Showing posts with label bailouts. Show all posts
Showing posts with label bailouts. Show all posts
9/10/2012
The Democrats’ GM Fiction
Via-NRO
The Democrats have decided to run in 2012 as the bailout party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among the general public, and even their backers were notably conflicted about the precedent being set and the ensuing moral hazard. But Democrats have nonetheless made one of the most abusive episodes in the entire bailout era their economic cornerstone: the government takeover of General Motors.
The GM bailout was always an odd duck: The Troubled Asset Relief Program (TARP) was created in order to preserve liquidity in the financial markets by heading off the collapse of key financial institutions that had made catastrophically bad bets on real-estate securities — nothing at all to do with cars, really. GM’s financial arm, today known as Ally Financial, was in trouble, but GM’s fundamental problem was that its products were not profitable enough to support its work-force expenses. A single dominant factor — the United Auto Workers union’s extortionate contracts with GM — prevented the carmaker from either reducing its work-force costs or making its products more efficiently. And its hidebound management didn’t help.
Admirers of the GM bailout should bear in mind that it was the Bush administration that first decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. President Obama’s unique contribution was effectively to nationalize the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. It did this by strong-arming GM’s bondholders into taking haircuts in order to sweeten the pot for the UAW. The Obama administration also creatively construed tax law to relieve GM of tens of billions of dollars in obligations — at the same time that Barack Obama & Co. were caterwauling about the supposed lack of patriotism of firms that used legal means rather than political favoritism to reduce their tax bills.
Mitt Romney’s proposal for a structured bankruptcy would have necessitated considerable federal involvement, too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support. Which is to say, Obama did for GM what he is doing by un-reforming welfare: creating a dependent constituency.
The Democrats cling to the ridiculous claim that the bailout of GM and its now-Italian competitor, Chrysler, saved 1.5 million U.S. jobs. This preposterous figure is based on the assumption that if GM and Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of automobile manufacturing in the United States would have collapsed — not only at GM and Chrysler but at Ford and foreign transplants such as Toyota and Honda. Not only that, the Democrats’ argument goes, but practically every parts maker, supplier, warehousing agency, and services firm dedicated to the car industry would have collapsed, too. In fact, it is unlikely that even GM or Chrysler would have stopped production during bankruptcy: The assembly lines would have continued rolling, interest and debt payments would have been cut, and — here’s the problem — union contracts would have been renegotiated. Far from having saved 1.5 million jobs, it is not clear that the GM bailout saved any — only that it preserved the UAW’s unsustainable arrangement.
Bill Clinton bizarrely tried to claim that the bailout has been responsible for the addition of 250,000 jobs to the automobile industry since the nadir of the financial crisis. Auto manufacturers and dealerships have indeed added about 236,000 jobs since then, but almost none are at GM, which has added only about 4,500 workers, a number not even close to offsetting the 63,000 workers that its dealerships had to let go when the terms of the bailout unilaterally shut them down.
Ugly as the bank bailouts were, the federal government appears set to make its money back on most of them, with the exception of some smaller regional banks and CIT. Even AIG, one of the worst of the financial basket cases, is set to end up being a break-even proposition for U.S. taxpayers. But tens of billions of dollars will be lost on GM. The federal government put up more for a 60 percent interest in the firm than GM is worth today.
At their convention, Democrats swore that GM is “thriving,” but the market doesn’t think so: GM shares have lost half their value since January 2011. And while the passing of the Great Recession has meant growing sales for all automakers, GM is seriously lagging behind its competitors: Its sales are up 10 percent, a fraction of the increases at Kia, Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing, and its business model still a mess, some analysts already are predicting that GM will return to bankruptcy — but not until after the election.
The Obama administration talks up all of the “jobs” it saved at GM — but jobs doing what? Manufacturing automobiles that are not competitive without a massive government subsidy? Propping up an economically unviable enterprise just long enough to get Barack Obama reelected? As much as it will pain the hardworking men and women of GM to hear it, it is not worthwhile to save jobs at enterprises that cannot compete on their own merits. So long as the federal government is massively subsidizing the operation, a job at GM is a welfare program with a fairly robust work requirement. (And we all know how the Obama administration feels about work requirements.)
We have bankruptcy laws and bankruptcy courts for a reason. It may make sense to expedite the proceedings for very large firms such as GM in order to prevent disruptions in the supply chain that would, as Ford’s executives argued, harm other, healthier firms. But bankrupt is what GM was, and bankrupt is what GM is, a fact that will become blisteringly apparent should the government ever attempt to sell off the shares it owns in the company.
The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.
The Democrats have decided to run in 2012 as the bailout party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among the general public, and even their backers were notably conflicted about the precedent being set and the ensuing moral hazard. But Democrats have nonetheless made one of the most abusive episodes in the entire bailout era their economic cornerstone: the government takeover of General Motors.
The GM bailout was always an odd duck: The Troubled Asset Relief Program (TARP) was created in order to preserve liquidity in the financial markets by heading off the collapse of key financial institutions that had made catastrophically bad bets on real-estate securities — nothing at all to do with cars, really. GM’s financial arm, today known as Ally Financial, was in trouble, but GM’s fundamental problem was that its products were not profitable enough to support its work-force expenses. A single dominant factor — the United Auto Workers union’s extortionate contracts with GM — prevented the carmaker from either reducing its work-force costs or making its products more efficiently. And its hidebound management didn’t help.
Admirers of the GM bailout should bear in mind that it was the Bush administration that first decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. President Obama’s unique contribution was effectively to nationalize the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. It did this by strong-arming GM’s bondholders into taking haircuts in order to sweeten the pot for the UAW. The Obama administration also creatively construed tax law to relieve GM of tens of billions of dollars in obligations — at the same time that Barack Obama & Co. were caterwauling about the supposed lack of patriotism of firms that used legal means rather than political favoritism to reduce their tax bills.
Mitt Romney’s proposal for a structured bankruptcy would have necessitated considerable federal involvement, too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support. Which is to say, Obama did for GM what he is doing by un-reforming welfare: creating a dependent constituency.
The Democrats cling to the ridiculous claim that the bailout of GM and its now-Italian competitor, Chrysler, saved 1.5 million U.S. jobs. This preposterous figure is based on the assumption that if GM and Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of automobile manufacturing in the United States would have collapsed — not only at GM and Chrysler but at Ford and foreign transplants such as Toyota and Honda. Not only that, the Democrats’ argument goes, but practically every parts maker, supplier, warehousing agency, and services firm dedicated to the car industry would have collapsed, too. In fact, it is unlikely that even GM or Chrysler would have stopped production during bankruptcy: The assembly lines would have continued rolling, interest and debt payments would have been cut, and — here’s the problem — union contracts would have been renegotiated. Far from having saved 1.5 million jobs, it is not clear that the GM bailout saved any — only that it preserved the UAW’s unsustainable arrangement.
Bill Clinton bizarrely tried to claim that the bailout has been responsible for the addition of 250,000 jobs to the automobile industry since the nadir of the financial crisis. Auto manufacturers and dealerships have indeed added about 236,000 jobs since then, but almost none are at GM, which has added only about 4,500 workers, a number not even close to offsetting the 63,000 workers that its dealerships had to let go when the terms of the bailout unilaterally shut them down.
Ugly as the bank bailouts were, the federal government appears set to make its money back on most of them, with the exception of some smaller regional banks and CIT. Even AIG, one of the worst of the financial basket cases, is set to end up being a break-even proposition for U.S. taxpayers. But tens of billions of dollars will be lost on GM. The federal government put up more for a 60 percent interest in the firm than GM is worth today.
At their convention, Democrats swore that GM is “thriving,” but the market doesn’t think so: GM shares have lost half their value since January 2011. And while the passing of the Great Recession has meant growing sales for all automakers, GM is seriously lagging behind its competitors: Its sales are up 10 percent, a fraction of the increases at Kia, Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing, and its business model still a mess, some analysts already are predicting that GM will return to bankruptcy — but not until after the election.
The Obama administration talks up all of the “jobs” it saved at GM — but jobs doing what? Manufacturing automobiles that are not competitive without a massive government subsidy? Propping up an economically unviable enterprise just long enough to get Barack Obama reelected? As much as it will pain the hardworking men and women of GM to hear it, it is not worthwhile to save jobs at enterprises that cannot compete on their own merits. So long as the federal government is massively subsidizing the operation, a job at GM is a welfare program with a fairly robust work requirement. (And we all know how the Obama administration feels about work requirements.)
We have bankruptcy laws and bankruptcy courts for a reason. It may make sense to expedite the proceedings for very large firms such as GM in order to prevent disruptions in the supply chain that would, as Ford’s executives argued, harm other, healthier firms. But bankrupt is what GM was, and bankrupt is what GM is, a fact that will become blisteringly apparent should the government ever attempt to sell off the shares it owns in the company.
The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.
11/19/2010
The Cadillac of Bad Ideas
By David Harsanyi
Oh, good, the Obama administration has another imaginary victory for taxpayers to celebrate.
As you've probably heard, there's quite a bit of hubbub surrounding the news that the administration's car company has gone public.
President Barack Obama tells us that General Motors' initial public offering is proof that one of the toughest tales of recession "took another step to becoming a success story." Not "survival," but success. Taxpayers are going to make a profit, even!
Now, admittedly, success is a malleable concept. If by success we mean that General Motors still owes the government $43 billion -- not including that piddling $15 billion it borrowed to fund its financial arm -- and that many analysts are uncertain it can ever flourish, we're home free.
Success will mean temporarily setting aside the fact that the Treasury actually lost billions on the IPO as it "bought" GM stock at inflated prices. To break even on the freshly printed money taxpayers are "getting back" will probably mean GM needs to double in value over the next year to make us whole.
Do you feel whole? I do.
Don't worry. Not only is GM equipped with an array of unmerited advantages over companies operating successfully in the marketplace -- even without blank checks from taxpayers -- but also the IPO was exempted from federal and state anti-fraud laws just to make sure things still aren't exactly fair. (Then again, every GM success comes at the expense of someone else.)
If things get tough, we can rely on Transportation Secretary Ray LaHood to trump up safety concerns regarding Toyota or Honda to correct the problem.
Success also means that Morgan Stanley, Goldman Sachs, Citigroup and other institutions saved from extinction by taxpayers can now make hundreds of millions of dollars on an IPO from a company that only exists because of taxpayers.
It reminds me of the success we experienced the last time GM paid back taxpayers, when it utilized funds from a TARP escrow account rather than actual revenue. Paying back taxpayers with taxpayer dollars is an inventive accounting method, for sure.
And let's not forget that success is predicated on this president's strong-arming bondholders and essentially wiping out shareholders of a private company -- tearing up legal contracts rather than allowing a traditional bankruptcy. Success means shielding benefits of United Auto Workers as a reward for helping make cars that are less efficient and more expensive.
At the time, George Mason University law professor Todd Zywicki wrote that by "stepping over the bright line between the rule of law and the arbitrary behavior of men," the president "may have created a thousand new failing businesses."
Confiscating the property of investors for the common good isn't generally conducive to a healthy business environment.
Sean McAlinden of the Center for Automotive Research told NPR that investors may want to ask the new GM: "By the way, the last set of shareholders and bondholders you had, you totally screwed them. So why should I trust you now on nine months' worth of results?"
They may want to also ask why GM is making ideologically motivated money-losers, such as the Volt, a car the middle class won't be able to afford, even with massive subsidies. What happens when taxpayers divest themselves from GM's social engineering projects?
Taxpayers didn't have much of a choice in the matter on the front end. It'll be nice to see GM stand on its own -- until the next time.
But when we undermine the rule of law, ignore property rights, create moral hazards and destroy organic job growth to save a company that was terribly managed long before the recession, no one should brag about success.
8/13/2010
Heartland Bankers Blast DC “Demagogues”
For the last ten years in my role as executive editor of the Kansas City regional business magazine, Ingram’s, I have been moderating what we call the “Industry Outlook.”
Each month we gather about twenty or so of the regional leaders in a given industry around a table and encourage them to have at it for two hours. In those ten years, I have moderated no fewer than 100 such sessions across at least 20 different industry subsets.
But never before have I heard such uniform disgust at the political powers that be than I heard at this past month’s roundtable. Stranger still, the outrage swelled from what is usually the most temperate and restrained of our subsets, bankers.
Model corruption
The truth about the GM 'rescue'
By MARK MODICA & HAL JOHN
General Motors plans an initial public offering as soon as today -- a first step in the government's effort to sell its ownership stake to private investors. The IPO comes on the heels of a much publicized plant tour by President Obama, who'll certainly hail the stock sale as proof he made a smart decision by bailing out the automaker with billions of taxpayer dollars.
But, to us, the IPO will be proof of something else: a White House that purposefully trampled the legal rights of investors -- many of whom, like us, are small savers -- to benefit its political supporters. Rather than a model of success and foresight, the GM episode is a model of corruption and cronyism.
Let's review the sordid history. Last year, the federal government bought a majority stake in GM for about $50 billion -- a sum equal to GM's market capitalization in 2000, when it was making record profits.
It should hardly be a surprise that the new GM, with so much money to work with (plus a special $16 billion tax benefit) would start inching into the black again. After all, Ford, without government help, has posted after-tax earnings of about $4.7 billion for the first half of this year -- more than twice GM's, even with the $1.3 billion second-quarter profit that "Government Motors" announced yesterday.
The bailout's announced goals required a more limited intervention than what Washington concocted. For example, a deal could have been brokered with strategic investors, as in a normal distressed sale, with GM's assets -- including its valuable Cadillac and Chevrolet brands and an expanding foothold in China -- passing from weak hands to strong.
But the fact that the administration mainly solicited advice from bankruptcy experts, rather than those in industry, is evidence that alternative solutions weren't considered.
Instead, politicians ran the company their way -- raining taxpayer money on key electoral states like Michigan and rewarding their staunch financial backers in the United Auto Workers union.
The devil, in this case, was in the details of the bankruptcy plan that the government pushed through:
Bondholders -- investors ranging from large institutions to retirees just scraping by, who loaned GM a total of $27 billion -- received just 10 percent of the company. By contrast, the government's $50 billion gave it about 61 percent.
And the union -- in return for the $20 billion that GM owed its health trust -- got a remarkable 17.5 percent of the stock plus $2.5 billion in cash plus $6.5 billion in preferred stock carrying a dividend of about 9 percent.
In other words, the UAW got three to four times as much as the bondholders for a smaller claim on GM's assets. The union even boasted to its members in May 2009 that it had made no concessions on pay, health care or pensions in the restructuring.
In effect, the government divided up GM's creditors into favored and unfavored groups, then gave a fat stake in the reorganized business to the favored (a k a longtime Democratic Party donors). On top of that, Washington also ordered the shutdown of 1,650 GM dealers and another 1,000 Chrysler dealers as part of its takeover.
In last month's audit, TARP's inspector general criticized the Treasury Department for that very decision. Treasury didn't show why the cuts were "either necessary for the sake of the companies' economic survival or prudent for the sake of the nation's economic recovery." The move "substantially contributed to the accelerated shuttering of thousands of small businesses."
Remember this as the president brags about recent gains in auto-industry jobs: Even though some plants have added union jobs, many in the dealerships have been lost.
But our main concern is what happens going forward. A terrible precedent has been set.
Small bondholders are essential to funding US industry. How eager will they be to invest their savings after seeing how the administration misappropriated the federal government's vast power and ignored long-standing bankruptcy law to reward its supporters at the expense of the less powerful?
We're pleased that GM is making a profit and, with the IPO, taxpayers should get some of our money back. But the government takeover of GM absolutely should not be framed as a success or, worse, as a model for the future. It was political bullying at its worst -- an arbitrary action befitting a banana republic, and deeply unfair to small investors who expected their lawmakers to play by the rules.
Mark Modica was a business manager at a now-closed Saturn dealership in Chalfont, Pa.; Hal John is an executive-search consul tant in Chesterfield, Mo. Both were steering committee members of Main Street Bondholders, a coali tion of small GM investors.
7/20/2010
Obama's 'Mandate for Sacrifice' Costs Thousands of Jobs
By William Tate
As many as 100,000 Americans who lost their jobs, or will soon, because of GM and Chrysler dealership closings can thank Barack Obama and his "mandate for shared sacrifice," according to a top Obama official.
In a scathing report on the federal auto industry bailout, Special Inspector General Neil M. Barofsky notes that the Obama administration rejected initial automaker plans which would have required relatively minimal dealership closings, insisting instead on far more drastic cuts -- as many as two thousand dealerships between the two corporations.
[W]hen asked explicitly whether the [Obama] Auto Team could have left the dealerships out of the restructurings, Mr. [Ron] Bloom, the current head of the Auto Team, confirmed that the Auto Team "could have left any one component [of the restructuring plan] alone," but that doing so would have been inconsistent with the President's mandate for "shared sacrifice."
The report notes that an Obama team memo estimates that the average dealership employs 52 people. Nevertheless, the Obama administration insisted that the two corporations abandon their plans for more modest closures, or "terminations," and implement plans that could cost 100,000 Americans their paychecks.
...So that they could "share" in the sacrifice.
7/18/2010
IG report says Obama GM, Chrysler moves needlessly accelerated job losses
By: Mark Tapscott
A report to be released tomorrow by the Treasury Department's Special Inspector General for the Toxic Asset Relief Program (SIGTARP) will contend that President Obama's push for General Motors and Chrysler to close thousands of dealerships across the country as part of their government bailouts "may have substantially contributed to the shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls, all based on a theory and without sufficient consideration of the decisions' broader economic impacts."
The SIGTARP report will further contend, according to Rep. Darrell Issa, the ranking minority member of the House Oversight and Government Reform Committee that it is questionable whether the closings were "either necessary for the sake of the companies' economic survival or prudent for the nation's economic recovery."
Issa, who has been a vocal critic of the Obama administration's handling of the GM and Chrysler government takeovers, said the SIGTARP report should "serve as a wake-up call as to the implications of politically-orchestrated bailouts and how putting decisions about private enterprise in the hands of political appointees and bureaucrats can lead to costly and unintended consequences."
The California Republican also said the fothcoming report will say "GM did not consistently follow its stated criteria and that there was little or no documentation of the decision-making process to terminate or retain dealerships with similar profiles, or of the appeals process” and that “making termination decisions with little or no transparency and making a review of many of these decisions impossible…”
5/06/2010
Crises in America? Big Government Is Not the Solution
Via-New American
by Raven Clabough
Barack Obama’s presidency has been plagued with crises that appear to be increasing more rapidly in the past few weeks. As if American involvement in two wars while struggling with one of the worst economic crises in the last 50 years wasn’t enough, Obama’s workload has been increased by a catastrophic oil spill, turmoil on the border of Mexico, and an attempted car bombing in New York City.
MSNBC says that in addition to the aforementioned, the Obama administration is still saddled with the issue of Iran’s nuclear program, appointing a new Supreme Court justice, and preparations to write financial reform.
All of this with just a few months away from midterm elections.
According to Stephen Hess, presidential scholar at the Brookings Institution and advisor to Presidents Ford and Carter, “Obama, in a sense, didn’t create any of these situations. But the public, as they do with all presidents, holds him responsible for all of them.”
Of course, one big reason why Obama and other modern-day Presidents have so much to do is that the Executive Branch has increasingly usurped powers that, under our Constitution, are delegated to Congress or are not delegated to the federal government at all. The Preisdent, for example, is not supposed to be busying himself managing the naton's economy. A former American President, Calvin Coolidge, once said that "the business of America is business." But he did not try to manage the market and presumably was a lot less busier than Obama. Yet, who could argue credibly that we did not have better government back then. Unlike President Obama, President Cooledge operated within the limits of the Constitution.
But Hess’ words still ring true, particularly when one considers how President George W. Bush was blamed for the problems that he inherited from his predecessor Bill Clinton, from an economy on the brink of recession, to a growing threat of terrorism and a weakened military. Yet little sympathy or leeway was afforded to Bush, neither from the media, nor from the Left.
The question is, who in the future will take the blame for Obama’s current mistakes.
You see, it's fair to say that President Obama should not be assigned blame for America’s involvement in two wars, nor for the recession that he inherited from Clinton and Bush Jr., but Obama’s policies have certainly exacerbated America’s financial turmoil and if continued, has the potential to cause the American economy to collapse under its own weight.
Granted, President George W. Bush increased the federal budget by $700 billion through 2008, a once historic number. That is, until Obama took office. Since President Obama took office a mere two years ago, the federal deficit has increased by $1 trillion.
President Obama often blames President Bush for increasing the deficit through expensive financial bailouts, which may be true, but Obama himself has accelerated that course and made it worse.
While President Bush can be blamed for creating a Medicare drug entitlement that is expected to cost $800 billion in one decade, the down payment alone for Obamacare is $634 billion.
Obama’s defenders may cry, “He’s targeting the people responsible for the economic crisis: Goldman Sachs!” But the recent Obama/SEC slaps at Goldman Sachs (GS) are pure eyewash aimed at assuaging and manipulating public anger over the incestuous Washington/Wall Street relationship. The Obama administration has continued the ongoing incest with Goldman Sachs (nearly $1 million in campaign funds from GS, and GS men appointed to key administration posts). In fact, Goldman Sachs stands to make a lot of money off of that relationship through the Chicago Climate Exchange, particularly if Obama succeeds in forcing “cap and trade” upon unsuspecting Americans.
So before Obama is absolved of guilt for our economic struggles, perhaps Hess should carefully examine the damage that Obama’s administration managed to cause in a mere two years.
Now how about blame for the oil spill? While British Petroleum bears the guilt for the explosion, our government officials failed to follow their own 1994 Response plan, which calls for the immediate burning of oil by use of hydro-fire booms. Had they done so, the effects may have been minimized. According to MSNBC, however, the government did not have one fire boom handy until eight days later when they found a single one at Elastec/American Marine, a Chicago company. They then were forced to borrow some from outside the country. How far have we sunk when we must resort to begging to borrow expensive equipment from another country?
An even better solution would have been to require private oil companies to have such equipment available as a condition of their oil lease agreement. It is, after all, their responsibility, not the federal goverenment's, to ensure that their operations are environmentally safe.
Worse than the presence of the national crises is this. On the Wall Street Journal Digital Network in 2008, Obama’s Chief of Staff said, “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.”
Everyday, we are seeing the truth of those words come to light.
For example, what has been the federal government’s response to the massive oil spill? Stop off-shore drilling, of course! When the White House was asked if they might pause all off-shore drilling, Deputy Secretary of the Department of the Interior David Hayes admitted “everything is on the table.” White House Press Secretary Robert Gibbs confessed “Could [the oil spill] possibly change [Obama’s] viewpoint? Well, of course.”
Stopping all off-shore drilling falls right in line with Obama’s radical green agenda. What luck! Not for the rest of America, though. Eric Bolling of the Fox Business Network estimates that if that were to happen, gas prices can rise to $10 a gallon.
When Americans faced crises related to healthcare, Obama’s solution was for the government to take over the entire health care program, one-sixth of the American economy. More big government? Jackpot. While they were at it, they tossed in the student loan program as well. Likewise, the housing market crisis has prompted the government takeover of 90 percent of housing finance.
The last time the American government attempted this much regulation was under Franklin D. Roosevelt. Unfortunately, as noted by Alonzo Hamby, distinguished History Professor at Ohio University and author of several books, “FDR quite simply failed to end the Depression.... The New Deal’s relief programs never provided for more than half the unemployed at any one time. Its first industrial recovery program, the National Recovery Administration, was a crashing failure. Roosevelt’s subsequent resort to polarizing politics of class conflict probably did him political good but surely got in the way of economic revival.”
Yet Obama argues, “Some of the criticisms are with the basic idea that government should intervene at all in this moment of crisis. You have some people very sincere who philosophically just think that government has no business in the marketplace and, in fact, there are several who suggested that FDR was wrong to intervene back in the New Deal.”
On the February 8 episode of Glenn Beck’s Fox News program, he compared FDR’s spending to Obama’s. In 1941, FDR spent 12 percent of the GDP, the highest percentage of his entire presidency. Obama’s lowest projected spending between 2009 and 2015 hovers around 25 percent, with a minimum of 22.8 percent for 2013. I think we have a winner.
Ronald Reagan had it right when he declared, “Government is not the solution to the problem — government is the problem.” And regardless of whether his administration actually put these words into practice, they are still correct. Until Obama comes to this realization, he will continue to shoulder the blame for the crises, particularly as he continues to aggravate them.
But then again, one man’s crisis is another’s opportunity to seize power and increase the size of the federal government.
Obama can probably rest assured knowing that the next president will have to shoulder the blame for Obama’s mistakes. After all, the media works itself into a frenzy rewriting history and defending Obama’s actions on a daily basis.
Unfortunately for him, as long as this reporter is writing and people like Glenn Beck are on air, we will not let America forget.
More...
5/04/2010
4/30/2010
4/08/2010
Intersection for a Disaster
Via-RCP
By George Will
WASHINGTON -- The times truly are out of joint when the most important IPO -- initial public offering -- of 2010 could come from what was American capitalism's iconic corporation for most of its 102 years. Andrew Bary, writing in Barron's, says General Motors "may go public in the second half of this year, and its stock market value could top $50 billion, more than Ford's $40 billion."
This is justice under today's state capitalism: Ford took on $23.6 billion in debt to avoid becoming dependent on Washington, whereas GM shed much of its debt by becoming dependent. Washington, Bary explains, turned most of its $50 billion loan to GM into 60.8 percent ownership, the United Auto Workers got 17.5 percent for forgoing a $20 billion health care claim against the company, and Canada's government got an 11.7 percent stake for $9 billion.
Detroit's long drive down the crumbling road to disaster is chronicled in "Crash Course" by Paul Ingrassia, formerly of The Wall Street Journal. It is a story of the hubris of a corporate oligopoly and the myopia of a union monopoly.
When Henry Ford said people could have his cars in any color they wanted as long as it was black, the actual name of the color was, portentously, "Japan black enamel." But in 1927, GM hired Harley Earl, whose father designed custom cars for Hollywood stars, to head its Art and Color Section, a harbinger of Detroit's emphasis on cars as "visual entertainment" -- Earl's phrase -- rather than on the technological improvements Japanese automakers would come to emphasize.
Enchanted by stabilizer fins on World War II P-38 fighter planes, Earl put tail fins on 1948 Cadillacs. By 1959 the fins were almost as high as the car's roof. The chrome protrusions Earl put on Cadillacs' front bumpers were at first supposed to project power by resembling artillery shells. Soon, Ingrassia writes, they were nicknamed "dagmars" after the breasts of a television starlet.
But in 1959, an ad showing a Volkswagen Beetle in front of a suburban home asked, "What year car do the Jones drive?"
This, Ingrassia says, "took direct aim at annual styling changes, which lay at the very heart of Detroit's business model."
When Lee Iacocca ran Chrysler, it spent $2 million on gold-plated faucets and other trimmings on the company's suite at the Waldorf. Even in the late 1980s, GM had segregation by rank in the "salaried men's rest room" and the "hourly men's rest room." Still, the UAW hourly workers flourished.
In 1970, a 67-day strike against GM won, Ingrassia reports, "the company's 400,000 hourly workers (triple what the Big Three's combined total would be 40 years later) a 30 percent wage hike over the next three years." Soon thereafter, workers could retire at any age with a full pension after 30 years on the job. "If the retiree lived to be 79 or older," Ingrassia writes, "he or she would spend more years drawing a full pension than actually working."
Those still working did so under rules so complex that the (BEG ITAL)table of contents(END ITAL) of the contract was almost 20 pages long. Other autoworkers were unenthralled by such UAW triumphs: In 1986, the UAW abandoned its attempt to unionize Honda's Marysville, Ohio, plant by secret ballot plebiscite. It did not have the votes. Today, organized labor wants "card check" organizing so it can dispense with secret ballots.
By the turn of this century, GM was being kept afloat by its financing arm, GMAC, which was deeply into subprime mortgages. Ingrassia dryly notes: "Some GM dealers in Southern California were taken aback when customers bristled at being asked to fill out a GMAC credit report for a car loan. They hadn't needed a detailed credit report to get a mortgage from GMAC on their new home."
Studebaker shut down in 1966, and American Motors was absorbed by Chrysler in 1987. But compassionate government has stopped the Darwinian culling of the herd.
When Washington bailed out Chrysler in the late 1970s, Alan Greenspan, then a Wall Street consultant, said the danger was not that the rescue would fail but that it would work, thereby whetting Washington's appetite for interventions. The bailout "worked" in that the government made money from it and Chrysler survived to be rescued 30 years later by an administration that, as a wit has said, can imagine the world without the internal combustion engine but not without Chrysler.
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2/28/2010
Braking news: A history of false facts driving the story
Via-Daily Caller
On Nov. 23, 1986, CBS’s “60 Minutes” broadcast a 17-minute segment, “Out of Control,” about a rash of reports of a “sudden unintended acceleration” problem with the Audi 5000. It was presented by correspondent Ed Bradley, a man who now stands in the annals of TV journalism as a revered and legendary figure.
Bradley’s piece was a tailor-made fear-inducing example of mainstream media distortion. (In those days, the only media.) Its method was rigged. Its results were demonstrably, blatantly false. It painted a picture of a serious problem where none existed. And it almost ruined Audi.
Fast-forward to the present day and a new “sudden unintended acceleration” problem. The technology of cars has, indeed, changed dramatically since the Bradley’s report. The failure of fly-by-wire technology (the kind that governs most auto throttles today) is well-documented in a variety of contexts. Check out this YouTube clip from June 26, 1988, as a prototype Airbus A-320’s makes a perfect landing and explodes in a forest beyond the runway at the Paris Air Show. The pilot wanted to land on the runway. The computer wouldn’t let him. The computer won.
For a really frightening wake up call, check out Peter Neumann’s Risk Digest, which documents and updates thousands upon thousands of computer “failsafe” failures in every imaginable context—from wrongly amputated limbs, changed test scores, air traffic and street traffic control failures and hacked passwords. You name it, it’s there.
Perhaps, Toyota really does have some phantom acceleration problem. Perhaps it’s hiding something. Perhaps someone should face criminal charges. But I’m a little skeptical. Although technology has changed since Ed Bradley’s “60 Minutes” piece, human nature has remained exactly the same.
It is dangerous and potentially callous to call into question flowing tears and riveting, heartfelt emotional testimony. Most victims and survivors of trauma and crime do not fake it or mistake its cause. They should be granted every consideration. But any experienced homicide detective will also tell you, maybe off the record and quietly, that they always look through the tears of the weeping spouse. I noticed the The Wall Street Journal reported on Wednesday, Feb. 24, that the Lexus owned by witness Rhonda Smith, which surged out of control to 100 mph over several minutes, was resold to a happy buyer who has since put 27,000 trouble-free miles on it.
Ed Bradley didn’t tell you in 1986 when “60 Minutes” filmed a sequence of an Audi 5000 surging out of control, that the acceleration was caused not by some undiagnosed demon, but by a man named William Rosenbluth, an automotive consultant retained by plaintiffs in a suit against Audi. Off camera, Rosenbluth drilled a hole in an Audi transmission and piped fluid into it, causing the desired lurching forward and the “phantom sudden acceleration.”
It was some time after that, that NBC’s “Dateline” got caught staging an explosion of side-saddle gas tanks on a GM pickup truck by using incendiary devices to start the fire, after a side impact collision. The producers were working with crash experts closely aligned with trail lawyers suing GM.
This week, investigative reporter Brian Ross of ABC, did show the device and the engineer who managed to short-circuit a Toyota Avalon into a sudden acceleration. A scientific test, it was not. There was no control, as one should use in the scientific method. We saw no other brand of vehicle being tested. Nor did Ross mention that the engineer was being paid and sponsored by five law firms who are suing Toyota. Strange for a reporter whose stock in trade is to “follow the money.” (See Ross’s report on AIG execs spa retreat after the financial bailout.)
That very evening, after Ross’s “smoking gun” piece on Toyota aired, Exponent, an engineering firm paid by Toyota, worked into “the wee hours” to replicate Ross’s experiment. They succeeded. It worked on a Toyota and on another make of vehicle, a Honda.
Some members of the House committee investigating Toyota on Tuesday made a point of dismissing “the appearance of conflict” that their investigation might pose. After all, the U.S. government is now the chief stockholder in General Motors, or “Government Motors” as some derisively call it, one of Toyota’s chief competitors. The United Auto Workers is the second largest stockholder in GM.
I noticed that on Jan. 28 of this year, just a few weeks before this weeks highly publicized hearing on Toyota, that Teamsters President James Hoffa and UAW Vice President Bob King and a bevy of labor and consumer groups held a protest outside the Embassy of Japan. One of Brian Ross’s sources on the Toyota issue, safety advocate and trial-lawyer cohort Sean Kane, was there. They said they wanted the Japanese government to hold Toyota accountable for “waging an attack on thousands of good paying jobs in the U.S.” They didn’t say that Toyota workers in the U.S. have been waging a years long struggle to resist unionization.
When the National Highway Traffic Safety Administration completed its study on the Audi 5000 sudden acceleration syndrome some years after Ed Bradley’s piece, they could find no smoking gun. The default conclusion was that Audi 5000 drivers may have been pressing their foot on the gas pedal, thinking it was the brake pedal. A very common phenomenon. A very easy explanation. One that nobody in that now long gone war of words, money and emotion wanted to hear, least of all, the trial lawyers.
There may be no easy answers to the Toyota problem, but there are some easy history lessons. Trial attorneys had their handprints all over the rigged Audi test on “60 Minutes.” Their hands were all over the rigged test of a GM pick-up on “Dateline.” And they were all over the Brian Ross’s test of Toyota, just this week. They’re salivating at the goldmine that Toyota represents.
And they’re a major contributor to the Democratic Party that controls the direction of these hearings now under way.
Anchorman a well-known news anchor from a top-10, big city station. The Daily Caller has elected to redact his identity to protect his anonymity
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4/25/2009
Government Bullying of Private Industry More Serious than Imagined
Via-Pajama Media
Three cheers for Andrew Cuomo! No, honestly. He’s taken a break from extorting AIG execs to give up their bonuses to expose a far more frightening extortion plot: the effort by former Treasury Secretary Hank Paulson and current Fed Chairman Ben Bernanke to force Bank of America to go through with the Merrill Lynch deal — and conceal the mammoth losses from the shareholders. The Washington Post reports
Legal experts say the SEC could go after federal officials for aiding and abetting if they did in fact tell [Bank of America CEO Ken] Lewis to keep mum on Merrill’s mounting losses, but that it is the bank’s obligation to inform shareholders of decisions that could materially affect the firm’s fortunes.
Lewis said he was instructed to not make a public disclosure about potential government financing. When asked where that instruction came from, Lewis responded: “Paulson.”
Paulson and Bernanke are denying that they told Lewis to conceal the impact of the deal from shareholders. Cuomo has 100 pages of documentary evidence and quite a bit of testimony on the subject. We’ll find out who said what to whom soon enough.
But this sordid little deal gives us some insight into the entire modus operandi of government which took hold at the end of the Bush presidency and has ramped up during the Obama administration. How is the Bank of America maneuver any different than “Take the TARP money or else”? Or “No, you can’t give back the TARP funds”? Or “Fire Rick Wagoner or else”? The Bank of America deal has the added element of deceiving the shareholders, but the pattern of conduct, the bullying of private industry (without regard to legal and ethical obligations to shareholders) by the federal government is the same.
In the absence of legislative authority or published regulatory guidelines, we now have government-by-strong-arm. The most unseemly example may have been the AIG bonus frenzy in which Congress, egged on by the president, decided that employment contracts don’t matter if the mob howls loudly enough. The notion that we are a nation of laws that apply in all situations and without regard to the whims of individual government functionaries is coming under fire like never before in our nation’s history. In the guise of tending to an economic emergency, the Treasury secretary, fed chairman, and president roam the economic landscape making up rules, reneging on deals (are we including toxic asset buying firms in the TARP compensation rules or not this week?), and encroaching further and further on the day-to-day management of what used to be private firms.
There is no excuse legally or otherwise for private industry executives to give into such tactics when they think their companies may suffer as a result. Nevertheless, one can understand why they do it. It is not easy to stand up to bullies who are threatening to pull the plug on financing or who have the power to stress-test you into bankruptcy. But it is unseemly behavior and something I suspect the public won’t like one bit once they understand the magnitude of the bullying.
And there are indications that the public is wary of this sort of thing. Most polls show that they hate bailouts, which is generally the source of the government’s power to browbeat firms. And as David Brooks observed:
The crisis has not sent Americans running to government for relief. Nor has it led to a populist surge in anti-business sentiment. In a recent Gallup poll, 55 percent of Americans said that big government is the biggest threat to the country. Only 32 percent said big business. Those answers are near historical norms.
Americans have always been skeptical of activist government, and that skepticism remains. When Gallup asked specifically about the current crisis, 44 percent of Americans said they disapprove of an expanded role for government during the crisis; 39 percent said they approve of an expanded role but want it reduced when the crisis is over; and only 13 percent want to see a permanently expanded role for government.
So it may be that as they learn the magnitude of the government’s meddling — and the details of the government’s newfound willingness to not only expand but to threaten, cajole, and extort businesses — the public may recoil.
More importantly, after getting a glimpse of this, Congress may want to re-establish the lawmaking and oversight role which it has temporarily abandoned. For a group that railed against the Bush administration’s overreaching vision of the executive branch, there has been deafening silence about the Obama administration’s brazen willingness to act with no appropriation of funds or regulatory authorization from Congress. Congressional Republicans in particular may want to get cracking on some regulatory reform, which would not only set reasonable rules for business but restrain the excesses of the executive branch. If given the choice between some new regulatory framework for government agencies or letting the Bernanke-Geither-Obama crew prowl through American industry firing executives and forcing deals at will, Republicans may decide the former is infinitely more desirable.
In the meantime, kudos to Cuomo, who may have uncovered the biggest and most dangerous racket of them all — the Obama economic team. And please buckle up. We have never seen an investigation of this type before involving a chairman of the Federal Reserve. It will, I think, prove extremely illuminating. It also may possibly complicate the Obama administration’s effort to micro-manage the economy. Once the public figures out what the government is up to, they might decide that bullying private industry isn’t the “change” they had in mind
3/25/2009
Little Dictators
Via- IBD
Congress: The spectacle of the very same people responsible for one of the nation's great financial calamities angling to be given even more control to fix the problem would be funny if it weren't so tragic.
Rep. Barney Frank, the Democrat who sits atop Congress' efforts to deal with the financial crisis, has enough chutzpah for 100 politicians — which is saying a lot.
In comments before testimony from both Treasury Secretary Tim Geithner and Fed chief Ben Bernanke Tuesday, Frank said he wants to regulate pay on Wall Street — even for companies that aren't getting bailouts.
And he called retention bonuses — a time-honored practice on Wall Street and elsewhere in America in which key employees are compensated for their enormous value — "extortion" and "bribes."
Frank, one of the chief architects of the housing mess that's brought us so low, isn't satisfied merely with pretending he and his Democratic pals aren't to blame for all this. No, exploiting voter anger over the now-infamous AIG bonuses, he also wants to dictate to American capitalism what it can earn and what it can't.
This is the kind of thing that normally happens in Third World countries ruled by tinhorn dictators, or in fascist states, where the democratic rule of law has collapsed. Not the U.S.
Yet, that's where we find ourselves today, isn't it? Democrats in Congress, who steadfastly rejected virtually all efforts to reform Fannie Mae and Freddie Mac as they went on the wildest, most irresponsible lending binge in the history of finance, now pose themselves as the saviors of fallen capitalism.
The hypocrisy is nothing short of stunning.
Take Frank. As we've written before, he spearheaded congressional Democrats' efforts in 1992, 2000, 2002, 2003 and 2005 to block reform of Fannie and Freddie.
Those two "government-sponsored enterprises" were the nexus of this crisis, holding $5.4 trillion of the $12 trillion in U.S. mortgages, while originating or funding 90% of the subprime market.
Their failures presaged the subsequent financial meltdown from which we're still trying to regain our economic footing.
Then there's Sen. Chris Dodd of Connecticut, another posturing moralist in the flap over AIG bonuses. He turns out to have inserted the bonuses into the bailout legislation in the first place.
An innocent move? Please note Dodd was No. 1 on the list of recipients of AIG's political contributions. Also that his wife was a former director of IPC Holdings, a company controlled by AIG.
We wish all this tinkering with the private sector was limited to Congress. But it isn't. The Treasury wants what the Washington Post called Tuesday "unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy."
Citing the AIG precedent, White House spokesman Robert Gibbs defended this radical move, saying on CNN, "We need resolution authority to go in and be able to change contracts, be able to change the business model, unwind what doesn't work."
Breathtaking. Coupled with the vast expansion of government spending over the next 10 years, this is socialism, pure and simple.
Yes, we know it's unfashionable to use the "S" word. But we're willing to be unhip in the service of the truth.
It's a frightening thing to see a once mighty, and free, capitalist economy placed under the heel of an incompetent government. But that's precisely what's happening now.
Executive pay, the focus of much public fury right now, is only the start. Your pay will be next, rest assured. So hold on to your wallets, sure, but also hold on even tighter to something even more precious that now seems at risk: your freedom.
More...
In comments before testimony from both Treasury Secretary Tim Geithner and Fed chief Ben Bernanke Tuesday, Frank said he wants to regulate pay on Wall Street — even for companies that aren't getting bailouts.
And he called retention bonuses — a time-honored practice on Wall Street and elsewhere in America in which key employees are compensated for their enormous value — "extortion" and "bribes."
Frank, one of the chief architects of the housing mess that's brought us so low, isn't satisfied merely with pretending he and his Democratic pals aren't to blame for all this. No, exploiting voter anger over the now-infamous AIG bonuses, he also wants to dictate to American capitalism what it can earn and what it can't.
This is the kind of thing that normally happens in Third World countries ruled by tinhorn dictators, or in fascist states, where the democratic rule of law has collapsed. Not the U.S.
Yet, that's where we find ourselves today, isn't it? Democrats in Congress, who steadfastly rejected virtually all efforts to reform Fannie Mae and Freddie Mac as they went on the wildest, most irresponsible lending binge in the history of finance, now pose themselves as the saviors of fallen capitalism.
The hypocrisy is nothing short of stunning.
Take Frank. As we've written before, he spearheaded congressional Democrats' efforts in 1992, 2000, 2002, 2003 and 2005 to block reform of Fannie and Freddie.
Those two "government-sponsored enterprises" were the nexus of this crisis, holding $5.4 trillion of the $12 trillion in U.S. mortgages, while originating or funding 90% of the subprime market.
Their failures presaged the subsequent financial meltdown from which we're still trying to regain our economic footing.
Then there's Sen. Chris Dodd of Connecticut, another posturing moralist in the flap over AIG bonuses. He turns out to have inserted the bonuses into the bailout legislation in the first place.
An innocent move? Please note Dodd was No. 1 on the list of recipients of AIG's political contributions. Also that his wife was a former director of IPC Holdings, a company controlled by AIG.
We wish all this tinkering with the private sector was limited to Congress. But it isn't. The Treasury wants what the Washington Post called Tuesday "unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy."
Citing the AIG precedent, White House spokesman Robert Gibbs defended this radical move, saying on CNN, "We need resolution authority to go in and be able to change contracts, be able to change the business model, unwind what doesn't work."
Breathtaking. Coupled with the vast expansion of government spending over the next 10 years, this is socialism, pure and simple.
Yes, we know it's unfashionable to use the "S" word. But we're willing to be unhip in the service of the truth.
It's a frightening thing to see a once mighty, and free, capitalist economy placed under the heel of an incompetent government. But that's precisely what's happening now.
Executive pay, the focus of much public fury right now, is only the start. Your pay will be next, rest assured. So hold on to your wallets, sure, but also hold on even tighter to something even more precious that now seems at risk: your freedom.
More...
3/22/2009
Congress, Overtax Thyself
Via-RR
There is no group more dangerous than one with some power, no scruples and leaders who think that they are really smart and that everyone else is really, really stupid. That description sadly fits not only the Wall Street swells whose credit default swaps toppled U.S. financial markets but also Congress.
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Like you, I am outraged at the $165 million paid out in AIG bonuses. I'm furious at the very notion of a bailed-out-by-taxpayers corporation meting out bonuses to anyone "regardless of performance," according to The New York Times' DealBook. Most galling of all, recipients include geniuses from the department that tanked AIG with bad paper.
But as Americans keep discovering, bad can get worse. Witness the House bill that passed Thursday by a 328-93 vote to levy a 90 percent tax on bonuses for executives at corporations that got more than $5 billion in bailout bucks. House Speaker Nancy Pelosi proclaimed: "With this resolution, I think that we are making two important statements. One is that the administration should continue in its efforts to recoup, recover the money and prevent these bonuses from going forward. And the other is that we want our money back and we want our money back now for the taxpayers."
Two statements? What about: By about a 328-93 ratio, House members would vote to throw their mothers out of the lifeboat to save themselves.
Here's the short version of why that House vote is probably unconstitutional. As Rep. Dan Lungren, R-Calif., noted before his "nay" vote: "There is something called a bill of attainder. You can't punish a group because you don't like them. You can't have them treated more onerously than somebody else without a trial."
Now for the question as to whether there is any honor left in Washington. President Barack Obama and Congress had the opportunity to pass a measure before the AIG bonuses were paid to limit bonuses paid by corporations that have received federal bailout funds. Yet Congress failed to do so.
Au contraire, the Obama stimulus package included a measure to protect "any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009."
Sen. Christopher Dodd -- the largest recipient of AIG executives' political contributions in the U.S. Senate, according to the Center for Responsive Politics -- told CNN Tuesday that he had no idea who inserted that language into the Obama stimulus bill. Then Wednesday, Dodd was forced to admit he himself had submitted that language -- at the request of the Obama Treasury Department.
In California this week, President Obama told a town hall meeting: "I know Washington's all in a tizzy, and everybody's pointing fingers at each other and saying it's their fault, the Democrats' fault, the Republicans' fault. Listen, I'll take responsibility; I'm the president."
After the House passed the tax-the-bonuses bill, Obama announced, "Now this legislation moves to the Senate, and I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated."
It would be a sorry example of taking responsibility for Obama to sign a measure that goes back on not only his own stimulus package but also the very language that his people asked Dodd to insert. I feel as if I'm watching a movie in which a hired thug kills someone and then another hired thug kills the first thug and then another thug kills the second thug.
In less than two months in office, Obama has shown that in a town full of snakes, he's the fastest runner. Who on Wall Street will trust him now?
On Monday, Sen. Charles Grassley, R-Iowa, suggested AIG executives take old-fashioned responsibility and show remorse for their failures -- and "resign or go commit suicide," a statement that Grassley later half-rescinded Washington-style.
Actually, AIG Chief Executive Officer Edward Liddy was working on just that. As he told a House Financial Services subcommittee Wednesday, some bonus recipients volunteered to return 100 percent of their bonuses, and he was asking those who make more than $100,000 a year to return half.
If Liddy can step up to the plate, why not Congress and Obama? If Washington truly believes that entities that screw up should not be subsidized by taxpayers and if Obama truly believes in taking responsibility, then Congress should pass and the president should sign a bill to levy a 90 percent tax on the pay and benefits of Congress and the president. Or they could match AIG and go halves.
Or do members want to argue that more than financial institutions, their precious hides are what is too big to fail?
COPYRIGHT 2009 CREATORS SYNDICATE, INC.
3/19/2009
False solutions and real problems
Via- JWR
By Thomas Sowell
Someone once said that Senator Hubert Humphrey, liberal icon of an earlier generation, had more solutions than there were problems.
Senator Humphrey was not unique in that respect. In fact, our present economic crisis has developed out of politicians providing solutions to problems that did not exist— and, as a result, producing a problem whose existence is all too real and all too painful.
What was the problem that didn't exist? It was a national problem of unaffordable housing. The political crusade for affordable housing got into high gear in the 1990s and led to all kinds of changes in mortgage lending practices, which in turn led to a housing boom and bust that has left us in the mess we are now trying to dig out of.
Usually housing affordability is measured in terms of how much of the average person's income it takes to cover either apartment rent or a monthly mortgage payment.
There were certainly places here and there where it took half a family's income just to put a roof over their heads. Many such places were in coastal California but there were a few others, here and there, on the east coast and elsewhere.
But, vast areas of the country in between— "flyover country" to the east coast and west coast elites— had housing prices that took no larger share of the average American's income than in the decade before the affordable housing crusade got under way.
Why then a national crusade by Washington politicians over local problems? Probably as good an answer as any is that "It seemed like a good idea at the time." How are we to be kept aware of how compassionate and how important our elected officials are unless they are busy solving some problem for us?
More...
The problem of skyrocketing housing prices was all too real in those places where this problem existed. When you have to live on half your income because the other half goes for housing, that's a real downer.
Almost invariably, these severe local problems had local causes— usually severe local restrictions on building homes. These restrictions had a variety of politically attractive names, ranging from "open space" laws and "smart growth" policies to "environmental protection" and "farmland preservation."
Like most wonderful-sounding political slogans, none of these lofty goals was discussed in terms of that one four-letter word that people do not use in polite political society— "cost."
No one asked how many hundreds of thousands of dollars would be added to the cost of an average home by "open space" laws, for example. Yet empirical studies have shown that land-use restrictions added at least a hundred thousand dollars to the average home price in dozens of places around the country.
In some places, such as coastal California, these restrictions added several hundred thousand dollars to the price of the average home.
In other words, where the problem was real, local politicians were the cause. National politicians then tried to depict this as a national problem that they would solve.
How would they solve it? By pressuring banks and other lenders to lower their requirements for making mortgage loans, so that more people could buy houses. The Department of Housing and Urban Development gave the government-sponsored enterprise Fannie Mae quotas for how many mortgages it should buy that were made out for people for low to moderate incomes.
Like most political "solutions," the solution to the affordable housing "problem" took little or no account of the wider repercussions this would entail.
Various economists and others warned repeatedly that lowered lending standards meant more risky mortgages. Given the complex relationships among banks and other financial institutions, including many big Wall Street firms, if mortgages started defaulting, all the financial dominoes could start falling.
These warnings were brushed aside. Politicians were too busy solving a national problem that didn't exist. In the process, they created very real problems. Now they are now offering even more solutions that will undoubtedly lead to even bigger problems.
Senator Humphrey was not unique in that respect. In fact, our present economic crisis has developed out of politicians providing solutions to problems that did not exist— and, as a result, producing a problem whose existence is all too real and all too painful.
What was the problem that didn't exist? It was a national problem of unaffordable housing. The political crusade for affordable housing got into high gear in the 1990s and led to all kinds of changes in mortgage lending practices, which in turn led to a housing boom and bust that has left us in the mess we are now trying to dig out of.
Usually housing affordability is measured in terms of how much of the average person's income it takes to cover either apartment rent or a monthly mortgage payment.
There were certainly places here and there where it took half a family's income just to put a roof over their heads. Many such places were in coastal California but there were a few others, here and there, on the east coast and elsewhere.
But, vast areas of the country in between— "flyover country" to the east coast and west coast elites— had housing prices that took no larger share of the average American's income than in the decade before the affordable housing crusade got under way.
Why then a national crusade by Washington politicians over local problems? Probably as good an answer as any is that "It seemed like a good idea at the time." How are we to be kept aware of how compassionate and how important our elected officials are unless they are busy solving some problem for us?
More...
The problem of skyrocketing housing prices was all too real in those places where this problem existed. When you have to live on half your income because the other half goes for housing, that's a real downer.
Almost invariably, these severe local problems had local causes— usually severe local restrictions on building homes. These restrictions had a variety of politically attractive names, ranging from "open space" laws and "smart growth" policies to "environmental protection" and "farmland preservation."
Like most wonderful-sounding political slogans, none of these lofty goals was discussed in terms of that one four-letter word that people do not use in polite political society— "cost."
No one asked how many hundreds of thousands of dollars would be added to the cost of an average home by "open space" laws, for example. Yet empirical studies have shown that land-use restrictions added at least a hundred thousand dollars to the average home price in dozens of places around the country.
In some places, such as coastal California, these restrictions added several hundred thousand dollars to the price of the average home.
In other words, where the problem was real, local politicians were the cause. National politicians then tried to depict this as a national problem that they would solve.
How would they solve it? By pressuring banks and other lenders to lower their requirements for making mortgage loans, so that more people could buy houses. The Department of Housing and Urban Development gave the government-sponsored enterprise Fannie Mae quotas for how many mortgages it should buy that were made out for people for low to moderate incomes.
Like most political "solutions," the solution to the affordable housing "problem" took little or no account of the wider repercussions this would entail.
Various economists and others warned repeatedly that lowered lending standards meant more risky mortgages. Given the complex relationships among banks and other financial institutions, including many big Wall Street firms, if mortgages started defaulting, all the financial dominoes could start falling.
These warnings were brushed aside. Politicians were too busy solving a national problem that didn't exist. In the process, they created very real problems. Now they are now offering even more solutions that will undoubtedly lead to even bigger problems.
Obama's AIG Panic
Via-WSJ
The AIG Beltway bonfire continued yesterday with the spectacle of Ed Liddy, AIG's government-appointed CEO, enduring the wrath of Congress for embarrassing the Members with post-bailout bonuses. What we now have is a full-blown political panic ignited by no less than President Obama himself that is threatening to engulf his attempts to revive the financial system, and is undermining confidence in his leadership. This is no way to promote an economic recovery.
As recently as Sunday morning, White House economist Larry Summers was saying the bonuses were regrettable but there wasn't much that could be done to stop them. "We are a country of law. There are contracts. The government cannot just abrogate contracts," he said, with great good sense. Assorted Congressmen then did what comes naturally, which is declare their mock outrage. Rather than keep his legendary cool, Mr. Obama and the White House panicked as well and joined the braying pack.
Speaking on Monday of the $165 million paid to members of AIG's Financial Products division, the President asked, "How do they justify this outrage to the taxpayers who are keeping this company afloat?" Treasury Secretary Tim Geithner, who had known about the bonuses, was also trotted out to express his "outrage" and declare that Treasury would somehow try to claw back the bonuses. By shouting "greed" in a crowded and panicky Washington, our supposed financial stewards thus gave license to everyone in the media and Capitol Hill to see who could claim to be most shocked and appalled at AIG.
We've now got a full-fledged mob on our hands, with Congress looking to string up bankers in whatever bunker they can be found. Senators Chuck Grassley and Max Baucus want to double the current income tax on these bonuses, to 70% from 35%, and that's one of the more reasonable proposals. Congresswoman Carolyn Maloney, the Democrat from silk-stocking Manhattan, wants to tax it all -- at 100%.
More...
Senator Chris Dodd, down in the 2010 election polls after his sweetheart Countrywide mortgages, is busy rewriting the TARP compensation limits he only recently stuck in the stimulus bill. His last-minute measure explicitly exempted from compensation limits bonuses agreed to prior to the passage of the stimulus bill: "The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009 . . ." So Senator Hedge Fund is suddenly morphing into Huey Long to save his career.
This is all too much even for Rep. Charlie Rangel, the House's chief tax writer, who says the tax code shouldn't be deployed as a "political weapon." He's right. AIG's managers may be this week's political target of choice, but the message to every banker in America, indeed every business in America, is that you could be next. At least we haven't yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames. But it's still early days.
One consequence will be that every bank executive in America will try to repay his Troubled Asset Relief Program, or TARP, money as rapidly as possible. The political punishment for accepting public money is becoming higher than the benefits of the extra capital cushion. According to Wells Fargo Chairman Richard Kovacevich, "If we were not forced to take the TARP money, we would have been able to raise private capital." On Tuesday, Bank of America CEO Ken Lewis joined the rush for the TARP exits, saying he hoped to pay back the $45 billion BofA has received by 2010 if not sooner. It's hard to argue with the sentiment.
For the larger banking system, however, this is exactly the wrong time to be shedding capital. The main point of the TARP was to backstop the financial system against systemic failure. Treasury botched the roll out and the execution, but with the economy still in recession and housing prices still falling, banking losses will surely grow. Mr. Geithner has projected the need for more than $1 trillion more in public capital, and the FDIC has asked Congress to increase its credit line to as much as $500 billion.
If we're lucky, the banks will be able to use today's steep yield curve to earn their way out of this mess, but no one can be sure and before this is over the FDIC and Treasury are going to need more public capital to protect depositors of failed institutions. The last thing we need is for this year's political panic to recreate the circumstances for another financial panic like the one we had last fall.
The Beltway's banker baiting seems to increase in direct proportion to the government's incompetence in nurturing a financial recovery. Anger rises when Americans learn after three bailout revisions that they haven't been told the truth that the AIG nationalization was a conduit to save counterparties, and even hedge funds, that gambled on housing. Only two weeks ago, Federal Reserve Vice Chairman Donald Kohn told Congress he couldn't disclose who AIG's counterparties were. Americans also wonder why taxpayer guarantees should be provided to Citigroup, a three-time loser, but with little accountability for the board and managers who brought the company low.
Reviving a financial system is a long process that requires a combination of capital support, workout ability and discipline for mistakes. The public has to believe the end result will be a better, sturdier system in return for taxpayer support, while at the same time being assured that gamblers aren't saved from their own mistakes.
If this balance is beyond the ability of Mr. Obama's current economic team, he needs a better team. The worst mistake he can make is to deflect attention away from government's mistakes by joining the attack on the very bankers he needs to lead an economic recovery. That's how a deep recession becomes a Depression
2/27/2009
Bankers to Obama: Stop trashing us
The American Bankers Association has a message for the president: Stop talking trash about banks.
In his unofficial State of the Union address Tuesday night, Barack Obama said that it's "unpopular ... to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions."
In a letter to the White House, ABA CEO Edward Yingling says bankers across the country were "disappointed and concerned" with rhetoric like that.
"Mr. President, of the over 8,000 banks in this country, very few ever made a single subprime loan, and they did not engage in the highly leveraged activities that brought down Wall Street firms," Yingling said.
Yingling referred the president to statements made by Rep. Barney Frank (D-Mass.), the powerful chairman of the House Financial Services Committee, in which he said that the toxic mortgage lending that sparked the current crisis was done by mortgage brokers and others not subject to the strict rules that govern commercial banks.
"Mr. President, the failure to distinguish between Wall Street and the thousands of FDIC-insured banks across the country undermines the confidence in our banking industry, the industry which is the foundation on which our economic recovery must be built," Yingling said.
"We stand ready to work with your administration to promote policies that will clear the way to do what banks do best: finance business and families that are ready to move the economy forward. But these efforts will only be inhibited by misperceptions about our industry."
In his speech, Obama said that too many bad loans from the housing crisis have made their way onto the books of too many banks" — and that, "with so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses or to each other."
But traditional bank lending accounts for a mere third of the entire credit markets, Yingling said in an interview on C-SPAN's "Newsmakers" program, and the banks' share actually grew in 2008.
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1/31/2009
General Motors to Invest $1 Billion in Brazil Operations -- Money to Come from U.S. Rescue Program
Not that I blame them. The US has become very unhealthy for buisness in general and big business is portrayed as evil and with new Administration the Unions will kill them here-Jer
SAO PAULO -- General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.
According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."
"It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.
Meanwhile, he cut the company's revenue forecast for this year by 14% to $9.5 billion from $11 billion, as the economic crisis began to cause rapid slowdowns in sales.
GM already announced three programs of paid leave, and Ardila added that GM Brazil "is going to wait and see how the market behaves in order to know what decision to take" with regard to possible layoffs.
For Ardila, the injection in Brazil's automobile sector of 8 billion reais ($3.51 billion) recently announced by the federal and state governments of Sao Paulo "has already begun to revive sales," which fell by 12% in October.
The executive said that the company will operate a "conservative" scenario in 2009 with an estimated production of 2.6 million units, and another more "optimistic" that contemplates sales of 2.9 million.
This year sales will reach 2.85 million vehicles, which represents a growth of 15% over last year.
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