Monday, September 22, 2008

The Big Bailout

I'm not happy. The Bushies now have released their plan for salvaging the financial sector, and I think it stinks. It's nothing but the same old routine, taken to new and potentially disastrous extremes -- privatizing profits while socializing losses. The moral hazard is unprecedented.

Moreover, it probably won't even work.

It would be just a little more palatable if our government actually had the $700 billion Paulson and crew propose to spend on bad paper -- now frequently referred to as "toxic" debt. But no, we'll have to borrow the money somewhere -- mostly overseas. Nobody seems especially concerned that we would be incurring that debt to buy "assets" that currently have no value on the open market. $700 billion of government debt that can't be used for productive investment ties up just as much finance capital as $700 billion of private debt that can't be used for productive investment. The jobs of a few investment bankers may be saved, but it won't do a damned bit of good in the Rust Belt.

Even excluding the "fix it with duct tape" bailouts of the past few weeks -- Fannie, Freddie, and AIG -- so much additional debt roughly triples the federal deficit. The result is likely to be both inflation and an even slower economy. What really yanks my chain, though, is that the only assets we're planning to take off the hands of big finance are the toxic ones. With Fannie and Freddie, at least, we took the whole enchilada -- the good along with the bad. Given enough time, there's a possibility government might even turn a profit on Fannie's and Freddie's holdings.

In the current plan, though, government is likely to get nothing but the crap -- the immobile, overvalued securities that made fortunes for their originators but left the American economy with a severe case of constipation. And how much will the taxpayers have to pay for that crap? The figure being kicked around in Administration circles is 50% of nominal value -- but since we know the financial institutions have been inflating the value of their bad paper in attempts to avoid further panicking stockholders with truly frightening write-downs, 50% of nominal value is far too much.

If either presidential candidate has a clue regarding what's going on, it hasn't been observable in his public statements. In Congress, Democrats are taking great care to disavow ownership of the administration's plan. To me, that suggests they think it can't prevent economic collapse but they still want to curry favor with the financial industry -- and anyway, doing something always looks better than doing nothing.

And so Paulson will get what he's asked for -- maybe with a few "Main Street as well as Wall Street" amendments -- but the deal is pretty much done. If it saves the world's financial structure, that would be very nice. If it doesn't, though, it is important that we keep a failure from becoming a disaster. The devil is in the details.

Before any frozen assets are purchased from any financial institution, those assets should be examined by forensic accountants and realistically valued. Under no circumstances should government use taxpayer money to buy mortgage backed securities for more they're likely to be worth when, eventually, they can be resold. Given that "eventually" may be three to five years from now, 50% of their real value -- not their inflated valuation -- seems generous to me.

Pay attention, politicians! You all want to cut taxes. You all want to provide better government services. You'd also like to balance the budget -- maybe even start paying off the debt.

Well, there's only one option -- government, the largest business in the United States, has to start turning a profit on at least some of its activities. The current mess provides our government with a rare opportunity to buy into the private sector at rock-bottom prices. Let's keep the profitable divisions of AIG. Let's hang on to Fannie and Freddie, and develop a safe, steady income from the interest on well-vetted mortgage loans.

Most of all, let's make sure we turn a profit on those "toxic" mortgage backed securities. Wouldn't it be wonderful if, sometime in Ben Bernanke's lifetime, our national debt started going down.

Friday, September 12, 2008

Wal-Mart Women

The term "Wal-Mart Women" hit the airwaves on the PBS News Hour last Friday, September 5. It somehow escaped the lips of Republican pollster Linda Divall.

LINDA DIVALL: We did a dial test and breakout sessions in suburban Milwaukee with swing voters, with Wal-Mart women and with younger voters...

JUDY WOODRUFF: Now, what do you mean by "Wal-Mart women"?

(Linda Divall got that "Uh oh, now I've done it" look on her face. You could see that her mind was racing, trying to find a delicate way to explain a very indelicate phrase.)

LINDA DIVALL: We mean women who are -- as Anna just said -- are very concerned about the economy, women who are economically distressed, whose disposable income has declined rather substantially.

Neither Judy Woodruff nor Democratic pollster Anna Greenberg took her to task for what struck me as a blatantly patronizing expression, apparently already in widespread use within the McCain campaign. Now I'm hearing it all over the broadcast media, sometimes shortened to "Wal-Mart moms," but nobody seems to be giving the GOP the credit it deserves for the coinage.

I couldn't take my eyes off the reaction shots of the delegates as I watched the Republican convention. Clearly, there weren't any "Wal-Mart women" there. There were Norstrom women, Nieman-Marcus women, Lord & Taylor women -- but not a Wal-Mart woman to be seen. At the Republican convention, a Wal-Mart woman would have been viewed as a lower species -- somebody who really should have been in uniform, collecting the used coffee cups and sweeping up the confetti.

Sarah Palin, of course, is supposed to appeal to those "Wal-Mart women." She's just a regular gal, somebody you might find checking out the tabloids on the supermarket checkout line, or cheering on the kids at the local church sponsored wolf massacre. Is it any surprise she didn't look too comfortable during her interview with Charlie Gibson of ABC?

Look at her posture, closed off and defensive, legs crossed, hands clasped. Perhaps a defensive stance was called for, because Gibson didn't throw her many softballs. He treated her with all the respect a vice-presidential candidate deserves -- that is to say, the assumption that she would know how to answer substantive questions.

A group of McCain's top aides had exhaustively prepped her in the days between the convention and her first interview, and she had her talking points down pat. Her problem was that she hadn't been prepared with a talking point for every situation in a one-on-one interview. In a one-on-one, the interviewer can ask as many follow-up questions as he likes in an effort to get an answer that's not a talking point -- and that's exactly what Gibson did.

She didn't do badly, exactly, but she didn't do especially well either. Perhaps she needed more talking points, because she seemed to repeat herself, in exactly the same words, over and over. Some think it was unfair of Gibson to ask her about the Bush Doctrine without telling her just what that doctrine is, but even after he told her, her answer left much to be desired. I guess the McCain aides neglected to drill her on that one.

I wonder how much better prepared this ambassador to the Wal-Mart moms will be when it's time for the vice-presidential debate. Clearly, whatever she's learned by then, Joe Biden will know a lot more -- but demonstrating knowledge is not what the debates are about, as we've observed over the years. Can Biden be more likeable than Palin? We'll see.

Tuesday, September 9, 2008

Fannie, Freddie, and (incidentally) the election

Yes, the conservatorship of Fannie and Freddie was necessary. The only entity in the world that owes more money than Fannie and Freddie combined is -- as you can easily guess -- the government of the United States of America. If Fannie and Freddie defaulted on their debts, it would cause worldwide economic meltdown as credit dried up completely.

The vast majority of Americans have no clue what the crisis is all about, and explaining it to them is next to impossible. Most people are economic illiterates. Use words like "securitization" or "derivative" and watch their eyes glaze over.

Barack Obama and Joseph Biden understand what's happening at Fannie and Freddie. John McCain and Sarah Palin do not. The unfortunate outcome is that McCain and Palin find it much easier to talk to America about Fannie and Freddie than Obama and Biden do. The Republican candidates can spout sound bites that really have no bearing on the severity of the problem, while the Democrats seem to feel obliged to say things that make economic sense -- and then watch the eyes glaze over.

Please! Can't some speechwriter compose a few populist sounding platitudes for them to produce when the cameras are running? How about, "When we reorganize Fannie and Freddie, we'll make sure that taxpayer money is safe again, and not being used to bail out rich investors and overpaid executives; we'll make sure that middle-class families can realize the dream of home ownership without fear of finding themselves out on the streets; and we'll end the irresponsible Republican policies that caused the mess we're in today."

Okay, that's just a statement of goals -- not even policy, much less a plan for policy implementation. So what. The hard stuff can go into the interviews by the New York Times and the Wall Street Journal -- it doesn't have to be on the evening news.

Speaking of the hard stuff -- the take-over of Fannie and Freddie got me to thinking, again, about those not-too-serious ideas I was playing with last month for putting real pressure on Russia. Well, this time, I might be just a little more serious.

One of the biggest problems with Fannie and Freddie is their enormous size -- too large to fail. The obvious solution to that problem is to split the monsters into a number of smaller companies, similar to the way AT&T was split into the "Baby Bells" back in the 1980s. The problem with that solution, though, is figuring out how to divide the immense debt Fannie and Freddie have incurred.

Well, here's my "little idea." Just as AT&T was divided regionally, why not divide the mortgage giants' debts regionally? One large company might inherit all the debt owed to China; another could inherit all the debt owed to investors in the European Union. Debts owed to Russia's sovereign wealth fund and other Russian investors could be assigned to yet another company; perhaps the debts owed to the various sovereign wealth funds of the Persian Gulf area could be grouped together, and assigned to yet another spin-off.

I'm sure that there are quite a few economists and bankers with the appropriate qualifications (including sense of humor) to enjoy slotting Japan, Indonesia, Mexico, Brazil, Venezuela, and all the others into amusing and entertaining categories that might make sense. As for American investors, I'd hope that the pension funds might be kept separate from the hedge funds, and that taxpayer bailout money be reserved for the former.

Make sense?

Well, let's see. Although we couldn't keep the debts incurred by the various companies sorted so neatly, initially, at least, the sorting could be useful -- especially when all of them are depending on a government safety net to keep them solvent. Unlike Fannie and Freddie, though, none of the new companies would be "too big to fail." If some foreign country were being especially uncooperative, the Fannie/Freddie successor company that owed that country's sovereign wealth fund a ton of money just might find widening holes in its safety net.

Okay, it's just a "little idea," and probably not feasible. Just the same, the greatest debtor in the history of the world ought to be able to find some way to leverage that great distinction for its own good.

Thursday, September 4, 2008

Excuse me, but...

...who's running for president? Why was Lindsey Graham's speech rewritten to be an introduction to a Sarah Palin video? Graham genuinely likes McCain, but they made him switch his speech in midstream and talk about Palin. Even Tom Ridge was obliged to make obeisance to the bespectacled beauty queen, not that he was capable of doing much more.

Cindy McCain's delivery was so bad, one suspects it was scheduled before her husband's to make him seem articulate by comparison. Then there was the "Meet John McCain" video, replete with monochrome scenes from the 60s reminding us just how old the guy is -- and who was it who thought Mama McCain referring to her Johnny as a "mama's boy" was somehow endearing?

McCain had his usual problems reading the teleprompter, and his speech was nothing but the usual Republican boilerplate. Not only were there no specifics, there was nothing even resembling a plan -- save for a suggestion that it might be time for a surrogate war with Russia as well as continued war in the Middle East.

Big applause line: "I have that record, and the scars to prove it. Senator Obama does not." Yes, John, you were a hero -- in yet another war we never should have fought -- assuming we are willing to accept the idea that being a hapless victim is the same as being a hero.

You say that after that, "I never was my own man anymore: I was my country's."

Well, you were enough of your own man to leave your crippled wife and marry rich. You let your new wife's rich father put you into politics. Yes, you were a maverick -- "a calf who becomes the property of the first person who brands it."

Prepare to see and hear a lot more of Sarah Palin, America. She's the main hope of the Republican Party.

Wednesday, September 3, 2008

Conventional Republicans

Frankly, I don't get it. The rhetoric hasn't changed -- not even a little bit. Okay, it worked for them in 2000 and 2004, sort of -- if you believe they actually won rather than stole those elections -- but a rational person might ask if using rhetoric associated with eight years of failure is, well, rational.

Mitt Romney took the "liberal as boogieman" rhetoric to what may be a new extreme. It played very well with the convention delegates, of course. The main qualification for representatives to the Republican convention, it seems, is extremism. Mike Huckabee, as we have come to expect, spoke of a choice between good and evil (before rambling off into a story about veterans and school desks.)

Mind you, those were the speeches scheduled before the network coverage began.

Rudy Guiliani, on the other hand, was a lot more effective, and even managed to go close to ten minutes without mentioning 9/11. He was especially effective when attacking Obama's inconsistencies, although the delegates seemed a bit confused when he criticized Obama's change from being against wiretapping to being for wiretapping. Nevertheless, it was one hell of a speech.

Sarah Palin did exactly what she had to do. She read her speech from the teleprompter without stepping on any lines. She and her family are attractive and well-scrubbed, and she delivered the requisite digs against Obama, Washington, and the national media with a brilliant smile. Surprisingly, I heard very little that sounded like a direct appeal to women -- probably a good choice on the part of her speechwriters. Everybody assumes the choice of Palin was a calculated effort to peel away some of the women's vote from the Democrats, so a bit of understatement was in order.

And then...

I guess I blinked -- or I was out getting ice cream -- while Bush spoke. I gather I didn't miss much -- that Laura's introduction was longer than W's speech -- and I'm sure the McCain campaign was hoping there were a lot of us blinking or shopping while Our President did his greatly abridged thing. Considering how much damage one hurricane did to the Republican party, I suppose it's only fair that another hurricane did the party a little good.

The delegates loved it when Fred Thompson mocked Barack Obama. To me, it looked like the Tennessean had knocked back a bit of Jack before he went on, but maybe that was just his southern charm. Anyway, it was just more preaching to the choir.

Those same delegates alternated between gape-jawed dumbfoundedness and deer-caught-in-the-headlights panic when Joe Lieberman came on to assure America that John McCain is not George W. Bush. The delegates, it seems, were drawn from that 30% of the public that still won't admit anything went wrong over the past seven years. When Lieberman praised Bill Clinton's "bipartisan" initiatives, the collective gasp was deafening.

For tomorrow night, we can look forward to what Joe Biden called "a noun, a verb, and 9/11." Whoopie!

Tuesday, September 2, 2008


I was about to write about the Palin pregnancy, but that will have to wait -- after all, it's not especially important unless you're a national talking head in need of jabberpoints. In the background, though, Michele Bachman, Congresswoman from Minnesota, was drilling into my consciousness. She is youthful; her complexion is perfect; her smile is latex; her gestures are reminiscent of the simulacra at Disneyland.

Minnesotans, she informed us, are nice. The cameras panned across the sleekest, blondest, whitest cross-section of America one can imagine. "Yes," their smiling faces echoed, "nice is nice. We are nice too. Nice and sleek and blond and white. Hooray!"

That speech was followed by a sleek, once-blond white guy with a brown, adopted daughter. He spoke about his brown, adopted daughter with several references to John and Cindy's brown, adopted daughter -- yes, the very same one the Bush campaign identified as McCain's "illegitimate black child" during the 2000 primaries. All the sleek, blond, white delegates applauded.

Back to teen pregnancy: years ago, when I still was married and living in a relatively upscale community, our next-door neighbors arrived at our door one afternoon. It was odd, because they weren't friends -- just "wave to" neighbors -- but there they were, at the door. Sure, we said, come on in. Coffee? Tea?

Well, it wasn't the most comfortable session. They'd come to tell us their teenage daughter was knocked up, due any day, and that they would be raising the child. "Um, sure," we replied, "that's nice." Why were they telling us that? Were we supposed to care? Did they think the child of an unwed mother living next door would bring down our property value?

Half an hour's worth of uncomfortable tea and cookies later, they left, and we went back to waving, driveway to driveway. The baby was born, and grew. Within a few years it was evident, even from next door, that he was a "special needs" child. They all moved away -- to the South, I believe -- a year or two before my marriage ended.

We were not at all concerned that the illegitimate baby's grandfather was deputy chief of the volunteer fire department. In that community, you put out your own fire if you could -- because if you called the fire department, they'd destroy your house. It didn't really matter who was deputy chief, that's just the way it was.

Does that have anything to do with Sarah Palin's daughter's pregnancy? Probably not.

They're doing dead war heroes at the convention now. I think I'll go out for ice cream.