…Cassandra is universally disliked (h/t to Bob Eberhart).

What are we to make of this poll that shows Obama rapidly losing altitude with voters, particularly the Independent voters? Just as Obama was being inaugurated, and immediately afterward, I wrote a number of posts on this blog warning about his mistakes in taking ownership of the Bush mistakes. After taking heat from my friends and the incredible (the root word here is credit, which means trustworthiness etc.) rise of the stock market, I decided to keep my mouth shut.

Now we are nearly six months into the new presidency and what do we have? Obama has invoked Bush era Imperial Presidency secrecy rules, signing statements, and even willingness to torture. The CIA has admitted lying to Congress, the direct representatives of the people, and there are no prosecutions. Unemployment that is reaching ever new highs, and the green shoots the Administration promised shriveling and dying. Wars in Afghanistan and now Pakistan are spiraling downward. For those who admonished opponents of these wars that there was no choice, I can guarantee you that the war will be lost and we will be worse off for having gotten involved. It is existential bad faith and terrible politics to say there are no choices. The Iraq War continues on. Our treasure is being squandered even as we are going bankrupt as a nation.

The real catastrophe that threatens to swamp Obama are the bailouts without end to Wall Street and, even more important, the increasing perception among Americans that Wall Street has become a rigged casino where citizens, pension funds, and 401Ks go to be sheared. Whereas Obama should have begun prosecuting executives who lied materially about the status of their companies, e.g., Lehman Brothers, Bear Stearns, and AIG, they have so far been given a free pass. There are stock market rumors about front running in on a massive scale, tip-offs from the Federal Reserve to selected banks about forthcoming actions that allow the equivalent of insider trading, etc. This is serious stuff.

It was these abuses that were the core of the Roosevelt clean-up of Wall Street. There have been massive bailouts, but no programs such as the Civilian Conservation Corps etc. to put people back to work.

Consider the observed pecking order of bailouts: Wall Street gets trillions; GM and Chrysler 100s of millions; state and local governments tens of millions; ordinary citizens very little. If Obama is to save his presidency, then he needs to fight as hard for the Main Street as he has for Wall Street. Let’s hope the newest polls give him the message.

How are you folks feeling? Has the Obama Administration been doing the right things? Is this the way forward for the country?

Writing in the Globe, the ever-brilliant and always insightful Henry Mintzberg provides a tour de force on the current crisis as a colossal collapse of something much bigger than banks, the mortgage market, or the auto industry – a monumental failure of management writ large. It’s a must-read.

We call this a financial crisis or an economic one, but, at the core, it is a crisis of management … What we have here is a monumental failure of management. American management is still revered across much of the globe for what it used to be. Now, a great deal of it is just plain rotten – detached and hubristic. Instead of rolling up their sleeves and getting engaged, too many CEOs sit in their offices and deem: They pronounce targets for others to meet, or else get fired.

And the new U.S. administration? It rushes in with dramatic actions, paying out “cash for trash,” deeming the movement of massive amounts of money around the economy, much of it to prop up dying businesses in the short run. More quick fixes for an economy brought down by quick fixes.

We have been told how productive the American economy has been. Well, check the way productively is calculated: Firing great numbers of people, and expecting those left behind to carry the load before they burn out, is productive, indeed – until the longer-term consequences show up. They have been partly showing up in the massive U.S. trade deficits. The U.S. economy is collapsing because the American enterprises – and worse still, the country’s legendary sense of enterprise – have been collapsing …

Government bailouts can’t solve this, Mintzberg argues, rather they are part and parcel of this broader management failure.

What we have is a government that palliates: It provides geriatric medicine to its oldest, sickest enterprises in a country that requires pediatric and obstetric medicine for its young and vibrant enterprises, the ones that create the jobs, not eliminate them.

Business schools are also implicated.

From where I sit, management education appears to be a significant part of this problem. For years, the business schools have been promoting an excessively analytical, detached style of management that has been dragging down organizations. Every decade, American business schools have been graduating more than a million MBAs, most of whom believe that, because they sat still for a couple of years, they are ready to manage anything. In fact, they have been prepared to manage nothing.

And, perhaps the largest management failure is evident in the hubris and institutional sclerosis that grips U.S. governance writ large.

In this, we have America’s problem in a nutshell: the utter absence of collective introspection, whether it be the current crisis, the relationship between the Vietnam and Iraq debacles, even what might have contributed to 9/11, as well as the way it has been compensating and educating its corporate “leaders.” The country seems incapable of learning from its own mistakes.

Put differently, the U.S. appears to be in social gridlock. Thanks to vested interests and their powerful lobbyists, as well as an economic, individualistic dogma that has been embraced so thoughtlessly, it is business as usual in America …

Will Barack Obama be able to change that? I hope so. I fear not. A huge infusion of money may merely stave off the financial crisis while the management crisis continues to fester, masked by this very money. … How are the perpetrators of this mess supposed to get us out of it? Maybe the rest of the world will have to wake up, finally, to the realization that continuing to follow America’s lead may be the worst possible strategy.

Emma Rothschild in the New York Review of Books (h/t: Brian Knudsen):

An enduring bailout, or a new deal for Detroit, would be different. It would be an investment in ending the auto-industrial society of the late twentieth century. This would involve innovation in public transportation, and in the infrastructure that would enable people to work at home or close to home. It would engage the information industries in making public transport more convenient, more enticing, and more secure. It would be open to the sorts of improvements that have been suggested in the expansion of rail and bus transportation in China, Japan, and France, for example, and in India by the information technology services companies.^[18] It would be an investment, even, in the old promise of “automotive” freedom, of owning a car but not having to use it, and of being able to go anywhere at any time, in Asia as in America. The improved public transport would be used for routine travel, such as the “work, school, and medical/dental trips” on which public transit use is already concentrated, according to the National Household Travel Survey. The new hybrid vehicles, in a post-auto-industrial society, would be available for the other trips that the survey describes as “family, personal,” or “social, recreation, eat meal.”^[19]

Kevin Drum thinks maybe the rush to stimulus ignores the deeper problems facing the U.S. economy.

I continue to wonder if a massive stimulus package that spurs domestic consumption means that just as we propped up the economy in 2002 by replacing the dotcom bubble with a housing bubble, we’re now propping up the economy in 2008 by replacing the housing bubble with continuing support for our ever-ballooning trade deficit bubble …. See Tim Duy for more on this. I don’t know if he’s right, but I don’t feel too bad for bringing this up since no one else really seems to know either.

In any case, I do know that pretty much every economist in the country agrees, in general, that eventually U.S. consumption has to go down, savings have to go up, and we have to start exporting more than we import. It’s just a question of whether we can afford to worry about that with the economy collapsing around our heads. Still, here’s a thought: if this is a serious long-term concern, shouldn’t we at least try to construct a stimulus package that stimulates export industries more than other sectors of the economy? If so, how would we go about doing that? And what else should we be doing to prepare for the day when the current panic subsides, the great T-bill bubble bursts, and the rest of the world decides that 0% yields on treasuries suck and they don’t want to buy any more of them? And what they’d really like instead are some tangible goods and services…?

I don’t know. Maybe we really can’t worry too much about this at the moment. But the trade deficit bubble is going to pop eventually just like the dotcom bubble and the housing bubble. We at least ought to be thinking about this a little bit.

Yeppers. And here he is on the bailout “prepackaged bankruptcy” option.

It actually sounds like a decent compromise to me: it keeps the companies from imploding in the middle of a huge recession, but at the same time it gives a bankruptcy court considerable leeway to impose serious restructuring of the kind that a political process probably can’t. The end result — if it’s done right — is a pair of companies that will end up smaller but still viable in the long term, and an economy that takes only a moderate hit instead of a killing blow.

I mainly agree, but am much less optimistic on their long-term prospects. The key will be how to minimize such “incumbent claims” politically and shift investments to the new idea-driven economy.

Ralph Gomory weighs in on bailout absurdity.

Read the whole thing here.

That’s my term for where we are… and are headed.

Autos… housing… banks… state and local governments. And there are likely to be more.

If the cause is too much leverage, and the cure is deleveraging and recalibration of assets to market prices, it seems counterproductive to spend so much to reinflate them. Sure the reserve currency provides a temporary printing press. But the opportunity costs are immense: Think about the more productive uses these staggering sums could be put to. Sooner or later some country somewhere will figure out the competitive advantages that can come from investing more wisely and productively.

How do we move beyond the bailout economy to one that is creative, productive, and prosperous?

Not the automakers, the banks, according to Jim Rogers via Reuters:

“Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt,” said Rogers, who is now a private investor. “What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he said. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.” … Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets.

Over at the Financial Times, David Roche argues that current approaches prolong the inevitable because they fail to deal with its underlying cause.

In the U.S., about 90 percent of all the measures to deal with the credit crisis aim to prevent asset prices falling to market levels, at which they would clear… A substantial proportion of the fiscal measures enacted and planned, as well as the initiatives to restructure mortgages either through private sector banks or government-sponsored entities, are intended to bail out borrowers and prevent the repossession of houses. This will stop the ultimate cause of the crisis, lack of household thrift, being addressed rapidly. Such measures train the Pavlovian dog not to learn new ways when that is precisely what it needs to do…

It is a matter of simple arithmetic to work out that the new layers of state debt to deal with the credit crisis are not a substitute for private debt, but an addition to it. This is because the state debt does not extinguish the private debt, but merely finances it, so increasing the layering of leverage that lies at the heart of the credit crisis. Worse, bigger budget deficits and borrowing requirements will increase the U.S. and the UK need for foreign capital. The foreign funding may not be forthcoming, which could cause the dollar to crash. The increased role of the state will crowd out more productive uses of capital and create a bigger bureaucratic role in the economy.

Not to be outdone by Wall Street, auto execs, homeowners, or governors, U.S. mayors are making their grab at federal CYA funds today. Hard to see a silver lining here, but check this snippet in the article by T.W. Farnam:

A delegation of mayors, including Michael Bloomberg of New York and Antonio Villaraigosa of Los Angeles, plans to ask the federal government to distribute funds directly to cities instead of going through state governments. The group is set to present a list of more than 4,600 infrastructure projects that they say are “ready to go.”

Tom Cochran, executive director of the U.S. Conference of Mayors, which is organizing Monday’s event, said the next administration has signaled that it will coordinate financing for projects for an entire metropolitan area instead of dealing with cities and suburbs separately.

Not sure what the mayors will walk away with and how much it will cost those of us who pay taxes and invest, but glad to see that ‘Metro’ Policy may be replacing ‘Urban’ Policy.

This is the most amazing newspaper report I have ever read.

People on unemployment benefits, single mothers with children, and soon-to-be-unemployed people working in construction stating that they are keeping their Christmas shopping expenditures down – they are even shopping? Another volunteers, “I don’t usually save, so this year is different,” as she buys an iPod.  “He really wants one thing.” WT*? She needs to say, “We do not have the money and you can’t have it!” Another’s husband is in construction and doesn’t get enough work, and she is spending $1,000 – this is called “saving?” And Obama is promising to give these people a bailout?

The proper analogy for the situation is the following. Category 10 hurricane winds are already uprooting trees, the swells are breaking over weakening sea walls, while these folks are heading down to the beach for a last stroll and they expect to be bailed out? There will be no freaking money left as Paulson, Bernanke empty the Treasury for the final heist, even as Obama is bringing back the previous gang. The world economy is being tag-teamed by idiot savants blinded by the failed mainstream economics.

For the last two years, as Rich can attest, I have been telling people to hunker down, unload real estate, equities, and be in cash. I remember sitting on airplanes and telling people this. And they answered to me, “You are a pessimist, I’m an optimist!” I remember walking around a lake in August 2008 with a friend of mine affiliated with a very large conglomerate. I gave my typical better hunker down a “bad moon’s on the rise” speech. And he said, you are overly pessimistic etc. In October, his firm got the equivalent of a multi-hundred million dollar margin call. Now he won’t speak with me – probably because I have put my investment dollars where my mouth is.

The suffering that Cassandra went through. In earlier times, an “optimist” was not a synonym for a “fool.”  Optimism is associated with realism – not deliberate ignorance. Sometimes people can’t hear or feel the wind even as it is tearing at the clothes on their back.

I only hope I am wrong and the people buying on “Black Friday” are right. If they are wrong and I am right, their children will have iPods but be relegated to homeless shelters. This searing experience will never let them forget how thoughtless their “optimistic” parents were.

Am I wrong?