unemployment « TheCenterLane.com

Rare Glimpses Of Honesty And Sanity

July 1st, 2010 Posted in Uncategorized

Jul, 01 2010

Comments Off

July 1, 2010

Too many of the commentaries we see these days are either motivated by or calculated to promote hysteria. When someone expresses a rational point of view or an honest look at the skullduggery going on in Washington, it’s as refreshing as a cold beer on a hot, summer day.

With so much panic over sovereign debt and budget deficits afflicting the consensual mood, it’s always great to read a piece by someone willing to analyze the situation from a perspective based on facts instead of fear. Brett Arends wrote a great piece for MarketWatch, dissecting the debt panic and looking at the data to be considered by those implementing public policy on this issue. His essay focused on “the three biggest lies about the economy”: that unemployment is below ten percent, that the markets are panicking about the deficit and that the United States is sliding into socialism. Here is some of what he had to say:

Most people have no idea what’s really going on in the economy. They’re living on spin, myths and downright lies. And if we don’t know the facts, how can we make intelligent decisions?

High unemployment exerts a huge deflationary force on the economy. Beyond that, the income taxes those unemployed citizens used to pay are no longer helping to pick up the tab for our bloated budget. Mr. Arends emphasized the importance of looking at the real unemployment rate – what is referred to as U6 – which includes those people deliberately disregarded when counting the “unemployed”:

For example it counts discouraged job seekers, and those forced to work part-time because they can’t get a full-time job.

That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago.

* * *

Consider, for example, the situation among men of prime working age. An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22%, are out of work completely. (The rate in the 1950s was less than 10%.) And that doesn’t even count those who are working part-time because they can’t get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.

In exploding the myth about claimed market panic concerning the debt, Arends dug back into his arsenal of common sense, explaining what would happen if the markets were panicked:

. . . the interest rate on government bonds would be skyrocketing. That’s what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond is down to just 4%. By historic standards that’s chickenfeed. Panicked? The bond markets are practically snoring.

The specious claims about domestic socialism don’t really deserve a response, but here is how Arends dealt with that narrative:

Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013. In 1983, under Ronald Reagan, it hit 23.5%. In the early 1990s it was around 22%. Some socialism.

Another prevalent false narrative being circulated lately (particularly by President Obama and his administration) concerns the hoax known as the “financial reform” bill. Wisconsin Senator Russ Feingold gave us a rare, disgusted insider’s look at how Wall Street was able to get what it wanted from its lackeys on Capitol Hill:

Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill. Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support. People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.

In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger.

Lest we forget that the financial crisis of 2008 was caused by the antics of cretins such as “Countrywide Chris” Dodd, Senator Feingold’s essay mentioned that sleazy chapter in Senate history to put this latest disgrace in the proper perspective:

Many of the critical actors who shaped this bill were present at the creation of the financial crisis. They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the “too big to fail” skids. It shouldn’t be a surprise to anyone that the final version of the bill looks the way it does, or that I won’t fall in line with their version of “reform.”

As I discussed in “Your Sleazy Government at Work”, the voters will not forget about the Democrats (including President Obama) who undermined financial reform legislation, while pretending to advance it. The Democratic Party has until early 2012 to face up to the fact that their organization would be better off supporting a Presidential candidate with the integrity of Russ Feingold or Maria Cantwell if they expect to maintain control over the Executive branch of our government.

American capitalism, asset bubble, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, blog, Brett Arends, budget deficits, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Countrywide Chris Dodd, crony capitalism, Democrat, Democratic Party, Democrats, Department of Labor, derivatives crisis, domestic socialism, economic crisis, economic meltdown, economics, economists, equities markets, Federal Reserve, financial crisis, financial reform, government guarantees, Gramm-Leach-Bliley Act, insolvent banks, investment banks, John Burke, John T Burke Jr, liberal, lobbyists, Maria Cantwell, MarketWatch, moral hazard, mortgage-backed securities, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, Rare Glimpses Of Honesty And Sanity, regulatory capture, Republican, Republican Party, revolving door, Ronald Reagan, Russ Feingold, Securities and Exchange Commission, self-dealing insiders, socialized loss and privatized gain, sovereign debt, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The White House, thecenterlane, too big to fail, transparency, Treasury Department, U6, unemployment, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, Your Sleazy Government At Work, zombie banks

ObamaWatch

June 14th, 2010 Posted in Uncategorized

Jun, 14 2010

Comments Off

June 14, 2010

Last week, I highlighted some criticism of Barack Obama’s presidency, which came from such unlikely sources as Maureen Dowd and Frank Rich of The New York Times, as well as Tony Norman of the Pittsburgh Post-Gazette. The man whom I described as the “Disappointer-in-Chief” during his third month in office, has continued to draw harsh criticism from unlikely sources. At this point, the subject pondered by many commentators concerns whether any of this dissatisfaction will stick long enough to have an impact on the mid-term elections and beyond.

If the President read Tim Dickenson’s recent essay for Rolling Stone, “The Spill, The Scandal and the President”, it must have been painful. Mr. Dickenson didn’t pull any punches while explaining Mr. Obama’s role in the Deepwater Horizon disaster:

Like the attacks by Al Qaeda, the disaster in the Gulf was preceded by ample warnings – yet the administration had ignored them. Instead of cracking down on MMS, as he had vowed to do even before taking office, Obama left in place many of the top officials who oversaw the agency’s culture of corruption. He permitted it to rubber-stamp dangerous drilling operations by BP – a firm with the worst safety record of any oil company – with virtually no environmental safeguards, using industry-friendly regulations drafted during the Bush years. He calibrated his response to the Gulf spill based on flawed and misleading estimates from BP – and then deployed his top aides to lowball the flow rate at a laughable 5,000 barrels a day, long after the best science made clear this catastrophe would eclipse the Exxon Valdez.

At the Naked Capitalism website, Yves Smith summed up a good number of the Obama Administration’s shortcomings in the first paragraph of her June 11 piece about the BP mess:

As readers may know, I’ve been consistently disappointed by the Obama Administration: its faux progressive packaging versus its corporatist posture, its half-hearted, halting reforms which are noisily trumpeted as the real thing, its deep seated belief that public antipathy to its initiatives means it needs to work harder on selling its message, when it really needs a new strategy.

But the escalating disaster of the Gulf oil spill, and the unique constellation it presents, namely, a big, rich, isolated, foreign perp, which is largely if not solely responsible for the mess, in close proximity to contested mid-term elections, might actually rouse Obama to do something uncharacteristic, namely get tough.

This is by no means a likely outcome, but we are seeing some novel behaviors. First is that Obama finally may have succeeded in getting someone important afraid of him. This is a critically important lesson; Machiavelli told his prince it was much more important to be feared than loved. Mere anger is often negotiation posturing or a manifestation of CEO Derangement Syndrome; fear is much harder to fake. And BP is finally starting to get rattled.

In case you are wondering whether the President is still popular in Hollywood, The Hill recently turned to a couple of southern California bloggers to provide some insight as to whether Mr. Obama has begun to lose his sparkle in Tinsel Town. John Nolte of Andrew Breitbart’s Big Hollywood blog expressed the belief that the President’s supporters in Hollywood have been keeping the faith:

If anything, Hollywood is worried about and for Obama. Worried about the upcoming mid-terms, his re-election chances, his sliding poll numbers, and his gilded ship sailing off course and landing in Carter-ita-ville instead of Mt. Rushmore.

From the more left-leaning perspective, Deborah White of The Liberal OC blog gave us the impression that the President’s Hollywood supporters are becoming increasingly disappointed, although not yet disgruntled:

As of now, President Obama has not lost the support of most Hollywood liberals. But Democrats in Hollywood are also no longer lavishing praise on Obama as they did in hopeful droves before his triumphant election.

Hollywood liberals no longer view Barack Obama as someone they blindly “want to follow… somewhere, anywhere” as pal George Clooney famously told Charlie Rose in early 2008.

Meanwhile, Maureen Dowd has continued with her unrestrained criticism of the President. Her June 11 column must have irritated more than a few people on Pennsylvania Avenue:

The press traveling with Obama on the campaign never had a lovey-dovey relationship with him. He treated us with aloof correctness, and occasional spurts of irritation. Like many Democrats, he thinks the press is supposed to be on his side.

The patrician George Bush senior was always gracious with reporters while conveying the sense that what we do for a living was rude.

The former constitutional lawyer now in the White House understands that the press has a role in the democracy. But he is an elitist, too, as well as thin-skinned and controlling. So he ends up regarding scribes as intrusive, conveying a distaste for what he sees as the fundamental unseriousness of a press driven by blog-around-the-clock deadlines.

During the Presidential election campaign, Mr. Obama was often described as a “Rorschach test” — people saw in him whatever they imagined. Now that the President has been able to disappoint his supporters, the criticism is gradually becoming increasingly harsh. As frustration over the BP crisis, unemployment and the economy continues to build — the criticism voiced by those who voted for him is likely to become more caustic.

Barack Obama, Big Hollywood, blog, BP, centrist, Charlie Rose, Commentary, Congress, conservative, Deborah White, Deepwater Horizon, Democrat, Democratic Party, Democrats, Disappointer-In-Chief, economics, Frank Rich, George Bush senior, George Clooney, Hollywood liberals, John Burke, John Nolte, John T Burke Jr, liberal, Maureen Dowd, MMS, Naked Capitalism, New York Times, News, Obama Administration, Obama as Rorschach test, Obama Presidency, ObamaWatch, Opinion, Pittsburgh Post-Gazette, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, Rolling Stone, taxpayers, the center lane, the economy, The Hill, The Liberal OC, The Spill The Scandal and the President, The White House, thecenterlane, Tim Dickenson, Tony Norman, unemployment, United States Senate, Wall Street, Yves Smith

I Knew This Would Happen

May 27th, 2010 Posted in Uncategorized

May, 27 2010

Comments Off

May 27, 2010

It was almost a year ago when I predicted that President Obama would eventually announce the need for a “second stimulus”. Once the decision was made to drink the Keynesian Kool-Aid with the implementation of last year’s economic stimulus package, we were faced with the question of how much to drink. As I expected, our President took the half-assed, yet “moderate” approach of limiting the stimulus effort to less than what was admitted as the cost of the TARP program, as well as approving the waste of stimulus funds on “pork” projects, ill-suited to stimulate economic recovery. In that July 9, 2009 piece, I discussed the fact that liberal economist, Paul Krugman, was not alone in claiming that $787 billion would not be an adequate amount to jump-start the economy back to firing on all cylinders. I pointed out that a survey of economists conducted by Bloomberg News in February of 2009 revealed a consensus opinion that an $800 billion stimulus would prove to be inadequate. The February 12, 2009 Bloomberg article by Timothy Homan and Alex Tanzi revealed that:

Even as Obama aims to create 3.5 million jobs with a stimulus plan, economists foresee an unemployment rate exceeding 8 percent through next year.

As we now reach the mid-point of that “next year”, the unemployment rate is at 9.9 percent. Those economists were right. Beyond that, some highly-respected economists, including Robert Shiller, are discussing the risk of our experiencing a “double-dip” recession. As a result, Larry Summers, Director of the President’s National Economic Council, is advocating the passage of a new set of spending measures, referred to as the “second stimulus”. To help offset the expense, the President has asked Congress to grant him powers to cut unnecessary spending, as would be accomplished with a “line item veto”. The Financial Times described the situation this way :

The combined announcements were made amid rising concern that centrist Democrats, or those representing marginal districts, might vote against the spending measures, which include more loans for small businesses, an extension of unemployment insurance and aid to states to prevent hundreds of thousands more teachers from being laid off.

* * *

Taken together, Mr Summers’s speech and Mr Obama’s announcement show an administration walking a fine line between the need to signal strong medium-term fiscal discipline and not jeopardising what they fear may be a fragile recovery.

Because they couldn’t get it right the first time, the President and his administration have placed themselves in the position of seeking piecemeal stimulus measures. If they had done it right, we would probably be enjoying economic recovery and a boost in the ranks of the employed at this point. As a result, this half-assed, piecemeal approach will likely prove more costly than doing it right on the first try. With mid-term elections approaching, deficit hawks have their knives sharpened for anything that can be described as an “entitlement” (unless that entitlement inures to the benefit of a favored Wall Street institution). Harold Meyerson of The Washington Post challenged the logic of the deficit hawks with this argument:

Those who oppose the jobs bills in the House and Senate this week should be compelled to answer some questions, starting with: Absent more stimulus, what do they see as the plausible engine of economic recovery? What effect will laying off as many as 300,000 teachers have on the education of American children? And, more elementally, don’t they know there’s a recession on?

Marshall Auerback of the Roosevelt Institute picked up where Harold Meyerson left off, as this recent posting at the New Deal 2.0 website demonstrates:

In fact, full employment is also the best “financial stability” reform we could implement, because with jobs growth comes higher income growth and a corresponding ability to service debt. That means less write-offs for banks and a correspondingly smaller need to provide government bailouts.

Fiscal austerity, by contrast, won’t cut it. Our elites seem think that you can cut “wasteful government spending” (that is, reduce private demand further) and cut wages and hence private incomes and not expect major multiplier effects to make things significantly worse. Of course, that “wasteful”, “unsustainable” spending never seems to apply to the Department of Defense, where we always seem to be able to appropriate a few billion, whenever necessary. “Affordability” principles never extend to the Pentagon, it appears.

The fact that we are still in the midst of a severe recession (rather than a robust economic recovery as is often claimed) accounts for the rationale asserted by Larry Summers in advocating a second stimulus amounting to approximately $200 billion in spending measures. Here’s how Summers explained the proposal in a May 24 speech at the Johns Hopkins School of Advanced International Studies:

It has in recent years been essential for the federal deficit to increase as the economy has gone into recession and has been severely constrained by demand.

And I cannot agree with those who suggest that it somehow threatens the future to provide truly temporary, high-bang-for-the-buck jobs and growth measures.

Rather, assuring as rapid a recovery as possible strengthens our future economy, our future prosperity, with many benefits, including a greater ability to manage our debts.

On the other hand, those who recognize the fiscal and growth benefits of strong expansionary policies must also recognize that it is simultaneously desirable to provide confidence that deficits will come down to sustainable levels as recovery is achieved. Such confidence both spurs recovery by reducing capital costs and reduces the risk of financial accidents.

To put the point differently: It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance.

*   * *

It is important to recognize that the ultimate consequences of stimulus for indebtedness depend critically on the macroeconomic conditions. When the economy is demand constrained, the impact of a dollar of tax cuts or expansionary investment will be at its highest and the impact on deficits at its lowest.
*   *   *

In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.   This explains the logic of the Recovery Act’s success and the rationale for taking additional targeted actions to increase confidence in our economic recovery.

Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.

It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.

So, here we are at the introduction of the second stimulus plan. Despite the denial by President Obama that he would seek a second stimulus, he has Larry Summers doing just that. Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve such measures. This time around, it might not happen and that would be due to the leadership flaw I observed last year:

President Obama should have done it right the first time. His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”. The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return. The voting public will perceive this as weak leadership. As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

At this point, Obama’s “flexibility” is often viewed by the voting public as a lack of existential authenticity, sincerity or — worse yet — credibility. As a result, I would expect to see more articles like the recent piece by Carol Lee at Politico, entitled, “Obama: Day for ‘partnership’ passed”.

Here comes the makeover!

Alex Tanzi, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, blog, Bloomberg news, Carol Lee, centrist, centrist Democrats, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, deficit hawks, Democrat, Democratic Party, Democrats, Department of Defense, double-dip recession, economic crisis, economic meltdown, economic recovery, economics, economists, equities markets, Federal Reserve, financial crisis, financial meltdown, financial reform, Financial Times, Fiscal austerity, government guarantees, Harold Meyerson, huge financial institutions, I Knew This Would Happen, insolvent banks, investment banks, jobs growth, John Burke, John T Burke Jr, Larry Summers, liberal, line item veto, Marshall Auerback, moral hazard, National Economic Council, New Deal 2 0 website, News, Obama Administration, Obama Presidency, Opinion, Paul Krugman, piecemeal approach, Political, Politico, Politics, President of the United States, Recovery Act, regulatory capture, Republican, Republican Party, Robert Shiller, Roosevelt Institute, second stimulus, securities, socialized loss and privatized gain, stock markets, survey of economists, TARP, TARP bailout, taxpayers, the center lane, the economy, The White House, thecenterlane, Timothy Homan, Treasury Department, Troubled Assets Relief Program, unemployment, United States Senate, United States Treasury, Wall Street, Washington Post, wealth transfer, zombie banks

A Closer Look

December 28th, 2009 Posted in Uncategorized

Dec, 28 2009

Comments Off

December 28, 2009

As the year and the decade come to a close, we are being bombarded with a slew of retrospectives about what was “important” during this crazy time. Those of us who are capable of directing our attention to intellectually stimulating subjects, have found the increasing availability of information from internet-based sources to be life-changing. Now that we are no longer stuck with a focus on the handful of news stories deemed “important” by mainstream media outlets, we have familiarized ourselves with the ever-expanding marketplace of ideas to be found online. We all have our favorite websites, where we go first when we want to find out the latest and most attention-grabbing news events of the day. From there, many of us take a closer look at a particular topic by going to a more specialized, subject-oriented website. I keep a blogroll at the left side of this page, which is offered as a diverse aggregation of sources and perspectives on subjects usually covered in this blog. Lately, I’ve found myself spending more and more time reading the great material by Edward Harrison of Credit Writedowns. As a result, I’ve added a link to that site on my blogroll.

Edward Harrison explained the reason why he chose such a gloomy name for his website:

I named my blog “Credit Writedowns” because I anticipated an historic wave of credit writedowns in the global banking system which would lead to a wave of deleveraging, systemic risk, and bank failures — in short, a massive financial and economic bust to rival the Great Depression.

Mr. Harrison has an MBA degree in Finance from Columbia University and he works as a banking and finance specialist for Global Macro Advisors. One of his noteworthy efforts from the first year of Credit Writedowns came about on September 24, 2008, when he published “The Dummy’s Guide to the US Banking Crisis”.

I have been particularly impressed by the “year in review” series, presently underway at Credit Writedowns. On December 23, Mr. Harrison published a great essay about how “kleptocracy” (rule by thieves) has become the status quo. The premise for this piece was originally included in one of Harrison’s early postings on Credit Writedowns, from March 24, 2008. At that time, he explained the subject this way:

First, let’s use a theory from Guns, Germs, and Steel by Jared Diamond as the center-piece for this little theory. In Chapter 14, entitled “From Egalitarianism to Kleptocracy,” Diamond postulates that more stratified societies are by definition less egalitarian, but more efficient and are, thus, able to eradicate or conquer more egalitarian, less stratified societies. Thus, all “advanced” societies with high levels of GDP are complex and hierarchical.

The problem is: these more stratified, more complex societies are in essence Kleptocracies, where those in power re-distribute societal wealth to themselves. Those at the bottom of the society’s pyramid accept this unequal, non-egalitarian state of affairs because they too benefit from their society’s relative advancement. It’s a case of a rising tide lifting all boats.

Back in March of 2008, Edward Harrison was one of just a small handful of thinkers capable of facing up to the ugly reality of where the credit bubble brought us:

The United States has been living beyond its means for some time. Since the 1960s, we have run up a massive federal debt and current account deficit, while debt levels have doubled on a percentage of GDP basis. Our present levels of consumption are simply not justified by our current levels of productivity, if we want to maintain our present standard of living in the future.

* * *

The fact is our day of reckoning is upon us. We will soon realize that our massive debt and an outsized credit bubble have not only saddled us with debt, but it has also misallocated capital so that we are less productive than we believed. We have built miles and miles of telecom dark fibre when we could have invested in schools. We have built massive numbers of new homes, when we could have repaired our bridges and roads. The last 35 years have been an illusion of extreme productivity and wealth because we have artificially pulled forward demand by misallocating resources in order to consume today, what could have been consumed tomorrow. In essence, we are consuming today, while unwittingly making it more difficult to consume tomorrow because we believe we are wealthier than we truly are.

The recent sneaky move by Treasury Secretary “Turbo” Tim Geithner on Christmas Eve, lifting the $400 billion restriction on bailouts to Fannie Mae and Freddie Mac (sidestepping the need for Congressional approval because it was done before the end of the year) is drawing attention to the kleptocracy’s strategy of relying on distraction of public attention in order to get away with skullduggery. Harrison’s point from the December 23 posting: that the kleptocracy anesthetizes the public with television, which has become “our own modern-day agent of mental anesthesia”, struck a chord with me.

The latest entry in the “year in review” series at Credit Writedowns concerns the subject of crony capitalism. Here’s how Edward Harrison described the piece:

In this post, I want to talk about Obama’s economic policies in the context of what I perceive as a crony capitalism which is now endemic in Washington. As I see it, Americans are angry because the economy is still quite fragile and the personal financial situation for many ordinary Americans is still quite dire. Yet, the so-called fat cats seem more pigs eating at the trough of government largesse. This juxtaposition is galling and undermines any success that the Obama Administration has achieved.

A key theme of that essay is expressed in this passage:

The evidence, therefore, tends to demonstrate that we have witnessed an orchestrated campaign by the Bush and Obama Administrations to recapitalize too big to fail institutions by hook or by crook, bypassing Congressional approval if necessary. And when it comes to healthcare, both Congress and the White House have bent over backwards to keep the lobbyists onside. As I see it, our government has favored special interests in the past year of Obama’s tenure to our detriment.

As more economists voice agreement with the opinion expressed by Joseph Stiglitz, that there will likely be further economic contraction in the second half of 2010, the inevitability of a dreaded “double-dip” recession will become more apparent. Mr. Harrison pointed out that this scenario could result in some disdain for President Obama, which might impact the 2010 election results. Perhaps President Obama should start reading Credit Writedowns — and stop listening to Larry Summers.

2010 elections, A Closer Look, American capitalism, asset bubble, bank bailout, banking crisis, banking lobby, Barack Obama, Ben Bernanke, blog, centrist, Columbia University, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, credit default swaps, Credit Writedowns, crony capitalism, Democrat, Democratic Party, Democrats, derivatives crisis, double-dip recession, economic crisis, economics, economists, Edward Harrison, Fannie Mae, Federal Reserve, Federal Reserve Chairman Ben Bernanke, financial crisis, financial reform, foreclosures, Freddie Mac, Global Macro Advisors, Guns Germs and Steel, insolvent banks, investment banks, Jared Diamond, John Burke, John T Burke Jr, Joseph Stiglitz, kleptocracy, Larry Summers, liberal, lobbyists, moral hazard, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, self-dealing insiders, socialized loss and privatized gain, systemic risk, taxpayer subsidies to investment banks, taxpayers, the banks, the center lane, The Dummys Guide to the US Banking Crisis, the economy, The White House, thecenterlane, toxic assets, Treasury Department, Treasury Secretary Tim Geithner, troubled assets, Turbo Tim Geithner, unemployment, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, year in review, zombie banks

Damage Control

December 17th, 2009 Posted in Uncategorized

Dec, 17 2009

Comments Off

December 17, 2009

Matt Taibbi hit another grand slam with his recent Rolling Stone article: “Obama’s Big Sellout”. It was another classic work in his unique style. The ugly truth it drove home was that Barack Obama used a “bait and switch” tactic in his Presidential campaign: promising to reform Wall Street — until the day after he got elected — at which time he immediately jumped into bed with the culprits of the financial crisis. The reaction of the Obama apologists to the Rolling Stone piece involved the usual tactic of attacking the messenger (in this case: Taibbi himself). It didn’t work. The best way to see how this played out should begin with a reading of Taibbi’s retort to a critique appearing in The American Prospect — a feeble attempt to demonstrate that Taibbi got his facts wrong. A neutral judge, Felix Salmon of Reuters, then stepped in and ruled in favor of Taibbi. The online responses to Felix Salmon’s essay are a great read. At the Open Left website, David Sirota upbraided Taibbi’s critics, who spanned the political spectrum — many of whom expressed condescension at the “naïve” decision of an outside-the-beltway reporter to expose the breach of a campaign promise:

It’s certainly true that a lot of politicians’ words mean nothing – but if reporters start treating that as a non-newsworthy assumption in their coverage, then the whole journalistic system becomes a joke – a miasma of personality profiles and puff pieces that assumes that the only thing that must be valued in politics is personal intangibles like “charisma” and “charm” and “toughness” and all those other incessant cliches. And what a joke that makes of our democracy. In a republic where we only get to vote our politicians in or out every few years, all we have to go on are their promises. If we now must assume their promises aren’t true, and attack people for being “naïve” for daring to try to hold them to their promises, then we’ve made a joke of our whole political system.

Matt Taibbi’s article immediately forced the White House into a damage control mode. Another softball interview was immediately set up with Steve Croft of 60 Minutes, wherein Obama attempted to redeem his false image as an adversary of the Wall Street investment banks. The President took advantage of that opportunity to present himself as an antagonist of those he described as “fat cats”. On the following day, Obama held a meeting in the White House cabinet room with some banking representatives who found the event important enough to attend. Immediately afterward, Charlie Gasparino revealed the backstory behind Obama’s meeting with the bankers. After informing us that the administration provided the bankers with Obama’s “talking points” in advance of the meeting, Gasparino disclosed this:

. . . people with first-hand knowledge of the sitdown said, it was a heavily scripted affair — with none of the fireworks Obama displays in public.

* * *

Said one CEO who attended: “I expected to be taken to the woodshed, but the tone was quite the opposite.”

Said another senior exec with knowledge of the meeting: “The whole thing was so telegraphed that not much was accomplished, other than giving Obama a PR stunt. . . . He might have sounded mean on ‘60 Minutes,’ but during the meeting he was a hell of a lot nicer.”

Many commentators were quick to point out that by the time Obama started talking tough about “fat cats”, he had already given them all they wanted by allowing them to pay back their TARP loans on an expedited basis. As Henry Blodget explained for The Business Insider:

And in case you missed what is really going on here, the banks that repaid TARP are now getting all the benefits of government help with none of the drawbacks. They just ditched the bad stuff — namely, pay caps — and kept the good stuff (implicit bond guarantees, subsidized super-low interest rates, no obligation to do anything for anyone). Obama can jawbone all he wants about “fat cats,” but that’s all he can do.

At The Washington Post, Steven Pearlstein bemoaned the fact that the TARP beneficiaries had been “let off their leash”. Pearlstein expressed concern that this move created the potential for more problems in the future:

By rushing to cash in their chips, however, the administration not only gave up political leverage and additional profit, but took the risk that one or more of the banks may find that it can’t make it on its own. While the financial system has rebounded faster than anyone could have imagined, potential threats still loom — a further collapse of commercial real estate, for example, or a string of sovereign debt defaults. And bank profits, while having rebounded, remain significantly dependent on the availability of cheap funding from the Federal Reserve and other central banks that cannot be expected to last indefinitely.

The administration’s damage control effort turned out to be worthless. With his centerpiece healthcare reform effort floundering in the Senate, Obama the President is appearing to be significantly less effective than Obama the candidate. The President’s critics have been quick to pounce. George Will noted that Obama has “seen his job approval vary inversely with his ubiquity”. The New York Post’s Michael Goodwin alleged that Obama “doesn’t look like he cares that big chunks of the country, left, right and center, are giving up on him.” However, the best analysis of the confidence crisis afflicting the Obama Presidency came from Dan Gerstein of Forbes.com. Gerstein observed that the new Preisdent’s leadership style was to blame — something Gerstein described as “the Reverse Roosevelt: Talk boldly and carry a toothpick.” While debunking the administration’s claim that it had lost the leverage it had over Wall Street with the TARP paybacks, Gerstein argued that such an excuse “doesn’t pass the laugh test” because the banking industry is the most regulated industry in the country. The task Obama faces is to cultivate a leadership style that will be useful in confronting the challenges he undertook when he assumed office:

For those center dwellers, the issue is not that Obama is too liberal or too pragmatic (the chief complaints of the noisemakers on the left and right), but that he is not effective enough. They question whether he has what it takes to get results: to find the right balance on health care, to admit and fix the inadequacies of the stimulus, to begin taming the deficit without impeding growth. It is a crisis of confidence that at its heart is, as Brookings scholar and former Clinton adviser Bill Galston points out, a crisis of competence.

* * *

But regardless of the reasons, Obama signed up for these missions, and his ability to succeed in them will largely hinge on whether he can grow as a leader. Can he overcome his inhibitions, whatever their cause, and learn from the legacies of our most effective presidents about how to wield the full power of his office? He clearly knows how to don the velvet glove (often with substantial impact) — will he come to understand when to unleash the iron fist?

Obama’s pattern so far is far from encouraging. But I would not give up hope for growth.

It appears as though we are back to the themes of “hope” and “change”. This time we’re hoping that Obama will change.

60 Minutes, American capitalism, Bait And Switch, bank bailout, banking crisis, banking lobby, Barack Obama, Bill Galston, blog, broken campaign promises, centrist, Charlie Gasparino, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, credit default swaps, crony capitalism, Damage Control, Dan Gerstein, David Sirota, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, Federal Reserve, Felix Salmon, financial crisis, financial reform, Forbes, George Will, Goldman Sachs, government guarantees, Henry Blodget, hope and change, investment banks, job creation, John Burke, John T Burke Jr, liberal, lobbyists, Matt Taibbi, Michael Goodwin, moral hazard, News, Obama Administration, Obama Presidency, Obamas Big Sellout, Open Left, Opinion, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, Reuters, Rolling Stone, socialized loss and privatized gain, Steve Croft, Steven Pearlstein, stress tests, systemic risk, TARP, TARP bailout, TARP payback, taxpayer subsidies to investment banks, taxpayers, The American Prospect, the banks, The Business Insider, the center lane, the economy, the New York Post, the Reverse Roosevelt, The Washington Post, The White House, thecenterlane, too big to fail, Treasury Department, Treasury Secretary Tim Geithner, Troubled Assets Relief Program, Turbo Tim Geithner, unemployment, United States Senate, United States Treasury, Wall Street fat cats, Wall Street lobbyists, wealth transfer, welfare for the rich

No Free Pass For The Disappointer-In-Chief

December 14th, 2009 Posted in Uncategorized

Dec, 14 2009

Comments Off

December 14, 2009

The election of Barack Obama to the Presidency was hailed by many as an event that “transcended race”. Ever since Obama’s primary election victory in lily-white Iowa, the pundits couldn’t stop talking about the candidate’s unique ability to vault the racial barrier before Hillary Clinton could break through the glass ceiling. As we approach the conclusion of Obama’s first year in the White House, it has become apparent that the Disappointer-in-Chief has not only alienated the Democratic Party’s liberal base, but he has also let down a demographic he thought he could take for granted: the African-American voters. At this point, Obama has “transcended race” with his ability to dishearten loyal black voters just as deftly as he has chagrined loyal supporters from all ethnic groups.

Charles Blow’s recent opinion piece for the December 4 edition of The New York Times, entitled: “Black in the Age of Obama” shed some light on the racist backlash against the black population as a result of the election of our nation’s first African-American President. Mr. Blow then focused on Obama’s approach to his sinking poll numbers:

This means that Obama can get away with doing almost nothing to specifically address issues important to African-Americans and instead focus on the white voters he’s losing in droves. This has not gone unnoticed. In the Nov. 9 Gallup poll, the number of blacks who felt that Obama would not go far enough in promoting efforts to aid the black community jumped 60 percent from last summer to now.

* * *

The Age of Obama, so far at least, seems less about Obama as a black community game-changer than as a White House gamesman. It’s unclear if there will be a positive Obama Effect, but an Obama Backlash is increasingly apparent. Meanwhile, black people are also living a tale of two actions: grin and bear it.

As Silla Brush reported for The Hill on December 2, ten members of the Congressional Black Caucus had threatened to withhold their votes on the financial reform bill, because the President had not been “doing enough to help African-Americans through the bleak economy”.

It has been easy to understand the dissatisfaction with Obama expressed by the Democratic Party’s liberal base. In a piece entitled “The Winter of Liberal Discontent”, Louis Proyect incorporated the umbrage expressed by such notables as Tom Hayden and Michael Moore, while providing a thorough assessment of Obama’s abandonment of the Left. He concluded the piece with a quoted passage from an essay written for The Huffington Post by Elizabeth Warren, chair of the Congressional TARP Oversight Panel. Mr. Proyect quoted Ms. Warren’s reference to some brutally unpleasant statistics, raising the question of whether America will continue to have a middle class. The theme of Mr. Proyect’s discussion was based on this point:

The chorus of disapproval is louder than any I have heard from liberal quarters since 1967 when another very popular Democrat did an about-face once he was in office. When LBJ ran as a peace candidate, very few people — except unrepentant Marxists — would have anticipated a massive escalation in Vietnam. It was well understood a year ago that Obama was committed to escalating the war in Afghanistan, but the liberal base of the Democratic Party was too mesmerized by the mantras of “hope” and “change” to believe that their candidate would actually carry out his promise.

There is a tendency to regard right-wing Republican presidents being replaced by idealistic-appearing Democrats who betray their supporters, thus enabling a new Republican candidate to take over the White House, as a kind of Western version of karma. We are compelled by universal law in some way to undergo an endless cycle of suffering without hope of redemption short of Enlightenment.

The criticism of Obama expressed by African-American commentators underscores the President’s unique ability to alienate those who might support him on the basis of ethnic solidarity, just as thoroughly as he can antagonize the melanin-deficient “limousine liberals” of Park Avenue. On December 11, Edward Harrison of Credit Writedowns made a point of letting us know that the complete text of Matt Taibbi’s recent Rolling Stone article, “Obama’s Big Sellout” is now available online. Before quoting some of the discussion in Matt Taibbi’s essay, Mr. Harrison provided some hard-hitting criticism of the Obama administration’s financial and economic policy shortcomings. You may note that the administration’s abandonment of the African-American base was not discussed. It wouldn’t do justice to Mr. Harrison’s great work to quote a snippet of this because it’s too good. I have to give you the whole thing:

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.

The magic of the Obama candidacy has vanished with the disappointments of the Obama Presidency. His supporters have learned, the hard way, that talk is cheap. The President’s actions during the next three years will not only impact the viability of his administration — they could undermine the careers of his fellow Democrats.

African-American voters, banking crisis, banking lobby, Barack Obama, Black in the Age of Obama, blog, centrist, Change We Can Believe In, Charles Blow, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, Congressional Black Caucus, Congressional TARP Oversight Panel, conservative, Credit Writedowns, crony capitalism, Democrat, Democratic Party, Democrats, Disappointer-In-Chief, economic crisis, economics, Edward Harrison, Elizabeth Warren, financial crisis, financial reform, Hillary Clinton, investment banks, job creation, John Burke, John T Burke Jr, Larry Summers, liberal, liberal base of Democratic Party, lobbyists, Louis Proyect, Matt Taibbi, melanin-deficient limousine liberals, Michael Moore, moral hazard, News, No Free Pass For The Disappointer-In-Chief, Obama Administration, Obama Presidency, Obama supporters, Obamas Big Sellout, Opinion, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, Rolling Stone, Silla Brush, socialized loss and privatized gain, stock markets, taxpayer subsidies to investment banks, taxpayers, the banks, the center lane, the economy, The Hill, The Huffington Post, The New York Times, The White House, The Winter of Liberal Discontent, thecenterlane, Tom Hayden, Treasury Department, Treasury Secretary Tim Geithner, Turbo Tim Geithner, unemployment, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, Washington insiders

That Sinking Feeling

December 10th, 2009 Posted in Uncategorized

Dec, 10 2009

Comments Off

December 10, 2009

President Obama must have thought that a regimen of constant speechifying on television would maintain his popularity. While enduring criticism from his fellow Democrats after his most recent speech on December 8, Obama must be aware that the poll numbers show how his continuous oration strategy is not working. During these desperate economic times, the voters — even Obama’s own supporters — want more than speeches. On December 1, poll results released by Rasmussen Reports not only revealed that the President’s approval rating sank to 48 percent — his disapproval rating actually reached 52 percent! On December 9, Quinnipiac University published the results of a poll conducted during December 1 – 6. The results gave the Preisdent a job approval rating of only 46 percent, and those disapproving Obama’s performance amounted to 44 percent. Peter Brown, assistant director of the Quinnipiac University Polling Institute, discussed the results:

“President Barack Obama’s job approval rating continues to slide and it’s evident the deterioration stems from voter unhappiness over domestic policy matters,” Brown added.

American voters disapprove 54 – 41 percent of Obama’s handling of the economy, down from a 52 – 43 percent disapproval November 18 and his worst score ever on this issue. The biggest shift is among Democrats who approve 71 – 24 percent, down from 77 – 18 percent three weeks ago.

The biggest drop in Obama’s overall approval is among independent voters, who disapprove 51 – 37 percent, down from 46 – 43 percent disapproval.

Although the health care issue had an impact on the poll’s results, the Quinnipiac team found that the deterioration in support for Obama resulted from those favoring the public option, despite the spin effort in many quarters to suggest that the poll revealed dissatisfaction with the public option itself:

Voters disapprove 52 – 38 percent of the health care reform proposal under consideration in Congress, and they disapprove 56 – 38 percent of President Obama’s handling of health care, down from 53 – 41 percent in a November 19 survey by the independent Quinnipiac (KWIN-uh- pe-ack) University.

But voters support 56 – 38 percent giving people the option of being covered by a government health insurance plan, compared to 57 -35 percent November 19.

The Ipsos/McClatchy Poll, taken during December 3 – 6, gave the President an even 49 – 49 percent split on his approval rating. The interesting segment of these results was the breakdown on voter satisfaction concerning particular issues. That section of the poll revealed that Obama received his highest “unsatisfactory” rating on the issue of “jobs and the economy” with 45 percent giving the President an unsatisfactory grade (D or F) while only 36 percent gave him a satisfactory grade (A or B) and 19 percent gave him a C.

The disappointment expressed by Obama’s supporters concerning his handling of the economy was not limited to polling results. Robert Reich, former Secretary of Labor during the Clinton administration, wrote a piece for his blog on December 8 entitled: “The Preisdent’s Job Initiative Doesn’t Measure Up”. Reich was not alone in his assessment of Obama’s performance to date:

No president in modern times walks a tightrope as exquisitely as this one. His balance is a thing of beauty. But when it comes to this economy right now — an economy fundamentally out of balance — we need a federal government that moves boldly and swiftly to counter-balance the huge recessionary forces still at large.

Reich implied that the time for the “balancing act” is over. It is now time to solve problems:

The word in Washington is we’re out of the woods. The rate of unemployment dipped from 10.2 percent in September to 10 percent in October. In our nation’s capital, a one-month trend marks a turnaround. Don’t believe it for a moment. The real story of October was the increasing number of Americans who dropped out of the labor force, too discouraged even to look for work.

Whether or not one agrees with Reich’s proposal of spending $400 billion over a two-year period to put people back to work, even Reich’s opponents would likely agree with his assessment of Obama’s initiative:

We don’t know exactly how much the President is proposing to spend, but sources tell me it’s in the range of $70 billion, redirected from the $200 billion in TARP savings. The President’s small, calibrated attempt to balance a stimulus with deficit reduction will in fact make the deficit worse over the long haul. It postpones the day when we’re back to near full employment, when almost all Americans who need a job get paychecks on which they pay taxes. This isn’t really balance at all. It prolongs the economic imbalance.

At The New Republic, William Galston wrote a piece entitled “Obama Has a Problem Prioritizing his Agenda” which he began by discussing the importance of timing:

Timing is to politics what location is to real estate. Good policy ideas are useless if the time is not right.

*   *   *

But the larger point is that the president is beginning to realign his agenda.

But he’s just beginning. To complete the pivot and make 2010 the year of jobs, two other things must happen. First, the White House must fully integrate the jobs focus into the president’s schedule.

*   *   *

Second, the legislative agenda for 2010 must reflect and reinforce the renewed focus on job creation. That means postponing items that the American people are bound to regard as diversionary as long as unemployment remains high.

* *   *

Great presidents from Lincoln to FDR have understood that “now or never” is the ultimate false choice in politics. All too often, now means never. The “fierce urgency of now” should be reserved for what is truly urgent. As for the rest, patience is more than a virtue; it is a necessity.

On of my favorite centrist commentators, Dan Gerstein of Forbes.com, wrote a piece on Wednesday entitled: “Obama Not Cutting It On The Economy”. Although Gerstein began by complimenting Obama on his “balancing act”, he moved on to focus on the absence of “hope and change” promised during the election campaign. As we have seen, Gerstein was not alone in emphasizing the need to immediately address this problem:

Indeed, we’re confronting an unprecedented combination of grave economic challenges that, while not as immediate as the financial collapse we avoided last fall, may be more consequential.

Gerstein explained how Obama’s initiative is a step in the right direction, but just a step, nonetheless:

The modest job-creation proposals the administration unveiled Tuesday individually have their merits, and they seem much more mission-focused than the mish-mashed stimulus bill that Congressional Democrats constructed.

* * *

That’s because the new jobs plan was not designed to be a policy game-changer but a political stopgap, to tide the public over and buy the White House time for the second half of the stimulus plan to kick in. They are betting the national farm — soy beans to servers — that the old stimulus combined with the new “stimulus lite” will provide enough demand to spur enough new hiring to calm the country.

Gerstein provided a good explanation of the core difficulty the President faces in tackling the multitude of problems arising from the economic crisis:

This unwillingness to make tough decisions strikes me as arguably the worst leadership failure of the Obama presidency. That’s in large part because cutting outlays and shifting resources would be such a relatively easy lift in this environment. For starters the federal government is filled with programs and set-asides that are either outdated, wasteful, largely symbolic or designed to serve narrow interest groups. And the administration (not to mention many think tanks) has already identified dozens of suitable targets in budget hit lists. No one would be better positioned than Obama, given his baseline support on the left, to call for the elimination and reduction of programs that we can’t defend as national priorities at this moment.

* * *

This was the great missed opportunity of the president’s speech — the watchdog that didn’t bark. He could have done more than repackage his economic policy; he could have helped restore public confidence in his leadership and our shared future. Instead, the juggler-in-chief did the opposite of his Afghanistan speech — he settled for the safe play and in doing so dropped the most important ball.

That’s great advice! If only the President would listen to it.

balancing act, Barack Obama, blog, centrist, Commentary, Congress, conservative, Dan Gerstein, Democrat, Democratic Party, Democrats, Forbes, Ipsos McClatchy Poll, job approval rating, job creation, jobs crisis, John Burke, John T Burke Jr, liberal, News, Obama Administration, Obama employment initiative, Obama Has a Problem Prioritizing his Agenda, Obama jobs initiative, Obama Not Cutting It On The Economy, Obama Presidency, Opinion, Peter Brown, Political, Politics, poll results, President of the United States, Quinnipiac Poll, Quinnipiac University Polling Institute, Rasmussen Reports, Republican, Republican Party, Robert Reich, That Sinking Feeling, the center lane, the economy, the fierce urgency of now, The New Republic, The Preisdents Job Initiative Doesnt Measure Up, The White House, thecenterlane, unemployment, United States Senate, William Galston

Preparing For The Worst

November 19th, 2009 Posted in Uncategorized

Nov, 19 2009

Comments Off

November 19, 2009

In the November 18 edition of The Telegraph, Ambrose Evans-Pritchard revealed that the French investment bank, Societe Generale “has advised its clients to be ready for a possible ‘global economic collapse’ over the next two years, mapping a strategy of defensive investments to avoid wealth destruction”. That gloomy outlook was the theme of a report entitled: “Worst-case Debt Scenario” in which the bank warned that a new set of problems had been created by government rescue programs, which simply transferred private debt liabilities onto already “sagging sovereign shoulders”:

“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank’s “Bear Case” scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

* * *

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” it said.

Inflating debt away might be seen by some governments as a lesser of evils.

If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.

To make matters worse, America still has an unemployment problem that just won’t abate. A recent essay by Charles Hugh Smith for The Business Insider took a view beyond the “happy talk” propaganda to the actual unpleasant statistics. Mr. Smith also called our attention to what can be seen by anyone willing to face reality, while walking around in any urban area or airport:

The divergence between the reality easily observed in the real world and the heavily touted hype that “the recession is over because GDP rose 3.5%” is growing. It’s obvious that another 7 million jobs which are currently hanging by threads will be slashed in the next year or two.

By this point, most Americans are painfully aware of the massive bailouts afforded to those financial institutions considered “too big to fail”. The thought of transferring private debt liabilities onto already “sagging sovereign shoulders” immediately reminds people of TARP and the as-yet-undisclosed assistance provided by the Federal Reserve to some of those same, TARP-enabled institutions.

As Kevin Drawbaugh reported for Reuters, the European Union has already taken action to break up those institutions whose failure could create a risk to the entire financial system:

EU regulators are set to turn the spotlight on 28 European banks bailed out by governments for possible mandated divestitures, officials said on Wednesday.

The EU executive has already approved restructuring plans for British lender Lloyds Banking (LLOY.L), Dutch financial group ING Groep NV (ING.AS) and Belgian group KBC (KBC.BR).

Giving break-up power to regulators would be “a good thing,” said Paul Miller, a policy analyst at investment firm FBR Capital Markets, on Wednesday.

Big banks in general are bad for the economy because they do not allocate credit well, especially to small businesses, he said. “Eventually the big banks get broken up in one way or another,” Miller said at the Reuters Global Finance Summit.

Meanwhile in the United States, the House Financial Services Committee approved a measure that would grant federal regulators the authority to break up financial institutions that would threaten the entire system if they were to fail. Needless to say, this proposal does have its opponents, as the Reuters article pointed out:

In both the House and the Senate, “financial lobbyists will continue to try to water down this new and intrusive federal regulatory power,” said Joseph Engelhard, policy analyst at investment firm Capital Alpha Partners.

If a new break-up power does survive the legislative process, Engelhard said, it is unlikely a “council of numerous financial regulators would be able to agree on such a radical step as breaking up a large bank, except in the most unusual circumstances, and that the Treasury Secretary … would have the ability to veto any imprudent use of such power.”

When I first read this, I immediately realized that Treasury Secretary “Turbo” Tim Geithner would consider any use of such power as imprudent and he would likely veto any attempt to break up a large bank. Nevertheless, my concerns about the “Geithner factor” began to fade after I read some other encouraging news stories. In The Huffington Post, Sam Stein disclosed that Oregon Congressman Peter DeFazio (a Democrat) had called for the firing of White House economic advisor Larry Summers and Treasury Secretary “Timmy Geithner” during an interview with MSNBC’s Ed Schultz. Mr. Stein provided the following recap of that discussion:

“We think it is time, maybe, that we turn our focus to Main Street — we reclaim some of the unspent [TARP] funds, we reclaim some of the funds that are being paid back, which will not be paid back in full, and we use it to put people back to work. Rebuilding America’s infrastructure is a tried and true way to put people back to work,” said DeFazio.

“Unfortunately, the President has an adviser from Wall Street, Larry Summers, and a Treasury Secretary from Wall Street, Timmy Geithner, who don’t like that idea,” he added. “They want to keep the TARP money either to continue to bail out Wall Street … or to pay down the deficit. That’s absurd.”

Asked specifically whether Geithner should stay in his job, DeFazio replied: “No.”

“Especially if you look back at the AIG scandal,” he added, “and Goldman and others who got their bets paid off in full … with taxpayer money through AIG. We channeled the money through them. Geithner would not answer my question when I said, ‘Were those naked credit default swaps by Goldman or were they a counter-party?’ He would not answer that question.”

DeFazio said that among he and others in the Congressional Progressive Caucus, there was a growing consensus that Geithner needed to be removed. He added that some lawmakers were “considering questions regarding him and other economic advisers” — though a petition calling for the Treasury Secretary’s removal had not been drafted, he said.

Another glimmer of hope for the possible removal of Turbo Tim came from Jeff Madrick at The Daily Beast. Madrick’s piece provided us with a brief history of Geithner’s unusually fast rise to power (he was 42 when he was appointed president of the New York Federal Reserve) along with a reference to the fantastic discourse about Geithner by Jo Becker and Gretchen Morgenson, which appeared in The New York Times last April. Mr. Madrick demonstrated that what we have learned about Geithner since April, has affirmed those early doubts:

Recall that few thought Geithner was seasoned enough to be Treasury secretary when Obama picked him. Rubin wasn’t ready to be Treasury secretary when Clinton was elected and he had run Goldman Sachs. Was Geithner’s main attraction that he could easily be controlled by Summers and the White House political advisers? It’s a good bet. A better strategy, some argued, would have been to name Paul Volcker, the former Fed chairman, for a year’s worth of service and give Geithner as his deputy time to grow. But Volcker would have been far harder to control by the White House.

But now the president needs a Treasury Secretary who is respected enough to stand up to Wall Street, restabilize the world’s trade flows and currencies, and persuade Congress to join a battle to get the economic recovery on a strong path. He also needs someone with enough economic understanding to be a counterweight to the White House advisers, led by Summers, who have consistently been behind the curve, except for the $800 billion stimulus. And now that is looking like it was too little. The best guess is that Geithner is not telling the president anything that the president does not know or doesn’t hear from someone down the hall.

The problem for Geithner and his boss, is that the stakes if anything are higher than ever.

As the rest of the world prepares for worsening economic conditions, the United States should do the same. Keeping Tim Geithner in charge of the Treasury makes less sense than it did last April.

AIG, Ambrose Evans-Pritchard, American capitalism, American International Group, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, blog, Capital Alpha Partners, centrist, Charles Hugh Smith, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, credit default swaps, crony capitalism, Daniel Fermon, Democrat, Democratic Party, Democrats, derivatives crisis, economic crisis, economic meltdown, economics, economists, Ed Schultz, equities markets, European Union, FBR Capital Markets, Federal Reserve, financial crisis, financial institutions as too big to fail, financial meltdown, financial reform, Geithner factor, Goldman Sachs, government guarantees, Gretchen Morgenson, House Financial Services Committee, huge financial institutions, investment banks, Jeff Madrick, Jo Becker, John Burke, John T Burke Jr, Joseph Engelhard, Kevin Drawbaugh, Larry Summers, liberal, lobbyists, moral hazard, MSNBC, New York Federal Reserve, News, Obama Administration, Obama Presidency, Opinion, Oregon Congressman Peter DeFazio, Paul Miller, Paul Volcker, Political, Politics, Preparing For The Worst, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, Reuters, Sam Stein, SEC scandals, securities, socialized loss and privatized gain, Societe Generale, stock markets, systemic risk, systemic risk regulator, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, the banks, The Business Insider, the center lane, The Daily Beast, the economy, The Huffington Post, The New York Times, the Telegraph, The White House, thecenterlane, Timmy Geithner, too big to fail, toxic assets, transparency, Treasury Department, Treasury Secretary Tim Geithner, troubled assets, Troubled Assets Relief Program, Turbo Tim Geithner, unemployment, United States Senate, United States Treasury, Wall Street, wealth transfer, Worst-case Debt Scenario

The Republicans Have No Choice

March 2nd, 2009 Posted in Uncategorized

Mar, 02 2009

Comments Off

March 2, 2009

Republican pundit Mike Murphy drove the message home on the March 1 telecast of NBC’s Meet The Press. Demographics have changed since the Republican heyday of the Reagan era. The Republican mission, message and strategy must adapt to our changing world.

On the other hand, last week brought us the CPAC (Conservative Political Action Convention) with its unique focus that has no relevance to current reality. The Democratically-inclined pundits on MSNBC were delighted by the CPAC festivities. These commentators were left with visions of Sarah Palin as the 2012 Presidential candidate, dancing in their heads.

We’ve seen and heard plenty of opinions about the current leadership vacuum within the Republican Party. Almost by default, he who makes the most noise, Rush Limbaugh, has found himself as the new, de facto leader of the Republicans. Although he is not a candidate for anything, he enjoys more of a papal role with the diehard Republicans. His message is amplified by people like Chris Matthews on MSNBC (who regularly discourses about how the Republicans always swing back to the “hard right”, when a moderate Presidential candidate fails). Matthews then describes John McCain as the failed “moderate” and proceeds to (hopefully) set the stage for a “wing nut” Presidential candidate such as Sarah Palin or Bobby “The Exorcist” Jindal. In either case, Obama gets re-elected — even if unemployment is at 42 percent and the Dow Jones is at 369.

The problem with Chris Matthews’ logic is that McCain pandered to the hard-right “base” in his quest for the White House and could not really be considered as a truly moderate candidate. The Republicans could wise-up and move toward the center by 2012. Besides: They have no choice.

Here in Florida, we have a fait accompli. Our next Senator, replacing the retiring Republican Senator Mel Martinez, will be our current Governor, Charlie Crist. Governor Crist is a moderate Republican who enjoys a 73% approval rating. Crist’s support of President Obama’s stimulus bill resulted in his appearance in Ft. Myers on February 10, to introduce the new President to an adoring crowd. Governor Crist took lots of heat for that, from know-nothing conservative pundits. Charlie Crist is laughing all the way to the Senate. As the February 24 article by Aaron Blake on The Hill website pointed out: the Democrats don’t have any strong challengers. It’s a lost cause. Here, “on the ground”, everyone knows it.

Meanwhile the “liberal” media are busy snarking at Crist, repeating the “gay” rumors that circulated prior to his recent marriage. This hostility is probably due to the fact that Crist is on the record as opposing any change to Florida’s existing ban on gay adoption. Any useful resemblance to former Republican Senator Larry Craig’s hypocrisy on gay issues would be a convenient “G-bomb” to throw into an election campaign. The Huffington Post is big on these “gay” rumors, as is the current incarnation of Wonkette. What those people don’t know is that the rumors never seemed to matter. For example: I’ve known and worked with many conservative Republicans who assumed those rumors were true. Nevertheless, they still supported and voted for Charlie Crist. It didn’t matter to them, nor did the issue ever matter to any significant number of people in this State. Governor Crist had been married to a woman named Amanda Morrow in 1979. That marriage lasted one year. On December 12, 2008 he married Carole Rome. Many of the rumor-mongers claim that this was a “staged” marriage, to advance Crist’s political career. Nevertheless, you can trust my opinion, as a heterosexual bachelor of approximately the same age as Governor Crist … If he is trying to “fake” a marriage at this point in his life … You will see him running out of the Governor’s mansion within a very short time, yelling: “All right! I’m GAY! I CONFESS!!! I’m GAAAAAAAAAYYY!!!”

I don’t believe we will see that happen. Beyond that, I’m really disappointed that purportedly “gay-friendly” media would be taking these cheap shots at Charlie Crist. He is going to be our next Senator and he will win because a majority of Democratic voters will support his candidacy. Deal with it.

The next question is whether the Republican party will finally figure out, after the 2010 election, that there is a trend here. Republicans are faced with the likelihood that future campaign strategies will nullify the efforts of extremists whose political ambitions have been based on the existence of the political primary system. As Newsweek‘s Howard Fineman has often discussed, the political primary system, by its nature, results in extremists from both sides getting much better traction than they would have in an open election. Politicians are on to this. Watch for more centrists running as independent candidates — and witness the disintegration of the “wing nut” dominance within the Republican Party.

2012 Presidential candidate, Aaron Blake, Amanda Morrow, Barack Obama, blog, Bobby Jindal, Bobby The Exorcist Jindal, Carole Rome, centrist, Charlie Crist, Chris Matthews, Commentary, Congress, conservative, Conservative Political Action Convention, CPAC, Democrat, Democratic Party, Democrats, diehard Republicans, Florida ban on gay adoption, Ft Myers, future campaign strategies, G-bomb, gay rumors, hard right, Howard Fineman, Huffington Post, hypocrisy, John Burke, John McCain, John T Burke Jr, Larry Craig, liberal, liberal media, McCain as moderate, Meet The Press, Mel Martinez, Michael Ellis Murphy, Mike Murphy, MSNBC, NBC, News, Newsweek, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, Reagan era, Republican, Republican leadership vacuum, Republican Party, Rush Limbaugh, Sarah Palin, staged marriage, stimulus bill, the center lane, The Hill, the primary system, The Republicans Have No Choice, The White House, thecenterlane, unemployment, United States Senate, wing nut, Wonkette

The News Nobody Wants To Hear

December 11th, 2008 Posted in Uncategorized

Dec, 11 2008

Comments Off

December 11, 2008

You can’t watch a news program these days without hearing some “happy talk” about how our dismal economy is “on the verge of recovery”. You have to remember that many of these shows are sponsored by brokerage firms. That fact must be taken into consideration when you decide how much weight you will give the opinions of the so-called “experts” appearing on those programs to tell you that the stock market has reached “the bottom” and that it is now time to jump back in and start buying stocks. Similarly, those people interested in making a home purchase (i.e. millionaires, who don’t have to worry about getting a mortgage) want to know when the residential real estate market will hit “bottom” so they can get the best value. If I had a thousand dollars for every time during the past six months that some prognosticator has appeared on television to tell us that the stock market has “hit bottom”, I would have enough money to start my own geothermal power utility.

People interested in making investments have been scared away from stocks due to the pummeling that the markets have taken since the “mortgage crisis” raised its ugly head and devastated the world economy. If those folks believe the hype and start buying stocks now, they are taking a greater risk than the enthusiastic promoters on TV might be willing to disclose.

People just don’t like bad news, especially when it is about the future and worse yet, if it’s about the economy. On Friday, December 5, the stock market rallied, despite the dismal news that November’s non-farm employment loss was the greatest monthly employment decline in 34 years. More than half a million people lost their jobs in November. Despite this news, all of the major stock indices were up at least 3 percent for that day alone. Have all these people bought into the magical thinking described in The Secret? Do that many people believe that wishing hard enough can cause a dream to become reality?

There is one authority on the subject of economics, who earned quite a bit of “street cred” when our current economic crisis hit the fan. He is Nouriel Roubini, a professor of economics at New York University’s Stern School of Business. He earned the nickname “Doctor Doom” when he spoke before the International Monetary Fund (IMF) on September 7, 2006 and described, in precise detail, exactly what would bring the financial world to its knees, two years later. In this time of uncertainty, many people (myself included) pay close attention to what Dr. Roubini has to say by regularly checking in on his website. On December 5, we were surprised to hear Doctor Doom’s admission to Aaron Task (on the web TV show, Tech Ticker) that his own 401(k) plan is comprised entirely of stocks. Dr. Roubini explained that he is not in the “Armageddon camp” and that for the long haul, stocks are still a good investment (although currently not a good idea for investors with more short-term goals). Upon learning of this, I began to wonder if the revelation about Doctor Doom’s stock holdings could have been the reason for the stock market rally that day.

Yesterday, I had the pleasure of meeting Dr. Roubini at a lecture he gave within staggering distance of my home. I was able to talk to him about my concern over Federal Reserve Chairman, Ben Bernanke’s idea of having the federal government purchase stocks in order to pep-up a depressed stock market. How could this possibly be accomplished? How could the Fed decide which stocks to buy to the exclusion of others? Dr. Roubini told me that the government has already done this by purchasing preferred shares of stock issued by the banks participating in the TARP program. He explained that rather than purchasing selected stocks of particular companies, the government would, more likely, invest in stock indices. Before I get to Doctor Doom’s other points from his lecture, I will share this photo taken of yours truly and Doctor Roubini (who appears on your left):

Doctor Doom with Me

Dr. Roubini told the audience that he believes this recession will be worse than everyone expects. During the next few months, “the flow of macroeconomic news will be awful and worse than expected”. He opined that people are going to be surprised if they think that the stock market “bottom” will come in mid-2009. He expects that by the end of 2009 “things will still be bad” and unemployment will peak at 9% in early 2010. He thinks that the consensus on earnings-per-share estimates for stocks during the next year is “delusional”. He anticipates risk aversion among investors to be severe next year. We are now in a global recession and this has caused commodity prices to fall 30%. He pointed out that commodity prices could still fall another 20%. He considers it “very likely” that between 500 to 600 hedge funds will go out of business within the next six months. As this happens, the stocks held by these funds must be dumped onto the market. With respect to the beleaguered residential real estate market, he pointed out that home prices could fall another 15-20% by early 2010.

The good news provided by Dr. Roubini is that the global recession should end by the close of 2009. However, he expects recovery to be “weak” in 2010. He surmised that the possibility of a systemic meltdown has been minimized by the actions taken at the recent G7 meeting and most particularly with the G7 resolution to prevent further “Lehman Brothers-type” bankruptcies from taking place. He concluded that this recession should be nothing like the Japanese recession of the 1990s, which lasted nearly a decade.

So there you have it: The news (almost) nobody wants to hear. You can say these are the predictions voiced by one man who could be wrong. Nevertheless, given Dr. Roubini’s track record, I and many others hold his opinions in high regard. Now, let’s see how this all plays out.

bankruptcies, Barack Obama, Ben Bernanke, blog, brokerage firms, centrist, Commentary, commodity prices, Congress, Democrat, Democratic Party, Democrats, Doctor Doom, economic experts, economic recovery, economy, Federal Government, Federal Reserve Chairman, G7, global recession, hedge funds, home prices, home purchase, IMF, index funds, International Monetary Fund, investments, Japanese recession, John Burke, John T Burke Jr, Lehman Brothers, macroeconomic news, monthly employment decline, mortgage, New York University, News, news programs, Nouriel Roubini, Obama Administration, Opinion, Political, Politics, predictions, President Obama, President of the United States, prognosticators, recession, Republican, Republican Party, residential real estate market, Stern School of Business, stock earnings estimates, stock indices, stock market, stock market bottom, stock market rally, stocks, systemic meltdown, TARP, television, the center lane, The News Nobody Wants To Hear, The Secret, The White House, thecenterlane, TV, unemployment

TheCenterLane.com

© 2008 – 2024 John T. Burke, Jr.

Rare Glimpses Of Honesty And Sanity

ObamaWatch

I Knew This Would Happen

A Closer Look

Damage Control

No Free Pass For The Disappointer-In-Chief

That Sinking Feeling

Preparing For The Worst

The Republicans Have No Choice

The News Nobody Wants To Hear

Tip Jar

Recent Posts

Stock Market

Blogroll

Archives

About TheCenterLane.com