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The Betrayal

March 23rd, 2009 Posted in Uncategorized
Mar, 23 2009
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March 23, 2009

We the people, who voted for Barack Obama, are about to get ripped off by our favorite Hope dealer.  Throughout the recent controversy arising from the huge bonuses paid to AIG executives, President Obama has done quite a bit of hand wringing over the fact that the government is rewarding “the very same people who got us into this mess”.  Treasury Secretary, “Turbo” Tim Geithner is now rolling out the administration’s so-called Financial Stability Plan, wherein once again, “the very same people who got us into this mess” will be rewarded with our tax dollars.  Over a trillion dollars of taxpayer money will be used to either buy back or insure an arbitrarily-assigned value for the infamous mortgage-backed securities.  The purpose of this exercise will be to prevent the bankers themselves from losing money.  The country’s top economists, including two Nobel Prize winners (Paul Krugman and Joseph Stiglitz) have advocated a different solution:  placing those banks that are about to fail into “temporary receivership”.  However, this process would result in a significant reduction of the stock prices for those banks, in addition to replacement of the management of those institutions.  The big-shot bankers won’t put up with this.

In Sunday’s New York Times, Frank Rich referenced a reader’s observation that this is President Obama’s “Katrina Moment”.  How the new President responds to this crisis will likely shape “the trajectory of his term”.  I prefer to call it Obama’s “Yellow Cake Moment”, since he and his administration are bent on selling a lie (the likelihood that the Financial Stability Plan can succeed) to the public in order to further assist the bad bankers.  It is similar to when George W. Bush convinced many in Congress and the public, that Saddam Hussein was attempting to purchase yellow cake uranium to make atomic bombs (with Bush’s ultimate goal being widespread support for the invasion of Iraq).

It should be no coincidence that the Financial Stability Plan is rewarding the bad bankers, since it was prepared by some of “the very same people who got us into this mess”.  I am specifically referring to Larry Summers and Turbo Tim himself.  Frank Rich covered this point quite well in Sunday’s article.  As a result, Obama’s attempt to chastise “the very same people who got us into this mess” is quite specious, in light of the fact that some of those people have shaped his latest bank bailout.

Back during the campaign, Candidate Obama caught quite a bit of flack for talking about “putting lipstick on a pig”.  Nevertheless, his continued promotion of the various incarnations of what is essentially the same ill-conceived plan floated by former Treasury Secretary Henry Paulson, demonstrates that Obama himself is now putting lipstick on a pig.  As Paul Krugman pointed out:

Why was I so quick to condemn the Geithner plan?  Because it’s not new; it’s just another version of an idea that keeps coming up and keeps being refuted.  It’s basically a thinly disguised version of the same plan Henry Paulson announced way back in September.

*    *    *

But Treasury is still clinging to the idea that this is just a panic attack, and that all it needs to do is calm the markets by buying up a bunch of troubled assets.  Actually, that’s not quite it:  the Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines, so it has produced what Yves Smith calls “a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for [I don’t think I can finish this on a Times blog]”

Nevertheless, “public outcry” is exactly what is warranted in response to this soon-to-be fiasco.  Most economists favor the “temporary receivership” approach, rather than the continued bailouts of insolvent banks.  The Administration’s Financial Stability Plan is just another way to reward “the very same people who got us into this mess”.  This plan is expected to cost at least one trillion dollars.  As a result, the government is about to bilk the taxpayers out of an amount in excess of 20 Bernie Madoff Ponzi schemes.

MSNBC’s Rachel Maddow has recently vilified Senator Evan Bayh’s caucus of moderate Democrats, whom she calls “Conservadems” because they have been offering some resistance to a few of Obama’s proposals.   These Senators are actually smart people who can detect the distinctive odor of snake oil.  They know better than to tie their political futures to a bank bailout plan that can destroy their own credibility with the voting public.  They know that public support of Obama’s broader agenda is hinged on how he deals with the banking problem.  As Ben Smith and Manu Raju reported for Politico:

But many lawmakers made clear Tuesday their view that voters’ willingness to trust Obama on some subjects will be determined by their view of how well he handles the economic crisis.

*    *    *

“Unless we can instill some trust back with the American people that these people who brought on this problem, who risked our 401K funds and hard-working people’s money, aren’t going to be able to profit from their folly, I think we are at risk of losing their trust,” said Sen. Amy Klobuchar (D-Minn.).

Meanwhile, there’s an ill wind a-blowin’ and it’s coming from 1600 Pennsylvania Avenue.  The efforts by many pundits to blame the flawed financial policy on Geithner are misplaced.  If President Obama weren’t on board with this plan, it would have never made it outside of the Oval Office.  The problem is with Obama himself, rather than Geithner.  Unfortunately, the decision our President has made will likely turn a two-year recession into a ten-year recession.  To him, the corresponding benefit of helping out the bankers must apparently be worth it.

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“Bank Rage” Stresses The Obama Agenda

March 19th, 2009 Posted in Uncategorized
Mar, 19 2009
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March 19, 2009

Public anger over the AIG bonus controversy has risen to the point where no politician wants to be complicit in any government action to further reward those characters, widely regarded to have helped cause the economic crisis.  Worse yet, bailout fatigue is finally taking its toll on the consensual psyche.  On March 18, Chairman Ben Bernanke announced the decision of the Federal Reserve’s Open Market Committee (FOMC) to print up another trillion dollars to buy back long-term Treasury bonds and to purchase some of those toxic, mortgage-backed securities.  The most immediate beneficiaries of this news were the usual suspects:  the banks.  Citigroup saw its stock value jump over 22% on Wednesday.  Bank of America made a similar gain and Wells Fargo’s stock rose over 17%.  As John Dickerson reported for Slate, President Obama is walking a tightrope by resonating with the public outrage over the behavior of Wall Street’s investment banks, since too much taxpayer anger could cause him trouble down the road:

Administration aides know this outrage can go too far.  If the president stokes too much outrage, he’ll have a tougher time asking for more tax money for future bailouts of banks and other industries.  But, as it was explained to me by an administration adviser, it is impossible for the president not to show that he’s outraged.  If he didn’t, he’d lose credibility, which would eventually hurt his ability to sell future bailouts and his budget.

Meanwhile, Treasury Secretary “Turbo” Tim Geithner continued to take heat from members of Congress, as he is increasingly perceived as the individual who failed to prevent the villains at AIG from being rewarded $165 million for their role in causing the financial meltdown.  As Rick Klein reported for ABC News, two Republican Congressmen (Connie Mack of Florida and Darrell Issa of California) have called for Geithner’s resignation.  Klein’s article went on to point out:

Several congressional aides said members of Congress remain unlikely to press for Geithner’s ouster in large numbers.  At the very least, according to one Democratic leadership aide, members are likely to wait for Geithner to present his comprehensive bank bailout plan before passing judgment.

Once Turbo Tim does finally present “his comprehensive bank bailout plan” (a/k/a the Financial Stability Plan), he will validate his new-found reputation as a lackey for the Wall Street establishment.  If you think he’s unpopular now  …  wait until that happens.  Harold Meyerson’s March 18 op-ed piece in The Washington Post is emblematic of the criticism the new administration faces as it attempts to assimilate Geithner-ism into its economic recovery strategy:

But Geithner’s indulgence of bankers’ indulgences is fast becoming the Obama administration’s Achilles’ heel.  The AIG debacle is the latest in a series of bewildering Geithner decisions that threaten to undermine the administration’s efforts to restart the economy.  So long as it’s Be Kind to Bankers Week at Treasury — and we’ve had eight straight such weeks since the president was inaugurated — American banking, and the economy it is supposed to serve, will remain paralyzed.  The Geithner plan to restart the banks provides huge taxpayer subsidies to hedge funds, investment banks and private equity companies to buy the banks’ toxic assets without really having to assume the risk.  That’s right — the same Wall Street wizards who got us into this mess, using the same securitization techniques that built mountains of debt within a shadow financial system that remains unregulated, are the saviors whom Geithner has anointed to extricate us — with our capital, not theirs — from the mess that they created.

A more plausible solution would be for the government to assume control of those banks that are insolvent, as it routinely does when banks go under.  It could then install new management, wipe out the shareholders, take the devalued assets off the banks’ books, restart lending and restore the banks to private control at a modest profit for the taxpayers.  There may be reasons that Geithner’s plan makes more sense than this one, but if they exist, Geithner has failed to explain them.

Nothing could more seriously undermine President Obama’s “big bang” strategy (of simultaneously tackling the problems of energy, health care, climate change and education) than Geithner’s inept approach to solving the nation’s economic problems.  In fact, it appears as though the growing “bailout fatigue” is already taking its toll.  As Ben Smith and Manu Raju reported for Politico, Indiana Senator Evan Bayh’s 15-member caucus of conservative and centrist Democrats seems convinced that it will be impossible to adequately address the nation’s financial ills while pursuing such an ambitious, multi-front agenda.  Worse yet, as the Politico article pointed out, if the administration is seen as mishandling the economic crisis by catering to the interests of Wall Street, the public could become unwilling to trust the new administration with such a far-reaching scheme, involving so many costly programs:

But many lawmakers made clear Tuesday their view that voters’ willingness to trust Obama on some subjects will be determined by their view of how well he handles the economic crisis.  That judgment, in turn, will be shaped by whether the White House effectively responds to public outrage over large bonuses to executives at bailed-out American International Group.

“Unless we can instill some trust back with the American people that these people who brought on this problem, who risked our 401K funds and hard-working people’s money, aren’t going to be able to profit from their folly, I think we are at risk of losing their trust,” said Sen. Amy Klobuchar (D-Minn.).

If Rush Limbaugh still wants to see President Obama fail in advancing the “big bang” agenda  .  .  .

He must have a lot of love for Tim Geithner.

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A Love–Hate Situation For The Stimulus Bill

February 2nd, 2009 Posted in Uncategorized
Feb, 02 2009
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February 2, 2009

As the Senate focuses its attention on the economic stimulus bill, Republicans are putting up a good fight, after the measure sailed through the House of Representatives, despite unanimous Republican opposition.  Time magazine reports that Republican Senator Mitch McConnell believes that the bill will fail in the Senate because it does not provide enough tax cuts.  The Republican insistence on tax cuts has already been addressed by President Obama, who included more tax cuts into the measure.  In an editorial for Bloomberg News, Michael R. Sesit complained:

Obama’s proposed cuts are politically motivated — a bone thrown to Republicans, who embrace lower taxes.  The president’s desire to promote bipartisanship is a laudable goal.  Yet pursuing it at the expense of sound economic policy is a high price to pay.  Obama has enormous public support and doesn’t need Republican cooperation to pass his stimulus program.

Tax cuts are also politically hard to reverse, which will eventually be necessary once the economy is back on its feet and inflation picks up.

The Time article quoted Massachusetts Representative Barney Frank’s response to the cry for even more tax cuts:

“I never saw a tax cut fix a bridge. I never saw a tax cut give us more public transportation.  The fact is, we need a mix,” Frank said.

In his January 29 op-ed column for the New York Times, David Brooks reflected on what Larry Summers (the newly-appointed head of the National Economic Council) had to say throughout 2008 about the nature of a large-scale stimulus package, such as the one under consideration.  Brooks noted “three clear guidelines” established by Summers for developing a plan such as this:

First, the stimulus should be timely.  The money should go out “almost immediately.”  Second, it should be targeted.  It should help low- and middle-income people.  Third, it should be temporary.  Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”

In criticizing this bill, Brooks argued that these parameters have been abandoned.  Among his suggested “fixes” would be the removal of the permanent programs built into the proposal.

Meanwhile, E. J. Dionne has written about how progressive Democrats are split into two camps, expressing different priorities for the measure:

One camp favors using the stimulus to focus on the needs of Americans of modest means.  The $819 billion stimulus bill that passed the House Wednesday night on a party-line vote, as well as the proposal being developed in the Senate, includes substantial new spending for the unemployed, for food stamps and for advances in health-care coverage.  The tax cuts in both versions tilt toward Americans with lower incomes.  Education programs also fare well.

But another group of progressives sees the bills as shorting investments for infrastructure:  roads, bridges and particularly mass transit.  This camp was buoyed by a report released Wednesday by the American Society of Civil Engineers concluding that it would take $2.2 trillion to bring the nation’s infrastructure into good repair.

Many sources, including the San Francisco Chronicle, have criticized this bill as being laden with “pork” projects, unlikely to spur economic growth or to create jobs.  Beyond that, Jeanne Cummings provided an interesting report on the Politico website, revealing how the business sector sees this “oversized legislation” as a “golden opportunity”.  The Democrats do not seem averse to this interest:

Senate Democrats, hoping to draw more bipartisan support, have already signaled they’re going to beef up the business provisions.  Versions of some of the most coveted tax breaks are already in the proposal by Senate Finance Committee Chairman Max Baucus (D-Mont.).

But business leaders and their trade representatives would like to see even more love in the stimulus.  And they’ve commissioned special studies, blanketed the committee with letters and recruited industry bigwigs to make their case.

In the face of this expanding government largesse, an editorial in Sunday’s Washington Post called upon President Obama to remind those in Congress “including leaders of his own party, who are cluttering his fiscal stimulus plan with extraneous and counterproductive provisions” of the admonition he gave to the bad actors on Wall Street.  In his disgust with the misappropriation of over $18 billion in TARP money for bonuses, the President said:  “show some restraint and show some discipline and show some sense of responsibility.”  In a passage reminiscent of David Brooks’ emphasis on the “three clear guidelines” established by Larry Summers, the Washington Post editorial noted that:

Instead of giving the economy a “targeted, timely and temporary” injection, the plan has been larded with spending on existing social programs or hastily designed new ones, much of it permanent or probably permanent — and not enough of it likely to create new jobs.

Former Clinton administration budget director Alice Rivlin fears that “money will be wasted because the investment elements were not carefully crafted.”  Former Reagan administration economist Martin Feldstein writes that “it delivers too little extra employment and income for such a large fiscal deficit.”  Columbia University’s Jeffrey D. Sachs labels the plan “an astounding mishmash of tax cuts, public investments, transfer payments and special treats for insiders.”

Let’s face it:  the Republicans aren’t the only ones who are upset about the excesses in this stimulus plan.  In fact, most Republican governors favor this bill.  Last week the National Governors Association called on Congress to pass the plan.  Beth Fouhy reported for the Associated Press that Florida Governor Charlie Crist and Vermont Governor Jim Douglas are pushing Republican Senators to pass the bill.  Although such a measure may be distasteful to Republican ideals, these hard times demand that Republican governors follow the procedure described by Rush Limbaugh as “bending over and grabbing your ankles”:

Minnesota Gov. Tim Pawlenty, who is widely viewed as a potential presidential contender in 2012, said governors have little choice but to accept the relief being offered.  “States have to balance their budgets,” he said.  “So if we’re going to go down this path, we are entitled to ask for our share of the money.”

As the stimulus bill makes its way through the Senate, it will be interesting to see whether the final version involves dispersal of more than or less than $826 billion.  Don’t be surprised if it hits the One Trillion mark.

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The Return Of Jeb Bush

December 4th, 2008 Posted in Uncategorized
Dec, 04 2008
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December 4, 2008

I was surprised when I read the December 2 report by Beth Reinhard in the Miami Herald concerning the announcement by Mel Martinez, that he would not seek re-election to the United States Senate in 2010, at the end of his first term.  He has always been such an ambitious guy.  Immediately after the mid-term elections in 2006, Senator Martinez was named Chairman of the Republican National Committee (although he ultimately resigned from that post in October of 2007).  As Martin Kady reported in the November 14, 2006 edition of the New York Times:

Republicans are hoping that Martinez, whose family fled communist Cuba in 1962, will appeal to the pivotal Hispanic voting bloc, which went heavily for Democrats in the Nov. 7 elections.

Beth Reinhard’s article in the Miami Herald quoted the Senator’s explanation for not seeking another term:  the simple desire to spend more time in Orlando with family and friends.  However, Ms. Reinhard provided an alternative explanation for the motivating factors behind this decision:

His slumping poll numbers and lackluster reelection fundraising have fueled speculation for months that he would not seek another term.  But Martinez, a reluctant Washington insider recruited by President George W. Bush, insisted that he wasn’t deterred by the prospect of a tough race.  He added that he announced his retirement early to give potential candidates enough time to build campaigns.

The article went on to disclose that “a close ally” of former Governor Jeb Bush indicated that Jeb “was thinking about the race”.

A December 3 report by Carol Lee and Jonathan Martin on the Politico website bore the headline:   “Jeb: I am considering Senate run”.  They noted the likelihood that in the event Jeb should seek the Senate seat relinquished by Mel Martinez, he would not likely face any Republican opposition.  What really stood out in this piece was Jeb’s strategic vision for the future of the Republican Party in the wake of the 2008 elections.  At a time when many Republicans expressed dread that the only “rising star” in their party might be Sarah Palin, it must have been nice to hear “the smart one” from the Bush family provide an enlightened perspective on the future:

In an interview with Politico immediately after November’s election, the former governor said the Republican Party should take four primary steps to regain favor with voters: Show no tolerance for corruption, practice what it preaches about limiting the scope of government (“There should not be such a thing as a Big Government Republican”), stand for working families and small business, and embrace reform.

Bush said conservatives should “do the math of the new demographics of the United States,” explaining that the Republican Party “can’t be anti-Hispanic, anti-young person — anti many things — and be surprised when we don’t win elections.”

Jeb let everyone know that there is at least one Republican who “gets it” and can provide change the Republicans can believe in.  The obvious next question is:  When is he planning on a run for the Presidency?  If his plan is to run in the 2012 Presidential election, he would have to begin campaigning immediately upon being sworn in as a Senator in January of 2011.  That simply would not make sense.  He would more likely spend a few years in the Senate, re-defining himself as a centrist and demonstrating the capacity for bipartisanship that his brother lacked.  He would then likely set his sights on the 2016 Presidential election, when President Obama’s term expires.

In the mean time, the Democrats need to focus on nominating a worthy opponent for Jeb in the Senatorial election.  Their best chance for victory would be the nomination of a Latin-American woman as their candidate.  Jeb’s wife, Columba, is a native of Mexico and this has always endeared him to the Latin-American voters in Florida.  A female candidate could attract the votes of independent female voters.

The Democratic Party’s response to Jeb’s likely senatorial bid is already taking shape.  The Politico website ran a second article on Jeb’s Senatorial aspirations on December 3, written by Amie Parnes and Charles Mathesian, entitled:  “Will voters elect a Bush again?” They quoted the response from Congresswoman Debbie Wasserman Schultz about the prospect of a Senator Jeb Bush:

“I don’t think Jeb Bush’s leadership style is a good fit for the US Senate or any legislative body. He governs with ‘my way or the highway’ politics. He was literally the most inflexible public official I’ve ever encountered in my 16 years in office,” said Wasserman Schultz. “I think they’re very similar in terms of his leadership style. When they decide that they are correct there’s no telling them that they are not.”

Who would have thought that before George W. Bush could move out of the White House, there would be serious discussion of another Bush candidacy?

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Fun With Bill And Hill

November 3rd, 2008 Posted in Uncategorized
Nov, 03 2008
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I had always been one of the skeptics on the issue of what support Bill and Hillary Clinton would provide to Barack Obama’s Presidential campaign.  The fight for their party’s nomination lasted longer than it should have.  Hillary’s reluctance to concede defeat underscored longstanding doubts about whether she could ever support Obama as the inevitable Democratic Party nominee.  The most outspoken skeptic on this subject has been Maureen Dowd.  Her column in the New York Times on August 19 (just before the Democratic Convention) described a fictional meeting between John McCain and Hillary Clinton.  The article, entitled Two Against The One, described the following imaginary, conspiratorial conversation between Hillary and McCain:

“Oh, John, you know I love you and I’m happy to help,” Hillary says.  “The themes you took from me are working great — painting Obama as an elitist and out-of-touch celebrity, when we’re rich celebrities, too.  Turning his big rallies and pretty words into character flaws, charging him with playing the race card — that one always cracks me up.  And accusing the media, especially NBC, of playing favorites.  It’s easy to get the stupid press to navel-gaze; they’re so insecure.”

“They’re all pinko Commies,” McCain laughs.  “Especially since they deserted me for The Messiah.  Seriously, Hill, that Paris-Britney ad you came up with was brilliant.  I owe you.”

I had voiced my own doubts about whether the Clintons would support the Obama candidacy, back on June 5:

Whatever motivated her to continue on, ultimately resulted in the dissociative speech she gave on the night of Tuesday, June 3, 2008, when Barack Obama earned enough delegates to guarantee himself the Democratic Presidential nomination.   She spoke to her relatively small audience of sycophants and losers, as though she had just assured the nomination for herself.   On the following day, she was faced with conference calls from 28 House members and 8 Senators, both pledged delegates and superdelegates for Clinton.   According to Howard Fineman of Newsweek, these people made it clear that they were beyond disappointment that she had not given a concession speech.  They were outraged by her arrogance and gave her an ultimatum:  Hillary must release them as her delegates, or they would endorse Obama, regardless of her consent.  Hillary agreed to a concession event, to take place on Saturday, June 7, at which time she would formally endorse Obama.

My suspicions continued for another two months and on August 7, I wrote this about the upcoming convention:

Forget the OxyContin (at least for this weekend).  Rush Limbaugh is going to be on a “natural high”, because his favorite fantasy might just become reality.  The Clintons are in “full hostility” mode and the Hillarologists are planning a parade and more for the convention in Denver.  Limbaugh has attempted to claim credit for the likely showdown in Denver, with his own label:  “Operation Chaos”.

Nevertheless, by the time the Convention began, the Clintons were on board for Obama and both gave great speeches for the Obama – Biden ticket.  On August 28, I felt humbled enough to say this about Senator Clinton’s performance at that event:

After hearing her speech, I felt motivated to apologize for publicly doubting her loyalty to the Democratic Party.  She really did “deliver the goods” by giving what was, perhaps, her best speech on the campaign stump.  Although many of us were surprised by the substance of her speech, I was particularly impressed by her delivery.  Hillary had always addressed her audiences with Lieberman-esque stiffness.  Imagine someone saying “let us go forward” with a groaning, insincere tone for the 10,000th time.  That was the way Hillary used to speak.  In defeat, she really did find her voice.

Since that time, both Hillary and Bill Clinton have been working hard along the campaign trail, proving themselves as essential compatriots in the Obama – Biden campaign.  The best example of this took place on October 30, when Bill Clinton delivered his rousing speech in support of Obama, before a crowd of 35,000 in Kissimmee, Florida.  His remarks urging supporters to “get out the vote” for Obama, made it clear that he had no shortage of enthusiasm for this former foe:

So I want you to get on the phone, and I want you to stalk your neighbors on the street.  I want you to get on the Internet and say if you haven’t made up your mind you ought to vote for Barack Obama.  He’s got the best philosophies.  He’s got the best positions.  He definitely has the decision making ability.  And he is a great executor.

Folks, we can’t fool with this.  Our country is hanging in the balance and we have so much promise and so much peril.  This man should be our President, all of our President.

For a candid look at Hillary Clinton’s real attitude about the Obama campaign, the November 2 article by Carrie Budoff Brown and Glenn Thrush on the Politico website is essential reading.  The following passage described what was really going on in Hillary’s mind during the days before her concession speech:

Clinton, whose relationship with Obama was still tense and tentative at that moment, professed no great affection or admiration for Obama, whom she regarded as less qualified than herself.  But she would support him, body and soul, she said, because she was so terrified by the prospect of McCain sitting in the Oval Office.  And that was before the credit markets crashed, setting off a domino effect on the U.S. economy.

“John McCain’s my friend; I really like him,” she said, according to a person who was within earshot.  “But there’s just no way we can let him be president.”

Both Bill and Hillary Clinton surprised many of us with their tireless efforts for the Obama – Biden campaign, despite the “bad blood” that had been spilled during the primary season.  Their conduct will surely be viewed by history as an exemplary model for party unity.

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Will It Work?

September 29th, 2008 Posted in Uncategorized
Sep, 29 2008
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September 29, 2008

This is the question on everyone’s mind as they ponder the new “bailout bill”, officially known as the Emergency Economic Stabilization Act of 2008.  It is available for everyone to read on the Internet (all 110 pages of it), but most people are looking for answers to the most important questions:  Will it pass and will it work?

Just after midnight on Monday morning, David Rogers, of Politico.com, reported that the bill (which goes to the House floor on Monday and the Senate floor on Wednesday) was still facing resistance from both the right and the left, despite the support voiced by both Presidential candidates.  Republican Congressman Chris Shays of Connecticut was quoted in the article as saying that:  “For this to pass, a lot of people are going to have to change their minds”.  The following passage provided more light on the view of this bill from those House Republicans providing resistance to the measure:

Yet a closed-door party meeting Sunday night illustrated all the problems anew.  The session ran for hours, and while Minority Leader John Boehner (R-Ohio) said he would vote for the bill, he could not predict the number of votes he would have for it, and he famously referred to the measure as a “crap sandwich” before his rank and file.

Jackie Kucinich reported for TheHill.com that earlier in the day, Congressman Mike Pence of Indiana had sent out a letter to his fellow Republicans in opposition to this bill:

The decision to give the federal government the ability to nationalize almost every bad mortgage in America interrupts this basic truth of our free market economy …  Republicans improved this bill but it remains the largest corporate bailout in American history, forever changes the relationship between government and the financial sector, and passes the cost along to the American people.  I cannot support it.

The opposition to the bill from the Democratic side was discussed in another Politico.com article:  this one by Ryan Grimm.  Grimm’s article discussed an “intense” Democratic Caucus meeting.  He quoted Minnesota Congressman James Oberstar as describing resistance to the bill coming from across the complete spectrum of Democratic opinion, from liberal to conservative.  California Congressman Brad Sherman had met with Republican Darrell Issa before the meeting.  Sherman’s contribution to the Caucus discussion was described this way by Ryan Grimm:

Sherman spoke out against the bill during the caucus meeting, arguing that billions of dollars would flow to foreign investors, that oversight was lax and that limits on executive compensation were too weak.   Rep. Joe Baca (D-Calif.) said he was leaning toward a no vote, too.

The House vote on the bill is scheduled to take place after a four-hour debate, beginning at 8 a.m. on Monday.

Whether or not this bill will ultimately “work” is another question.  Paul Krugman, Economics Professor at Princeton University, wrote in the Sunday New York Times:

The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing.  But it’s not what you’d actually call a good plan, and it won’t end the crisis.  The odds are that the next president will have to deal with some major financial emergencies.

Steve Lohr’s report from the Sunday New York Times, discussed the outlook for this plan, as voiced by Robert E. Hall, an economist and senior fellow at the Hoover Institution, a conservative research group at Stanford.  Lohr observed:

There was no assurance that the bailout plan would work as intended to ease financial turmoil and economic uncertainty.

Lohr’s article then focused on the opinion of Nouriel Roubini, an economist at the Stern School of Business at New York University:

The $350 billion to $400 billion in bad credit reported by the banks so far could eventually exceed $1.5 trillion, he estimated, as banks are forced to write off more bad loans, not only on more housing-related debt, but also for corporate lending, consumer loans, credit cards and student loans.

The rescue package, if successful, would make the recognition of losses and the inevitable winnowing of the banking system more an orderly retreat than a collapse. Yet that pruning of the banking industry must take place, economists say, and it is the government’s role to move it along instead of coddling the banks if the financial system is going to return to health.

A more unpleasant perspective appeared in an editorial published in the September 25 edition of The Economist:

If the economics of Mr Paulson’s plan are broadly correct, the politics are fiendish.  You are lavishing money on the people who got you into this mess. Sensible intervention cannot even buy long-term relief:  the plan cannot stop house prices falling and the bloated financial sector shrinking. Although the economic risk is that the plan fails, the political risk is that the plan succeeds.  Voters will scarcely notice a depression that never happened.  But even as they lose their houses and their jobs, they will see Wall Street once again making millions.

Whatever your definition of “success” might be for this plan, the experts agree that things aren’t going to return to “normal” for a long time, if ever.

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Here We Go Again

September 22nd, 2008 Posted in Uncategorized
Sep, 22 2008
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September 22, 2008

Exactly one year ago, we saw the release of Naomi Klein’s book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.   She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crisis we are going through now.

You may recall former Senator Phil Gramm’s recent appearance in the news for calling the United States a “nation of whiners” and positing that the only recession going on in the United States these days is a “mental recession”.  Gramm is a longtime buddy and mentor to a certain individual named John McCain.  Gramm is the architect of the so called “Enron Loophole” allowing speculators to drive the price of oil to absurd heights.  (Gramm’s wife, Wendy, was a former member of Enron’s Board of Directors.)  Gramm was most notorious for his successes in the deregulation of Wall Street (with the help of McCain) that facilitated the “mortgage crisis” as well as the current economic meltdown.  He sponsored the 1999 bill that repealed the Glass-Steagall Act.  The repeal of that law allowed “commercial” and “investment” banks to consolidate.  Gramm’s face appears in many campaign videos with McCain, taken earlier this year.  As a result of the outrage generated by Gramm’s remarks, McCain formally dismissed Gramm as his campaign’s economic advisor.  Despite the fact that Gramm no longer has a formal role in the McCain campaign, many believe that he would be McCain’s choice for Secretary of the Treasury in the event that McCain should win the Presidential election.  On September 21, MSNBC’s David Shuster grilled McCain campaign spokesman, Tucker Bounds, about the possibility that McCain is planning to appoint Phil Gramm as his Secretary of the Treasury, should McCain win.  Tucker Bounds squirmed all over the place, employing his usual tactic of deflecting the subject of the current economic crisis back to the Obama campaign.  Most noticeably, Mr. Bounds never made any attempt to deny that McCain plans to put Gramm in charge of the Treasury.

Our current Treasury Secretary, Henry Paulson, is on the covers of this week’s newsmagazines, pushing for uncritical acceptance of his (and hence, the Bush Administration’s) solution to the current economic crisis.  This basically amounts to a three-page “bailout” plan for banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers of anywhere from $700 billion to One Trillion Dollars.  The Democrats are providing some “pushback” to this plan.  Barack Obama was quoted by Carrie Brown of Politico.com as saying that the Bush Administration has “offered a concept with a staggering price tag, not a plan”.  Obama went on to insist that the “American people must be assured that the deal reflects the basic principles of transparency, fairness and reform”.

As reported by Stephen Labaton in the September 21 New York Times, House Speaker Nancy Pelosi complained that:

… the administration’s proposal did “not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.

Senator Chris Dodd of Connecticut was quoted in that article as saying:  “We need to offer some assurance to the American taxpayer that Congress is watching.”  Dodd went on to explain:

One of the things that got us into this mess was the lack of accountability and the lack of oversight that was occurring, and I don’t think we want to repeat those mistakes with a program of this magnitude.

The Times article then focused on the point emphasized by Republican Senator Arlen Specter:

I realize there is considerable pressure for the Congress to adjourn by the end of next week  . . .   But I think we must take the necessary time to conduct hearings, analyze the administration’s proposed legislation, and demonstrate to the American people that any response is thoughtful, thoroughly considered and appropriate.

Nevertheless, Treasury Secretary Paulson made the rounds of the Sunday talk shows to advocate pushing this bailout through quickly, without the safeguards and deliberation suggested by the Democrats and Senator Specter.  As Zachary Goldfarb reported in the September 21 Washington Post:

Paulson urged Congress not to load up the legislation with controversial provisions. “We need this to be clean and quick,” he said.

“Clean and quick”  . . .   Is that anything like “Shock and Awe”?  As usual, there is concern about whether Congressional Democrats will have the spine to resist the “full court press” by the Bush Administration to get this plan approved by Congress and on the President’s desk for signature.  As Robert Kuttner reported in The Huffington Post:

One senior Congressional Democrat told me, “They have a gun to our heads.” Paulson behaved as if he held all the cards, but in fact the Democrats have a lot of cards, too. The question is whether they have the nerve to challenge major flaws in Paulson’s plan as a condition of enacting it.

Here we go again.  Will the Democrats “grow a pair” in time to prevent “the shock doctrine” from being implemented once again?  If not, will we eventually see the day when Treasury Secretary Phil Gramm basks in glory, while presiding over his own manifestation of economic utopia?

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Manipulating The Markets

July 17th, 2008 Posted in Uncategorized
Jul, 17 2008
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July 17, 2008

On Wednesday night, Jon Stewart pointed out that President Bush saw fit to hold a news conference about the economy at exactly 10:20 a.m. on Tuesday, July 15.  As luck would have it, this was the very minute when Federal Reserve Chairman, Ben Bernanke, was to begin his testimony before Congress about the state of the economy.  Stewart deftly contrasted the “spin” message presented by Bush with the sworn testimony of the Federal Reserve Chairman.  Bush was obviously out to blunt any negative impact Beranake’s testimony might have on the markets.  The 180-degree difference between Bush’s spin and Bernanke’s reality was hilarious.  Regardless, Bush’s plan didn’t work.  The Dow Jones industrial average dropped 92 points (.84 percent) on Tuesday and the Standard and Poor’s 500 index (which includes many financial stocks) fared worse.  Wednesday saw a dramatic shift in the markets due to a drop in the price of oil – the only thing that ever gives the stock market a boost these days.

July 15 was also the day when the Securities Exchange Commission enacted a new, emergency rule against “naked” short-selling of financial stocks.  As Dane Hamilton reported for Reuters, the rule drew mixed reactions among hedge fund managers and traders.  Hamilton described the SEC’s reasoning that:

…  naked short selling, which is putting in a short stock order with no intention of actually borrowing it to drive down the price, may have contributed to this year’s collapse of Bear Stearns and sharp declines in other financial stocks this year.

As Mr. Hamilton explained:  this new, temporary rule was enacted to protect 19 financial stocks, including battered mortgage guarantors Fannie Mae, Freddie Mac and a number of banks, against “a substantial threat of sudden and excessive” stock price movements.  What other industry could count on the Federal Government to protect it from the predatory tactics of a handful of unscrupulous “short sellers”?  Some of these traders make multiple short sales on a single share of stock.  The net effect of this is that they are actually “counterfeiting” stocks to be sold short and bought back at a lower price, before anyone might realize the shares never existed.

Investors have been victimized by such tactics for decades. However, until now, the SEC has been of little or no help in regulating these tactics.  In an article from the March 23, 2007 issue of USA Today, Matt Krantz reported on the boasts of MSNBC’s TV host, Jim Cramer, about how Cramer had used “short” sales to manipulate stock prices:

A lot of times when I was short (stocks) at my hedge fund … meaning I needed it (the stock) down …I would create a level of activity beforehand that would drive the futures … It’s a fun game, and it’s a lucrative game.

If you are wondering how the 19 financial companies covered by the July 15 emergency SEC rule, were able to obtain the kind of protection afforded by that measure, you may want to consider some of the observations made by Lisa Lerer in her July 17 article for Politico.com:

If you want to know how Fannie Mae and Freddie Mac have survived scandal and crisis, consider this: Over the past decade, they have spent nearly $200 million on lobbying and campaign contributions.

*   *   *

When their stock prices took a dive last week, their government allies extended another helping hand with a plan for the Treasury Department, the Federal Reserve and, possibly, Congress to shore up the companies.

It’s nice to see the SEC doing something to protect investors from predatory trading practices.  The only reason the SEC is protecting investors in this instance is because investors are the collateral beneficiaries of a rule written to protect 19 financial institutions.   We just don’t see enough government action to stop the manipulation of the markets on a broader scale.  Worse yet, when the President gets on TV to compete with the Federal Reserve Chairman’s testimony in order to paint a contrasting, more favorable picture of the economy – what do you call that?  How about:  manipulation of the markets?

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