Tuesday, July 31, 2007

Edwards, Obama and the Poor

July 31, 2007
New York Times

Suppose you were going to decide your vote for president entirely on the issue of who could best reduce poverty. Who would you vote for?

You’d start by focusing your attention on the candidates who have invested the most time in the issue, John Edwards and Barack Obama.

You’d find that both have a multilayered view of poverty. We used to have debates in which liberals emphasized the lack of jobs and conservatives emphasized personal behavior. But in the post-welfare-reform world, it’s pretty obvious that everything feeds into everything else. For Edwards and Obama, poverty flows from a lack of jobs and broken families, bad schools and bad role models, no training and no self-control.

For both candidates, you have to attack everything at once. You have to holistically change the environment that structures behavior. The question is how to do it.

Obama and Edwards agree on a lot, but in this matter they emphasize different things. As Alec MacGillis of The Washington Post observed, Edwards emphasizes programs that help people escape from concentrated poverty. Obama emphasizes programs that fix inner-city neighborhoods. One helps people find better environments, the other seeks to strengthen the environment they are already in.

Edwards would create a million housing vouchers for working families. These would, he argues, “enable people to vote with their feet to demand safe communities with good schools.” They’d help people move to where the jobs are and foster economic integration.

The problem with his approach is that past efforts at dispersal produced disappointing results. Families who were given the means to move from poor neighborhoods to middle-class areas did not see incomes rise. Girls in those families did a little better, but boys did worse. They quickly formed subcultures in the new communities that replicated patterns of the old ones. Male criminality rose, but test scores did not.

Obama, by contrast, builds his approach around the Harlem Children’s Zone, what he calls “an all-encompassing, all-hands-on-deck anti-poverty effort.” The zone takes an area in Harlem and saturates it with childcare, marriage counseling, charter schools and job counselors and everything else you can think of. Obama says he’ll start by replicating the program in 20 cities around the country.

The problem here is that there are few historical examples of neighborhoods being lifted up at once. There are 4,000 community development corporations around the country and they have not lifted residents out of poverty. The positive influences in the center get overwhelmed by the negative peer influences all around.

The organizations that do appear to work, like the Harlem Children’s Zone (there’s no firm data yet), tend to have charismatic leaders like Geoffrey Canada who are willing to fight teachers’ unions and take on bureaucracies. It’s not clear whether their success is replicable, let alone by the federal government.

What we have, then, is two divergent approaches, both of which have problems and low odds of producing tremendous success. If you find that discouraging, welcome to the world of poverty policy.

If I had to choose between the two, I guess I’d go with the Obama plan. I’d lean that way because Obama seems to have a more developed view of social capital. Edwards offers vouchers, job training and vows to create a million temporary public-sector jobs. Obama agrees, but takes fuller advantage of home visits, parental counseling, mentoring programs and other relationship-building efforts.

The Obama policy provides more face-to-face contact with people who can offer praise or disapproval. Rising out of poverty is difficult — even when there are jobs and good schools. It’s hard to focus on a distant degree or home purchase. But human beings have a strong desire for approval and can accomplish a lot with daily doses of praise and censure. Standards of behavior are contagious that way.

A neighborhood is a moral ecosystem, and Obama, the former community organizer, seems to have a better feel for that. It’s not only policies we’re looking for in selecting a leader, it’s a sense of how the world works. Obama’s plan isn’t a sure-fire cure for poverty, but it does reveal an awareness of the supple forces that can’t be measured and seen.

Last week I cited data on rising earnings among the working poor. I should have made it clear that the data referred to poor households with children, since poor households without children did not enjoy those gains.

Copyright 2007 The New York Times Company

Is the bull market over?

July 30, 2007

Some, Charts Warn
Hurricane Is Forming;
Will Storm Pass Over?


Wall Street Journal, July 30, 2007; Page A1

Last week's stock-market carnage -- the Dow Jones Industrial Average fell 4.23% for the week to 13265.47 -- seemed an overreaction to most analysts, who focus on fundamentals like corporate profits and interest rates. The global economy continues surging, they point out, while most market interest rates remain low by historical standards. What matters, they say, is whether the credit crunch, caused by ill-conceived loans to home buyers and businesses, starts to interfere with growth and interest rates.

But another, less fashionable, breed of analysts sees storm warnings. Known as technical analysts or chartists, because they plot and compare a wide range of sometimes-arcane market data on graph paper and spreadsheets, they liken their work to hurricane tracking. They can see a pattern building, they say; the trick is distinguishing a brutal Category 5 storm from a less-severe Category 2.

Like hurricanes, market tops tend to have a lot of common features, these analysts say. Whether a bear market features a crash, as in 1987, or is marked by a long, painful decline, as in 2000, the end of a bull market usually sends the same signals.

A top commonly looks like a roof, with indexes bumping up against it until they sag. Indexes hit a series of new highs, but over time fewer and fewer stocks join in. Big multinationals gradually take over leadership from the smaller, more-volatile stocks that typically lead a bull market's early stages.

Sentiment turns from fear to greed as investors push stocks too far. Stocks top out one by one, often with a small band of highly admired issues leading the gains, until there isn't enough strength left to hold the indexes up. This usually happens when interest rates are rising, pressuring businesses and consumers. Money managers, reluctant to sell for fear of missing out on more gains, get caught in the declines.

The market looked a lot like this before its peaks in 1987 and 2000, and at the end of other bull markets. Today, it has some, but not all, of these characteristics. Hence the fierce debate: Is this a hurricane or just a summer downpour?

Finding an answer is tricky. Tops aren't just the mirror image of a bottom. When stocks rebound from a bottom, as they did in 2002, they tend to surge. But when they fall from a top, they waver uncertainly, giving the appearance of a pause. The last time stocks topped out, in 2000, speculative technology stocks fell hard. But the Dow industrials declined very gradually, as did the Standard & Poor's 500-stock index and even the large tech stocks. It took months for analysts to agree a broad bear market was really at hand.

There have been some signs of a roof forming lately. Markets have seen a series of records, with big stocks beginning to lead the way and fewer stocks showing gains. When the Dow industrials hit their record just above 14000 on July 19, many second-tier stocks didn't join them; indeed, after a strong start, small stocks are down for 2007. Meanwhile, money managers who were skeptical for much of the past year showed signs of greed, setting aside doubts and jumping into the market.

At the same time, until last week, middle-size stocks had been holding up better than small ones, and the gradual topping out hadn't gotten very far. Financial, consumer, telecommunications and health-care stocks, as well as real-estate stocks and utilities, all had turned down, but technology, energy, basic materials and industrial stocks all were holding up well. Market interest rates had risen, but not heavily.

Moreover, even after last week, the Dow's worst in more than four years, the index remains up 6.4% in 2007 and 18.2% in the past 52 weeks.

Whether technical analysis is really useful at making sense of such data is a matter of some dispute on Wall Street. Some investors believe it is impossible to forecast the market's ups and downs. Academic studies have shown that when most people, professionals and amateurs alike, try to move money in and out of stocks to beat market fluctuations, they tend to wind up with losses.

That helps explain why, in this era of passionate investor interest in corporate profit news and Federal Reserve interest-rate decisions, the hard-to-explain work of technical analysis has fallen into disfavor. Some brokerage firms have eliminated their technical research departments altogether. Still, when markets begin to sag, investors rediscover technical analysts.

Thanks in part to technical analysis, Steve Leuthold, who manages $3 billion as chairman of Leuthold Weeden Research in Minneapolis, stunned clients early last week by warning of impending trouble. Two days later came the Dow's combined plunge of 3.8%, or 519.60 points, on Thursday and Friday.

Mr. Leuthold sees a bear market at hand -- that is, a decline of 20% or more from the top. "I don't think this is going to be the end of the world, but it could be a normal bear market that could go on for a while," says Mr. Leuthold, who has been working in cut-off jeans and a T-shirt from his summer home near Portland, Maine.

Paul Desmond, president of Lowry's Reports in North Palm Beach, Fla., interprets the data differently. "If a person's hair has turned gray, it doesn't mean they are ready to pass on," says Mr. Desmond. The market has caught cold, he says, but "isn't showing the signs you would normally see if it were near death." He expects a rally in the next few days, and has advised clients that if it is broad and robust, they should begin buying again in anticipation that the market will recover.

The mixed signals have been frustrating for Phil Roth, chief technical market analyst at New York brokerage firm Miller Tabak + Co. Mr. Roth spends an hour or two each day updating 100 different charts by hand. He has been plotting his charts, filled with market indicators, on gray and green sheets of graph paper since he entered the business in 1966. He extends each chart's length by carefully gluing on more graph paper; these days, they unfold like accordions.

Typically, he says, a bull market shows signs of age after three years or so, tops out and gives way to a bear market. This one seemed to be doing that when it sagged in the spring and summer of 2006. But it rebounded, then shook off similar setbacks in February and June to reach 14000.41 on July 19. Mr. Roth came to attribute its resilience in part to the newly ascendant hedge funds and other private-investment funds that were driving the market.

Of late he had taken note of accumulating warning signs. Even as the market rose, fewer stocks were continuing to reach new highs. The number of stocks trading above their average prices of the past 200 days was slipping. Utility and financial stocks were losing steam. The use of borrowed money for stock investments was hitting all-time highs.

Then, when the Dow crossed 14000 to hit its most recent record, Mr. Roth noted that many stocks in the broader market failed to rise. More trading was being done on falling prices, suggesting weakness.

On Thursday and Friday, his chart-plotting frequently interrupted by phone calls from anxious clients, Mr. Roth saw what he had been looking for: After three consecutive days of record trading volume, the Dow industrials, the S&P 500 and the Nasdaq Composite Index all broke below levels at which they had rebounded strongly in the past. Measures of selling pressure, such as trades on declining prices and the number of stocks that were falling, indicated panicky selling.

He now fears that because so many investors put aside doubts to jump into stocks, and may now be looking for a way out, stocks could experience "a climax in the market" -- an even heavier dose of panic selling than investors have seen so far. He expects stocks to fall 10% -- which they haven't done since 2003 -- then put in a weak rebound before falling further. And he doesn't rule out the kind of collapse that occurred on October 19, 1987, when stocks fell 22.6% in one day, the biggest one-day decline ever. "I'm not saying it will happen again, but it could," Mr. Roth says.

At Leuthold Weeden Research's headquarters, senior research analyst Andy Engel, working with Mr. Leuthold, tracks more than 180 eclectic data points in heavy ring binders that look like Mr. Roth's. They watch not only the kinds of market indicators Mr. Roth follows, but, unlike most technical analysts, also broad fundamental and economic measures such as inflation, money supply and corporate profits. They have long been concerned about weakening growth and the risk of higher inflation and interest rates.

Like Mr. Roth, the two worry that many measures of investor sentiment, such as polls and a limited use of options to hedge against declines, suggest investors are overly confident and riding for a fall. Companies also have been issuing more stock, suggesting insiders see this as a good time to sell. Demand for gold-mining stocks, sometimes a leading indicator of declining confidence in the economy, has been on the rise.

Mr. Engel's and Mr. Leuthold's indicators gave a false sell signal in the fall of 2005, which made them miss out on some gains. But their indicators were on the money near the 1987 top, giving accurate sell signals, and gave buy signals near the 2002 bear-market bottom. After being surprised by an initial sell signal two weeks ago, the two men waited a week, rechecked the data, then sent out a warning to research clients and cut their own stock exposure last Tuesday.

For his part, Mr. Desmond, of Lowry's, says his skepticism that this is a bear market stems from extensive research on past market tops. A week ago he warned clients of the risk of a short-term decline, and he still thinks that is what this is. "We just don't have the signs you normally have at a market top," he says.

His research shows that, as the market forms its rooflike top, individual stocks slowly fall back despite the indexes' continuing gains. At almost all market tops starting in 1929, when the indexes finally were ready to fall into bear markets, the vast majority of stocks already had turned down, and many had fallen sharply.

But at the most recent market highs, a number of stock groups such as basic materials, energy and technology still were strong. While small stocks have faded, middle-size stocks are holding up better.

The year 1987 featured a September drop similar to last week's, followed by the October crash, Mr. Desmond says. That has made some of his clients worry. But in 1987, less-prominent stocks had been slowly deteriorating for months before that, and that process hasn't advanced nearly as far this time. If this year is going to be an exception, with a bear market starting before this broad deterioration has taken place, Mr. Desmond says, it will become apparent in the coming days, as the bounce-back he expects would prove weak and disappointing.

Write to E.S. Browning at jim.browning@wsj.com3

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Tuesday, July 24, 2007

Minimum Wage

Economy Not Likely to Flinch As Many Get Raises
July 21, 2007; Page A2

On Tuesday, about two million workers will get a raise, as the first increase in the federal minimum wage since 1997 takes effect.

But for all the handwringing about how raising the federal minimum wage would hurt employers and boost inflation, this week's initial wage increase to $5.85 an hour is expected to have little impact on the economy. The price of a cheese pizza might rise, but that could be blamed on higher dairy and gasoline prices, as well as higher pay for cooks and cashiers.

Generally, though, the effect on the economy will be small. Most states -- 30 and the District of Columbia -- already raised their minimum wage above the federal level and many big employers, including retailers such as Wal-Mart Stores Inc., or chains such as Starbucks Corp., frequently start workers off well above the federal minimum wage.

The increase will be felt more keenly in 20 states where the federal minimum wage of $5.15 an hour is currently in effect, and in sectors that rely heavily on minimum-wage workers, such as restaurants, hotels and retail. Groups such as the National Restaurant Association and some small businesses say job growth will slow and prices will rise. A higher minimum wage, combined with higher food costs, "will ultimately drive higher prices within the pizza category," says a spokeswoman for Domino's Pizza Inc.

Who gets a fatter paycheck? Last year, 2.6 million people earned less than $5.85 an hour, according to the Bureau of Labor Statistics. That includes a sizable chunk of workers who earn tips and others exempt from the minimum wage. People who earn the federal minimum wage tend to be young -- half were younger than 25 -- and three out of four workers earning $5.15 an hour or less last year worked in service jobs, mostly in food preparation. A bigger impact could be felt in states like Alabama, Arkansas and Oklahoma, which had a high percentage of workers at or below $5.15 an hour. The 70-cent-an-hour jump will be followed by an increase in each of the next two years, bringing the minimum wage to $7.25 in 2009.

While labor unions applaud the higher wage, some worker advocates are already warning that it will be difficult to enforce, especially for low-skilled workers, including immigrants who might be afraid to alert officials that they aren't being paid minimum wage.

Paul DeCamp, administrator of the Labor Department's Wage and Hour Division, says the division "has a very active enforcement program with respect to low-wage industries where minimum-wage violations are most likely to arise." The division retrieved $135.7 million in minimum-wage and overtime back wages for more than 222,000 employees last year.

Meanwhile, some small-business owners -- the group that is expected to be affected the most -- say raising the minimum wage is the right thing to do, even if it hurts their bottom line.

Helen Norman, co-owner of a Dairy Queen in Garnett, Kan., will have to give six young employees a raise, but she thinks the overall increase will help workers trying to raise a family.

"It probably will hurt some small businesses. It may hurt mine, too," says Ms. Norman. "But there's the other side of that story. Can people survive on that amount? I mean, I couldn't."

Write to Kris Maher at kris.maher@wsj.com3

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Monday, July 23, 2007

Legislators uncork a plan to pick the pockets of the poor

George Skelton

Capitol Journal

July 23, 2007

Sacramento — This is how it seems: The state Assembly speaker uncorked two bottles of very expensive wine as legislative leaders sat around negotiating a budget deal. They got a little buzz on and decided to go out and mug some blind, disabled and elderly poor.

That's not exactly what happened, probably. But it's close enough to be cataloged as nonfiction.

We do know this much because aides to Speaker Fabian Nuñez (D-Los Angeles) told reporters: During negotiations in his Capitol office Tuesday, Nuñez served up two distinguished Napa Valley reds — a $150, 2002 Joseph Phelps Insignia and a 2003 Quintessa Meritage valued at $224.

In the warm afterglow — well, actually, it was the next day — Nuñez took a stroll around Capitol Park with the two Republican leaders: Assemblyman Michael Villines of Clovis and Sen. Dick Ackerman of Irvine.

"The wine helped a little bit," a smiling Ackerman told reporters, referring to the negotiations. "He has good wine."

The libation didn't help enough, obviously. Ackerman and Senate Republicans still

haven't agreed to the $146-billion compromise budget that everyone else of importance has in the Capitol. Nor do they have a proposal of their own.

Anyway, it was about the time of the wine-tasting that the legislative leaders hatched their plan to roll California's most vulnerable.OK, maybe I'm guilty of a cheap shot. But it's no more a cheap shot than picking the pockets of the poor in order to bring spending and taxes closer into balance.

The victims list includes 1.2 million impoverished aged, blind and disabled, plus 500,000 welfare families, mostly single moms with two kids.

In the first category, the state figures on pocketing $123 million by delaying a $20 monthly inflation adjustment for five months. Rather than getting the bump next Jan. 1, recipients will have to wait until June 1.

These are people living on the edge off SSI-SSP — federal Supplemental Security Income and the State Supplementary Program. For most, it's their only income source. They don't get food stamps.

The current combined federal-state grant is $856 for an individual; $1,502 for a couple. There will be a $12 monthly federal increase in January, if the state doesn't wind up confiscating the federal money, as it has in the past.

In the welfare category, called Cal-WORKS, it's no surprise that Gov. Arnold Schwarzenegger and the Legislature intend to deny a cost-of-living adjustment. These recipients, living far below the poverty line, haven't gotten a benefit bump in three years. Their monthly check for a family of three is $723. They also get $330 in food stamps.

"How's somebody going to live in L.A. on $723 a month?" asks Michael Herald, lobbyist for the Western Center on Law and Poverty. "It's just a recipe for homelessness, family instability and kids going into foster care."

Legally, these welfare families should receive a $27 boost in January. But the pending budget repeals that increase so the deficit-plagued state can save $124 million.

Over the last three years, Herald calculates, Sacramento has grabbed more than $1 billion from SSI-SSP and Cal-WORKS recipients. This year, the hit totals $247 million.

Yet, in its predawn, sleepdeprived wisdom Friday, the Assembly felt the state was rich enough to brazenly pass a $900-million package of tax cuts for Hollywood film companies and other business interests. Senate leader Don Perata (D-Oakland) said the bill looked like it had been "written by chimpanzees" and pronounced it "dead on arrival" in his house.

At the same time, the Assembly voted to strip $1.3 billion from public transit, which many poor and disabled depend on to get around.

It was a sign of scandalized Los Angeles Mayor Antonio Villaraigosa's loss of political clout that he didn't personally fight for the transit funds, as he has for other L.A. causes in the past. "He has been AWOL," says one leading Democrat. "He's been wounded."

Democrats, however, haven't exactly been fighting for the aged, poor and disabled either. Republicans wouldn't be expected to. But Democrats are supposed to be the defenders of the destitute. Instead, they suddenly surrendered to Republicans last week after vowing to hold their ground.

Check this Perata comment to reporters after a July 12 negotiating session with GOP leaders:

"They want us to cut in places that Democrats just didn't get elected to come up here and cut. So for any program that involves the elderly, people who are disabled, people who are mentally ill, our mantra is kind of, we're here to protect those who can't protect themselves."

Nuñez was even more adamant: "We're not going to take the canes away from the blind. We're not going to kick people out of their wheelchairs … kick poor kids into the street. We just refuse to do that under any circumstances."

Guess he was speaking literally. Could have fooled me. I and virtually everyone around the Capitol thought he was promising not to buy Republican votes with poor people's pocketbooks.

Democrats respond by pointing out that Schwarzenegger wanted to slash much deeper in SSI-SSP. He also proposed to knock at least 155,000 children off welfare — kids of parents who did not meet their work requirements — and save up to $300 million. Democrats blocked that, and spurned the governor's effort to cut $55 million from a successful program for the homeless mentally ill.

Perata does concede: "I'm not suggesting for one moment that this budget will make my highlight reel."

But Nuñez, in the predawn haze, seemed to be in a dream world: "We feel very good about the fact we were able to protect Cal-WORKS. We didn't take food away from the mouths of poor children in California. We protected senior citizens and the disabled."

Not exactly.

He added: "We made sure we didn't make cuts to public education."

That's true. They stood up for the powerful education lobby. The poor and disabled are politically weak.

"There's a lot in this budget," Nuñez concluded, "for us Democrats to be very proud of."

And ashamed of.

The wine turned to vinegar.


From the Los Angeles Times

Friday, July 20, 2007

Lawmakers need to get a spine in budget talks

George Skelton
Capitol Journal

June 11, 2007

Sacramento — As Capitol politicians begin earnest negotiations on a new state budget, about the last place they should look for guidance is the public. They might as well consult a Ouija board. Or Tarot cards.

Most voters don't know squat about state spending and taxes.

They haven't really thought through how their tax dollars are spent or should be, a poll by the Public Policy Institute of California confirms.

But while the public basically doesn't have a clue, it shouldn't need to. If our democratic system of representative government were working as the founders set it up, lawmakers would be using their best judgments. They wouldn't habitually be holding their fingers to the wind, trying to measure public opinion.

They wouldn't increasingly feel compelled to spend political bucks — mostly offerings from special interests — on focus groups and polls, trying to dissect every voter thought, hone every buzz word, discover the most marketable nuance. They'd go with their gut, heart and head.

Voters merely would be pointing in the direction they wanted their elected representatives to lead. They would not be directly running the government through ballot box budgeting and other so-called citizen initiatives that almost always are sponsored by some special interest trying to beat the system of representative government.

Beating the system is one motivation. Another is making a buck. There's a growing initiative industrial complex in California that is enriching political consultants and fattening the membership lists and bank accounts of organized lobbies.

Voters simply aren't up to the task of deciding details, the poll by the nonpartisan public policy institute shows conclusively.

"California voters admit to knowing little or nothing about some of the most critical policy issues," says pollster Mark Baldassare, the PPIC president.


• Most voters want to spend more money building roads and other infrastructure. But their preferred way of paying for it is "using only surplus budget funds."

Sacramento hasn't run a surplus in years and is facing a deficit of roughly $4 billion in the budget now being negotiated. The news got even worse last week when the Schwarzenegger administration announced that tax receipts for the current fiscal year are running $764 million short.

• Those surveyed were told that in the last 10 years, voters have approved $93 billion in state bonds for public works. This was "just the right amount," 43% said, while 28% contended it was "too much." Yet, 64% favored Gov. Arnold Schwarzenegger's proposal to sell an additional $43 billion in public works bonds.

"Many voters may be thinking about bonds as free money," Baldassare says.

Indeed, 84% concede to possessing only "some" or "very little" knowledge of bond financing. The cost of a 30-year bond is roughly double the principal, adding in interest.

• Voters favor spending more money on education, "health and human services" and public works.

But they also think there should be a strict limit on spending increases.

• Nearly three-fourths of voters think prison overcrowding is a "big problem." And about two-thirds applaud the governor and Legislature for recently agreeing on an $8-billion prison bond package.

At the same time, only one-third say the state should spend more money on prisons.

• The electorate is virtually split over the question of whether Sacramento should raise taxes and provide more services, or cut both taxes and services. The edge goes to higher taxes and more services: 48% to 44%.

But 55% think it would be a bad idea to make it easier to raise local taxes by lowering the voter requirement from a two-thirds majority to 55%.

• Only one-third of voters know that the state's biggest spending item is K-12 schools and its largest revenue source is the personal income tax.

Not surprisingly, given the lack of knowledge they've bothered to acquire, "state budget, deficit and taxes" rank way down the voters' list of "most important issues" facing California. No. 1 is immigration, which Sacramento has virtually no control over. Budget-taxes ranks No. 10.

Right here, I'll kiss up to my readers by acknowledging that many of your e-mails exhibit more detailed knowledge of state spending and taxes than some pols who work in the Capitol. Blame term limits and inexperience.

That said, trying to detect a voter consensus and translate it into good public policy is a formula for fiscal chaos, which is what we have in Sacramento.

Most voters are living in a fantasy world of denial, expecting pleasure without pain — new highways without paying more, locking up criminals without building cells.

Demagogic politicians and ratings-driven talk radio hosts feed the myth of "fraud, waste and abuse." Just eliminate that and there'll be plenty of money, they shout. Schwarzenegger, with great flourish, looked for the waste and embarrassingly couldn't find much.

"I've never bought the idea that governors and legislators are unresponsive to the voters," says Tim Hodson, executive director of the Center for California Studies at Cal State Sacramento. "A better argument can be made that governors and legislators are overly responsive.

"It's not that they don't care what people want. It's that there really is no consensus about exactly what they do want."

What they need is representatives with the courage to lead — not with cold feet meekly following the confused.


From the Los Angeles Times

Thursday, July 19, 2007

Class War at United

When You Fly in First Class, It's Easy to Forget the Dots

January 29, 2006

ONE of the best conspiracy movies ever made is the perfect British classic, "The Third Man." In the most haunting scene, the villain, played adroitly by Orson Welles, takes Joseph Cotten, the good guy, up in a Ferris wheel. The villain, named Harry Lime, has been selling adulterated penicillin in postwar Vienna, making a fortune and causing children to become paralyzed and die.

Mr. Cotten's character, a pulp fiction writer named Holly Martins, asks him how he could do such an evil thing for money. The two men are at the top of the Ferris wheel, and the people below them look like tiny dots. Mr. Welles's villain looks down and says, "Tell me, would you really feel any pity if one of those dots stopped moving forever? If I offered you £20,000 for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare?"

This scene comes to mind when I think of Glenn F. Tilton and other executives of the UAL Corporation and the hapless employees of its primary business, United Airlines. Its history is a perfect text for the ethical morass in which American business often finds itself.

United is one of the proudest names in airline history. It has long been a synonym for fine service and extensive, convenient routes. In the early 1990's, when some investment bankers were casting around for a way to make tens of millions of dollars, they came up with a doozy: the employees of UAL would give up some of their salaries and benefits in exchange for stock in UAL, eventually becoming UAL's largest owner through an employee stock ownership plan.

The deal went through — with staggering compensation to Wall Street — and in 1994 the American employees of UAL, as a group, became its largest owners. Within a few years, overseas personnel were allowed the privilege of tossing their life savings into UAL, too.

Trouble was not far behind. The employees found management demanding pay cuts, big (and, for passengers, inconvenient) changes and cuts in scheduling and services, and even silly changes in their once-great flight attendant uniforms. Then came the blows of 9/11 and a recession, and then rising fuel costs. There were demands for more cuts in pay and benefits and more layoffs. That was not enough. About three years ago, UAL was "forced" to enter bankruptcy to stay alive.

This step meant that UAL could drastically cut workers' pay — and it did. Pensions were simply jettisoned and made the burden of the federal government's Pension Benefit Guaranty Corporation, which meant cuts of close to two-thirds in some pilots' pension payments. And, of course, the bankruptcy simply eliminated all of that equity in UAL that the employees had bought with their hard-earned savings.

Thus, in a series of evil events, management of UAL basically ruined the lives of the employee-owners, if that is not putting too fine a point on it, by taking away their savings, incomes and pensions. (I am indebted to my pal, Phil DeMuth, for much of this research.)

All right, you might say. What else could management have done amid high fuel costs and a deregulated, supercompetitive market? That's "creative destruction," and it's good for the economy, some of my fellow Republicans and admirers of the free market might say. But what about the rules of law and common decency? Because, you see, there is a bit more to the story.

Now UAL has been reorganized. It is preparing to emerge from bankruptcy. It will soon have a stock offering. This offering is expected to raise very roughly $6 billion. It is presumably worth that because UAL now has such low labor costs that it may actually make a profit of some size. (I'll believe it when I see it.)

Here comes the good part: management has asked the bankruptcy court to let it have — free — roughly 15 percent of the stock in the new company, or about $900 million. Mr. Tilton, the chief executive, who plays the Orson Welles character in this drama, would get about $90 million personally for his hard work shepherding UAL through bankruptcy (for which he was already paid multiple millions of dollars).

The bankruptcy court, instead of ordering Mr. Tilton's arrest, instead cut the management share to about 8 percent, so he will get more than $40 million, more or less. That is more than Lee R. Raymond, the chief executive of Exxon Mobil, one of the most successful companies of all time, was paid in 2004 (not counting Mr. Raymond's 28 million shares of restricted stock).

So here it is in a nutshell: employees are goaded into investing a big chunk of their wages and benefits in UAL stock. They lose that. Then they lose big parts of their pay and pensions. They become peons of UAL. Management gets $480 million, more or less. "Creative destruction?" Or looting?

Wait, Mr. Tilton and Mr. Bankruptcy Judge. The employees were the owners of UAL. They were the trustors, and Mr. Tilton and his pals were trustees for them. How were the trustors wiped out while the trustees, the fiduciaries, became fantastically rich? Is this the way capitalism is supposed to work? Trustors save up, and their agents just take their savings away from them?

If the company is worth so much that management has hundreds of millions coming to them, shouldn't the employee-owners get a taste? Does capitalism mean anything if the owners of the capital can be wiped out while their agents grow wealthy? Is this a way to encourage savings and the ownership society? Or is this a matter of to him who hath shall be given?

I know that this is basically the same story I described recently concerning the Delphi Corporation, where something similar is going on. But that's exactly the point. Management is using competition, higher fuel costs and every other cost complaint to cut the pay and pensions of its own employees while enriching itself.

And I can well imagine what goes through Mr. Tilton's mind as he does it: "Hey, I'm a great executive. Great executives in private-equity firms make more than I do. Why shouldn't I get the moolah? Basically, I've worked it so UAL is now a private-equity deal anyway. That's what it's all about now, isn't it? Who's got the most at the end of the day at Bighorn or the Reserve or whatever golf course I choose to retire at? And, anyway, wouldn't you take $48 million for a few of those dots we used to call our employees and owners to stop moving?"

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

Copyright 2006 The New York Times Company

Wednesday, July 18, 2007

UK Wealth gap 'widest in 40 years'

BBC News Service, July 17, 2007

The gap between rich and poor in the UK is as wide as it has been for 40 years, the Joseph Rowntree Foundation warns.

The JRF found that households in already wealthy areas had become "disproportionately" richer compared with society as a whole.

But the social policy think tank said the number of "poor" households had risen over the past 15 years.

Since the 1980s, wealthier people have moved to the suburbs while the poor remain in inner cities, the JRF added.

Society polarised

Looking at wealth patterns over the past four decades, the JRF found that the gap between rich and poor actually narrowed in the 1970s.

But during the 1980s and 1990s inequality had increased, as a "polarisation" in British society had occurred.

As for the decade beginning in 2000, the report said the picture was "less clear", with some initiatives such as tax and pension credit helping the poor while wealthier people were gaining from a property market boom.

Rich and poor are also less likely to be living next door to one another than in the 1970s, it was reported.

The report concluded that "both the poor and wealthy have become more and more clustered in different areas".

The wealthiest of households, defined by JRF as "exclusively wealthy", are concentrated in suburban pockets, usually in the south of England.


Meanwhile a separate report into public attitudes to wealth inequality, also produced by the JRF, found some unease.

The key to reducing the chasm between rich and poor is a reduced supply of money
Colin Smith, Glasgow

Send us your comments

"There is widespread acceptance that some occupations should be paid more than others: but the gap between high and low paid occupations is far greater than people think it should be," said Michael Orton, the author of the report.

Mr Orton added that people are more likely to think that people at the top of pay scale are paid too much rather than people at the bottom paid too little.


Reaction to the report from politicians has been mixed.

Minister for Employment and Welfare Reform Caroline Flint pointed to tax and benefit changes since 1997 designed to alleviate poverty.

"Since 1997, 600,000 children and over one million pensioners have been lifted out of poverty," Ms Flint said.

"Thanks to reforms of the tax and benefits system, the average household is £1,000 better off than 10 years ago."

But the Liberal Democrats said the report highlighted falling social mobility and that a quarter of the population are being left behind.

"This left-out 25% is in danger of feeling totally marginalised from mainstream society, which will breed high levels of disillusionment, crime and exclusion," said David Laws, Liberal Democrat spokesman.

Likewise, David Davis, Conservative shadow home secretary, said that opportunities for the least well-off were "flatlining".

"Not only is this a loss of opportunity for young people and a tragedy for families and individuals trapped at the bottom of the pile - it is also a massive loss of talent and creativity for our nation," he said.


Tuesday, July 17, 2007

Clueless Coverage of Diversity

The price of loving Venice
A real estate broker who is an integral part of the colorful beach town embraces its diversity, even though it nearly cost him his life.
By Carla Hall
Times Staff Writer

July 16, 2007

THE confrontation took place just inside the front entrance of the dream house in Venice that Jack Hoffmann had been painstakingly renovating for three years.

A homeless man, strong from bodybuilding, whipped out a knife and thrust it twice into Hoffmann's chest. Then he sliced across Hoffmann's throat. When Hoffmann raised his arm defensively, the man cut across it as well. Then he speared Hoffmann's back with the knife, nicking his liver.

Hoffmann wondered: Is this it?

And then: I haven't even finished the house.

He chuckled softly at the memory. "I thought, yeah, I'm not ready to go."

Hoffmann is the owner of the Venice Properties real estate brokerage, a purveyor of cutting-edge lofts, houses and studio and commercial spaces that sell for millions. And he is part of the cast of characters that has made Venice the colorful mix he has loved so much — and still loves, despite his violent encounter.

Hoffmann represented architect Frank Gehry when he bought Venice land for his own dream house; he counts artists among his friends and collects their pieces for his home; and he presided over the Venice Action Committee in the early 1990s when the group of local business owners and residents wanted to beautify Venice and lobby for better services from the city of Los Angeles.

"It's like he's the mayor of Venice or something," his friend artist Chuck Arnoldi said.

But it's a town with rough edges where diversity among residents means artists and entrepreneurs rub elbows with hard-toiling renters, gang members and troubled, sometimes drug-addled, street people.

Hoffmann's attack rattled friends and neighbors accustomed to convenient, even self-conscious, relationships with the homeless who frequent the streets and alleys of Venice, often acting as informal security for homes and businesses. The incident was a raw reminder that Venice's gritty street chic sometimes gives way to violent crime.

Tall and muscular at 51, Hoffmann bears a faint white line of a diagonal scar across the front of his neck, a reminder of the attack on July 20, 2005.

"It was just this close to the jugular," he said of the throat wound. "But yet I have very fond memories of it in a way."

His words are startling, even more so because he utters them so matter of factly. He's talking not about the experience of having a knife pushed through internal organs by a crazed man but about the sense of life in the moment when it might be taken away.

"It was just so intense and so clarifying and so real. I see why guys end up hanging around Elks clubs and VFW centers after wars, because what they face brings them to such a deep awareness of the human experience that there's almost no one else they can relate to."

According to Hoffmann's friends, the attack did not change him. He remains the philosopher-real estate broker that he's been for years, usually clad in neat-fitting T-shirts, casual slacks and gym shoes.

On this day, he stood in the airy, art-filled office of his real estate brokerage, pointing out landmarks on an aerial map of the community. He seemed to possess an encyclopedia's worth of knowledge about Venice and can tick off a list of who lives where and how long they've been there and who has left.

In his mind, he doesn't merely sell property. "I want to sell people foundations that propel them into life, rather than roofs to shelter them from it," he said.

SOME of the community activists who have done battle over the years with high-end developers moving into Venice are a little more prosaic about Hoffmann than he is about himself. "He's a real estate agent. What can I say?" Carol Berman said, laughing. The 70-year-old longtime Venice resident, who lives in a government-subsidized apartment, has been on opposite sides of issues from Hoffmann. But she also calls him "a decent guy" who helped her out with nuisance problems in the neighborhood.

Hoffmann's involvement in the community may be what keeps the activists from reviling him. That, and his ability to talk to just about everyone.

"One of the things that's a pain about working out with him at the gym is he's always talking to people," said Arnoldi, Hoffmann's workout partner at Gold's Gym. "I tell him, 'We're not here to sell condos; we're here to work out.' "

But Hoffmann is voracious about conversation. "Jack just has a great sense of what's going on in the neighborhood," said his friend Tony Bill, a director and producer who bought his house through the broker.

Hoffmann may be one of the best-known real estate brokers in Venice, but he's not trying to be the biggest.

Hoffmann said he turns away clients he doesn't feel simpatico with and regularly dictates to the ones he agrees to take on.

Indeed, Hoffmann has been something of a real estate counselor to rising artists over the years, urging them to buy properties they might have second thoughts about.

"He has been a conscience with real estate," said artist Guy Dill. "He's not just gathering up a property and dumping it to the first bidder. He gathers it up and finds an artist who will advance the property."

Hoffmann has also helped the Venice Community Housing Corp., which provides affordable housing to lower-income residents, to acquire property and has contributed financially to the organization.

Nonetheless, Hoffmann has a Darwinian view of real estate. He calls the lament that Venice is no longer affordable to the artists and people who give it its character "an old song."

"When houses were $6,000 down here, some people couldn't afford them. Nothing is new. That's the standard. Does it shift people around? Yes. That's the nature of a capitalistic system."

He hasn't convinced the passionate contingent of longtime residents who fight the sprouting of multimillion-dollar condos.

"His blind spot is he loves Venice and he loves the — quote — character of Venice," said Berman, who has sparred with him over development. "But I don't think he realizes he's instrumental in taking away the very thing he supposedly loves about Venice."

Tibby Rothman, editor and publisher of VenicePaper, said she personally likes and respects Hoffmann — she said he has given her moral support in addition to buying ads — but her editorial page doesn't always agree with him. "You don't interfere with the flow; that's what he believes," Rothman said. "Do I think that's what's best for Venice? No. Does Jack support a newspaper that has an editorial page that occasionally disagrees with him? Yes."

HOFFMANN discovered Venice as a boy, surfing its waves. It was always an escape. More than two decades ago, he made it his home.

At the age of 30, his first marriage over, Hoffmann moved into a tiny $500-a-month oceanfront apartment. He was broke, fleeing a soulless sales job and getting sober after a drug and alcohol problem. Always intrigued by buildings, he began to learn about architecture and the real estate business — and Venice.

"It was a magnetic draw," he said. "It fit in so many ways."

When his young daughters visited, he turned their walks around Venice into adventures. (One is now a writer in L.A.; the other is a lawyer in the Bay Area.) "We went to the seediest coffee shops because I wanted them to see the homeless, that they were real people who were doing things differently. The homeless down here to me were an extension of the beatniks and the bikers."

But it's been a long time since the homeless were just "beatniks and bikers."

According to Hoffmann, the man who attacked him arrived in the U.S. from Cuba on the 1980 Mariel boatlift and had spent time in prison in this country. When they met, Hoffmann was overseeing the renovation of the dream house on Market Street, a vast expanse with brick walls that he bought in 2000 for $420,000.

Hoffmann says his attacker "was kind of loopy," full of talk about Jupiter, but he was also effective at scaring off would-be vandals. When he adopted the back of Hoffmann's property as a home, Hoffmann let him stay. He even agreed to pay for the man's badly needed dental work if he could get himself to a dental clinic. But when the man began to menace the neighbors and get agitated with Hoffmann, the broker told him he couldn't stay there any longer.

In four seconds, Hoffmann had six knife wounds and was cornered, his back to the front door, which his attacker had locked. Suddenly, a worker on scaffolding above the roofless building peered down and yelled the man's name. Hoffmann's attacker looked up, stunned. "And I just took off running as fast as I could," Hoffmann said. He got out the back door into the alley.

The man Hoffmann identified as his attacker — Aurelio Mesa, now 48 — has been jailed since he was arrested shortly after the attack and charged with attempted murder and assault with a deadly weapon. According to Deputy Dist. Atty. Belle Chen, Mesa has entered a plea of not guilty by reason of insanity and awaits trial.

Hoffmann spent five days in the hospital after the attack. His doctor, marveling at his patient's luck in avoiding life-altering injury, told him, "The first thing you have to do when you get out of here is go to Vegas."

Instead, he went straight back to the house to check on its progress. "It was important for me to complete what I started that day," he said.

Hoffmann, whose brief second marriage ended a few years ago, plans to move into the house with his current girlfriend, Laura Meckling, 34, an agent at Venice Properties. He hopes the renovations will be completed this summer.

ON the brick wall near the back entrance where Hoffmann fled, there is a splash of reddish brown color. It is Hoffmann's blood. He instructed his workers not to wash it off.

"It changed the community here," Dill said of the attack on Hoffmann. "We've all tried to use the people who were on the street — 'Can you watch this? Here's 20 bucks.' Not any more…. There isn't that willingness to be open. We were so frightened for Jack. It was a wake-up call."

Hoffmann acknowledged that the experience changed at least one thing about him: He won't give money to homeless people. The handouts, he theorized, do nothing to help people improve their lot. "The guy who stabbed me — I had given him money, freedom, latitude," he said, smiling ruefully.

But the broker said it never occurred to him to give up his house on Market Street after he was attacked there. "What's a little incident?" he quipped. His house, he said, "actually, I think, means more" now.

His irreverent take on the attack can be surprising, but he explained it this way: "People talk about putting their blood, sweat and tears into a project. I really did shed blood over it."



Journalists Strike Against Mogul Bid

« Les Echos » en grève contre l'arrivée possible de Bernard Arnault

Article paru dans l'édition du 21.06.07

La rédaction du quotidien économique se mobilise pour garantir l'indépendance du journal, alors que la direction du titre reconnaît qu'un processus de vente est engagé
e quotidien Les Echos était absent des kiosques mercredi 20 juin. Réunie la veille en assemblée générale, la rédaction du journal économique, propriété du groupe Pearson, s'est mise en grève, fait rare dans la culture du journal.
La rédaction s'oppose au projet de vente du quotidien à Bernard Arnault, PDG de LVMH. « L'ensemble des personnels considère que cet acquéreur potentiel ne satisfait pas à deux exigences majeures : l'indépendance éditoriale et le maintien de l'emploi. Ils exigent aussi que ses représentants et ceux de la Société des journalistes soient étroitement associés à l'élaboration d'un dispositif garantissant l'indépendance des publications du groupe », a indiqué un communiqué diffusé, mardi 19 juin, par les salariés du groupe Les Echos, qui regroupe, outre le quotidien, le site Web, le mensuel Enjeux, des lettres professionnelles... « Une cession à LVMH, déjà proprié taire de La Tribune, porterait atteinte au pluralisme de la presse », ajoutent-ils.

Tandis que les rumeurs de vente du premier groupe de presse économique français sont récurrentes depuis plusieurs mois, l'éditeur britannique a confirmé, pour la première fois, mardi 19 juin, qu'un processus de vente était engagé. Dans un communiqué, Pearson indique qu'il examinera « si une éventuelle vente du groupe Les Echos pourrait créer de la valeur pour les actionnaires de Pearson, permettre à l'indépendance éditoriale des Echos de perdurer et à son personnel de prospérer avec un nouveau propriétaire ».

Mardi matin, au cours d'un comité d'entreprise, David Bell, président du groupe Les Echos et représentant de Pearson au conseil d'administration, a confirmé que le groupe Les Echos ne « rentrait pas dans la stratégie de marque globale » de l'éditeur britannique. « Pearson a émis trois conditions dans le mandat de vente : un bon prix, le maintien de l'emploi et de l'indépendance éditoriale », souligne un membre de la Société des journalistes (SDJ).

Le groupe Pearson a cité l'exemple de The Economist où un conseil des sages indépendant nomme la direction de la rédaction. Selon de nombreux journalistes, un tel dispositif, s'il était mis en place par le groupe de Bernard Arnault, ne serait pas de nature à rassurer la rédaction. La direction n'a en revanche pas voulu commenter les rumeurs sur l'ouverture de négociations exclusives avec le milliardaire français qui aurait fait une offre de rachat de 250 millions d'euros.

C'est la troisième fois dans l'histoire du journal, qui aura 100 ans en 2008, que les salariés votent la grève. Le dernier conflit remonte à 1988 en soutien à Jacqueline Beytout qui voulait vendre le groupe à Pearson, contre l'avis du gouvernement Balladur.

Une éventuelle cession des Echos à Bernard Arnault pose aussi des questions à La Tribune. Les salariés ont fait part, dans un communiqué publié, mercredi 20 juin, dans les colonnes du quotidien, de leur « grande inquiétude quant aux conséquences que pourrait avoir sur leur titre un rachat des Echos par leur propriétaire depuis 1993 ».

Reste à savoir si le groupe Pearson, qui pourrait s'allier avec General Electric pour racheter Dow Jones, l'éditeur du Wall Street Journal, peut se permettre de vendre Les Echos contre l'avis de sa rédaction. Une telle opération constituerait sans doute un mauvais exemple dans la perspective de cession, souvent évoquée, du Financial Times.

Pascale Santi


Les salariés des « Echos » et de « La Tribune » surpris par les propos de M. Sarkozy
Article paru dans l'édition du 10.07.07

La Société des journalistes (SDJ) du groupe Les Echos s'est dit « surprise et déçue » par les déclarations de Nicolas Sarkozy sur les récents mouvements de grève aux Echos et à La Tribune. Dans une interview au Journal du dimanche du 8 juillet, le chef de l'Etat juge « extraordinaire (...) que les journalistes de La Tribune fassent grève pour que le journal ne soit pas vendu par Bernard Arnault et que ceux des Echos fassent grève le même jour pour que le journal ne soit pas racheté par Bernard Arnault », le patron du groupe LVMH. « Observation faussement naïve », note la SDJ des Echos. « Sauf à être mal informé, M. Sarkozy sait pertinemment que la préoccupation principale des salariés des Echos est le maintien de l'indépendance éditoriale », tandis que ceux de La Tribune « demandent des garanties qui assureront au titre un avenir viable » et « veulent être associés au processus de vente ».

Murdoch's Wall Street Journal?

July 17, 2007
Dow Jones and Murdoch Said to Move Close to Deal

Rupert Murdoch reportedly moved a major step closer to achieving his long-standing aim of acquiring The Wall Street Journal when Dow Jones & Company tentatively agreed to be acquired by Mr. Murdoch’s News Corporation yesterday.

But the deal still must win the approval of the Bancroft family, which controls a majority of the company’s voting stock and has balked so far at selling to Mr. Murdoch, with some family members instead searching for another buyer.

According to a report on The Journal’s Web site, representatives of Dow Jones accepted Mr. Murdoch’s $60-a-share bid, which values the company at $5 billion. The News Corporation and Dow Jones declined to comment.

The agreement was expected to be put to the board tonight, and would cap a three-month effort by Mr. Murdoch to add Dow Jones to his global media empire.

The Bancrofts have shown great ambivalence throughout the process. They initially rejected Mr. Murdoch’s offer, then weeks later agreed to hear from News Corporation and any other potential bidders.

The reported deal may put pressure on the family to come to a resolution, because it suggests that management and the board believe that the offer should be accepted and, by implication, that it is a better option than going it alone.

Still, handicapping a vote by the Bancrofts is made more difficult because most of their shares are held in dozens of family trusts. In most cases, a trust can sell only if its three trustees vote to do so.

The family demanded, as a condition of considering a sale, a binding agreement that would limit News Corporation’s ability to hire and fire the top editors of The Journal and Dow Jones Newswires, which would, in turn, limit Mr. Murdoch’s ability to control their content. But it has not been clear whether the editorial integrity pact negotiated weeks ago by Dow Jones and News Corporation will meet with the family’s approval.

Mr. Murdoch and some of his top finance and legal aides met yesterday with Richard F. Zannino, chief executive of Dow Jones, and other representatives of his company. The Dow Jones board is scheduled to meet today, and The Journal reported that the deal will be presented to them then, at the $60-a-share price Mr. Murdoch originally offered.

That offer was a steep premium for a stock that had been trading at about $36 when before the News Corporation bid became public knowledge on May 1.

News Corporation is one of the world’s largest media companies, with newspapers on three continents, Fox News Channel, multiple satellite television franchises and other properties.

It plans to start an all-business cable television channel in October, to compete with CNBC, and its executives see Dow Jones — owner of The Journal, Dow Jones Newswires, Barron’s, MarketWatch and other properties — as a source of ready content and credibility for that new channel.

Mr. Murdoch first made his offer in a breakfast meeting with Mr. Zannino on March 29, and put it in writing in a letter to the Dow Jones board on April 17.

His offer has drawn protests from many newsroom employees. But others have questioned how well Dow Jones would continue to fare on its own.

The Bancroft family owns less than one-quarter of Dow Jones shares, but most of those have supervoting rights, giving them 64 percent of the voting power as of February, according to the company’s last public accounting of their holdings.

Copyright 2007 The New York Times Company

Sunday, July 8, 2007

A Profile in Cowardice

July 8, 2007


THERE was never any question that President Bush would grant amnesty to Scooter Libby, the man who knows too much about the lies told to sell the war in Iraq. The only questions were when, and how, Mr. Bush would buy Mr. Libby’s silence. Now we have the answers, and they’re at least as incriminating as the act itself. They reveal the continued ferocity of a White House cover-up and expose the true character of a commander in chief whose tough-guy shtick can no longer camouflage his fundamental cowardice.

The timing of the president’s Libby intervention was a surprise. Many assumed he would mimic the sleazy 11th-hour examples of most recent vintage: his father’s pardon of six Iran-contra defendants who might have dragged him into that scandal, and Bill Clinton’s pardon of the tax fugitive Marc Rich, the former husband of a major campaign contributor and the former client of none other than the ubiquitous Mr. Libby.

But the ever-impetuous current President Bush acted 18 months before his scheduled eviction from the White House. Even more surprising, he did so when the Titanic that is his presidency had just hit two fresh icebergs, the demise of the immigration bill and the growing revolt of Republican senators against his strategy in Iraq.

That Mr. Bush, already suffering historically low approval ratings, would invite another hit has been attributed in Washington to his desire to placate what remains of his base. By this logic, he had nothing left to lose. He didn’t care if he looked like an utter hypocrite, giving his crony a freer ride than Paris Hilton and violating the white-collar sentencing guidelines set by his own administration. He had to throw a bone to the last grumpy old white guys watching Bill O’Reilly in a bunker.

But if those die-hards haven’t deserted him by now, why would Mr. Libby’s incarceration be the final straw? They certainly weren’t whipped into a frenzy by coverage on Fox News, which tended to minimize the leak case as a non-event. Mr. Libby, faceless and voiceless to most Americans, is no Ollie North, and he provoked no right-wing firestorm akin to the uproars over Terri Schiavo, Harriet Miers or “amnesty” for illegal immigrants.

The only people clamoring for Mr. Libby’s freedom were the pundits who still believe that Saddam secured uranium in Africa and who still hope that any exoneration of Mr. Libby might make them look less like dupes for aiding and abetting the hyped case for war. That select group is not the Republican base so much as a roster of the past, present and future holders of quasi-academic titles at neocon think tanks like the American Enterprise Institute.

What this crowd never understood is that Mr. Bush’s highest priority is always to protect himself. So he stiffed them too. Had the president wanted to placate the Weekly Standard crowd, he would have given Mr. Libby a full pardon. That he served up a commutation instead is revealing of just how worried the president is about the beans Mr. Libby could spill about his and Dick Cheney’s use of prewar intelligence.

Valerie Wilson still has a civil suit pending. The Democratic inquisitor in the House, Henry Waxman, still has the uranium hoax underlying this case at the top of his agenda as an active investigation. A commutation puts up more roadblocks by keeping Mr. Libby’s appeal of his conviction alive and his Fifth Amendment rights intact. He can’t testify without risking self-incrimination. Meanwhile, we are asked to believe that he has paid his remaining $250,000 debt to society independently of his private $5 million “legal defense fund.”

The president’s presentation of the commutation is more revealing still. Had Mr. Bush really believed he was doing the right and honorable thing, he would not have commuted Mr. Libby’s jail sentence by press release just before the July Fourth holiday without consulting Justice Department lawyers. That’s the behavior of an accountant cooking the books in the dead of night, not the proud act of a patriot standing on principle.

When the furor followed Mr. Bush from Kennebunkport to Washington despite his efforts to duck it, he further underlined his embarrassment by taking his only few questions on the subject during a photo op at the Walter Reed Army Medical Center. You know this president is up to no good whenever he hides behind the troops. This instance was particularly shameful, since Mr. Bush also used the occasion to trivialize the scandalous maltreatment of Walter Reed patients on his watch as merely “some bureaucratic red-tape issues.”

Asked last week to explain the president’s poll numbers, Andrew Kohut of the Pew Research Center told NBC News that “when we ask people to summon up one word that comes to mind” to describe Mr. Bush, it’s “incompetence.” But cowardice, the character trait so evident in his furtive handling of the Libby commutation, is as important to understanding Mr. Bush’s cratered presidency as incompetence, cronyism and hubris.

Even The Wall Street Journal’s editorial page, a consistent Bush and Libby defender, had to take notice. Furious that the president had not given Mr. Libby a full pardon (at least not yet), The Journal called the Bush commutation statement a “profile in non-courage.”

What it did not recognize, or chose not to recognize, is that this non-courage, to use The Journal’s euphemism, has been this president’s stock in trade, far exceeding the “wimp factor” that Newsweek once attributed to his father. The younger Mr. Bush’s cowardice is arguably more responsible for the calamities of his leadership than anything else.

People don’t change. Mr. Bush’s failure to have the courage of his own convictions was apparent early in his history, when he professed support for the Vietnam War yet kept himself out of harm’s way when he had the chance to serve in it. In the White House, he has often repeated the feckless pattern that he set back then and reaffirmed last week in his hide-and-seek bestowing of the Libby commutation.

The first fight he conspicuously ran away from as president was in August 2001. Aspiring to halt federal underwriting of embryonic stem-cell research, he didn’t stand up and say so but instead unveiled a bogus “compromise” that promised continued federal research on 60 existing stem-cell lines. Only later would we learn that all but 11 of them did not exist. When Mr. Bush wanted to endorse a constitutional amendment to “protect” marriage, he again cowered. A planned 2006 Rose Garden announcement to a crowd of religious-right supporters was abruptly moved from the sunlight into a shadowy auditorium away from the White House.

Nowhere is this president’s non-courage more evident than in the “signing statements” The Boston Globe exposed last year. As Charlie Savage reported, Mr. Bush “quietly claimed the authority to disobey more than 750 laws enacted since he took office.” Rather than veto them in public view, he signed them, waited until after the press and lawmakers left the White House, and then filed statements in the Federal Register asserting that he would ignore laws he (not the courts) judged unconstitutional. This was the extralegal trick Mr. Bush used to bypass the ban on torture. It allowed him to make a coward’s escape from the moral (and legal) responsibility of arguing for so radical a break with American practice.

In the end, it was also this president’s profile in non-courage that greased the skids for the Iraq fiasco. If Mr. Bush had had the guts to put America on a true wartime footing by appealing to his fellow citizens for sacrifice, possibly even a draft if required, then he might have had at least a chance of amassing the resources needed to secure Iraq after we invaded it.

But he never backed up the rhetoric of war with the stand-up action needed to prosecute the war. Instead he relied on fomenting fear, as typified by the false uranium claims whose genesis has been covered up by Mr. Libby’s obstructions of justice. Mr. Bush’s cowardly abdication of the tough responsibilities of wartime leadership ratified Donald Rumsfeld’s decision to go into Iraq with the army he had, ensuring our defeat.

Never underestimate the power of the unconscious. Not the least of the revelatory aspects of Mr. Bush’s commutation is that he picked the fourth anniversary of “Bring ’em on” to hand it down. It was on July 2, 2003, that the president responded to the continued violence in Iraq, two months after “Mission Accomplished,” by taunting those who want “to harm American troops.” Mr. Bush assured the world that “we’ve got the force necessary to deal with the security situation.” The “surge” notwithstanding, we still don’t have the force necessary four years later, because the president never did summon the courage, even as disaster loomed, to back up his own convictions by going to the mat to secure that force.

No one can stop Mr. Bush from freeing a pathetic little fall guy like Scooter Libby. But only those who paid the ultimate price for the avoidable bungling of Iraq have the moral authority to pardon Mr. Bush.

Copyright 2007 The New York Times Company

Father Bush's Pardons in 1992

December 25, 1992


Six years after the arms-for-hostages scandal began to cast a shadow that would darken two Administrations, President Bush today granted full pardons to six former officials in Ronald Reagan's Administration, including former Defense Secretary Caspar W. Weinberger.

Mr. Weinberger was scheduled to stand trial on Jan. 5 on charges that he lied to Congress about his knowledge of the arms sales to Iran and efforts by other countries to help underwrite the Nicaraguan rebels, a case that was expected to focus on Mr. Weinberger's private notes that contain references to Mr. Bush's endorsement of the secret shipments to Iran.

In one remaining facet of the inquiry, the independent prosecutor, Lawrence E. Walsh, plans to review a 1986 campaign diary kept by Mr. Bush. Mr. Walsh has characterized the President's failure to turn over the diary until now as misconduct. Decapitated Walsh Efforts

But in a single stroke, Mr. Bush swept away one conviction, three guilty pleas and two pending cases, virtually decapitating what was left of Mr. Walsh's effort, which began in 1986. Mr. Bush's decision was announced by the White House in a printed statement after the President left for Camp David, where he will spend the Christmas holiday.

Mr. Walsh bitterly condemned the President's action, charging that "the Iran-contra cover-up, which has continued for more than six years, has now been completed."

Mr. Walsh directed his heaviest fire at Mr. Bush over the pardon of Mr. Weinberger, whose trial would have given the prosecutor a last chance to explore the role in the affair of senior Reagan officials, including Mr. Bush's actions as Vice President. 'Evidence of Conspiracy'

Mr. Walsh hinted that Mr. Bush's pardon of Mr. Weinberger and the President's own role in the affair could be related. For the first time, he charged that Mr. Weinberger's notes about the secret decision to sell arms to Iran, a central piece of evidence in the case against the former Pentagon chief, included "evidence of a conspiracy among the highest ranking Reagan Administration officials to lie to Congress and the American public."

The prosecutor charged that Mr. Weinberger's efforts to hide his notes may have "forestalled impeachment proceedings against President Reagan" and formed part of a pattern of "deception and obstruction." On Dec. 11, Mr. Walsh said he discovered "misconduct" in Mr. Bush's failure to turn over what the prosecutor said were the President's own "highly relevant contemporaneous notes, despite repeated requests for such documents."

The notes, in the form of a campaign diary that Mr. Bush compiled after the elections in November 1986, are in the process of being turned over to Mr. Walsh, who said, "In light of President Bush's own misconduct, we are gravely concerned about his decision to pardon others who lied to Congress and obstructed official investigations."

In an interview on the "McNeil-Lehrer Newshour" tonight, Mr. Walsh said for the first time that Mr. Bush was a subject of his investigation. The term "subject," as it has been used by Mr. Walsh's prosecutors, is broadly defined as someone involved in events under scrutiny, but who falls short of being a target, or a person likely to be charged with a crime. In the inquiry into the entire Iran-contra affair, a number of Government officials have been identified as subjects who were never charged with wrongdoing. What Charges Are Unlikely

The prosecutor said he would take appropriate action in Mr. Bush's case, implying he might contemplate future legal action against the President for withholding relevant documents. But prosecutors have said in the past that charging a President or former President with wrongdoing would be highly unlikely without overwhelming evidence of a serious crime.

C. Boyden Gray, the White House counsel, said today that Mr. Bush had voluntarily supplied the disputed material to Mr. Walsh, asserting that the notes contained no new information about the affair. Mr. Gray said Mr. Bush wanted make the notes public, but did not say when.

President-elect Bill Clinton, at a news conference in Little Rock, Ark., to announce his remaining Cabinet selections, said he wanted to learn more about the pardons, adding, "I am concerned by any action that sends a signal that if you work for the Government, you're beyond the law, or that not telling the truth to Congress under oath is somehow less serious than not telling the truth to some other body under oath."

Mr. Bush, in a statement accompanying the pardon, seemed to anticipate his critics, acknowledging that his decision might be interpreted as an effort to "prevent full disclosure of some new key fact to the American people." He said, "That is not true."

Asserting that "no impartial person has seriously suggested that my own role in this matter is legally questionable," the President sought to position himself on the side of greater openness. Mr. Bush said he had asked Mr. Walsh to provide him with a copy of his testimony to the prosecutor, which he would make public. Lobbying by Ex-Reagan Aides

Today's action followed intensive lobbying by former Reagan aides to pardon Mr. Weinberger and a series of meetings in recent days at the White House, culminating with the President's decision this morning. Republicans, long angered by the prosecution, were incensed by the new indictment of Mr. Weinberger four days before the election. The indictment said Mr. Weinberger's notes contradicted Mr. Bush's assertions that he had only a fragmentary knowledge of the arms secretly sold to Iran in 1985 and 1986 in exchange for American hostages in Lebanon.

Mr. Weinberger was also charged with testifying falsely to Congress that he did not recall whether Saudi Arabia had ever contributed to the contras. Prosecutors said his notes showed that he had known of the Saudi contributions.

Records made public over the years included no evidence that Mr. Bush knew about he secret efforts to arm the Nicaraguan rebels, but they did suggest he knew of Iran operation almost from its inception in 1985 and took part in crucial meetings where the arms sales were openly discussed as an arms-for-hostages swap. The Reagan Administration's public policy was never to bargain for the freedom of hostages.

Mr. Bush said today that the Walsh prosecution reflected "a profoundly troubling development in the political and legal climate of our country: the criminalization of policy differences." Question of Politics

He added: "These differences should have been addressed in the political arena without the Damocles sword of criminality hanging over the heads of some of the combatants. The proper target is the President, not his subordinates; the proper forum is the voting booth, not the courtroom."

In his comments, Mr. Bush said he was trying to "put bitterness behind us," asserting that each of the men he was pardoning had a long record of public service and had already paid a heavy price for their involvement in the affair in damaged careers, hurt families and depleted savings.

The Iran-contra affair, the worst scandal of Mr. Reagan's Presidency, came into the open in the fall of 1986 with the disclosure of two intertwined secret operations: the arms sales to Teheran, and the diversion of profits from those sales to help finance a covert weapons supply network to the contras, set up in 1985, after Congress barred direct aid to the rebels.

Besides Mr. Weinberger, the President pardoned Robert C. McFarlane, the former national security adviser, and Elliott Abrams, the former assistant Secretary of State for Central America. Both officials had pleaded guilty to misdemeanor charges of withholding information from Congress about support for the contras. Others Who Are Pardoned

The President also pardoned Clair E. George, the former head of the Central Intelligence Agency's clandestine services, who was convicted earlier this month, at his second trial, of two felony charges of perjury and misleading Congress about both the contras and the Iran initiative -- crimes for which he faced up to five years in prison and $250,000 in fines.

Two other intelligence officials were granted clemency, Duane R. Clarridge, the former head of the C.I.A.'s European division, who was awaiting trial on charges that he misled Congressional investigators about a missile shipment to Iran in 1985.

The other was Alan D. Fiers Jr., once a rising star with the agency, who had pleaded guilty in 1991 to withholding information about the contras from Congress and who later decided to cooperate with the prosecution, becoming Mr. George's chief accuser at both his trials.

Mr. Bush described Mr. Weinberger as a "true American patriot" and he said clemency was granted both to spare him torment and cost of lengthy legal proceedings as well as out of a concern for the health of Mr. Weinberger, who is 75 year old.

Mr. Weinberger, who was asked at a news conference today whether his notes contained any entries that might be embarrassing to Mr. Bush, replied: "No, certainly not. There's nothing in those notes that in any way contradicts what President Bush said, or what President Reagan said."

But not since President Gerald R. Ford granted clemency to former President Richard M. Nixon for possible crimes in Watergate has a Presidential pardon so pointedly raised the issue of whether the President was trying to shield officials for political purposes. Mr. Walsh invoked Watergate tonight in an interview on the ABC News program "Nightline," likening today's pardons to President Richard M. Nixon's dismissal of the Watergate special prosecutor, Archibald Cox, in 1973. Mr. Walsh said Mr. Bush had "succeeded in a sort of Saturday Night Massacre."

Democratic lawmakers assailed the decision. Senator George J. Mitchell of Maine, the Democratic leader, called the action a mistake. "It is not as the President stated today a matter of criminalizing policy differences," he said. "If members of the executive branch lie to the Congress, obstruct justice and otherwise break the law, how can policy differences be fairly and legally resolved in a democracy."

The main supporters of the pardon were Vice President Quayle, the Senate Republican leader, Bob Dole, and Mr. Gray, one senior Administration official said today. The decision, discussed in private, seemed to coalesce in the last three weeks although Mr. Bush was said to believe that Mr. Weinberger had been unfairly charged ever since the former Reagan Cabinet officer was first indicted in June.

Throughout the deliberations, Mr. Bush consulted with Attorney General William P. Barr and Brent Scowcroft, the national security adviser, who had sat on a Presidential review panel that examined the affair in early 1987.

In lengthy Oval Office meetings in the last week, Mr. Bush and his advisers, none of whom offered a sharp dissent, discussed how to balance their desire to grant a pardon with their realization that such an act would almost certainly provoke hostility.

In the end, Mr. Bush's advisers decided he could surmount his critics by expressing, as did in his statement, his willingness to make public additional documents about the affair, like his statement to the prosecutors and Mr. Weinberger's notes.

Copyright 2007 The New York Times Company

Friday, July 6, 2007

The Beginning of the End for Conservative Race Theory

One of the truisms of our time is that conservatives rule American politics because they have won the battle of ideas. Although The Supreme Court’s new rejection of the use of race in diversity programs in the Louisville and Seattle school districts (No. 05-908) seems like redundant confirmation, the real story of the case is Justice Breyer’s astonishing 77-page dissent.

Breyer dismantles every moving part of the conservative case, one piece at a time. The case will not be remembered for its plurality opinion but for Breyer’ dissent, which reassembles a democratic theory of racial integration.

In the Seattle decision, Chief Justice John Roberts bases the plurality opinion on the standard, three-part conservative argument. First, racial classification is always and intrinsically bad, not just when it is used to subordinate or stigmatize a group. Second, with very rare exceptions, racial classification can only be used to reverse an institution’s own prior, state-sanctioned segregation: voluntary improvements are not allowed. Third, racial diversity is almost always a cover for numerical quotas that try to make institutions conform to the racial mixtures that prevail in society at large. Diversity’s secret goal is what the Chief Justice calls “racial balancing,” and it is unconstitutional.

As is equally standard in such contexts, racial consciousness is presented as a central threat to individual rights and personal choice. Finally, the icing on the conservative cake is that the color-blind scheme turns out to be, in this view, the only effective form of anti-racism: to cite Roberts’ media tag-line, fully pre-tested by conservative think tanks: “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” The real causes and effects that shape American society are replaced by a series of scholastic equations, in which race blindness equals race legality equals race justice, and the package is held together by a tone of superior moral rectitude toward the race conscious authorities who impair the freedom to choose.

Breyer systematically rejects each of these claims. First, his lengthy examination of precedent shows that the Court has repeatedly endorsed racial classification when it includes rather than excludes. The whole point of applying “strict scrutiny” standards to racial classifications is precisely to “take relevant differences” between “fundamentally different situations . . . into account.” The Roberts plurality, Breyer writes, is in fact breaking with Court precedent in order to make strict scrutiny “fatal in fact” to all racial classification across the board. The power of Breyer’s opinion comes from his relentless evisceration of the taboo against race-consciousness based on the Court’s own decisions. The conclusion is that the cornerstone of conservative race theory has no basis in the Court’s own opinions on race.

Second, Breyer shows that court-sanctioned de jure discrimination (“segregation by state action”) is not the only kind that can be addressed with race-conscious programs: de facto discrimination, like the educational effects of housing segregation, is also a legitimate target. The stakes here are whether schools, with public support, have the right to seek to increase racial mixing in communities where larger housing and income patterns make that mixing unlikely. Conservatives have said no, race-conscious remedies can be used only in cases of extreme previous racism, which is like saying that pesticide bans should apply only to former toxic waste sites and not to the landscape at large. Breyer's argument is a fundamental rejection of the conservative restriction.

Third, Breyer argues that the goal of diversity practices is to keep racial integration from moving full speed into reverse. The gains of the period between 1968 and 1980 have been almost entirely lost, as nicely articulated by Breyer’s description of the empirical evidence of resegregation. Does the desire of white parents to send their children to whatever school they want always trump the goal of keeping residentially segregated racial groups in communication with each other? Breyer argues that the state has a compelling interest in the use of education to create the powers of understanding that underwrite a multi-racial democracy. He also argues that the districts have bent over backwards to protect individual choice, thus rejecting the Right’s assertion that choice and racial diversity are contradictory.

The effect of Breyer’s opinion is to hold conservative race theory to account. It has dominated the courts during the same period in which school segregation has increased, when administrators and teachers have had to jump through new legal hoops every year, when educational disparity - like the economic kind - has increased all over the country. Advocates of color-blindness has made all of this worse, attacking nearly all programs of racial inclusion as assaults on liberty, painting as dire threats the integrationist remedies that thirty years ago were considered the least society could do.

Color-blindness has also allowed many white parents to dodge the question of whether they are willing to fix the multi-racial schools their children are assigned to rather than fighting endlessly to keep them from going there in the first place. Conservatives have used racial resentment to blind whites to the general benefit of high-quality public provisions for all students, including the benefit to themselves of Latinos and African Americans receiving equally good educations.

Breyer’s opinion, though on the losing side, may eventually help refocus the outrage of whites, who have sought to use the courts for the benefit of their own children regardless of the effects on the children of others, refocus them on how the success of their society depends on the equal distribution of quality in education.

The End of Integration

July 6, 2007


Nothing is sadder than the waning dream of integration. This dream has illuminated American life for the past several decades — the belief that the world is getting smaller and that different peoples are coming together over time.

Over the course of the 20th century, the civil rights movement promised to heal the nation’s oldest wound. Racism and discrimination would diminish. Blacks and whites could live together, go to school together and gradually integrate their lives.

The end of the cold war promised to heal the rift between democracy and dictatorship. More nations would be welcomed into the community of free peoples.

The trauma of Sept. 11 promised to heal the rifts between red and blue America. Then there were the integrating forces of globalization and technology. The growing movement of people would pave the way for multicultural societies. The movement of goods would increase interdependence. The revolution in communications technology would increase global conversation.

All these promises hung in the air, but then crumbled, even in the past few weeks.

The progress in civil rights has not produced racial integration. Amid all the hubbub about last week’s Supreme Court decision, we were reminded that five decades after Brown, blacks and whites do not live side by side, even when they share the same income levels. They do not go to the same schools. And when they do go to the same schools, they do not lead shared lives. As several people noted last week, many educators are giving up on the dream of integration so they can focus on quality.

The movement of peoples, meanwhile, provokes as much rage as assimilation. The immigration reform bill was defeated last week by Americans who feel their country is being torn apart by outsiders who don’t play by its rules, and by a ruling class blind to the threat.

The fall of communism hasn’t created a global community of democracies. It turns out the Russians don’t want to be like us. The Arabs don’t want help from infidels. The Iraqis’ democratic moment has turned into sectarian chaos. The Palestinians have turned theirs into a civil war.

The threat of terror hasn’t united Americans, but divided them. The globalization of trade has sparked nationalistic backlashes. The revolution in communications technology has brought media segmentation, as people seek out newspapers and shows that reinforce their preconceptions.

Expecting integration, Americans find themselves confronting polarization and fragmentation. Amid all the problems that have made Americans sour and pessimistic, this is the deepest.

It could be that all we need is a change of leadership in order to rediscover the sense that we’re all in this together. That’s what the Obama and Bloomberg boomlets are all about. It could be we just need to work harder to overcome racism and tribalism.

But it could be the dream of integration itself is the problem. It could be that it was like the dream of early communism — a nice dream, but not fit for the way people really are.

For hundreds of thousands of years our ancestors lived in small bands. Surviving meant being able to distinguish between us — the people who will protect you — and them — the people who will kill you. Even today, people have a powerful drive to distinguish between us and them.

As dozens of social-science experiments have made clear, if you separate people into different groups — no matter how arbitrary the basis of the distinction — they will quickly begin discriminating against others they deem unlike themselves. People say they want to live in diverse integrated communities, but what they really want to do is live in homogenous ones, filled with people like themselves.

If that’s the case, maybe integration is not in the cards. Maybe the world will be as it’s always been, a collection of insular compartments whose fractious tendencies are only kept in check by constant maintenance.

Maybe the health of a society is not measured by how integrated each institution within it is, but by how freely people can move between institutions. In a sick society, people are bound by one totalistic identity. In a healthy society, a person can live in a black neighborhood, send her kids to Catholic school, go to work in a lawyer’s office and meet every Wednesday with a feminist book club. Multiply your homogenous communities and be fulfilled.

This isn’t the integrated world many of us hoped for. But maybe it’s the only one available.

Copyright 2007 The New York Times Company