Treasury Department « TheCenterLane.com

Where Obama Went Wrong

September 27th, 2010 Posted in Uncategorized

Sep, 27 2010

Comments Off

September 27, 2010

One could write an 800-page book on this subject. During the past week, we’ve been bombarded with explanations from across the political spectrum, concerning how President Obama has gone from wildly-popular cult hero to radioactive force on the 2010 campaign trail. For many Democrats facing re-election bids in November, the presence of Obama at one of their campaign rallies could be reminiscent of the appearance of William Macy’s character from the movie, The Cooler. Wikipedia’s discussion of the film provided this definition:

In gambling parlance, a “cooler” is an unlucky individual whose presence at the tables results in a streak of bad luck for the other players.

Barack Obama was elected on a wave of emotion, under the banners of “Hope” and “Change”. These days, the emotion consensus has turned against Obama as voters feel more hopeless as a result of Obama’s failure to change anything. His ardent supporters feel as though they have been duped. Instead of having been tricked into voting for a “secret Muslim”, they feel they have elected a “secret Republican”. At the Salon.com website, Glenn Greenwald has documented no less than fifteen examples of Obama’s continuation of the policies of George W. Bush, in breach of his own campaign promises.

One key area of well-deserved outrage against President Obama’s performance concerns the economy. The disappointment about this issue was widely articulated in December of 2009, as I pointed out here. At that time, Matt Taibbi had written an essay for Rolling Stone entitled, “Obama’s Big Sellout”, which inspired such commentators as Edward Harrison of Credit Writedowns to write this and this. Beyond the justified criticism, polling by Pew Research has revealed that 46% of Democrats and 50% of Republicans incorrectly believe that the TARP bank bailout was signed into law by Barack Obama rather than George W. Bush. President Obama invited this confusion with his nomination of “Turbo” Tim Geithner to the position of Treasury Secretary. As President of the Federal Reserve of New York, Geithner oversaw the $13 billion gift Goldman Sachs received by way of Maiden Lane III.

The emotional battleground of the 2010 elections provided some fun for conservative pundit, Peggy Noonan this week as a result of the highly-publicized moment at the CNBC town hall meeting on September 20. Velma Hart’s question to the President was emblematic of the plight experienced by many 2008 Obama supporters. Noonan’s article, “The Enraged vs. The Exhausted” characterized the 2010 elections as a battle between those two emotional factions. The “Velma Moment” exposed Obama’s political vulnerability as an aloof leader, lacking the ability to emotionally connect with his supporters:

The president looked relieved when she stood. Perhaps he thought she might lob a sympathetic question that would allow him to hit a reply out of the park. Instead, and in the nicest possible way, Velma Hart lobbed a hand grenade.

“I’m a mother. I’m a wife. I’m an American veteran, and I’m one of your middle-class Americans. And quite frankly I’m exhausted. I’m exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are.” She said, “The financial recession has taken an enormous toll on my family.” She said, “My husband and I have joked for years that we thought we were well beyond the hot-dogs-and-beans era of our lives. But, quite frankly, it is starting to knock on our door and ring true that that might be where we are headed.”

What a testimony. And this is the president’s base. He got that look public figures adopt when they know they just took one right in the chops on national TV and cannot show their dismay. He could have responded with an engagement and conviction equal to the moment. But this was our president — calm, detached, even-keeled to the point of insensate. He offered a recital of his administration’s achievements: tuition assistance, health care. It seemed so off point. Like his first two years.

Kirsten Powers of The Daily Beast provided the best analysis of how the “Velma Moment” illustrated Obama’s lack of empathy. Where Bill Clinton is The Sorcerer, Barack Obama is The Apprentice:

Does Barack Obama suffer from an “empathy deficit?” Ironically, it was Obama who used the phrase in a 2008 speech when he diagnosed the United States as suffering from the disorder. In a plea for unity, candidate Obama said lack of empathy was “the essential deficit that exists in this country.” He defined it as “an inability to recognize ourselves in one another; to understand that we are our brother’s keeper; we are our sister’s keeper; that, in the words of Dr. King, we are all tied together in a single garment of destiny.”

* * *

And at a 2008 rally in Westerville, Ohio, Obama said, “One of the values that I think men in particular have to pass on is the value of empathy. Not sympathy, empathy. And what that means is standing in somebody else’s shoes, being able to look through their eyes. You know, sometimes we get so caught up in ‘us’ that it’s hard to see that there are other people and that your behavior has an impact on them.”

Yes, President Obama, sometimes that does happen. Take a look in the mirror. Nothing brought this problem into relief like the two Obama supporters who confronted the president at a recent town hall meeting expressing total despair over their economic situation and hopelessness about the future. Rather than expressing empathy, Obama seemed annoyed and proceeded with one of his unhelpful lectures.

* * *

One former Emoter-in-Chief, Bill Clinton, told Politico last week, “[Obama’s] being criticized for being too disengaged, for not caring. So he needs to turn into it. I may be one of the few people that think it’s not bad that that lady said she was getting tired of defending him. He needs to hear it. You need to hear. Embrace people’s anger, including their disappointment at you. And just ask ‘em to not let the anger cloud their judgment. Let it concentrate their judgment. And then make your case.”

Then the kicker: “[Obama has] got to realize that, in the end, it’s not about him. It’s about the American people, and they’re hurting.”

The American people are hurting because their President sold them out immediately after he was elected. When faced with the choice of bailing out the zombie banks or putting those banks through temporary receivership (the “Swedish approach” – wherein the bank shareholders and bondholders would take financial “haircuts”) Obama chose to bail out the banks at taxpayer expense. So here we are . . . in a Japanese-style “lost decade”. In case you don’t remember the debate from early 2009 – peruse this February 10, 2009 posting from the Calculated Risk website. After reading that, try not to cry after looking at this recent piece by Barry Ritholtz of The Big Picture entitled, “We Should Have Gone Swedish . . .” :

The result of the Swedish method? They spent 4% of GDP ($18.3 billion in today’s dollars), to rescue their banks. That is far less than the $trillions we have spent — somewhere between 15-20% of GDP.

Final cost to the Swedes? Less than 2% of G.D.P. (Some officials believe it was closer to zero, depending on how certain rates of return are calculated).

In the US, the final tally is years away from being calculated — and its likely to be many times what Sweden paid in GDP % terms.

It has become apparent that the story of “Where Obama Went Wrong” began during the first month of his Presidency. Whoever undertakes the task of writing that book will be busy for a long time.

2010 campaign, aloof leader, bank bailout, banking crisis, banking lobby, Barack Obama, Barry Ritholtz, Bill Clinton, blog, Calculated Risk website, centrist, CNBC town hall meeting, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Credit Writedowns, crony capitalism, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, Edward Harrison, empathy, empathy deficit, Federal Reserve, Federal Reserve of New York, financial crisis, financial reform, George W Bush, Glenn Greenwald, Goldman Sachs, government guarantees, insolvent banks, investment banks, Japanese-style lost decade, John Burke, John T Burke Jr, Kirsten Powers, liberal, lobbyists, Maiden Lane III, Matt Taibbi, moral hazard, News, Obama Administration, Obama Presidency, Obamas Big Sellout, Opinion, Peggy Noonan, Pew Research, Political, Politico, Politics, President of the United States, recession, regulatory capture, Republican, Republican Party, Rolling Stone, Salon com, secret Muslim, secret Republican, self-dealing insiders, socialized loss and privatized gain, Swedish approach, systemic risk, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, temporary receivership, The Big Picture, the center lane, The Cooler, The Daily Beast, the economy, The Enraged vs The Exhausted, The White House, thecenterlane, Tim Geithner, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, Turbo Tim Geithner, United States Senate, United States Treasury, Velma Hart, Velma Moment, Wall Street, Wall Street lobbyists, We Should Have Gone Swedish, wealth transfer, welfare for the rich, Where Obama Went Wrong, William Macy, zombie banks

A Shocking Decision

September 23rd, 2010 Posted in Uncategorized

Sep, 23 2010

Comments Off

September 23, 2010

Nobody seems too surprised about the resignation of Larry Summers from his position as Director of the National Economic Council. Although each commentator seems to have a unique theory for Summers’ departure, the event is unanimously described as “expected”.

When Peter Orszag resigned from his post as Director of the Office of Management and Budget, the gossip mill focused on his rather complicated love life. According to The New York Post, the nerdy-looking number cruncher announced his engagement to Bianna Golodryga of ABC News just six weeks after his ex-girlfriend, shipping heiress Claire Milonas, gave birth to their love child, Tatiana. That news was so surprising, few publications could resist having some fun with it. Politics Daily ran a story entitled, “Peter Orszag: Good with Budgets, Good with Babes”. Mark Leibovich of The New York Times pointed out that the event “gave birth” to a fan blog called Orszagasm.com. Mr. Leibovich posed a rhetorical question at the end of the piece that was apparently answered with Orszag’s resignation:

This goes to another obvious — and recurring — question: whether someone whose personal life has become so complicated is really fit to tackle one of the most demanding, important and stressful jobs in the universe. “Frankly I don’t see how Orszag can balance three families and the national budget,” wrote Joel Achenbach of The Washington Post.

The shocking nature of the Orszag love triangle was dwarfed by President Obama’s nomination of Orszag’s replacement: Jacob “Jack” Lew. Lew is a retread from the Clinton administration, at which point (May 1998 – January 2001) he held that same position: OMB Director. That crucial time frame brought us two important laws that deregulated the financial industry: the Financial Services Modernization Act of 1999 (which legalized proprietary trading by the Wall Street banks) and the Commodity Futures Modernization Act of 2000, which completely deregulated derivatives trading, eventually giving rise to such “financial weapons of mass destruction” as naked credit default swaps. Accordingly, it should come as no surprise that Lew does not believe that deregulation of the financial industry was a proximate cause of the 2008 financial crisis. Lew’s testimony at his September 16 confirmation hearing before the Senate Budget Committee was discussed by Shahien Nasiripour of The Huffington Post:

Lew, a former OMB chief for President Bill Clinton, told the panel that “the problems in the financial industry preceded deregulation,” and after discussing those issues, added that he didn’t “personally know the extent to which deregulation drove it, but I don’t believe that deregulation was the proximate cause.”

Experts and policymakers, including U.S. Senators, commissioners at the Securities and Exchange Commission, top leaders in Congress, former financial regulators and even Obama himself have pointed to the deregulatory zeal of the Clinton and George W. Bush administrations as a major cause of the worst financial crisis since the Great Depression.

During 2009, Lew was working for Citigroup, a TARP beneficiary. Between the TARP bailout and the Federal Reserve’s purchase of mortgage-backed securities from that zombie bank, Citi was able to give Mr. Lew a fat bonus of $950,000 – in addition to the other millions he made there from 2006 until January of 2009 (at which point Hillary Clinton found a place for him in her State Department).

The sabotage capabilities Lew will enjoy as OMB Director become apparent when revisiting my June 28 piece, “Financial Reform Bill Exposed As Hoax”:

Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit). The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study. The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban. Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome. Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact. Jim Jubak exposed the strategy employed by the lobbyists:

But lobbying Congress is only part of the game. Congress writes the laws, but it leaves it up to regulators to write the rules. In a mid-June review of the text of the financial-reform legislation, the Chamber of Commerce counted 399 rule-makings and 47 studies required by lawmakers.

Each one of these, like the proposed de minimus exemption of the Volcker rule, would be settled by regulators operating by and large out of the public eye and with minimal public input. But the financial-industry lobbyists who once worked at the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Commodities Futures Trading Commission or the Federal Deposit Insurance Corp. know how to put in a word with those writing the rules. Need help understanding a complex issue? A regulator has the name of a former colleague now working as a lobbyist in an e-mail address book. Want to share an industry point of view with a rule-maker? Odds are a lobbyist knows whom to call to get a few minutes of face time.

You have one guess as to what agency will be authorized to make sure those new rules comport with the intent of the financial “reform” bill . . . Yep: the OMB (see OIRA).

President Obama’s nomination of Jacob Lew is just the latest example of a decision-making process that seems incomprehensible to his former supporters as well as his critics. Yves Smith of Naked Capitalism refuses to let Obama’s antics go unnoticed:

The Obama Administration, again and again, has taken the side of the financial services industry, with the occasional sops to unhappy taxpayers and some infrequent scolding of the industry to improve the optics.

Ms. Smith has developed some keen insight about the leadership style of our President:

The last thing Obama, who has been astonishingly accommodating to corporate interests, needs to do is signal weakness. But he has made the cardinal mistake of trying to please everyone and has succeeded in having no one happy with his policies. Past Presidents whose policies rankled special interests, such as Roosevelt, Johnson, and Reagan, were tenacious and not ruffled by noise. Obama, by contrast, announces bold-sounding initiatives, and any real change will break eggs and alienate some parties, then retreats. So he creates opponents, yet fails to deliver for his allies.

Yes, the Disappointer-In-Chief has failed to deliver for his allies once again – reinforcing my belief that he has no intention of running for a second term.

A Shocking Decision, ABC News, bank bailout, banking crisis, banking lobby, Barack Obama, Bianna Golodryga, Bill Clinton, blog, centrist, Citigroup, Clinton administration, Commentary, Commodity Futures Modernization Act of 2000, comprehensive bank bailout plan, confirmation hearing, conflict of interest, Congress, conservative, crony capitalism, de minimus exemption, Democrat, Democratic Party, Democrats, deregulation, derivatives trading, Disappointer-In-Chief, economic crisis, economics, economists, FDIC, Federal Deposit Insurance Corporation, Federal Reserve, financial crisis, financial reform, financial reform bill, Financial Services Modernization Act of 1999, financial weapons of mass destruction, government guarantees, Hillary Clinton, Huffington Post, insolvent banks, investment banks, Jack Lew, Jacob Lew, Jim Jubak, Joel Achenbach, John Burke, John T Burke Jr, Larry Summers, liberal, lobbyists, love child, Mark Leibovich, moral hazard, msn, Naked Capitalism, naked credit default swaps, National Economic Council, New York Post, New York Times, News, Obama Administration, Obama Presidency, Office of Management and Budget, OIRA, OMB, OMB Director, Opinion, Orszagasm com, Peter Orszag, Political, Politics, Politics Daily, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, revolving door, securities, self-dealing insiders, Senate Budget Committee, Shahien Nasiripour, socialized loss and privatized gain, State Department, stock markets, systemic risk, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The White House, thecenterlane, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, United States Senate, United States Treasury, Volcker Rule, Wall Street, Wall Street Banks, Wall Street lobbyists, Washington Post, wealth transfer, welfare for the rich, Yves Smith, zombie banks

The Smell Of Rotting TARP

September 16th, 2010 Posted in Uncategorized

Sep, 16 2010

Comments Off

September 16, 2010

I never liked the TARP program. As we approach the second anniversary of its having been signed into law by President Bush, we are getting a better look at how really ugly it has been. Marshall Auerback picked up a law degree from Corpus Christi College, Oxford University in 1983 and currently serves as a consulting strategist for RAB Capital Plc in addition to being an economic consultant to PIMCO. Mr. Auerback recently wrote a piece for the Naked Capitalism website in response to a posting by Ben Smith at Politico. Smith’s piece touted the TARP program as a big success, with such statements as:

The consensus of economists and policymakers at the time of the original TARP was that the U.S. government couldn’t afford to experiment with an economic collapse. That view in mainstream economic circles has, if anything, only hardened with the program’s success in recouping the federal spending.

Marshall Auerback’s essay, rebutting Ben Smith’s piece, was entitled, “TARP Was Not a Success — It Simply Institutionalized Fraud”. Mr. Auerback began his argument this way:

Indeed, the only way to call TARP a winner is by defining government sanctioned financial fraud as the main metric of results. The finance leaders who are guilty of wrecking much of the global economy remain in power – while growing extraordinarily wealthy in the process. They know that their primary means of destruction was accounting “control fraud”, a term coined by Professor Bill Black, who argued that “Control frauds occur when those that control a seemingly legitimate entity use it as a ‘weapon’ to defraud.” TARP did nothing to address this abuse; indeed, it perpetuates it. Are we now using lying and fraud as the measure of success for financial reform?

After pointing out that “Congress adopted unprincipled accounting principles that permit banks to lie about asset values in order to hide their massive losses on loans and investments”, Mr. Auerback concluded by enumerating the steps followed to create an illusion of viability for those “zombie banks”:

Both the Bush and Obama administration followed a three-part strategy towards our zombie banks: (1) cover up the losses through (legalized) accounting fraud, (2) launch an “everything is great” propaganda campaign (the faux stress tests were key to this tactic and Ben Smith perpetuates this nonsense in his latest piece on TARP), and (3) provide a host of secret taxpayer subsidies to the systemically dangerous institutions (the so-called “too big to fail” banks). This strategy is the opposite of what the Swedes and Norwegians did during their banking crisis in the 1990s, which remains the template on a true financial success.

Despite this sleight-of-hand by our government, the Moment of Truth has arrived. Alistair Barr reported for MarketWatch that it has finally become necessary for the Treasury Department to face reality and crack down on the deadbeat banks that are not paying back what they owe as a result of receiving TARP bailouts. That’s right. Despite what you’ve heard about what a great “investment” the TARP program supposedly has been, there is quite a long list of banks that cannot boast of having paid back the government for their TARP bailouts. (Don’t forget that although Goldman Sachs claims that it repaid the government for what it received from TARP, Goldman never repaid the $13 billion it received by way of Maiden Lane III.) The MarketWatch report provided us with this bad news:

In August, 123 financial institutions missed dividend payments on securities they sold to the Treasury Department under the Troubled Asset Relief Program, or TARP. That’s up from 55 in November 2009, according to Keefe, Bruyette & Woods.

More important — of those 123 financial institutions, seven have never made any TARP dividend payments on securities they sold to the Treasury. Those seven institutions are: Anchor Bancorp Wisconsin, Blue Valley Ban Corp, Seacoast Banking Corp., Lone Star Bank, OneUnited Bank, Saigon National Bank and United American Bank. The report included this point:

Saigon National is the only institution to have missed seven consecutive quarterly TARP dividend payments. The other six have missed six consecutive payments, KBW noted.

The following statement from the MarketWatch piece further undermined Ben Smith’s claim that the TARP program was a great success:

Most of the big banks have repaid the TARP money they got and the Treasury has collected about $10 billion in dividend payments from the effort. However, the rising number of smaller banks that are struggling to meet dividend payments shows the program hasn’t been a complete success.

Of course, the TARP program’s success (or lack thereof) will be debated for a long time. At this point, it is important to take a look at the final words from the “Conclusion” section (at page 108) of a document entitled, September Oversight Report (Assessing the TARP on the Eve of its Expiration), prepared by the Congressional Oversight Panel. (You remember the COP – it was created to oversee the TARP program.) That parting shot came after this observation at page 106:

Both now and in the future, however, any evaluation must begin with an understanding of what the TARP was intended to do. Congress authorized Treasury to use the TARP in a manner that “protects home values, college funds, retirement accounts, and life savings; preserves home ownership and promotes jobs and economic growth; [and] maximizes overall returns to the taxpayers of the United States.” But weaknesses persist. Since EESA was signed into law in October 2008, home values nationwide have fallen. More than seven million homeowners have received foreclosure notices. Many Americans’ most significant investments for college and retirement have yet to recover their value. At the peak of the crisis, in its most significant acts and consistent with its mandate in EESA, the TARP provided critical support at a time in which confidence in the financial system was in freefall. The acute crisis was quelled. But as the Panel has discussed in the past, and as the continued economic weakness shows, the TARP’s effectiveness at pursuing its broader statutory goals was far more limited.

The above-quoted passage, as well as these final words from the Congressional Oversight Panel’s report, provide a greater degree of candor than what can be seen in Ben Smith’s article:

The TARP program is today so widely unpopular that Treasury has expressed concern that banks avoided participating in the CPP program due to stigma, and the legislation proposing the Small Business Lending Fund, a program outside the TARP, specifically provided an assurance that it was not a TARP program. Popular anger against taxpayer dollars going to the largest banks, especially when the economy continues to struggle, remains high. The program’s unpopularity may mean that unless it can be convincingly demonstrated that the TARP was effective, the government will not authorize similar policy responses in the future. Thus, the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises in the future.

No doubt.

Alistair Barr, Anchor Bancorp Wisconsin, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, Ben Smith, blog, Blue Valley Ban Corp, Bruyette and Woods, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, Congressional Oversight Panel, control fraud, crony capitalism, Democrat, derivatives crisis, economic crisis, economic meltdown, economics, economists, EESA, Federal Reserve, financial crisis, financial fraud, financial meltdown, financial reform, Financial Stability Plan, foreclosures, Goldman Sachs, government guarantees, huge financial institutions, insolvent banks, Institutionalized Fraud, investment banks, John Burke, John T Burke Jr, Keefe, lobbyists, Lone Star Bank, Maiden Lane III, MarketWatch, Marshall Auerback, moral hazard, mortgage-backed securities, Naked Capitalism, News, Obama Administration, Obama Presidency, OneUnited Bank, Opinion, Pimco, Political, Politico, Politics, President Bush, President of the United States, Professor Bill Black, regulatory capture, Republican, Saigon National Bank, Seacoast Banking Corp, securities, self-dealing insiders, September Oversight Report, socialized loss and privatized gain, stress tests, systemic risk, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The Smell Of Rotting TARP, The White House, thecenterlane, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, United American Bank, United States Senate, United States Treasury, unscrupulous lenders, Wall Street, Wall Street lobbyists, Wall Street meltdown, wealth transfer, welfare for the rich, zombie banks

Voters Got Fooled Again

September 13th, 2010 Posted in Uncategorized

Sep, 13 2010

Comments Off

September 13, 2010

With mid-term elections approaching, the articles are turning up all over the place. Newsweek’s Howard Fineman calls them pre-mortems: advance analyses of why the Democrats will lose power in November. Some of us saw the handwriting on the wall quite a while ago. Before President Obama had completed his first year in office, it was becoming clear that his campaign theme of “hope” and “change” was just a ruse to con the electorate. On September 21, 2009, I wrote a piece entitled, “The Broken Promise”, based on this theme:

Back on July 15, 2008 and throughout the Presidential campaign, Barack Obama promised the voters that if he were elected, there would be “no more trickle-down economics”. Nevertheless, his administration’s continuing bailouts of the banking sector have become the worst examples of trickle-down economics in American history — not just because of their massive size and scope, but because they will probably fail to achieve their intended result. Although the Treasury Department is starting to “come clean” to Congressional Oversight chair Elizabeth Warren, we can’t even be sure about the amount of money infused into the financial sector by one means or another because of the lack of transparency and accountability at the Federal Reserve.

In November of 2009, Matt Taibbi wrote an article for Rolling Stone entitled,“Obama’s Big Sellout”. Taibbi’s essay inspired Edward Harrison of Credit Writedowns to write his own critique of Obama’s first eleven months in office. Beyond that, Mr. Harrison’s assessment of the fate of proposed financial reform legislation turned out to be prescient. Remember – Ed Harrison wrote this on December 11, 2009:

As you probably know, I have been quite disappointed with this Administration’s leadership on financial reform. While I think they ‘get it,’ it is plain they lack either the courage or conviction to put forward a set of ideas that gets at the heart of what caused this crisis.

It was clear to many by this time last year that the President may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team. As smart and qualified as these two are, they are rightfully seen as allied with Wall Street and the anti-regulatory movement.

At a minimum, the picks of Geithner and Summers were a signal to Wall Street that the Obama Administration would be friendly to their interests. It is sort of like Ronald Reagan going to Philadelphia, Mississippi as a first stop in the 1980 election campaign to let southerners know that he was friendly to their interests.

I reserved judgment because one has to judge based on actions. But last November I did ask Is Obama really “Change we can believe in?” because his Administration was being stacked with Washington insiders and agents of the status quo.

Since that time it is obvious that two things have occurred as a result of this ‘Washington insider’ bias. First, there has been no real reform. Insiders are likely to defend the status quo for the simple reason that they and those with whom they associate are the ones who represent the status quo in the first place. What happens when a company is nationalized or declared bankrupt is instructive; here, new management must be installed to prevent the old management from covering up past mistakes or perpetuating errors that led to the firm’s demise. The same is true in government.

That no ‘real’ reform was coming was obvious, even by June when I wrote a brief note on the fake reform agenda. It is even more obvious with the passage of time and the lack of any substantive reform in health care.

Second, Obama’s stacking his administration with insiders has been very detrimental to his party. I imagine he did this as a way to overcome any worries about his own inexperience and to break with what was seen as a major factor in Bill Clinton’s initial failings. While I am an independent, I still have enough political antennae to know that taking established politicians out of incumbent positions (Joe Biden, Janet Napolitano, Hillary Clinton, Rahm Emanuel, Kathleen Sebelius or Tim Kaine) jeopardizes their seat. So, the strategy of stacking his administration has not only created a status quo bias, but it has also weakened his party.

Mr. Harrison’s point about those incumbencies is now being echoed by many commentators – most frequently to point out that Janet Napolitano was replaced as Governor of Arizona by Jan Brewer. Brewer is expected to win in November despite her inability to debate or form a coherent sentence before a live audience.

Bob Herbert of The New York Times recently wrote a great piece, in which he blasted the Democrats for failing to “respond adequately to their constituents’ most dire needs”:

The Democrats are in deep, deep trouble because they have not effectively addressed the overwhelming concern of working men and women: an economy that is too weak to provide the jobs they need to support themselves and their families. And that failure is rooted in the Democrats’ continued fascination with the self-serving conservative belief that the way to help ordinary people is to shower money on the rich and wait for the blessings to trickle down to the great unwashed below.

It was a bogus concept when George H.W. Bush denounced it as “voodoo economics” in 1980, and it remains bogus today, no matter how hard the Democrats try to dress it up in a donkey costume.

I was surprised to see that Howard Fineman focused his campaign pre-mortem on President Obama himself, rather than critiquing the Democratic Party as a whole. At a time when mainstream media pundits are frequently criticized for going soft on those in power in order to retain “access”, it was refreshing to see Fineman point out some of Obama’s leadership flaws:

The president is an agreeable guy, but aloof, and not one who likes to come face to face with the enemy. Sure, GOP leaders were laying traps for him from the start. And it was foolish to assume Mitch McConnell or John Boehner would play ball. But Obama doesn’t really know Republicans, and he doesn’t seem to want to take their measure. (Nor has he seemed all that curious about what makes Democratic insiders tick.) It’s the task of the presidency to cajole people, including your enemies, into doing what they don’t want to do if it is good for the country. Did Obama think he could eschew the rituals of politics — that all he had to do was invoke His Hopeness to bring people aboard?

Well, people aren’t on board and that’s the problem. The voters were taken for chumps and they were fooled by some good campaign propaganda. Nevertheless, as President George W. Bush once said:

Fool me once – shame on – shame on you. Fool me – You can’t get fooled again!

At this point, it does not appear as though the voters who supported President Obama and company in 2008 are willing to let themselves get fooled again. At least the Republicans admit that their primary mission is to make life easier for rich people at everyone else’s expense. The fact that the voters hate being lied to – more than anything else – may be the one lesson the Democrats learn from this election cycle.

2010 elections, Arizona, bank bailout, banking lobby, Barack Obama, blog, Bob Herbert, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Credit Writedowns, crony capitalism, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, Edward Harrison, Elizabeth Warren, fake reform agenda, Federal Reserve, financial crisis, financial reform, government guarantees, healthcare reform, Howard Fineman, incumbent Democrats, insolvent banks, investment banks, Jan Brewer, Janet Napolitano, John Boehner, John Burke, John T Burke Jr, Larry Summers, liberal, lobbyists, Matt Taibbi, Mitch McConnell, moral hazard, New York Times, News, Newsweek, Obama Administration, Obama Presidency, Obamas Big Sellout, Opinion, Political, Politics, pre-mortem, President George W Bush, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, Rolling Stone, socialized loss and privatized gain, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, The Broken Promise, the center lane, the economy, The White House, thecenterlane, too big to fail, transparency, Treasury Department, trickle down economics, United States Senate, United States Treasury, voters, Voters Got Fooled Again, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, zombie banks

Lack Of Stimulation

September 9th, 2010 Posted in Uncategorized

Sep, 09 2010

Comments Off

September 9, 2010

You don’t have to look very far to find a rabid, hostile reaction to President Obama’s proposed $50 billion transportation infrastructure program. After all – it’s an election year. I was quite surprised when I read this paragraph from a BusinessWeek report about the proposal:

For companies that do the unglamorous work of pouring cement, crushing stones, and hauling earth, President Barack Obama’s $50 billion proposal outlined on Sept. 6 to rebuild U.S. roads, railways, and runways is welcome relief amid unrelenting economic gloom. If approved by Congress (an uncertain proposition in an election year) Obama’s plan would pick up the slack when most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act is expected to be spent next year, says Mike Betts, an analyst with London-based Jefferies.

Stop and think about that for a moment. The phrase I wish to bring to your attention is:

. . . most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act is expected to be spent next year . . .

The first question that came to mind was: Why the hell wasn’t it spent last year? We’ve been reading about how the effects of the “Obama stimulus bill” (a/k/a the American Recovery and Reinvestment Act) have already stopped boosting the economy. How much more of that money has been sitting on the sidelines? Beyond that, why didn’t the American Recovery and Reinvestment Act provide more funding for infrastructure?

The proposed transportation infrastructure program will cost approximately the same as the B-2 Stealth Bomber program, which produced 21 bombers at an average cost of $2.1 billion per aircraft in 1997 dollars.

Since July of last year, I have been among those arguing that the $787 billion economic stimulus package was inadequate, after reading about a Bloomberg survey of economists, which supported that conclusion in February of 2009. In early 2009, there was a greater sense of urgency about the state of the economy and a stronger political will to enact a more significant stimulus. Unfortunately, President Obama was not up to the task of pushing a larger bill through. As a result, the President is now making piecemeal stimulus efforts, such as the $50-billion infrastructure proposal. The tragedy of not getting it right the first time seemed more unfortunate after I read a recent posting by Barry Ritholtz at his blog, The Big Picture. Here is what Mr. Ritholtz had to say:

Yesterday on XM Sirius, we discussed Infrastructure.

One of the callers was a civil engineer who suggested we take a look at the US Infrastructure Report Card (infrastructurereportcard.org), which grades the US on a variety of factors. The 2009 Grades include: Aviation (D), Bridges (C), Dams (D), Drinking Water (D-), Energy (D+), Hazardous Waste (D), Inland Waterways (D-), Levees (D-), Public Parks and Recreation (C-), Rail (C-), Roads(D-), Schools (D), Solid Waste (C+), Transit (D), and Wastewater (D-).

Overall, America’s Infrastructure GPA was graded a “D.” To get to an “A” requires a 5 year infrastructure investment of $2.2 Trillion dollars. Hence, you can understand if I am underwhelmed by the latest $50B proposal.

Each individual state is also graded; NY’s is after the jump.

After reading about the Infrastructure Report Card, I couldn’t help but wonder how our economy would have benefited from a $2.2 trillion infrastructure program rather than the $850 billion stimulus program enacted in 2009. Consider what economist Joseph Stiglitz had to say about how the global financial crisis was affecting Australia in August of 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.

There’s a right way of doing economic stimulus and a wrong way of implementing such a program. Unfortunately, America did it the wrong way.

American capitalism, American Recovery and Reinvestment Act, Australia, B-2 Stealth Bomber, bank bailout, Barack Obama, Barry Ritholtz, blog, Bloomberg survey of economists, BusinessWeek, centrist, Commentary, Congress, conservative, Democrat, Democratic Party, Democrats, economic crisis, economic stimulus, economics, economists, global financial crisis, insolvent banks, John Burke, John T Burke Jr, Joseph Stiglitz, Kevin Rudd, Keynesian stimulus, Lack Of Stimulation, liberal, lobbyists, Mike Betts, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, recession, Republican, Republican Party, taxpayers, The Big Picture, the center lane, the economy, The White House, thecenterlane, transparency, transportation infrastructure program, Treasury Department, United States Senate, United States Treasury, US Infrastructure Report Card, Wall Street, XM Sirius, zombie banks

Those First Steps Have Destroyed Mid-term Democrat Campaigns

September 6th, 2010 Posted in Uncategorized

Sep, 06 2010

Comments Off

September 6, 2010

The steps taken by the Obama administration during its first few months have released massive, long-lasting fallout, destroying the re-election hopes of Democrats in the Senate and House. Let’s take a look back at Obama’s missteps during that crucial period.

During the first two weeks of February, 2009 — while the debate was raging as to what should be done about the financial stimulus proposal — the new administration was also faced with making a decision on what should be done about the “zombie” Wall Street banks. Treasury Secretary Geithner had just rolled out his now-defunct “financial stability plan” in a disastrous press conference. Most level-headed people, including Joe Nocera of The New York Times, had been arguing in favor of putting those insolvent banks through temporary receivership – or temporary nationalization – until they could be restored to healthy, functional status. Nevertheless, at this critical time, Obama, Geithner and Fed chair Ben Bernanke had decided to circle their wagons around the Wall Street banks. Here’s how I discussed the situation on February 16, 2009:

Geithner’s resistance to nationalization of insolvent banks represents a stark departure from the recommendations of many economists. While attending the World Economic Forum in Davos, Switzerland last month, Dr. Nouriel Roubini explained (during an interview on CNBC) that the cost of purchasing the toxic assets from banks will never be recouped by selling them in the open market:

At which price do you buy the assets? If you buy them at a high price, you are having a huge fiscal cost. If you buy them at the right market price, the banks are insolvent and you have to take them over. So I think it’s a bad idea. It’s another form of moral hazard and putting on the taxpayers, the cost of the bailout of the financial system.

Dr. Roubini’s solution is to face up to the reality that the banks are insolvent and “do what Sweden did”: take over the banks, clean them up by selling off the bad assets and sell them back to the private sector. On February 15, Dr. Roubini repeated this theme in a Washington Post article he co-wrote with fellow New York University economics professor, Matthew Richardson.

Even after Geithner’s disastrous press conference, President Obama voiced a negative reaction to the Swedish approach during an interview with Terry Moran of ABC News.

Nearly a month later, on March 12, 2009 — I discussed how the administration was still pushing back against common sense on this subject, while attempting to move forward with its grandiose, “big bang” agenda. The administration’s unwillingness to force those zombie banks to face the consequences of their recklessness was still being discussed — yet another month later by Bill Black and Robert Reich. Three months into his Presidency, Obama had established himself as a guardian of the Wall Street status quo.

Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate. Before Obama took office, Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg Television back on January 8, 2009, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said. “The real question is — is it large enough and is it designed to address all the problems. The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On January 19, 2009, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff. This is a situation that is comparable to the1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

On February 26, 2009, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate. Two months earlier, Paul Krugman had pointed out on Face the Nation, that the proposed stimulus package of $775 billion would fall short.

More recently, on September 5, 2010, a CNN poll revealed that only 40 percent of those surveyed voiced approval of the way President Obama has handled the economy. Meanwhile, economist Richard Duncan is making the case for another stimulus package “to back forward-looking technologies that will help the U.S. compete and to shift away from the nation’s dependency on industries vulnerable to being outsourced to low-wage centers abroad”. Chris Oliver of MarketWatch provided us with this glimpse into Duncan’s thinking:

The U.S. is already on track to run up trillion-dollar-plus annual deficits through the next decade, according to estimates by the Congressional Budget Office.

“If the government doesn’t spend this money, we are going to collapse into a depression,” Duncan says. “They are probably going to spend it. . . . It would be much wiser to realize the opportunities that exist to spend the money in a concerted way to advance the goals of our civilization.”

Making the case for more stimulus, Paul Krugman took a look back at the debate concerning Obama’s first stimulus package, to address the inevitable objections against any further stimulus plans:

Those who said the stimulus was too big predicted sharply rising (interest) rates. When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes: The disciplinarians of U.S. policy makers return.” The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”

But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go. Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.

When in doubt, bet on the markets. The 10-year bond rate was over 3.7 percent when The Journal published that editorial; it’s under 2.7 percent now.

What about inflation? Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different. Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.

Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy: growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off — just as some of us feared — as the stimulus has faded.

I believe that Professor Krugman would agree with my contention that if President Obama had done the stimulus right the first time – not only would any further such proposals be unnecessary – but we would likely be enjoying a healthy economy with significant job growth. Nevertheless, the important thing to remember is that President Obama didn’t do the stimulus adequately in early 2009. As a result, his fellow Democrats will be paying the price in November.

2010 elections, ABC News, bailout of financial system, bank bailout, banking crisis, banking lobby, Barack Obama, Ben Bernanke, big bang agenda, Bill Black, blog, Bloomberg news, Bloomberg survey of 50 economists, Bond Vigilantes, centrist, Chris Oliver, CNN poll, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, Congressional Democrats, conservative, crony capitalism, Democrat, Democratic Party, Democrats, economic crisis, economics, economist Richard Duncan, economists, equities markets, Face The Nation, Federal Reserve, financial crisis, financial reform, Financial Stability Plan, financial stimulus bill, George Soros, government guarantees, inflation, insolvent banks, interest rates, investment banks, James Galbarith, job growth, Joe Nocera, John Burke, John T Burke Jr, Joseph Stiglitz, liberal, lobbyists, MarketWatch, Matthew Richardson, mid-term elections, moral hazard, New York Times, News, Nouriel Roubini, Obama Administration, Obama Presidency, Opinion, Paul Krugman, Political, Politics, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, Robert Reich, Senate Democrats, socialized loss and privatized gain, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, temporary bank nationalization, temporary receivership, Terry Moran, the center lane, the economy, The White House, thecenterlane, Those First Steps Have Destroyed Mid-Term Democrat Campaigns, Tim Geithner, too big to fail, Treasury Department, United States Senate, United States Treasury, Wall Street, Wall Street Banks, Wall Street Journal, Wall Street lobbyists, Washington Post, wealth transfer, welfare for the rich, zombie banks

Geithner And Summers Draw Flak

August 30th, 2010 Posted in Uncategorized

Aug, 30 2010

Comments Off

August 30, 2010

It’s coming from everywhere. House Minority Leader, John “BronzeGel” Boehner, while giving a speech in Cleveland on August 24, called for the ouster of Treasury Secretary Timothy Geithner as well as the removal of National Economic Council Director, Larry Summers. Bridget Johnson reported for The Hill that on August 28, Representative Tom Price (R-Georgia) echoed the call for Geithner and Summers to step down: “They need to resign because the policies that they’re putting in place are not being effective.”

An editorial from the Republican-oriented Investors Business Daily expanded on Boehner’s criticism of the duo, without really giving any specific examples of what Geithner or Summers did wrong. That’s because what they did wrong was to protect the banks at the expense of the taxpayers — the same thing a Republican administration would have done. As a result, there have been simultaneous calls from the left for the sacking of Geithner and Summers. Robert Scheer wrote a piece for The Nation entitled, “They Go or Obama Goes”. Here is some of what he said:

It is Obama’s continued deference to the sensibilities of the financiers and his relative indifference to the suffering of ordinary people that threaten his legacy, not to mention the nation’s economic well-being.

* * *

While Obama continued the Bush practice of showering the banks with bailout money, he did not demand a moratorium on foreclosures or call for increasing the power of bankruptcy courts to force the banks, which created the problem, to now help distressed homeowners.

* * *

There is no way that Obama can begin to seriously reverse this course without shedding the economic team led by the Clinton-era “experts” like Summers and Treasury Secretary Timothy Geithner who got us into this mess in the first place.

Economist Randall Wray wrote a great piece for Wall Street Pit entitled, “Boehner Gets One Right: Fire Obama’s Economics Team”. Professor Wray distinguished his argument from Boehner’s theme that because neither Geithner nor Summers ever ran a business, they don’t know how to create jobs:

Obama’s economics team doesn’t care about job creation. (here) So far, nearly three years into the worst depression since the Great Depression, they’ve yet to turn any serious attention to Main Street. The health of Wall Street still consumes almost all of their time — and almost all government funds. Trillions for Wall Street, not even peanuts for Americans losing their jobs and homes. No one, except a highly compensated Wall Street trader, could possibly disagree with Boehner. Fire Timmy and Larry and the rest of the Government Sachs team.

As an aside: If you take offense at Professor Wray’s suggestion that the government should get actively involved in job creation, be sure to watch the interview with economist Robert Shiller by Simon Constable of The Wall Street Journal.

The Zero Hedge website recently published an essay by Michael Krieger of KAM LP. One of Krieger’s points, which resonated with me, was the idea that whether you have a Democratic administration or a Republican administration, both parties are beholden to the financial elites, so there’s not much room for any “change you can believe in”:

. . . the election of Obama has proven to everyone watching with an unbiased eye that no matter who the President is they continue to prop up an elite at the top that has been running things into the ground for years. The appointment of Larry Summers and Tiny Turbo-Tax Timmy Geithner provided the most obvious sign that something was seriously not kosher. Then there was the reappointment of Ben Bernanke. While the Republicans like to simplify him as merely a socialist he represents something far worse.

* * *

What Obama has attempted to do is to wipe a complete economic collapse under the rug and maintain the status quo so that the current elite class in the United States remains in control. The “people” see this ploy and are furious. Those that screwed up the United States economy should never make another important decision about it yet they remain firmly in control of policy. The important thing in any functioning democracy is the turnover of the elite class every now and again. Yet, EVERY single government policy has been geared to keeping that class in power and to pass legislation that gives the Federal government more power to then buttress this power structure down the road. This is why Obama is so unpopular. Everything else is just noise to keep people divided and distracted.

“Keeping people divided and distracted” helps preserve the illusion that there really is a difference between the economic policies of the two parties. If you take a close look at how President Obama’s Deficit Commission is attempting to place the cost of deficit reduction on the backs of working people, the unified advocacy for the financial sector becomes obvious. What we are left with are the fights over abortion and gay marriage to differentiate the two parties from each other.

It’s time to pay more attention to that man behind the curtain.

bailouts, bank bailout, banking crisis, banking lobby, Barack Obama, Ben Bernanke, blog, Bridget Johnson, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, Congresssman Tom Price, conservative, crony capitalism, Deficit Commission, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, Federal Reserve, financial crisis, financial elites, financial reform, Geithner And Summers Draw Flak, Goldman Sachs, government guarantees, Government Sachs, huge financial institutions, insolvent banks, investment banks, Investors Business Daily, John Boehner, John BronzeGel Boehner, John Burke, John T Burke Jr, Larry Summers, liberal, lobbyists, Michael Krieger, moral hazard, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, proprietary trading, Randall Wray, regulatory capture, Republican, Republican Party, Robert Scheer, Robert Shiller, securities, self-dealing insiders, Simon Constable, socialized loss and privatized gain, systemic risk, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The Hill, The Nation, The White House, thecenterlane, Tim Geithner, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, United States Senate, United States Treasury, Wall Street, Wall Street Journal, Wall Street lobbyists, Wall Street meltdown, Wall Street Pit, wealth transfer, welfare for the rich, Zero Hedge, zombie banks

The Invisible Bank Bailout

August 23rd, 2010 Posted in Uncategorized

Aug, 23 2010

Comments Off

August 23, 2010

By now, you are probably more than familiar with the “backdoor bailouts” of the Wall Street Banks – the most infamous of which, Maiden Lane III, included a $13 billion gift to Goldman Sachs as a counterparty to AIG’s bad paper. Despite Goldman’s claims of having repaid the money it received from TARP, the $13 billion obtained via Maiden Lane III was never repaid. Goldman needed it for bonuses.

On August 21, my favorite reporter for The New York Times, Gretchen Morgenson, discussed another “bank bailout”: a “secret tax” that diverts money to banks at a cost of approximately $350 billion per year to investors and savers. Here’s how it works:

Sharply cutting interest rates vastly increases banks’ profits by widening the spread between what they pay to depositors and what they receive from borrowers. As such, the Fed’s zero-interest-rate policy is yet another government bailout for the very industry that drove the economy to the brink.

Todd E. Petzel, chief investment officer at Offit Capital Advisors, a private wealth management concern, characterizes the Fed’s interest rate policy as an invisible tax that costs savers and investors roughly $350 billion a year. This tax is stifling consumption, Mr. Petzel argues, and is pushing investors to reach for yields in riskier securities that they wouldn’t otherwise go near.

* * *

“If we thought this zero-interest-rate policy was lowering people’s credit card bills it would be one thing but it doesn’t,” he said. Neither does it seem to be resulting in increased lending by the banks. “It’s a policy matter that people are not focusing on,” Mr. Petzel added.

One reason it’s not a priority is that savers and people living on fixed incomes have no voice in Washington. The banks, meanwhile, waltz around town with megaphones.

Savers aren’t the only losers in this situation; underfunded pensions and crippled endowments are as well.

Many commentators have pointed out that zero-interest-rate-policy (often referred to as “ZIRP”) was responsible for the stock market rally that began in the Spring of 2009. Bert Dohmen made this observation for Forbes back on October 30, 2009:

There is very little, if any, investment buying. In my view, we are seeing a mini-bubble in the stock market, fueled by ZIRP, the “zero interest rate policy” of the Fed.

At this point, retail investors (the “mom and pop” customers of discount brokerage firms) are no longer impressed. After the “flash crash” of May 6 and the revelations about stock market manipulation by high-frequency trading (HFT), retail investors are now avoiding mutual funds. Graham Bowley’s recent report for The New York Times has been quoted and re-published by a number of news outlets. Here is the ugly truth:

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

The pretext of providing “liquidity” to the stock markets is no longer viable. The only remaining reasons for continuing ZIRP are to mitigate escalating deficits and stopping the spiral of deflation. Whether or not that strategy works, one thing is for certain: ZIRP is enriching the banks — at the public’s expense.

2009 stock market rally, AIG, American capitalism, backdoor bank bailouts, bank bailout, banking crisis, banking lobby, Barack Obama, Bert Dohmen, blog, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, consumer debt, crony capitalism, deficits, deflation, Democrat, Democratic Party, Democrats, derivatives crisis, economic crisis, economics, economists, equities markets, Federal Reserve, financial crisis, financial institutions as too big to fail, financial reform, Financial Stability Plan, flash crash, Forbes, Goldman Sachs, government guarantees, Graham Bowley, Gretchen Morgenson, HFT, High Frequency Trading, ICI, insolvent banks, investment banks, Investment Company Institute, John Burke, John T Burke Jr, liberal, lobbyists, Maiden Lane III, moral hazard, mortgage-backed securities, mutual funds, New York Stock Exchange, New York Times, News, NYSE, Obama Administration, Obama Presidency, Offit Capital Advisors, Opinion, Political, Politics, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, retail investors, secret tax, securities, self-dealing insiders, socialized loss and privatized gain, stock market manipulation, stock markets, systemic risk, systemic risk regulator, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The Invisible Bank Bailout, The White House, thecenterlane, Todd E Petzel, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, United States Senate, United States Treasury, Wall Street, Wall Street Banks, Wall Street lobbyists, wealth transfer, welfare for the rich, zero-interest-rate policy, ZIRP, zombie banks

Geithner Watch

August 19th, 2010 Posted in Uncategorized

Aug, 19 2010

Comments Off

August 19, 2010

It’s that time once again. The Treasury Department has launched another “charm offensive” – and not a moment too soon. “Turbo” Tim Geithner got some really bad publicity at the Daily Beast website by way of a piece by Philip Shenon. The story concerned the fact that a man named Daniel Zelikow — while in between revolving door spins at JP Morgan Chase — let Geithner live rent-free in Zelikow’s $3.5 million Washington townhouse, during Geithner’s first eight months as Treasury Secretary. Zelikow (who had previously worked for JP Morgan Chase from 1999 until 2007) was working at the Inter-American Development Bank at the time. The Daily Beast described the situation this way:

At that time, Geithner was overseeing the bailout of several huge Wall Street banks, including JPMorgan, which received $25 billion in federal rescue funds from the TARP program.

Zelikow, a friend of Geithner’s since they were classmates at Dartmouth College in the early 1980s, begins work this month running JPMorgan’s new 12-member International Public Sector Group, which will develop foreign governments as clients.

* * *

Stephen Gillers, a law professor at New York University who is a specialist in government ethics and author of a leading textbook on legal ethics, described Geithner’s original decision to move in with Zelikow last year as “just awful” — given the conflict-of-interest problems it seemed to create.

He tells The Daily Beast that Geithner now needs to avoid even the appearance of assisting JPMorgan in any way that suggested a “thank-you note” to Zelikow in exchange for last year’s free rent.

“He needs to be purer than Caesar’s wife — purer than Caesar’s whole family,” Gillers said of the Treasury secretary.

The Daily Beast story came right on the heels of Matt Taibbi’s superlative article in Rolling Stone, exposing the skullduggery involved in removing all the teeth from the financial “reform” bill. Taibbi did not speak kindly of Geithner:

If Obama’s team had had their way, last month’s debate over the Volcker rule would never have happened. When the original version of the finance-reform bill passed the House last fall – heavily influenced by treasury secretary and noted pencil-necked Wall Street stooge Timothy Geithner – it contained no attempt to ban banks with federally insured deposits from engaging in prop trading.

Just when it became clear that Geithner needed to make some new friends in the blogosphere, another conclave with financial bloggers took place on Monday, August 16. The first such event took place last November. I reviewed several accounts of the November meeting in a piece entitled “Avoiding The Kool -Aid”. Since that time, Treasury has decided to conduct such meetings 4 – 6 times per year. The conferences follow an “open discussion” format, led by individual senior Treasury officials (including Turbo Tim himself) with three presenters, each leading a 45-minute session. A small number of financial bloggers are invited to attend. Some of the bloggers who were unable to attend last November’s session were sorry they missed it. The August 16 meeting was the first one I’d heard about since the November event. The following bloggers attended the August 16 session: Phil Davis of Phil’s Stock World, Yves Smith of Naked Capitalism, John Lounsbury for Ed Harrison’s Credit Writedowns, Michael Konczal of Rortybomb, Steve Waldman of Interfluidity, as well as Tyler Cowen and Alex Tabarrok of Marginal Revolution. As of this writing, Alex Tabarrok and John Lounsbury were the only attendees to have written about the event. You can expect to see something soon from Yves Smith of Naked Capitalism.

At this juncture, the effort appears to have worked to Geithner’s advantage, since he made a favorable impression on Alex Tabarrok, just as he had done last November with Tabarrok’s partner at Marginal Revolution, Tyler Cowen:

As Tyler said after an earlier visit, Geithner is smart and deep. Geithner took questions on any topic. Bear in mind that taking questions from people like Mike Konczal, Tyler, or Interfluidity is not like taking questions from the press. Geithner quickly identified the heart of every question and responded in a way that showed a command of both theory and fact. We went way over scheduled time. He seemed to be having fun.

It will be interesting to see whether the upcoming accounts of the meeting continue to provide Geithner with the image makeover he so desperately needs.

Alex Tabarrok, American capitalism, bank bailout, banking crisis, banking lobby, Barack Obama, blog, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Credit Writedowns, crony capitalism, Daniel Zelikow, Democrat, Democratic Party, Democrats, derivatives crisis, economic crisis, economic meltdown, economics, economists, Federal Reserve, financial bloggers, financial crisis, financial reform, Financial Stability Plan, Geithner Watch, Goldman Sachs, government guarantees, image makeover, insolvent banks, Interfluidity, investment banks, John Burke, John Lounsbury, John T Burke Jr, JP Morgan Chase, liberal, lobbyists, Marginal Revolution, Matt Taibbi, Michael Konczal, moral hazard, Naked Capitalism, New York Stock Exchange, News, Obama Administration, Obama Presidency, Opinion, Phil Davis, Phil's Stock World, Philip Shenon, Political, Politics, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, Rolling Stone, Rortybomb, securities, self-dealing insiders, socialized loss and privatized gain, Stephen Gillers, Steve Waldman, stock markets, stress tests, systemic risk, systemic risk regulator, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the center lane, The Daily Beast, the economy, The White House, thecenterlane, Timothy Geithner, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Turbo Tim Geithner, Tyler Cowen, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, Yves Smith, zombie banks

Jobless Recovery Myth Is Dead

August 12th, 2010 Posted in Uncategorized

Aug, 12 2010

Comments Off

August 12, 2010

On July 29, I discussed the fact that for over a year, many pundits have been anticipating a “jobless recovery”. In other words: don’t be concerned about the fact that so many people can’t find jobs – the economy will recover anyway. Recent economic reports have exposed how the widespread corporate tactic of cost-cutting by mass layoffs (to gin-up the bottom line in time for earnings reports) has finally taken its toll. Although this tactic has helped to inflate stock prices and produce the illusion that the broader economy is experiencing a sustained recovery, we are finding out that the opposite is true. The “jobless recovery” advocates ignore the fact the American economy is 70 percent consumer-driven. If those consumers don’t have jobs, they aren’t going to be spending money. Timothy Homan and Alex Tanzi of Bloomberg News gave us the ugly truth on Wednesday:

A lack of jobs will shackle consumer spending and restrain the U.S. recovery more than previously estimated, according to economists polled by Bloomberg News.

*   *   *

“Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The consumer continues to contribute to growth but at a subpar pace.”

*   *   *

Purchases, which rose 3 percent on average over the past three decades, dropped 1.2 percent last year, the biggest decrease since 1942.

*   *   *

Joblessness will be slow to fall, signaling it will take years for the economy to recover the more than 8 million jobs lost during the recession that began in December 2007. Unemployment will average 9.6 percent in 2010 and 9.1 percent next year, according to the survey.

*   *   *

“We need a stronger economy, job creation and better consumer confidence,” Richard Dugas, chief executive officer of Pulte Group Inc., said in an Aug. 4 conference call. “Our industry continues to face incredibly low demand.”

The August 10 press release from the Federal Open Market Committee (FOMC) began this way:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.

Steve Goldstein of MarketWatch recently wrote a piece entitled, “The jobless recovery won’t go further without jobs”. Mr. Goldstein explains that the corporations relying on layoffs to juice their earnings reports are running out of people to sacrifice for their bottom line:

Earnings per share grew 43% for the 450 members of the S&P 500 that have reported second-quarter results, according to FactSet Research data.

So what these productivity figures may be showing is that, as the Great Recession blew into town, companies stretched their employees to the limit.

The data suggest companies won’t be able to job-cut their way to continued profit growth — and, at some point, if companies want to expand, they will need to start offering jobs to the pool of 14.6 million out of work in July.

Business consultant Matthew C. Keegan wrote an essay for the SayEducate website entitled, “Jobless Recovery & Other Illusions”. He began the piece with this thought:

The economic numbers continue to pour in with very few people believing that they offer a promise of a sustained recovery. That’s bad news for America, because high unemployment (9.5 percent in July 2010) means that every sector of the economy will remain depressed longer than some imagined it would.

Steve Goldstein’s MarketWatch article raised the possibility that this cloud may have a silver lining:

The productivity report isn’t great news, but at least it shows that the jobless recovery won’t be able to recover much further without employment making a significant contribution.

Another myth bites the dust.

Alex Tanzi, American capitalism, American consumers, bank bailout, blog, Bloomberg news, centrist, Commentary, Congress, corporate cost-cutting, corporate earnings reports, economic crisis, economic recovery, economics, economists, equities markets, Federal Open Market Committee, Federal Reserve, financial crisis, financial reform, FOMC, job growth, Jobless Recovery Myth Is Dead, John Burke, John Silvia, John T Burke Jr, lobbyists, MarketWatch, mass layoffs, Matthew C Keegan, News, NYSE, Obama Administration, Opinion, Political, Politics, Pulte Group, recession, regulatory capture, Richard Dugas, SayEducate, securities, socialized loss and privatized gain, Steve Goldstein, stress tests, taxpayers, the center lane, the economy, thecenterlane, Timothy Homan, Treasury Department, unemployment, United States Senate, United States Treasury, Wall Street, wealth transfer

TheCenterLane.com

© 2008 – 2024 John T. Burke, Jr.

Where Obama Went Wrong

A Shocking Decision

The Smell Of Rotting TARP

Voters Got Fooled Again

Lack Of Stimulation

Those First Steps Have Destroyed Mid-term Democrat Campaigns

Geithner And Summers Draw Flak

The Invisible Bank Bailout

Geithner Watch

Jobless Recovery Myth Is Dead

Tip Jar

Recent Posts

Stock Market

Blogroll

Archives

About TheCenterLane.com