Showing posts with label Obama. Show all posts

Written by fatih al-farahat in ,


Pat Chaote in 'Saving Capitalism'







Pat Chaote has published a book titled ‘Saving Capitalism’.  I heartily recommend it as mandatory reading for all Americans.

This is a short history of what has gone wrong over the past decade and also why.  I have already posted that the cause of the financial disaster was outright treason.  This is the first economist to come out and spell out the details.  He adds to my own observations and for exactly the same reasons. 

He also rings the bell on the advent of state sponsored capitalism.  This is not going to go away and must be vigorously regulated.  This is an area that I admit I was aware of but had been happy to largely ignore.  That is not a good idea.  We do not have to wait here for human stupidity to arise before we act.

He outlines several excellent recommendations to remedy the situation that need to be implemented.  It is likely that this will not happen during Obama’s tenure.

He rightly describes the present situation as a depression with a small capital. 

If you want to understand what is presently taking place in the USA, then get this book.

As he clearly points out, the collapse has mirrored the collapse of the Great Depression.  We are now entering the second phase of the collapse cycle, were good business is strangled for cash and a second wave of massive layoffs is in store.  People with good jobs and partially paid for homes will suddenly find themselves forced into liquidation.

That is the present risk that must be averted.  It is now that you want to be scared.  Saving Wall Street cannot save Main Street if the banking industry is unable to lend.

California is on the verge of collapse and must internalize its banking arrangements as soon as possible in the same way as was done by Montana and Alberta during the Depression.  It is the only way in which the political forces in the state can be brought to heel.

Europe is struggling to contain Greece and may not succeed.  In that case, expect the currency arrangements to become at least partially unstuck until it gets sorted out.



Written by fatih al-farahat in , ,


The failure of COP15 was China's fault -- I know because I was in the room

Dear Readers,

I have no way to vouch for the authenticity of this comment I am lifting from a discussion on another blog, but it certainly contains interesting details (if true).

Here is the comment (part of it is a quote from The Guardian article-- which I will post below -- and part of it was written by Teryn Norris -- which I boldfaced):

The comment can be found at this link (http://itsgettinghotinhere.org/2009/12/19/open-letter-to-bill-mckibben-blaming-obama-for-copenhagen-is-wrong/).

Teryn NorrisDec 23rd, 2009 at 6:18 pm
Another perspective from The Guardian worth reading, “How do I know China wrecked the Copenhagen deal? I was in the room.” I think blaming China is too simplistic (just as is blaming Obama or any single country), but based on what I’m hearing from those closest to the negotiation table, this is a much more accurate picture than what Bill McKibben and Naomi Klein are saying:
“The truth is this: China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful “deal” so western leaders would walk away carrying the blame. How do I know this? Because I was in the room and saw it happen…"
To those who would blame Obama and rich countries in general, know this: it was China’s representative who insisted that industrialised country targets, previously agreed as an 80% cut by 2050, be taken out of the deal. “Why can’t we even mention our own targets?” demanded a furious Angela Merkel. Australia’s prime minister, Kevin Rudd, was annoyed enough to bang his microphone. Brazil’s representative too pointed out the illogicality of China’s position. Why should rich countries not announce even this unilateral cut? The Chinese delegate said no, and I watched, aghast, as Merkel threw up her hands in despair and conceded the point. Now we know why – because China bet, correctly, that Obama would get the blame for the Copenhagen accord’s lack of ambition.”
[end comment]

 

How do I know China wrecked the Copenhagen deal? I was in the room

As recriminations fly post-Copenhagen, one writer offers a fly-on-the-wall account of how talks failed

• Ed Miliband: China tried to hijack climate deal
• The key players and how they rated

A woman listens to Barack Obama's speech at Copenhagen climate change conference 18 December 2009
A woman listens to Barack Obama's speech at the Copenhagen climate change conference on 18 December 2009. Photograph: Axel Schmidt/AFP/Getty Images
Copenhagen was a disaster. That much is agreed. But the truth about what actually happened is in danger of being lost amid the spin and inevitable mutual recriminations. The truth is this: China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful "deal" so western leaders would walk away carrying the blame. How do I know this? Because I was in the room and saw it happen.
China's strategy was simple: block the open negotiations for two weeks, and then ensure that the closed-door deal made it look as if the west had failed the world's poor once again. And sure enough, the aid agencies, civil society movements and environmental groups all took the bait. The failure was "the inevitable result of rich countries refusing adequately and fairly to shoulder their overwhelming responsibility", said Christian Aid. "Rich countries have bullied developing nations," fumed Friends of the Earth International.
All very predictable, but the complete opposite of the truth. Even George Monbiot, writing in yesterday's Guardian, made the mistake of singly blaming Obama. But I saw Obama fighting desperately to salvage a deal, and the Chinese delegate saying "no", over and over again. Monbiot even approvingly quoted the Sudanese delegate Lumumba Di-Aping, who denounced the Copenhagen accord as "a suicide pact, an incineration pact, in order to maintain the economic dominance of a few countries".
Sudan behaves at the talks as a puppet of China; one of a number of countries that relieves the Chinese delegation of having to fight its battles in open sessions. It was a perfect stitch-up. China gutted the deal behind the scenes, and then left its proxies to savage it in public.
Here's what actually went on late last Friday night, as heads of state from two dozen countries met behind closed doors. Obama was at the table for several hours, sitting between Gordon Brown and the Ethiopian prime minister, Meles Zenawi. The Danish prime minister chaired, and on his right sat Ban Ki-moon, secretary-general of the UN. Probably only about 50 or 60 people, including the heads of state, were in the room. I was attached to one of the delegations, whose head of state was also present for most of the time.
What I saw was profoundly shocking. The Chinese premier, Wen Jinbao, did not deign to attend the meetings personally, instead sending a second-tier official in the country's foreign ministry to sit opposite Obama himself. The diplomatic snub was obvious and brutal, as was the practical implication: several times during the session, the world's most powerful heads of state were forced to wait around as the Chinese delegate went off to make telephone calls to his "superiors".
Shifting the blame
To those who would blame Obama and rich countries in general, know this: it was China's representative who insisted that industrialised country targets, previously agreed as an 80% cut by 2050, be taken out of the deal. "Why can't we even mention our own targets?" demanded a furious Angela Merkel. Australia's prime minister, Kevin Rudd, was annoyed enough to bang his microphone. Brazil's representative too pointed out the illogicality of China's position. Why should rich countries not announce even this unilateral cut? The Chinese delegate said no, and I watched, aghast, as Merkel threw up her hands in despair and conceded the point. Now we know why – because China bet, correctly, that Obama would get the blame for the Copenhagen accord's lack of ambition.
China, backed at times by India, then proceeded to take out all the numbers that mattered. A 2020 peaking year in global emissions, essential to restrain temperatures to 2C, was removed and replaced by woolly language suggesting that emissions should peak "as soon as possible". The long-term target, of global 50% cuts by 2050, was also excised. No one else, perhaps with the exceptions of India and Saudi Arabia, wanted this to happen. I am certain that had the Chinese not been in the room, we would have left Copenhagen with a deal that had environmentalists popping champagne corks popping in every corner of the world.
Strong position
So how did China manage to pull off this coup? First, it was in an extremely strong negotiating position. China didn't need a deal. As one developing country foreign minister said to me: "The Athenians had nothing to offer to the Spartans." On the other hand, western leaders in particular – but also presidents Lula of Brazil, Zuma of South Africa, Calderón of Mexico and many others – were desperate for a positive outcome. Obama needed a strong deal perhaps more than anyone. The US had confirmed the offer of $100bn to developing countries for adaptation, put serious cuts on the table for the first time (17% below 2005 levels by 2020), and was obviously prepared to up its offer.
Above all, Obama needed to be able to demonstrate to the Senate that he could deliver China in any global climate regulation framework, so conservative senators could not argue that US carbon cuts would further advantage Chinese industry. With midterm elections looming, Obama and his staff also knew that Copenhagen would be probably their only opportunity to go to climate change talks with a strong mandate. This further strengthened China's negotiating hand, as did the complete lack of civil society political pressure on either China or India. Campaign groups never blame developing countries for failure; this is an iron rule that is never broken. The Indians, in particular, have become past masters at co-opting the language of equity ("equal rights to the atmosphere") in the service of planetary suicide – and leftish campaigners and commentators are hoist with their own petard.
With the deal gutted, the heads of state session concluded with a final battle as the Chinese delegate insisted on removing the 1.5C target so beloved of the small island states and low-lying nations who have most to lose from rising seas. President Nasheed of the Maldives, supported by Brown, fought valiantly to save this crucial number. "How can you ask my country to go extinct?" demanded Nasheed. The Chinese delegate feigned great offence – and the number stayed, but surrounded by language which makes it all but meaningless. The deed was done.
China's game
All this raises the question: what is China's game? Why did China, in the words of a UK-based analyst who also spent hours in heads of state meetings, "not only reject targets for itself, but also refuse to allow any other country to take on binding targets?" The analyst, who has attended climate conferences for more than 15 years, concludes that China wants to weaken the climate regulation regime now "in order to avoid the risk that it might be called on to be more ambitious in a few years' time".
This does not mean China is not serious about global warming. It is strong in both the wind and solar industries. But China's growth, and growing global political and economic dominance, is based largely on cheap coal. China knows it is becoming an uncontested superpower; indeed its newfound muscular confidence was on striking display in Copenhagen. Its coal-based economy doubles every decade, and its power increases commensurately. Its leadership will not alter this magic formula unless they absolutely have to.
Copenhagen was much worse than just another bad deal, because it illustrated a profound shift in global geopolitics. This is fast becoming China's century, yet its leadership has displayed that multilateral environmental governance is not only not a priority, but is viewed as a hindrance to the new superpower's freedom of action. I left Copenhagen more despondent than I have felt in a long time. After all the hope and all the hype, the mobilisation of thousands, a wave of optimism crashed against the rock of global power politics, fell back, and drained away.

Written by fatih al-farahat in , ,


Climate deal announced in Copenhagen, but falls short of expectations. Obama bursts into uninvited meeting between China, Brazil, India

Climate deal announced, but falls short of expectations

by Helene Cooper and John M. Broder, New York Times, December 18, 2009

COPENHAGEN — Leaders here concluded a climate change deal on Friday that the Obama administration called “meaningful” but that falls short of even the modest expectations for the summit meeting here.
Doug Mills/The New York Times
President Obama made statements following a meeting with Chinese prime minister Wen Jiabao, the prime minister of India, Manmohan Singh, and other world leaders at the climate summit.
President Obama made statements following a meeting with Chinese prime minister Wen Jiabao, the prime minister of India, Manmohan Singh, and other world leaders at the climate summit. Doug Mills/The New York Times

President Obama with Chinese prime minister Wen Jiabao, across from him, the prime minister of India, Manmohan Singh, right, and other world leaders at the Copenhagen climate summit on Friday. Doug Mills/The New York Times

President Obama stepped off Air Force One Friday morning in Denmark to address the Copenhagen climate summit. Doug Mills/The New York Times

Secretary of State Hillary Rodham Clinton with Prime Minister Gordon Brown of Britain during the World Climate Conference in Copenhagen on Thursday. Pool photograph by Peter Macdiarmid

The agreement still needs to be approved by the 193 nations gathered here.

The accord addresses many of the issues that leaders came here to settle — and if signed, will represent an unprecedented effort by the nations of the world to take concerted steps to address global warming.

But the agreement appeared to leave many of the participants unhappy.

Even an Obama administration official conceded, “It is not sufficient to combat the threat of climate change, but it’s an important first step.”

“No country is entirely satisfied with each element,” the administration’s statement said, “but this is a meaningful and historic step forward and a foundation from which to make further progress.”

The statement added, “We thank the emerging economies for their voluntary actions and especially appreciate the work and leadership of the Europeans in this effort.”

But many of those emerging economies are likely to express displeasure. Europeans said the deal does not require enough of the United States, China and other major emitters and could put European industries at a competitive disadvantage because the European Union is already subject to a carbon emissions constraint program.

The accord drops the expected goal of concluding a binding international treaty by the end of 2010, which leaves the implementation of its provisions uncertain. It is likely to undergo many months, perhaps years, of additional negotiation before it emerges in any internationally enforceable form.

“We entered this negotiation at a time when there were significant differences between countries,” the American official said.

“Developed and developing countries have now agreed to listing their national actions and commitments, a finance mechanism, to set a mitigation target of two degrees Celsius and to provide information on the implementation of their actions through national communications, with provisions for international consultations and analysis under clearly defined guidelines,” the official said.

The deal came after a dramatic moment in which Mr. Obama burst into a meeting of the Chinese, Indian and Brazilian leaders, according to senior administration officials. Chinese protocol officers protested, and Mr. Obama said he did not want them negotiating in secret.

The intrusion led to new talks that cemented key terms of the deal, American officials said.

Sergio Serra, Brazil’s senior climate negotiator here, confirmed that Mr. Obama had “joined” a meeting of Brazilian, Indian, Chinese and other officials, although he did not say that Mr. Obama walked in uninvited.

“After several discussions had taken place they were joined by President Barack Obama,” Mr. Serra said. “Several important decisions were taken — not a few due to Brazilian mediation — that we hope will bring a result, if not what we expected, that may be a way of salvaging something and pave the way to another meeting or series of meetings to get the full result of this proceeding.”

President Obama announced that an agreement had been reached but he left Copenhagen before the assembled 193 nations could study or vote on the accord. Aides said he left to get to Washington ahead of a major snowstorm headed toward the capital.

The agreement apparently grew out of a document that was being edited by high-ranking officials from some two dozen countries throughout the day. But many specifics that were included in earlier versions were excised in the document left on the table when Mr. Obama made his announcement, and many parties considered it at best a work in progress.

The agreement contains several enumerated points asserting a general commitment to the idea that “climate change is one of the greatest challenges of our time” and that “deep cuts” in global emissions are required.

In at least one earlier version, the agreement included a collective agreement among nations to reduce greenhouse gas emissions by 50% by 2050 — with developed nations pledging as a bloc to reduce emissions by 80% over the same time period.

Those numbers were no longer present in the version circulated after Mr. Obama’s announcement.

Also dropped from earlier drafts was language calling for a binding accord “as soon as possible,” and no later than at the next meeting of the parties, in Mexico City in November 2010. The deal presented Friday evening said only that the agreement should be reviewed and put in place by 2015.

The document does lay out a framework for verification of emissions commitments by developing countries and to establish a “high-level panel” to assess financial contributions by rich nations to help poor countries adapt to climate change and limit their emissions.

Many of the specifics remained to be negotiated, however.

In a press conference following the announcement, Mr. Obama thanked other world leaders for their help in reaching the accord — which he nonetheless characterized as being only a start.

“This progress did not come easily,” he said, “and we know that this progress alone is not enough.”

Mr. Obama noted that the United States would not be legally bound by anything agreed to in Copenhagen on Friday, and that, due to weather in Washington, he was leaving ahead of a full vote on the agreement.

But, he added, “I’m confident we’re moving in the direction of final accord.”

Senator John Kerry, Democrat of Massachusetts, chairman of the Foreign Relations Committee and lead author of the Senate’s climate change bill, said the accord will drive Congress to pass climate change legislation early next year.

“This can be a catalyzing moment,” he said. “President Obama’s hands-on engagement broke through the bickering and sets the stage for a final deal and for Senate passage this spring of major legislation at home.”

Even those environmental groups that have pushed hardest for a deal had to acknowledge that this one is lacking in serious ways.

“The world’s nations have come together and concluded a historic — if incomplete — agreement to begin tackling global warming,” said Carl Pope, executive director of the Sierra Club. “Tonight’s announcement is but a first step and much work remains to be done in the days and months ahead in order to seal a final international climate deal that is fair, binding, and ambitious. It is imperative that negotiations resume as soon as possible.”

The announcement came on a day filled with high brinksmanship and seesawing expectations. On Friday morning, President Obama, speaking to world leaders gathered here at the frenzied end of the two weeks of climate talks, urged them to come to an agreement — no matter how imperfect — to address global warming and monitor whether countries are in compliance with promised emissions cuts.

His remarks appeared to be a pointed reference to China’s resistance on the issue of monitoring, which has proved a stubborn obstacle at the talks and a source of tension between China and the United States, the two largest emitters of greenhouse gases.

After delivering the speech to a plenary session of 119 world leaders, Mr. Obama met privately with China’s prime minister, Wen Jiabao, in an hourlong session that a White House official described as “constructive.”

But Mr. Wen did not attend two smaller, impromptu meetings that Mr. Obama and United States officials conducted with the leaders of other world powers, an apparent snub that infuriated administration officials and their European counterparts and added more uncertainty to the proceedings.

Earlier in the day, in his address to the plenary session shortly after noon, Mr. Obama, clearly frustrated by the absence of an agreement, was both emphatic and at times impatient. “The time for talk is over,” he said.

He arrived here prepared to lend his political muscle to secure an agreement on climate change at negotiations that have been plagued by distrust over a range of issues, including how nations would hold each other accountable.

Within an hour of Air Force One’s touchdown in Copenhagen on Friday morning, Mr. Obama went into an unscheduled meeting with a high-level group of leaders representing some 20 countries and organizations. Mr. Wen did not attend that meeting, instead sending the vice foreign minister, He Yafei.

Negotiators here had worked through the night, charged with delivering a draft of the political agreement by 8 a.m. ahead of the arrival of dozens of heads of state and high-level ministers for the final stretch of deliberations.

An American negotiator, weary from a night of discussions, expressed confidence early Friday that the talks would produce some form of an agreed declaration, even if it lacked specifics on some of the toughest issues.

Mr. Obama injected himself into a multilayered negotiation that has been far more chaotic and contentious than anticipated — frozen by longstanding divisions between rich and poor nations and a legacy of mistrust of the United States, which has long refused to accept any binding limits on its greenhouse gas emissions.

The administration provided the talks with a palpable boost on Thursday when Secretary of State Hillary Rodham Clinton declared that the United States would contribute its share to $100 billion a year in long-term financing to help poor nations adapt to climate change.

Mrs. Clinton’s offer came with two significant conditions. First, the 193 nations involved in the talks here must reach a comprehensive political agreement that takes effect immediately. Second, and more critically, all nations must agree to some form of verification — she repeatedly used the term “transparency” — to ensure they are meeting their environmental promises.

China has brought the talks to a virtual standstill all week over this issue, which its leaders claim to be an affront to national sovereignty.

But the Chinese resistance on the issue is matched in large measure by Mr. Obama’s own constraints. The Senate has not yet acted on a climate bill that the president needs to make good on his promises of emissions reductions and on the financial support that he has now promised the rest of the world.

Late Friday night, speaking to reporters at the Bella Center before leaving for the airport, Mr. Obama, looking exhausted and with bloodshot eyes, said that problems long in the making had to be surmounted before a stronger deal can be reached.

“Let’s build some trust between developing and developed countries to break some of the logjams,” he said.


Reporting was contributed by Elisabeth Rosenthal, Tom Zeller Jr. and Andrew C. Revkin from Copenhagen, and Liz Robbins from New York.

Link:  http://www.nytimes.com/2009/12/19/science/earth/19climate.html

Written by fatih al-farahat in ,


Obama In Copenhagen, December 18, 2009: No Final Climate Deal To Present To World Leaders

Obama In Copenhagen: No Final Climate Deal To Present To World Leaders


From The AP, Copenhagen, December 18, 2009 — A clearly frustrated President Barack Obama displayed impatience Friday with world leaders' failure to reach a new climate accord, urging them to accept a less-than-perfect pact while offering no new U.S. concessions.

Obama said the United States has acted boldly by vowing to reduce heat-trapping gasses and help other nations pay for similar efforts.

But he indirectly acknowledged that some countries feel the United States is not doing enough, and he said an imperfect accord is better than an impasse.

"No country will get everything that it wants," Obama said in a brief address to the 193 nations gathered here to cap a climate summit stalemated after two weeks of talks.

Without mentioning China specifically, he addressed Beijing's resistance to making its emissions-reduction pledges subject to international review.

"I don't know how you have an international agreement where we all are not sharing information and making sure we are meeting our commitments," Obama said. "That doesn't make sense. It would be a hollow victory."

"We are running short on time," he said. "We are ready to get this done today. But there has to be movement on all sides."

And yet Obama arrived in snow-covered Copenhagen with no new proposal from the U.S. side. Some had hoped he might increase Washington's emissons-cut pledge, now only a fraction of those from other developed countries, or put a specific dollar amount on America's expected contributions to short- or long-term aid funds to help poorer nations deal with the effects of climate change.
 
Obama planned to spend only about nine hours at the summit. He was holding a series of large and small meetings with various leaders, including those from China and Russia.

His talks with Chinese Premier Wen Jiabao were being watched especially closely, as sniping between the two countries dominated the summit earlier this week.

With Russian President Dmitry Medvedev, the main topic was likely to be nuclear weapons. The two nations are negotiating to replace an expired Cold War-era arms control treaty.

The U.S. commitment to reduce greenhouse gasses mirrors legislation before Congress. It calls for 17% reduction in such pollution from 2005 levels by 2020 – the equivalent of 3 percent to 4% from the more commonly used baseline of 1990 levels. That is far less than the offers from the European Union, Japan and Russia.

Even that target was hard-won in a skittish Congress, and Obama has decided he can't go further without potentially souring final passage of the bill, approved in the House but not yet considered in the Senate. He also could imperil eventual Senate ratification of any global treaty that emerges next year.

Link:  http://www.huffingtonpost.com/2009/12/18/obama-in-copenhagen-no-fi_n_396752.html

Written by fatih al-farahat in ,


Obama as White Knight: Naked Ambition at COP15: NGO representatives and media members have responded to a live telecast of the President’s utterly disappointing speech with loudly derisive grunts, moans and hisses

Obama as White Knight: Naked Ambition at COP15

by Tod Brillian, postcarbon.com, December 18, 2009


From Wikipedia: 'Emperor's New Clothes' has become a standard metaphor for anything that smacks of pretentiousness, pomposity, social hypocrisy, collective denial, or hollow ostentatiousness. Naomi Wood of Kansas State University wrote, "Perhaps the truth of "The Emperor's New Clothes" is . . . that it recognizes the terrifying possibility that whatever words we may use to clothe our fears, the fabric cannot protect us from them."

Barack Obama’s honeymoon with both the environmental community and greater Europe has come to a end. At Øksnehallen hall in Copenhagen, loud boos fill the room. Hundreds of NGO representatives and media members have responded to a live telecast of the President’s utterly disappointing speech with loudly derisive grunts moans and hisses.

Obama, who descended from the sky in Air Force One a few hours ago to a Copenhagen largely cleared of the nonprofit ‘riff raff’ (in an effort to stifle calls for meaningful progress, access to the proceedings was reduced from 15,000 to just 90 in advance of his arrival), by now must be feeling that his attempt to play the role of white knight has failed. We’ll meet our aggressive reduction goals of 17% by 2020. Boos. The United States is serious about addressing climate change. Hisses. Obama’s delivery was flat, uninspired. Given the chance to ignite the world at what is arguably the most significant moment in history, the man mailed it in. Perhaps he’s over used to talking to his fellow Americans, whose languorous tongues swallow pills and lies with ease. The Europeans here are better informed and saw through his overlong delivery as uninspired rhetoric.

This all adds up to a significant accord.

The boo birds flutter toward their laptops, readying reports of the U.S. President’s latest failure to step up. As the world watched, Obama’s well-tailored suit jacket and blue tie vanished into thin air. I’ll buy the man a poncho in Mexico City (COP16) next year.

Link:  http://postcarbon.com/blog-post/51107-obama-as-white-knight-naked-ambition

Written by fatih al-farahat in , ,


Krugmann on Executive Compensation


That rewarding non stakeholders of an enterprise on the basis of short term results is not a sound idea should be self evident. A true stakeholder would in fact reduce his share of profits in order to increase his equity worth through the expansion of value leveraged out of options.

Anything else is down right stupid. A sensible package should always be a good salary and a share in a funded options package

The rise of mega corporations in which acquiring a meaningful stake is impossible has created this present morass of compensation strategies.

In any event, the compensation of bankers is a particular problem unlike any other. The Bank has a special license that allows them to borrow short term and lend long term at a decent multiple. This means that they actually print liquidity in the system. That means that they and almost no one else must be prudent in their lending practices. That means that compensation must reflect the fact that the business should only make a modest profit. If a bank decides it needs to fund something adventurous, it must be made to make the project a stand alone corporation with no formal ties to the bank that could create liability for the bank.

And it is a pretty poor project if unable to attract independent banking support.

So long as bankers compensation is tied to short term results and they can print money to cover over their misdeeds, their behavior will not change. In fact, it cannot change. After all, how difficult is it to have Luigi borrow ten million to acquire Antonio’s failing enterprise packing seven million in debt, somehow securitized by doubtful assets and then resold off shore to cash out the banking profits.

We also need to have the banks separate out true performance compensation from that derived from ordinary brokering. That is were the huge compensations came from in the first place. The president of a bank finds it hard to pay ten times his own salary to some employee he does not even like. Yet properly these are direct costs of real sales and should be actually accounted for as such and disclosed separately.

Many businessmen have destroyed their newly acquired business for failing to realize this. That is why it is unwise to ever wrap the compensation of the rainmakers with the compensation of the operations personnel and the executive.

Op-Ed Columnist

Reform or Bust

http://www.nytimes.com/2009/09/21/opinion/21krugman.html?em

By PAUL KRUGMAN

Published: September 20, 2009

In the grim period that followed Lehman’s failure, it seemed inconceivable that bankers would, just a few months later, be going right back to the practices that brought the world’s financial system to the edge of collapse. At the very least, one might have

But now that we’ve stepped back a few paces from the brink — thanks, let’s not forget, to immense, taxpayer-financed rescue packages — the financial sector is rapidly returning to business as usual. Even as the rest of the nation continues to suffer from rising unemployment and severe hardship, Wall Street paychecks are heading back to pre-crisis levels. And the industry is deploying its political clout to block even the most minimal reforms.

The good news is that senior officials in the Obama administration and at the Federal Reserve seem to be losing patience with the industry’s selfishness. The bad news is that it’s not clear whether President Obama himself is ready, even now, to take on the bankers.

Credit where credit is due: I was delighted when Lawrence Summers, the administration’s ranking economist, lashed out at the campaign the U.S. Chamber of Commerce, in cooperation with financial-industry lobbyists, is running against the proposed creation of an agency to protect consumers against financial abuses, such as loans whose terms they don’t understand. The chamber’s ads, declared Mr. Summers, are “the financial-regulatory equivalent of the death-panel ads that are being run with respect to health care.”

Yet protecting consumers from financial abuse should be only the beginning of reform. If we really want to stop Wall Street from creating another bubble, followed by another bust, we need to change the industry’s incentives — which means, in particular, changing the way bankers are paid.

What’s wrong with financial-industry compensation? In a nutshell, bank executives are lavishly rewarded if they deliver big short-term profits — but aren’t correspondingly punished if they later suffer even bigger losses. This encourages excessive risk-taking: some of the men most responsible for the current crisis walked away immensely rich from the bonuses they earned in the good years, even though the high-risk strategies that led to those bonuses eventually decimated their companies, taking down a large part of the financial system in the process.

The Federal Reserve, now awakened from its Greenspan-era slumber, understands this problem — and proposes doing something about it. According to recent reports, the Fed’s board is considering imposing new rules on financial-firm compensation, requiring that banks “claw back” bonuses in the face of losses and link pay to long-term rather than short-term performance. The Fed argues that it has the authority to do this as part of its general mandate to oversee banks’ soundness.

But the industry — supported by nearly all Republicans and some Democrats — will fight bitterly against these changes. And while the administration will support some kind of compensation reform, it’s not clear whether it will fully support the Fed’s efforts.

I was startled last week when Mr. Obama, in an interview with Bloomberg News, questioned the case for limiting financial-sector pay: “Why is it,” he asked, “that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?”

That’s an astonishing remark — and not just because the National Football League does, in fact, have pay caps. Tech firms don’t crash the whole world’s operating system when they go bankrupt; quarterbacks who make too many risky passes don’t have to be rescued with hundred-billion-dollar bailouts. Banking is a special case — and the president is surely smart enough to know that.

All I can think is that this was another example of something we’ve seen before: Mr. Obama’s visceral reluctance to engage in anything that resembles populist rhetoric. And that’s something he needs to get over.

It’s not just that taking a populist stance on bankers’ pay is good politics — although it is: the administration has suffered more than it seems to realize from the perception that it’s giving taxpayers’ hard-earned money away to Wall Street, and it should welcome the chance to portray the G.O.P. as the party of obscene bonuses.

Equally important, in this case populism is good economics. Indeed, you can make the case that reforming bankers’ compensation is the single best thing we can do to prevent another financial crisis a few years down the road.

It’s time for the president to realize that sometimes populism, especially populism that makes bankers angry, is exactly what the economy needs.

Written by fatih al-farahat in , ,


The Great Recession One Year In

It is difficult to recall that one year ago, the greatest market break in our lifetimes had not occurred yet. Since then several things have clearly happened. First off, everyone is poorer but they also know today how much poorer and what they have to do to put themselves right. If it is bankruptcy, then so be it. The expectation that it may get seriously worse is now abating.

The banking system is still intact, though not so much poorer as with new stakeholders who will keep the reins tight. The banking system must have tight reins. Competing for higher rates of returns is not the way to run a bank. There you prosper by improving the quality of your loan portfolio. A good bottom line is a pleasant surprise at the end of the year.

We can be sure that ratios are been hauled back and that all those old loans are been reassessed and resolved as much as possible.

Equities are been sorted out and next years earnings will drive markets.

Employment is still quite weak and so is the housing market because we have not resolved the foreclosure crisis, although it is essentially locked for the moment. A wave of buying could resolve that problem if the right tools are put in place. It is still the best place to focus fresh lending.

Through all this, the energy business is on a tear and the wind business in particular. We need that energy and the short time from inception to build out makes it a financing cinch. We need all of it and more because we all know that the electric car is coming just as fast as we can solve the related problems. Winds great advantage today is thirty years of engineering in the bank. Geothermal will be as good twenty years from how.

If there is one thing that disturbs me today, it is the lack of technical vision coming out of the Whitehouse. In an America crying for brave new technology initiatives, I must go to South Korea and China who are getting of the button and diverting resources to do the best thing possible now.

Perhaps it is too much to ask, and yes, all the bad news has not hit home yet. But a government revenue guarantee will spring a massive energy build out over the next five years and it will all be financeable with no likely loss to the government. This would produce huge numbers of new jobs and suck up the slack. Canada learned this with the Tarsands which were launched fully in the face of the 1981 oil slump. Today it is the only trillion barrel reserve been actively exploited at reasonable levels and effectively at that. Research is now opening up superior protocols that will make it much better. None of this would have been possible had the government not stepped in with early guarantees.

Otherwise, for the next three years of Obama’s administration, we will be dealing with the fall out from bankrupt states. Which type of headline would you prefer?

In the meantime, this article by Zuckerman enumerates all the depressing news and interpretations. You do not want to know this, but we are living through a blow by blow recreation of the great depression. That is the bad news.

The good news is that a lot of the right things have been done to prevent a real depression and we are now entering a strong rebound. We can be nervously optimistic.

By MORTIMER ZUCKERMAN

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

Written by fatih al-farahat in , ,


We Continue to Fiddle

So what are they all doing? That really is the question been asked today by this article in the New York Times. Obama is put to work jawboning a little confidence back into the economy while everyone else keeps counting the cost.

The core economy has begun turning over again and order books will now fatten up. It is just that they will be smaller because a new base has now been established and it is without the super driver of excessive consumer credit. Whatever your income, you have less credit and you are also paying things off.

Wherever the floor is, and I think that it is been established now, it is a lot less at the consumer level than for most of the economy. Government spending is actually growing sharply in an attempt to offset the loss of consumer demand. However, the bad news about collapsing government revenues has not hit home yet. Recall, it is only the federal government that can print fiat money. The rest have to collect taxes.

California is ugly, but there are hundreds of jurisdictions that are going to be in shock before this is over.

In the meantime, the degenerating housing market continues to eat away at household finances and sound financial institutions.. This will not end until this problem is finally addressed and it will not simply go away. This is what can give us 1932 all over again.

As I have explained earlier, the government must intervene in the mortgage market by unilaterally resetting the foreclosure laws in which a two tier system is established in which half the property is forfeited to the lender in exchange for a fresh long term mortgage based on sixty percent of the present market value of the remaining fifty percent. The lender eats the loss now but this is already back stopped by the government. The lender gains a customer who is likely able to pay off the mortgage in good time and is also able to bid the remaining fifty percent after the first half is paid of in say ten years.

Obviously, if the borrower cannot handle that, in time normal rules kick in and he is removed. If he can handle that and do so expeditiously, he will bid the balance at a much higher price that alleviates the losses created for the bank and the national treasury.

As an ongoing system, the banking system will quickly learn to properly work within the new context and likely do so quite profitably. The initial struggle will be to keep lenders from immediately gaming the program to make it a problem rather than a solution.

The old system emerged out of the depression and was always flawed but we put up with it. It has now been gamed by easy money operators who have exposed the weaknesses and also confirmed the original wisdom of the folks who fabricated much of the system.

The Economy Is Still at the Brink

By SANDY B. LEWIS and WILLIAM D. COHAN
Published: June 7, 2009

http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html?pagewanted=1&_r=2

WHETHER at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. “It’s safe to say we have stepped back from the brink, that there is some calm that didn’t exist before,” he told donors at the Beverly Hilton Hotel late last month.

Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.

We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game. (Disclosure: One of us, Mr. Lewis, was convicted on federal charges of stock manipulation in 1989, pardoned by President Bill Clinton in 2001 and had his lifetime trading ban overturned by the Securities and Exchange Commission in 2006; documents relating to the case can be found at sblewis.net.)

The storm is not over, not by a long shot. Huge structural flaws remain in the architecture of our financial system, and many of the fixes that the Obama administration has proposed will do little to address them and may make them worse. At another fund-raising event, for Senator Harry Reid, President Obama said: “We didn’t ask for the challenges that we face. But we are determined to answer the call to meet those challenges, to cast aside the old arguments and overcome the stubborn divisions and move forward as one people and one nation .... It will take time but I promise you, I promise you, I’ll always tell you the truth about the challenges we face.”
Keeping that statement in mind — as well as an abiding faith in the importance of properly functioning capital markets — we have come up with a set of questions meant to challenge a popular president, with vast majorities in Congress, to find the flaws in the system, to figure out what’s being done to fix them and to get to the truth about the difficulties we face as we set out to restore the proper functioning of our markets and our standing in the world.

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? Nearly every new program emanating these days from the Treasury Department — the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the “stress tests” of major banks — appears to have been designed to either paper over or to prop up a system that has clearly failed.

Instead of hauling out the new drywall to cover up the existing studs, let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.
As a start, the best-compensated executives at the top of these big banks, hedge funds and private-equity firms should be treated like general partners of yore. If a firm takes prudent risks that pay off, this top layer of management should be well compensated. But if the risks these people take are imprudent and the losses grave, they should expect to lose their jobs. Instead of getting guaranteed salaries or huge bonuses, they should have the bulk of their net worth completely at risk for a long stretch of time — 10 years come to mind — for the decisions they make while in charge. This would go a long way toward re-aligning the interests of these firms with those of their shareholders and clients and the American people, who have been saddled with their risks and mistakes.

Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?

Confidence will return only when jobs can be found and mortgage payments are made. Even if Mr. Obama’s claim is true that his $780 billion stimulus package “saved or created” some 150,000 jobs, we seem a long way away from the point where those struggling to get by will feel like spending again. What happens when people buy a car once every 10 years instead of once every two or three, especially now that we taxpayers own such a big percentage of the American auto industry?

Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? We used to be a frugal nation. The president should be talking about kicking our addictions to easy credit, to quick fixes and to a culture of more is better (and Congress’s new credit-card legislation, while perhaps eliminating some of the worst aspects of that industry, certainly didn’t send the right message about personal finance).

Gas-guzzling S.U.V.’s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray.

Why is the morphine drip still in the veins of the financial system? These trillions in profligate federal spending are intended to make us feel better again even though feeling pain, and dealing with it responsibly, would be healthier in the long run. It is time to stop rescuing the banks that got us into this mess. If that means more bank failures on a grander scale or the dismemberment of Citigroup, so be it. Depositors will be protected — up to $250,000 per account — but shareholders, creditors and, sadly, many employees will, for the long-term health of the system, need to feel the market’s wrath.

Is there to be any limit on bailouts? We have now thrown money at the big banks, any number of regional ones, insurance companies, General Motors, Chrysler and state and local governments. Will we soon be bailing out Dartmouth, which just lost its AAA bond rating? Is there no room left for what the Austrian economist Joseph Schumpeter termed “creative destruction”? And what is the plan to get the American people out of all these equity stakes we now own and don’t want?

Furthermore, for government leaders to decide who shall live and who shall die in an economic sense opens them up to legitimate charges of crony capitalism and favoritism. We will benefit in the long run from a return to market discipline.

Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?

In our view, one of the ways out of this economic conundrum is to have experienced traders — not hothouse flowers — design incentives that will encourage the market to have buyers and sellers meet anew around the proper valuations of assets, not some artificial construct of a market propped up by a pliant Financial Accounting Standards Board or government-sponsored programs that appear to be virtually giving money away to hedge funds and private-equity firms so that they will buy assets they would not ordinarily buy. We’re not talking about putting the fox in charge of the henhouse, just putting people who know how markets function in the real world into the important seats in Washington.

Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? Ever since traders started disappearing from the floor of the New York Stock Exchange in the last decade of the 20th century, there has been less and less transparency about the price and volume of trades. The New York Stock Exchange really exists in name only, as computers execute a very large percentage of all trades, far away from any exchange.

As a result, there is little flow of information, and small investors are paying the price. The beneficiaries, no surprise, are the remains of the old Wall Street broker-dealers — now bank-holding companies like Goldman Sachs and Morgan Stanley — that can see in advance what their clients are interested in buying, and might trade the same stocks for their own accounts. Incredibly, despite the events of last fall, nearly every one of Wall Street’s proprietary trading desks can still take huge risks and then, if they get into trouble, head to the Federal Reserve for short-term rescue financing.

Here’s something that should change in terms of transparency. The most recent price that any stock traded for should be published online in real time for all to see. And the public should have access to a new type of electronic ticker that provides market information in language that all can understand, not just the insiders.

As for those impossibly complex securities that caused so much of the trouble — among them derivatives, credit-default swaps and asset-backed securities — the S.E.C. should have the power to make public all the documentation surrounding these weapons of mass financial destruction, including all data about the current costs of buying and selling them and the cash flow underlying them. We also need widely accessible, real-time reporting of all trades in the bond market. We bet Mike Bloomberg’s company could help design such a system for our benefit.

Why is the government still complicit in making the system ever less transparent, even when it comes to what should clearly be considered public information? For instance, it took more than a year for the Federal Reserve to disclose that it had agreed to pay BlackRock — the huge money manager that is 45 percent owned by Bank of America — and others $71 million in a no-bid contract to manage the $30 billion of toxic assets that JPMorgan did not want when it bought Bear Stearns in March 2008. And that is only one of the five contracts BlackRock has with the government as a result of this crisis — the nature of the other contracts remains secret.

Treasury Secretary Timothy Geithner has made much of financialstability.gov, the Treasury’s new Web site dedicated to “transparency, oversight and accountability.” But look it over and try to find, for example, just one record of a bona fide credit-default swap, or the names of the hedge-fund and private-equity investors who have participated in the Term Asset-Backed Securities Loan Facility bonanza. It was only a lawsuit filed by a watchdog group that convinced the Treasury to divulge details of former Secretary Henry Paulson’s October meeting with the chief executives of the 10 largest Wall Street firms to force them to take money from the Troubled Asset Relief Program. A lawsuit filed last November by Bloomberg News to force the Federal Reserve to reveal the details on more than $2 trillion in loans that went to banks including Citigroup and Goldman Sachs is still pending in federal court.

And what has become of the S.E.C.’s year-old investigation into who made short-dated, out-of-the-money bets in March 2008 hoping Bear Stearns would fail — bets that were suddenly worth millions of dollars when the company did collapse later that month?

Why do we still not know why Mr. Paulson, Mr. Geithner and the Federal Reserve chairman, Ben Bernanke, allowed Lehman Brothers to file bankruptcy last Sept. 15 but then, a day later, saved A.I.G.? Or why last November this trio decided to absorb potential losses on $301 billion of Citigroup’s shaky assets, when conventional wisdom among insiders held that they were worth only $150 billion at best?

Also, before Dick Fuld, Lehman Brothers’ chief executive, appeared before the House Committee on Oversight and Government Reform last October, it demanded from company executives boxes of documents about what happened at Lehman and why. Where are those documents?

Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?
Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true?

There may be a way to find out. There is much talk nowadays coming from top bankers — Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorganChase, John Mack of Morgan Stanley and even Ken Lewis of Bank of America — about seeing how quickly they can repay to the Treasury the TARP money Mr. Paulson forced on them. One precondition of their being allowed to repay the funds should be a requirement that each gives a public deposition and explains, under oath, what truly happened and why.

Such a public hearing would be meant only to offer a truthful assessment of the errors in judgment made at each firm and to promote understanding, so that we — somehow — can avoid repeating the same mistakes again. It would not be about indictments. These men should be offered use immunity from prosecution for their honest testimony, but only with a clear understanding that the failure to tell the truth at any point would result in serious legal consequences. The hearing could be complemented by a truth-seeking commission established to hear the accounts of several people who have departed the scene, including, among others, Mr. Paulson, former Treasury Secretary Robert Rubin and former Wall Street chiefs like Mr. Fuld, Hank Greenberg of A.I.G., Sanford Weill of Citigroup, Jimmy Cayne of Bear Stearns and Stan O’Neal of Merrill Lynch. While far removed from their positions of authority, these men have tales to tell about how this crisis got started and why.

Why are we not looking to change our current civil and criminal racketeering statutes, which are playing a perverse role in investigations of the crisis? Statutes meant to give prosecutors extraordinary powers of seizure before an indictment is handed up, or to impose treble damages, are appropriately used to break up rings of criminal behavior like the Mafia or drug cartels.

But a few clever prosecutors could use such laws to bring charges against people or firms in the financial services industry whose pattern of bad behavior played important roles in the collapse. Such outright seizure of capital or assets through use of the racketeering statutes can do much harm by giving prosecutors an unnecessarily powerful role in our capital markets. There must be a way to keep what is good about the statutes and to make sure they are not used for ill in trying to get to the bottom of the financial meltdown.

We are in one of those “generational revolutions” that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama’s election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people’s — and the world’s — faith in American capitalism and in our nation. Answering our questions may help us get back on track. But time is wasting.

Sandy B. Lewis, an organic farmer, founded SB Lewis & Co., a brokerage house. William D. Cohan, a contributing editor at Fortune and former Wall Street banker, is the author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.”