. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
Financial Crises for Dummies: An Open Letter to Secretary Geithner and Congress (brought to you by FromDC2Iowa.blogspot.com*)
[This parable showed up in my email this morning. The author is unknown. (Given the Berlin setting it may have originated in Germany.) In any event, it's as good an explanation of how we got into this mess as I've seen.
It's also a warning to Washington that "we know what you're up to."
My solution?
1. Kill the zombie banks before they strike again; shareholders take a bath, FDIC protects depositors.
2. Let investors, not taxpayers, evaluate the value of, and buy, "toxic assets" (what an oxymoron that is!) with no government guarantees.
3. Temporarily nationalize any banks that believe they need taxpayer funds, buying their stock at current market value.
4. Break up those "too big to fail" (any bank "too big to fail" is simply too big, and too inclined to take risks likely to fail).
5. Fire the top executives (after getting back from them as much of their ill-gotten gains as possible), and then prosecute and imprison those guilty of violating any laws.
6. Distribute the assets to community banks.
7. Re-enact Glass-Steagall. (This is the 1933 Act of Congress that, among other things, prohibited bank holding companies from owning other financial companies. Its repeal, by the Gramm-Leach-Bliley Act of 1999 was a major cause of the current economic collapse.)
Why do these things? This parable explains why:]
__________
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfil her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.
The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied on the non-drinkers.
Source: David Horsey, Seattle Post-Intelligencer, March 27, 2008, DavidHorsey.com.
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Financial Crises for Dummies," February 17, 2009 _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
Understandable -- and Productive -- "Public Anger" (brought to you by FromDC2Iowa.blogspot.com*)
After eight years of hunting, America's top intelligence and law enforcement agencies have finally found the most deadly terrorists threatening our nation's national security.
Who are they?
Bankers.
I'm not kidding. Read on.
There's been an almost "boys will be boys" reaction in Washington to the destruction of the American economy by those very generous campaign contributors who call themselves "masters of the universe." Few have been removed from power or had their pay cut, none (to my knowledge) has been required to pay back any of their past obscenely large and ill-gotten gains, and a statistically insignificant number have even apologized for the harm they've caused -- let alone been prosecuted and sent to prison.
There are undoubtedly "a few good apples" somewhere in that rotten barrel, but they are few and far between.
For the most part, those whose incompetence, irresponsibility, immorality, criminality and greed have created widespread hardship on the American people (and much of the rest of the world) have been very slow to "get it." "Why do they hate us?" they seem to be asking from the comforts of their $1 million redecorated offices, $50 million private jets, and posh resort retreats.
Well, now that "public anger" has become a political force of some consequence at least some of our elected officials (to whom these guys must come for more trillions of our taxpayer dollars) are trying to explain it to some of their most generous contributors.
"'Alleviating that public anger, not with mumbo jumbo but with reality, is essential if we’re going to have the support of the country,' House Financial Services Committee Chairman Barney Frank said today at a hearing in Washington," speaking to eight CEOs of some of the nation's largest banks. Alison Vekshin, "Congress Tells Bank Chiefs to Lend, Ease Public Anger," Bloomberg, February 11, 2009.
At long last we may now have even more basis for our "public anger" and a sense of accomplishment for expressing it.
No more "boys will be boys."
Dennis C. Blair, our new intelligence czar (Director of National Intelligence), speaking for the federal government's "intelligence community" has just told the Senate Intelligence Committee that the wreckage caused by our nation's irresponsible, selfish CEOs has now "outpaced terrorism as the most urgent threat facing the United States" (excerpts from the Times' February 13 story below).
Apparently the FBI agrees. "With thousands of [corporate and "an even bigger mountain of" mortgage] fraud investigations under way [including "some of the biggest names in corporate finance"], the FBI is considering shifting agents away from counterterrorism work to help sort through the wreckage of the financial meltdown. . . ." (more excerpts from the Bloomberg report below).
Perhaps our elected officials -- who quickly spring to action with trillions for the nation's bankers, but tell us it will be "a few weeks" before they will be able to focus on the human carnage those bankers have caused among the officials' constituents -- will be willing to give a little more attention to prosecuting these terrorists and criminals among us, normally very handy and popular targets for politicians, now that they have been identified as such by the intelligence and crime fighting agencies of our government.
The new director of national intelligence told Congress on Thursday that global economic turmoil and the instability it could ignite had outpaced terrorism as the most urgent threat facing the United States.
The assessment underscored concern inside America’s intelligence agencies not only about the fallout from the economic crisis around the globe, but also about long-term harm to America’s reputation. The crisis that began in American markets has already “increased questioning of U.S. stewardship of the global economy,” the intelligence chief, Dennis C. Blair, said in prepared testimony.
Mr. Blair’s comments were particularly striking because they were delivered as part of a threat assessment to Congress that has customarily focused on issues like terrorism and nuclear proliferation. Mr. Blair singled out the economic downturn as “the primary near-term security concern” for the country, and he warned that if it continued to spread and deepen, it would contribute to unrest and imperil some governments.
“The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests,” he said. . . .
Mr. Blair delivered his assessment to the Senate Intelligence Committee, in what was the new administration’s first public recitation of the national security challenges facing the United States. . . .
Mr. Blair’s focus on the world economy was a surprise to some senators. . . ."
With thousands of fraud investigations under way, the FBI is considering shifting agents away from counterterrorism work to help sort through the wreckage of the financial meltdown. . . .
[FBI Deputy Director John] Pistole told Congress his investigators have 530 active corporate fraud investigations, and 38 of them involve some of the biggest names in corporate finance — cases directly related to the current crisis.
In addition, FBI investigators are tackling an even bigger mountain of mortgage fraud cases in which hundreds of millions of dollars may have been swindled . . . more than double the number of such cases just two years ago . . . industry professionals generating fraud schemes that could total as much as hundreds of millions of dollars . . . 'lawyers, brokers or real estate professionals . . . systematically trying to defraud the system,' Pistole said . . . [including] some instances of organized crime getting involved in mortgage fraud . . ..
"If You Can't Trust Your Banker . . ."
[Credit: "Shady Deal at Sunny Acres," Maverick, 2nd Season, 1958. The popular early television series, Maverick, "starring James Garner and Jack Kelly, remains the most famous and widely discussed episode of the Western comedy television series Maverick. Written by Roy Huggins and Douglas Heyes and directed by Leslie H. Martinson, this 1958 second season episode depicts gambler Bret Maverick (James Garner) being swindled by a crooked banker (John Dehner) after depositing the proceeds from a late-night poker game, then recruiting his brother Bart Maverick (Jack Kelly) to mount an elaborate sting operation to recover the money." It's also the source of two oft-quoted lines: "If you can't trust your banker, whom can you trust?" and "I'm working on it." See, "Shady Deal at Sunny Acres," wikipedia.org.]
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Terrorist Bankers," February 13, 2009 _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
As I listened to Treasury Secretary Tim Geithner explain his "Financial Stability Plan" the line that kept running through my head was "Meet the new boss -- same as the old boss!" from The Who's "Won't Get Fooled Again" (lyrics from "Folk and Traditional Song Lyrics" -- the line is about 7:50 into this YouTube video):
Geithner's plan strikes me as what the Bush Administration Treasury Secretary Paulson's plan might sound like after you had run it through a public relations firm.
[And see: "Even before the revelation of his tax delinquency, the new Treasury secretary was a dubious choice to make this pitch. Geithner was present at the creation of the first, ineffectual and opaque bank bailout — TARP, today the most radioactive acronym in American politics. Now the double standard that allowed him to wriggle out of his tax mess is a metaphor for the double standard of the policy he must sell: Most “ordinary Americans” still don’t understand why banks got billions while nothing was done (and still isn’t being done) to bail out those who lost their homes, jobs and retirement savings. . . . [T]he political problems caused by Geithner’s tax infraction are secondary to the larger questions raised by his past interaction with the corporations now under his purview. . . . [H]e still has not satisfactorily explained why, as president of the New York Fed, he failed in his oversight of the teetering Wall Street institutions. Nor has he told us why . . . he secured a waiver from Obama to hire a Goldman Sachs lobbyist as his chief of staff . . . [or]why Lehman Brothers was allowed to fail while A.I.G. and Citigroup were spared." Frank Rich, "Slumdogs Unite!"New York Times, February 7, 2009.]
Geithner didn't sell me, and judging by the near-5% drop in the S&P 500 following his presentation he didn't sell the financial community either -- though I rather suspect for different reasons.
["Stock prices fell sharply on Tuesday after Treasury Secretary Timothy F. Geithner unveiled the government’s latest efforts address the troubled banking system, a plan whose price tag could reach $2 trillion in money from the Treasury, Federal Reserve and private sector. . . . Despite the size and scope of the Obama administration’s plans, investors said Mr. Geithner’s proposal raised more questions than it answered. The way out of the financial crisis, analysts said, looked as murky as ever." Jack Healy, "Stocks Slide as New Bailout Disappoints," Reuters/New York Times, February 10, 2009.]
Tell me why (to use some hypothetical numbers), if you could buy an entire bank, buy up all its stock at market prices, for say, $15 billion, why would you make the executives who brought it to near bankruptcy a gift from the U.S. Treasury of $25 billion (by buying its "toxic assets") and then have the Federal Reserve "loan" it an additional $50 billion? (In November 2008 the government agreed to cover up to $306 billion worth of Citigroup losses. See editorial immediately below.
And please note that U.S. taxpayers' dollars at risk are currently approaching $10 trillion dollars! Mark Pittman and Bob Ivy, "U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs," Bloomberg.com, February 9, 2009 ("Senator Byron Dorgan . . . said on the Senate floor Feb. 3, 'Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?' . . . The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.")
["[I]n a few months last year, the government overpaid for banks’ troubled assets by some $78 billion — a redistribution, in effect, of taxpayer dollars to the banks and their shareholders. And for what? The system . . . has since edged up to the abyss again. . . . Putting taxpayers first means that in exchange for shoring up the banks, the government must receive ownership stakes . . .; de facto, taxpayers would own the bank. . . . Contrary to stereotype, in countries that have successfully weathered serious bank crises, including the United States, such a takeover is preferable to leaving firms in the hands of those who have so badly mismanaged them." Editorial, "Bank Bailout, Redux,"New York Times, February 7, 2009.]
Ah, you say, temporary nationalization won't work because the government can't run banks. Putting aside the fact that governments have done so in other countries, if our government can't run banks then I guess there's no one in this country who can. Because the only folks who have removed all doubt as to their inability to run banks are those in the private sector who have been running them into the ground.
Geithner apparently did sell President Obama -- who cannot now dodge the fact that this is his plan. The Times reports this morning that its elements emerged following "a spirited internal debate," a debate that Geithner won and David Axelrod and others lost -- a debate that we must assume could only have been judged by Obama, who has proclaimed himself as being, to borrow Bush's self-characterization, "the decider." Stephen Labaton and Edmund L. Andrews, "Geithner Details New Bank Rescue Plan,"New York Times, February 10, 2009.
Even Geithner acknowledged, "I want to be candid: this comprehensive strategy will cost money, involve risk, and take time. . . . We will have to adapt it as conditions change. We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted." (The full text of his presentation is available as "Remarks of Treasury Secretary Timothy Geithner Introducing the Financial Stability Plan," February 10, 2009.)
The Times' story continues:
Some of President Obama’s advisers had advocated tighter restrictions on aid recipients, arguing that . . . the administration did not demand enough sacrifices from the companies that receive federal money. . . .
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod . . ..
Officials . . . expect to return to Congress for more money later this year. . . .
The $500,000 pay cap for executives at companies receiving assistance . . . applies only to very senior executives. Some officials argued for caps that applied to every employee at institutions that received taxpayer money.
Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. . . .
Nor is the government announcing any plans to replace the management of virtually any of the troubled institutions, despite arguments by some to oust current management at the most troubled banks.
Finally, . . . the administration . . . will not dictate to the banks how they should spend the billions of dollars in new government money.
And for all of its boldness, the plan largely repeats the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.
There you have it: what Geithner himself acknowledges is a costly, risky plan taking us to times when things will get worse, with mistakes along the way.
It is a plan that gives trillions of taxpayers' money to the same guys who created the problem, who have shown themselves to be ethically and intellectually incapable of solving it, and it does this without replacing any of them, with no restraint on what they do with the money, little or no loss to their shareholders, no requirement that they make loans, and no limit on what most of them can be paid with our money or how much of it goes to private jets and office redecoration -- and as an afterthought less than 5% that may someday be devoted to helping those facing mortgage foreclosure.
In short, this proposed giveaway to the banking and investment industries is -- like the Obama Administration's recent adoption of the Bush approach to rendition and torture -- a plan that, as the Times says, "largely repeats the Bush administration’s approach." [See, e.g., "Justice Department Stands Behind Bush Secrecy in Extraordinary Rendition Case," ACLU, February 9, 2009 ("The Justice Department today repeated Bush administration claims of 'state secrets' in a lawsuit against Boeing subsidiary Jeppesen DataPlan for its role in the extraordinary rendition program").]
"Meet the new boss -- same as the old boss!"
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009 _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
There's even more reason this morning [Feb. 7] to make the economic recovery case I've been urging in these blog entries ever since the potential consequences of our downturn became obvious to all.
In a failing economy, 70% of which depends upon consumer spending, once the government decides to infuse trillions of dollars into the economy the first place to put it is in the pockets of those who will spend it: the jobless.
Yesterday we learned we now have 598,000 more of them among us than we had a month ago. ("[T]he Labor Department announced that 598,000 jobs were lost in January. The contraction in jobs is already steeper than in any other recession since at least the early 1980s. And economists warn that several more shoes are about to drop . . .." Carl Hulse and David M. Herszenhorn, "Senators Reach Accord on Stimulus Plan as Jobs Vanish,"New York Times, February 7, 2009.)
Adequate and additional funding for the unemployed does not require the creation of new programs (they're already in existence), can distribute the money faster than almost any other way, provides money to those most likely to spend it (rather than invest it), and to spend it almost immediately (rather than months from now), with a multiplier effect of roughly 1.7 in economic impact (compared to 0.27 for tax cuts), in the single largest economic sector (consumer spending).
And for those who look at economic recovery issues from a moral, ethical, humanist, communitarian, sociological or religious perspective, clearly those who are down on their luck through no fault of their own are the ones most deserving of our government's assistance. The point is, even if these considerations are ignored, and one just looks at the numbers like a steely-eyed banker, caring for the jobless is also the most cost-effective way out of the hole we're in.
o Half or more Of the 11.6 million currently jobless Americans aren't covered.
o Some earned too little to qualify -- in part because of how their earnings are calculated.
o Part-time workers aren't covered.
o Benefits run out (after, say, 26 weeks) long before new jobs appear, since the program was designed for those "between jobs" during brief recession dips not the massive, continuing joblessness of a major global depression.
o The programs are funded by employers, now contributing less.
o They are administered as state, rather than federal, programs; states are running out of money, and under-staffed to handle the rapid increase in applications.
Here are some excerpts from Rugaber's story:
The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.
The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.
Among the key problem areas:
-- There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.
-- Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.
-- Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.
Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely. . . .
[J]obless benefits . . . vary by state but average about $300 a week. . . .
[Covering] part-time workers and more low-wage workers . . . could extend benefits to 500,000 people . . ..
But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.
Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.
That is forcing families to cut back on spending and dip into savings, if they have any. . . .
Gus Faucher, director of macroeconomics at Moody's Economy.com, said if the government provided benefits to more workers, it would reduce the severity of the recession. . . .
Before the emergency extensions, only about one-third of unemployed Americans were receiving benefits, a level that has declined steadily since coverage was at its peak in 1975.
The proportion of workers covered usually increases during recessions as Congress typically enacts extended benefits. Some experts argue that extensions should be automatic during downturns to avoid politicizing them. . . .
High demand -- and insufficient funding -- has made it difficult for many unemployment offices to keep up. Last month, online systems for requesting benefits in three states crashed under the crush of claimants. . . .
At least a half-dozen states have had to borrow money from the federal government to pay benefits after exhausting their unemployment insurance trust funds. . . .
In decades past, layoffs during recessions were often short-lived and workers were eventually rehired by the same company. Today, companies are more likely to eliminate jobs for good, either by shutting down plants or moving them abroad, according to a study by the Brookings Institution.
The result: Unemployment spells tend to be longer . . ..
Many states don't count workers' most recent 3 to 6 months of wages . . . [S]hortchang[ing] low-income workers, who may not be able to prove they earned the minimum required for benefits. . . .
In 21 states that have begun calculating eligibility using up-to-date wages, roughly 40 percent of those who initially didn't qualify were able to do so . . ..
Jeffrey Kling, an economist at the Brookings Institution, says . . . the government should temporarily replace part of the income workers lose when they take lower-paying jobs after a layoff.
The stimulus package provides some little nods in the direction of the jobless, but is a far cry from solutions. Once these problems are fixed, once all of the jobless are offered financial support, job training and job opportunities, once we've at least begun to expand for them the immediate relief of health care and ways to hang onto their homes, then and only then should we be considering any additional hundreds of billions for bankers.
Presumably, the Republicans in the House and Senate will support me on this. After all, their objections to some elements of the Obama stimulus package were that they didn't think they would create jobs, that any impact on economic stimulus would be too far in the future, or that they had nothing to do with stimulating the economy, and that taken together they involved far too much total money.
Surely those concerns are all equally applicable to the additional hundreds of billions Treasury Secretary Geithner is about to propose for his banking friends. Those billions not only won't create jobs, they will not even require the banks to make loans! And given the $2.4 trillion the Fed has already provided the banks, and the $350 billion in TARP funds, the amounts Geithner is talking about far, far exceed anything ever considered for the jobless, or for jobs programs.
Stephen Labaton, "New Plan to Help Banks Sell Bad Assets,"New York Times, February 7, 2009 ("[T]he Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks . . . [that] will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks. . . . The goal is to relieve the banks of their worst assets . . ..")
There may be more details tomorrow, but I still intend to measure them by the standards I set out at the end of the blog entry two days ago. Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009.
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009 _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
There are at least two things wrong with the President Obama-Secretary Geithner plan to limit executive compensation.
It's a relatively superficial and unsuccessful public relations effort to put lipstick on the Wall Street pigs that fails to turn them into hockey moms.
It's a diversionary tactic to take the public's eye off the ball. So what's the real problem? The real problem is not the $18 billion in undeserved bonuses, it's not the $50 million private jet plane. So what is it? It's the now some $2.5 trillion the Fed has given these guys (but refuses to tell the public and media about), plus the $350 billion we gave them with no strings attached that produced no measurable benefit for the country's taxpayers, plus the New York Times report that "the administration is expected to unveil a new strategy — and possibly request more money from Congress — to guarantee or buy outright hundreds of billions of dollars in bad assets held by banks" (presumably on top of the $350 billion Congress has already appropriated for this purpose).
["The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral." Mark Pittman, "Fed Refuses to Disclose Recipients of $2 Trillion," Bloomberg.com, December 12, 2009.]
Even if executive compensation and other personal excesses were 99% of the problem, instead of 1%, what Obama and Geithner have proposed (so far) is little more than a collection of loosely woven loopholes.
The Times also reports:
Past administrations have also been critical of excessive pay, but corporate executives have found ingenious ways around limits, often hiring consultants to create new forms of compensation. . . .
In 2007, the latest year that figures are available, the largest participants in the bailout program paid their chief executives an average compensation of $11 million, including salary, bonus and benefits. Of that amount, according to a review by Equilar, an executive compensation firm, only about $844,000 was cash salary. About $2.5 million was in a cash bonus, with the bulk — $7.4 million — in stock awards, and the remainder in benefits and perks. . . .
In other words, even if the Obama proposals weren't riddled with loopholes, even if they were seriously and successfully designed to restrain abuse, as we've already learned from painful past experience, including that of last year, "corporate executives have found ingenious ways around limits" (see, e.g., Nicholas Johnson, "It's Not Their Behavior, It's What It Reveals" in "No More for Wall Street!," October 1, 2009).
But wait, it gets worse as the Times story continues. Corporate executives won't have to "find ingenious ways around these limits." Geithner has kindly written those ingenious ways into the very rules to be applied to his friends and former colleagues. Just look at these loopholes -- which I've excerpted and numbered 1 through 12:
President Obama . . . needs to deflect a growing populist outrage over sky-high pay among the banks and other companies now on the public dole. His announcement comes just days before the administration is expected to unveil a new strategy — and possibly request more money from Congress — to guarantee or buy outright hundreds of billions of dollars in bad assets held by banks.
The new rules would set a $500,000 cap on cash compensation for the most senior executives, curtail severance pay when top executives left a company, restrict cashing in on stock incentives until government assistance was repaid and prod corporate boards to closely scrutinize luxury perquisites like private jets and country club memberships. . . .
Past administrations have also been critical of excessive pay, but corporate executives have found ingenious ways around limits, often hiring consultants to create new forms of compensation.
Even the new rules allow companies some leeway.
(1) While giving shareholders a say in bonuses above the cap and restricting when stock incentives can be cashed in, the rules do not place limits on the size of such awards, which have become the biggest part of many compensation packages.
(2) [T]he toughest new rules apply only to large companies seeking government assistance to survive.
(3) They do not apply to the more than 350 institutions that have already received bailout funds, only to those that seek aid under the next phase of the bailout program.
(4) [C]ompanies that seek aid but do not need exceptional government assistance can waive the $500,000 pay cap, as long as they submit their executive pay policies to a nonbinding shareholder vote. . . .
(5) If banks return to the government for more money, the new rules would require a reduction in pay, but not in stock awards . . ..
(6) The rules would not prohibit a lower-level executive, like a stock trader or investment banker, from continuing to receive tens of millions of dollars in pay.
(7) Officials also emphasized that several of the proposals would not be made final until after public comments had been considered.
(8) During the Bush administration, the Securities and Exchange Commission adopted new rules promoting better public disclosure of executive compensation . . . but none of that put a significant dent in executive pay. A recent study by Equilar, a compensation research firm, found that the chief executives of the 10 largest financial services firms in a survey of 200 companies with revenue of at least $6.5 billion were awarded a total of $320 million last year, even though the companies had mortgage-related losses of $55 billion.
(9) The plan does not limit the size of bonuses that can take the form of restricted stock above the $500,000 cap — though companies would have to give shareholders a nonbinding vote on such awards. Indeed, troubled financial institutions are already giving executives significant sums of restricted stock . . . in some cases . . . making up 60 percent of executives’ total compensation.
(10) The plan does not appear to prohibit a financial institution from sponsoring a major golf tournament . . ..
(11) At a White House briefing, senior officials repeatedly declined to answer whether the plan would prohibit a company like Citigroup from paying $400 million to have its name on a baseball stadium.
(12) It is also unclear whether lucrative pension plans would be banned.
So far as I'm concerned, before we even think about loading any more trillions of cash on bank executives, and debt on my great-grandchildren, I want three things:
1. Some benefit to flow from the current "stimulus package" or other programs to those Americans who aren't paid millions of dollars a year and who don't fly around in their own private jets -- adequate appropriations for and distribution of food stamps, unemployment compensation, healthcare, and jobs.
2. A full and transparent report of what was done with the first $350 billion for bankers and $2.5 trillion in loans from the Federal Reserve -- who got it, what did they do with it, what did the taxpayers get in return, and what perks and benefits were paid to the recipients' top executives while this was going on.
3. Something resembling the kind of business plan and assurances a small town banker would want to see before loaning $50,000 to a new start-up business. Who will this new money be going to? What do we predict the recipients will do with it and why? How and why will that help the economy for the rest of us? What enforceable, meaningful conditions will be written into the grant/loan to make sure that happens? What will be the cost/return to taxpayers? How does "buying up toxic assets" differ from "a gift"? What is the "exit strategy" -- that is, what are the mileposts, what is the likelihood additional multi-billion-dollar "loans" (gifts) will be required in the future? Why will the oversight/transparency be adequate/effective? What is the rationale/historical precedent/theory as to why this program will correct our economic ills? What is the worst case scenario regarding the impact of this massive debt on a future runaway inflation or other adverse consequences?
Those are some of the things I'm going to be looking for next week when Obama-Geithner "unveil a new strategy — and possibly request more money from Congress — to guarantee or buy outright hundreds of billions of dollars in bad assets."
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009 _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
February 1, 2009, 2:00 p.m.; February 2, 2009, 12:20 p.m. (addition of quotes/links to analyses by Ralph Nader and Paul Krugman, and reports of banks seeking liquidity from illegal drug cash, and hiring from abroad while laying off 100,000 American citizens the last three months)
Disgusted, discouraged, depressed -- and very, very angry.
Those are the reactions of millions of Americans to what Washington institutions -- the Bush and Obama Administrations, the Treasury, Federal Reserve, House and Senate -- have done (and are now apparently preparing to do -- again!) with what will be trillions of taxpayers' dollars wastefully lavished on the greedy, ignorant, sociopaths supposedly leading our Wall Street, investment, and banking corporations.
I share these reactions of my fellow Americans, for reasons developed further down this blog entry.
The good news.
But I want to begin with some of President Obama's positive accomplishments (from my perspective) during, not his "first 100 days," but "first 10 days." I remain impressed with his intelligence and potential for positive accomplishment -- notwithstanding his approach to the financial community and his disastrous Afghanistan policy (what Newsweek's February 1 cover story describes as "Obama's Vietnam") -- and want to keep such concerns as I have in a balanced perspective.
Following an unprecedented public turnout for his inauguration, in his first ten days President Obama (among other things) loosened restrictions on public access to presidential records and public records requests under FOIA generally, strengthened ethical standards for executive branch personnel, put a pay freeze on White House staff pay, indicated he wanted Guantanamo closed within a year, banned torture (which his new Attorney General later explained includes waterboarding), reversed Bush's ban on stem cell research and the "Mexico City Policy" (thereby making possible assistance to NGOs offering voluntary family planning), tightened the CAFE automobile fuel efficiency (mpg) standards, permitted California (and other states) to raise emission standards above those in the federal Clean Air Act, signed the Lilly Ledbetter Fair Pay Act, and supported the Senate's expansion of the State Children's Health Insurance Program, or SCHIP.
His Interior Secretary is already going after the Bush scandal involving Department of the Interior civil servants literally in bed with oil company employees. And his Treasury Secretary is cracking down on corporations using taxpayer money to lobby Congress for more bailouts. And during this time Obama reached out -- to the Arab world with his interview on Al Arabiya TV ("Americans are not your enemy"); Republicans, with his trip to the Hill, cocktail party at the White House, and invitations to join him for a Super Bowl party; and top corporate CEOs with a meeting in the White House. (See generally, White House.gov, and especially its "The White House Blog.")
That's quite a ten-day record of accomplishment. And so far as I know he didn't even rest on the eleventh day, let alone the seventh. Whether it portends a pace that will be sustained over the next few months, or is only a starting gun sprint to placate what Senator Paul Wellstone used to call "the Democratic Wing of the Democratic Party," only time will tell.
Meanwhile, . . .
"There's a Bailout Coming, But It's Not for You"
Neil Young's pretty well got this Wall Street buddies bailout nailed in his new "Fork in the Road" song, "There's a Bailout Coming, But It's Not for You":
What follows are some examples of investment community and other corporate CEOs' behavior. They range between the merely outrageous to the seriously criminal. But the point of listing them is not the individual examples of private planes and excessive bonuses.
The point is what these examples reveal about these CEOs' stupidity, arrogance, insensitivity, ignorance, greed, sense of entitlement, sociopathic tendencies, inability to run their businesses ethically, legally and profitably -- in short, why they simply cannot be relied upon, or trusted, to use trillions of taxpayer dollars to get us out of the mess they created. "Conditions" on future bailouts requiring them to repay some unearned "bonuses" or sell some private jets won't change those underlying problems.
On January 31 President Obama's message to the nation included, "Soon my Treasury Secretary, Tim Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families. We'll help lower mortgage costs and extend loans to small businesses so they can create jobs. We'll ensure that CEOs are not draining funds that should be advancing our recovery. And we will insist on unprecedented transparency, rigorous oversight, and clear accountability -- so taxpayers know how their money is being spent and whether it is achieving results." President Barack Obama, "Moving Forward," Address of the President to the Nation, January 31, 2009.
No, no, no, Mr. President. Not on my dime. "A new strategy"? "Ensure that CEOs are not draining funds"? "Rigorous oversight, and clear accountability"? I don't think so.
It may have been Bush's Secretary of the Treasury, Paulson, who offered the three-page $700 billion plan for bailing out his Wall Street friends, but it was the Democrats in Congress who voted for it, and President-elect Obama who endorsed it. And now the speculation is that New Hampshire Republican Senator Judd Gregg -- who "was the GOP's chief negotiator for the $700 billion bailout of the financial industry" -- is high on the list of those under consideration for Secretary of Commerce. Philip Elliott, "Sen Judd Gregg Considered for Commerce Secretary," Associated Press/Yahoo! News, January 30, 2009.
One of the President's problems is that he has surrounded himself -- exclusively so far as I can tell -- with former Wall Street executives and economists who think the solution to the economic woes of laid-off workers and homeless former homeowners is giving trillions of taxpayers' dollars to the guys who created the problem. There are other economists out there, but it's not clear they are being heard. For the details see, Steve Clemons, "No Economic Team of Rivals On Obama Staff: Rubin's Manic Neoliberals Dominate," January 28, 2009 (Clemons is Director of the American Strategy Program at the New America Foundation).
Another problem involves our president's ties to the Wall Street community. I am not for a minute suggesting that campaign contributions would play a role in his decisions. But I do think that they contribute a public relations problem of appearances. Among his largest contributors were those associated with:
Goldman Sachs . . . . . . . . $955,223 JPMorgan Chase & Co . . $642,958 Citigroup Inc . . . . . . . . . . . $633,418 UBS AG . . . . . . . . . . . . . . $505,017 Morgan Stanley . . . . . . . . $483,523 "Barack Obama's Top Contributors," OpenSecrets.org. And those figures don't even include (I assume) their contributions to the Democratic National Convention and the Inauguration (which can sometimes run into millions) -- "soft money" contributions unlimited by "campaign contributions" caps.
So now, lest we forget, let's review the behavior of these corporate CEOs and others who believe that "trickle down" will work better (for them) than a "trickle up" effort to relieve more human misery, and put more money in the hands of the laid-off workers, and homeless former homeowners, most likely to spend it immediately.
"For some people at AIG, the insurance giant rescued last month with an $85 billion federal bailout, the good times keep rolling. Joseph Cassano, the financial products manager whose complex investments led to American International Group's near collapse, is receiving $1 million a month in consulting fees. Former chief executive Martin J. Sullivan, whose three-year tenure coincided with much of the company's ill-fated risk-taking, is receiving a $5 million performance bonus. And just last week, about 70 of the company's top performers were rewarded with a week-long stay at the luxury St. Regis Resort in Monarch Beach, Calif., where they ran up a tab of $440,000." Peter Whoriskey, "AIG Spa Trip Fuels Fury on Hill; Pressing Executives to Concede Mistakes, Lawmakers Blast Them About Bonuses,"Washington Post, October 8, 2008, p. D1.
"There are 24 daily nonstop flights from Detroit to the Washington area. . . . [T]he chief executives of the Big Three automakers opted to fly their company jets to the capital for their hearings this week before the Senate and House -- an ill-timed display of corporate excess for a trio of executives begging for an additional $25 billion from the public trough this week. 'There's a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands,' Rep. Gary L. Ackerman (D-N.Y.) advised the pampered executives . . .." Dana Milbank, "Auto Execs Fly Corporate Jets to D.C., Tin Cups in Hand,"Washington Post, November 20, 2008, p. A3.
"The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral." Mark Pittman, "Fed Refuses to Disclose Recipients of $2 Trillion," Bloomberg.com, December 12, 2009.
"The United Nations' crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat . . . UNODC Executive Director Antonio Maria Costa said . . . drug money often became the only available capital when the crisis spiralled out of control last year. . . . '[D]rug money is currently the only liquid investment capital, . . . In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor.'" "UN crime chief says drug money flowed into banks," Reuters, January 25, 2009.
"Beleaguered Citigroup is upgrading its mile-high club with a brand-new $50 million corporate jet -- only this time, it's the taxpayers who are getting screwed -- even though the bank's stock is as cheap as a gallon of gas and it's burning through a $45 billion taxpayer-funded rescue . . .." Jennifer Gould Keil and Chuck Bennett, "Just Plane Despicable; 'Rescued' Citi Buying $50M Jet,"New York Post, January 26, 2009.
"[That] John A. Thain, the fallen boss of Merrill Lynch, spent $1.2 million redecorating his office as Merrill hurtled toward its end seemed only to confirm people’s worst suspicions about money and the hubris it can breed. His $35,000 'commode' might strike some as a bit over the top." Andrew Ross Sorkin, "The Titans Take It on the Chin,"New York Times, January 26, 2009.
"Merrill Lynch lost $27 billion last year, and yet still managed to rush through $4 billion worth of year-end bonuses in the days before it was taken over by Bank of America. . . . Merrill Lynch is not the only irresponsible institution out there. Despite a year of record losses, despite all the taxpayer money being injected into our financial institutions, bonuses for 2008 were, in some cases, down less than 50 percent from those the previous year. . . . [S]ome institutions that begged for taxpayer aid to stave off bankruptcy — simply to stay alive — made 2008 compensation packages their first order of business after receiving their bailouts. . . . [I]t’s one thing to reap great rewards when creditors are being repaid and shareholders are earning a return; it’s quite another to reward failure almost as well." Dave Krasne, "Money for Nothing,"New York Times, January 26, 2009.
"Andrew Cuomo, New York’s attorney general, said Tuesday that he has subpoenaed John A. Thain, the former Merrill Lynch chief executive, over bonuses paid out by the firm just before it was taken over by Bank of America. . . . 'The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation,' Mr. Cuomo said in a statement." Andrew Ross Sorkin, ed., "Cuomo Subpoenas Thain Over Merrill Bonuses,"New York Times/Deal Book, January 27, 2009.
"The New York Times reported that some big banks receiving government bailout money were still lobbying the government — giving the appearance, at least, of using taxpayer money to lobby for more taxpayer money . . .." Brian Knowlton, "Geithner Cracks Down on Bailout Lobbying,"New York Times/The Caucus, January 27, 2009.
Because the recently revealed $18 billion in executive bonuses has been one of the most outrageous of the excesses, and has received some of the greatest attention, here is a little more on that one than the others:
"[E]mployees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year. . . .
Some bankers took home millions last year even as their employers lost billions.
The comptroller’s estimate . . . excludes stock option awards that could push the figures even higher. . . .
'[T]here needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,' [The state comptroller, Thomas P.] DiNapoli said in an interview. . . .
At many banks, those payouts were based on profits that turned out to be ephemeral. . . .
According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. . . .
Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets . . ..
Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.
Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, [said bonuses] are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.
'This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,' Professor Bebchuk said.
Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. 'What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,' he said."
"During the last three months of 2008, the largest banks that received taxpayer loans announced more than 100,000 layoffs. . . . [Meanwhile, the] dozen banks now receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers . . . for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households. . . . [B]anks that accepted federal bailout money also enlisted uncounted foreign workers, often in technology jobs, through intermediary companies known as 'body shops.' . . . Sen. Chuck Grassley of Iowa, . . . [observed] 'In this time of very, very high unemployment . . . these banks . . . [are] playing the American taxpayer for a sucker.'" Frank Bass and Rita Beamish, "AP Investigation: Banks sought foreign workers; Bailed-out banks sought to hire 21,800 foreign workers in past 6 years," Associated Press/Yahoo! Finance, February 1, 2009.
"Bankers have done the equivalent of stuffing the mattress in the last few months, despite being prodded by the government to lend the hundreds of billions in cash being pumped into the banking system by the Federal Reserve and other regulators. They've been hoarding cash at the Federal Reserve . . .. Banks have to stash away a minimal level of reserves, but they can keep extra reserves. Last year at this time, excess reserves totaled $1.7 billion, according to Fed data. . . . Excess reserves went from $2 billion in August to $267 billion in October. As of the middle of January, they had mushroomed to $843 billion . . . currently accruing interest at 0.25%, the Fed's benchmark short-term rate." Liz Moyer, "Banks Promise Loans But Hoard Cash,"Forbes, February 3, 2009.
"Until it came to light Tuesday [February 3], Wells Fargo, which received $25 billion in federal funds, was blithely planning a series of 'employee recognition outings' to Las Vegas luxury hotels this month.
As ABC reported, Bank of America took its $45 billion in bailout funds and sponsored a five-day carnival outside the Super Bowl stadium, and Morgan Stanley took its $10 billion in bailout money and held a three-day conference at the Breakers in Palm Beach. (Morgan Stanley had also still planned to send top employees to Monte Carlo and the Bahamas, events just canceled.)
As Maureen Dowd earlier observed, "At least the old robber barons made great products. When you make money out of money, unmoored from morality and regulators, it must unhinge you. How else to explain corporate welfare queens partridge hunting in England, buying French jets and shopping for Lamborghinis?" Maureen Dowd, "Disgorge, Wall Street Fat Cats,"New York Times, January 31, 2009.
Ralph Nader has provided one of the most informative descriptions of how we got here, and what we can do to fix it, in Ralph Nader, "Wither Wall Street," Nader.org, January 30, 2009, in the course of which he asks, "First, do Wall Street Institutions do anything so vital for the national interest that they justify trillions of dollars to save them from the consequences of their own excess? Second, is it possible that the whole Wall Street edifice is built on an illusion of phantom wealth that carries deadly economic, social, and environmental consequences for the larger society? Third, are there other ways to provide needed financial services with greater results and at lesser cost?"
"Given these attitudes and behavior, this fraud and sense of entitlement, it would be unconscionable to simply hand over more taxpayer money to this crowd -- not just because they have now demonstrated that 'they don't deserve it' (though they don't), not just because they should be punished with prison sentences rather than rewarded financially (though they should), but because we're now into a 'fool me once, shame on you; fool me twice, shame on me' scenario in which it should be abundantly clear to all that this approach hasn't, and won't, work.
"Does this mean that more banks will fail? Yes. Just like more auto dealerships and retail stores will fail. But any company that's 'too big to fail' is simply too big. Capitalism, 'the market,' contemplates failure as well as success. It will take time to calculate, but require the banks to put a marketplace value on those 'toxic assets.' They're worth something. And at that point offer those assets -- or the entire bank itself -- for sale in the marketplace. It will fetch something. And once it's fairly valued there will be buyers, there will be investors, there will be capital, there will be loans -- and it will all have been done with market forces and without additional taxpayer dollars."
Dowd also shares with us Senator Carl Levin's reaction:
"Senator Levin said that the financiers will not be able to change their warped mentality, but will have to be reined in by Geithner’s new leashes. 'I have no confidence that they intend or desire to change,' Levin told me. 'These bankers got away with murder, and it’s obscene that close to nothing is being asked of financial institutions. I get incensed at the thought that a bank that’s getting billions of dollars in taxpayer money is out there buying fancy new airplanes.'" Maureen Dowd, "Wall Street’s Socialist Jet-Setters,"New York Times, January 28, 2009.
I agree with almost everything Senator Levin told Dowd. Why "almost"? Because -- for the reasons outlined above -- I don't believe that being "incensed" (without prosecutions) is enough, or that Treasury Secretary Geithner has the ability (on the assumption he even has the desire) to come up with any "new leashes" that could keep "the financiers . . . reined in."
If, perchance, you are among those who don't find Maureen Dowd, Ralph Nader and Nicholas Johnson persuasive sources of economic analysis, here are excerpts from what Nobel Prize-winning economist Paul Krugman has to say:
[T]he administration’s plans for a banking system rescue . . . are shaping up as a classic exercise in “lemon socialism”: taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right. . . .
[A] Washington Post report based on administration sources says that [Treasury Secretary Tim] Geithner and Lawrence Summers, President Obama’s top economic adviser, “think governments make poor bank managers” — as opposed, presumably, to the private-sector geniuses who managed to lose more than a trillion dollars in the space of a few years.
And this prejudice in favor of private control, even when the government is putting up all the money, seems to be warping the administration’s response to the financial crisis. . . .
[B]ank stocks are worth so little these days — Citigroup and Bank of America have a combined market value of only $52 billion — that the ownership [by taxpayers, in exchange for the bailout funds] wouldn’t be partial: pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.
My response to this prospect is: so? If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership . . .. But the Obama administration appears to be tying itself in knots to avoid this outcome. . . .
[I]n return for what is likely to be a huge subsidy to stockholders, taxpayers will get, well, nothing.
Will there at least be limits . . . to prevent more of the rip-offs that have enraged the public? President Obama denounced Wall Street bonuses in his latest weekly address — but according to The Washington Post, “the administration is likely to refrain from imposing tougher restrictions . . .." Mr. Obama’s tough talk is just for show. . . .
There’s more at stake here than fairness . . .. [R]escuing the financial system, even if it’s done right, is going to cost hundreds of billions more. We can’t afford . . . huge windfalls to banks and their executives, merely to preserve the illusion of private ownership.
We are dealing here with the Wall Street equivalents of Dr. Evil, men and women who have distorted the free private enterprise system into "if we make a profit it's all mine; if we have losses they're all yours" -- socialism for the rich and free private enterprise for the poor. As with Dr. Evil, give them millions and they'll ask for billions; give them billions and they want trillions. There's no leash made, for man or beast, that can rein them in. The only solution is to give them nothing -- notwithstanding their Dr. Evil-style threats of imminent doom.
President Obama may call their behavior "shameful," and say he wants Secretary Geithner to send them that message, but you'll note he then goes on to confront "the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system . . .." Sheryl Gay Stolberg and Stephen Labaton, "Obama Calls Wall Street Bonuses 'Shameful,'"New York Times, January 29, 2009.
What part of "no more!" and "enough already!" don't you understand, Mr. President? We're your fans. We worked to put you in the White House. We respect and admire you. We want you to succeed. Giving more billions to Wall Street is not the way to turn around this economy (as has already been proven), nor to ensure your political and historical success. Just say, No; just don't do it.
The Stimulus Package
Although beyond the scope of this blog entry, I must concede I have some concerns about the stimulus package as well.
While I can understand the practical politics of devoting as much as one-third of the package to tax cuts in an effort to work in a bipartisan fashion with the Republicans, I can't understand continuing to do so when the House Republicans voted as a bloc in opposition to the effort.
Not only do tax cuts further increase our deficit and debt, and provide a small fraction of the economic stimulus of spending programs, the bottom line is that there will be something like $300 billion less in the package, $300 billion that would have been able to produce real economic growth.
On the other hand, I think the Republicans are right that the rest of the package is not as narrowly focused as they and I would wish that it was on maximizing the number of jobs per dollar and other immediate boosts to the economy.
(For a variety of understandable graphs regarding where we are now economically, see "January Economic Summary in Graphs," Calculated Risk, January 31, 2009.)
There are few, if any, of the proposals in the package with which I would disagree as a matter of public policy regarding appropriate government expenditures. But that's not the issue.
The issue is what can we do now, to boost the economy now, and what proportion of President Obama's stimulus package is narrowly focused on that goal -- in contrast to the amount that has been diverted to tax cuts and worthy, but long term, programs?
For now, however, I'm most concerned -- indeed, angry -- about the prospect of throwing even more money into a trickle down from Wall Street program to be run by executives who have already demonstrated they are better at destroying businesses for their own selfish gain than at building them, who haven't known what to do with the money -- and seemingly care less.
"Not one more damn dime," Mr. President. Please.
__________
Related Blog Entries on Global Economy and Bailouts
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
Source: David Horsey, Seattle Post-Intelligencer, March 27, 2008, DavidHorsey.com.
