Update on the Downturn

Further Information on How Bad the Recession Really Is

A couple of weeks ago on this page I noted that politicians tend to measure the health of the economy by how well Wall Street is doing, while a much better measurement is how many people are employed, or how many are employed, yet still poor. Typically the poverty rate can run anywhere from five to ten percent higher than unemployment.

So, according to the political class and the people on Wall Street who fund their re-election campaigns, the recession has rounded the bend and is about over (they aren't quite that blunt, but close). While at the same time projections of an increase in joblessness looms months if not years into the future. How, one should ask, can there be a recovery in the "real" economy, when the number of people out of work and hungry is increasing? That is, how can you say that morally, though that may not be a term they are familiar with.

I recently ran across a slide show by Lawrence Mishel, President of the Economic Policy Institute, in which he looks at that very thing and finds some dismal statistics. He packages it all up into a slide presentation (and downloadable Power Point), which I have linked to below. In his introductory paragraphs, he says the following:

Unfortunately, the economy has deteriorated so much since October/November 2008 that our fears last November—that unemployment would exceed 10% in mid-2010 if there were no stimulus—will likely be realized even with the substantial, smart stimulus package in place. Consequently, there will be unacceptably high unemployment and associated income losses and poverty rates next year and beyond. For instance, some one-third of the workforce will be unemployed or underemployed at some point in 2010. Higher unemployment will drive child poverty to 27%—up from 18% in 2007—and black child poverty will exceed 50%. The analysis has led him to predict, for example, that black unemployment will reach 27.8% in Michigan and over 22% in California and Mississippi.

Click on the picture below to go to the slide show:

Dilemmas of American Empire

Can Obama Pull Off a Game-Changer in Iraq, Iran and Afghanistan?

By Gary Dorrien


In the wake of the Bush administration’s disastrous resort to neoconservative ideology the Obama Administration is seeking to reclaim the liberal internationalist and diplomatic way of relating to the world. The United States is going to be an aggressive imperial power no matter whom it elects as president; what is called “neoconservatism” is merely an extreme version of normal American supremacism, one that explicitly promotes and heightens the U.S.’s routine practices of empire. But it matters greatly whether the American empire tries to work cooperatively and respectfully with other nations instead of conspiring mainly to dominate them. In Iraq, Afghanistan, Iran, and the Middle East as a whole, the legacy of George W. Bush is not very good and Obama has an overabundance of leftover crises to manage.

In Iraq the U.S. is slowly withdrawing military forces while in Afghanistan the U.S. is escalating; but in both cases the work is grinding, perilous, and ambiguous. There are no breakthroughs coming in Iraq or Afghanistan. The fix is in, and the new administration is simply trying to find a decently tolerable outcome. Iran is a different story diplomatically, where there is a real possibility of a breakthrough, but also the greatest danger.

‘We hate you because you are occupiers, but we hate Al Qaeda worse, and we hate the Persians even more.’

From March 2005 to April 2007 the eruption of a civil war, in the midst of an already ferocious insurgent war, in Iraq produced huge numbers of weekly attacks and casualties, averaging 2,000 attacks per month. The numbers then dropped dramatically as ethnic cleansing was completed in many areas, the “surge” of U.S. forces restricted the flow of explosives into Baghdad, the Mahdi Army suspended its attacks, and the U.S. co-opted Sunni insurgents. But violence has spiked again recently; it’s a perilous business to depend on buying off the opposition; and most importantly, the fundamental problems that fueled the insurgency and civil war still exist in Iraq. Meanwhile the U.S.’s price tag is approaching $2 trillion, as predicted by Nobel-prize winning economist Joseph Stiglitz and Harvard professor Linda Bilmes back in 2006.

All of this will take decades to play out, well beyond the blink of an American news cycle. Iraq is broken into rival groups of warlords, sectarian militias, local gangs, foreign terrorists, political and ethnic factions, a struggling government, and a deeply corrupted and sectarian police force. The Sunnis are appalled that a Western invader paved the way to a Shiite government allied with Iran. They are deeply opposed to the new constitution. They want a strong central government that distributes oil revenue from Baghdad, and they are incredulous that the U.S. has enabled Iran to become the dominant force in the Middle East. The Shiites are embittered by decades of Sunni tyranny in Iraq and centuries of Sunni dominance in the Middle East. Arab Shiites have not tasted power for centuries, and Iraqi Shiites are determined to redeem their ostensible right to rule Iraq that was denied them in 1920.

Both sides and the Kurds have militia groups that are the real powers in Iraq. The main thing that has worked in Iraq is the U.S.’s desperate gambit to co-opt the Sunni militia groups aligned with the Awakening Movement. In the counterinsurgency playbook, buying off the opposition is a last resort. The French, British, and U.S. tried it, respectively, in Algeria, Malaya, and Vietnam. In each case the weapons given to insurgents ended up being used against the forces providing them. In this case, over 100,000 Sunni fighters have been put on the U.S.’s weekly payroll. Major General Rick Lynch, commander of the Third Infantry Division, explains why it is working, so far: “They say to us, ‘We hate you because you are occupiers, but we hate Al Qaeda worse, and we hate the Persians even more.’” In this lexicon, Iraqi Shiites are Persians, like the Iranians.

So the U.S. is paying and arming Sunni insurgents to kill people in the middle group, even as they profess to hating Shiites most of all. It’s not clear how the Awakening fighters will be removed from the dole, and Shiite leaders are not sympathetic to the U.S.’s predicament. The cooptation strategy has deeply enmeshed the U.S. in Iraqi tribal politics, lifting up certain tribes over others, and corrupting them. Tribes are forming their own militias and creating new leaders adept at cutting deals and getting access to money that was supposed to pay for reconstruction. The predatory corruption of government officials and connected tribal leaders is pervasive, direct, and unrelenting, which helps to explain why $200 billion of reconstruction aid has produced almost no reconstruction.

Iraq could explode again at any time, because Sunni leaders are demanding real power, the Shiite parties are determined not to yield it, and intra-sectarian resentments are boiling. Shiite and Kurdish leaders are stonewalling against integrating Sunnis into the army, and they are gathering the fingerprints, retinal scans, and home addresses of every Awakening fighter.

Despite all of this, important political gains have been made in the past year. Parliament is grappling seriously with the Baathist reconciliation problem, which requires tough political bargaining, and the recent provincial elections brought more Sunnis into the political process. Prime Minister Maliki, toughened by 24 years of brutally difficult exile in Iran and Syria as a functionary of a tiny, persecuted Islamist party—the Dawa Party—has proven to be a more resilient leader than many expected. To make a real difference, Iraq needs an oil deal, a new constitution, a resolution over Kirkuk, and a national election that brings more Sunnis into the government. Most difficult of all, it needs to integrate large numbers of Sunni forces into the army and police force. Above all, it needs to get the U.S. Army out.

The toxic politics of collaboration and betrayal

On the latter issue, we need to be resolute and pragmatic at the same time; and by “we,” I mean our religious communities, the movements for social justice, and the Obama Administration. President Obama has significantly compromised his campaign promise to withdraw most or all U.S. troops within 16 months of taking office. His current position is that 65 percent of our force structure in Iraq will be removed by August 2010, and all our combat troops, leaving up to 50,000 troops there in non-combat roles until December 2011. He stresses that the combat mission will end at the end of next summer, more or less as he promised, and that we need to keep a heavy force in Iraq for at least 15 months beyond that. Last month the U.S. relinquished one of its largest military bases in the Green Zone, the dramatically named Forward Operating Base Freedom. But two weeks later the administration announced its plan to keep indefinitely the entire Camp Victory complex, which has five large bases in Baghdad, and Camp Prosperity and Camp Union III, which are located near the new American Embassy in the Green Zone.

There are more announcements of this sort to come. Defense Secretary Robert Gates is already saying we will need to keep some military forces in Iraq beyond December 2011, beyond simply protecting the embassy. It isn’t clear what the distinction between combat and non-combat will mean. All soldiers are trained to fight, which the Army is currently stressing in its press statements. If a civil war breaks out, will U.S. troops take action? If not, what is the rationale for 50,000 troops? It is ethically imperative for the U.S. to be careful and deliberate in extricating itself from Iraq; we must avoid the mistakes of the British in India, the French in Algeria, and the U.S. in Vietnam. Obama gets that part. What he needs to hear is that his core supporters are serious about getting out of Iraq and are not willing to be strung along for years with half-measures.

Once an empire invades, especially a self-righteous one like the U.S., there are always reasons why it thinks it cannot leave. But sooner or later, conquered peoples have to be set free to breath on their own to regain their dignity. As long as the U.S. Army is the ultimate power in Iraq, Iraq will have no sovereignty; Shiites will be viewed in the Sunni provinces as collaborators with the invader; and Sunnis will view the Iraqi army as a creation of the invaders that puts their enemies in charge. When the occupier pulls back, the toxic politics of collaboration and betrayal will be lessened. The civil strife in Iraq is going to play itself out no matter what the U.S. does. But the U.S. set it off and we are refueling it every day we remain.

In the past two years the U.S. has, in effect, created a Sunni Army. The fate of this entity trumps a long list of daunting variables in Iraq. Sunni leaders protest constantly that the nation’s interests against Iran are not being defended. If the Sunnis and Kurds can be integrated into the Iraqi Shiite Army, which is euphemistically called the Iraq Army, Iraq has a chance of holding together as a semi-federalized state. There is no other option that averts another upsurge of death and destruction.

Advocates of breaking Iraq into three nations stress that parts of the country are already partitioned; all three of the major groups have their own military, and the Kurds have their own government and oil deal too. But the majority of Iraqi cities and provinces still have Sunni and Shiite communities living side by side. Iraq cannot break apart without igniting a horrible civil war, one that Iran, Syria, Turkey, and Saudi Arabia would not sit out. The best hope is that Iraqis will decide for integration and sovereignty, but it is up to them to decide whether they want a unitary state, a decentralized federation, three nations, or something else. I don’t want President Obama to make that decision or to commit U.S. troops to one of these outcomes. We must hold the Obama Administration to leave Iraq by a time certain, relinquish all the military bases, and support the rebuilding of a shattered society.

Wanted: an anti-imperialist peace movement

Today we have the right president to repair the terrible damage to the U.S.’s image in the world, especially the Middle East, as Obama’s eloquent speech in Cairo demonstrated. But he is escalating the war in Afghanistan, with a rationale that leads straight to more escalation and virtual occupation.

The president has already added 17,000 combat troops and 4,000 trainers to the force of 37,000 that we had in Afghanistan. He is talking about doubling that escalation, says we have to shore up the government, and he is planning to double the size of the Afghan army with U.S. taxpayer funds. What he has not done is explain how or when we will know if any of this ramping up has succeeded.

After nearly eight years of war, Afghanistan has “quagmire” written all over it. The government is corrupt from top to bottom. It barely exists outside Kabul except as an instrument of shakedowns and graft, beginning with the family of President Karzai. The Afghan army is part of the corruption plague and opium production is expanding dramatically. More than two-thirds of the economy is centered on opium traffic.

The United States has a vital interest in preventing Al Qaeda from securing a safe haven in Afghanistan. But escalating to 60,000 troops, and warning that more may be necessary, suggests some larger objective that has not been explained or defended. If the U.S. is going to pour more troops into a country featuring a chronically dysfunctional government, treacherous terrain, a soaring narcotics trade, and a history of repelling foreign armies, it needs to spell out what, exactly, this escalation is supposed to accomplish and how the U.S. will know it has succeeded enough to get out or even to scale down.

I am more hopeful, though equally wary, about the situation in Iran, where the Bush legacy is disastrous. In 2001 Iran had a few dozen centrifuges and the government of President Mohammad Khatami helped the U.S. overthrow the Taliban regime in Afghanistan. Khatami negotiated with the U.S. in the wake of 9/11, closed Iran’s border with Afghanistan, deported hundreds of al Qaeda and Taliban operatives who had sought sanctuary there, and helped establish the new Afghan government. The Bush administration could have spent the succeeding years further negotiating with Iran, limiting Iran’s nuclear program, allowing it to buy a nuclear power reactor from France, and restraining it from flooding Iraq with foreign agents. Instead, Bush arbitrarily ended talks with Iran, famously consigning it to the “axis of evil.” Iran responded by electing an eccentric extremist, Mahmoud Ahmadinejad, to the presidency, developing over 5,000 centrifuges, and threatening Israel. We barely averted a catastrophe in 2006, when Bush and Cheney wanted to bomb Natanz with a nuclear weapon until the Joint Chiefs rebelled against them.

Today there is a serious possibility that the Netanyahu government in Israel will carry out the bombing option. If it does, the entire region could explode into a ball of fire. That’s the apocalyptic scenario. The hopeful one is a game-changer based on two or three years of sustained diplomacy. The U.S. could declare that it recognizes the legitimacy of the Islamic Republic of Iran. It could acknowledge Iran’s right to security within its present borders and its right to be a geo-political player in the region. It could accept Iran’s right to operate a limited enrichment facility with a few hundred centrifuges for peaceful purposes. It could agree to the French nuclear power reactor and support Iran’s entry into the World Trade Organization. And it could return seized Iranian assets. In return Iran could be required to cut off its assistance to Hezbollah and Hamas, help to stabilize Iraq and Afghanistan, maintain a limited nuclear program for peaceful ends verified by the International Atomic Energy Agency, adopt a non-recognition and non-interference approach to Israel, and improve its human rights record.

Any deal of this sort would be a dramatic breakthrough in the Middle East. It would have a positive impact on nearly every major point of conflict in the region. It would be the opposite of the Bush-neocon approach, which demonized Iran and plotted attacks against it. Obama may be the ideal president to pull off a game-changing deal with Iran. The Iranian people are remarkably inclined to pro-Americanism. The clerics that rule Iran might be willing to seize this moment, which would enhance their stature in world politics. If Obama is the president to make it happen, he will have to stand up to a firestorm of opposition in the U.S. and probably overrule his key officials in this area, Hillary Clinton and Dennis Ross. And he will have to risk offending most of Israel’s political establishment, to get something that is actually better for Israel.

Regardless of what Obama does or does not do, we need a defiantly anti-imperial peace movement that rejects the American obsession with supremacy and dominance. Forty years ago, Senator William Fulbright warned that the U.S. was well on its way to becoming an empire that exercised power for its own sake, projected to the limit of its capacity and beyond, filling every vacuum and extending U.S. force to the farthest reaches of the earth. As the power grows, he warned, it becomes an end in itself, separated from its initial motives (all the while denying it), governed by its own mystique, projecting power merely because we have it.

That’s where we are today. Now as much as ever, we need a self-consciously anti-imperial movement that seeks to scale back the military empire and opposes invading any more nations in the Middle East or Latin America or anywhere else.

Gary Dorrien is the Reinhold Niebuhr Professor of Social Ethics at Union Theological Seminary and Professor of Religion at Columbia University. He is the author of 14 books and over 225 articles ranging over the fields of social ethics, political theory, theology, philosophy, and intellectual history. His most recent book is Social Ethics in the Making (Wiley-Blackwell, 2009). This article is adapted from a lecture he gave in a spring 2009 course and public forum titled “Christianity and the U.S. Crisis,” which he co-taught with Cornel West and Serene Jones at Union Theological Seminary.

© 2009 Religion Dispatches. All rights reserved.
Source: http://www.religiondispatches.org/archive/international/1552/
The Banks Get it Wrong—Again

The Economist reported recently that a number of the larger banks that received billions in bailout money last fall and are now paying back a portion of it are practicing a little “revisionist history” by trying to claim to their stock holders that actually they never really needed it in the first place. That’s baloney, of course, but they feel like they need to lie to us again (and again, and again) in order to get back to their normal state of squandering our hard earned economy on their global roulette wheel.

As examples, they report that "Jamie Dimon, the boss of JPMorgan, has fantasized about sending an ironic accompanying 'Dear Timmy' thank-you letter to America’s treasury secretary, Tim Geithner, saying 'We hope you enjoyed the experience as much as we did.' The boss of Wells Fargo has called the solvency tests 'asinine.'

In addition to calming the stomachs of their investors they are also (one presumes) trying to convince regulators that their banks are just fine, and that they should spend all of their time clamping down on those weak banks that really need the regulations. JP Morgan claims, for example, that it really didn't need the money in the first place and that it was forced upon them and even though in great measure they are now able to pay it back because they used TARP money to pay off creditors and liquidate bad loans, and because of that are starting to make money again, none of that had any thing to do with their taking the TARP money. They say that "out of fairness" the regulations should be lifted.

The regulations are much the issue. The banks are not allowed to pay their CEOs hundreds of gazillions an hour if they take government money, and they believe that they can never get back on their feet again unless they pay their CEOs hundreds of gazillions an hour—especially if the CEO is a great success in driving the bank into the ground. JPMorgan has made this point forcefully, but some of the others have made the point less tastelessly.

In addition to the outright grants to banks, the U.S., government also stepped up and at incredible expense, purchased from the banks, hundreds of billions of dollars worth of some of the worst, most godawful, stupid, foolish, immoral, sleazy, loans ever made. We saved their butts. If they had tried to pay the bills based on the value of some of those loans and securities they’d all be following Lehman Brothers to the poor farm, and now these guys are claiming to their stock holders that the plan was never necessary in the first place.

Let me be clear: I'm not sure it was necessary either. Part of me thinks we should have just put the bastards in jail and taken over the banks. But for them to take the money, pay down the bills, be rescued from the abyss, and then say the silly government shouldn't have intruded into their line of work is slime. It gives snake oil a bad name.

This new attitude is wrong because even if their particular bank was more or less stable (and that’s relative, given the fact that all of them had lost money, some were "zombies": the walking dead). There was an almost total loss of confidence in the market. Nobody was buying anything. If the government had not stepped in the market itself would have failed, not just the high roller cowboy banks that created the mess. All of the banks in the system benefited from the bailout, even those that were relatively better off.

Also, it could be dangerous because it (by intention) could distort the way that the new regulations are drawn up. What they are arguing for is a weak set of rules for the "healthy" banks (ahem, relatively speaking, of course) and a more stringent one for the "sick." It would give the false impression that their business model had been successful while that of the "sick" was not. Whereas in reality, all were complicit at some level in creating a system of human greed that violated everything their Sunday school teacher ever told them when they were kids (back before they were confirmed and driven out of the church). Allowing the attitude that successful greed and sin is vindicated, but unsuccessful greed and sin is not, just kicks the can down the road for real reform.

New regulations—executive pay that has some basis in reality, less risk taking, more transparency, better incentives for growth—should be applied to all banks consistently, and not to just the handful of weaker banks that were the bad apples on the bottom of the barrel.

Once-safe mortgages endangered by job losses

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation's real estate disaster, the locus of trouble has shifted from subprime loans - those extended to home buyers with troubled credit - to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating the unemployment rate will rise into the double digits, from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

"We're about to have a big problem," said Morris A. Davis, a real estate specialist at the University of Wisconsin. "Foreclosures were bad last year? It's going to get worse."

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike, when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers' introductory interest rates expired and were reset higher.

"We're right in the middle of this third wave, and it's intensifying," said Mark Zandi, chief economist at Moody's Economy.com. "That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They're coast to coast."

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.

Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure, or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans - those given to people with slightly tainted credit - rose 159,000, to 836,000.

Overall, more than 4 million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms, compared with a year earlier.

Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as 4 million homeowners from foreclosure.

But three months after the program was announced, a Treasury spokeswoman estimated the number of loans that have been modified at "more than 10,000 but fewer than 55,000."

In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.

© Copyright 2009 The New York Times Company