Leadership in Washington - Sometimes, you can actually find it!

Author's note - this is a slightly expanded version of a 6 minute talk I gave today in the opening sesion of my year-long leadership class. The assignment was a presentation on qualities of leadership I admire in a "famous leader." Being somewhat rebellious (!) I strayed away from the famous part.

When the history of the Great Recession of 2008-? is written, there will be many individual names that are associated with it – for good and bad. Henry Paulson, Timothy Geithner, George W. Bush, Barack Obama – all are sure to go down in those accounts. So too are the likes of Paul Volcker and Paul Krugman, most notably for their very public advocacy of a vastly different response then we saw from two successive Presidents.

Yet I hope that history will also add the name Elizabeth Warren to that list, for hers is the story of leadership in one of my generation’s darkest moments. Warren, a Harvard Law professor specializing in financial law, has the dubious “honor” of heading the Troubled Asset Recovery Program (or TARP) Congressional Oversight Panel. Created by Congress almost as an afterthought under significant public pressure, the Committee was expected by many to be a rubber stamp for whatever the Treasury and the Federal Reserve wanted to do to bail out the financial sector.

Ms. Warren had a radically different view: to fully implement the Committee’s chartered purpose, which is

“. . .to hold hearings, review official data, and write reports on actions taken by Treasury and financial institutions and their effect on the economy. Through regular reports, COP must:

• Oversee Treasury’s actions
• Assess the impact of spending to stabilize the economy
• Evaluate market transparency,
• Ensure effective foreclosure mitigation efforts
• And guarantee that Treasury’s actions are in the best interest of the American people.

Lastly, Congress has instructed COP to produce a special report on regulatory reform that will analyze “the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.”

To these ends, Ms. Warren and her colleagues have been busy – the nuts and bolts amount to 19 reports, 11 appearances before Congressional Committees, 18 Oversight Hearings – most in places well away from Washington, and numerous media interviews. Great you say – Ms. Warren is an unusually productive Bureaucrat who intends to leave her make by drowning the government in paper and testimony. How does that make her a leader? What is her real effectiveness?

I would ask you to consider that Ms. Warren’s leadership begins with her words. These are from the February 8, 2010 Wall Street Journal editorial which she penned:

“Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.”

Or this, from the December 2009 report on TARP by the Committee she chairs:

“The evolving nature of the TARP, as well as Treasury’s failure to articulate clear goals or to provide specific measures of success for the program, make it hard to reach an overall evaluation. In its report of December 2008, the Panel called on Treasury to make both its decision-making and its actions more transparent. The Panel renews that call, as it has done with every monthly report since then.”

So Ms. Warren is being honest and forthright – as are we all on our best days. Nothing to see here you may be saying to yourself, let’s move on. But think about. When was the last time you heard a political appointee, of any political strip, speak that openly and candidly, especially about economic matters? When did someone who was “in charge” of a sector of our economy stand up and say we’re getting this wrong, and here’s why? Not thinking of anyone?

That’s because Ms. Warren is living and breathing what Michael DeRosia of the Minnesota City Management Association calls the Five Core Values of Public Administration – Transparency, Accountability, Ethics, Professionalism and Leadership. The Transparency is easy to spot – just look at the quotes above - and in my view, of higher quality then we often hear from federal agencies that have been around much longer. As to Accountability, Ms. Warren has repeatedly accepted the responsibility for her Committee’s failures, while making it clear that others (like Treasury) also bear responsibility for her not meeting expectations. Her Ethics and Professionalism are never discussed publicly, which I believes speaks to her high standards in these areas, and her Leadership is such that her oversight panel may well go down as being effective – even if it can’t get other agencies to live up to her standards.

Elizabeth Warren, academic turned bureaucrat, has set a leadership example that we can all draw from. In so doing, she has become a solid voice that Americans can listen to in a complex set of issue that threatens our Nation. Each of us would do well to aspire to her level of Transparency, Accountability, Ethics, Professionalism and Leadership.

“I've spent my time and my research on economic death and rebirth. And much of that was about what happened to America's middle class, how we have hollowed out America's middle class. It will not save us if a handful of Wall Street banks prosper and the rest of America fails. Our focus, our energy, our heart has to be on the rest of America.”

The bailouts and healthcare reform - one quote says it all

While ruminating on what the loss of the public option means to so-called "healthcare reform," and trying to draw useful links and lessons to the payback of TARP funds (apparently hastened by huge additional tax breaks); I read this in a comment at The Intersection. Marion's comment was in a post about the death of science journalism, but it rings true for so many things these days:

Markets don’t give you what you want OR need – they trade whatever you can scrape up by way of labor or money for what, crudely expressed, the owners of resources and physical plant and the providers of finance and credit want to offer, and you then try to cobble together what you want and need from the menu you’re given.

the continuing saga of the mouse that roared - TARP is NOT funding toxic asset reductions

Wasn't TARP created to deal with this?

Goldman Sach to Employees - Don't spend it all in one Place!

That Goldman Sachs would actually say this to employees shows just how big a gulf exists between this firm and the rest of the country.

The State of the Economy - why the bailout may have been necessary afterall

I have to confess that my liberal political bent still has not reconciled itself to the bailout of the financial sector yet. Nor has it come to terms with many other economic urban legends, such as the notion that the U.S. is no longer a manufacturing nation. No friends, I remain skeptical, but as skeptical as I once was.

Regular readers will note that I tend to go to original source data whenever I can, read and analyze it myself, and then draw my own conclusions. And I see no reason why the state of the economy should be an exception.

As luck, or good bureaucratic planning, would have it, the Census Bureau is able to help me look at both the question of "Are we still a manufacturing country" and did the financial sector really deserve a bailout. See, every 5 years, Census goes out and does a look at business. They collect sector specific statistic on number of employees paid, number of businesses in each sector, receipts, and payroll expenses. And they make it all available on the web. So, thanking my colleagues in that federal agency, I downloaded the data, and ran some graphs. The first is presented here - I'll be doing some more posts in the days ahead with other parts of the data.

I'll call two things to readers attention. First, with regards to manufacturing, I fail to see how we are no longer a manufacturing nation when that sector of the economy did $5.3 Trillion in 2007 business. Thats more then the individual Gross Domestic Product of every other country in the world. Nice try alarmists, but we seem to be doing just fine making things these days.

As to the financial sector bailout - no wonder Citi is giving raises, and Goldman Sachs expects their best year ever. The Financial and Insurance sector did $3.6 Trillion in 2007, meaning that $1 Trillion in loans and bailouts secured about 1/3rd of their receipts for 2009, without them having to really do much of anything. I'd love a pay plan like that, as I'm sure would a lot of small business owners. Interestingly, there were only 4 countries in 2008 that had GDP's higher then the Receipts of the U.S. Financial sector - The U.S., Japan, China, and Germany in that order.

The really galling part of the bailouts, however, is that the financial sector only had payroll expenses (the yellow line) of $494 Billion that year. The rest, I'm sure, went to a lot of overhead, but there is still ENORMOUS profit built in there. One wonders how much, if any was set aside in reserves. One suspects that a lot could have been.

So where does that leave taxpayers? Well, to be sure based on a receipts basis, if the financial sector had collapsed, it would have significantly hurt the U.S. economy. The numbers bear that out. But at the same time, the numbers also show that there are still plenty of other sectors that could have helped offset the loss. I know it isn't a perfect assessment, but I am left with even more questions then before.

Nationalizing the banks - that horse has left the barn!

As we all wait anxiously for the "official" results of Treasury's Stress Tests of banks (!) - ponder this from Simon Johnson and James Kwak. It may take a few minutes, to read but they aregue (based on the actual evidence to date) that we are in effect slowly nationalizing banks without using the word, but on the banks' terms, not terms that benefit the U.S. taxpayer or economy in th elong run. They also prove, FWIW, that bloggers can indeed do real journalism.

This just in - Make sure you pay your taxes

If the AP report on MSNBC is correct, firms taking taxpayer funded TARP money owe the U.S. government 0.02% of that fund in back taxes. Yep, you heard that right, TARP recipients owe back taxes. And they all had to sign certifications saying they didn't in order to get their funds in the first place.

Two thoughts spring to mind. First, will the Republicans who have sunk so many Democratic nominees over tax issues holler as loudly about this? Me thinks not. And second, will this be the "smoking gun" that will finally open criminal investigations into the very companies who willfully and gleefully took our economy into the tank in the name of short term profits? After all, Al Capone got sent up for tax issues . . . .

Why Wall Street needs to be put in Time Out.

Say what you will about Wall Street types - at least they are committed to a battle to the end so that they remain "relevent" to modern economic policy. But look at this graph,and ask yourself - how much do we really need to pay attention to these guys?

See, the data (from the work of Robert Shiller who lets you copy his data sets and then do your own graphing) makes the case clearly that 1) we haven't fallen as far as we did before, and 2) once you take all the "noise out" stocks are still likley to see growth in the future. How did I arrive at this conclusion? I just fitted the blue trend line to the graph. And it's the trendline that we all need to keep in mind, not the bounciness around it.

Every time one of the Wall Street brokerages, or their friends in the MSM or cable, gets on TV and talks about the market, keep this in mind - PE ratios (one o fthe best measures of the stock market's soundness) have not yet fallen as low as they did in the 1980's rcession under Ronald Reagan. In fact, by the time the Great Depression started in 1929, they were on a substantial climb from their earlier collapse. PE also hasn't fallen that low yet, and the trend line tells us even if it does, the rebound is likely to keep us on a slow but steady upward climb.

given that, why don't we let a few banks go into receivership and start the auctions? If history is our guide, the stock market will do just fine, and so will the economy.