Submerging Markets™ - Recent Posts

"WHAT MIDDLE CLASS"?Global Distribution of Net Financial Wealth (2007-08 Average)James S. Henry and Brent Blackwelder(Click chart)

Res Ipsa Loquitur.

Pittsburgh's Litte State of Siege

You didn't hear much about it from any major US  news organizations, but  there was a very disturbing case of gratuitous police intimidation and violence at the G20 Summit in Pittsburgh last week. 

At least those of us who went to Pittsburgh managed to get a close look at the latest cutting-edge technology in anti-democratic crowd control -- one of the few remaining growth industries where the US is still the undisputed world leader. 

INVEST IN INNOVATION!!!Instead of Eating the Seed Corn...James S. Henry and Jim Manzi

We are called the nation of inventors. And we are. We could still claim that title and wear its loftiest honors if we had stopped with the first thing we ever invented, which was human liberty."  

-- Mark Twain

(The following is a longer version of a piece that appeared this week in The Nation.)

In the midst of our deepening recession, the US faces another  economic crisis that is less visible and dramatic than house foreclosures, bank failures, plant closings,  or stock market avalanches, but even more important in the not-really-that-long run: systematic under-investment in technology and innovation.

Indeed, nothing less than our global economic leadership may be at stake because of this underinvestment.

On the other hand, with a little bit of funding,  foresight, and determination, we believe that it may be possible to kick-start an innovation revival.

Especially at the federal level, for a  modest investment,  there’s an opportunity to create a whole new generation of idea-growing, job-creating  technology hubs all across the country – perhaps even an “automotive Silicon Valley”  in otherwise moribund Detroit.

  This revival would not just be about investing more heavily in R&D. Especially in troubled times like these, we need to remind ourselves that innovation has always been a critical American tradition, a crucial part of our patrimony. It is as much a by-product of our political system and cultural norms as of our business and scientific practices.

This patrimony is now at risk, not only from our failure to invest,   but also from the failure to reward and honor scientists, technicians, engineers, and inventors above lawyers, bankers, and hedge fund managers, and to recognize the central role that real innovation of all kinds has always played in our story.

HANK PAULSON'S OCTOBER REVOLUTIONWhy This Republican X-Banker Has Decided to (Partially) Socialize Our Entire Banking SystemJames S. Henry "

 "We have made changes, Sire. Yes, it is true, we have made changes. But we have made them at the right time. And the right time is, when there is no other choice."

-- Conservative adviser to King Edward VII, explaining his support for liberal reforms

We may have just reached a critical turning point in American political economy -- not only in our efforts to overcome the burgeoning global banking crisis, but also to overcome the pernicious influence of free-market fundamentalism, which has dominated US economic policy for the last 30 years.

Ironically enough, the person who deserves more credit than anyone else for helping us to reach these goals is our current Treasury Secretary, a lifelong die-hard Republican and former Wall Street king-pin.

Last night, a few hours after the US stock market closed,  the Bush Administration, embodied in Henry M. Paulson,Jr.,  announced that in order to stem the continuing turmoil in capital markets,  in conjunction with other G-7 countries, the US federal government will begin "as soon as we can" to use taxpayer money to buy preferred equity in private financial institutions, especially banks.

Depending on how it is implemented, this could very well amount to a partial nationalization of the entire US banking system by the US Government. Are you paying attention here, Hugo, Fidel, and Evo? 

This marks a very sharp U turn in recent US policy. Indeed, just two weeks ago, in their September 23rd testimony before Congress, Paulson and Federal Reserve Chair Ben Bernanke dismissed such equity investments as a "losing strategy," compared to their preferred scheme, a government-run "reverse auction" to buy up to $700 billion of "toxic" bank assets.

HAIL MARY

This policy U-turn was not due to sudden new insights generated by careful academic analysis or some precise economic model. 

It feels more like a Hail-Mary pass,  coming at the end of  one of the most disastrous weekly stock market performances in US and global history.

That, in turn, was preceded by ten exhausting days of political goat-rodeo and Congressional negotiations over the infamous "$700 billion bailout," on top of the preceding six exhausting months of  more or less ad hoc, increasingly expensive but largely unsuccessful one-off  interventions in money markets and the banking system by the US Treasury, the Federal Reserve, and a myriad other US bank regulators. 

Meanwhile, there has been an even more quirky set of poorly-coordinated improvisational remedies administered by diverse regulators in the UK, Germany, France, Iceland, and Belgium. 

At the end of all this,  fear, uncertainty, and doubt (FUD) have continued to spread across global capital markets, as policymakers stumble into each other, national banking systems compete for deposits, the US Treasury becomes (ironically) a huge depository for safe-haven flight capital, and no one manages to get ahead of the crisis.

If the FUD continued to spread, and global credit remained on lock-down,  the forthcoming global recession -- already likely to plunge real growth in Europe and the US  to zero or less next year, China to 6 - 8 percent or less, and the rest of the developing world to 4-6 percent -- would become dire indeed. 

So one answer to the riddle of Paulson's "sudden conversion" is that he simply had no alternative. Given that ad hoc bailouts, coordinated interest rate cuts, increased deposit insurance, the extension of government insurance and liquidity to money market funds, the commercial paper market, on top of the takeovers of AIG and Fannie/ Freddie, had not done the job, nationaliziation -- really internationalization, since global banks are involved, and other countries will presumably be asked to contribute -- is one of the few arrows left in his quiver.

A GREAT TRADITION

This will hardly be the first US experience with quasi-nationalization. On September 16, the Federal Reserve had effectively "nationalized" the giant insurance company AIG, acquiring 80 percent of its equity in exchange for an $85 billion loan.

Way back in the 1930s and 1940s,  the US Reconstruction Finance Corporation seized and recapitalized many banks. The FDIC has also done this many times since then.

European governments have even longer histories of direct intervention in banking markets.  And several of them moved almost too quickly in the last year to nationalize particular banks -- for example, the UK's Northern Rock in February 2008 and Fortis in September 2008.

Of course, most of these recent cases have involved failing institutions, where the government was a "lender of last resort." As discussed below, Paulson's plan is rather different.

Even farther back, in the early 19th century, states like Virginia and Pennsylvania often invested directly in state-chartered banks to set them up and keep them going. Those were not especially happy experiences with government ownership.

But this is hardly a great time for champions of private capital markets to be quibbling about the efficiency costs of government intervention -- private markets in the US alone have just lost $7 trillion of market cap in the last year, including $3 trillion in the last 3 weeks. And the global "opportunity cost" of the crisis is probably at least twice this high.     

A GLOBAL RECOVERY FUND?

 If done right,   Paulson's PIP  (Public Investment Program) will be much broader,  more proactive and more innovative than previous bank nationalizations.

For example, one idea would be to establish a "Global Recovery Fund," permitting fresh private capital, "sovereign wealth funds" like those in Norway and the UAE, and European, Latin and Asian countries that have a clear stake in restoring the world's financial sector to health to invest alongside the US Treasury.

Even, Heaven help us, the IMF and the World Bank's IFC might participate in such a fund.  They have run out of developing country crises to solve, are looking for a new role, and have $billions in untapped credit lines. 

Such an approach would help to share the heavy burden placed on US taxpayers, and make this program more politically palatable than the TARP bailout proved to be.

A global fund would also help to diversify investment risks across many more countries and banks. 

Indeed, the USG and its new partners might even become lenders of far-from-last resort, clearing the way for threatened but essentially-healthy institutions  to survive the financial contagion, raise much more private capital as well, and, most important, turn each and every  new $1 of equity into $10 to $15 of new lending.

If the fund is successful in reviving the world's financial system, and restoring banks to financial health, taxpayers and investors will no doubt all be paid back handsomely. But the most important benefits may be the "hidden" ones -- the catastrophic losses that would be avoided by preventing further chaos and market decline.

This is very different from Paulson's original TARP buy-back scheme, which promised to boost bank equity informally by way of overpaying for toxic assets with highly-uncertain values. 

Ironically, that approach just rewards those companies with the very worst  portfolios and lending practices,  while enabling much less increased lending.

Indeed, TARP's only comparative advantage seems to have been that by avoiding direct government investment in the private sector, it did not violate any red lines of so-called free-market conservatives.

In hindsight, however, given TARP's birth pains, plus the fact that the market value of all US publicly-traded stocks fell from $12.9 trillion on September 19 to $9.2 trillion in the three weeks after Paulson Plan I was announced.

So respecting this neoliberal ideological taboo may well have just cost US investors -- most of whom are taxpayers -- at least $1 to $2 trillion of  market value that might have been saved with an immediate recapitalization plan.

With that much extra dough,  we could almost afford to wage another Iraq-scale war somewhere. 

BUSH SPEAKS: "HOW DID WE EVER GET IN THIS MESS? WHERE HAVE I BEEN?"James S. Henry

Last night on national television, Comrade Bush presented his own miniature 14-minute "Cliff Notes" version of the roots of the current US financial crisis, and a heart-rending appeal for the most generous act to date of his Administration, the $700 billion blank-check Wall Street bailout. 

By now the man has established a bit of a pattern --  customarily trying to scare us all into granting him unlimited powers,  while arguing that there is simply no alternative to whatever bitter pill he happens to be pushing at the moment. 

You are of course free to believe him if you like. Hundreds do.

IMPROVEMENTS

In fact, as we argued yesterday, there are all sorts of improvements to be made to the proposed Whale of a Bailout package.   

These include things like, at a minimum, (1) equity investment and warrants for taxpayers, to provide some upside returns in proportion to the risks we are taking on any purchases of bank assets; (2) stronger oversight; (3) more assistance for the millions of Americans who are experiencing home foreclosures; (4) compensation ceilings, clawbacks, and stiff progressive tax rates on incomes over $1 million and estates over $10 million, to offset the cost of all this; (5) a Financial Products Safety Commission; (6) a new Treasury-backed competitive insurance market for mortgage securities,  available to banks and homeowners; (7) expanded FDIC reserve fund rather than buy "toxic" bank securities up now, set up an  -- since all the "I-banks" are commercial banks now, anyway; (8) a new installment of the 1932 Pecora Commission, complete with subpoena power, to investigate the origins of the crisis and hold people accountable.

(For more details, here is the testimony that Dr. Brent Blackwelder, Friends of the Earth, and I submitted to Rep. Frank's House Financial Services Committee yesterday: BAILOUT.pdf)

ALTERNATIVES

Even more important, the President's central claim that there is no alternative to this bitter pill is a triple whopper with cheese.    

As the IMF -- not our favorite institution, but it does know a thing or two about recapitalizing broken banking sectors --  has suggested just this week, long-term "swaps" of mortgage-backed securities for government bonds could be used to clean up the banks' balance sheets while completely sparing  taxpayers the risks of a huge loss on the $billions of toxic assets we'll soon be owning. 

There are also numerous other approaches  to broken-banking sector restructuring  that have been employed by governments all over the planet in more than 124 banking sector crises since 1970 -- for example, in Chile, Korea, Germany, Mexico, and  Japan.

Doesn't anyone else find it odd that none of this expertise is being put to use?

Or that, with losses on complex derivative and structured securities at the core of this debacle, and thousands of "quants" from MIT and Wharton on Wall Street, we cannot design some simple security vehicles to help taxpayers reduce their personal or collective exposure to its potential costs? 

Perhaps Bush & Co. are not familiar with the IMF or the World Bank/ IFC's "Capital Markets Group." Perhaps Secretary Paulson never bothered to understand the first thing about derivatives and options during his 32 years at Goldman Sachs.   

For their information, the World Bank/ IMF/ IFC  are located at 700 19th St. NW, Washington D.C., three blocks from the White House.

Their staffs are not especially busy at the moment -- indeed,  15 percent of the IMF's professionals are being laid off, so they may have some time to help out.

We've been assured by the Bush Administration, however, that the IMF's assistance is not really needed at this point.

"What are we," Bush asks,  "Some sort of two-bit corrupt, debt-ridden plutocracy  that can't manage its own affairs?"

STAMPEDE

Indeed, the President,  Secretary Paulson, and a weird new assortment of  bottom-feeding Wall Street investors  (Omaha's Warren Buffet, Tokyo's Nomura Holdings and Mitsubishi UJF), and, of course, those who are still left on Wall Street itself are in a white heat to get this deal done, and are trying to create a stampede. 

They are also clearly not interested in improving the bailout. They just want our money -- and a loosey-goosey, behind-closed-doors process for distributing it that hasn't even been designed yet.

Unlike US taxpayers, Buffet, who is reportedly investing $5 billion in Goldman Sachs, was saavy enough to get preferred shares and warrants for his money -- worth up to 8 percent of the premier bank's share.

At that rate, just think how much Wall Street real estate our  $700 billion would buy -- if only Paulson and Bernanke and the US Congress would follow in Buffet's footsteps and insist on some equity and warrants in exchange for a bailout. 

SOCIALISM FOR BANKERS, SAVAGE CAPITALISM FOR EVERYONE ELSE? Bailout Jeopardizes Entire Progressive AgendaJames S. Henry

"“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” --  Warren Buffet, June 2008

Ladies and gentlemen: pardon my intemperance,  but it is high time for some moral outrage --  and a little good old-fashioned class warfare as well, at least in the sense of a return to seriously-progressive taxation. 

After all, as this week's record-setting Wall Street bailout with taxpayer money demonstrates once again,  those in charge of running this country have no problem whatsoever waging "class warfare" against the rest of us -- the middle classes, workers and the poor -- whenever it suits their interests.

At a time when millions of Americans are facing bankruptcy and the risk of losing their homes without any help whatsoever from Washington DC,  the CEOs and speculators who created this mess, and the top 10 percent of the wealth distribution that owns 85 percent of financial stocks, have teamed up with their "bipartisan" cronies in Congress, the US Treasury and the White House to stick us with the bill -- in a bum's rush toward a cockamamie solution.

This time they have gone too far. 

As discussed below, the cost of this bailout could easily jeopardize our ability to pay for the entire economic reform program that millions of ordinary citizens across both major parties have been demanding.

Some kind of bailout may indeed be necessary from the standpoint of managing so-called "systemic" risk to the financial system.

But it should come at a price -- a hefty part of which should be paid by the tiny elite that was most responsible for creating this mess in the first place.

THE "GET REAL" NEW DEAL

To make sure that real economic reform is still feasible, we need to demand a "Get Real/ New Deal" from Congress right now. 

At a minimum, this Get Real/New Deal package should include measures like:  (1) the restoration of stiff progressive income and estate taxes on the top 1 percent of the population (with net incomes over $500,000 a year and estates over $5 million) -- especially on excessive CEO and hedge fund manager compensation; (2) much more aggressive enforcement and tougher penalties against big-ticket corporate and individual tax dodgers; (3) tougher regulation of financial institutions  -- possibly by a new agency that, unlike the US Federal Reserve, the SEC, and the US Treasury, is not "captive" to the industry; (4)  a crackdown on the offshore havens that have been used by leading banks, corporations,  and hedge funds to circumvent our securities and tax laws; and (5) the immediate revision of the punitive bankruptcy law that Congress enacted in 2005 at the behest of this now-bankrupt elite.

We also need (6) a National Commission to investigate the root causes of this financial crisis from top to bottom, and actually (unlike the hapless, ineffectual 9/11 Commission) hold people accountable.

Over time, this progressive Real/ New Deal would help raise the hundreds of billions of new tax revenue that will be needed to offset the costs of this bailout.

It is essential if the Federal Government is to be able to afford key reforms like health insurance, clean energy, and investments in education.

These may not matter very much to Wall Street executives, financial analysts, Treasury and Federal Reserve executives, or the more than 120-130 Members of Congress and 40-45 US Senators who earn more than $1 million a year -- and are already covered by a generous "national health care" package of their own design. But these  are the key "systemic risks" that ordinary Americans face. 

These reforms may sound ambitious. So is the bailout.  And the reforms that we are discussing are only fair.

After all, we the American people have been  the very model of forgiveness and understanding lately. 

We have tolerated and footed the bill for stolen elections,  highly-preventable terrorist attacks, gross mismanagement of "natural" disasters, prolonged, poorly conceived, costly wars, rampant high-level corruption, pervasive violations of the US Constitution,  and the systematic looting of the Treasury by politically-connected defense contractors, oil companies, oligopolistic cable TV and telecommunications firms, hedge fund operators, big-ticket tax evaders,  and our top classes in general. 

Does "class" still matter in America?  You betcha -- perhaps more than ever. But enough is enough.  Call your Congressperson now.  Demand a"Get Real/ New Deal" qualifier to the bailout package before it is too late.

(c) SubmergingMarkets, 2008

NARRATIVES, NOT IDEASMcCain's Contradictory, Fearful Vision of the Next Four YearsJames S. Henry

Outside the Republican convention hall, Twin City cops and National Guardsmen in full-scale battle gear were arresting credentialed journalists like Amy Goodman and pepper-spraying peaceful demonstrators -- though you didn't hear much about that from the respectable TV commentators who were safe inside, battling balloon drops.   

Inside the hall, we were treated to an odd combination of "Naughty Librarian" Gov. Sarah Palin, John McCain trying for the nth time to appear natural while reading the teleprompter and bashing his own party, and 2380 raucous Republican delegates -- 1.5 percent black, 5 percent Hispanic, 32 percent female,  80 percent over 50, and nearly 100 percent over-fed  -- trying to appear jubilant, grinding to the heavy-metal rhythms that someone in the RNC hierarchy must have thought were a cool idea.   

We also had yet another recapitulation of the Arizona Senator's horrific five years in a POW camp, after being shot down on his 23rd mission over Hanoi back in 1967.

Indeed, if McCain somehow manages to win this election, he will have no one more to thank than Nguyen Van Dai, the 68-year old retired  Vietnamese colonel who actually launched the SAM missile that downed McCain's A-4 Skyhawk on October 27, 1967.

In any case, after watching the Republican Convention from mind-numbing start to finish, it is now crystal clear that,  apart from McCain's 41-year-old combat narrative -- supplemented by the less familiar narrative about Palin's decade-long  battle to combine procreation, small-time government, and the Assembly of God's "Plan for Alaska" -- the Republican Party has become the equivalent of the US housing industry.

It is intellectually bankrupt, with almost no new ideas. As former Reagan speech writer Peggy Noonan correctly put it, "They went for this, excuse me, political bullshit about narratives."

Worse than that, the Republican Party has also turned its back on many of its old favorite best ideas and brand values -- for example,  "small government," "balanced budgets," "non-intervention," "environmental protection," and "the US Constitution."

Palin's first 15-minutes of fame temporarily blinded many commentators  to this basic fact.  But even the most faithful die-hard Republican strategists now agree that, apart from the novelty of her Bat Mitsvah,  this abbreviated convention was a gigantic, expensive messaging mess -- and, on balance,  a gift to the hapless Democrats -- who are otherwise still fully capable of losing this race, even with a full-scale political and economic gale at their backs.

We'll explore the numerous contradictions in McCain's program below.

(c) SubmergingMarkets, 2008

MCCAIN's MIGRAINEIs His VP Choice a "Natural," Or An Eagleton/Quayle Combo?James S. Henry and Matthew Maly

By law the US is required to have a Vice President. Do we really want it to be this one?  

Many serious countries with Presidential systems -- like Finland, Germany, France, Ireland,  and South Korea -- have long since dispensed with the role of Vice President completely.

In the wake of the uproar -- indeed, shock and awe -- provoked by John McCain's  surprising selection of 44-year old Gov. Sara Palin of Wasilla, Alaska, on top of all the hoopla over Barack Obama's dissing of Hillary Clinton and our collective nightmare with "Darth" Cheney, some pundits have  suggested that it may be time for the US to follow the Finnish model and have no US Vice President at all.

With each day's new revelations about Gov. Palin's complex personal life and rather extreme views, some pundits have also suggested that she may quickly go the way of former Missouri Senator Thomas Eagleton, who lasted just two weeks as George McGovern's VP pick in 1972 -- or perhaps worse yet for the Republicans, a reprise of the legendary Indiana lightweight, Dan Quayle.

They are wrong.

Ms. Palin's nomination is a perfect demonstration of the incredible entertainment value that only the VP role can provide.

At a time when our economy is in serious trouble, state and federal budget deficits are out of control,  energy costs are unaffordable, the US Constitution is under attack, tax evasion is at a record level, we're still tied down in two major wars in Iraq and Afghanistan, tensions are mounting with Russia, social inequality is soaring, environmental calamities abound, Freddie Mac and Fannie Mae are about to fail, our education system is broken, the drug wars continue unabated, and millions of Americans lack jobs, decent housing and health care,  filling the VP slot with this more-or-less unknown quantity adds a nice soupçon of uncertainty to the entire situation.

It permits the whole nation to "double down" at once,  experiencing a kind of risk-taking that none of us would ever be able to achieve on our own.

This is precisely the kind of entertainment that government, at its best, is supposed to offer.

Indeed, Sara's selection is bound to make our peculiar "imperial electocracy"  the envy of the world -- once again!  

I. FINALLY A BABE!

Ms. Palin may not yet be a household name, but upon closer examination, her qualifications for the Vice Presidency --  just one bad biopsy away from the world's most powerful office -- are overwhelming.

First and foremost, just take a look -- this woman is a looker, a true MILF!

Carla Bruni, where is thy sting?  Angela Merkel, bite your knuckles!  

To paraphrase Joe Biden, Ms. Palin is an "articulate, bright, clean, good-looking" white woman.

And young! Why she was only 4 years old when 72-year old John McCain was bombing peasants from 30,000 feet, and 9 years old when he was released from the POW camp in 1973.

Indeed, Sara was first runner-up in the 1984 Miss Alaska beauty pageant, after being voted Wasilla Alaska's "Miss Congeniality."

True, back then,  Wasilla only had about 5000 residents. But so long as you were not a moose or an environmentalist,  Wasillans were the most congenial people on the planet. And Ms. Sara was the most "congenial" of them all.

Anyone who has ever attended public high school knows what that means - religion or no.

We think we can all trust "Bomber" McCain's judgment on this one.  John may have only met his VP choice two or three times,  but he is an expert on beauty queens.

His first wife Carol was a model  and  his second wife Cindy was Junior Rodeo Queen of Arizona in 1968. 

(Just in -- McCain has also  reportedly expressed interest in naming Sherri McNealley, the real winner of the 1984 Miss Alaska contest, as his future Secretary of State, but so far she's still MIA.

He's also expressed interest in appointing Wasilla's current mayor, Dianne M. Keller, to be his Attorney General, once she completes her law degree.)

In any case, unfortunately, this VP choice will probably not swing Hillary's disaffected female supporters to the McCain camp. Most of them are die-hard feminists who have serious issues with Palin's political views -- for example,  her opposition to abortion even in the case of rape or incest, and her unsympathetic description of Hillary Clinton as a "whiner."   (Where on earth would she get such an idea?)   

From a strictly male hormonal perspective, however, this may be the best VP selection in history -- precisely the kind of candidate we need to arouse our interest and get us up off the couch. After years of enduring so many talented but extraordinarily plain women in national politics (viz Senators Clinton, Hutchinson,  Mikulski, Boxer, and Feinstein, for example), -  finally the US Senate will be presided over by someone who still leaves something to the imagination.

II. SHE'S HYPER-PRODUCTIVE!

Sara Palin is a doer, not a talker.  Not only is she the Governor of Alaska, but she is a "hockey mom" with five children by birth (but no adopted ones, unlike the 72-year old McCain). These include an unmarried pregnant 17-year old, a son on the way to Iraq, and a 5-month old infant with Downs Syndrome. She hunts and fishes. She runs 5-10 miles a day.  She's under investigation by Alaska's State Ethics Commission for "using her public office to settle a private score." (Who could resist doing that?) 

When Sara was pregnant with her fifth child, her water broke while she was attending a Republican Governors' conference in Dallas, and she flew all the way back to a Wasilla Alaska hospital to have the child delivered at home.

That's precisely the kind of crazy, life-threatening behavior that we need much more of in the highest echelons of the US Government! Shock-Treatment Tom (Eagleton), we hardly knew ye!!!

Adding the burden of the US Vice Presidency to this full plate will no doubt give us a shining example of just how to precisely strike that delicate balance between family life, work life, and blind ambition -- as well as the many benefits of the "Just Say No" approach to birth control!

(c) Submerging Markets, 2008 

 

"HEY OBAMA: I WANT MY $$ BACK!"Barack, Lieberman, Republicans, and Red-Dog Dems Vs. the U.S. ConstitutionJames S. Henry

Today the U.S. Senate voted 69 to 28 in favor of the FISA Amendments Act (H.R. 6304). This monstrosity not only grants complete retroactive immunity to leading telecommunications companies for violating our civil rights since 2001, but also opens the door to mass surveillance of US citizens without warrants, in blatant violation of the Fourth Amendment to the US Constitution.

Unfortunately, for those of us who had taken Barack Obama at his word when he promised on numerous occasions to oppose -- or even filibuster -- against this completely unconstitutional bill, he decided to retreat rather than fight.

In doing so, Obama broke ranks with Senators Feingold, Clinton, Schumer, Dodd, Biden,  Kerry, Reid, Byrd, Senator Kennedy if he'd been well enough to vote, and a majority of other progressive Senate Democrats, all of whom courageously voted against this horrific bill.

Instead, Barack Obama chose to stand with belligerent warmongers and crypto-Republicans like Joe Lieberman, dim-witted carnival barkers like Diane Feinstein, Evan Bayh,  and Jay Rockefeller, plus nearly every single Republican in the Senate -- except for John McCain and Pete Sessions, who did not even bother to vote on this critical issue.

THE OLD SOFT SHOE

In explaining his FISA bill vote, Obama cited several arguments that turn out upon closer inspection  to be completely disingenuous arguments, evidently concocted on the fly to conceal his political motives. 

First, he claimed the bill was an "improvement" over the original one proposed by VP Cheney and House Republicans. This sets the bar so low that it is buried in the sand.

Second, Obama  said he remained opposed to telecom immunity, and would vote to amend that provision in the bill -- as if this little bit of sugar excused the bitter pill left over after the amendment failed.

Third, and most important, Obama says that he is now convinced that unfettered wiretapping and email surveillance are needed to prevent yet another terrorist attack in the US.

In fact, as many other commentators have argued at length elsewhere, this kind of unfettered surveillance is neither necessary nor sufficient to prevent such attacks.

Furthermore, the very best evidence on 9/ll shows quite clearly that the Bush Administration's inability to prevent the attack had little to do with a shortage of intelligence, let alone any limitations on wiretapping powers under already-generous FISA procedures. Rather, the Bush Administration's failure to prevent 9/ll was due mainly to its incredibly incompetent -- nay, criminally negligent -- handling of abundant intelligence.

By reviving the old false dilemma that there is an intrinsic conflict between national security and constitutional rights, Obama has, in effect, just provided the Bush Administration a get-of -out-of-jail free card, and set back the quality of discourse on this issue at least six years.

And all this from a "professor of constitutional law!"

MORNING-AFTER REGRETS

This was only the latest in a series of sharp right turns and U turns that the Junior Senator from Illinois has made in the wake of his primary victory over Senator Clinton just six weeks ago.

On issues ranging from gun control and abortion to civil liberties, campaign finance, nuclear power,  the death penalty, and government support for faith-based initiatives, many of those who have worked hard for Obama  and contributed to his campaign from very early on are now having "morning after" regrets  -- you know, that awful feeling when you wake up next to someone you barely know, someone who looked a whole lot better the night before at 2 am on the dimly-lit dance floor, under the influence of hope, desire, grog, and near-sightedness.

Apparently now that Obama's the nominee-in-waiting, he pictures those of us on the Center/Left as the survivors of Oceanic Flight 815, marooned on his mysterious tropical island with nowhere else to go.

He also probably thinks that his vote today makes it easier to convince "independents" and even some "Republicans"  that he's not "soft" on national security.

In my experience, however,  the vast majority of people who still consider themselves "Republicans" as of 2008 are beyond redemption, at least this side of the Inferno. On the other hand,  many "independents" actually do give a hoot about the Bill of Rights.

The one thing we thought Barack was able to do was to stand up and defend basic principles in the face of the inevitable right-wing onslaught. 

For millions of those who  supported him because we thought he was the real "change" candidate,  this was clearly not the kind of "change" we had in mind.

A HILLARY REVIVAL?

Perhaps the Junior Senator from Illinois needs to be reminded that he is not quite yet the official Democratic Party nominee.

There's more than a month to go before the August convention, when 800 super-delegates are entitled to vote freely for the candidate they consider to be the most worthy. 

We've also just waked up from the six-month primary binge to learn that it may indeed be Hillary who not only has the best  positions on many of these key issues,  but also has the courage to stick by her convictions. 

During the long primary season, I had many heated arguments with Hillary supporters about the value of her vaunted "experience."  Now I finally understand what they were talking about -- not just that she has a Graduate Degree in Government 101, but that there's a solid core of values that she's defended for decades.

For my money, Barack, by comparison, is looking more and more like the Manchurian Candidate -- another ad hoc Madison Avenue concoction that arises out of our seemingly inexhaustible supply of hope, desire, grog, and near-sightedness.

At the very least, all this should be enough to earn Hillary Clinton the VP slot on the Democratic Party ticket. Clearly we need her to provide a rudder for this campaign -- rather than, say, the irascible Senator Webb, the ex-Republican from Virginia who also voted today in favor of the shameless FISA betrayal.

Of course to many of us,  Hillary's one glaring fault was her original position on the war. Now that Obama's positions on so many issues -- perhaps even his timetable for withdrawing from Iraq --  have been shown to be,  politically speaking, up for sale, that one error in judgment does not seem quite so fatal.

True, Barack and Michele still seem a little more personable and fresh than Hillary and Bill. But the bloom is definitely off the rose. We'll just have to see how well the charm holds up, once the Democrat Convention is over and Karl and the Rovettes open up their little bag of dirty tricks.

What's already clear is that on this matter of fundamental principle, the US Constitution, this Great Black Hope from Chicago has just turned out to have a very broad bright yellow streak right down the middle of his bowling shirt.

So, at least until Hillary Clinton joins him on the ticket, I for one am demanding my money back.

Meanwhile, for those of you who still care about the Bill of Rights, here's what the ACLU has to say about today's capitulation by the Democratic Party's latest addition to the ranks of "Beltway bandits:"