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Geithner In The Headlights

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April 30, 2009

Regular readers of this blog know that one of my favorite targets for criticism is Treasury Secretary “Turbo” Tim Geithner.  My beef with him concerns his implementation and execution of programs designed to bail out banks at avoidable taxpayer risk and expense.  Lately, we have seen a spate of wonderful articles vindicating my attitude about this man.  One of my favorites was written by Gary Weiss for what was apparently the final issue of Conde Nast Portfolio.  Mr. Weiss began the article discussing what people remember most about Geithner from the first time they saw him on television:

In his worst moments, when the camera lights are burning and the doubt, the contempt, in the Capitol Hill hearing rooms become palpable, Tim Geithner has a look in his eye — at once wary and alarmed, even as he speaks quickly, sometimes interrupting, sometimes repeating his talking points.  It has become a look that he owns.  It is his.  It has made him famous in all the wrong ways.  The Geithner Look.

A few paragraphs later, Weiss recalled Geithner’s disastrous February 10 speech, intended to describe what was then known as the Financial Stability Plan — now referred to as the Public-Private Investment Program (PPIP or pee-pip).  Mr. Weiss recalled one of the reviews of that speech, wherein Geithner was described as having “the eyes of a shoplifter”.  I later learned that it was MSNBC’s Mike Barnicle, who came up with that gem.

The most revealing story about Geithner appeared in the April 26 edition of The New York Times.  This article, written by Jo Becker and Gretchen Morgenson, provided an understanding of Geithner’s background and how that has impacted his decisions and activities as Treasury Secretary.  This piece has received plenty of attention from a variety of commentators, most notably for the in-depth investigation into Geithner’s “roots”.  Becker and Morgenson summed-up their findings this way:

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

After a thorough explanation of how Geithner’s social and professional ties have influenced his thinking, the motivation behind Turbo Tim’s creation of the PPIP became clear:

According to a recent report by the inspector general monitoring the bailout, Neil M. Barofsky, Mr. Geithner’s plan to underwrite investors willing to buy the risky mortgage-backed securities still weighing down banks’ books is a boon for private equity and hedge funds but exposes taxpayers to “potential unfairness” by shifting the burden to them.

Becker and Morgenson apparently went to great lengths to avoid characterizing Geithner as venal or corrupt.  Nicholas von Hoffman said it best while discussing the Times article in The Nation:

The authors did not have to spell it out for readers to conclude that Geithner, while honest in the narrow sense of the word, has been extremely helpful to his billionaire mentors and protectors.

Mr. von Hoffman was not so restrained while discussing the behavior of the bailed-out banks in an earlier piece he wrote for The Nation.  In attempting to figure out why those banks did not get back into the business of lending money after the government-provided capital infusions, von Hoffman pondered over some possible reasons.  First, he wondered whether the banks still lacked enough capital to back-up new loans.  I liked his second idea better:

Another possibility is that the banks may have found new ways to steal money, which is more profitable than lending it.  The banks’ conduct has been so devious, so mendacious, so shifty and so dishonorable that you cannot rule out any kind of sharp practice.  You just can’t trust the bastards.

In recent days, some banks have enhanced their reputations by announcing quarterly profits achieved not by business enterprise but by bookkeeping legerdemain.

Renowned journalist Robert Scheer saw fit to praise Becker and Morgenson’s article in a piece he wrote for the Truthdig website (where he serves as editor).  His analysis focused on how Geithner’s views were shaped while working for his mentors in the Clinton administration:   Robert Rubin and Larry Summers.  Scheer reminded us that these are the people who created “the policies that Clinton put in place and George W. Bush accelerated”:

The seeds of the current economic chaos were planted in those years, in which Wall Street lobbyists were given everything they wanted in the way of radical deregulation, and hence was born the madcap world of credit swaps and other unregulated derivatives.

Scheer noted how Turbo Tim has kept alive, what President Obama has often described as “the failed policies of the past eight years”:

Geithner has since pushed the Obama administration to approach the banking crisis not in response to the needs of destitute homeowners but rather from the side of the bankers who are seizing their homes.  Instead of keeping people in their homes with a freeze on foreclosures, he has rewarded the unscrupulous lenders who conned ordinary folks.

He still wants to give more money to Citigroup, which has just been found woefully short of cash by Treasury’s auditors, and has not stopped Fannie Mae, Freddie Mac and some other big banks ostensibly under government influence, and indeed sometimes ownership, from recently ending their temporary moratoriums on housing foreclosures.  Geithner has been in the forefront of coddling the banks in the hopes that welfare for the rich will trickle down to suffering homeowners, but that has not happened.

Rather than just complaining about the problem, Mr. Scheer has suggested a solution:

What is involved here is an extreme case of government-condoned “moral hazard” offering outrageous compensation to the superrich for screwing up royally.  Where is the socially conscious Obama we voted for?   E-mail him and ask.

Painting Themselves Into A Corner

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April 27, 2009

During the April 21 – 24 timeframe, ABC News and The Washington Post conducted a poll to ascertain President Obama’s approval rating.  The poll revealed that 69 percent of Americans favor the job performance of our new President.  Fifty percent of those polled believe that the country is on the right track (compared with 19 percent just before Obama’s inauguration).  This seemed like a particularly strong showing since, just one week before this poll began, we saw the anti-taxation “tea parties” that had been promoted by Fox News.

A recent article by Ben Smith and Jonathan Martin for Politico revealed that in some states, the “tea parties” have helped energize the Republican base:

“There is a sense of rebellion brewing,” said Katon Dawson, the outgoing South Carolina Republican Party chairman, who cited unexpectedly high attendance at anti-tax “tea parties” last week.

As the article by Smith and Martin pointed out, this “rebellion” is taking place at exactly the time when many Republican Party leaders are tacking to the center and looking for someone like Utah Governor Jon Huntsman as a possible Presidential candidate for 2012.  Nevertheless, as the article noted, rank-and-file Republicans outside of Washington have no desire to adopt more moderate views:

Within the party, conservative groups have grown stronger absent the emergence of any organized moderate faction.

Many of those comprising the Republican base appear to be motivated by antipathy toward the increasing acceptance of gay marriage, rather than by a reaction to all of the bailouts that have been taking place.  In fact, I was surprised to observe, during the extensive “tea party” coverage, that none of the protesters were upset about the bank bailouts or Treasury Secretary “Turbo” Tim Geithner’s use of the Federal Reserve to manage the bank bailouts in furtherance of his attempts to avoid legislative oversight.  I guess Fox News had not primed the protesters for that sort of outrage.

The Politico article by Smith and Martin reveals that “cultural issues” remain as the primary concern of the Republican base.  Meanwhile, Newt Gingrich is trying to position himself as the next Republican standard bearer.  Those touting the “sanctity of marriage” (including the Catholic Church) don’t seem particularly concerned that Newt has been married three times.  Newt’s vision for the future is the same vision he was seeing almost twenty years ago:  lower taxes.  If others within the Republican Party have a broader vision and feel the need to expand their appeal to the voters, they can expect plenty of opposition from the party’s base — and therein lies the problem.  Newsweek‘s Howard Fineman has written extensively about how the political primary system works to the benefit of political candidates with the most extreme views.  This is because the only people who vote in political primaries are those with strongly held views and most of them come from the extremes.  This is why wing-nuts such as Minnesota Congresswoman Michelle Bachmann get nominated.  In the absence of any strong moderate or centrist uprising within the Republican ranks, the GOP could be destined to find itself marginalized.  It’s beginning to appear as though the only way for promising, new, centrist Republicans to get elected is to run as independents in the general elections.  Once elected, they can reclaim the “high ground” within the party.  In the mean time, Republican leaders are either unconcerned by or oblivious to the fact that they are painting themselves into a corner by continuing to pander to their base.

Just Keep Walking

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April 23, 2009

Peggy Noonan had an esteemed career as speechwriter to former Presidents Ronald Reagan and George H.W. Bush.  She now writes a weekly column for The Wall Street Journal and she frequently appears as a panelist on many television news programs.  She has been on the blogroll of this website since its inception.

On Sunday, April 19, she appeared as a panelist on ABC’s This Week with George Stephanopoulos.  During that program’s Roundtable discussion, the subject eventually turned to President Obama’s decision not to prosecute the CIA operatives involved in the torture of detainees in the “War on Terror” as well as the decision to release the so-called “torture memos”.  Those memos were prepared by the Office of Legal Counsel during the Bush administration.  They described the permissible use of such techniques as waterboarding, sleep deprivation, confinement in a box with insects and other sadistic acts, intended to get detainees to provide valuable information.  Roundtable panelist Sam Donaldson expressed his opinion that the operatives who administered these interrogation techniques were not “just following orders”; they believed they were following the law because they were relying on the legal opinions expressed in those memos.  However, as Donaldson explained, if the people who devised those methods and wrote the legal memos condoning their use were “just trying to find cover” and just trying to find a way to get around American law and the Constitution, they should be held accountable in a court of law.  Donaldson added that if the President wanted to pardon those people, he should do so, although it would be important for those individuals to be held accountable before a court.

Peggy Noonan then remarked:

Oh, I have reservations about all of this.  It’s hard for me to look at a great nation issuing these documents and sending them out to the world and thinking:  “Oh, much good will come of that?”  Sometimes in life you wanna’ just keep walkin’.

Sam Donaldson then interrupted with the question as to whether it was right “to let people walk who may have committed a crime”.  Noonan then replied:  “Some of life has to be mysterious”.

Noonan’s remarks drew immediate outrage from Senator Russ Feingold of Wisconsin.  As Sam Stein reported for The Huffington Post, Feingold was harshly critical of the rationalizations for avoiding prosecution of these people, as expressed by government officials as well as those in the news media.  Stein quoted the Senator’s expressed indignation:

“If you want to see just how outrageous this is, I refer you to the remarks made by Peggy Noonan this Sunday” …  “I frankly have never heard anything quite as disturbing as her remark that was something to the affect of:   ‘well sometimes you just have to move on’.”

Noonan’s opinion is emblematic of the mainstream media’s all-too-frequent response to scandalous events and it demonstrates why so many people have turned to the Internet to get the news.  If you overhear someone in a restaurant arranging a bribe with a politician:  Just keep walking.  If you discover information about illegal toxic dumping by one of your publication’s sponsors:  Just keep walking.  If Harry Markopolos approaches you and tries to explain how Bernie Madoff is running a Ponzi scheme:  Just keep walking.

Peggy Noonan’s statement wasn’t just a situation where she “misspoke”.  It was the expression of an arrogant attitude held by too many in the media who decide it is up to them to determine when the public deserves to know something and when it doesn’t.  After all:  “Some of life has to be mysterious”.

Shame on you, Peggy Noonan!  Shame on you!

Revenge Of The AstroNerds

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April 20, 2009

I used to be an AstroNerd.  Back in the mid-1980s, I was a member of the Chicago Astronomical Society.   On the second Friday of every month, I would attend the monthly meeting at 7 p.m.  We would usually see slides of the spectacular space pictures taken by an astronomer who had the opportunity to use the telescope at some major observatory and there would be a discussion period.  Back then, the launch of the Hubble Space Telescope seemed as though it would never happen because of the tragedy involving the Challenger space shuttle.  At the Chicago Astronomical Society meetings, I was amused by the fact that some of the members were outraged because manufacturers of “hobbyist” telescopes (such as Celestron and Meade) were introducing new scopes, driven by a hand-held computer, allowing the user to view dozens of different celestial objects over the course of an hour.  These complainers had been used to working on calculations as to where to find some binary star or nebula they wanted to see and spending almost the entire night trying to find it.  Suddenly, any spoiled brat with two thousand bucks to spend, could get involved in astronomy with a much greater reward.  To the old-timers:  this was cheating.  At the end of each meeting, I would walk home from the Adler Planetarium and watch Miami Vice.  Although I have yet to purchase a really nice Celestron, I eventually did move to Miami, where there is so much humidity and city light, you can only see a small handful of stars even on a clear, “winter” night.  To escape the reflected urban light, some people take their telescopes out to the Everglades and feed themselves to the alligator-sized mosquitoes.  Others risk death by driving along the two-lane, Overseas Highway (the head-on collision capitol of the world) to go sky-watching in the Florida Keys.

Last week, I was amazed by the television program, 400 Years of the Telescope, broadcast on PBS.   (It’s also available on DVD at the above link.)  I found it shocking that currently, there are a number of absurdly enormous earthbound telescopes under construction.  Apparently, computer technology can be used to enhance the images from these scopes to rival the views from the Hubble.  As for the Hubble, I was surprised to learn that the numerous repairs to that device, beginning with the heroic job by astronaut Story Musgrave, actually included upgrades.  The current image quality from the Hubble is now “hundreds of times better” than its designers ever anticipated.  An example is this photograph of the Orion Nebula taken in 2006.

Given our current economic crisis, astronomy and space exploration are having more trouble than ever obtaining funding.   An example of this is discussed in the current (May) issue of The Atlantic.  (As an aside, this issue has three great articles about the economy here, here and here.)  Thomas Mallon wrote an article about the current effort by a number of scientists and Carl Sagan’s widow, Ann Druyan, to develop and launch a privately-funded spacecraft that would be propelled by sunlight.  They anticipate that this concept could eventually be used for interstellar flight.  As Mallon pointed out, NASA will soon be out of the business of launching people into space, with no viable plan on the drawing board to continue doing so:

Between the shuttle’s planned retirement in 2010 and a new system’s development, the U.S. government will have to rely on the old Soviet Soyuz to get crews and supplies up to the International Space Station.  Worse, the first of our own new launch vehicles, Ares 1, is already beginning to look unreliable, at least in tests.  American politicians now mostly avoid the old conditional trope “If we can put a man on the moon” — because we can’t, not anymore.

Mallon explained that Ann Druyan has found it difficult obtaining funding because these days, the people with the enthusiasm for space exploration and the money — are using it to pay their own fare for a ride into space:

The Discovery Channel did put up a quarter million dollars to jump-start the renewed effort, and she has her fingers crossed for a few big potential donors she can’t really talk about.  Even so, she can’t get over the general timidity and lack of imagination she keeps encountering, and she’s particularly aghast at the scads of cash some ego-tripping big-money men seem willing to spend on personal space tourism:  “Isn’t the whole planet enough for them?”  Google’s Sergey Brin — whose company the project also appealed to, unsuccessfully, years ago — is yet another billionaire who hopes to romp around in orbit.

Although The Great Recession is having an attenuated impact on the super-rich, its consequences for society as a whole will be incalculable if too much scientific research is put on “hold” indefinitely.  Let’s hope that some billionaires rise to the occasion and save us from falling into a dark age of scientific stagnation.  Come on, Bill Gates  —  give your fellow nerds some help!

Black And Reich

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April 16, 2009

I guess it’s because I was using TurboTax to work on my income tax return for the past few days, that I was constantly reminded of Treasury Secretary “Turbo” Tim Geithner.  Criticism continues to abound concerning the plan by Turbo Tim and Larry Summers for getting the infamous “toxic assets” off the balance sheets of our nation’s banks.  It’s known as the Public-Private Investment Program (a/k/a:  PPIP or “pee-pip”).  I recently read an article by a couple of Economics professors named Laurence J. Kotlikoff (Boston University) and Jeffrey Sachs (Columbia University) wherein they referred to this plan as the GASP (Geithner And Summers Plan).  Their bottom line:

The Geithner-and-Summers Plan should be scrapped.  President Obama should ask his advisors to canvas the economics and legal community to hear the much better ideas that are in wide circulation.

One of the harshest critics of the PPIP is William Black, an Economics professor at the University of Missouri.  Professor Black gained recognition during the 1980s while he was deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC).  During that time, the FSLIC helped block an attempted sale of Charles Keating’s Lincoln Savings and Loan, which was subsequently seized by the Federal Home Loan Bank Board, despite opposition from five United States Senators, who became known as the Keating Five.  A recent interview with Professor Black by Jack Willoughby of Barrons revealed that Black’s aversion to the PPIP starts with the fact that it is being implemented by Geithner and Summers:

We have failed bankers giving advice to failed regulators on how to deal with failed assets.  How can it result in anything but failure?  If they are going to get any truthful investigation, the Democrats picked the wrong financial team.  Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems.  Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.

I particularly enjoyed Black’s characterization of the PPIP’s use of government (i.e. taxpayer) money to back private purchases of the toxic assets:

It is worse than a lie.  Geithner has appropriated the language of his critics and of the forthright to support dishonesty.  That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies.  He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent.  He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything.  He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

For the past month or so, I’ve been hearing many stock market commentators bemoan the fact that there is so much money “on the sidelines”.  In other words, people with trading accounts are letting their money sit in brokerage money market accounts, rather than risking it in the stock markets.  I believe that many of these people are so discouraged by the sleazy environment on Wall Street, they are waiting for things to get cleaned up before they take any more chances in a casino where so many games are rigged.  In the Barrons interview, Black made a point that reinforced my opinion:

His (Geithner’s) use of language like “legacy assets” — and channeling the worst aspects of Milton Friedman — is positively Orwellian.  Extreme conservatives wrongly assume that the government can’t do anything right.  And they wrongly assume that the market will ultimately lead to correct actions.  If cheaters prosper, cheaters will dominate.  It is like Gresham’s law:  Bad money drives out the good.  Well, bad behavior drives out good behavior, without good enforcement.

By asking Professor Black a few simple, straightforward questions (in layperson’s language) Jack Willoughby got some fantastic and refreshing information in return (also in layperson’s language) making this article a “must read”.  As Black and many others have pointed out, these huge financial institutions must be broken down into smaller businesses.  Why isn’t this being undertaken?  Professor Black looks to where the buck stops:

Obama, who is doing so well in so many other arenas, appears to be slipping because he trusts Democrats high in the party structure too much.

These Democrats want to maintain America’s pre-eminence in global financial capitalism at any cost.  They remain wedded to the bad idea of bigness, the so-called financial supermarket — one-stop shopping for all customers — that has allowed the American financial system to paper the world with subprime debt.  Even the managers of these worldwide financial conglomerates testify that they have become so sprawling as to be unmanageable.

Another critic of the Geithner-Summers PPIP is former Secretary of Labor, Robert Reich.  Reich is now a professor at the University of California at Berkeley.  His April 6 blog entry discussed the fact that the top 25 hedge fund managers earned a total of $11.6 billion last year:

But what causes me severe heartburn is that these are exactly the sort of investors Tim Geithner is trying to lure in to buy troubled assets from banks, with an extraordinary offer financed by you and me and other taxpayers:  If it turns out the troubled assets are worth more than these guys pay for them, they could make a fortune.  If it turns out the assets are worth less, these guys won’t lose a thing because we taxpayers will bail them out.  Plus, they get to pick only the highest-rated of the big banks’ bad assets and can review them carefully before buying.

What a deal.  Why can’t you and I get in on this bonanza? Because we’re too small.  The government will designate only about five big investor funds — run or owned by the richest of the rich — as potential buyers.  Hedge funds fit the bill perfectly.

It’s nice to know that more and more prominent individuals in the world of economics and public policy are taking the ethical stand against a program based on the principle of “socialized loss and privatized gain”.  I just hope President Obama doesn’t take too long to realize that these people are right and that the Geithner – Summers team is wrong.

Where’s Mine?

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April 13, 2009

Lately, I’ve been receiving blog comments wherein the writers tell their hard luck stories about the current recession.  My skeptical nature leads me to suspect these stories are fake and in fact, they may be the most recent incarnation of the Nigerian e-mail scam.  Rather than spamming large numbers of people with e-mails, the perpetrator simply posts a “comment” to a blog, telling a tale of woe and including an e-mail address.  The con artist then waits for generous people to start dumping money into his or her PayPal account (since the recipient’s e-mail address is all that is necessary to send funds).  With the economy in shambles, there are plenty of prosperous individuals who feel downright guilty about basking in good fortune while so many are suffering.  Human nature being what it is, many characters have sensed that the time is right to “put the touch on” those with bleeding hearts.

The other day, I received an e-mail from my brother, Mike.  It contained a link to a story in Advertising Age about how publishers of the more liberal-oriented blogs are pressuring liberal activist groups to advertise on those websites.   The article began with a quote from Greg Sargent of The Plum Line:

Some of the leading liberal bloggers are privately furious with the major progressive groups — and in some cases, the Democratic Party committees — for failing to spend money advertising on their sites, even as these groups constantly ask the bloggers for free assistance in driving their message.

Sargent’s piece included complaints from liberal bloggers who feel stiffed by the left-wing organizations they support with favorable postings:

“They come to us, expecting us to give them free publicity, and we do, but it’s not a two way street,” Jane Hamsher, the founder of FiredogLake, said in an interview.  “They won’t do anything in return.  They’re not advertising with us.   …”

*    *    *

“Most want the easy way — having a big blogger promote their agenda,” adds Markos Moulitsas, the founder of DailyKos.  “Then they turn around and spend $50K for a one-page ad in the New York Times or whatever.”  Moulitsas adds that officials at such groups often do nothing to engage the sites’s audiences by, say, writing posts, instead wanting the bloggers to do everything for them.

The Ad Age article, by Ken Wheaton, contained a link to a posting by John Cook of Gawker, entitled:  “Left Wing Blogs Try on Extortion as a Business Model”.  Cook explained why it would not make sense for progressive activist groups to advertise on blogs whose readership already may contribute to those groups without seeing an ad reminding them to do so:

Unless Hamsher, Moulitsas, et. al. start attracting enormous numbers of readers who aren’t already politically engaged and don’t already agree with Americans United for Exchange, then the group would be wasting its money on their sites.  The point is to persuade and rally the actual country, not the liberal echo chamber.  The only reason for the left-wing establishment to divert more ad dollars to the blogs than it already is would be to keep them happy, well-fed, and useful.

Ken Wheaton voiced similar logic in the Ad Age article:

Earth to left-wing bloggers:  If I’m a Democratic group, why am I going to pay to advertise on your sites?  It’s the epitome of preaching to the converted.

This is exactly why these liberal groups should start advertising with me on TheCenterLane.com.  This is a centrist blog, attracting readers from across the entire political spectrum.  If you want to reach those people, this is the place to do it.  Additionally, these groups should publicize and speak highly of TheCenterLane.com as much as possible in order to draw more views to their ads appearing on this blog.  This website would be a good place for conservatives to advertise, as well.  However, conservatives are by their very nature, uh  …  tight with money and as a result, they would probably be less willing to part with it in order to advertise on a large number of blogs.  Nevertheless, the invitation remains open.

Just think about it:  What good has the DailyKos blog ever done for the Democrats?  They promoted that inane rumor that Bristol Palin was the “real” mother of Trig.  Everyone knows that Down syndrome is a risk arising from pregnancy during the mid to late forties.  The idea that Bristol was the mother rather than Sarah, was just plain stupid.  On the other hand, if the Democratic Party were to advertise on my website, I could start a rumor that Bristol Palin and Levi Johnston are going to make a porno together.  Now that’s a story with LEGS (in every sense)!

So get with it, Democrats and Republicans!  If you want some really vile rumors about your opponents (and their family members) to start spreading through the blogosphere, advertise here!

Disappointer-In-Chief

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April 9, 2009

President Obama must feel relieved by the cartoonish attacks against him by the likes of Rep. Michelle Bachmann and Fox News character, Sean Hannity.  Bachmann’s accusations that Obama is planning “re-education camps” for young people surely brought some comic relief to the new President.  Hannity must have caused some thunderous laughter in the White House with his claim that during a speech the President gave in Strasbourg, France, we saw examples of how “Obama attacks America”.  These denigration attempts were likely received as a welcome break from criticism being voiced by commentators who are usually supportive of the Obama administration.  Take Keith Olbermann for example.  He has not been holding back on expressing outrage over the Obama administration’s claim that the Patriot Act provides sovereign immunity to the federal government in civil lawsuits brought by victims of illegal wiretapping conducted by the Bush administration.  Another example of a disillusioned Obama supporter is MSNBC’s Rachel Maddow, who has been fretting over the President’s plan to up the stakes for success in Afghanistan by increasing our troop commitment there and settling in to fight the good fight for as long as it takes.

Nothing has broken the spirits of Obama supporters more than his administration’s latest bank bailout scheme —  a/k/a  the Public-Private Investment Program (PPIP or “pee-pip”).  Although Treasury Secretary “Turbo” Tim Geithner has been the guy selling this plan to Congress and the public, the “man behind the curtain” who likely hatched this scam is Larry Summers.  Summers is the economist whom Obama named director of the National Economic Council.  At the time of that appointment, many commentators expressed dismay, since Summers, as Bill Clinton’s Treasury Secretary, supported repeal of the 1933 Glass-Steagall Act.  It is widely accepted that the repeal of the Glass-Steagall Act helped bring about the subprime mortgage crisis and our current economic meltdown.  On the November 25, 2008 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers:  “I think this is really troubling.”  She was right.  It was recently reported by Jeff Zeleny of The New York Times that Summers earned more than $5 million last year from the hedge fund, D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money.  Many economists are now voicing opinions that the Geithner-Summers Public-Private Investment Program (PPIP) is “really troubling”, as well.  Nobel laureates Paul Krugman and Joseph Stiglitz have been vocal critics of this plan.  As James Quinn reported for London’s Telegraph:  Professor Stiglitz said that the plan is “very flawed” and “amounts to robbery of the American people.”

Obama supporter George Soros, the billionaire financier and hedge fund manager, had this to say to Saijel Kishan and Kathleen Hays of Bloomberg News about Obama’s performance so far:

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets:  The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009).  “Unfortunately, there’s just a little bit too much continuity with the previous administration.”

The usually Obama-friendly Huffington Post has run a number of critical pieces addressing the Geithner – Summers plan.  Sam Stein pointed out how the plan is “facing a new round of withering criticism from economists”:

These critiques have produced a Washington rarity:  the re-sparking of a debate that, in the wake of positive reviews from Wall Street, had largely subsided.  Just as Geithner seemed to be finding his political footing, the spotlight has been placed right back on his cornerstone proposal, with critics calling into question both his projections and past testimony on the matter.

Jeffrey Sachs, an Economics professor at Columbia University, wrote a follow-up article for The Huffington Post on April 8, affirming earlier criticisms leveled against the bailout proposal with the added realization that “the situation is even potentially more disastrous” than previously described:

Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.

Zachary Goldfarb of The Washington Post took a closer look at Treasury Secretary Geithner’s testimony before Congress last month, to ascertain the viability of some of the proposals Geithner mentioned at that hearing:

The Obama administration’s plan for a sweeping expansion of financial regulations could have unintended consequences that increase the very hazards that these changes are meant to prevent.

Financial experts say the perception that the government will backstop certain losses will actually encourage some firms to take on even greater risks and grow perilously large.  While some financial instruments will come under tighter control, others will remain only loosely regulated, creating what some experts say are new loopholes.  Still others say the regulation could drive money into questionable investments, shadowy new markets and lightly regulated corners of the globe.

If President Obama does not change course and deviate from the Geithner-Summers plan before it’s too late, his legacy will be a ten-year recession rather than a two year recession without the PPIP.  Worse yet, the toughest criticism and the most pressure against his administration are coming from people he has considered his supporters.  At least he has the people at Fox News to provide some laughable “decoy” reports to keep his hard-core adversaries otherwise occupied.

Geithner Goes Rogue

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April 2, 2009

Forget what you’ve heard about “oversight” and “transparency”.  What is really going on with the bank bailouts is beginning to scare some pretty level-headed people.

On March 31, the Senate Finance Committee held a hearing on the oversight of TARP (the Troubled Asset Relief Program, a/k/a the $700 billion bank bailout initiated last fall by former Treasury Secretary, Hank Paulson).  The hearing featured testimony by Elizabeth Warren, chairwoman of the Congressional Oversight Panel; Neil Barofsky, Speical Inspector General for TARP and Gene Dodaro of the General Accounting Office.  All three testified that the Treasury Department was not cooperating with their efforts to conduct oversight.  In other words:  They are being stonewalled.  Worse yet, Ms. Warren testified that she could not even get the Treasury Department to explain what the hell is its strategy for TARP.  As Chris Adams reported for the McClatchy Newspapers:

Noting that TARP passed Congress six months ago, Warren said that her group has repeatedly called on the Treasury Department to provide a clear strategy for the program – and that “the absence of such a vision hampers effective oversight.”

Although she has asked Treasury to explain its strategy, “Congress and the American public have no clear answer to that question.”

That article also included Warren’s testimony that she experienced similar difficulties in obtaining information about the TALF (Term Asset-Backed Securities Loan Facility):

TARP is one of several programs the government has launched in recent months to help ailing institutions and even bolster healthy banks.  Warren singled out one program, known as TALF, for involving “substantial downside risk and high costs for the American taxpayer” while offering big potential rewards for private interests.  She said the public information about that program was “contradictory, promoting substantial confusion.”

Matthew Jaffe of ABC News pointed out that Neil Barofsky, Speical Inspector General for TARP, voiced similar concerns during his testimony.  Not surprisingly, the prepared testimony of the GAO’s Gene Dodaro revealed that:

We continue to note the difficulty of measuring the effect of TARP’s activities.

*    *    *

. . .  Treasury has yet to develop a means of regularly and routinely communicating its activities to relevant Congressional committees, members, the public and other critical stakeholders.

The Treasury Department’s inability to account for what the banks have been doing with TARP funds is based on the simple fact that it hasn’t even bothered to ask the banks that question.  As Steve Aquino reported for Mother Jones:

Neil Barofsky, the Special Inspector General of TARP, testified that the Treasury has yet to require TARP recipients to deliver reports disclosing exactly how they are spending taxpayer money.  “[C]omplaints that it was impractical or impossible for banks to detail how they used TARP funds were unfounded,” Barofsky said.  “While some banks indicated that they had procedures for monitoring their use of TARP money, others did not but were still able to give information on their use of funds.”

Apparently, Treasury Secretary “Turbo” Tim Geithner has adopted a “Don’t Ask — Don’t Tell” policy on the subject of what banks and other financial institutions do with the TARP money they receive.  Steve Aquino’s article emphasized how Elizabeth Warren’s testimony raised suspicions about the relationship between the Treasury and AIG — along with its “counterparties” (such as Goldman Sachs):

Congressional Oversight Panel chair Elizabeth Warren — who made news last month when she reported the Treasury had received securities worth $78 billion less than it paid for through TARP — cast more doubt on the Treasury’s relationship with AIG, saying “the opaque nature of the relationship among AIG, its counterparties, the Treasury, and the Federal Reserve Banks, particuarly the Federal Reserve Bank of New York, has substantially hampered oversight of the TARP program by Congress.”

That quote is particularly damning of Treasury Secretary Tim Geithner, because Warren specifically mentions the New York Fed, which Geithner headed before coming to Washington, and who also organized the first bailout of AIG.

At this point, it is difficult to understand why anyone, especially President Obama, would trust Turbo Tim to solve the “toxic asset” problem, with the scam now known as the Public-Private Investment Program or PPIP (pee-pip).  John P. Hussman, PhD, President of Hussman Investment Trust, wrote a superb analysis demonstrating the futility of the PPIP.  Here’s his conclusion:

The misguided policy of defending bondholders against losses with public funds has increased uncertainty, crowded out private investment, harmed consumer confidence, and prompted defensive saving against possible adversity.  We observe this as a plunge in gross domestic investment that is much broader than just construction and real estate, and a corresponding but misleading “improvement” in the current account deficit as domestic investment plunges.

Aside from a few Nobel economists such as Joseph Stiglitz (who characterized the Treasury policy last week as “robbery of the American people”) and Paul Krugman (who called it “a plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg”), the recognition that this problem can be addressed without a massive waste of public funds (and that it is both dangerous and wrong to do so) is not even on the radar.

In short, attempting to avoid the need for debt restructuring by wasting trillions in public funds increases the likelihood that the current economic downturn will be prolonged, places a massive claim on our future production in order to transfer our nation’s wealth to the bondholders of mismanaged financial companies, and raises the likelihood that any nascent recovery will be cut short by inflation pressures.  We are nowhere near the completion of this deleveraging cycle.

Unfortunately, we are also nowhere near finding someone who has the will or the ability to pull the plug on Turbo Tim’s recipe for disaster.