Thursday, April 30, 2009

Bankers 10; Homeowners 0

Arianna Huffington: Why Are Bankers Still Being Treated As Beltway Royalty?
Just this week, America's bankers and their lobbyists -- who you might have reasonably thought would be the political equivalent of lepers these days -- have kneecapped bankruptcy reform in the Senate, helped pull the plug on a deal with Chrysler, and tried feverishly to place a roadblock in the way of credit card reform in the House. According to Sen. Dick Durbin, the banks "are still the most powerful lobby on Capitol Hill. And they frankly own the place." When it comes to reforming our financial system, we are truly through the looking glass. I mean, since when did it become "to the vanquished go the spoils"? How do the same banks that have repeatedly come to Washington over the last eight months asking for billions to rescue them from their catastrophic mistakes, somehow still "own the place"?

Monday, April 27, 2009

Does NCLB work?

New Study by UCLA’s Civil Rights Project:
NCLB Ignores What We Know about School Change and
Is Motivated by Politics

A new report from the Civil Rights Project at UCLA, a non-partisan research
center which has been systematically studying the implementation of the
federal No Child Left Behind Act (NCLB) since its inception, finds that some of the
basic assumptions of the law are not working and may well be mistaken. In
this study, Why High Stakes Accountability Sounds Good but Doesn’t Work-- And Why
We Keep on Doing It Anyway, commissioned by the Civil Rights Project,
Researchers Gail Sunderman and Heinrich Mintrop evaluate whether the
accountability system endorsed by NCLB is likely to succeed or fail, and
whether it is compatible with what researchers across the country have
learned about the conditions needed for lasting school reforms.

The report finds that NCLB is failing on three fronts. First, there is
little evidence that high stakes accountability under NCLB works. It has not
improved student achievement and the sanctions have had limited effects in producing
real improvement. The law also results in high numbers of schools being
mislabeled as “failing” and far outstrips the ability of states to
intervene effectively in the schools it sanctions. Third, the law has
failed to connect in a meaningful way to the educators who must implement it --
they do not see the accountability goals as realistic and consider the sanctions
to be misguided and counterproductive for improving schools.

The most important finding is the damage the NCLB is doing to our
educational system. Under NCLB, the system “works” when education systems operate
within only a basic skills framework and with low test rigor. The cost to
our nation is revealed in an educational system stuck in low-level intellectual

Civil Rights Project Co-Director, Gary Orfield, concludes, “The new
administration has a unique opportunity to address the serious structural
problems of NCLB and to forge a more constructive and effective federal
role. To persist in sound-bite educational politics that sound tough but have
failed for a generation would be a tragic mistake. To claim that it would further
the civil rights of children increasingly segregated in schools that have been
officially branded and sanctioned as failures -- but not provided help that
makes a real difference -- would be a blunder.”

Even though the law is failing in some critical respects, the authors argue
that we may maintain NCLB anyway because many derive secondary benefits from
the system, specifically those who are politically and ideologically
committed to NCLB and those deriving economic or political benefits from the law.

The authors contend that after fifteen years of state and federal
sanctions-driven accountability that has yielded relatively little, it is
time to try a new approach. A system based on mandates and legal administrative
enforcement should be replaced with one that emphasizes respect for the
professionalism of educators and active involvement of communities in
developing the capacity to implement lasting changes.

The full report can be found at

A copy of the Executive Summary and Foreword can be found at the end of this
advisory. Copies of CRP’s previously released NCLB reports may also be
found on our web site above. Funding for this research was generously provided by
a grant from The Charles Stewart Mott Foundation.

About the Authors:

Heinrich Mintrop, Ph.D. taught middle school and high school for over a
decade in both the United States and Germany. He received a Ph.D. in education from
Stanford University in 1996. He is currently an associate professor of
education at the University of California, Berkeley. As a researcher, he
explores issues of school improvement and accountability in both their
academic and civic dimensions. He has recently published the book Schools on
Probation. How Accountability Works (and Doesn’t Work) at Teachers College Press. At UC
Berkeley, he is involved in programs that prepare strong leaders for
high-need urban schools.

Gail Sunderman, Ph.D. is a Senior Research Scientist at the George
Washington University Center on Equity and Excellence in Education where she directs
the Mid Atlantic Equity Center (MAEC). Prior to that, she directed a five-year
study examining the implementation of the No Child Left Behind Act of 2001
for the CRP. She is co-author of the book, NCLB Meets School Realities: Lessons
from the Field (with James S. Kim and Gary Orfield, 2005) and editor of
Holding NCLB Accountable: Achieving Accountability, Equity, and School Reform,
published in 2008. She is a former Fulbright Scholar to Afghanistan and
received her Ph.D. in political science from the University of Chicago.

Executive Summary

The federal accountability system, made universal though the No Child Left
Behind Act of 2002, is at its heart a quota and sanctions system. This
system stipulates the progression of underperforming schools through a set of
increasingly severe sanctions based on meeting performance quotas for
specific demographic groups. While it includes standards, assessments, and
performance targets, sanctions are the means by which the higher levels of the system
put pressure on lower-levels of the system to take accountability seriously.
Even though the law formulates the sanctions in the language of improvement,
support, and radical renewal, the punitive core for districts and schools is
apparent: when improvement efforts fail, loss of control and threat of
organizational survival is at stake.

But whether this system is up to the job of achieving its goal of improving
the performance of persistently underperforming schools is an open question.
Using findings from the best available research, this report examines whether an
accountability system based on the imposition of sanctions is likely to
succeed or fail and, if it does persist, what the consequences may be for sustaining
an educationally rigorous system. The report asks three questions: (1) does
the system work, that is, does it produce the intended results, (2) is it
practical, that is, can it be implemented, and (3) is it legitimate, or is
it valued among those who must implement it. We conclude with a discussion of
the costs of maintaining the current sanctions system.

Does the System Work? There are two aspects to this question: does the
system as a whole produce the expected outcomes; and do the actual sanctions result
in school improvement.

Does the system produce the expected outcomes? There is little evidence
that high stakes accountability under NCLB improves student achievement.
Although state accountability systems appear to be a success since test scores
continue to rise in most systems, the picture looks far less positive when one looks
at the National Assessment of Educational Progress (NAEP). When NAEP scores are
used, gains appear to be much lower, there is substantial variation among
states, and few states have narrowed the achievement gap among racial and
socioeconomic subgroups while improving overall performance at the same
time. Given the large discrepancies between NAEP and state assessments results, it
is not quite clear what the state tests measure. By all indication, state
accountability systems with their own pressures and sanctions are successful
at focusing schools’ and districts’ attention on state assessments.

Do the sanctions work? There is also a lack of evidence that the sanctions
themselves have been successful as an effective and universal treatment for
low-performing schools. Neither the transfer option nor the supplemental
educational service provisions have been widely embraced by parents or
districts. Whether or not the transfer option produces improvements in
school performance is a moot point since the percentage of students taking
advantage of this option (about 1% of eligible students) is so low. The response to
supplemental educational services has also been low (14% of eligible
students); and third party evaluations of these services are finding small, if any
statistically significant effects of the program on improving student
achievement. The corrective action and restructuring options, such as
reconstitution, charter school conversion or take-over by education
management organizations (EMOs), may work in some limited situations but are not
effective across the board. Among the variety of corrective action and restructuring
strategies that have been tried, none stick out as universally effective or
robust enough to overcome the power of local context.

Is the Sanctions System Practical? If the NCLB system was practical, it
would identify schools in need of improvement and restructuring with high
accuracy; appropriately direct schools to pay attention to students most in need of
help; produce an intervention burden for states and districts commensurate with
capacities to provide new impetus, ideas, resources, and personnel; and
lastly, through the imposition of sanctions, create momentum for deliberate and a
well articulated improvement processes for schools and districts stuck in low
performance. NCLB fails those practical criteria.

In state systems with at least moderately high performance demands, NCLB has
led to high numbers of failing schools that by far outstrip district and
state capacity to intervene. But it is not even clear if the bulk of these
schools are in fact correctly classified. Most notably, the system has no practical
answers to address the full spectrum of student performance and learning
needs, particularly for students far-below proficient, special needs students, and
marginally performing students; moreover, it does not speak to the
predicament of low-capacity schools and districts. While it may appear that the
sanctions system has succeeded in fermenting a climate of reform, such ferment, in
many instances, is more likely to result in unproductive turbulence than
sustained school improvement.

Is the Sanctions System Legitimate? Despite an almost twenty year period in
some states, accountability systems, and particularly NCLB, continue to
encounter serious legitimacy and acceptability problems among the groups
that they are designed to target—teachers, principals, and administrators in low
performing schools and districts. In general, while standards, assessments
of performance, and consequences for low performance are widely accepted ideas
in general, research suggests that attitudes about high stakes accountability
systems are more negative. This is because accountability systems designed
around sanctions violate core professional norms of educators and produce
widespread frustration and de-moralization among those charged with carrying
out school improvement efforts. Accountability goals are often not seen as
realistic, and the sanctions are considered to be misguided and not very
useful for improving schools. In efforts to improve test scores, teachers widely
report that they must compromise standards of good teaching in order to meet
accountability goals.

What are the Costs of Maintaining a Sanctions System? The combination of
uncertain effects, loose connections to the broader educational values and
norms of educators, and the difficulties or impossibilities of carrying out
the system day-to-day makes the sanctions system a prime candidate for declaring
it a failing system. But there is a way to maintain the system, although this
way produces high educational costs. As long as states maintain low-rigor
systems that concentrate on basic skills, and the more lenient options for school
improvement or restructuring are chosen, the system can persist with
relative ease. NCLB “works” when systems place low demands on the cognitive
complexity of learning tasks and, subsequently, on teacher capacity
building. State accountability systems that operate within a basic skills framework
and with low test rigor tend to produce lower numbers of failing schools.
Because such systems tackle school improvement goals that are fairly light,
affordable, and manageable, they are more practical within the NCLB framework. Systems
that are more ambitious produce an intervention burden that makes them

Sunday, April 19, 2009

Proposition 1 A

Prop. 1A -- Frog Soup, Anyone?
You know the story of the frog who is thrown into a pot of water. If the water is too hot at the beginning, the frog jumps right out. But if the water is comfortable enough at the beginning, but then the temperature is slowly increased, the frog will stay in the water until it is boiled alive. That's exactly what Californians will be doing if we vote for Proposition 1A -- slowly, but permanently destroying public education and public services in California.

Proposition 1A, and all of the little attachments, is bad for our schools and bad for the people of California. Whatever short-term benefit we get from the state's budget-rescue package pales in comparison to the long-term disasters that await education and other important programs which are supported by the state.

I'm having a hard time getting the "spending cap" to make sense in my mind when I also realize that there's no "human-dignity floor," or a level of human-needs services that we also agree never to go below. We've already cut many of our state programs so severely that the next step is to eliminate many vital programs altogether. The state budget is already rigged so that it's impossible to get new revenues and new programs in place, so every cut is permanent.

The other dynamic is that the fastest growing part of the budget is prison funding, carrying with it a host of mandated funding increases. With mandatory sentencing laws and 3-strikes laws on the books, along with federal court mandates to dramatically improve its abysmal prison health care program, the prison-funding part of the budget can only increase. Which means that with a spending cap, the rest of the budget can only go down.

And, we're locking in the spending cap at a shockingly inadequate funding level. Our schools are already the most poorly funded schools in the country. Sure, the temporary pay-off in Prop. 1B will keep us at 48th or 49th out of 50 states for a few years, but that's as good as it will ever get! Mental health programs have already been decimated, and Prop 1E will take more. Prop. 1D is going to tap into children's services. We're robbing our own kids, and this is the best we can do?

I'm also deeply dismayed that my own union, CTA, is endorsing this package. Remember the good ole' days when CTA used to fight against Schwarzenegger's hare-brained ideas. Thankfully, the California Federation of Teachers is opposing Prop. 1A, and so is the California Nurses Association, SEIU and an expanding group of other wiser labor unions.

California needs a better deal. Let's scrap California's budget process altogether, with its un-democratic two-thirds majority requirement for new funding, get rid of Prop. 13, and write a new state constitution.

Please vote no on 1A.
From: Thomas Morse. The Teacher Lounge.

California Proposition 1 A and 1 B

No on Prop. 1 A.

Since 2002 the CSU has lost almost $1 Billion in state funding. Students have been charged more fees to make up the difference. A spending cap on the state budget will make these cuts permanent. The CSU budget will not be restored to the levels of 2002.

[Prop 1A] would actually make it more difficult for future governors and legislatures to enact budgets that meet California's needs and address state priorities. It would amend the state Constitution to dictate restrictions on the use of funds put into the reserve and limit how "unanticipated" revenues can be used in good years. It could lock in a reduced level of public services, including university education, by not taking proper account of the state's changing demographics and actual growth in costs. Prop 1A would also give future governors new power to make budget cuts without legislative oversight. Like several other propositions , Prop 1A came from a deeply flawed process that resulted in measures written in haste and without public input or analysis.

Yes on 1 B.

California's k-12 education system is in crisis because it is underfunded. Contrary to the wishes of the voters, politicians continue to fail to adequately fund our schools. When comparisons include cost of living- California ranks 47th. out of the 50 states in per pupil expenditures. Our schools are suffering. This is unacceptable.

Prop. 1 B would repay the schools some $9 Billion taken by the Legislature from school funding this year in response to the economic crisis. The money would be repayed beginning in 2011, when we hope this economic crisis will have passed. Prop 1 B would return California to the Minimum guarantee of funding for schools that exists in current law.

Suggested by Duane Campbell

Wednesday, April 15, 2009

NCLB and Obama

No progress seen here.
Education Standards Likely to See Toughening
Published: April 14, 2009
WASHINGTON — President Obama and his team have alternated praise for the goals of President George W. Bush’s No Child Left Behind law with criticism of its weaknesses, all the while keeping their own plans for the law a bit of a mystery.

But clues are now emerging, and they suggest that the Obama administration will use a Congressional rewriting of the federal law later this year to toughen requirements on topics like teacher quality and academic standards and to intensify its focus on helping failing schools. The law’s testing requirements may evolve but will certainly not disappear. And the federal role in education policy, once a state and local matter, is likely to grow.

The administration appears to be preparing important fixes to what many see as some of the law’s most serious defects. But its emerging plans are a disappointment to some critics of the No Child Left Behind law, who hoped Mr. Obama’s campaign promises of change would mean a sharper break with the Bush-era law.

“Obama’s fundamental strategy is the same as George Bush’s: standardized tests, numbers-crunching; it’s the N.C.L.B. approach with lots of money attached,” Diane Ravitch, an education historian often critical of the education law, said in an interview.

In a recent blog Ms. Ravitch wrote, “Obama has given Bush a third term in education policy.”

The clues emerge from the fine print of the economic stimulus law that Mr. Obama signed in February, which channels billions of dollars to public education. The key education provisions in the stimulus take the form of four “assurances” that governors must sign to receive billions in emergency education aid.

In one, governors must pledge to improve the quality of standardized tests and raise standards. In another, they promise to enforce a requirement of the education law that their state’s most effective teachers will be assigned equitably to all students, rich and poor. A separate provision gives Education Secretary Arne Duncan control over $5 billion, which Mr. Duncan calls a “Race to the Top Fund,” to reward states that make good on their pledges.

“With these assurances and the Race to the Top Fund, we are laying the foundation for where we want to go with N.C.L.B. reauthorization,” Mr. Duncan said in an interview. “This will help us to get states lining up behind this agenda.”

One fix the administration is preparing focuses on failing schools.

Currently 6,000 of the nation’s 95,000 schools are labeled as needing corrective action or restructuring because they have fallen short of testing targets under the federal law, which nonetheless provided little financing to help them. Most states have let the targets languish. The stimulus law, in contrast, provides $3 billion for school turnarounds, and requires governors to pledge vigorous action.

The No Child Left Behind law allowed each state to set its own academic standards, with the result that many have dumbed down curriculums and tests. Colorado even opted to use its “partially proficient” level of academic performance as “proficient” for reporting purposes.

The stimulus requires governors to raise standards to a new benchmark: the point at which high school graduates can succeed — without remedial classes — in college, the workplace or the military. Mr. Duncan has gone further, saying he wants to be a catalyst for the development of national academic standards.

Cynthia Brown, vice president for education policy at the Center for American Progress, said she believed that Mr. Duncan was the first top federal official to make such a call.

“They’re putting money and ideas behind what they think are the changes needed in public education,” Ms. Brown said. “That signals their seriousness about major reform.”

So far, the administration has not described its plans for the education law’s 2014 deadline for schools to bring 100 percent of American students to math and reading proficiency, which experts have likened to a certain date by which the police are to end all crime.

The teachers unions, which in 2007 fought a bare-knuckle lobbying battle that scuttled Congress’s last effort to rewrite the No Child Left Behind law, are voicing muted concern over a couple of provisions in the stimulus.

In one of the stimulus assurances, for instance, governors must pledge that their states are building sophisticated data systems. Among other functions, such systems would link teachers to students and test scores and thus, in theory, enable the authorities to distinguish between effective and ineffective teachers. In a March 10 speech, President Obama endorsed using such data systems “to tell us which students had which teachers so we can assess what’s working and what’s not.”

In an interview, Dennis Van Roekel, president of the National Education Association, said he did not like that part of the president’s speech.

“When he equates teachers with test scores, that’s when we part company,” Mr. Van Roekel said. But he added: “Over all, I just really support Obama’s vision to strengthen public education.”

Randi Weingarten, president of the American Federation of Teachers, said that her union also had concerns about the president’s enthusiasm for data systems, which she said could be misused, but that she would give the new administration the benefit of the doubt.

“They have been consistent,” Ms. Weingarten said. “They’re trying to do reform with teachers, not to them.”

Including education reform ideas in an economic stimulus bill was a policy improvisation made on the fly during the December transition, when Democratic governors were pleading for federal help to prevent government layoffs amid the economic crisis, aides to Mr. Duncan said.

In a Jan. 7 meeting with senior Democratic lawmakers, Mr. Duncan announced the administration’s intention to channel billions of dollars to the states in exchange for governors’ pledges to double down on education reform.

Representatives David R. Obey of Wisconsin and George Miller of California, the Democratic chairmen of the House appropriations and education committees, immediately saw the importance of extracting reform promises from the states, said a Democratic House staff member who attended the meeting but is barred from speaking on the record about committee business.

Rachel Racusen, a spokeswoman for the House education committee, said, “Chairman Miller said this couldn’t just be free money, that we had to get something in return.”

The administration’s reform initiatives have thrust governors into an unusually prominent role in education policy, more often the province of state school chiefs and big-city mayors. Gov. Martin O’Malley of Maryland and several other governors met with Mr. Duncan during a National Governors Association meeting in February.

“In a nutshell,” Mr. O’Malley said in an interview, “Arne Duncan’s pitch was, ‘I want to partner with governors; I know you can be drivers for education reform.’ He wants us to step up.”

Mr. Duncan says that governors in Colorado, Florida, Massachusetts, Wisconsin and other states have also responded favorably.

“They are happy that we are pushing them to where they know they need to go,” Mr. Duncan said.

Tuesday, April 14, 2009

CFA, Obama, and Prop.1 A

California Drop out crisis

New Report Underscores Education Reform Needs

Senator Gloria Romero
Current High-School Dropout Rate Means 1 in 3 Students Will Fail
Today we again highlight the need for reform in California’s education system based on a report released yesterday by the California Dropout Research Project stating one in three high-school students will drop out of school before graduating.
It is simply unconscionable that we can project a failure rate in educating future generations. I’m not willing to wait one more year—and loose another 140,000 students—to enact serious reforms. We must make changes now that will enable kids to succeed in school and put California back on a path to real and long-term economic recovery.
According to the report in California, students abandon middle and high schools at the rate of 140,000 per year—equlivant to the populations of Pasadena, Elk Grove or the entire County of Napa—and cost taxpayers $46 billion annually in crime, social welfare, health, public assistance and other taxpayer costs. Even in the best of times, the high costs of dropouts to the state are a drain but, today starting new engines of economic growth are the rallying cry of all state and national governments eying recovery.
California’s needs an education system that produces more skilled high-school graduates today more than at any other time in our past.
In fact, for every $500 of wealth that households headed by a high-school dropout accumulate, households headed by high-school graduates possess approximately $5,000. This means that there would be an additional $74 billion in collective wealth in the United States if every household were headed by an individual with at least a high-school diploma, according to a 2008 report by the Alliance for Excellent Education.
The Public Policy Institute of California predicts there will be twice as many high-school dropouts in California in 2025 as there will be jobs to support them. Meaning twice as many high-school dropouts will have no hope for employment. This evidence underscores the importance of early intervention and prevention.
In March the Senate Committee on Education held an informational hearing with the objective of viewing education initiatives through the lens of economic recovery. The hearing and outlined the steps needed to ensure that a skilled workforce, representative of the state’s diversity, industry and need, will be ready to fuel the next stage of economic growth in the state. Further, this year I along with Senator Steinberg have also co-authored SB 651 that would use data to assist educators in developing better public accountability and a stronger focus on dropout prevention.
California’s economic development strategy must focus on growing human capital, and human capital starts with education. Education is the single most important factor in ensuring a capable and competent society in which every member has the opportunity to succeed.
A recent report by UCLA’s Institute for Democracy and the California Educational Opportunity Report, Education and Access (IDEA) and All Campus Consortium on Research for Diversity (ACCORD), found widespread correlation to renewed attention of the relationship between educational investment and the state’s economic health. The “achievement gap” represents the difference between what California public school students achieve today versus what they will require to gain work in a global economy.
To that end, Senate Democratic members have introduced a package of legislation “Jobs of Tomorrow” which asserts the real link between education and the economy. These bills seek to enhance California’s education system through:
• SB 675 (Steinberg) – Clean Technology and Renewable Energy Job Training, Career Technical Education, and Dropout Prevention Act of 2010
• SB 471 (Romero and Steinberg) – Education: stem cell research
• SB 515 (Hancock) – Career technical education
• SB 43 (Alquist) – Health professions
• SB 725 (Hancock) – Regional occupational centers or programs: California Apprenticeship Preparation Program
• SB 651 (Romero and Steinberg) – Drop out tracking
• SB 747 (Romero) – Career technical education- aerospace
Posted on April 14, 2009

Only the Dropout tracking bill by Romero and Steinberg has much to day about dropouts.

What could the legislature do to reduce the extreme California dropout rate?
1.Pass a responsible budget for K-12 education. You have not done this in over twenty years. Provide funds for adequate counselors in the schools. ( all the other states have counselors). We should get to about 1 counselor for each 300 students in high school. Since Prop.1 California has fewer than 1 counselor for each 550 students. The result. The only students receiving counseling are the college bound students. There are practically no counselors working toward dropout prevention.
2. Provide adequate number of social workers for the schools. Both mental illness and gang membership begin by about grade 7-8. We need social workers in these schools. ( Other states have them). A large part of the dropout problem is caused by home and community crises. We need social workers to assist students with these crises.

Instead of these practical responses, your voting record produces more students per class and more useless tests of teachers- such as the TPA and PACT Assessments. See prior posts on PACT. You can use the search bar above.

Sunday, April 12, 2009

Global Power Elite

The Sacramento Bee has a column today , April 12, 10 Tough Political Calls Obama has to make, by David Rothkopf , author of Superclass: The Global Power Elite and the World They are Making.

He frames one of his questions as follows,
“will he (Obama) be willing to increase taxes on the middle-class taxpayers – or exacerbate class tensions by continuing to place all the burden on the most affluent Americans?”

What a preposterous statement.

We are in an economic crisis directed by Rothkopf’s Global Power Elite. In the U.S. after over three decades of stagnant wages for working people, the banking and corporate elite have received over $700 billion in taxpayers’ money.

These are class tensions. The rich, with the assistance of the Federal Reserve, have looted the banks and causing severe unemployment and economic recession. This is class conflict- and the rich are winning.

Although Rothkopf’s essay uses a frame to support the views of the Power Elite, the questions which he proposes are correct.

The fundamental questions are will the policies of the new Obama Administration side with the interests of the vast majority of the people- over 80% of the electorate, or will the Administration side with the Global Power Elite?

Dr. Duane E. Campbell
Democracy and Education Institute

Guns and politics

Appomattox Again

By William Rivers Pitt, t r u t h o u t |
April 10, 2009

"Out of the night that covers me,
Black as the Pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul."

- Timothy McVeigh quoting from "Invictus" by William Ernest Henley

April 9 was a Sunday in 1865, and in the town of Appomattox, Virginia, the sun was shining down on the end of a war. Confederate forces, led by Gen. Robert E. Lee, had finally been brought to bay by Gen. Ulysses Grant after four grueling, blood-sodden years. Lee's surrender at Appomattox was the conclusion of the largest and deadliest armed insurrection in American history.

April 9 was a Thursday in 2009, and there are some lo these 144 years later who would very much like to see another armed insurrection erupt within these United States. The casus belli for today's would-be revolutionaries is not states' rights, slavery or economic independence, but is instead a toxic mix of fundamentalist Christianity, ultra-conservative orthodoxy and, more than anything else, guns.

The existence of armed and angry insurrectionists in America is nothing new. As Robert Kennedy once observed, "One-fifth of the people are against everything all the time." The militia movement, in one form or another, has been a part of our history literally since the founding of the nation itself, and memories of Waco, Ruby Ridge and the bombing of the Murrah Federal Building in Oklahoma City remain acutely fresh in mind even years later.

Lately, the news has been flooded with reports of citizens arming themselves to the teeth, egged on by right-wing media personalities prophesying doom, the rise of socialism, and that a Marxist dictator now sits in the Oval Office. This frenzy has been spilling from talk radio and television out into the streets for weeks now, and has recently metastasized into acts of outrageous violence. It smells like a new beginning of something this nation has not been forced to endure for nearly a decade.

Last Monday, a man named Richard Poplawski ambushed and murdered three Pittsburgh police officers and tried to kill nine others. Poplawski's motivations, according to friends and family, centered around his belief in the existence of a vast government conspiracy to destroy American freedoms while establishing a left-wing dictatorship under President Obama. Poplawski came to believe all this after listening to and reading the paranoid rantings of right-wing luminaries like Alex Jones, Glenn Beck, Rush Limbaugh and Sean Hannity.

Last July, a man named Jim Adkisson walked into a Universalist church in Knoxville and began blazing away with a 12-gauge shotgun, killing two people and wounding several others. He had 70 shotgun shells with him, and fully intended to massacre as many people in the church as possible before police killed him, but he was tackled and disarmed by members of the congregation before he could complete his task.

Eric Boehlert, writing for Media Matters on April 7, said, "When investigators went to Adkisson's home in search of a motive, as well as evidence for the pending trial, they found copies of Savage's 'Liberalism Is a Mental Disorder,' 'Let Freedom Ring' by Sean Hannity, and 'The O'Reilly Factor,' by Fox News's Bill O'Reilly. They also came across what was supposed to have been Adkisson's suicide note: a handwritten, four-page manifesto explaining his murderous actions. The one-word answer for his deed? Hate. The three-word answer? He hated liberals."

"The only way we can rid ourselves of this evil," wrote Adkisson, "is kill them in the streets. Kill them where they gather. I'd like to encourage other like minded people to do what I've done. If life aint worth living anymore don't just Kill yourself. Do something for your Country before you go. Go Kill Liberals!"

Describing the Pittsburgh incident, Boehlert wrote, "In the wake of the bloodbath, we learned that Poplawski was something of a conspiracy nut who embraced dark, radical rhetoric about America. He was convinced the government wanted to take away his guns, the Pittsburgh Post-Gazette reported. Specifically, Poplawski, as one friend described it, feared 'the Obama gun ban that's on the way' and 'didn't like our rights being infringed upon.' (FYI, there is no Obama gun ban in the works.) The same friend said the shooter feared America was 'going to see the end of our times.'"

"Hysterical warnings of government gun grabs and a socialist takeover of the US are no longer the sole proprietary interest of fringe players like Jones," wrote Max Blumenthal on Wednesday. "In the Obama era, Jones's conspiracy theories have graduated to primetime on Fox News. And radicals like Poplawski are tuning in. Indeed, according to the Anti-Defamation League, the alleged killer posted a YouTube clip to (neo-Nazi web site) Stormfront of top-rated Fox News host Glenn Beck contemplating the existence of FEMA-managed concentration camps. ('He backed out,' Poplawski wrote cryptically beside the video.) Three weeks later, Poplawski posted another YouTube clip to Stormfront, this time of a video blogger advocating 'Tea Parties,' or grassroots conservative protests organized by Beck and Fox News contributor Newt Gingrich against President Barack Obama's bailout plan."

There have been more stories like this in recent months, and if history is any guide, there will be more to come. The timing of all this is deeply troubling, and the media players involved are all too familiar. There is something sinister at work here, something malevolent, something sly.

Consider the curious historical synchronicity of all this: after the inauguration of a new Democratic president, there has been a sudden upsurge of right-wing polemicists agitating right-wing citizens into right-wing-motivated acts of violence. The last time things came together like this was back in 1993, after the Waco and Ruby Ridge debacles, combined with the passage of NAFTA and the Brady Bill, detonated into a militia movement that was wildly active, and exceedingly violent, throughout the entirety of President Bill Clinton's two terms.

Dozens of militia-related incidents, including the Oklahoma City bombing, took place during those years. In 2001, however, these incidents stopped almost completely, and for the entirety of George W. Bush's two terms as president, hardly a peep was heard from the militia movement that had been so robustly vigorous during the administration of Bush's predecessor.

A Democratic president takes office in 1993 and the militia movement explodes, egged on by a whole host of right-wing media voices.

A Republican president takes office in 2001 and the militia movement, along with those media voices who sponsored it, all but disappear from the American political landscape.

A Democratic president takes office in 2009, and once again, right-wing media voices begin their clarion call for armed revolution, and once again, a portion of their listeners erupt into violence.

"In Politics," President Franklin Roosevelt once said, "nothing happens by accident. If it happens, you can bet it was planned that way."



Thursday, April 09, 2009

Larry Summers, $800 million, and the bankers

Living Large and in Charge

By Robert Scheer
April 7, 2009, Truthdig

Not surprisingly, Lawrence Summers is convinced that he
deserved every penny of the $8 million that Wall Street firms
paid him last year. And why shouldn't he be cut in on the
loot from the loopholes in the toxic derivatives market that
he pushed into law when he was Bill Clinton's treasury
secretary? No one has been more persistently effective in
paving the way for the financial swindles that enriched the
titans of finance while impoverishing the rest of the world
than the man who is now the top economic adviser to President

It is especially disturbing that Summers got most of the $8
million from a major hedge fund at a time when such totally
unregulated rich-guys-only investment clubs stand to make the
most off the Obama administration's plan for saving the
banks. The scheme, as announced by Treasury Secretary Timothy
Geithner, a Summers protégé, is to clean up the toxic
holdings of the banks using taxpayer money and then turn them
over to hedge funds that will risk little of their own
capital. At least the banks are somewhat government-
regulated, which cannot be said of the hedge funds, thanks to

It was Summers, as much as anyone, who in the Clinton years
prevented the regulation of the hedge funds that are at the
center of the explosion of the derivatives bubble, and the
fact that D.E. Shaw, a leading hedge fund, paid the Obama
adviser $5.2 million last year does suggest a serious
conflict of interest. That sum is what Summers raked in for a
part-time gig, in addition to the $2.77 million he received
for 40 speaking engagements, largely before banks and
investment firms, and on top of the $587,000 he was paid as a
professor at Harvard.

Summers was a top adviser to the Democratic presidential
candidate last year, and that might have enhanced his
speaking fees, which seem to have a base rate of $67,500, the
amount he received on each of two occasions when he appeared
at Lehman Brothers before that company went bankrupt. Lehman
had purchased a 20 percent stake in D.E. Shaw while Summers
was employed by the hedge fund, and it would be interesting
to know if the subject of the overlapping business came up
during Summers' visit to Lehman.

Lehman was only one on an impressive list of top financial
firms that consulted Summers during a troubled period.
Goldman Sachs was so interested in his thoughts that it paid
him more than $200,000 for two talks, even though it soon
needed $12 billion in taxpayer bailout funds. Citigroup,
which has been going through hard times, managed only a
$54,000 fee for a Summers rap. Merrill Lynch could pony up
only a scant $45,000 for a Summers appearance last Nov. 12,
but that was at a point when Merrill was in deep trouble,
with the government arranging its sale. Summers, anticipating
an appointment in the administration of the newly elected
Obama and perhaps wanting to avoid any embarrassment the fee
might bring, decided to turn over the $45,000 to a charity.

Why was someone as compromised as Summers made the White
House's point man overseeing $2.86 trillion in bailout funds
to the financial moguls whom he had enabled in creating this
mess and many of whom had benefited him financially? Will no
congressional panel ever quiz Summers about his grand theory
that the derivatives market required no government
supervision because, as he testified to a Senate subcommittee
in July of 1998: 'The parties to these kinds of contracts are
largely sophisticated financial institutions that would
appear to be eminently capable of protecting themselves from
fraud and counterparty insolvencies. ...'

Think of the sophisticates at AIG when you read that
sentence, and then ask why Summers is once again at large in
the public sector. Or take White House spokesman Ben LaBolt's
word for it that 'Dr. Summers has been at the forefront of
this administration's work - to put in place a regulatory
framework that will strengthen the financial system and its
oversight-all in an effort to help the families across
America who have paid a very steep price for risky decisions
made by Wall Street executives.'

The very same executives that Summers had previously assured
us could be trusted without any regulation. Why should we now
trust Summers any more than we trust them? Couldn't Summers
just take his ill-gotten gains and go hide out in some
offshore tax haven? If this was happening in a Republican
administration, scores of Democrats in Congress would be all
over it, asking tough questions about what exactly did
Summers do to earn all that money from the D.E. Shaw hedge
fund. As it is, with their silence they are complicit in this
emerging scandal of the banking bailout. Summers

It was Lawrence Summers, as much as anyone, who in the
Clinton years prevented the regulation of the hedge funds
that are now at the center of the explosion of the
derivatives bubble.

Larry Summers, chief economic advisor to President Obama

Tuesday, April 07, 2009

Geithner-Summers Plan : Jeffrey Sachs

The Geithner-Summers Plan Is Even Worse Than We Thought

by Jeffrey Sachs

Director of the Earth Institute, Economics Professor,
Columbia University

Two weeks ago, I posted an article showing how the
Geithner-Summers banking plan could potentially and
unnecessarily transfer hundreds of billions of dollars
of wealth from taxpayers to banks. The same basic
arithmetic was later described by Joseph Stiglitz in
the New York Times (April 1) and by Peyton Young in the
Financial Times (April 1). In fact, the situation is
even potentially more disastrous than we wrote.
Insiders can easily game the system created by Geithner
and Summers to cost up to a trillion dollars or more to
the taxpayers.

Here's how. Consider a toxic asset held by Citibank
with a face value of $1 million, but with zero
probability of any payout and therefore with a zero
market value. An outside bidder would not pay anything
for such an asset. All of the previous articles
consider the case of true outside bidders.

Read the entire piece at the Huffington Post.
Cynics believe that the Geithner-Summers Plan is
exactly what it seems: a naked grab of taxpayer money
for Wall Street interests. Geithner and Summers argue
that it's the least bad approach to a messy situation,
in which we need to restore banking functions but don't
have any perfect ways to do that. If they are serious
about their justification, let them come forward to
confront their critics and to explain to the American
people why the other proposals are not being pursued.

Let them explain the hidden and not-so-hidden risks to
the American taxpayer of the plan that they have put
forward. Let them explain why they are so intent on
saving the banks' bondholders, even the long-term
unsecured creditors who clearly knew they were taking
market risks in buying Citibank bonds. Let them work
with their critics to fashion a less risky and less
costly plan. So far Geithner and Summers tell us that
their plan is the only option, but without a word of
further explanation as to why.

Sunday, April 05, 2009

Robert Reich: Its a Depression

It's a Depression
April 3, 2009, 9:51AM

The March employment numbers, out this morning, are bleak: 8.5 percent of Americans officially unemployed, 663,000 more jobs lost. But if you include people who are out of work and have given up trying to find a job, the real unemployment rate is 9 percent. And if you include people working part time who'd rather be working full time, it's now up to 15.6 percent. One in every six workers in America is now either unemployed or underemployed.

Every lost job has a multiplier effect throughout the economy. For every person who no longer has a job and can't find another, or is trying to enter the job market and can't find one, there are at least three job holders who become more anxious that they may lose their job. Almost every American right now is within two degrees of separation of someone who is out of work. This broader anxiety expresses itself as less willingness to spend money on anything other than necessities. And this reluctance to spend further contracts the economy, leading to more job losses.

Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway.

All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.

This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

Energy independence and a non-carbon economy should be the equivalent of a war mobilization. Hire Americans to weatherize and insulate homes across the land. Don't encourage General Motors or any other auto company to shrink. Use the auto makers' spare capacity to make busses, new wind turbines, and electric cars (why let the Chinese best us on this?). Enlarge public transit systems.

Meanwhile, extend our educational infrastructure. So many young people are out of work that they should be using this time to improve their skills and capacities. Expand community colleges. Enlarge Pell Grants. Extend job-training opportunities to the unemployed, so they can learn new skills while they're collecting unemployment benefits.

Finally, accelerate universal health care.

Saturday, April 04, 2009

Economic aristocrats and the President

Economic Adviser to the Aristocracy
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Read More: Banks, Barack Obama, Economy, Hedge Funds, Honorariums, Larry Summers, Lawrence Summers, Obama Economic Advisers, Wall Street, Business News

The lately published list of the honorariums received by Lawrence Summers for lectures delivered in 2008--at firms like J.P. Morgan, McKinsey and Company, Goldman Sachs (twice), Citigroup (twice), Lehman Brothers (twice), American Express, Pricewaterhouse Coopers, Skagen Funds (twice)--shows the practical meaning of an aristocratic class. The amounts received by Summers from these banks and brokerage houses and consulting firms covered a range from $59,400 per lecture (Skagen) to $135,000 (McKinsey). Other outfits paid still more.
Summers also received a salary of $5.2 million in 2008 from the hedge fund D.E. Shaw after having brought substantial pressure to institute to a radical policy of deregulation that affords an unparalleled species of financial protection to hedge funds.

The point about such a private counselor who becomes a public servant is not that he is corrupt. He need not be. Rather, he is predictable within the world he knows and believes in, which is the world that honors him. He does not have to be told what to do. When he thinks of the American family, these banks and investment groups, and the too-big-to-fail insurance colossus, are in fact his extended family. They are the people he talks to and jokes with and eats with, the people he thinks of in his spare time. They are the people he knows.

One sees in the recent career of Summers--and not least, in his ascent to the position of economic adviser to President Obama--how subtle, consistent, and pervasive are the means by which an aristocracy perpetuates itself. How it doles out its rewards to maintain its power. How it buys the talents and shapes the careers it needs, so that even a general crisis brings only a second layer of bribed servants, and the medicine is administered by doctors whose judgment is bought and paid for. One sees, too, what drove the rage against such a class in earlier times--the feeling that its power is a monstrous imposition; the fear that no cry or protest will ever penetrate from outside the closed circle.
David BromwichProfessor of Literature at Yale

Thursday, April 02, 2009

Need for Chicano/Latino History in California Schools

Testimony: April 2, 2009 . California Committee on the History /Social Science Framework.

Lorena V. Márquez, Doctoral Candidate, University of California, San Diego
I was born and raised in Northern California. My parents were migrant workers and thus my world view was centered on my lived experiences as a poor Mexican immigrant child who had to navigate a series of often culturally hostile environments. To make matters worse, as a Spanish native speaker, the CA public school system made it so that often we were ridiculed rather than encouraged when we attempted to speak English.
You may think to yourself, Lorena, you turned out OK, so what could you possibly complain about? It is not a complaint that I wish to raise but rather a concern that we are turning our backs on the largest ethnic minority in California—the increasing Latino/a population—by not providing them (and others) with a true and representative view of U.S. history.
Unfortunately, it was not until I was an undergraduate at Sacramento State that I learned about Chicano/a history. I then understood the complexities and multi-layered history that makes the fabric of this country. Had it not been for my exposure to this history in college I would have never found my passion for teaching.
I often give Chicano/a history workshops to high school students at no expense. Without a doubt, I am always asked the same question: “Why don’t our teachers teach us this?” These high school students feel as if though they were cheated of a true education. I don’t blame them. I simply state that the teachers are being held accountable to a CA state curriculum that does not include their history. They complain that they only learn--if they’re lucky--about César Chávez. Again, I can only encourage them to do research on their own.
I am here to ask that you consider these students and hear their voices. I ask that you include the history of Chicanos/as and other communities of color because in doing so, you not only acknowledge their existence, but most importantly, their contributions and legacies to the United States.
Thank you for your time and attention.

The Institute for Democracy and Education continues its efforts to update and improve the History/Social Science Framework. See:

Federal bailout funds arrive for schools

Schools Chief Jack O'Connell Reports California to Receive More
Than $1 Billion in Recovery Funds for Federal Education Programs

ARRA was signed into law in February by President Barack Obama. The entire spending and tax package to benefit the nation's schools includes more than $100 billion for elementary, secondary, and postsecondary education; $4.1 billion for early education and care; and $26 billion in education tax incentives. A total of $5 billion is expected to benefit public education in California. This unprecedented investment will provide public education and early childhood programs with critically needed funds that can be used to avoid teacher layoffs, continue efforts to close achievement gaps, and improve educational opportunities for California's children and youth.
SACRAMENTO — State Superintendent of Public Instruction Jack O'Connell today announced the U.S. Department of Education has awarded California an estimated $634 million for students with special needs and $564 million for socioeconomically disadvantaged students in the first disbursement of funds from the American Recovery and Reinvestment Act (ARRA).

"The federal economic stimulus funds will help us educate some of our most vulnerable students – those in need of special education services and those who are socioeconomically disadvantaged," said O'Connell. "I have directed divisions within the California Department of Education to get these education recovery funds out to our schools as quickly as possible in order to save and create jobs as well as improve student achievement."

The nearly $634 million for special education constitutes half of the ARRA recovery funds for California dedicated to the Individuals with Disabilities Education Act (IDEA), Part B program. The funds will be used to help districts in this fiscal year and next. The remaining 50 percent of the IDEA funds will be awarded in the fall. These recovery funds constitute a one-time increase for IDEA, Part B programs. The Obama Administration has made clear that the funding should be used for short-term investments that have the potential for long-term benefits rather than for expenditures that cannot be sustained once the recovery funds are expended.

"I am pleased to note this increase in IDEA funding because the federal government historically has not met its commitment to provide 40 percent of funding needed to serve students with disabilities," said O'Connell. "The ARRA funding is a welcome increase, and I will work with educators to achieve continued increased funding."

Some possible uses of these limited-term IDEA recovery funds include:

Obtaining state-of-the art assistive technology devices and provide training in their use to enhance access to the general curriculum for students with disabilities.
Providing intensive district-wide professional development for special education and regular education teachers that focuses on scaling-up, through replication; proven and innovative evidence-based school-wide strategies in reading, math, writing, and science; and positive behavioral supports to improve outcomes for students with disabilities.
Developing or expanding the capacity to collect and use data to improve teaching and learning.
Expanding the availability and range of inclusive placement options for preschoolers with disabilities by developing the capacity of public and private preschool programs to serve these children.
Hiring transition coordinators to work with employers in the community to develop job placements for youths with disabilities.
The $564 million in ARRA funds allocated to benefit socioeconomically disadvantaged students constitutes half of the ARRA recovery funds dedicated to Title I, Part A program expected to go to California. The remaining 50 percent of the Title I funds are expected to be awarded in the fall. These recovery funds constitute a one-time increase for Title I, Part A programs. Again, the federal government intends this funding to be used for short-term investments that have the potential for long-term benefits, rather than for expenditures that cannot be sustained once the recovery funds are expended. Some possible uses of these limited-term Title I recovery funds include:

Establishing a system for identifying and training highly effective teachers to serve as instructional leaders in Title I school wide programs and modifying the school schedule to allow for collaboration among the instructional staff.
Providing new opportunities for Title I school-wide programs for secondary school students to use high-quality, online coursework as supplemental learning materials for meeting mathematics and science requirements.
Developing and expanding longitudinal data systems to drive continuous improvement efforts focused on increased achievement in Title I schools.
Districts are also encouraged to consider using these funds to support and improve preschool and early childhood development programs which are an existing allowable use for Title I.

ARRA was signed into law in February by President Barack Obama. The entire spending and tax package to benefit the nation's schools includes more than $100 billion for elementary, secondary, and postsecondary education; $4.1 billion for early education and care; and $26 billion in education tax incentives. A total of $5 billion is expected to benefit public education in California. This unprecedented investment will provide public education and early childhood programs with critically needed funds that can be used to avoid teacher layoffs, continue efforts to close achievement gaps, and improve educational opportunities for California's children and youth.

"President Obama recognizes that investing in education is a key way to rev up America's economic engine," O'Connell said. "The severity of our state budget crisis has resulted in billions of dollars in cuts to California schools. This federal funding is vitally needed to help lessen the blow to public education. I am pleased to be working with the Governor, the Legislature, and the education community to get these resources out to schools quickly so the recovery funds can be put to use as they were intended."

O'Connell is working with U.S. Secretary of Education Arne Duncan, as well as Governor Arnold Schwarzenegger's administration, and the California Legislative Leadership to make sure California obtains maximum funds for which the state is eligible. For more information on ARRA and how it will benefit California, please visit American Recovery and Reinvestment Act - Allocations & Apportionments. For a preliminary list of how much ARRA IDEA funds each school districts is expected to receive, please visit CALIFORNIA-20090213-HR1-LEAs (PDF; Outside Source). For a preliminary list of how much ARRA Title I funds each school district is expected to receive, please visit ESEA Title I LEA Allocations Under the American Recovery and Reinvestment Act (Outside Source).

A final list of exactly how much ARRA funding each school district will receive will take a month to compile.
# # # #

Jack O'Connell — State Superintendent of Public Instruction
Communications Division, Room 5206, 916-319-0818, Fax 916-319-0100

Wednesday, April 01, 2009

No Banker Left Behind

In for a Penny, In for $2.98 Trillion

By Robert Scheer

The good news on the government’s “No Banker Left Behind” program is that, according to the special inspector general’s report on Tuesday, the total handout to date is still less than 3 trillion dollars. It’s only $2.98 trillion, to be precise, an amount six times greater than will be spent by federal, state and local governments this year on educating the 50 million American children in elementary and secondary schools.

The bad news is that even greater amounts of money are to be thrown down what has to be the world record for rat holes.

Where did the money go? Almost all of it went to the bankers and stockbrokers who got us into this mess by insisting that the complex-by-design derivatives they trafficked in should not be regulated by government since they were private transactions between consenting professionals. Sort of like a lap dance: If it doesn’t work out, that’s the problem of the parties involved and no concern of the government.
Click on the title for the full article.

Stiglitz on the Global Economic Crisis

April 1, 2009
Op-Ed Contributor
Obama’s Ersatz Capitalism

THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.

Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.

The prospect of high compensation gave managers incentives to be shortsighted and undertake excessive risk, rather than lend money prudently. Banks made all these mistakes without anyone knowing, partly because so much of what they were doing was “off balance sheet” financing.

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.

The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Even in an imperfect market, one shouldn’t confuse the value of an asset with the value of the upside option on that asset.

But Americans are likely to lose even more than these calculations suggest, because of an effect called adverse selection. The banks get to choose the loans and securities that they want to sell. They will want to sell the worst assets, and especially the assets that they think the market overestimates (and thus is willing to pay too much for).

But the market is likely to recognize this, which will drive down the price that it is willing to pay. Only the government’s picking up enough of the losses overcomes this “adverse selection” effect. With the government absorbing the losses, the market doesn’t care if the banks are “cheating” them by selling their lousiest assets, because the government bears the cost.

The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.

Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

Joseph E. Stiglitz, a professor of economics at Columbia who was chairman of the Council of Economic Advisers from 1995 to 1997, was awarded the Nobel prize in economics in 2001.
Stiglitz is the Chair of the Socialist International Committee on the Global Economic Crisis
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