The president's pre-budget speech last night, and all its accompanying pomp and ceremony, was one of the most brilliant pieces of political theater I've ever seen, and I imagine it effectively reassured a great majority of those who watched. He paid no more attention to detail than Tim Geithner did in his speech last week, but Obama's delivery is so much better. Significant change already is happening, he told us, and there is more to come -- soon.
Most of it was a rehash of his standard proposals, sometimes with fewer details than in previous policy speeches: reform health care, cap and trade carbon, alternative energy, education reform etc. He chastised Wall Street bankers, of course. He criticized the inaction of government in the past, particularly in the field of regulation -- and although he made a point of noting that there were failures by both parties, most people, I'm sure, heard "Bush administration."
So now we'll wait and see what actually happens.
(By the way, if Bobby Jindal had any hope of using his delivery of the "Republican response" as a springboard to the presidential nomination in 2011, I think his hopes were misplaced. Jindal's smiley presentation reminded me of a happy marionette in a poorly scripted puppet show, his repudiation of Bush-era policies and non-threatening ethnic charm notwithstanding.)
Did the Obama speech bring us a little closer to nationalizing some banks? I thought I heard a hint or two. Citi, apparently, has concluded its time is near. Rather than submit to a "stress test," it's just admitting it's as good as dead and waiting to see what the administration's response will be.
It occurs to me that Vikram Pandit decided to get Citigroup out ahead of the herd, hoping to force government action before the political momentum for full nationalization gathers more strength. If that's the case, Obama and Co. may have to be a bit ballsier that they've been to date.
Wednesday, February 25, 2009
Sunday, February 22, 2009
Deficit cutting?
It's hard to stay mad at the guy -- although I'm sure our new president will find yet another way to get me flying off the handle in short order. Nevertheless, today, I like what I'm reading.
Mind you, I don't see much chance of cutting the budget deficit in half over the next four years, since I honestly don't believe the current stimulus is large enough to jumpstart the economy. What is making me happy today is the means Obama proposes to reduce the deficit.
The 39.6% top marginal tax rate was, in my opinion, Bill Clinton's greatest accomplishment. No matter what the Republicans insist, it never seemed to slow economic growth in the slightest -- and the elimination of that tax category under Bush accounts for a good chunk of the Bush deficit. Yes, Mr. President, by all means -- let's bring that back again.
Even more encouraging, to me, is the plan to tax the investment income of hedge fund and private equity partners at income tax rates rather than capital gains tax rates. I honestly don't know how much extra money that will put into government coffers, but if it happens, I will happily take back everything I've said (as in my previous post) about Obama being a Clintonesque stooge of Wall Street.
To conflate Rahm Emmanuel and the United Negro College Fund, a good crisis is a terrible thing to waste -- so let's get out there and soak the rich. Now, that's change I can believe in.
Mind you, I don't see much chance of cutting the budget deficit in half over the next four years, since I honestly don't believe the current stimulus is large enough to jumpstart the economy. What is making me happy today is the means Obama proposes to reduce the deficit.
The 39.6% top marginal tax rate was, in my opinion, Bill Clinton's greatest accomplishment. No matter what the Republicans insist, it never seemed to slow economic growth in the slightest -- and the elimination of that tax category under Bush accounts for a good chunk of the Bush deficit. Yes, Mr. President, by all means -- let's bring that back again.
Even more encouraging, to me, is the plan to tax the investment income of hedge fund and private equity partners at income tax rates rather than capital gains tax rates. I honestly don't know how much extra money that will put into government coffers, but if it happens, I will happily take back everything I've said (as in my previous post) about Obama being a Clintonesque stooge of Wall Street.
To conflate Rahm Emmanuel and the United Negro College Fund, a good crisis is a terrible thing to waste -- so let's get out there and soak the rich. Now, that's change I can believe in.
Tuesday, February 17, 2009
Clinton in blackface
Anybody who knew me back in the nineties will recall that I was no fan of Bill Clinton, the Democrat who made me feel nostalgic for the liberalism of the Nixon administration. If you happened to notice me driving down the road on November 12, 1999, when the radio announced that Clinton had signed the repeal of Glass-Steagall, you'd have slowed down and moved into the most distant lane in an effort to avoid a total lunatic.So now, after eight disastrous years of Bush, we have Obama -- putatively "the change you can believe in." Okay, I believe some changes have taken place. From Bush, we seem to have moved about halfway back to Clinton.
I'm not blaming you for this, America. It's not as if you had a hell of a lot of options -- and electing a (sort of) black guy made a lot of people feel like they were voting for change. The problem was that real change never was an option. The plutocrats were in charge, and they remain in charge. Lehman Brothers, Goldman Sachs, JP Morgan Chase, and UBS were among Obama’s top contributors. They gave him the early lead in the “money race” that made his candidacy viable.
In return, he let Robert Rubin create his economic team. Rubin, lest we forget, spent 26 years with Goldman-Sachs before he joined the Clinton administration. Together with acolyte Larry Summers and free-market ideologue Alan Greenspan, he quashed the regulation of derivatives and championed the repeal of Glass Steagall, making the current financial meltdown inevitable. Shortly before I found myself in my car, screaming at the radio, Rubin left the Clinton administration to sign on as senior advisor to Citigroup. Still working in that capacity, he signed on as chief financial advisor to Barack Obama.
So, what would you expect -- specifically, what would you expect of Rubin protégé Timothy Geithner, other than more "lemon socialism?" The private sector will "join" with the public sector to buy toxic assets from the afflicted banks that so generously supported Obama, and reap the rewards of any profits that might be made. Losses, of course, will be absorbed by taxpayers.
Clinton -- either one -- would have behaved no differently. On the other hand, if Hillary were president now, it's possible that a few other decisions would have been less Bushlike. A couple that come to mind are Obama's failure to overturn the Bush order allowing "faith-based" organizations receiving government funds to discriminate, based on religion, in hiring; and the continued use of "state secrets" as an excuse to protect Bush administration war criminals.
Well, maybe she'd have been no better. The same oligarchs who supported his campaign supported hers as well.
Wednesday, February 11, 2009
More questions than answers
I listened to Geithner's speech four times, and took notes. He made some of the right noises, but the devil always is in the details -- and the details were conspicuously absent.
He said that "gradualism" won't do -- except, I suppose, for announcing the specifics of the new administration's approach -- and warned against making the mistake of "applying the brakes too early." He made a lot of noise about transparency. Okay. Swell.
He spoke of a "comprehensive stress test" for banks, with government agencies assessing bank balance sheets. Does that mean government will take on the task of valuing all those frozen assets? No, I guess not, because he gets to that later, in a different context. Anyway, the banks get to draw on a "Financial Stability Trust" as a "bridge" to private capital. Do banks have to pass the "stress test" -- demonstrate that they still have some net worth -- before they get to draw capital from the FST?
Valuing the frozen assets, apparently, will be done by defrosting them. Geithner spoke of a trillion dollar "public/private investment fund" that would use government capital to "leverage" private capital, and start the unsalable securities selling again. What role will government play, and what will be necessary to get the hedge fund managers and other investors interested in buying? Nobody seems to know, but the term "bad bank" keeps coming up in the news analysis.
One thing I do know is that every time I hear the phrase "public-private," my blood runs cold. Typically, "public-private" means the public absorbs any losses while the private sector absorbs any profits -- more corporate socialism.
Another trillion, from the Treasury, the Fed, and the FDIC, will go to "support" consumer and business lending. This sounds a bit like my "good bank" idea, but I have a bad feeling that some way will be found to further enrich a bunch of private bankers in its application. As for foreclosure relief and regulatory reform -- well, maybe we'll hear something about that next month (!)
In the meanwhile, I haven't heard anybody in the administration openly criticizing the Senate's 50% cut in the amount of aid to states that will be in the upcoming stimulus package. Of course, it makes absolutely no sense for the federal government to try to stimulate the economy and create jobs while state governments are forced to decimate spending programs and throw vast numbers of state workers out of work -- unless, of course, you're a Republican.
Obama should take the time to listen to Rush Limbaugh once in a while, and he might wake up to what the Republicans really are trying to do. Rush openly states that he wants Obama to fail. Guess what, Barack? So does almost every Republican in Congress. They don't care at all if the country sinks into Great Depression 2.0 provided they can get back into power. You're still singing Kumbaya, Barack, but nobody's singing along.
He said that "gradualism" won't do -- except, I suppose, for announcing the specifics of the new administration's approach -- and warned against making the mistake of "applying the brakes too early." He made a lot of noise about transparency. Okay. Swell.
He spoke of a "comprehensive stress test" for banks, with government agencies assessing bank balance sheets. Does that mean government will take on the task of valuing all those frozen assets? No, I guess not, because he gets to that later, in a different context. Anyway, the banks get to draw on a "Financial Stability Trust" as a "bridge" to private capital. Do banks have to pass the "stress test" -- demonstrate that they still have some net worth -- before they get to draw capital from the FST?
Valuing the frozen assets, apparently, will be done by defrosting them. Geithner spoke of a trillion dollar "public/private investment fund" that would use government capital to "leverage" private capital, and start the unsalable securities selling again. What role will government play, and what will be necessary to get the hedge fund managers and other investors interested in buying? Nobody seems to know, but the term "bad bank" keeps coming up in the news analysis.
One thing I do know is that every time I hear the phrase "public-private," my blood runs cold. Typically, "public-private" means the public absorbs any losses while the private sector absorbs any profits -- more corporate socialism.
Another trillion, from the Treasury, the Fed, and the FDIC, will go to "support" consumer and business lending. This sounds a bit like my "good bank" idea, but I have a bad feeling that some way will be found to further enrich a bunch of private bankers in its application. As for foreclosure relief and regulatory reform -- well, maybe we'll hear something about that next month (!)
In the meanwhile, I haven't heard anybody in the administration openly criticizing the Senate's 50% cut in the amount of aid to states that will be in the upcoming stimulus package. Of course, it makes absolutely no sense for the federal government to try to stimulate the economy and create jobs while state governments are forced to decimate spending programs and throw vast numbers of state workers out of work -- unless, of course, you're a Republican.
Obama should take the time to listen to Rush Limbaugh once in a while, and he might wake up to what the Republicans really are trying to do. Rush openly states that he wants Obama to fail. Guess what, Barack? So does almost every Republican in Congress. They don't care at all if the country sinks into Great Depression 2.0 provided they can get back into power. You're still singing Kumbaya, Barack, but nobody's singing along.
Saturday, February 7, 2009
The next bank bailout
It's Saturday. Geithner won't give his speech until Monday, and who knows how much he'll be willing to lay on the table even then? I figure it is incumbent upon me to speculate a bit, so that, as events develop, my forecasting ability may be evaluated. (By the way, I never go back to edit earlier postings -- except for obvious typos.)
And, so, it looks like what will be announced Monday could be a fairly clever compromise. Instead of "sin eating" Wall Street's toxic assets, government will invite private investors to buy them -- but with reduced risk because of government insurance. In essence, the Treasury would be issuing credit default swaps.
If done right, it could work. The only way to get a fix on what all those "troubled assets" are worth is to get people buying and selling them again -- but will it be done right? That remains to be seen.
To my mind, doing it right involves a few basic rules. First, no asset should be insured for more than half of what the investor pays for it. Insuring assets for full "face value" is the same as buying them outright, except without the opportunity to sell them if their value increases.
Second, pre-existing credit default swaps should not be re-insured. Since the lion's share of those were sold to buyers who did not even own the securities they supposedly insured, covering them is tantamount to insuring gambling losses.
Third, government should charge a fee for the insurance it issues. Investors were willing to pay for credit default swaps in the past, and they still should be willing to do so -- especially since the insurance is being issued by government, an institution which will not default.
Fourth, participating banks should be required to write down the alleged value of all derivatives that do not find buyers in a reasonable period of time. Only in that way can we discover which banks are essentially healthy and which are among the walking dead.
And, so, it looks like what will be announced Monday could be a fairly clever compromise. Instead of "sin eating" Wall Street's toxic assets, government will invite private investors to buy them -- but with reduced risk because of government insurance. In essence, the Treasury would be issuing credit default swaps.
If done right, it could work. The only way to get a fix on what all those "troubled assets" are worth is to get people buying and selling them again -- but will it be done right? That remains to be seen.
To my mind, doing it right involves a few basic rules. First, no asset should be insured for more than half of what the investor pays for it. Insuring assets for full "face value" is the same as buying them outright, except without the opportunity to sell them if their value increases.
Second, pre-existing credit default swaps should not be re-insured. Since the lion's share of those were sold to buyers who did not even own the securities they supposedly insured, covering them is tantamount to insuring gambling losses.
Third, government should charge a fee for the insurance it issues. Investors were willing to pay for credit default swaps in the past, and they still should be willing to do so -- especially since the insurance is being issued by government, an institution which will not default.
Fourth, participating banks should be required to write down the alleged value of all derivatives that do not find buyers in a reasonable period of time. Only in that way can we discover which banks are essentially healthy and which are among the walking dead.
Thursday, February 5, 2009
"Bad" bank? Why not a "GOOD" bank?
The more I read about the "bad bank" idea, the less I like it.
Obama, by any rational measurement, is a major improvement over W -- but the same might have been said of any of the Democratic primary candidates, or of Wile E. Coyote, or Richard M. Nixon, or even Oprah. Where Obama falls down, though, is in surrounding himself with Clintonistas who instinctively herd towards what they perceive as the "center." They don't seem to have noticed that "liberal" isn't a dirty word anymore, nor that while the right is as bombastic as ever, fewer are listening. And so, Geithner and Summers and the rest of the Robert Rubin protegés are having their way: nationalization remains verboten, and it looks like the American people as a whole will have to eat the losses racked up by the banking industry -- not just the industry's stockholders and bondholders.
It's true that Obama owes a debt to Wall Street, which provided the funds that let him take the lead in the "money race" early in the primary season. It was that lead which got him serious attention from the media, which in turn enabled him to mount a successful campaign for the small contributions that won him the presidency. Honestly, though, I don't think he owes the bankers over a trillion dollars -- at least not our trillion dollars.
So, instead of wasting taxpayer money on a bad bank -- a kind of financial sin eater that would absorb the toxic assets of possibly zombie banks and transfer them to current and future taxpayers -- why not use the remainder of the TARP funds to create a good bank, government owned and operated, which would provide loans directly to businesses that will create jobs and creditworthy individuals who want to make major purchases? There are plenty of out-of-work bankers available to organize and staff the new bank, and the vast majority of those had nothing at all to do with the derivitives failures that caused the current mess.
Yes, I know. That would be socialism. Shame on me for being both unregenerate and unrepentent. It wouldn't have to be permanent, though -- the good bank would exist just long enough for zombie banks finally to stumble into their graves. After that, the good bank's assets could be sold -- at a profit -- and we all could go back to private banking again.
Obama, by any rational measurement, is a major improvement over W -- but the same might have been said of any of the Democratic primary candidates, or of Wile E. Coyote, or Richard M. Nixon, or even Oprah. Where Obama falls down, though, is in surrounding himself with Clintonistas who instinctively herd towards what they perceive as the "center." They don't seem to have noticed that "liberal" isn't a dirty word anymore, nor that while the right is as bombastic as ever, fewer are listening. And so, Geithner and Summers and the rest of the Robert Rubin protegés are having their way: nationalization remains verboten, and it looks like the American people as a whole will have to eat the losses racked up by the banking industry -- not just the industry's stockholders and bondholders.
It's true that Obama owes a debt to Wall Street, which provided the funds that let him take the lead in the "money race" early in the primary season. It was that lead which got him serious attention from the media, which in turn enabled him to mount a successful campaign for the small contributions that won him the presidency. Honestly, though, I don't think he owes the bankers over a trillion dollars -- at least not our trillion dollars.
So, instead of wasting taxpayer money on a bad bank -- a kind of financial sin eater that would absorb the toxic assets of possibly zombie banks and transfer them to current and future taxpayers -- why not use the remainder of the TARP funds to create a good bank, government owned and operated, which would provide loans directly to businesses that will create jobs and creditworthy individuals who want to make major purchases? There are plenty of out-of-work bankers available to organize and staff the new bank, and the vast majority of those had nothing at all to do with the derivitives failures that caused the current mess.
Yes, I know. That would be socialism. Shame on me for being both unregenerate and unrepentent. It wouldn't have to be permanent, though -- the good bank would exist just long enough for zombie banks finally to stumble into their graves. After that, the good bank's assets could be sold -- at a profit -- and we all could go back to private banking again.
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