of Lucy Liu’s original oil paintings were recently auctioned off for UNICEF’s benefit. Leoni’s father, Tony Pantaleoni, is the UNICEF Board Chairman and a $25,000 donor to Wednesday night’s event. His daughter out did him by contributing $27,500. Pantaleoni is a partner in the DC based Fulbright & Jaworski law firm. The event raised $1.7 million in ticket sales and corporate contributions, but this represented a 50% decline in proceeds from 2007. All charities are experiencing similar reductions.
Both actresses have appeared at numerous events since 2003 where the United Nations Children’s Fund has raised over $20 million. Similar to Wednesday night, they have also been incredibly generous in making personal donations to UNICEF.
I understand the dismay with our celebrity driven media coverage. It is disappointing when serious subjects are neglected and instead frivolous Hollywood events receive major exposure. On the other hand, I have witnessed this publicity avalanche from a charities point of view. Celebrity involvement in a black tie event always equals a major spike in ticket sales and an increased net profit for a good cause. This will be the subject of my next article.
I hope the careers of Lucy Liu and Téa Leoni have somehow benefitted from their involvement with UNICEF, but I doubt it. I have no doubt UNICEF’s benefit has been enormous. That is why I am so pleased they will be doing it again. Both actresses will join Gucci and Madonna on April 8th as co-hosts of the second “Night to Benefit Raising Malawi and UNICEF.”
Last February this event took place on the North Lawn of the United Nations where a 42,000 square foot tent was erected specifically for the evening. The second event will be dedicated to raising funds and awareness for orphans and children made vulnerable by HIV/AIDS in sub-Saharan Africa where over 11 million of the 48 million orphans have lost one or both parents to AIDS. The first event raised $5.5 million from both ticket sales and a live auction. Gucci is once again completely underwriting this function so 100% of the proceeds will be split equally between the U.S. Fund for UNICEF and Madonna’s Raising Malawi Foundation.
New York, NY — It is difficult to imagine President-elect Barack Obama’s primary or general election victory without the steadfast support of left wing and anti-war activists. Their enthusiasm was certainly justified during the campaign which emphasized Obama’s “right from the start” opposition to the war in Iraq. On energy security, since last April he promised “a windfall profits tax on big oil to give families a thousand-dollar rebate.” (This pledge has now been abandoned).
According to the authoritative “National Journal,” Obama was the most liberal member of the U.S. Senate. In addition, the President-elect’s major promise during the primaries was to completely withdraw all combat troops from Iraq within 16 months of his Inauguration. Thanks in large part to the surge strategy of the past two years, the Iraq outlook has now changed dramatically. Combat casualties have declined by over 90 percent and the withdrawal issue has been resolved by a new Status of Forces Agreement. This requires American combat troops to leave Iraqi cities and towns by June 30, and to withdraw completely by the end of 2011.
Obama always opposed the surge but he was able to deflect criticism by emphasizing his support for more troops and an increased counter insurgency strategy in Afghanistan. For the first time the violence in Afghanistan is now outpacing the fighting in Iraq. The President-elect has already promised two more combat brigades for Afghanistan, and with the approval of the Bush Defense Department, the deployment of four new brigades (20,000 soldiers) is on track. The first new brigade will arrive in January with the fourth bridgade expected to arrive in the summer of 2009. This deployment will soon become known as the Obama surge. There are currently 32,000 U.S. troops in Afghanistan, including 14,000 with the -led coalition and 18,000 training the Afghan security forces and fighting insurgents.
Unfortunately, obstacles the U.S. military faces in confronting the Taliban are significant. For example, the Iraq National Army now includes over 500,000 soldiers while Afghanistan with a larger population (32 million) and a quarter more land area has only 70,000 troops. Troop levels will increase to132,000 soldiers over the next five years, but it is doubtful this expanded force will be sufficient for the challenge ahead.
The struggle in Afghanistan will be a long one, and the initial decisions of the President-elect have been correct. Senate Republican Leader Mitch McConnell (KY) has pledged GOP support for the Afghan policies of the new Commander-in-Chief. McConnell also noted that the Senate confirmation process for Bush appointees in the foreign policy arena took an average of 10 months. In contrast, the GOP is promising swift confirmation for the Obama nominees.
Primarily because of Iraq, President Bush always had to contend with vehement opposition on the home front. His popularity declined so significantly that Bush made few appearances in either the 2006 or 2008 campaigns.
The President always encountered vocal demonstrators chanting slogans such as “Bush lied, people died.” Now some analysts are wondering if these same activists will eventually turn against the next President.The 44th President still has the unified support of liberal and moderate Democrats. Both wings of his party are intensely opposed to the Bush Administration, but they will not have the Texan to kick around much longer. When Bush retreats to Dallas it will not be possible to blame him for every setback.
During the campaign Obama was able to avoid issues splitting his base, but now he has to make the difficult decisions. Many anti-war groups are co-sponsoring an Inaugural Peace Ball on January 20th and they are urging Obama to reverse his decision to send more troops to Afghanistan and to adopt Rep. Barney Frank’s (D-MA) proposal for a 25% reduction in Pentagon spending. These groups may enjoy the Inaugural but so far Obama is not listening to them. In national security, he has clearly aligned himself with moderates, and the Obama appointees are not advocating any significant shift in defense spending or foreign policy.
This new team was officially announced on Monday, and Senator Joseph Lieberman (CT) spoke for many on the center-right by saying: “Everything President-elect Obama has done since election night has been just about perfect, both in terms of tone and substance.” I agree, and Obama was also wise to recommend Lieberman’s retention as Chairman of the Homeland Security Committee.
Obama’s National Security Council includes Vice President-elect Joe Biden and Secretary of State-designate Hillary Clinton, both of whom voted for Operation Iraqi Freedom.
Biden deserves credit for being the leading Congressional proponent in the 1990’s of military action in Bosnia. Clinton’s husband made the right decision in 1999 regarding the bombing of Serbia in retaliation for its actions in Kosovo. He did so without the approval of Congress or the United Nations, and Barack Obama could well be confronted with a similar situation.
Other members of the next National Security Council are Bush’s Secretary of Defense Robert Gates who is remaining on the job, and Gov. Janet Napolitano (D-AZ) as Secretary of Homeland Security. She supports all of Bush’s immigration policies including the failed guest worker program and efforts to bolster security on the borders.
Yesterday I wrote an article about General Jim Jones, the new National Security Adviser, and he certainly will not be popular with liberal elements of the Democratic Party. He wants to make energy security a high priority, but the programs he advocates are in direct opposition to the global warming lobby. The director of the Obama transition team for the Pentagon is former Senator Sam Nunn (D-GA), the most prominent hawk in the Democratic Party.
I believe the Obama honeymoon will last a long time, and so far there has not been significant buyer’s remorse from the left wing of his party. Will this last if Afghanistan becomes a quagmire, or if a new security challenge requiring a military response arises? The left is entitled to claim credit for Obama’s victory, but these activists were mobilized by an agenda far different from the policies of the new team.
Liberal activists were in the forefront of former Gov. Howard Dean’s (VT) campaign in 2004. Dean’s strident anti-war candidacy collapsed in the Iowa presidential precinct caucuses, but the left learned important lessons regarding grassroots mobilization from this failure. The result was a 100% increase in turnout by the time of the January 2008 Iowa caucuses.
A joint survey sponsored by all of the TV networks demonstrated that Obama defeated Hillary Clinton by a 57 to 11 percent margin among voters in the 18 to 29 age group. Vigorous opposition to the war in Iraq was a top concern for these activists, and almost 60% of the attendees had never previously participated in a caucus.
Despite a huge lead in the national polls, Hillary Clinton came in a disappointing third place in Iowa. The premiere liberal activist group, Moveon.org, later endorsed Obama over Clinton by a 70 to 30% vote. This was particularly surprising because Moveon.org was originally formed in1998 to defend the Clintons.
Moveon.org was the sponsor of the full page “General Betray Us” wordplay newspaper ads which appeared on the same day General David H. Petraeus testified on Capitol Hill about progress in Iraq. The ad accused Petraues of “cooking the books” for the White House, and later in an unprecedented action, the advertisement was condemned by the House of Representatives by a 341-79 vote.
The anti-war group said the Obama endorsement was made because “We need a President to end the war,” and Senator Clinton had “not adequately explained her vote to go into Iraq.” In accepting Moveon’s backing, Obama said Clinton’s explanation for her vote leading to the war was “disingenuous.”
Republicans should be grateful for Obama’s popularity. It is always useful for the Commander-in-Chief to have high approval ratings. This is especially significant because Obama’s popularity could prove to be very useful to George W. Bush’s legacy. His father, George H.W. Bush, was not able to enact programs such as NAFTA, but luckily Bill Clinton took up this cause and succeeded.
George W. Bush was not able to pass his immigration bill, several key trade bills, or the Civilian Reserve Corps which he advocated in his State of the Union Address. On Monday, President-elect Obama made enactment of a reconstituted Corps one of his legislative priorities. In national security and foreign policy we could well be looking at a third Bush term. As Obama continues to promote programs from Bush’s unfinished agenda, many are wondering if the left will still believe this is the significant change they were advocating last winter.