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And Things That Don’t

After this last week of Transition (week two and a half of eleven), I’m glad I took a week off to write about dogs. Several of you told me that you were glad I did too. But I was glad that Obama and his transition team didn’t take the week off.  And, I’ll tell you why. But first I want to tell you some of the things that didn’t bother me this week.

I wasn’t bothered by the decision to let Joe Lieberman keep the chair of the Homeland Security committee. While my personal preference would have been him to be appointed as ambassador to Antarctica, the likely dissent of the penguin population notwithstanding, I wasn’t bothered by the decision that was made because it was the solution preferred by the President-elect. I wasn’t bothered by all of the blithering over the blogospheres Right and Left about the possibility of Wife-of-Bill-Hillary-Clinton being named Secretary of State, at least as long as I was not coerced into reading about it.

I wasn’t bothered about that decision or any of the others that have been made-and-announced and those that have been made-but-not-announced because I want Obama to have the people around him that he believes can best help him achieve his objectives as president. I am proud that doesn’t seem to be surrounding himself with yes-speaking-cronies. To me, that says something about the self-confidence of the President-elect as well as his sense of the dire straits in which this Union finds itself.

As far as I am concerned "dire straits" is not an overstatement; and that brings me to the things that do concern me at this moment of transition. On Wednesday and Thursday, the Standard & Poor’s index of five hundred stocks fell by more than 6 percent, something that hasn’t happened since July 20 and 21, 1933. Floyd Norris, who reported this happy news, added that the panic in the Great Depression was triggered by collapsing commodity prices, prices that have fallen rapidly this week.

Since I had been already thinking about FDR’s transition in 1932-33, my mood wasn’t helped this morning when Paul Krugman, the Nobel Prize winner in economics and voice that I have come to trust most on the financial crisis, jerked me back in time to that other transition.

Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times.

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

That "disturbing parallel" is disturbing indeed. As Krugman points out, our transition is not quite as long as it was for FDR—he was not inaugurated until March 4—but he also points out that crises move quicker now.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

I wonder what FDR would have done about our "Detroit" crisis. When I polled a group of friends (who I suspect all voted for Obama) at lunch last week about bailing out the auto industry, I found no support, about what the three corporate-fly-your-own-plane execs found from the congressional committee when they brought their tin cups to Washington this week. Krugman again gave me pause.

Now, maybe letting the auto companies die is the right decision, even though an auto industry collapse would be a huge blow to an already slumping economy. But it’s a decision that should be taken carefully, with full consideration of the costs and benefits — not a decision taken by default, because of a political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead.

What Krugman is saying is similar to what I heard the President-elect on his interview on "60 Minutes" last Sunday evening:

Let's see how this thing plays itself out. For the auto industry to completely collapse would be a disaster in this kind of environment, not just for individual families but the repercussions across the economy would be dire. So it's my belief that we need to provide assistance to the auto industry. But I think that it can't be a blank check.

At the risk of repeating myself, I think we need to follow Obama’s lead on this matter in order not to make a terrible situation more difficult for him. With Congress about to go into a recess that in other election years would last until January, I thought the Democratic leadership in the House and Senate hit the right notes with their "send us your plans and we’ll consider a special session beginning December 8." I don’t know what more they could do. Why the automakers didn’t come with detailed plans in hand is another question.

There are a couple of other things that bother me in this transition—two wars, for example. Since we have only one president at a time and Obama is not yet it, all the President-elect can do is to prepare for what his administration will do after January 20. I don’t know what that means in the case of Robert Gates who looks to be asked to continue to remain as Secretary of Defense. In a unique way, he will have two masters in this transition. How can he prepare for what Obama will want him to do after January 20 and do what Bush wants him to do in the meantime? I have a lot of respect for Gates, but this will surely complicate transition planning on Iraq and Afghanistan for Obama.

The Gates situation is there for any to recognize. Obama wants him in the Cabinet; he’ll figure out how to manage it. There is a different problem that is not so visible; and it is truly Rovian. Did you see the article in Tuesday’s Washington Post about how the Bush administration is moving to protect key political appointments in the federal agencies?

Just weeks before leaving office, the Interior Department's top lawyer has shifted half a dozen key deputies -- including two former political appointees who have been involved in controversial environmental decisions -- into senior civil service posts.

The transfer of political appointees into permanent federal positions, called "burrowing" by career officials, creates security for those employees, and at least initially will deprive the incoming Obama administration of the chance to install its preferred appointees in some key jobs.

Similar efforts are taking place at other agencies. Two political hires at the Labor Department have already secured career posts there, and one at the Department of Housing and Urban Development is trying to make the switch.

My Republican friends may argue that this is a practice of every outgoing administration, but they would be wrong, at least in gargantuan degrees. I have argued elsewhere that one of the critical problems a new administration will face is restoring integrity to federal agencies. After re-election in 2004, President Bush set about to politicize federal agencies in a way that had not been attempted since President Nixon after his re-election in 1972. Under Rove’s direction the administration was far more successful than Nixon in enforcing control over the agencies. The Bush administration is doing all it can to extend its influence through what will be "moles" (and I don’t mean the small insectivorous mammals of the family Talpidae) in the agencies.  Although the action is completely in character for what we’ve come to expect of the Bush administration, it still bothers me.

A friend and I were talking about FDR in the thirties and the situation Obama now faces. My friend said he thought Obama will know what to do. What worries him is whether or not the American people will accept what is required to save the nation. I think he is right to worry about that. What's bothering you in this time of transition?

Originally posted to Milos Janus Outlook on Sat Nov 22, 2008 at 09:39 AM PST.

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Comment Preferences

  •  It really bothers me that January 20th (6+ / 0-)

    is so very far away and Bush is still Bush.

    Our government is conducting a war on drugs, is it? Let them go after petroleum. Talk about a destructive high!- Kurt Vonnegut

    by crystal eyes on Sat Nov 22, 2008 at 09:47:06 AM PST

  •  Enough with the Socialism (3+ / 0-)

    There is no good reason to bail out the auto industry.  I opposed the financial bailout, as it seemed like "throwing a lot of money at a problem and hoping it works".  Considering Paulson's mangling of his own half-baked plan, I think I was right.

    The only argument for helping the auto industry is: "It's so big!"  No where do we discuss how the auto industry got to this point, the poor decisions they have made since their last bailout in the 1980s, and how they produce a poor product that most Americans prefer German and Japanese cars.

    If we give them this money, which came out of the pockets of hardworking Americans, what will they do with it?  From what I can see, they will be broke by Easter and back begging for more.

    To put this money in perspective, for $40 billion, you can give every 18-22 year old American a $10k grant for higher education.  If we can provide nearly free higher education to every American youth for the same amount of money, why should we shovel it at greedy, incompetent corporations whose only argument is "we'll trash your economy if you don't!"

    •  How is giving every 18-22 year old $10k grant (2+ / 0-)
      Recommended by:
      Milos Janus Outlook, Yumn

      less socialistic than bailing out the auto industry?

      •  Investing in 18 to 22 year old allows them to (2+ / 0-)
        Recommended by:
        Milos Janus Outlook, Yumn

        build skills, while, without a better plan our idea and constrainst on what they will do with it, doling out cash to a sinking auto-industry may just be a complete waste, or might even make things worse, locking up resources with incompetent management and non-competitive business thereby depriving them from entrepreneurs and new innovative businesses.

        We have to see plans first.  What if we heard news about the half sunk Titanic, and based on fearful stories about how this could be a disastor for trans-Atlantic passenger traffic passed a law forbiding it, or sent helicopters to drop money on them rather than life-jackets and rescue boats?

        Democrats could go down in history looking collasally stupid and give  reason for voters to return the House and Senate to the GOP next cycles.

        Let's find the facts, hear the Big 3 plan, and maybe some competing ones from the unions, acedemics and others, and then think carefully about it first.

        The means is the ends in the process of becoming. - Mahatma Gandhi

        by HoundDog on Sat Nov 22, 2008 at 10:00:12 AM PST

        [ Parent ]

        •  But can you save the Titanic? (3+ / 0-)

          If you could give the Big 3 a LOAN (emphasize LOAN) that can be paid back with interest, that would carry them through a rough patch, then yes, the govt should get involved.

          What we seem to be looking at, particularly with Chrysler and GM, are companies that knowingly drove themselves full speed into icey water, are taking on more water than they could ever bail, and are look for a short-term reprieve that will not fix their long-term, multidecade foolish decisions.

          How about instead of trying to plug holes in a doomed ship, we just give generous severance packages to the employees of these industries if they cannot prove long-term viability?

          The most likely outcome of a bailout is that we give $26 billion to the auto industry, two of them go out of business in the Spring, and we still have all the job losses we would have anyway, but with all that taxpayer money being thrown away on an obviously bad investment.

          •  Bingo, which is exactly why many of us are happy (1+ / 0-)
            Recommended by:
            Milos Janus Outlook

            Pelosi and Reid got onboard the "No Plan - No Money" bandwagon and demanded that the Big 3 show us what they are going to do with this money.

            BTW, the total market value (stock equity) of GM is about $28 billion I think.  So if we long them this much if should be secured with warrants on their stock allowing us to sieze any remaining shareholder equity in case of default.

            Their balance sheet currently lists negative $48 billion in net worth, in their book value.

            Meaning their approx. $111 billion in assetts are already swampe with greater liabilities, so their "break up value" is already negative.

            If they have no chance we should not pour good money after bad, under the false assumption this helps jobs.   But should face reality and use the money to help protect workers and retirees health care and pensions.

            The means is the ends in the process of becoming. - Mahatma Gandhi

            by HoundDog on Sat Nov 22, 2008 at 10:35:23 AM PST

            [ Parent ]

      •  Definition of Socialism (2+ / 0-)

        Socialism is the government take over of the means of production.

        Providing social benefits to your citizens is NOT socialism.  Taking over the banking industry, the auto industry, and whatever other industry is deemed "to big to fail" is socialism.

        The problem with socialism is not the label.  It destroys innovation and ossifies your economy.  The government becomes a vested partner in ensuring a particular business succeeds, even at the expense of other American businesses who are paying taxes to involuntarily prop up their competitors.  It skews the market by funneling resources to industries that have proven unable to provide for the demands of the economy without artificial intervention, as with the US automakers and their unsaleable SUVs.

        Giving money to young people for education is an investment in the nation's human capital. These are the innovators and high-level employees of the future.

        A government bail out props up a dinosaur that cannot evolve to a changing world, and prevents it from making that painful but essential transition.

        Helping kids get college degrees strengthens the pool of talent in the country for an entire generation, with possible positive implications for their children.

        •  What about cataclysmic economic collapses? (1+ / 0-)
          Recommended by:
          Milos Janus Outlook

          I understand all the arguments against bailing out industries, but the people who make these arguments as you are making above (which are valid) never really address why these bailouts are called for in the first place-- to prevent a cataclysmic economic collapse. You're talking about the negative side effects of bailing out these industries, but there are also negative side effects of not bailing them out. So I presume you think that we could have refrained from bailing out any banks and refrain from providing any money to GM, and still avoid a Depression? Or that Depression is acceptable to you and you are willing to accept the pain that comes along with it-- including on behalf of others who will be hurt?

          I am reminded of the debates over failing financial institutions in East Asia in the wake of the 1997-98 crisis. The IMF offered emergency loans to the crisis countries on the condition that failing finance companies be allowed to go under, rather than be saved. The effects were mixed, at best. While the crisis subsided by 1999, those countries never returned the growth rates they had seen in the decades prior to the crisis, even when the world was flush was liquidity and exports were booming in 2003-2007.

      •  It isn't, but its something new (1+ / 0-)
        Recommended by:
        Milos Janus Outlook

        haven't you noticed that we've already bailed out these industries (airlines, auto, steel banks) and they never change. They consistently choose to shaft ordinary Americans and then come back to beg for more. Why don't we let college students have a shot at improving themselves for a chance, and focus on the bottom rather than trying to let things trickle down from the top.

        Semper avarus eget.

        by Avarus on Sat Nov 22, 2008 at 12:48:06 PM PST

        [ Parent ]

  •  Another "Bait and switch" diary title (2+ / 0-)
    Recommended by:
    houyhnhnm, Yumn

    bothers me.  I stop reading the second a realize it's a hoax.  Sorry if I missed good content otherwise.

  •  Nothing's really bothering me yet. (1+ / 0-)
    Recommended by:
    Milos Janus Outlook

    I fully agree that the question is whether the American people will accept, embrace, tolerate, what needs to be done.

    Hopefully mostly yes.

    This is not what I thought I'd be when I grew up.

    by itzik shpitzik on Sat Nov 22, 2008 at 10:22:04 AM PST

  •  I can never remember the time between (2+ / 0-)
    Recommended by:
    rweba, Milos Janus Outlook

    election day and the inauguration taking forever like this.

    This is the most dangerous lame duck this country has ever been subjected to.

    What bothers me the most?  My second sentence says it all.

    The religious fanatics didn't buy the republican party because it was virtuous, they bought it because it was for sale

    by nupstateny on Sat Nov 22, 2008 at 10:29:47 AM PST

  •  I am concerned (0+ / 0-)

    that the whole process will get sidetracked by the usual bickering and the Repubs will do their mightiest to prevent any positive change.

    Today's YouTube address indicates the PE is already heading this off at the pass. I think he will work to create a positive groundswell for his ideas that will defy the Repubs to stop it.

    So that's something we can do. Support these new policies and make them sound better than the best pie!

    the future begins

    by zozie on Sat Nov 22, 2008 at 10:50:05 AM PST

  •  This: (1+ / 0-)
    Recommended by:
    Milos Janus Outlook

    I want Obama to have the people around him that he believes can best help him achieve his objectives as presiden

    Sounds like needless loyalty to me. Obama is now our president and its our job to push him to support the polices that we want enacted. It he appoints someone who has consistently opposed those policies the we have to speak up or forever hold our peace.

    Semper avarus eget.

    by Avarus on Sat Nov 22, 2008 at 12:51:45 PM PST

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