Obama at Manassas

by Mike Davis, New Left Review March-April 2009.

On election eve last November, the little city of Manassas, Virginia became the improbable Woodstock of Generation Obama as thousands gathered to hear their candidate close his almost two-year-long campaign with a final appeal for ‘Change in America’. It was a grand finale orchestrated with considerable self-confidence and irony. Although Manassas (population, 37,000) retains blue-collar grit, the rest of Prince William County (380,000) epitomizes the greedy sprawl of the Bush era: a disorganized landscape of older townhouses, newer McMansions, faux-historical shopping centres, high-tech business parks, evangelical mega-churches, pariah islands of apartment housing, and melancholy vestiges of a graceful Virginia countryside. Assuring the County a prominent footnote in Tom Clancy novels, its southeastern corner is annexed by Marine Corps Base Quantico and the FBI national training centre.

As the Dixie edge of ‘Los Angeles on the Potomac’ and the seventh richest large county in the United States, Prince William is precisely the kind of ‘outer’ or ‘emergent’ suburb which Karl Rove famously mobilized to re-elect George W. Bush in 2004. [1] Indeed, since Nixon’s victory over Hubert Humphrey in 1968, the Republican Party has counted on Sunbelt suburbs like Prince William County to generate winning margins in national elections. Reaganomics, of course, was incubated in the famous tax revolts that shook suburban California in the late 1970s, while Newt Gingrich’s 1994 ‘Contract with America’ was primarily a magna carta for affluent voters in Western exurbs and New South edge cities. Even as the suburbs aged and densified, the Republicans drew power from the contradiction that ‘post-suburban Americans remained resolutely anti-urban even as their world has become increasingly urbanized.’ [2]

Obama, in effect, signalled the beginning of a new epoch when he chose to climax his campaign on what has been the wrong side of the suburban Mason–Dixon Line for most national Democrats since the 1960s (Jimmy Carter and Bill Clinton only partly excepted). Although the rally was not scheduled to begin until 9pm, crowds were already streaming into the Prince William County Fairgrounds by sunset, and southbound Interstate 66 was jammed half way back to Washington DC, 26 miles to the northeast. A WashingtonPost blogger marvelled at the numerous Redskins fans, bedecked in team gear, who had chosen to hear Obama over attending Monday night’s classic game against the Pittsburgh Steelers. The state police estimated the multitude in excess of 80,000, but the Obama camp was certain that their candidate spoke to more than 100,000—perhaps the largest audience for an election-eve speech in American history.

The last time a throng this vast had converged on Manassas was in late August 1862, when Robert E. Lee’s Army of Northern Virginia collided with the larger Union Army led by the incompetent John Pope. Twenty thousand soldiers, dead and wounded, spilt their blood on soil already stained red from the opening major battle of the Civil War a year earlier. (Southern custom, which named battles after the nearest town, enshrined this slaughter as the ‘Second Battle of Manassas’, while in the North, where battles were baptized with the name of the nearest river or stream, it was ‘Second Bull Run’.) Obama, who had launched his general election campaign in Prince William, was well aware that he spoke on symbolic ground, hallowed by an ancient war yet incompletely redeemed from the legacy of slavery.

When, after a long delay in traffic outside Dulles Airport, he finally strode on stage about 10.30, he was weary but exultant. As he had done scores of times before, he promised his supporters that their ordinary ‘hard-working sense of responsibility’ would define his new government, not the ‘greed and incompetence’ that had characterized the age of Bush. Younger supporters repeatedly took up the signature campaign chant, borrowed from the struggle of California farmworkers in the 1960s, of ‘Yes we can!’ (‘¡Sí se puede!’ in the original). Almost as tall as Lincoln, and sometimes nearly as eloquent, Obama roused a final, immense cheer with the reassurance: ‘Virginia you can change the world’. [3]

Obama beats Lee

In 2004, George W. Bush won Virginia by 54 per cent and Prince William by 52.8 per cent. Since 1948 only Lyndon Johnson had managed to carry the Old Dominion for the Democrats, and John McCain was favoured to preserve Republican tradition in a state with famously large numbers of military and Christian conservative voters. Republican-controlled Prince William County, notorious for its right-wing delegation in the Richmond legislature, as well as its recent persecution of undocumented Latino immigrants, ‘prided itself as being the last Republican redoubt in northern Virginia’. [4]

In the event, Virginia’s voters, including the good burghers of Prince William, gave Barack Obama a 52.7 per cent victory in the state, and a 57.6 per cent margin in the county—a whopping 12-point improvement over 2004. Whereas Kerry won only one of Virginia’s four major regions (northern Virginia), Obama easily took three, adding the Capital region and Hampton Roads/eastern Virginia; while McCain eked poor consolation in the Appalachian southwest. [5] It was a stunning result. A Black Democrat with a Muslim name had come to Manassas and, in effect, beaten the ghosts of Robert E. Lee and Jim Crow. Is the world, as a result, changing? Have the gridlocked tectonic plates of American electoral politics finally lurched to the left?

Psephology—the statistical analysis of elections—is an inscrutably American obsession, like chewing tobacco or varmint hunting. Although Margaret Thatcher, Tony Blair and Ehud Barak have all toyed with the dark art, and a Brit originally coined the Greek-cognate term in the 1950s, only those native-born in a Louisiana bayou or a Washington law firm are likely to possess the consummate instinct for extracting winning strategies from a few shavings of an electoral vote. Some have compared voting analysis to the subtle skill of a sommelier, but it is actually more akin (to extend the French analogy) to the acute attentiveness of Louis XIV’s physicians to the contents of the royal chamber pot. With recent national elections decided by ‘hanging chads’ in Florida and a few absentee ballots in Ohio, the slightest statistical deviation from an established trend attracts intense scrutiny from the epigones of Lee Atwater and James Carville. In their quest for a few decisive votes, campaign ‘boiler rooms’ have become monastically dedicated to the tracking of obscure fads on YouTube and the micro-targeting of vegetarians in Nebraska.

From this perspective, Obama’s victories in Virginia and other ‘swing states’ like Colorado, Florida and North Carolina constitute the gold ring: a once-in-a-generation acceleration of attitudinal change in the electorate. Conservative analysts, especially, worry that the election may augur a political transformation comparable to Roosevelt’s epochal victory in 1932 or Reagan’s in 1980. Indeed, with Wall Street and Detroit suddenly in ruins, and fear eating the soul of the suburban middle class, the Republican Party seems to be dissolving into an endless acrimony of sectarian factions and cult leaders with limited national appeal, such as Sarah Palin. In contrast, Obama has generously opened the White House doors to Clintonites and Republicans, reinforcing his image as a pragmatic centrist focused on competent government and national unity.

Political pundits and party strategists in their majority weigh the meaning of this election upon the balance-scale of the theory of electoral realignment first proposed in 1955 by the legendary Harvard political scientist V. O. Key, Jr. and later developed in detail by his MIT protégé, Walter Dean Burnham. In order to explain the rise and fall of successive party systems from Andrew Jackson to Ronald Reagan, they postulated a causality analogous to Eldredge and Gould’s ‘punctuated equilibrium’ paradigm in paleontology, where electoral evolution is compressed into episodic reorganizations that are synchronized with major economic crises (1896, 1932 and 1980). Although many academics remain sceptical, Key and Burnham’s thesis of the ‘critical election’ that durably realigns interest blocs and partisan loyalties remains the holy grail of every actual presidential campaign. [6]

In his Critical Elections and the Mainsprings of American Politics, Burnham provides a reasonably canonical definition:

The critical realignment is characteristically associated with short-lived but very intense disruptions of traditional patterns of voting behaviour. Majority parties become minorities; politics which was once competitive becomes noncompetitive or, alternatively, hitherto one-party areas now become arenas of intense partisan competition; and large blocks of the active electorate—minorities, to be sure, but perhaps involving as much as a fifth to a third of the voters—shift their partisan allegiance. [7]

Although Obama’s 53 per cent majority of the popular vote is not the definitive landslide of FDR’s 1932 election (57 per cent), it improves upon Reagan’s 1980 performance (51 per cent) and, of course, overshadows Clinton’s first fortuitous plurality (43 per cent in a three-way race). [8] Excepting FDR’s four victories and Lyndon Johnson’s annihilation of Barry Goldwater in 1964, Obama did better than any Democratic candidate since the Civil War, and his campaign met Burnham’s criteria of opening enemy terrain to intense competition while galvanizing new voters and interest groups on behalf of the insurgent party.

His victory, moreover, was wrought by a novel strategy of political communications, operating inside web-based social networks that hardly existed in 2000 and are still poorly understood by older politicos. Although both the 1932 and 1960 presidential campaigns also introduced major innovations in political technology (radio and television, respectively), the 2008 Democratic campaign was a Marshall McLuhan-like leap from one media universe to another.

Building upon the template of Howard Dean’s Internet ‘shock and awe’ in the 2004 primary (and retaining Dean’s shrewd skills as Democratic national chair), the Obama campaign used Silicon Valley expertise to mine an El Dorado of small donations through social networking and campaign websites. [9] As Joshua Green pointed out admiringly in the Atlantic, ‘During the month of February . . . his campaign raised $55 million—$45 million of it over the Internet—without the candidate himself hosting a single fundraiser.’ [10] While trying to compete with this digital juggernaut, the Clinton campaign was driven into bankruptcy during the summer, and McCain was outspent by $154 million in the fall—a dramatic reversal of the usual Republican financial advantage in presidential elections. [11]

A flush war chest allowed the campaign to intensify voter-registration efforts across the country and mount media blitzkriegs in an unprecedented number of states. The Democrats also made brilliant use of early and absentee ballots (almost one-third of the total vote) to ensure the suffrage of blue-collar workers, elderly homebound people and inner-city residents—all of whom traditionally have trouble getting time off to vote or face unusually long waits at polls. New weapons, such as the candidate blog—a digital version of the fireside chat—and viral political messaging were deployed to support a huge army of volunteers (5,000 in Prince William County alone), while saturation television advertising, automated phone calls, and regiments of rock stars softened up enemy positions.

The Obama camp exploited every opportunity to portray the election as an epochal techno-generational conflict, pitting the youthful many-hued netroots against obese AM-hate-radio fans and robotic evangelical congregations. Multi-tasking on his beloved Blackberry or plugged into his MP3 player during his morning workout, Obama was easily cast as an epitome of those 21st-century competencies that some psychologists claim may represent a human evolutionary leap, while McCain, with his self-confessed computer phobia and archaic elocutions (‘My friends . . .’), was prone to caricature as an escaped Alzheimer’s patient.

But revolutions in political communications do not automatically make realignments, and widely hailed new eras in American political history have sometimes turned out to be short-lived mirages. In Burnham’s cautious construction, a ‘realigning election’ can only be ratified as a watershed after the political system has unambiguously begun to consolidate its results. Thus Carter’s 1976 victory, which some contemporaries hailed as a Democratic rebirth in the South, led a divided party straight into a hopeless cul desac, while Clinton’s defeat of George Bush senior in 1992 was an achievement shared with maverick billionaire Ross Perot, who hijacked 19 per cent of the vote, mainly from Bush, and soon checked by the Republican sweep of the House of Representatives in 1994. (As Matt Bai reminds us, ‘the booming nineties had, in fact, been the party’s worst decade since the roaring twenties.’) [12]

Obama, who will be the first president ever to face the dual challenges of foreign war and economic depression, undoubtedly risks the possibility of a Republican resurgence in 2010 or 2012. Moreover his popularity like Bill Clinton’s exceeds that of his party, and a less-than-stunning contingent of new Democrats rode his coattails to victory in November. (Democrats had hoped to win 10 new Senate seats and 30 or more new House seats; in the event, they had to settle for 7 and 21, respectively.) But psephologists are likely to give Obama better odds for leading a partisan realignment than they gave to Carter or Clinton. Even the most preliminary analysis of the 2008 presidential vote reveals new alliances and shifting loyalties that a deepening economic crisis may cement as a durable Democratic if not liberal majority.

These potentially realigning trends include the disappearance of ‘inverted 1896’ on the national election map; the probable peaking of the evangelical vote and the Republican ‘culture war’ strategy; Obama’s victories in Karl Rove’s bellwether suburban counties; the reappearance of a rainbow coalition in the electorate; a Latino backlash against nativism; and the political triumph of the New Economy over the Old.

Breakup of red America

In the famous ‘critical election’ of 1896, Ohio’s William McKinley, a Gold Standard Republican, won the White House with an overwhelming electoral mandate from the states of the Northeast and Great Lakes, plus the votes of California and Oregon. Conversely, his opponent, the Nebraska Democrat and ‘Silverite’ William Jennings Bryan, commanded the sparser electoral votes of the Intermountain West, the Great Plains and the former Confederacy. Pro-tariff Republicans, in other words, ruled the industrial heartlands while cheap-money Democrats voiced the discontent of miners and farmers in the Western and Southern peripheries.

For the last decade, the exact inverse of the 1896 vote has defined the distribution of so-called Red and Blue states. Thus, Bush’s Machiavelli, Karl Rove, squarely based presidential campaign strategies in 2000 and 2004 upon impregnable Republican majorities in the once Bryanite interior West and the South, while Gore and Kerry counted on solid Democracy in the former McKinleyite heartlands. The great swing states of the 1960s–80s era, California and Texas, had been captured, respectively, by liberal Democrats and conservative Republicans in the 1990s, so what remained in play in an era of extremely close popular votes was a handful of ‘purple states’: most importantly, electoral-vote-rich Colorado, Missouri, Ohio and Florida.

Although (as we shall see) a simple change in analytic magnification renders a different view of this reheated war between the states, as a complex struggle between electorates in the cores and peripheries of metropolitan systems and urban corridors, the concept of a primal regional divide in presidential politics was etched anew in the social imaginary of the Bush era. Indeed, the larger part of Sarah Palin’s role as McCain’s running mate was to incessantly and obnoxiously remind voters of the ‘real America’—apotheosized by her dreary Anchorage suburb—and its alien Other.

In theory, however, a candidate for president does not need to command a Red or Blue nation or even sweep a majority of states: the electoral votes of the eleven most populous states will suffice. Obama won nine, losing only Texas and Georgia. By subtracting three of the largest Southern states and three of the most populous Intermountain states from the inverted 1896 map, he destroyed the Rovian myths of the (new) Solid South and Red State America.

In the former Confederacy, containing about one-third of the American population, McCain lost Virginia, North Carolina and Florida: large states with advanced economies and well-educated, rapidly growing electorates. In both Virginia and North Carolina, Obama’s victory was built upon an alliance of African-Americans and white professionals, reinforced by immigrants and college students. [13] In Georgia, meanwhile, Obama earned a larger share of the vote (47 per cent) than any Democrat since Jimmy Carter, putting the Peach State back into the swing category. Republican strategists should be especially worried by his strong showing (45 per cent) in Atlanta’s outer-suburban belt—Cobb and Gwinnett counties with a population of nearly 1.5 million—where a growing Black middle class, along with a significant Latino migration, is eroding one of the most important conservative voting blocs in the country. Although McCain won Texas by almost one million votes, he lost both Dallas and Harris (metro Houston) counties, thereby boosting Democratic hopes of ending Republican supremacy in the next election cycle. [14]

In the West, the senator from Illinois ran away with the crucial electoral votes of Colorado, Nevada and New Mexico. For the first time, the Democrats became a majority, if only by a sliver, in the aggregate presidential vote of the five ‘megas’ of the Intermountain West, the fastest growing region in the country. These new Los Angeleses (heavily populated by fugitive Californians) have become first-division electoral battlegrounds and will gain at least three more congressional seats in the next Census reapportionment. [15] Accordingly, they figure large in Democratic hopes for an enduring realignment.





Elsewhere in the West, Obama made impressive progress over Kerry in Montana, gave the Democrats a reason for living in Idaho, increased their majority in Tucson, took Omaha (winning the first Democratic electoral vote in Nebraska since 1964), and conquered Salt Lake County (which Bush had carried by 80,000 in 2004). [16] The Republicans, on their side, retained millions of acres of uninhabited real estate in Alaska, Wyoming and the Plains states, and with the aid of their two most important Western constituencies—Mormons and retirees—avoided what some polls were predicting as a possible upset in John McCain’s home state of Arizona.

Throughout the Sunbelt, moreover, Obama was particularly successful in the all-important ‘tech corridors’ that drive regional growth: the northern Virginia suburbs of DC as well as the so-called ‘Chesapeake Crescent’: the Research Triangle of North Carolina, the Space Coast of Florida, the Front Range cities of Colorado, the Albuquerque–Santa Fe corridor in New Mexico, and Silicon Valley plus all of its outliers on the West Coast. Whereas Kerry in 2004 had lost 97 out of the 100 fastest-growing counties, Obama won 15, including the three largest, and added at least 8 points to the Democratic cause in 29 others.

Nor did the GOP find solace in the patriotism and family values of the old industrial heartlands. McCain originally had high hopes of stealing the largely Catholic, white working-class voters who had rallied during the primaries to Hillary Clinton’s impersonation of Rosie the Riveter. But in the shadow of a collapsing auto industry, falling home values, and shrunken retirement accounts, the vast majority of Clinton supporters disdained McCain’s ‘Joe the Plumber’ ads in favour of Obama’s oft-repeated if vague promise to save American manufacturing jobs. [17]

The most unexpected Democratic victory in the region was Indiana, a heavily blue-collar but culturally conservative state that gave Bush a larger share of its vote in 2004 (60 per cent) than Mississippi, and thus was scarcely considered competitive terrain. Over the last generation of plant closure and economic retrenchment, Hoosiers have probably offered an even better example than Kansans for Thomas Frank’s famous argument in What’s the Matter withKansas? (2004) that cultural rage has misled large segments of the white working class into voting against their economic self-interest. In Indiana, at least, class consciousness has undergone a revival.

Indeed Obama’s victory was mostly due to a dramatic increase in white support (45 per cent versus 34 per cent for Kerry), especially in smaller stricken industrial centres like Evansville, Kokomo and Muncie—the original ‘Middletown’ of the Lynds’ famous studies in the 1920s and 1930s—that had been solidly Bush in 2004. As James Barnes explained in the NationalJournal, ‘This is part of the state’s once-vibrant auto manufacturing patch, but much of that industry is gone, and voters who in past elections voted on social issues (Anderson is home to the Church of God) or national security can be won over with a strong economic pitch.’ [18]

This was exactly the pitch that the well-heeled Obama campaign made, sending out thousands of impassioned volunteers to talk about jobs and economic pain, while McCain relied on an underwhelming effort by ranting evangelical churches and dispirited chambers of commerce. [19] The Democratic success in Indiana was replicated in neighbouring northwestern Ohio, where highly energized Obama forces from rusted but still union-proud Toledo canvassed former Bush strongholds in adjacent exurbs and factory towns. As a result the Democrats now own the entire Great Lakes waterfront for the first time since Lyndon Johnson.





Obama also did surprisingly well in Lake Wobegone country: the Lutheran tier of the upper Midwest, historic crucible of political insurgency, where 50 rural white counties in Wisconsin, Minnesota and Iowa that had voted for Bush in 2004 switched in his favour. Although he lost North Dakota, he narrowed the 2004 Republican margin by a whopping 19 points. In Missouri, where Obama scored victories in several traditionally conservative St. Louis suburbs, the election produced a virtual dead heat, with McCain ultimately winning by less than 4,000 rural votes. [20]

In the Northeast, meanwhile, the election was an extinction-level event for the Republican Party, which lost its last House member from New England. Duchess County in New York—notorious in the 1930s and 1940s as a poison swamp of Roosevelt haters—quietly joined the Obama landslide, as did one of the suburban last stands of the Republican Party in greater New York City: Suffolk County on eastern Long Island.

McCain’s meagre improvements over Bush in 2004 were confined to the Cajun parishes of Louisiana and the upland South, a 400-mile long belt of majority white-evangelical counties stretching from the hills of eastern Oklahoma through the mountains of West Virginia. Here, apparently, race and/or fundamentalist religion decisively shaped the outcomes. Homespun, wisecracking Bill Clinton had been popular in this largely poor region, but it was small consolation for ‘William Jennings’ McCain to win Jonesboro and Hazard when he was losing key demographics in Charlotte and Orlando. [21]

Republicans lose their edge

If the shrewdest gambit of the Obama team during primary season was to outflank the Clinton juggernaut by wooing oft-ignored Democrats in largely Republican ‘caucus states’, their boldest move after the convention was to concentrate unprecedented resources to swing big suburban counties that had hitherto been considered unalterably Republican. Gore and Kerry, with fewer bucks and less audacity, had eschewed big raids into the Rovian heartland in favour of mobilizing more votes in reliably Democratic metropolitan cores and inner suburbs. But the Obama campaign embraced the ‘we-can-swing-the-suburbs’ strategy successfully tested in recent Virginia elections by Democratic master gamer Mike Henry. They therefore defiantly planted the flag in dynamic demographics such as Prince William County where they calculated that franchise managers, accountants and civil servants were more concerned about plunging 401-K retirement accounts and negative home equity than the spectre of gay monogamy. Although race remains a formidable obstacle to wholesale conversion of voters in former suburban bastions of white flight, the campaign believed that it no longer precludes the possibility of Democratic victories. [22]





This suburban strategy, however, came at a price: a campaign rhetoric that obsessively flattered the needs of the ‘middle class’, but seldom focused on structural unemployment or equity issues affecting millions of urban and non-white Obama voters. Moreover, most Democrats running in the outer suburbs (like the previous cohort in 2006) were competing on conservative platforms—often pro-gun, anti-tax and anti-immigrant—that demanded minimal ideological shift from voters. As Chris Cillizza, the Washington Post’s chief political analyst, warned liberals after the election: ‘The fact that roughly a third of the Democratic House majority sits in seats with Republican underpinnings (at least at the presidential level) is almost certain to keep a liberal dream agenda from moving through Congress. The first rule of politics is survival, and if these new arrivals to Washington want to stick around, they are likely to build centrist voting records between now and 2010.’ [23]





But most liberal Democrats were blinded by the light of Obama’s big victories in suburban counties that had been crucial to Bush’s in 2004: Jefferson and Arapahoe (metro Denver) in Colorado, Hillsborough (Tampa) in Florida, Wake (Raleigh) in North Carolina, Washoe (Reno) in Nevada, Berks and Chester (Philadelphia) in Pennsylvania, Hamilton (Cincinnati) in Ohio, Macomb (Detroit) in Michigan, and Riverside in southern California. [24] Indeed, he won 9 of 12 swing suburbs in twelve swing states monitored by the Metropolitan Institute (Kerry had eked narrow victories in only three). [25] He also conquered 2 of the 3 iconic Republican counties named Orange (Florida and New York), and gave the McCain camp a bad scare in the third (California).

‘Suburban’, however, is an obsolete, almost obscurantist characterization of the socio-spatial location of these swing voters. Urban geographers and political scientists have proposed competing typologies to describe the ‘post-suburban’ metropolis, but there has been little consensus about how to define or what to call the brave new world beyond Levittown. [26] Recent election analysis, however, has favoured the county-code schema developed by Robert Lang and Thomas Sanchez at the Metropolitan Institute at Virginia Tech:

Core Counties are densely populated central cities. Inner Suburbs are close-in suburbs that are densely built (90 per cent of residents live in an urban area) and at least half of workers commute in to the central city. Mature Suburbs are dense (75 per cent of residents live in an urban area), well-established counties whose populations are no longer booming. In Emerging Suburbs, at least 25 per cent of the population lives in an urban area, and at least 5 per cent commute back in to the central area. Most of their growth has occurred recently. In Exurban Counties, large-scale suburbanization is just beginning to take hold and they are most distant from the centre. [27]

The large-scale electoral trend over the last generation has been a growing Democratic majority in the ageing inner suburbs (the first, often disappointing rungs in non-white geographical and social mobility), political stalemate in the demographically more stable and segregated mature suburbs, and large, reliable harvests of Republican votes in outer suburbs and exurbs. ‘In either Red or Blue states’, write Lang and Sanchez,

the pattern remained the same. There is a metropolitan political gradient in the big US metro areas: the centre tilts to Democrats and the fringe to Republicans. In between these extremes, the vote slides along a continuum, coming to a midpoint mostly in the mature suburbs. [28]

But the housing bubble and suburban construction frenzy of the 2000s, coinciding with the maturation of job markets in now 20 and 30-year-old ‘edge cities’ (high-density clusters of office and shopping space, usually located at the intersection of radial and circumferential freeways), changed both the calculus of household locational decisions and the financing of mortgages, inducing more minority and immigrant families to leap-frog into emerging suburbs, often with the help of non-traditional loans. As a result, non-white households for the first time became the fastest-growing segment of suburban peripheries in many metropolitan areas. The challenge to the Obama campaign was to use this new demographics as an Archimedean lever to shift the suburbs, even in the South, toward the Democrats.

Prince William County again is a bellwether. A study last year by the Northern Virginia Regional Commission revealed that minorities, especially Latinos and Asians, have contributed a stunning 94 per cent of Prince William’s population growth from 2000. Since Bill Clinton became president, the County’s non-white population has burgeoned from less than one fifth to almost one half, and Prince William will soon become northern Virginia’s first ‘minority-majority’ county. ‘A seismic population shift’, wrote the report’s author, ‘has been sweeping across the entire southern rim of northern Virginia where more affordable housing prices, like a powerful magnet, have been pulling households [to the outer suburbs]—predominantly immigrant and minority families who are either finding it too expensive to live closer in or are looking further out for a place they can afford to buy.’ [29]

But ‘affordable’ mortgages turned abruptly into negative equity and then foreclosure during the course of the long presidential campaign. What Goldman Sachs back in 2006 had predicted would be a ‘happy slowdown’, turned into a general annihilation of popular wealth and home values. [30] By the eve of the Manassas finale, Prince William County had become the epicentre of the mortgage crisis in metropolitan Washington DC with nearly 8,000 foreclosures. Single-family homes had lost more than 30 per cent of their value; townhouses, at least 40 per cent. Between Obama’s first and last rally, dozens of businesses had been boarded up in downtown Manassas, tech companies had made deep cuts in their workforces, and a new website emerged to gleefully document the growing number of derelict McMansions in the region. [31]





Although no stratum of Prince William society was exempt from the subprime massacre, it was most lethal to minority new homeowners. In a series of articles, the Washington Independent chronicled the fate of Georgetown South, a subdivision of several hundred townhouses in Manassas where sheriff’s deputies have been working overtime to evict blue-collar residents, many of them Central American immigrants, caught in a vise between the exploding costs of their mortgages and the collapse of local job markets. A typical sad case was a Salvadorean housepainter earning $500 per week, who had been offered a no-down-payment ‘Alt-A’ loan from a subsidiary of (now defunct) Lehman Brothers in 2005 to finance a $280,000 home. In recent months, his townhouse lost more than $50,000 in value, monthly payments on his adjustable-rate mortgage jumped from $1,4000 to $2,600, his tenants were forced to flee a county crackdown on undocumented Latinos, and work in the construction industry evaporated. [32]

Projected upon a national canvas, such stories explain how McCain’s comfortable 48 per cent to 42 per cent lead in the suburbs following the Republican convention was eroded during the bleakest autumn in generations. [33] Polling showed that a significantly higher proportion of Obama’s suburban supporters had recently lost home equity, a job or both. The Obama campaign, in effect, became the party of suburban pain as well as ethnic diversity. [34] The general election as a result consolidated a Democratic majority in inner and mature suburbs, while closing the partisan gap on the periphery and mobilizing enough white voters to win many emergent suburbs.

The rainbow fulcrum

This electoral shift in the suburbs, of course, mirrors even more fundamental changes in the American voting universe. In 1976 when Jimmy Carter beat Gerald Ford, the active electorate was 90 per cent white non-Hispanic. Last November, the white share was down to 74 per cent; a transition toward voter diversity whose future is assured by demographic momentum. Nearly half the babies, for instance, born in the United States during the last few years had Spanish surnames, and American ‘minorities’ separately counted would constitute the twelfth most populous nation on earth (100.7 million). [35] Over the course of the Bush administration, the Latino voting-age population in Virginia increased 5 times faster than the population as a whole, 11 times faster in Ohio, and almost 15 times faster in Pennsylvania. [36] As Karl Rove and other nervous Republican strategists well understand, the GOP has probably already harvested its maximum crop of white evangelical votes and will be culturally and politically marginalized unless it sinks new roots amongst immigrants and the coming ‘minority-majority’.

Indeed the real drama last November was not the relative size of the vote (only a smidgen larger than in 2004), but its prophetic demographics. [37] Electoral soothsayers paid particular attention to ‘Millennial generation’ voters (18–29 year olds)—supposedly weaned on the Web, comfortable with diversity, but angry over declining economic opportunity—as a potent force for realignment. [38] In the first instance, the Millennium did punctually arrive, with Obama winning two-thirds of the youth vote (with a turnout of about 53 per cent). But internal trends within this electoral sub-universe (58–60 million individuals) reflect dramatic variation over region and social class.





The generation gap amongst white voters, for example, was large in states like California, New York and Massachusetts where Millennials gave Obama 10 to 15 per cent more of their vote than did older cohorts, but the white age differential was negligible or even negative (South Carolina) in some Southern and Plains states. Class, meanwhile, remains a huge determinant of whether Millennials vote or not: in 2000 and 2004, more than two thirds of those who had finished college cast votes, while roughly one third of those with only high-school degrees entered a voting booth. But of those non-college Millennials who did vote in 2008, the difference was stunning, especially amongst whites. [39] Compared to the Kerry vote in 2004, Obama’s support in the young white working class increased 30 points amongst women, 14 points amongst men. A recent briefing to the Democratic Party emphasizes the strategic urgency of consolidating this partisan shift of young white Burger King workers and nurses-aides: ‘it could derail any Republican attempt to rebuild a Reagan coalition and eventually ensure a stable long-term Democratic majority’. [40]





But the ultimate fulcrum of the election was not so much the Millennial factor as the voting-day unity of Blacks and Latinos in a renewal of the ‘Rainbow Coalition’. [41] Nationally, whites cast 700,000 fewer votes than in 2004, but African-Americans almost three million more, thus providing Obama with a third of his winning margin. Considering the initial hostility of Civil Rights era leaders toward Obama and his ‘lack of roots’, the mobilization of African-American voters in battleground states was exceptional and nowhere more than in Missouri and Nevada, where turnout increased by 74 per cent and 67 per cent. [42]

But the African-American proportion of the national vote, like that of evangelical whites, will grow very slowly, if at all, over the coming decades. From the standpoint of a durable electoral majority, the Democrats’ most important gain in 2008 was the massive support that Obama received from the rapidly growing and much younger Latino electorate, now 12 per cent of total registrants. [43] Mexican-origin voters, for example, clinched his important victories in Colorado and Nevada, while Central Americans reinforced his majority in northern Virginia. In Texas, the Tejano (or, especially, the Tejana) vote was critical to sweeping the big cities and the Rio Grande Valley, despite the usual anti-Democrat anathemas from pro-life Catholic bishops. Obama won Florida thanks especially to a spectacular turnout of Puerto Ricans and Latino immigrants in central Florida, bolstered by the rebellion of a majority of younger Cuban-American voters against the geriatric exile leadership who have for so long been the authoritarian gatekeepers of Republican power in southern Florida. [44]





As in analyses of the causes of immigration, it is useful to distinguish between the ‘pull’ and ‘push’ factors in the Latino turnout. Despite much concern in recent years about the fraught state of minority inter-group relations, Obama’s sensational popularity amongst young Latino voters (76 per cent in Florida and 84 per cent in California) testifies to the growing importance of non-white or mixed identity as a cultural norm—as has long been the case in Obama’s home state of Hawaii—as well as the increased cultural and social integration of African-Americans, Latinos, Asians and immigrants of all kinds in big-city neighbourhoods and older suburbs. [45] Obama was clearly seen as opening the gates of opportunity to the larger Hip-Hop nation, including the possibility of a future Latino or Asian president.

Two ‘push’ factors were also decisive. First, Latinos/Hispanics in the aggregate lost ground in the Bush bubble economy. As the Economy Policy Institute recently reported,

the most significant economic change [since 2000] was a 2.2 per cent drop in the real Hispanic family income. This economic stagnation for Hispanics occurred during a period when the gross domestic product grew by 18 per cent and worker productivity by 19 per cent. Yet despite these gains, the Hispanic population did not benefit from the wealth that it helped create in the US economy over the 2000s. [46]

The situation for foreign-born Hispanic households has been more calamitous. According to the same EPI report, between 2000 and 2007 their median incomes fell by 9.1 per cent, and they now find themselves in the front rank of the unemployment being created by the construction industry collapse.

Second, the immigrant Latino community (and therefore anyone with brown skin) has been terrorized by the nativist insurgency in the Republican party—a reign of prejudice which has been mimicked or accommodated by many Democrats outside of the majority-minority core cities (such as Kirsten Gillibrand, the appointed replacement for Hillary Clinton in the Senate). Although the ‘Minutemen’ vigilantes who originally ignited the conservative grassroots are little more than a few fractious groupuscules, their core agenda—the construction of a literal Iron Curtain along the Mexican border, the local adoption of anti-immigrant laws, and their enforcement by local police—has become national Republican policy in hard repudiation of the Bush–Rove strategy of immigration reform and cultivation of the Latino vote. In some suburban counties and small cities, hometown experiments in immigration control have become de facto campaigns of ethnic cleansing.

Again, Prince William County is a paradigm. As the Latino population exploded with the building boom of the early 2000s, groups like ‘Help Save Manassas’ (which described Latinos as a ‘scourge that’s plaguing the neighbourhoods’) mobilized to drive undocumented immigrants out of the county. [47] In the summer of 2007, as the housing market soured and the demand for construction labour decreased, the county supervisors unanimously voted to cut off public services to undocumented workers. They also mandated the police, working with the federal immigration service (ICE), to check the status of every detainee. The schools, for their part, added the requirement that a parent must show proof of legal residency in order to pick up their child after school. ‘The message that we are sending’, bragged the chairman of the supervisors to the applause of Minutemen and their supporters nationwide, ‘is: “If you are an illegal alien, you are not welcome in Prince William County.”’ [48]

While the Help Save Manassas crowd debated ‘whether or not illegal aliens have a preferred breeding season’, the Washington Post reported that:

the vibrant Latino subculture built in Prince William County over more than a decade [has started] to come undone in a matter of months . . . With Latinos feeling the combined effects of the construction downturn, the mortgage crisis and new local laws aimed at catching illegal immigrants, Latino shops are on the brink of bankruptcy, church groups are hemorrhaging members, neighbourhoods are dotted with for-sale signs, and once busy strip malls have been transformed into ghost towns. [49]

Rules of avoidance

But immigrants, if omnipresent in the local combustion of the campaign, were missing persons in the national presidential debate. By what was surely negotiated agreement, the candidates avoided the mutual embarrassment of discussing each other’s opportunistic concessions on immigrant rights. McCain, incredibly, had disavowed his own major immigration reform bill, co-authored in 2006 with Teddy Kennedy, while Obama, as the New York Times observed, had ‘hardened his tone on how to deal with illegal immigrants’ in accord with the ‘new law-and-order language adopted in the Democratic Party platform at the convention’. [50] Since both candidates were also competing in the Spanish-language media as the best friend of immigrants, they had no reason to expose so much mutual hypocrisy.

A similar polemical balance of terror ruled the debate about the financial crisis and the federal bank bailout. As the debt pyramid collapsed, both candidates vied to denounce the vandals on Wall Street, but then voted meekly for the catastrophic class politics of the Paulson plan which (as even Jeffrey Sachs acknowledges) has ensured ‘a massive transfer of taxpayer wealth to the management and owners of well-connected financial institutions.’ [51] Polls at the beginning of October showed an overwhelming majority of Americans were fiercely opposed to Congress’s unprecedented abdication of power to friends of Wall Street, and an improbable coalition of conservative rural Republicans and progressive urban Democrats (including many members of the Black Caucus) made a brief attempt to build a legislative barricade across Pennsylvania Avenue. They received no encouragement from either campaign.

Indeed, the second town-hall-format presidential debate in Nashville, a few days after the passage of the bailout, was remarkable for its evasion of the audience’s anguished questions about unemployment and home foreclosures. [52] Neither candidate was ready to pick up a pike and lead the sans-culottes; instead, both clung doggedly to their old talking points as if the sky had not fallen. The exchange magnified differences in policy that rarely transcended the ordinary range of debate between the centre-right and centre-left, while both camps scrupulously avoided the nuclear red buttons marked ‘mortgage moratorium’, ‘immigration’, ‘nationalization’, ‘NAFTA’, and so on. Few presidential campaigns in American history have fled so completely from engagement with their actual moment.

Bush’s profound unpopularity, of course, required the senator from Arizona to act like a quantum particle, occupying several ideological spaces simultaneously. Although he claimed Teddy Roosevelt, the Progressive imperialist, as his hero, McCain veered unpredictably between ecumenical centrism and snake-wrestling fundamentalism, with meek forays into economic populism that were quickly followed by sermons on the priority of tax breaks for the rich people, like himself, who don’t know how many cars they own. His rants about the suffering of plumbers and small-business people were belied by his own dependence upon the largesse of Lower Manhattan, with Merrill Lynch CEO John Thain as the biggest ‘bundler’ of his corporate campaign contributions. Plus McCain had too many opponents—in addition to Obama and Bush, he was also running against himself (as in the case of immigration policy). In the end, the bomber of Hanoi had nothing left to spend but prison stories, racist innuendo and the spectre of Bill Ayers.

Obama, in contrast, was untroubled by zealotry in his grassroots and thus could rely upon hypnotic platitudes and steadiness of character rather than desperate impersonations and publicity stunts. The specification of ideas and policies was not a common practice in a campaign that was principally geared to the production of charisma, with a storyline that seldom strayed very far from the feel-good slogans that have characterized most Democratic campaigns in recent years. Despite his resumé, Obama had no plan for tackling urban poverty; although pro-worker he made only weak promises to the unions, and was deliberately vague on trade, urban policy, housing, education, and the one million prisoners of the War on Drugs.

Hillary Clinton’s ‘turn to the working class’ in the Pennsylvania primary (actually, a more subtle essay than McCain’s in racial text-messaging) threw Obama’s campaign seriously off track for a month or two, but he regained course with only a modest tacking of his sails to the enormity of the crisis. Like Roosevelt in 1932, Obama used eloquence and compassion, along with thick frostings of Founding Fathers and We Are One, to forge an emotional bond with stricken blue-collar voters, while offering few new ideas or concrete plans.

In this respect, however, he was sticking close to the larger team plan. Matt Bai, a New York Times reporter who has chronicled the role of dot.com millionaires, liberal foundations and bloggers in reshaping the party’s image, argues that Democratic leaders like Harry Reid and Nancy Pelosi have deliberately fostered ‘vapid slogans’ in order to present a smaller target to the Right. ‘By the fall of 2005’, Bai writes,

Bush’s approval ratings had slipped below 40 per cent, so party leaders decided it was better to let the Republicans collapse of their own weight than to offer an actual agenda and risk the possibility that some voters might not like it . . . ‘Tell us what you want to hear’, the party seemed to say, ‘and we’ll be sure to put it in our pamphlet’. [53]

Obama’s agenda, however, became less opaque in June 2008 when he chagrined labour supporters by appointing Jason Furman, the director of the Brookings-affiliated Hamilton Project, as the head of his economic policy unit. [54] The Project, founded by ex-Treasury secretary Robert Rubin in 2006, has been part of the institutional network that elaborates the legacy of the Clinton Administration: in this case as a megaphone for centrist economic policies that meld fiscal conservatism and financial deregulation with smarter public investment. Furman’s appointment was followed by the arrival in the inner circle of Rubin’s successor in the Clinton Treasury, Lawrence Summers, a devotee of Milton Friedman (‘any honest Democrat will admit that we are now all Friedmanites’), who with Rubin, Alan Greenspan and Phil Gramm had dismantled the last New Deal firewall, the Glass–Steagall Act, between traditional banks and derivative Ponzi schemes. By making the Hamilton Project his economic shadow cabinet, and later elevating the radioactive Summers to the directorship of the National Economic Council, Obama restored to power the auteurs of the catastrophe, and willingly entangled himself in the seedy history of ‘Rubinomics’ and the notorious back door between the Clinton White House and big investment banks and money funds. [55]

The counterfactual election

It would be difficult, then, to characterize the 2008 campaign as an epochal ideological confrontation, except in the limited sense that both candidates—McCain sometimes more pointedly than Obama—repudiated the horrors of the Bush White House and advocated a return to Arthur Schlesinger’s ‘vital centre’. It therefore falls short of a key Burnham criterion for a ‘critical election’:

In the campaign or campaigns which follow this breakthrough, the insurgents’ political style is exceptionally ideological by American standards; this in turn produces a sense of grave threat among defenders of the established order who in turn develop opposing ideological positions. [56]

The new Administration, in fact, seems determined at all cost to prevent such an ideological polarization by bringing on board as many temperate defenders of the ‘established order’ as possible. With economic crisis-management firmly in the hands of Citigroup and Goldman Sachs alumni, foreign policy delegated to the sub-presidency of Hillary Clinton and her spouse, and the ‘surge’ doctrine of Gates and Petraeus preserved in the Pentagon, Obama has built a dream team that delights The Economist and Foreign Affairs to the same degree that it disconcerts The Nation. As in the Clinton era, labour and environment have been seated at a second table, with important but secondary posts that lack leverage over the Administration’s line of march. [57]

Certainly the new President and his congressional majority are committed to humane relief policies that distinguish Democratic centrism from the Spencerian barbarism of Southern Republicans, but by itself this is hardly a cause for celebrating a new age. Whether or not his heart belongs to the left as many admirers believe, Obama’s appointments affirm stunning continuity with the Clinton era as well as bipartisan ‘realism’ in foreign affairs. Few political observers anticipated that a mandate for ‘change’ would immediately lead to a comprehensive merger of the Clinton and Obama camps, with the personnel of the former consistently awarded seniority. [58] It smacks of a pre-convention deal that gave Obama an uncontested nomination in exchange for a huge sharing out of power to the Clintons and their friends. [59]

This triumph of veteran centrism in the face of a bottomless crisis of unimaginable complexity attests to the failure of the Democratic Party’s progressive constituencies, especially the divided US labour movement, to exercise an influence commensurate with their immense financial and rank-and-file contributions to the party’s victory. (The New York Times estimated that labour spent $450 million backing Democrats and mobilized 250,000 volunteers. [60]) Labour would have had more sway over the shape of the final campaign—especially Obama’s response to the mortgage meltdown and the bank and auto industry bailouts—if it had been able to broker its vote better or control the balance of power in a contested convention. Neither scenario, in my opinion, would have been implausible if broad union support had sustained the initially impressive momentum of John Edwards’s unusual campaign.

However one now feels about Edwards’s character (as exposed in yet another bedroom scandal uncovered by right-wing bloggers), he was the only major primary candidate to meet Burnham’s critical-realignment standard of an insurgent with an ideologically distinctive platform—in his case, angry economic populism. The former senator from North Carolina (the son of a Piedmont millworker turned into millionaire lawyer) staked out a programmatic space that had been vacant since Jesse Jackson’s mobilization in the 1980s: the priority of economic justice for poor people and workers. [61] Discarding the banal euphemisms of his 2004 vice-presidential campaign, he spoke directly of exploitation and the urgency of unionization, proposed a new war on poverty, denounced ‘Benedict Arnold CEOs’ who exported jobs, and, in debate with Obama and Clinton in Iowa, argued that it was a ‘complete fantasy’ to believe that a progressive agenda could be advanced by negotiation with Republicans and corporate lobbies. Only an ‘epic fight’ could ensure healthcare reform and living wages. (Obama’s response was typical eloquent evasion: ‘We don’t need more heat. We need more light.’) [62]

In the event, Edwards won full-hearted support only from the progressive shards of the old CIO (mineworkers and steelworkers), the carpenters, and some independent-minded state councils of the service employees and the hotel workers. His campaign was doomed by the refusal of the two union confederations (the AFL–CIO and Change to Win) and their largest constituent internationals to endorse what otherwise was the most chemically pure pro-labour candidacy in a generation. The big unions instead fought each other (and sometimes their memberships) in a chaotic scramble to place a last-minute bet on the candidate they believed would be the sure winner. In some states, the rank and file defied their leadership to vote for Hillary (culinary workers in Nevada), and in others, for Barack (public-sector workers in California).

By the time of the convention in Denver, veteran columnist Harold Meyerson was warning Democratic progressives: ‘What’s disturbing is how poorly America’s unions performed in the Democratic primaries and how divided they are as they go into the fall.’ [63] Although union volunteers ultimately did epic work defeating McCain, especially in states like Indiana and Wisconsin, the labour movement, which is engaged in a truly life-and-death struggle in the private sector, lost its best chance to impose healthcare, labour law and trade reforms as the central planks of a White House recovery plan.

The Silicon Presidency and its limits

At the end of the day, the Crisis itself, not the Election, did the ideological heavy lifting, sending elite opinion back in panic to the protective apron of Old Mother Keynes. (Not perhaps the real Keynes who wrestled with the paradoxes of liquidity traps and perverse market signals, but the Keynes who supposedly smiles whenever governments print money to save banks.) Ironically none of the currently prominent Keynesians or post-Keynesians, such as Paul Krugman, Joseph Stiglitz or James Galbraith, have passed the qualifying exam for the new administration. In contrast to FDR’s One Hundred Days, when the President’s closest advisors included such trenchant critics of corporate power and managerial prerogative as Guy Rexford Tugwell, Gardiner Means and Adolf Berle, Obama’s economic-policy brains trust shares a defining conceit of the Hoover Administration: the architects of the crisis (Andrew Mellon then; Timothy Geithner and Larry Summers now) consider themselves its most competent doctors. [64]

But if the central bankers and financial morticians are still ceded reign over the ruins of Wall Street, Obama has allied with technology icons to lay the cornerstones of an economic renaissance based on massive public investment in ‘Green Infrastructure’. So far this is the flagship idea of the new Administration, the one that owes least to Clinton precedents and most closely resonates with the idealism of the campaign’s volunteers and the expectations of supporters in the big tech centres. The near constant presence of Google CEO Eric Schmidt at Obama’s side (and inside his transition team) has been a carefully chosen symbol of the knot that has been tied between Silicon Valley and the presidency. The dowry included the overwhelming majority of presidential campaign contributions from executives and employees of Cisco, Apple, Oracle, Hewlett-Packard, Yahoo and Ebay.

But the promise of Green Keynesianism may turn out differently than imagined by radical economists and environmental activists. A fundamental power-shift seems to be taking place in the business infrastructure of Washington, with ‘New Economy’ corporations rapidly gaining clout through Obama and the Democrats while Old Economy leviathans like General Motors grapple with destitution and welfare, and energy giants temporarily hide in caves. The unprecedented unity of tech firms behind Obama both helped to define and was defined by his campaign. Through his victory, they have acquired the credit balance to ensure that any green infrastructure will also be good industrial policy for their dynamic but ageing and cash-short corporations.

There is an obvious historical analogy. Just as General Electric’s Gerard Swope (the Steve Jobs of his day) and a bloc of advanced, capital-intensive corporations, supported by investment banks, enthusiastically partnered with Roosevelt to create the ill-fated National Recovery Administration (NRA) in 1933, so too have Schmidt and his wired peers, together with the ever-more-powerful congressional delegation from California, become the principal stakeholders in Obama’s promise to launch an Apollo programme for renewable energy and new technology. [65]

We should note that this realignment of politics by economics fits awkwardly within the Keys–Burnham paradigm, which asserts the primacy of public opinion and the durability of voter blocs. A ‘silicon presidency’, on the other hand, is perfectly accommodated by Thomas Ferguson’s ‘investment’ theory of political change which privileges political economy and class struggle within capital as modes of explanation. Analysing New Deal case-studies in his 1995 book, Ferguson—an intellectually supercharged descendant of Charles Beard—concluded that business elites, not voters, usually determine both the nature and course of electoral realignments. [66]

The fundamental market for political parties usually is not voters. As a number of recent analysts have documented, most of these possess desperately limited resources and—especially in the United States—exiguous information and interest in politics. The real market for political parties is defined by major investors, who generally have good and clear reasons for investing to control the state . . . During realignments . . . basic changes take place in the core investment blocs which constitute parties. More specifically, realignments occur when cumulative long-run changes in industrial structures (commonly interacting with a variety of short-run factors, notably steep economic downturns) polarize the business community, thus bringing together a new and powerful bloc of investors with durable interests. As this process begins, party competition heats up and at least some differences between parties emerge more clearly. [67]

But what has suddenly mobilized the self-identified New Economy as an ‘investor bloc’ in Ferguson’s sense? And why Obama?

One answer is straightforwardly cultural: Obama ‘gets’ and likes tech and entrepreneurs. As Joshua Green pointed out in the Atlantic, the young candidate exemplifies the legendary outsider who reinvents American politics in his own garage and then launches a history-changing IPO with the help of visionary venture capitalists. In addition, Obama—unlike Hillary Clinton, who seemed more at ease in Hollywood—came to the mountain (or rather, Mountain View) and listened. He discovered a volcano on the verge of eruption. No sector of the corporate workforce, bosses as well as employees, has probably been more outraged by the endless carnage in Iraq, the wanton incendiarism of Rove’s culture wars, the attacks on immigrants, and the Republicans’ contempt for evolutionary and earth sciences. [68]

But there were obviously deeper, more selfish priorities. Even before the crash, revered seers like Andy Grove (ex-CEO of Intel) were expressing fear about declining investment and innovation in the technology heartlands. As Business Week later summarized in a special report: ‘Federal funding of advanced computer science and electrical engineering research has dropped off sharply since the late 1990s, as has the number of Americans pursuing computer science degrees. And large technology companies are putting less emphasis on basic research in favour of development work with quicker payoffs’. [69]

Pessimists worry that the Valley is locked into the first stages of the Detroit product-cycle syndrome: the heroic age of Henry Ford followed by tailfins and corporate sclerosis. (Thus Web 2.0 has been criticized as mere product development rather than technological innovation.) The Obama Presidency, from this perspective, can ride to the rescue with Kennedy-scale commitments to basic science as well as stable subsidies to markets like renewable energy, smart utilities and universal broadband that are otherwise whipsawed by volatile energy prices or abdicated by corporations. [70]

The New Economy, like the Old, also recognizes that survival in the current economic hurricane depends upon presence at court: in the short term at least, Obama and the Democratic leadership will have extraordinary influence over the selection of winners and losers. The contrasting fates of Lehman Brothers and AIG (one left to bleed to death, the other given a government IV) sent tremors down the spine of every CEO and large shareholder in the United States. Even more than in Ferguson’s case-study of the 1930s, the future of every corporation or sector depends upon wise investments to ‘control the state’; which is why K Street, the Wall Street of lobbyists formerly owned by the Republican Party, has turned so blue in the last year. But of all the new Democratic investors, only the tech industries, with their captive universities and vast internet fandoms, still retain enough public legitimacy (domestic and international) and internal self-confidence hypothetically to act as a constructive hegemonic bloc rather than as a mob of desperate lobbyists.

But, then again, the tech industries may simply be swallowed up, with everyone else, in the Götterdämmerung of Wall Street, while Larry Summers and Ben Bernanke fight on in the bunkers until the last taxpayer’s bullet is spent. (The euphoric national unity of Roosevelt and Swope’s NRA, it should be recalled, quickly dissolved into strikes, tear gas and bayonets.) Obama’s nearly trillion-dollar stimulus package provides urgently needed relief as well as a modest down payment on the green infrastructure, but few economists seem to believe that it can actually stop the domestic downturn, much less generate enough ‘leakage’ through imports to stimulate Asia and Europe. The American financial system, in recent years the generator of 40 per cent of corporate profits, is dead—a colossal corpse hidden from full public view by the screen debates of the fall presidential campaigns. The market-oriented centrists and reformed deregulators whom Obama has restored or maintained in power have about as much chance of bringing the banks back to life as his generals do of winning the war against the Pashtun in Afghanistan. And no contemporary Walter Rathenau or Guy Rexford Tugwell has yet emerged with a scheme for rebuilding the wreckage into some plausible form of state capitalism.

Meanwhile, the financial press warns that trillions will ultimately be required to make a ‘bad bank’ or bank nationalization work. But if Obama’s domestic spending fails to produce significant collateral benefits for America’s trading partners, they may think twice about buying Washington’s debt or decide to impose some conditionalities of their own. (Beware the dogma that the Chinese are slaves of their trade surplus and undervalued currency and have no alternative but to subsidize the US Treasury.) At Davos, Putin and Wen reminded the new President that he is no longer the master of his own house in the same way that Roosevelt or Reagan were. The dollar threatens to become the dog collar on the new New Deal. In any event, the bubble world of American consumerism, as it existed at the start of Obama’s formal candidacy in 2007, will never be restored, and protracted stagnation, not timely tech-led recovery, seems the most realistic scenario for the era that may someday bear his name.



[1] Befitting the capital of an empire, Washington DC has the nation’s most affluent suburban fringe. As Thomas Frank points out in The Wrecking Crew: How Conservatives Rule (New York 2008), five of the seven richest US counties with populations over 250,000 are DC suburbs in neighbouring Maryland and Virginia (pp. 11 and 277). On the strategic role of emergent suburbs in 2004, see Ronald Brownstein and Richard Rainey, ‘GOP Plants Flag on New Voting Frontier’, LA Times, 22 November 2004; and Gregory Giroux, ‘A Line in the Suburban Sand’, CQ Weekly, 27 June 2005.

[2] Jon Teaford, Post-Suburbia: Government and Politics in the Edge Cities, Baltimore 1997, p. 6.

[3] The Manassas rally can be viewed on YouTube. Unless otherwise attributed, exit poll data is from Edison Media Research and Mitofsky International, the pollsters for the National Election Pool (ABC, CBS, NBC, CNN, Fox and AP), and can be accessed from any of the sponsors’ sites. County-level presidential returns are from the New York Times’s updated map at elections.nytimes.com.

[4] Kristen Mack, ‘Prince William, the State’s Bellwether’, Washington Post, 12 November 2008.

[5] ‘Blue Virginia’, 2008 Election Brief, Metropolitan Institute, Virginia Tech.

[6] V. O. Key, ‘A Theory of Critical Elections’, Journal of Politics, vol. 17, no. 1, 1955; and Walter Dean Burnham, Critical Elections and the Mainsprings of American Politics, New York 1970. For an influential critique, see David Mayhew, Electoral Realignments, New Haven 2004.

[7] Burnham, Critical Elections, p. 6.

[8] The national turnout of 56.8 per cent (as a proportion of the universe of registered voters) did not break historical records, partly because of a relative decline in votes cast on the West Coast and in New York where Obama’s victory was assured. On the other hand, there was a dramatic increase in voter participation in the Deep South (by both whites and Blacks), the Intermountain West, Latino counties and smaller industrial cities of the Midwest. See ‘New Voters, New Power Bases’ with map, NYT, 6 November 2008.

[9] Internet politics’ moment of conception, however, was the creation of MoveOn.org in 1998. Carl Cannon, ‘Movin’ On’, National Journal, 2 December 2006.

[10] Joshua Green, ‘The Amazing Money Machine’, The Atlantic, June 2008.

[11] Federal Election Commission: www.fec.gov.

[12] Matt Bai, The Argument: Billionaires, Bloggers and the Battle to Remake Democratic Politics, New York 2007, p. 7.

[13] Obama won 39 per cent of the white vote in Virginia compared to Kerry’s 32 per cent; and 35 per cent in North Carolina, compared to 27 per cent. See Charles Franklin, ‘White Vote for Obama in the States, Part 2’, Pollster.com, 15 November 2008.

[14] Dave Mann, ‘Turning Houston Blue’, The Texas Observer, 17 October 2008.

[15] Michael Teitelbaum, ‘Census Estimates Show Clout Again Likely to Go West and South’, CQToday Online News, 23 December 2008.

[16] In addition to the slim Obama victory, Democrats—including two Japanese-Americans—took control of the Salt Lake County Council. The consequences are likely to include domestic-partner health benefits, collective bargaining for county employees and an independent redistricting commission. The capital of Brigham Young’s Deseret thus continues its recent evolution toward the left. See Jeremiah Stettler, ‘In Salt Lake County, election shifted power swings to Dems’, The Salt Lake Tribune, 6 November 2008.

[17] The major exception was the former steel region around Pittsburgh in western Pennsylvania, but Obama easily carried the state with the help of crossover voters in the formerly Republican suburbs of Philadelphia.

[18] James Barnes, ‘Obama Pulls Off a Hat Trick of Outreach’, National Journal, 8 November 2008. Rather unbelievably, exit polls in Indiana indicated a slight decline in Black voters’ preference for Obama vis-à-vis Kerry.

[19] ‘Exit polls show that nearly a quarter of voters questioned said they had been contacted by the Obama campaign about coming out to vote, compared with 8 per cent for the McCain campaign. Of those contacted as part of the Obama effort, almost three-quarters said they voted for him’. ‘State by State’, NYT, 6 November 2008.

[20] Although the Nader campaign was ignored in the national media this time around, his 17,000 votes in Missouri certainly vexed the hopes of local Democrats.

[21] National and state politics do not necessarily recapitulate each other in the United States. For example, five of the states comfortably won by Bush in 2004 and McCain in 2008 have solid Democratic majorities in their state houses (Arkansas, Alabama, Kentucky, Mississippi and West Virginia).

[22] Alec MacGillis and Jon Cohen, ‘Democrats Add Suburbs to Their Growing Coalition’, Washington Post, 6 November 2008.

[23] Chris Cillizza, ‘Five Myths About an Election of Mythic Proportions’, Washington Post, 16 November 2008. See also Richard Cohen and Brian Friel, ‘The New Centre’, National Journal, 7 March 2008.

[24] Alec MacGillis and Jon Cohen, ‘Democrats Add Suburbs’.

[25] Swing suburb list from Robert Lang, et al., ‘The New Suburban Swingers: How America’s Most Contested Suburban Counties Could Decide the Next President’, 2008 Election Brief, Metropolitan Institute, Virginia Tech, p. 5.

[26] Robert Lang and Patrick Simmons, ‘“Boomburbs”: The Emergence of Large, Fast-Growing Suburban Cities’, in Bruce Katz and Robert Lang, eds, Redefining Urban and Suburban America: Evidence from Census 2000, Brookings Institution, Washington DC 2003, p. 104.

[27] Lang, et al., ‘The New Suburban Swingers’, p. 2.

[28] Lang and Thomas Sanchez, ‘The New Metro Politics: Interpreting Recent Presidential Elections Using a County-Based Regional Typology’, 2006 Election Brief, Metropolitan Institute, Virginia Tech, p. 5.

[29] Ken Billingsley quoted in Nick Miroff, ‘Diversity Blooms in Outer Suburbs’, Washington Post, 3 November 2008.

[30] ‘A Happy Slowdown?’, CEO Confidential, Goldman Sachs, 8 September 2006.

[31] David Sherfinski, ‘Sick Suburb’, The Examiner, 10 December 2008; and Mary Kane, ‘At the Frontline of the Foreclosure Crisis, Counties Go It Alone’, Washington Independent, 24 November 2008.

[32] Mary Kane, ‘Foreclosure Machine Grinds On Through Holiday Season’, WashingtonIndependent, 4 December 2008.

[33] Poll statistic from Dallas News, 5 October 2008.

[34] Press release, ‘National Centre for Suburban Studies Releases Results of Only 2008 Presidential Poll to Focus Exclusively on Suburban Voters’, Hofstra University, 29 September 2008.

[35] US Census Bureau News, ‘Minority Population Tops 100 Million’, 17 May 2007.

[36] Kevin Pollard, ‘Swing, Bellwether, and Red and Blue States: Demographics and the 2008 US Presidential Election’, Population Reference Bureau website, October 2008.

[37] Indeed, voter participation in the United States remains extremely low by world standards. About 100 million eligible American citizens did not vote last year, despite $1.6 billion in political advertising by both parties.

[38] Scott Keeter, ‘The Aging of the Boomers and the Rise of the Millennials’, in Ruy Teixeira, Red,Blue and Purple America: The Future of Election Demographics, Brookings Institution, Washington DC 2008.

[39] Karlo Barrios Marcelo and Emily Hoban Kirby, ‘Quick Facts about US Young Voters: The Presidential Election Year 2008’, CIRCLE Fact Sheet, Tufts University, Boston.

[40] Andrew Levison, ‘How Democrats Can Keep and Expand the Support of the Younger White Working-Class Voters Who Voted for Obama in 2008’, The Democratic Strategist White Paper, 2008, pp. 1–2.

[41] Almost but not quite true was the assertion by Stephen Ansolabehere and Charles Stewart: ‘had Blacks and Hispanics voted Democratic in 2008 at the rates they had in 2004, McCain would have won’. See ‘Amazing Race: How post-racial was Obama’s victory?’, Boston Review, Jan–Feb 2009.

[42] Jody Herman and Lorraine Minnite, ‘The Demographics of Voters in America’s 2008 General Election’, Project Vote research memo, 18 November 2008.

[43] The median age of the Hispanic population in 2006 was 27.4, contrasted to 36.4 for the population as a whole. Census Bureau News, ‘Minority Population Tops 100 Million’, 17 May 2007.

[44] Barnes, ‘Obama Pulls Off a Hat Trick of Outreach’.

[45] See William Frey, ‘Melting Pot Suburbs’, in Katz and Lang, pp. 155–79.

[46] Algernon Austin and Marie Mora, ‘Hispanics and the Economy’, EPI Briefing Paper 225, Washington DC, 31 October 2008, p. 1.

[47] Kristen Mack, ‘Activists Want Answers on Panel Choice’, Washington Post, 23 September 2008.

[48] Nick Miroff, ‘Prince William Immigration, Housing Ills Seen as Linked’, Washington Post, 5 October 2007. Arlo Wagner, ‘Prince William Sees Exodus of Hispanics’, Washington Times, 13 March 2005 (reprinted with jubilation on various Minuteman websites).

[49] Nurith Aizenman, ‘In Northern Virginia, a Latino Community Unravels’, Washington Post, 27 March 2008.

[50] Julia Preston, ‘Immigration Cools as Campaign Issue’, NYT, 29 October 2008.

[51] Jeffrey Sachs, ‘The Tarp is a fiscal straitjacket’, Financial Times, 28 January 2009.

[52] The presidential debates can be viewed at www.youdecide2008.com.

[53] Bai, The Argument, p. 177.

[54] Journalist David Leonhardt spent a year interviewing Obama and his original economic advisors from the University of Chicago, trying to decipher their economic philosophy. He was struck by the modesty of their approach to economic inequality and fiscal reform as contrasted to their bold proposals about rationalizing healthcare, rebuilding infrastructure and carrying out a transition to renewable energy. ‘As ambitious as Obama’s proposals might be, they would still leave the gap between the rich and everyone else far wider than it was 15 or 30 years ago. It just wouldn’t be quite as wide as it is now’. See ‘A Free-Market Loving, Big-Spending, Fiscally Conservative, Wealth Redistributionist’, NYTMagazine, 24 August 2008.

[55] Even the New York Times editorialized on the dangers inherent in Obama’s reliance upon investment bankers for economic wisdom: ‘Another question clouding the labour agenda is whether Mr Obama will give equal weight to worker concerns—from reforming health care to raising the minimum wage—while the financial crisis is still playing out. Most members of his economic team are veterans of the Clinton Administration who tilt toward Wall Street. In the Clinton era, financial issues routinely trumped labour concerns. If Mr Obama’s campaign promises are to be kept, that mindset cannot prevail again.’ NYT, 29 December 2008.

[56] Walter Dean Burnham, The Current Crisis in American Politics, New York 1982, p. 101.

[57] Hilda Solis, Obama’s new Labour Secretary, is already compared to her great predecessor in Roosevelt’s cabinet, Frances Perkins. But Perkins has been endowed in most liberal hagiographies with powers she did not possess. If at critical moments in the class war of the 1930s, she was a superb advocate for unions inside the administration, her ordinary vocation was as pacifier: charged with keeping labour insurgents in line behind FDR’s slow-moving and piecemeal reforms. Robert Reich’s frustrated experiences as Clinton’s Labour Secretary are cautionary in the same respects.

[58] Obama has also left the light on in the White House for wayward neo-conservatives. No modern Democratic candidate has had so many admirers on the right, to name just a few: columnist David Brooks, Senator Chuck Hagel, former UN ambassador Ken Adelman, and William F. Buckley’s son Christopher.

[59] Clinton had a legitimate basis for making a fight. If the results in Florida and Michigan (disqualified by the Democratic National Committee for violating its scheduling rules) are counted, she won the popular primary vote by more than 100,000.

[60] Steven Greenhouse, ‘After Push for Obama, Unions Seek New Rules’, NYT, 9 November 2008.

[61] I apologize to supporters of Dennis Kucinich and Ralph Nader, but the congressperson from Cleveland had no chance of winning a major primary and Nader, however admirable, has never been an effective populist. Only the Edwards campaign, in my opinion, had the potential of forcing Clinton and Obama programmatically to the left.

[62] Quoted in Ronald Brownstein, ‘Style & Substance Among The Dems’ Big Three’, NationalJournal.com, 2 January 2008.

[63] Harold Meyerson, ‘For Labour, Armageddon’, Dissent, Fall 2008, p. 40.

[64] Consideration of Obama’s foreign policy lies beyond the scope of this essay, although his appointments clearly signal continuity.

[65] For a fascinating reflection on New Deal-era economic theory, including a possible synthesis of the ideas of Keynes, Hansen, Means and Schumpeter, see Theodore Rosenof, Economics in the Long Run, Chapel Hill, NC 1997.

[66] Charles Beard’s An Economic Interpretation of the Constitution (1913), which argued that the Founding Fathers’ politics were approximately the sum of their material interests, is still worth a visit, even if modern political and economic historians tar him as a vulgarian economic determinist.

[67] Thomas Ferguson, Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems, Chicago 1995, pp. 22–3. Ferguson, of course, acknowledges that voters also become more active: ‘only if the electorate’s degree of effective organization significantly increases, however, does it receive more than crumbs.’

[68] The Republican share of Silicon Valley’s presidential contributions dropped from 43 per cent in 2000 to barely 4 per cent in 2006, simultaneously as the Democrats endorsed an ‘Innovation Agenda’ supporting R&D tax credits, a doubling of funding for the National Science Foundation, and so on. See the August 2006 beltwayblogroll at nationaljournal.com; and Jim Puzzanghera, ‘Pelosi likely to speak up for tech industry’, LA Times, 13 November 2006. The earlier history of the Democratic courtship of Silicon Valley is chronicled by Sara Miles in How to Hack a Party Line, New York 2001.

[69] Steve Hamm, ‘Whatever Happened to Silicon Valley Innovation?’, Business Week, 31 December 2008.

[70] The major exception to declining federal support for innovation, of course, has been the war on terrorism’s huge investments in surveillance and advanced war-fighting technologies—a sector that Obama is unlikely to neglect.

Fixing bankrupt systems is just the beginning

By Martin Wolf
Published: April 28 2009 21:59 Financial Times

Can we afford to fix our financial systems? The answer is yes. We cannot afford not to fix them. The big question is rather how best to do so. But fixing the financial system, while essential, is not enough.

The International Monetary Fund’s latest Global Financial Stability Report provides a cogent and sobering analysis of the state of the financial system. The staff have raised their estimates of the writedowns to close to $4,400bn (€3,368bn, £3,015bn). This is partly because the report includes estimates of writedowns on European and Japanese assets, at $1,193bn and $149bn, respectively, and on emerging markets assets held by banks in mature economies, at $340bn. It is also because writedowns on assets originating in the US have jumped to $2,712bn, from $1,405bn last October and a mere $945bn last April.

To put this in context, the writedowns estimated by the IMF are equal to 37 years of official development assistance at its 2008 level. Estimated writedowns on US and European assets, largely held by institutions located in these regions, also come to 13 per cent of the aggregate gross domestic product.

The IMF estimates the additional equity requirements of the banks as well. It starts from total reported writedowns up to the end of 2008, which come to $510bn in the US, $154bn in the eurozone and $110bn in the UK. The capital raised to the end of 2008 is, again, $391bn in the US, $243bn in the eurozone and $110bn in the UK. But the IMF estimates additional writedowns in 2009 and 2010 at $550bn in the US, $750bn in the eurozone and $200bn in the UK. Against this, it estimates net retained earnings at $300bn in the US, $600bn in the eurozone and $175bn in the UK.

The IMF points out that the ratio of total common equity to total assets – a measure investors burned by more sophisticated risk-adjusted ratios increasingly trust – was 3.7 per cent in the US at the end of 2008, but 2.5 per cent in the eurozone and 2.1 per cent in the UK. The IMF concludes that the extra equity needed to reduce leverage to 17 to 1 (or common equity to 6 per cent of total assets) would be $500bn in the US, $725bn in the eurozone and $250bn in the UK. For a 25 to 1 leverage, the required infusion would be $275bn in the US, $375bn in the eurozone and $125bn in the UK.

In current dire circumstances, the chances of raising such sums from markets are zero. Part of the reason is that they could still prove to be too little. After all, the IMF’s estimates of the potential writedowns on US assets alone have grown nearly three-fold in just one year. It would not be surprising if they rose again.

Yet these are not the only sums required. Governments have so far provided up to $8,900bn in financing for banks, via lending facilities, asset purchase schemes and guarantees. But this is less than a third of their financing needs. On the assumption that deposits grow in line with nominal GDP, the IMF estimates that the “refinancing gap” of the banks – the rollover of short-term wholesale funding, plus maturing long-term debt – will rise from $20,700bn in late 2008 to $25,600bn in late 2011, or a little over 60 per cent of their total assets (see chart below). This looks like a recipe for huge shrinkage in balance sheets. Moreover, even these sums ignore the disappearance of securitised lending via the so-called “shadow banking system”, which was particularly important in the US.

The IMF also provides new estimates of the ultimate fiscal costs of rescue efforts (see chart below). At the high end are the US and the UK, at 13 per cent and 9 per cent of GDP, respectively. Elsewhere, costs are far lower. These, happily, are affordable sums. Indeed, compared with the recession’s impact on public debt, they look quite manageable. True, costs are likely to end up higher. But the overwhelming likelihood remains that the fiscal costs of deep recessions are substantially greater than those of rescuing finance. Refusing to rescue financial systems because it looks too expensive is a classic case of being “penny wise, pound foolish”.

A better reason for refusing to bail out banks is its dire effect on incentives. The alternative must then be bankruptcy. Jeremy Bulow of Stanford University and Paul Klemperer of Oxford University have advanced a scheme that would do this neatly. Valuable banking functions of each institution would be split off into a new “bridge” bank, leaving liabilities (apart from deposits) in the old bank. Creditors left behind would be given equity in the new bank. Governments could “top up” some creditors beyond this level, without making all creditors whole, as now.

Respectable opinion assumes that it would be best to provide full bail-outs of creditors in systemically important institutions. The rationale for this is that it is the only way to eliminate further panic. The objection is not the fiscal cost. It is that a limited number of large, complex and “too-big-to-fail” institutions would then emerge. Their creditors would naturally believe they were lending to governments. This would be a recipe for yet bigger catastrophes in future years.

Yet imposing large losses on creditors is indeed risky. It would probably have to be done simultaneously everywhere. Only after it was obvious that surviving banks were sound would anybody be willing to lend to them without guarantees.

Even worse than this choice between grim alternatives is the fact that the path to recovery is likely to be slow, whichever is chosen. As the latest World Economic Outlook notes in an important chapter, recessions that follow financial crises are unusually severe. So, too, are globally synchronised recessions. But now we are living through a globally synchronised recession that coincides with a huge financial crisis that emanates from the core countries of the world economy, particularly the US. This is a recipe for a long recession and a weak recovery. Whatever is done about the financial system, “deleveraging” is the order of the day (see chart). The UK’s position in this looks dire. But that of the US looks quite bad, too, even compared with that of Japan in the 1990s.

For better or worse, the authorities have decided to bail out their financial systems with taxpayer money. Almost all the affected countries should be able to afford to do this, at least on the IMF’s numbers. So now, having made the fundamental decision to prevent bankruptcy, they must return their financial systems to health as swiftly as they possibly can.

Even so, that will prove to be a necessary, not a sufficient, condition for a return to robust economic health. The overhang of debt makes deleveraging inevitable. But it has hardly begun. Those who hope for a swift return to what they thought normal two years ago are deluded.

Green Mafia

Green energy tangled in web of shady deals
By Guy Dinmore, reporting from Sicily
Published: May 4 2009 19:01 Financial Times

Like giant sentinels, dozens of wind turbines straddle the mountain ridges near Sicily’s infamous mafia stronghold of Corleone. But despite a strong breeze rippling the leaves in groves of olive and fig trees, the soaring blades of the turbines have stood motionless for over a year.

Further west, near the port of Trapani and the ancient hill-top town of Salemi, two more wind farms are similarly frozen.

Just who approved, built and sold these renewable energy projects, which were developed on the basis of public subsidies, has become the subject of investigation for Sicily’s anti-Mafia magistrates, who are trying to keep track of organised crime’s latest bid to move into mainstream business.

As one official put it: “Sicily is blessed with sun and wind, but it is also cursed by the Mafia.”

Multinationals are starting to find out something that is well known to Italian investors: that concealed beneath Europe’s most generous system of incentives – supported by “green credits” that industrial polluters have to purchase – there exists a web of corruption and shady deals.

Rossana Interlandi, recently appointed head of Sicily’s environment department, explains that project developers – she calls them “speculators” – were also lured by the appeal of a law that obliges Italy’s national grid operator to pay wind farm ownerseven when they are not producing electricity.

Powerful numbers:

60

Number of new wind farms granted approval by the environment department


30

Number of wind farms in Sicily, according to the environment department


20%

Percentage of electricity generated by wind power in Denmark in 2007


60

Number of new wind farms granted approval by the environment department

Some wind farms are not supplying power, officials say, because some operators are waiting to be connected to the grid and for an upgrading of the cable linking Sicily to the mainland.

Despite a profusion of projects across southern Italy, the country ranks low in terms of wind power output.

The International Energy Agency says wind power in Italy generated just 1.2 per cent of electricity in 2007, compared with nearly 20 per cent in Denmark and 9.8 per cent in Spain.

Some wind farms in Sicily were badly built, like one in the Corleone area that an industrialist said was subsiding.

Ms Interlandi puts the number of wind farms in Sicily at 30 (although industrialists say the figure is higher) producing a total of 600 megawatts. Sixty more wind farms have approval for a further 1,800 MW, while 226 projects have requested approval that she says will not be granted.

“Enough!” she exclaims. “Many speculators made money on the backs of the government.” There is also a growing movement of citizens and local mayors who oppose what they see as despoliation of Sicily’s magnificent scenery.

In fact the freeze on new projects was put in place under the previous administration of Salvatore Cuffaro, the former regional governor who stepped aside a year ago to run as senator in the national parliament.

Just two months earlier Mr Cuffaro had been convicted by a court in Palermo for helping the Mafia in a case involving the public health sector. He was given a five-year jail sentence. Mr Cuffaro, now a senator, has appealed and his case will be heard this month.

The immediate impact of the freeze was to raise dramatically the value of those projects already approved.

Asked who had managed to obtain the much sought-after permits, Ms Interlandi points to Vito Nicastri, a Sicilian developer otherwise known as “lord of the winds” in the local media, as the most successful.

The Financial Times found Mr Nicastri at work at his Eoli Costruzioni headquarters next to the cemetery on the edge of Alcamo, a picturesque hill town founded by Arab conquerors in the 9th century.

Over coffee, Mr Nicastri confirms that he has developed the “majority” of Sicily’s wind farms, arranging land, financing and official permits. He then sold the projects for construction to IVPC, a company run by Oreste Vigorito, who is also president of Italy’s wind power association.

Mr Nicastri says he has worked on projects resulting in construction of wind farms for International Power (IP) of the UK; Falck Renewables, the London subsidiary of Falck Group based in Milan; IVPC; and Veronagest, another Italian company.

“I am not a prostitute for everyone. There are other prostitutes for the others,” Mr Nicastri laughs, mentioning other multinationals with wind assets in Sicily.

Mr Nicastri is mentioned but not charged in a 530-page court document seen by the FT that resulted in the arrests in February of eight people – local officials, businessmen and an alleged Mafia boss all accused of corruption in a wind farm project. Investigators tapping the telephone of a local official intercepted calls to Mr Nicastri.

Mr Nicastri acknowledges the investigation and the possibility that he may be investigated again, but denies any wrongdoing.

“You think they would arrest a clean man? Well, I am sitting talking to you now,” he says. “We are a healthy company with 100 employees,” he adds.

IP became the single largest wind farmer in Italy with its 2007 purchase of the Maestrale portfolio of mostly Italian wind farms, including five in Sicily, for €1.8bn from Trinergy, an Irish company, which had purchased them from IVPC.

IP said it was aware of investigations in Sicily, adding: “But we are not aware that current investigations by the anti-Mafia prosecutor are, to any extent, connected to our wind farm projects.”

IP said it knew Mr Nicastri was the project developer but it had no direct relationship with him.

For Mr Nicastri and other Sicilian developers wind power is now passé as the market is virtually saturated for big developments. The future, they say, is solar. Mr Nicastri is applying for permits for nine large solar power plants.

However, the regional government under Raffaele Lombardo is now promoting micro-projects for Sicily’s 5m people, so that individual households and companies can generate their own wind and solar power. Part of the logic of the strategy is to minimise involvement of the Mafia.

Bossnapping: French Opinion Not Opposed

L'ambivalence des Français face aux séquestrations de patrons
LEMONDE.FR : Article publié le 07.04.09

Deux sondages sur les séquestrations de patrons, un type d'incident qui se multiplie depuis un certain temps, constatent que les Français sont divisés sur le sujet. Selon une étude CSA , publiée mardi 7 avril dans Le Parisien, 50 % des personnes interrogées jugent cette méthode "pas acceptable", mais 45 % estiment qu'elle l'est. La question évoque les séquestrations des patrons des usines Sony, Caterpillar et 3M qui ont eu lieu "suite à des annonces de fermeture d'usines et de plans sociaux".

Un autre sondage IFOP pour Paris Match rapporte pour sa part que 30 % des Français approuvent les séquestrations de dirigeants et 63 % les comprennent, sans les approuver. Ils ne sont que 7 % à les condamner fermement.

Dans l'étude CSA, 56 % des ouvriers et 50 % des employés jugent acceptables ces séquestrations, contre 47 % des professions intermédiaires et 40 % des cadres et professions libérales. Selon les orientations politiques, ce type d'action est mieux accepté par les sympathisants de gauche. Chez ces derniers, 48 % des personnes interrogées la juge acceptable, et 48 % inacceptable. Chez les sympathisants de droite, 67 % la rejettent, contre 29 %. Les proches du MoDem estiment quant à eux que cette méthode est '"acceptable" à 49 %.

avec AFP

Genesis of the debt disaster

By Gillian Tett
Published: May 1 2009 19:16 Financial Times

In the 1990s, a young team at Wall Street investment bank JP Morgan pioneered a new way of making money – credit derivatives. Within a decade, the market for these exotic securities had exploded to more than $12,000bn – and some people later blamed them for fuelling the global financial fiasco. In the first of two extracts from her book, Fool’s Gold, the FT’s Gillian Tett reveals how the innovation genie was first let out of the bottle – and eventually devoured the system, to the horror of its creators. The first sign that there might be a structural problem with the innovative bundles of credit derivatives that bankers at JP Morgan had dreamed up emerged in the second half of 1998. In the preceding months, Blythe Masters and Bill Demchak – key members of JP Morgan’s credit derivatives team – had been pestering financial regulators. They believed that by using the new credit derivative products they had helped create, JP Morgan could better manage the risks in its portfolio of loans to companies, and thereby reduce the amount of capital it needed to put aside to cover possible defaults. The question was by how much. (Though these bundles of credit derivatives later went under other names, such as collateralised debt obligations [CDOs], at that time these pioneering structures were known as “Bistro” deals, short for Broad Index Secured Trust Offering). Masters and Demchak had done the first couple of Bistro deals on behalf of their own bank without knowing the answer to their question for sure. But when they were doing these deals for other banks, the question of reserve capital became more important – the others were mainly interested in cutting their reserve requirements.

The regulators weren’t sure. When officials at the Office of the Comptroller of the Currency and the Federal Reserve had first heard about credit derivatives and CDOs, they had warmed to the idea that banks were trying to manage their risk. But they were also uneasy because the new derivatives didn’t fit neatly under any existing regulations. And they were particularly uncertain over what to make of the unusually low level of capital available to cover losses on the derivatives.


When the team did their first Bistro deal, they pooled more than 300 of JP Morgan’s loans, worth a total of $9.7bn, and issued securities based on the income streams from these loans. The lure of the idea was clear: the team had calculated that they only needed to set aside $700m – a strikingly small sum – against the risk of defaults among the 300-plus loans. After much debate, the credit rating agencies had agreed with the team’s assessment of the risks, and the deal had gone ahead on the basis that if financial Armageddon wiped out the $700m funding cushion, JP Morgan would absorb the additional losses itself. To Masters and Demchak, the chance that losses would ever eat through $700m were minuscule.

That argument didn’t wash with European regulators, and some of their US counterparts were uneasy, too. Christine Cumming, a senior Fed official, indicated to Masters and Demchak that JP Morgan should look for a way to insure the rest of the risk – the “missing” $9bn in their original Bistro scheme – if the bank wanted to gain approval to cut its capital reserves. So Masters and her team set out to find a solution. They started by giving the bundle of “uninsured” risk a name. Masters liked to refer to it as “more than triple-A”, since it was deemed even safer than triple A-rated securities. But that was too clumsy to market, so they came up with “super-senior”. The next step was to explore who, if anyone, might want to buy or insure it.

The task did not look easy. As far as JP Morgan was concerned, this risk was not really risky at all, so there was no point paying anything other than a token amount to insure it. On top of that, whoever stepped up to acquire or insure the super-senior risk had to be brave enough to step into an unfamiliar world.

. . .

The seeds of AIG’s destruction

Masters eventually spotted one solution to the super-senior headache. In the past, one of JP Morgan’s longstanding blue-chip clients had been the mighty insurance company American International Group. Like JP Morgan, AIG was a pillar of the American financial establishment. It had risen to prominence by building a formidable franchise in the Asian markets during the early-20th century. That business was later extended to the US, making the company a powerful force in the American economy after the second world war. AIG was considered a weighty and utterly reliable market player, and like JP Morgan, it basked in the sun of a triple-A credit rating.

But within AIG, an upstart entrepreneurial subsidiary was booming. In the late 1980s the company hired a group of traders who had previously worked for Drexel Burnham Lambert, the infamous – and now defunct – champion of the junk-bond business under Michael Milken in the mid-1980s. These traders had developed a capital markets business, known as AIG Financial Products and based in London, where the regulatory regime was less restrictive. It was run by Joseph Cassano, a tough-talking trader from Brooklyn. Cassano was creative, bold and highly ambitious. More important, he knew that, as an insurance company, AIG was not subject to the same burdensome rules on capital reserves as banks. That meant it would not need to set aside anything but a tiny sliver of capital – at most – if it insured the super-senior risk. Nor was the insurer likely to face hard questions from its own regulators because AIG Financial Products had largely fallen through the cracks of oversight. It was regulated by the US Office for Thrift Supervision, whose officials had scant expertise in the field of cutting-edge financial products.

Masters pitched to Cassano that AIG take over JP Morgan’s super-senior risk, and Cassano happily agreed. It was a “watershed” event, or so Cassano later observed. “JP Morgan came to us, who were somebody we worked with a great deal, and asked us to participate in some of what they called Bistro trades [which] were the precursors to what [became] the CDO market,” he explained. It seemed good business for AIG.

AIG would earn a relatively paltry fee for providing this service – just 0.02 cents per dollar insured per year. But if 0.02 cents is multiplied a few billion times, it adds up to an appreciable income stream, particularly if no reserves are required to cover the risk. Once again, the magic of derivatives had produced a “win–win” solution. Only many years later did it become clear that Cassano’s trade had set AIG on the path to ruin.

With the AIG deal in hand, the JP Morgan team returned to the regulators and pointed out that a way had been found to remove the rest of the credit risk from their Bistro deals. They started plotting other sales of super-senior risk to other insurance and reinsurance companies, which snapped it up, not just from JP Morgan but from other banks too.

Then, ironically, just as this business was taking off, the US regulators weighed in again. Officials at the Office of the Comptroller of the Currency and the Fed indicated to JP Morgan that after due reflection they thought that banks did not need to remove super-senior risk from their books after all. The lobbying by Masters and others had seemingly paid off. The regulators were not willing to let the banks get off scot-free. If they held the super-senior risk on their books, they would need to post reserves one-fifth the size of the usual amount (20 per cent of 8 per cent, meaning $1.60 for every $100 that lay on the books). There were also some conditions. Banks could only cut their capital reserves in this way if they could prove that the risk of default on the super-senior portion of the deals was truly negligible, and if the securities being issued via a Bistro-style structure carried a triple A credit rating from a “nationally recognised credit rating agency”. Those were strict terms, but JP Morgan was meeting them.

The implications were huge. Banks had typically been forced to hold $800m reserves for every $10bn of corporate loans on their books. Now that sum could fall to just $160m. The Bistro concept had pulled off a dance around the international banking rules.

For a while, Demchak’s team stopped transferring super-senior risk from JP Morgan’s books. But then Demchak became uneasy. The super-senior risk was ballooning to a staggering figure, because when the bank arranged these credit derivatives transactions for clients, it typically put the super-senior risk in the deal on its own balance sheet. In theory, there was no reason to worry. But by 1999, the total pipeline of future deals had swelled towards $100bn. Something about that mountain of risk started to offend Demchak’s common sense. “If you have got $60bn, $100bn or however many billions of something on your balance sheet, that is a very big number,” he remarked to his team. “I don’t think you should ignore a big number, no matter what it is.”

. . .

The problem with correlation

Demchak was acutely aware that modelling the risks involved in credit derivatives deals had its limits. One of the trickiest problems revolved around the issue of “correlation”, or the degree to which defaults in any given pool of loans might be interconnected. Trying to predict correlation is a little like working out how many apples in a bag might go rotten. If you watch what happens to hundreds of different disconnected apples over several weeks, you might guess the chance that one apple might go rotten – or not. But what if they are sitting in a bag together? If one apple goes mouldy, will that make the others rot too? If so, how many and how fast?

Similar doubts dogged the corporate world. JP Morgan statisticians knew that company debt defaults are connected. If a car company goes into default, its suppliers may go bust, too. Conversely, if a big retailer collapses, other retail groups may benefit. Correlations could go both ways, and working out how they might develop among any basket of companies is fiendishly complex. So what the statisticians did, essentially, was to study past correlations in corporate default and equity prices and program their models to assume the same pattern in the present. This assumption wasn’t deemed particularly risky, as corporate defaults were rare, at least in the pool of companies that JP Morgan was dealing with. When Moody’s had done its own modelling of the basket of companies in the first Bistro deal, for example, it had predicted that just 0.82 per cent of the companies would default each year. If those defaults were uncorrelated, or just slightly correlated, then the chance of defaults occurring on 10 per cent of the pool – the amount that might eat up the $700m of capital raised to cover losses – was tiny. That was why JP Morgan could declare super-senior risk so safe, and why Moody’s had rated so many of these securities triple-A.

The fact was, however, that the assumption about correlation was just that: guesswork. And Demchak and his colleagues knew perfectly well that if the correlation rate ever turned out to be appreciably higher than the statisticians had assumed, serious losses might result. What if a situation transpired in which, when a few companies defaulted, numerous others followed? The number of defaults required to set off such a chain reaction was a vexing unknown. Demchak had never seen it happen, and the odds seemed extremely long, but even if there was just a minute chance of such a scenario, he didn’t want to find himself sitting on $100bn of assets that could conceivably go bust. So he decided to play it safe, and told his team to look for ways to cut their super-senior liabilities again, irrespective of what the regulators were saying.

That stance cost JP Morgan a fair amount of money, because it had to pay AIG and others to insure the super-senior risk, and those fees rose steadily as the decade wore on. In the first such deals with AIG, the fee had been just 0.02 cents for every dollar of risk insured each year. By 1999, the price was nearer 0.11 cents per dollar. But Demchak was determined that the team must be prudent.

. . .

The mortgage time bomb

Around the same time, the JP Morgan team stumbled on a second, potentially bigger problem. As the innovation cycle turned and earnings declined from the early Bistro deals based on pools of corporate loans, Demchak asked his team to explore new uses for Bistro-style deals, either by modifying the structure or by putting new kinds of loans or other assets into the mix. They decided to experiment with mortgages. Terri Duhon was at the heart of the endeavour. Only 10 years earlier, Duhon had been a high-school student in Louisiana. When she told her relatives she was going to work in a bank, they had assumed she was going to be a teller. Now she was managing tens of billions of dollars. She was trained as a mathematician, and she thrived on adrenaline, riding motorbikes in her spare time. Even so, she found the thought of being in charge of all those zeros awe-inspiring. “It was just an extraordinary, intense experience,” she later recalled.

A year after Duhon took on the post, she got word that Bayerische Landesbank, a large German bank, wanted to use the credit derivatives structure to remove the risk from $14bn of US mortgage loans it had extended. She debated with her team whether to accept the assignment; working with mortgage debt wasn’t a natural move for JP Morgan. But Duhon knew that some of the bank’s rivals were starting to conduct credit derivatives deals with mortgage risk, so the team decided to take it on.

As soon as Duhon talked to the quantitative analysts, she encountered a problem. When JP Morgan had offered the first Bistro deals in late 1997, it had access to extensive data about all the loans it had pooled together. So did the investors who bought the resulting credit derivatives, since the bank had deliberately named all of the 307 companies whose loans were included. In addition, many of these companies had been in business for decades, so extensive data were available on how they had performed over many business cycles. That gave JP Morgan’s statisticians, and investors, great confidence in predicting the likelihood of defaults. But the mortgage world was very different. For one thing, when banks sold bundles of mortgage loans to outside investors, they almost never revealed the names and credit histories of the individual borrowers. Worse, when Duhon went looking for data to track mortgage defaults over several business cycles, she discovered it was in short supply.

While America’s corporate world had suffered several booms and recessions in the later 20th century, the housing market had followed a steady path of growth. Some specific regions had suffered downturns: prices in Texas, for example, fell during the Savings and Loans debacle of the late 1980s. But since the second world war, there had never been a nationwide house-price slump. The last time house prices had fallen significantly en masse, in fact, was way back in the 1930s, during the Great Depression. The lack of data made Duhon nervous. When bankers assembled models to predict defaults, they wanted data on what normally happened in both booms and busts. Without that, it was impossible to know whether defaults tended to be correlated or not, in what circumstances they were isolated to particular urban centres or regions, and when they might go national. Duhon could see no way to obtain such information for mortgages. That meant she would either have to rely on data from just one region and extrapolate it across the US, or make even more assumptions than normal about how defaults were correlated. She discussed what to do with Krishna Varikooty and the other quantitative experts. Varikooty was renowned on the team for taking a sober approach to risk. He was a stickler for detail and that scrupulousness sometimes infuriated colleagues who were itching to make deals. But Demchak always defended Varikooty. His judgment on the mortgage debt was clear: he could not see a way to track the potential correlation of defaults with any confidence. Without that, he declared, no precise estimate could be made of the risks of default in a pool of mortgages. If defaults on mortgages were uncorrelated, then the Bistro structure should be safe for mortgage risk, but if they were highly correlated, it might be catastrophically dangerous. Nobody could know.

Duhon and her colleagues were reluctant simply to turn down Bayerische Landesbank’s request. The German bank was keen to go ahead, even after the uncertainty in the modelling was explained, and so Duhon came up with the best estimates she could to structure the deal. To cope with the uncertainties the team stipulated that a bigger-than-normal funding cushion be raised, which made the deal less lucrative for JP Morgan. The bank also hedged its risk. That was the only prudent thing to do, and Duhon couldn’t see herself doing many more such deals. Mortgage risk was just too uncharted. “We just could not get comfortable,” Masters later said.

In subsequent months, Duhon heard through the grapevine that other banks were starting to do credit derivatives deals with mortgage debt, and she wondered how they had coped with the lack of data that so worried her and Varikooty. Had they found a better way to track the correlation issue? Did they have more experience of dealing with mortgages? She had no way of finding out. Because the credit derivatives market was unregulated, details of the deals weren’t available.

The team at JP Morgan did only one more Bistro deal with mortgage debt, a few months later, worth $10bn. Then, as other banks ramped up their mortgage-backed business, JP Morgan largely dropped out. Eight years later, the unquantified mortgage risk that had frightened off Duhon, Varikooty and the JP Morgan team had reached vast proportions. And it was spread throughout the western world’s financial system.

Gillian Tett is an assistant editor at the FT. In March, she was named Journalist of the Year at the British Press Awards

This is an edited extract from ‘Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe’ by Gillian Tett. It is published this week by Little, Brown, £12.99, and in mid-May by Simon & Schuster in the US. To buy the book at 20 per cent discount, call the FT ordering service on 0870 429 5884 or go to www.ft.com/bookshop