Economy In Turmoil

U.S. Financial Crisis Increasingly Infecting The Rest of the World

By Anthony Faiola and Neil Irwin
Washington Post Staff Writers
Wednesday, July 16, 2008; A01

Fresh worries spread through world markets yesterday as a crisis of confidence battered more U.S. financial institutions and the chairman of the Federal Reserve issued a sober assessment of the country's economic woes. It appeared to mark a new phase in the U.S. financial crisis, with fears of a contagion effect that could yet weigh more heavily on the global economy.

With world capital markets interconnected as never before -- financial problems at U.S. banks are affecting pension funds in Japan as well as depositors in California -- a mounting sense that America's financial crisis is still far from touching bottom is adding to global troubles, including rising overall inflation and soaring energy prices.

In Paris and London, stock markets fell yesterday to their lowest levels since 2005, partly as investors doubted plans unveiled by U.S. regulators this weekend to prop up the ailing government-sponsored mortgage giants Fannie Mae and Freddie Mac. In Tokyo, the benchmark stock index fell 2 percent, slipping to levels not seen in 3 1/2 months as the Nikkei newspaper reported that Japan's three largest banks were holding at least $44.2 billion in debt issued by Fannie Mae and Freddie Mac.

The dollar fell to a new low against the euro, though in one piece of good news, oil prices fell sharply, a key reason that the U.S. stock market was down only 1.1 percent, as measured by the Standard & Poor's 500-stock index.

The gloomy environment reflects a financial crisis that began last summer and now has spread to regional banks as well as Fannie Mae and Freddie Mac. U.S. Bancorp missed earnings projections, and a leading analyst issued a dire warning on a mountain of potentially bad debt held by banking giant Wachovia. International news agencies beamed images of panicked Californians jostling to get their savings out of the failed IndyMac Bancorp -- images once associated with developing nations and not the world's economic powerhouse.

President Bush yesterday sought to reassure shaky markets and frightened consumers, asserting that the U.S. economy is fundamentally sound and urging Congress to quickly pass legislation to shore up the government-sponsored lenders. He downplayed predictions that a large number of banks may be on the verge of failure and explained at length about the federal insurance system that guarantees deposits up to $100,000.

"I understand there is a lot of nervousness," Bush said. "But the economy is growing, productivity is high, trade is up, people are working. It's not as good as we'd like, but to the extent that we find weakness, we'll move."

Yet the tipping points of economic crises, analysts said, are almost always more about psychology than fundamentals, with panic over a bank's insolvency, for instance, potentially becoming a self-fulfilling prophecy.

"I think the problem now is a general confidence crisis that is complicated by some global contagion that's now spreading," said Brian Bethune, a chief economist with Global Insight of Lexington, Mass.

U.S regulators "need to act promptly and forcefully to break the psychology," he said. "I think the Treasury needs to be a bit more clear about what they're planning to do to shore up Fannie Mae and Freddie Mac. The details are still vague, and there is no room for that now."

Federal Reserve Chairman Ben S. Bernanke, testifying before Congress, painted a picture of a U.S. economy being squeezed from all directions. He cited the "numerous difficulties" that the central bank -- and all Americans -- are grappling with: "ongoing strains in financial markets; declining house prices; a softening labor market; and rising prices of oil, food and some other commodities."

Less than a month ago, the Fed had indicated that rising inflation was starting to become a bigger concern than the slumping economy. Since then, the stock market has fallen sharply and broader problems have emerged in financial markets, and there have been new signs of slowing global growth. That led Bernanke, in his semi-annual report to Congress on the economy, to emphasize the risks of high inflation and a weak economy in equal measure.

"The possibility of higher energy prices, tighter credit conditions and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth," Bernanke told the Senate Banking Committee. "At the same time, upside risks to the inflation outlook have intensified lately as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher."

That language suggests that the Fed is still in a wait-and-see posture on monetary policy. If oil prices were to skyrocket anew or there were signs that Americans' expectations for inflation were becoming unhinged, the Fed could increase short-term interest rates to combat inflation. If there were new signs that the economy is getting far worse than expected, it could lower interest rates again, resuming a rate-cutting campaign that ran from September to April.

But more likely than either of those is that the Fed will leave the federal funds rate unchanged in the foreseeable future.

Despite the dour outlook, Bernanke offered no support for calls from some Democrats to enact a second economic stimulus package to try to bolster American consumers as the impact of the stimulus plan enacted early in the year wears off. "My own sense is that we are still trying to assess the effects of the first round," he said. "It might be yet a bit more time before we fully understand the extent to which additional stimulus may or may not be needed."

The Fed chairman saw some bright spots, noting that Americans' spending has held up better than might be expected given all the headwinds they face. Projections released yesterday showed that the 17 top leaders of the Federal Reserve were slightly more optimistic about the outlook for growth this year than they had been in April -- but significantly more pessimistic about inflation.

Bernanke, too, expressed continued deep worries about rising prices, saying that higher gasoline prices mean that inflation "seems likely to move temporarily higher in the near term" and that businesses may to try to pass along higher energy costs to consumers "more aggressively than they have so far."

Global concern is mounting for several reasons. First, foreign financial institutions are heavily exposed to U.S. lending giants, and an estimated 50 percent of U.S. mortgage-backed securities are held by foreign investors.

While Citibank and Merrill Lynch have been forced to take massive write-downs on bad U.S. loans, so, too, have the Swiss banking giant UBS and Germany's IKB Deutsche Industriebank. In Norway, eight towns have reported losing at least $125 million on their investments in U.S. mortgages. In Japan, several pension funds have significant portions of their investments in debt issued by Fannie Mae and Freddie Mac. American woes have fostered a global credit crunch, claiming overseas victims such as Britain's Northern Rock, where a lack of liquidity led to its nationalization by the British government in February.

Of equal concern is that U.S. consumers, who gobble up more foreign goods than the citizens of any other land, will be forced to downscale their lifestyles significantly in the face of falling housing values, rising unemployment and a possible recession.

One camp of economists has argued that the rest of the world has to some measure "decoupled" from the U.S. economy -- with consumers in Europe, Asian powerhouses such as China and India, and fast-growing Latin America potentially blunting the drag on the global economy from a U.S. recession. But others have argued that soaring energy prices, rising inflation and a weakening dollar are already zapping the strength out of the world economy, with a full blown U.S. recession likely to take the wind out of the sails of global growth.

"The rest of the world has accumulated U.S. assets, and if these prices go down, the rest of the world suffers," said Alex Patelis, head of international economics for Merrill Lynch in London. "That said, many foreign banks are still doing very well. In Japan, for example, you have one of the healthiest banking sectors around. So there is a global impact, but the biggest impact is still going to be in the United States."

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

Americans Losing Faith In Free Markets

Could it be that Americans have realized, finally, that the markets aren't free, but a fixed game that favors wealthy investors in private investor clubs like the Carlyle Group and others, as well as hedge funds?

http://www.latimes.com/news/nationworld/nation/la-na-losingfaith16-2008jul16,0,1516735.story

From the Los Angeles Times

Things are hard all over the financial landscape, and politicians and experts are now looking with favor at more, not less, government involvement in the economy.

By Peter G. Gosselin
Los Angeles Times Staff Writer


July 16, 2008


WASHINGTON — For a generation, most people accepted the idea that the core of what makes America tick was an economy governed by free markets. And whatever combination of goods, services and jobs the market cooked up was presumed to be fine for the nation and for its citizens -- certainly better than government meddling.


No longer.


Spurred by the continued housing crisis, turmoil in financial markets, spiking oil prices, disappearing jobs and shrinking retirement savings, the nation and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable and efficient society.


"We're at a hinge point," said William A. Galston, a senior fellow at the Brookings Institution in Washington who helped craft President Clinton's market-friendly agenda during the 1990s. "The strong presumption in favor of markets, which has dominated public policy since the late 1970s, has been thrown very much into question."


Now, to a degree not seen in years, politicians and outside experts are looking with favor at more, not less, government involvement in the economy.


Of course, Americans always grouse during troubled times. And as market advocates are quick to point out, the current run of bad economic breaks has yet to result in the throwing over of free-market principles in favor of some drastically different approach -- such as a government-directed economy.


"There may be a backlash against markets at the moment," acknowledged Kevin A. Hassett, economic studies director at the American Enterprise Institute in Washington and an advisor to presumed Republican presidential nominee John McCain. "But the backlash doesn't seem to be informed by any alternative view of how the world works."


Yet the sheer volume of setbacks that people have been dealt has sent consumer confidence to some of its lowest levels in half a century, according to Reuters/University of Michigan surveys. A remarkable 84% of Americans are convinced that the nation is on the "wrong track," according to a recent Gallup poll.


In just the last week, the financial markets have provided ample new evidence that markets are not working smoothly.


Washington had to ride to the rescue of two government-chartered mortgage giants -- Fannie Mae and Freddie Mac, which hold or guarantee nearly half of the nation's $12 trillion in mortgage debt -- after investors all but extinguished the pair's market value amid fears that falling home prices would push them into insolvency.


Meanwhile, federal regulators seized IndyMac Bancorp, a $32-billion mortgage lender based in Pasadena, in what regulators called the second-largest bank failure in U.S. history. And the already battered stock market took another sharp dip.


The fact that experts keep pushing back the date when conditions may improve and the failure thus far of any national leader -- including either of the major-party presidential candidates -- to offer a convincing vision of how America will make its way back to sustained prosperity suggest that the current crisis will probably be very different from other recent economic bad patches.


So may Americans' reaction to it.


Even the Bush administration, which took office arguing that the Social Security crisis could be solved, in part, by tying some of retirees' future benefits to Wall Street, has begun advocating more government regulation of financial markets. When Fannie Mae and Freddie Mac, which are government-chartered but investor-owned, began to teeter last week, the administration quietly went to work on possible government action.


"If the pendulum swung away from government toward much greater confidence in markets during the last generation, the pendulum is clearly swinging back again now," said Daniel Yergin, whose 1998 book with coauthor Joseph Stanislaw, "The Commanding Heights," chronicled the worldwide spread of the free-market credo.


"Everything is weighing in at the same time, and that affects how people view markets and government," Yergin said.


"Nobody in this country really believes in unfettered free markets, and nobody really believes in socialism," said UC Davis historian Eric Rauchway, but economic crises of the past have produced constituencies favoring the reining in of markets and regulation of the economy -- constituencies that ultimately grew large enough to produce change.


Consider just a few of the things that are pushing people in that direction now:


The price for a gallon of regular unleaded gasoline has nearly doubled in the last year, while that for a barrel of crude oil has more than doubled, cutting short Americans' love affair with gas-guzzlers and driving the nation's trucking, auto and airline industries into deep trouble.


Most mainstream economists assert that these increases are simply the logical outcome of booming global demand meeting limited global supply.


But the price run-ups seem out of whack with demand, which has increased only about 1% worldwide. The mismatch has fueled suspicion among many Americans and their political leaders that the third financial bubble of the decade -- after tech stocks and housing -- is underway, this time in energy.


Both presidential candidates have fingered market speculators, rather than the forces of supply and demand, for helping drive up prices.


At a recent hearing, Rep. John D. Dingell (D-Mich.) cornered the federal official whose agency regulates the market where oil futures are traded. "How is it that the market isn't working to the benefit of the consuming public?" the lawmaker demanded.


The agency has launched a number of studies to discover whether speculators are behind the price increases, the official answered.


"Don't tell me you're doing studies!" Dingell shot back. "You've spent more than a year sitting idly by" while oil prices jumped.


At least half a dozen measures have been introduced in Congress to limit speculation or to tax oil company profits.


Similar anger -- and similar legislative efforts to intervene in the marketplace -- can be seen in housing.


While Americans have been accustomed to some fluctuation in the value of their homes, most expected their houses to rise in value over time. And for much of the last several decades, that's what happened.


But starting in mid-2004, the upward arc of house prices began to flatten, and by 2007 it was falling -- sharply. Prices, especially along the West and East coasts, have skidded as much as 16% during the last year alone, their steepest decline in two decades. Many analysts predict further slippage.


In large part, the rise in house prices and the recent plunge grew out of an almost unregulated corner of the mortgage market -- the one for riskier loans.


As with fuel, "the message that Americans are getting is that something went wrong with the markets and you got hurt," said economist Robert E. Litan of the Brookings Institution and the Kauffman Foundation of Kansas City, Mo.


"With energy, it's the speculators. With housing, it's predatory lenders or crummy credit-rating agencies or stupid banks. We're not ready to throw out markets altogether," he said, "but we want government to do something about the excess."


A similar pattern of hopes raised and hopes dashed shows up in global trade and retirement investing.


Americans entered the new century convinced that "we had a new economy built on services and information technology that would let us win globally," said Harvard economist Robert Z. Lawrence.


"The whole premise of globalization in the year 2000 was that it worked well for us and the other developed countries but that the developing countries would need help," Lawrence said.


Today, virtually all those optimistic assumptions have been turned on their heads.


"We've seen unprecedented growth in the developing countries, while the developed countries are being led into a slowdown by the United States," Lawrence said.


"We've found out that instead of services and information technology, it's all about oil and other commodities" that are not the nation's strong suit.


Finally, when it comes to investment, especially for retirement, recent years have brought unsettling disappointments as the stock market has failed to regain and maintain the peaks that it reached in 2000.


An investor who put a dollar in a broad market index fund early in this decade not only would have made no money by today but would have lost a little of his initial amount.


That's a far cry from the 1990s, when people told pollsters that they expected to make 15% annual gains indefinitely.


Historians watching the nation's current economic and financial troubles say that just because Americans don't throw up their hands about markets and rush to an opposite pole, such as socialism, it doesn't mean that change isn't underway.


As UC Davis' Rauchway pointed out, the devastating panics and depressions of the late 19th century eventually resulted in the progressive reforms of the early 20th century and, later, the New Deal of the 1930s.


Today, Americans are not ready to throw out markets altogether, said economist Litan, but "what people may be demanding is New Deal lite."

peter.gosselin@latimes.com

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

In Defiance Of The Torture Lovers In The W.H......

We can only hope that there aren't enough sadist in the Senate to block an over-ride of the veto.

House passes CIA contractor ban over veto vow

news.yahoo.com/s/nm/20080717/pl_nm/security_usa_congress_dc_5

U.S. lawmakers defied a White House veto threat on Wednesday and voted to bar CIA contractors from interrogating suspected terrorists, in the latest clash over detainee treatment in the U.S.-declared war on terrorism. The Democratic-controlled House of Representatives approved the provision in adopting a broad measure to authorize funding of U.S. intelligence agencies for the 2009 fiscal year. A related bill awaits action in the Senate. Passage of the multi-billion dollar bill came on a voice vote, indicating broad assent, despite the White House veto threat issued earlier in the day.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

U.S. Diplomats To Be Stationed In Iran?

Washington move signals thaw in relations

• Ewen MacAskill in Washington
• The Guardian,

Iranians pass a US flag with a sign reading 'Death to America' as they attend a rally in Tehran, in 2004. Photograph: Hasan Sarbakhshian/AP

The US plans to establish a diplomatic presence in Tehran for the first time in 30 years as part of a remarkable turnaround in policy by President George Bush.

The Guardian has learned that an announcement will be made in the next month to establish a US interests section - a halfway house to setting up a full embassy. The move will see US diplomats stationed in the country.

The news of the shift by Bush who has pursued a hawkish approach to Iran throughout his tenure comes at a critical time in US-Iranian relations. After weeks that have seen tensions rise with Israel conducting war games and Tehran carrying out long-range missile tests, a thaw appears to be under way.

The White House announced yesterday that William Burns, a senior state department official, is to be sent to Switzerland on Saturday to hear Tehran's response to a European offer aimed at resolving the nuclear standoff.

Burns is to sit at the table with Iranian officials despite Bush repeatedly ruling out direct talks on the nuclear issue until Iran suspends its uranium enrichment programme, which is a possible first step on the way to a nuclear weapon capability.

A frequent complaint of the Iranians is that they want to deal directly with the Americans instead of its surrogates, Britain, France and Germany.

Bush has taken a hard line with Iran throughout the last seven years but, in the dying days of his administration, it is believed he is keen to have a positive legacy that he can point to.

The return of US diplomats to Iran is dependent on agreement by Tehran. But President Mahmoud Ahmadinejad indicated earlier this week that he was not against the opening of a US mission. Iran would consider favourably any request aimed at boosting relations between the two countries, he said.

US interests in the country at present are looked after by the Swiss embassy. The British government restored its embassy in Tehran after Labour's 1997 general election victory as part of a policy of constructive diplomacy with countries that had previously been branded rogue states.

The creation of a US interest section would see diplomats stationed in Tehran for the first time since the hostage crisis that began when hundreds of students, as part of the Iranian revolution that led to fall of the Shah, stormed the US embassy in 1979 and held the occupants until 1981.

The special interests section would be similar to the one in Havana, Cuba. The US broke off relations with Cuba in 1961 after Castro's takeover but US diplomats returned in 1977.

The special interests section carries out all the functions of an embassy. It is, in terms of protocol, part of the Swiss embassy but otherwise is staffed by Americans and independent of the Swiss.

There has been an intense debate within the Bush administration over Iran, with the vice-president, Dick Cheney, in favour of a military strike against Iranian nuclear plants and the state department in favour of diplomacy.

The state department has been pressing the White House for the last two years to re-establish diplomatic relations with Tehran by setting up an interest section.

The state department is keen that the move should not be interpreted as a sign of weakness.

Sending Burns, who left Washington last night, to Geneva and the establishment of an interests section undercuts one of the main planks of foreign policy advocated by the Democratic presidential candidate, Barack Obama, who argues for direct negotiations with Iran.

The White House has been working in tandem over the last month with Obama's Republican rival, John McCain.

The US has had to rely on British diplomats based in Tehran, as well as other diplomats, for information about the inner workings of Iranian politics. Having its own staff would give them access to students, dissidents and others. The staff would also process visa applications, at present handled by a small office in Dubai, which is difficult for Iranians to get to.

Ahmadinejad told a reporter earlier this week, in response to a question about a possible US interests section: "We will receive favourably any action which will help to reinforce relations between the peoples." He added: "We have not received any official request but we think that the development of relations between the two peoples is something correct."

That sentiment was echoed last month by secretary of state, Condoleezza Rice, who told reporters: "We want more Iranians visiting the United States ... We are determined to reach out to the Iranian people."

Iran has an interests section in Washington, which would make it harder for Tehran to deny the Americans a similar arrangement.

Rice set up a group to study the feasibility of re-establishing a presence after the idea cropped up repeatedly in discussions among Washington thinktanks.

Asked last month about the idea, she would not confirm or deny it.

But she indicated that the present arrangement where there is an American visa office for Iranians in Dubai was inadequate.

"We know that it's difficult for Iranians sometimes to get to Dubai," she said.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

Will This Election Be Decided By The Reliably Ignorant?

Let's hope not, but if it is and McCain wins, Americans will get exactly what they deserve, with the exception of those of us who have seen the writing on the wall for some time and have made arrangements to get the hell out of here.

That Newsweek possesses a penchant for wry understatement was strikingly apparent when the magazine observed Friday: "Obama's overall decline from the last Newsweek Poll ... is hard to explain."

As it turned out, Barack Obama's decline -- a bellyflopping swan dive from a 15 point to merely three point lead over John McCain in only three weeks -- was actually quite impossible to explain, although speculation abounds.

It could be, of course, that Newsweek's latest poll is pure bunk. Or, it could be that Newsweek's previous poll was pure bunk. Such methodological matters are not unlike an ad exec trying to determine which half of his advertising isn't working. It's nigh impossible to say.

Notwithstanding what cable network analysts have been saying over the weekend, however, Newsweek's June poll -- the one showing a 15 point Obama advantage -- did not stand alone. For indeed there was another poll at the time, the LA Times/Bloomberg poll, that showed a similar Obama lead; in fact, an identical lead when Ralph Nader and Bob Barr were factored.

So who knows? Only one thing is certain: Princeton Survey Research Associates isn't. Because as Newsweek noted of its own poll's designer, PSRA "says some of the discrepancy between the two most recent polls may be explained by sampling error." Well, that's why they put erasers on pencils.

For the fainthearted I would add another finding as solace, however.

As everyone knows (admittedly a risky introduction to any sentence in such a "low-information" democracy), national polling numbers in head-to-head matchups don't mean much; rather, predicting a presidential election is all about the state-by-state electoral count.

And there, according to Real Clear Politics' latest averages of state-by-state polling, if one eliminates all those fussy "leaning" margins and just goes with the hard numbers as of today, then Obama wins the electoral college vote, 304 to 234.

Hey, work with me here. It's something, and that something is abundantly better than an actual 15-to-three point dive in merely three weeks. Naturally, it could be that both Newsweek polls were incorrect in their extremes, and a simple averaging of the two brings them into line with most other national polling.

Still, one marvels at the seeming flat-lining of Obama's numbers, whatever their vicissitudinous peaks and valleys. As Newsweek put it rather austerely: "Perhaps most puzzling is how McCain could have gained traction in the past month."

In every issue-by-issue polling analysis done by virtually every polling organization, Obama crushes McCain across the board, except on the "protect us from terrorism" bugaboo. But in this election terrorism is rarely even among the top three national concerns, so "puzzling" indeed is Obama's issue dominance vis-à-vis his relative parity with McCain in a head-to-head matchup.

Unless, that is, one ponders the old bugaboos of race and religion in America, and their steadfast companion of staggering ignorance. I'll let Newsweek present the grisly details:

The new poll suggests white voters continue to be a challenge for Obama, with McCain leading the Democrat in that category 48 to 36 percent. Some of Obama's lag in white support may be explained by continual confusion over his religious identity.

Twelve percent of voters surveyed said that Obama was sworn in as a United States senator on a Qur'an, while 26 percent believe the Democratic candidate was raised as a Muslim and 39 percent believe he attended an Islamic school as a child growing up in Indonesia. None of these things is true. Finally cracking the code with less-educated whites could have a big payoff for Obama: 85 percent of undecided voters are non-Hispanic whites and only 22 percent of those undecideds have a four-year college degree.

OK, so the problem isn't disagreement with Obama on domestic issues, and it isn't national security concerns, and it isn't any severe fracture within the Democratic Party ("only 17 percent of former Clinton supporters say they will vote for McCain in the general election," and even that statistic, given empirical data, is slated for continuing decline), and it is scarcely any burgeoning enthusiasm for another Republican president of Gothic disposition.

So let us think hard. What could the problem be; whatever could it be?

Senator Obama, of late you've done a nice job -- I'd go so far as to say an admirable job -- of cynically shifting to the political center, which is where, of course, the immutably cynical game of politics is won. But from now till the convention, it should be a game of little more than personal introduction and reintroduction -- of your biracial, Christian biography. For this election, like nearly all others, it appears, will be decided by the reliably ignorant.

Please respond to P.M.'s commentary by leaving comments below and sharing them with the BuzzFlash community. For personal questions or comments you can contact him at fifthcolumnistmail@gmail.com

THE FIFTH COLUMNIST by P.M. Carpenter

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

An Autocratic Netroots?

Published on Sunday, July 13, 2008 by Center for Media and Democracy

The War, Dems, MoveOn and The Uprising
An interview with David Sirota

by John Stauber

Sheldon Rampton and I could see it coming soon after the Democrats took control of the Congress in 2007. In March, 2007 we pointed out that Speaker Nancy Pelosi, with the support of MoveOn, was advancing legislation that would fund the war in Iraq while giving Democrats PR cover, allowing them to posture against it while the bloody, brutal occupation of Iraq continues. We were attacked at the time by Democratic partisans, but unfortunately our analysis has proven correct and today the war in Iraq is as much of an interminable quagmire as it was when the Democrats took control of the House and Senate in January 2007.

Democratic political activist, columnist and author David Sirota has also strongly condemned this failure of the Democrats and “The Players,” DC’s professional partisan insiders such as MoveOn. On May 24, 2007 he wrote: “Today America watched a Democratic Party kick them square in the teeth - all in order to continue the most unpopular war in a generation at the request of the most unpopular president in a generation at a time polls show a larger percentage of the public thinks America is going in the wrong direction than ever recorded in polling history. … That will make May 24, 2007 a dark day generations to come will look back on - a day when Democrats in Washington not only continued a war they promised to end, but happily went on record declaring that they believe in their hearts that government’s role is to ignore the will of the American people.”

This month, more than a year later, the Democratic controlled Congress once again gave the Bush Administration funding to continue the Iraq war well into 2009. David Sirota now has a new book out: The Uprising: An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington. In it he expands on his criticism of the Democratic Party and its partisan, professional antiwar activists in the leadership of MoveOn.

Sirota writes in his new book (page 82), “The absence of a full-throated antiwar uprising is tragic at a time when the country appears more skeptical of knee-jerk militarism than ever before. … When this particular war does eventually end, both AAEI and MoveOn will undoubtedly claim that their narrow, ultra-partisan Beltway strategies were the key. They are, after all, experts at media promotion, and such a laughable yet easy-to-understand story line will be fairly simple to sell in the same era that has seen politicians and television pundits originally lie the country into the conflict. But what will be little discussed is the possibility that … their strategies prolonged the Iraq War at a time when Democrats had the constitutional power of the purse to stop it immediately.” Sirota concludes, “The Players may actually not mind the war continuing, because it preserves an effective political cudgel against Republicans. Actually ending the war, after all, means less fodder for the next television ad.”

I recently reached David Sirota via email in the middle of his grueling months-long book promotion tour. He was “exhausted and tired from the tour” and “hiding out” over the 4th of July weekend at the home of his in-laws in rural Indiana, but he responded quickly to my questions.

STAUBER: What inspired your commitment to populism? Have you read the classic book Populist Moment about the powerful 19th century movements that were eventually done in by the banks and Democratic Party co-optation? And if so, what lessons do you take from it for 21st century populist progressive movements?.

SIROTA: My commitment to populism was originally forged from working with people like Bernie Sanders and Dave Obey - two very different politicians who, on economic issues, are populist to the core. My career has been one centered around the concept of social justice - and that probably was forged even earlier than my politics. I grew up in a progressive family, among progressive friends, and with constant progressive influences in my life - from school to summer camp. In writing the book, I studied a lot of populist history, including The Populist Moment.

STAUBER: You are a mainstream Democratic partisan who is embracing populism and in your book you criticize MoveOn, Netroots mavens like Markos, and other Democratic leaders for their single-minded partisanship. What sort of response has your advocacy of movement building received in those Netroots quarters?

SIROTA: I would hardly say I am “a mainstream Democratic partisan” - ask any “mainstream Democratic partisan” who knows me if I’m one of them, and they’ll say the same. I guess I have been “a mainstream Democratic partisan” at a few past moments in my career - namely, when I was the spokesman for Democrats on the House Appropriations Committee. But that was a two-year stint (and indeed a proud one) out of an entire career that has spanned working for Congress’s only independent, for Brian Schweitzer (hardly a typical Democrat) and as a progressive journalist. So far, the response to the book - and to the critiques in it - has been nothing but positive. As I say in the book, the Netroots is not a monolith - and I think people in that community have seen my writing as respectful and fair.

STAUBER: When the Democrats realized that the “gift” of the Iraq war — as Mario Cuomo has sarcastically called it — had given them control of the House and Senate in 2006, Pelosi and other leaders obviously decided to play it safe, not investigate this Administration for its many possibly impeachable offenses, and not force an end to the war by refusing to fund it. Apparently they hope that Iraq will play out politically in a similar fashion in the 2008 election and provide a Democratic victory. Do you agree with this analysis and whether or not you do, how do you view the failure of the Democrats and major collaborators like MoveOn to force an end to the war in Iraq after the 2006 elections that were such an anti-war vote?

SIROTA: Yes, I think Democrats are hoping that they can do nothing substantively to end the war, but get the sizeable antiwar vote in the general election nonetheless. The strategy is a predictable reflection of an unfortunate reality: namely, the reality that there in fact is no strong antiwar accountability system that is willing to use the election as an instrument of pressure. Instead, there are groups like Moveon.org that have built up an enormous capacity for pressure, but are using that enormous capacity as an appendage of the Democratic Party, regardless of whether Democrats use their congressional power to end the war.

STAUBER: MoveOn is not a movement although it wants to be perceived as one. It is a brilliant and effective fundraising and marketing machine, but 95% or more of their so-called members ignore any particular email appeal. These 3.2 million people on the MoveOn email list are the object of marketing and fundraising campaigns, but they have absolutely no meaningful or democratic control over the decisions of organization, there is no accountability from the leadership to the MoveOn list members, and those of us on the list are unable to organize and communicate amongst ourselves within the list because it can’t be accessed by the grassroots at the local or state level. MoveOn, the Democracy Alliance, and the various liberal think tanks that have arisen to fight the Right are clearly a force able to raise millions of dollars for Democratic candidates and launch PR and messaging campaigns, but none of them are about empowering a populist grassroots uprising. Or am I missing something?

SIROTA: I believe Moveon.org, the Democracy Alliance and the array of left-leaning institutions that have arisen in recent years possess a vast amount of potential for a progressive movement - but it is only potential at this point. That’s for many reasons - one of the biggest being the utter lack of small-d democracy. You cannot build a movement if you are unwilling to give up power to the rank-and-file.

STAUBER: Barring a military or terrorist attack that the Republicans could exploit, it seems certain that the Democrats will be able to win a solid majority in both the House and Congress this fall given the twin energy and economic crises, and the continuing war in Iraq. If Barack Obama loses the White House, do you see the Democratic Congress in 2009 any more likely to stand up to John McCain than it has to Bush on issues like this long, continuing war in Iraq?

SIROTA: No

STAUBER: I have read Obama’s autobiography and he is certainly an impressive person and thinker. However, his policies and political stands to date are rather mundane. If not for his opposition to the war before he was in the Senate, I doubt he would have defeated Hillary Clinton for the nomination. More recently he seems to have come under even more controlled management by his political handlers and pollsters, almost desperately trying to make his image as mainstream as possible. As a Democratic activist and a populist, how would you advise Obama right now?

SIROTA: Obama’s latest flip-flops are not moves to the “center” or the “mainstream” - by the empirical public opinion data on major issues, his moves are ones away from the center and from the mainstream. That’s not surprising - he has surrounded himself by Washington insiders whose definition of “the center” is radically different from where the actual center of American public opinion is. If he continues down this path, he will hurt his chances of winning the election. I would advise him to remember where mainstream public opinion is on issues like trade, the war and civil liberties is - and instead of going to the center of a corrupt Washington, go there.

STAUBER: If and when populist forces build an email list as big as MoveOn’s — and most of that list was built by MoveOn’s posturing as an ardent anti-war organization, which it is not - - and harness it for real grassroots empowerment, that is when we might see some exciting political developments that combine the Netroots and grassroots for fundamental change. I’d love to see a MoveOn-type organization that would actually trust and empower the millions of people on its email list so that the decision making, organizing and money benefit the grassroots and grow power from there upward, one in which the structure at the top is accountable to and elected by the members. It’s hard to have a political democracy when we don’t even have democratic organizations or movements. I’ve talked with some of the leadership of MoveOn about this, but they have no intention to democratize and will remain a top-down marketing and fundraising organization. How do you view this challenge of building a powerful new populist movement serves a movement rather than serving a Party or a small elite of decision makers who fund and run liberal think tanks?

SIROTA: It’s a huge challenge and gets to a deep psychological issue. Are we willing to think in movement terms, or are we going to keep succumbing to partisan terms foisted on us by a shallow media? Breaking free of that latter propaganda is no easy task - it requires a real commitment to grassroots organizing and education. That’s unglamorous stuff - the kind of stuff that doesn’t get you media accolades in the 24-hour news cycle. But it’s the kind of stuff that builds real power. I would say that if the institutions of the much-vaunted new progressive infrastructure are interested only in being celebrated in the short-term, meaningless media cycle, then they should do what they are doing. But if they are interested in actually building a movement that wields real power, they need to radically change from autocratic institutions looking for applause from Big Money, Big Media and big politicians, to democratic institutions looking to make meaningful change. There’s a reason why the labor movement continues to be the most durable and powerful movement apparatus in human history: it is fundamentally a democratic movement. Trying to build a progressive movement on an autocratic model is a concept that may change the deck chairs on the Titanic - but ultimately a concept that leaves everyone on a sinking ship.

STAUBER: What is the best way for people to find out more about your writing, work and new book?

SIROTA: The best link for my website is www.davidsirota.com and the best link to buy the book is at Powells: http://www.powells.com/biblio/0307395634

John Stauber is the founder (1993) and current executive director of the Center for Media and Democracy.

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