Tag Archives: financial meltdown

Confidence

11 Jul

If the federal government doesn’t raise the debt ceiling by August 2nd, it’s feared that the country’s inability to pay its bills and/or debts will plunge the world economy into yet another downward spiral, rivaling the 2008 meltdown. Or possibly something worse than or equal to the Great Depression.  Or perhaps it’s exactly what Dr. Paul ordered.  Consider:

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It’s too early to analyze whether the President’s strategy in “negotiating” with congressional Republicans is yet another awful example of horse-trading in the face of intransigence, or instead some tactical rope-a-dope brilliance.

But in the midst of an economic recovery that isn’t creating any jobs, I get the sense that it’s fundamentally irresponsible for any part of the federal government to further harm everyone’s already shaken confidence – in the economy, in employment, in production or consumption, in government in general. While Eric Cantor stands to personally profit from a federal default, the party to which he belongs is busy yelling about deficit and spending reduction, all of which signifies nothing in the face of President Obama’s proposal for a package that would, in ten years, reduce the deficit by $4 trillion.

Obama has, in fact, infuriated Democrats by proposing cuts to Medicaid, Medicare, and Social Security entitlement benefits. The deal he’s proposed would seem to be exactly what the Republicans say they want – significant spending cuts, reformation of entitlement programs, and deficit reduction. The reason they won’t go along? The proposed rescission of the Bush/Obama tax cuts for the wealthiest Americans. Not for nothing that even the Republican patron saint Reagan raised taxes when necessary, and that tax rates are at historic lows yet doing absolutely nothing to move the economy along, Boehner and his minions are showing that they’re not really about spending cuts and deficit reduction. They’re all about protecting millionaires and billionaires from an incremental rise in their effective income tax rate.

Seriously – they’re willing to plunge the world economy into possible depression in order to ensure that Paris Hilton keeps a bit more of her money. And the recovery? Because the stimulus was weakened in an effort to gain Republican support that never came, it wasn’t enough to do what it should have.

David Frum explains that the Republicans have painted themselves into a corner by invoking the debt ceiling as the “no deal” option. He compares 2011 to 1990, when the Republicans raised the top marginal rate from the high 20s to the low 30s – the act that blew George H.W. Bush’s “no new taxes” lip-reading pledge out of the water.

Had House Republicans succeeded in derailing the 1990 deal, things would have bumped along as before. The deficit would have stayed big, interest rates would have stayed high, growth would probably have remained slow. Unpleasant, but not the end of the world.

But this time there is a hard and dangerous deadline – a deadline imposed by Republicans themselves. By deploying the debt-ceiling weapon, Republicans denied themselves the option of choosing “no deal.” Unlike 1990, this time, there must be a deal, and if Republicans cannot get a deal that their most radical members like, they will have to settle for a deal that their most radical members do not like.

This predicament creates powerful temptations for individual Republicans to defect from the party coalition in hope of gaining for themselves the kind of credit and clout that Newt Gingrich got by defecting in 1990. This time, however, defection carries a heavier price: a real risk of tumbling the country and the world into financial crisis.

Back in January, John Boehner promised it would never come to this. I believed him – and argued vigorously on television against those who predicted that the radicals would carry the day. It looks like I was wrong about that, at least that I have been until now.

Another writer at FrumForum writes:

In fact, a growing faction (and I count a few people I consider friends as members of it) somehow seems to think that a default on the debt would get the nation’s house into order on the basis that it would cut spending. It would cut spending, and cause a worldwide depression at the same time. Republicans need to do a lot more to convince voters that they can govern and a legitimate jobs plan would be a very good start.

The Republican strategy at this point appears to be “destroy the economy so Obama can’t be re-elected”. That may, in fact, happen. And maybe President Bachmann or Romney can fix the economy by further cutting taxes. But it’s doubtful.

If Boehner could get his caucus to back the proposal now before them, it would be historic and may actually help the economy in a palpable way. But the serious Republicans have let the tea party and the idiot Republicans (Bachmannites, Palinists) gain too much influence.

So, Americans wait for Washington to get serious. The world waits for us to get serious. The economy treads water while Washington dithers. The culture in Washington hasn’t changed – with Obama it’s worsened because it takes two to tango, and the Republicans have strategically sidelined themselves.

Mr. Cantor suggests that a more modest $2 trillion in deficit reduction should instead be pursued. Thinking small, this solution would give Republicans everything they want (weakening of the social safety net), with absolutely no pain being felt among the wealthiest Americans. The middle and working class are getting historically shafted in this country while both parties tiptoe around the very wealthy because of the idiotic way in which we fund elections.  When someone calls the GOP on this, they get accused of class warfare; in fact, it’s the Republicans who are engaging in class warfare on behalf of society’s haves.  Calling them out on it is called “truth”, not “class warfare”.

The country is pretty fundamentally broken. One hopes it can be fixed soon, and that serious people begin to treat serious matters seriously. One hopes that Washington can start leading with thoughtful compromise, rather than bumper sticker slogans.  One hopes that the interests of the country and her people someday trump the interests of partisanship or campaign financiers.

Spitzer Comes Clean

29 Jan

At first, I didn’t like Eliot Spitzer.  I liked Tom Suozzi until Spitzer inevitably kicked his ass in the primary.  Then, I gave Spitzer another look.

I had hopes that Eliot Spitzer, the politician, would match up to Eliot Spitzer, the candidate.

Turns out, he wasn’t the politician or the man we thought he was.

Spitzer is a flawed guy, but he’s still a smart analyst and a damn good interview.  Now that he has nothing to gain nor anything to lose, he’s much more interesting to me than he was in those slick Jimmy Siegel campaign commercials back in 2006.  My favorite of those ads?  This one:

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I digress…

In an introspective and compelling interview, Spitzer talks about the financial meltdown, “too big to fail”, Kirsten Gillibrand, David Paterson, advice for Democrats, his own failings and whether he wears socks while banging hookers.  If you can hang with the lengthy interview, it’s worth it.

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I’ll be straight, if he ran for Governor in 2010, I’d vote for him.  Yes, our other options are that bad.

GM & Chrysler

31 May

GM is expected imminently to go bankrupt, and Chrysler’s sale to Fiat, S.p.A. is expected to go be concluded by the end of next week.

While in a perfect world, these companies wouldn’t need government handouts to stay afloat, this isn’t a perfect world, and it’s more desirable to bail them out than it is to throw hundreds of thousands of workers out on the street and let the companies fail. Because it’s not just GM or Chrysler. It’s also parts manufacturers, dealerships, and myriad other allied industries. When the spiral is going downward, you don’t hasten it.

The business model for GM has been an anachronism for decades, and this was

The German plate is no accident

The German plate is no accident

inevitable. GM was too big, too heavily laden with legacy costs, building too many crap cars that could barely compete. This bankruptcy offers GM a chance to slough off unnecessary businesses and marques, and a chance to fundamentally restructure its operations to bring them up to 21st century standards.

GM’s automotive offerings have been improving quite starkly lately, and if they could make plants leaner, more flexible, and improve the speed with which new models come to market, they can actually begin to compete with the likes of foreign marques that seem somehow to be able to build good cars competitively in North America.

Chrysler is a different animal altogether. I just looked at Consumer Reports’ auto guide for 2009, and not one, single Chrysler vehicle is “recommended”. Not one. That’s just an epic failure from a car company that very recently was well-respected and innovative. The design of the Chrysler 300 became legendary, but the interiors remained cheap and the drivetrains remained unrefined. I don’t know why former master Daimler-Benz, which certainly knows better, let that happen, but Chrysler is literally to the point where it needs a complete overhaul of its entire line-up, and needs to return Jeep to its core competencies – Grand Cherokees and Wranglers. I’ve seen renderings and photos of Chrysler’s new auto interiors, and they’re a nice step up from what exists now, but probably a step behind where Honda or Toyota or Volkswagen.

Although Fiat has a bad reputation in the States because it generally sold crappy little cars that broke down a lot, in Europe that’s changed. While they still build the occasional quirky thing like the Multipla, their cars are innovative, well-designed, and well-built.

Could be worse. Could be selling rebadged North Korean cars.

Possibly the Dumbest Question Ever Asked

25 Mar

Last night, I thoroughly enjoyed President Obama’s press conference, where he was asked some pointed questions, some probing questions, and some unconventional questions from media outlets not traditionally called upon (Univision, Ebony).

And then, there was the most thoroughly idiotic question ever asked under any circumstance, ever. NBC’s Chuck Todd:

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Consumers ought to sacrifice? During a deep recession? Voluntarily? I mean, there is loads of sacrificing going on in households throughout America. Much of it is involuntary – no one wants to find himself in bad economic condition. I tweeted during the press conference, and after Todd’s question, I wrote:

As an added sideshow bonus, CNN’s Ed Henry asked Obama in follow-up why he waited a couple of days to speak out against the AIG bonuses. Obama’s response:

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What I took away from the press conference is that Henry’s was the only question to get into AIG bonuses – last week’s bogeyman. The questions from Univision about the increasing danger from Mexican drug cartel violence around the border touched on a very serious problem that threatens the fundamental viability of Mexican border states, and is now beginning to creep across the southern border. Ebony’s question asking Obama what he’d say to a homeless child elicited a solid response about growing the economy and job creation. Agence France Press asked the final question, touching on peace prospects between Israel and its Palestinian neighbors now that a Netanyahu-led government will lead the former, and given the continued “leadership” of Gaza by Hamas.

As for the upcoming budget battle, Republicans on the Hill are making much of the massive deficits that are projected going forward, and they argue that they’re unacceptable. Examining its tax-cut and big-spending behavior during the Bush Administration, the Republican Party has lost both credibility and the moral high ground on deficits completely and fundamentally. But when you hear the complaints about the Obama budget, ask yourself whether the person making the critique is promoting an alternative budget proposal. The reason they don’t have one is that there is really no way to present one without big deficits going forward.

There was not one question last night about the Geithner bank bailout proposal, and there were questions from neither the Washington Post nor New York Times. Although the Washington Times got a question in about the ethics of stem cells.

While I thoroughly enjoyed the sideshow of the self-declared “top conservatives on Twitter” using the #TCOT hashtag criticize Obama’s use of “uh” and “um” while he comes up with the next word or phrase he wants to use, (a reasonable thing, given the scrutiny that will be paid to his every utterance), it was a relief to see that Obama has thought through his proposals and can eloquently explain his decisions in tremendous detail. His handle on the issues is reassuring, and one of the underlying points he made can be paraphrased as, “we’re in a huge mess – we didn’t get here overnight, and we’re not going to get out of it overnight. Give us some time to work on it. Fixing the world’s biggest economy doesn’t happen within a news cycle”.

I’ll let Frontline’s 11 Trillion and Counting, which aired just after Obama’s presser, explain how we got here, and what the big perils are going forward. Hint: it’s not necessarily the deficit, by itself:

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(If the embed isn’t working right, go here)

The Geithner Plan vs The Buffalo Geek Plan

11 Feb

In short, this is what Secretary of the Treasury, TIm Geithner presented to Americans today as the second phase of the Troubled Asset Relief Program:

Keep in mind, that Tim Geithner was the head of the New York Federal Reserve Bank during the first phase of the TARP and was pivotal in the bailout of AIG, the sale of Bear Stearns and the decision to let Lehman Brothers go bankrupt.  His plan for the second phase?  Well, ummm, lots of money.  Phase One of TARP was intended to do the following:

TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of “troubled” assets. “Troubled assets” are defined as “(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.”

Buying troubled assets required oversight by Congress.  So, Paulson decided that it would be wiser to simply buy preferred stock in the financial companies.  Umm, FAIL.  So, Geithner’s plan, coming in somewhere between $1,000,000,000,000 and $2,000,000,000,000 and light on details will probably work to accomplish what Paulson abandoned in the first phase, the purchase and auction of mortgage backed securities and failed assets.  This might help loosen credit and decrease the TED spread, but it does little to save vast swaths of cities being destroyed by foreclosures.

So, let me present the BuffaloGeek plan to stimulate the economy and free up credit.  Let’s call it the Happy Handouts plan.

In the United States, there are roughly 181 million people between the ages of 18-64.  The Federal Reserve estimates that each American household carries about $9000 in revolving debt and $80,000 when you roll student loans, mortgages and auto loans into the equation.  Staggering, people are simply crushed by the debt that we have accumulated in the easy credit era that began under President Clinton and increased under President Bush.  I won’t even mention our collective lack of interest in saving…

So, on to the plan…

Step 1.) Each of the 181 Million people of employment age in America will receive a check for $15.000 from the Federal Government, bringing the total of the Happy Handouts Plan to $2,715,000,000,000.

Step 2.)  You don’t think I’m just gonna give you spending junkies $15,000 each to go out and buy overpriced Macs or the latest gadget for your cubicle, do ya?  No, there will be a requirement that each person use that $15,000 to pay down debt.  If there is a lack of revolving debt or no remaining balance on mortgage, student or automobile loans, your money will be placed in savings, preferably in municipal bonds or a similar low risk investment vehicle.  How will it be implemented and managed?  That’s what the Congressional monkeys are for, I’m just the fucking idea man, mmmkay?

Step 3.)  Each household that is currently in an adjustable rate mortgage or high rate fixed mortgage, will be offered a one time opportunity to refinance their home loans at a 30 year rate of 5%.  Means testing will be put in place, however, poor credit ratings based on the inability to pay mortgages during the go-go 90’s and aughts will be forgiven.

Step 4.)  New restrictions on lending will be put in place.  No more free credit cards for college students, buying a house will require 20% down and a solid credit history.  Ya know, like it used to be before Jimmy Carter, Andrew Cuomo, Bill Clinton and others launched a well meaning effort to increase home ownership amongst minorities and watched as the banks twisted that legislation into the ability to give morons ludicrous loans for homes they couldn’t afford.  And before Phil Gramm rewrote the laws to allow for this whole MBS fiasco in the first place.

From a high level…banks get the liquidity that was to be given them during Phase 1 and 2 of the TARP and Americans are able to lower debt and free up discretionary income to stimulate the economy with their new found financial breathing room.  Credit should loosen due to the increase in liquidity and inter-bank lending should again begin to flow.

While this won’t return us to the collective standard of living we (as in middle class and higher) enjoyed during the wild credit explosion, it should return us to normalcy.  After all, if Obama had a set, he’d let people know that it’s not going to be like it used to be

Analyzing the Failures

13 Jan

The Washington Post provides the stark statistics of failure:

President Bush has presided over the weakest eight-year span for the U.S. economy in decades, according to an analysis of key data, and economists across the ideological spectrum increasingly view his two terms as a time of little progress on the nation’s thorniest fiscal challenges.

The number of jobs in the nation increased by about 2 percent during Bush’s tenure, the most tepid growth over any eight-year span since data collection began seven decades ago. Gross domestic product, a broad measure of economic output, grew at the slowest pace for a period of that length since the Truman administration. And Americans’ incomes grew more slowly than in any presidency since the 1960s, other than that of Bush’s father.

Bush and his aides are quick to point out that they oversaw 52 straight months of job growth in the middle of this decade, and that the economy expanded at a steady clip from 2003 to 2007. But economists, including some former advisers to Bush, say it increasingly looks as if the nation’s economic expansion was driven to a large degree by the interrelated booms in the housing market, consumer spending and financial markets. Those booms, which the Bush administration encouraged with the idea of an “ownership society,” have proved unsustainable.

For some reason, a whole gang of bright-red conservatives have begun following me on Twitter, and I don’t know why. I couldn’t care less about their hand-wringing over who’s going to run the RNC, or any other TCOT hashtag nonsense. When bored, I engage and can’t believe sometimes the banality and weakness of the arguments. When one criticized Biden for his 1987 plagiarism issues, I suggested to the writer that if a 21 year-old picayune thing like that gets him a-twitter, then he’s sort of run out of ideas or points. He countered:

I guess 9/11 will be an irrelevent piece of history in 25 years too?

To which I replied,

If you equate 9/11 with lifting lines from a Neil Kinnock speech, then yes. But I don’t equate the two.

I mean Biden’s 1987 plagiarism? Obama’s birth certificate?

We have a 100-year financial and economic crisis hitting the country, and that’s what Republicans want to focus on?

No wonder these guys lost. That party needs to overhaul itself, come up with some ideas and a platform that goes beyond teh gayz and teh foeti, or else risk becoming a regionally strong afterthought.

Chrysler Idling All Manufacturing

18 Dec

Chrysler, which Daimler recently sold off to a private investment firm, is shuttering all its manufacturing plants starting Friday, and isn’t really clear on when, if ever, they might re-open. The press release says they will not re-open any sooner than January 19th.

This is astonishing, because although Dodge/Chrysler’s stable has been somewhat lackluster lately (especially the ultra-cheap Matchbox car interiors), this is the company that produces Jeeps, Dodge Charger/Challengers, and Chrysler 300s. The problem is, that’s all they’ve got. Nothing else is lighting the world on fire – especially the minivans.

Think about this. Volkswagen’s Routan minivan is a re-skinned Chrysler Town & Country. Even it pales in comparison to the state-of-the-art Honda Odyssey, but the Routan is miles ahead in terms of exterior but especially interior design & perceived quality than the Chrysler minivan that shares its DNA.

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All I can say, it seems like it’s 1979 all over again – especially for the auto industry.

New York State – Hard to <3

16 Dec

Governor Paterson has seen the fiscal problems that New York State is facing and has wisely decided that the best way to help grow the state and its revenue is to tax the living shit out of you and everything you come into contact with.

That’s simple enough.

Capitol Confidential and LoHud have the LoDown on all of Paterson’s tax and fee increases, including a repeal of the STAR property tax rebate program (not the reduction – just the rebate).

Rather than blockquote the laundry list of new taxes and fees Paterson proposes in his budget, I’ll provide this summary:

If you drive a car, I’ll tax the street.
If you try to sit, I’ll tax your seat.
If you get to cold, I’ll tax the heat.
If you take a walk, I’ll tax your feet.

‘Cause you’re working for no one but me.

The irony is that a great deal of this is thanks to the meltdown on Wall Street, which provided loads of revenue to Albany. With that well all but dry, it’s the working families and upstate homeowners who are getting shafted in order to pay for too much stuff for too many people. We never shared in the boomtimes that Wall Street enjoyed, so why do the working and middle classes have to get shafted in order to fill the gap? Has every cut that could possibly be made been made? Has every regulation that could be tightened been tightened? Has every penny of spending been analyzed, re-analyzed, and justified a hundredfold? Until that can be confirmed, running after a soda tax or a cigar tax or raising DMV fees is disproportionately cruel to people who have been treated cruelly by Albany for literally decades.

Where’s that Failboat?

Prescience

14 Nov

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HT Sully

In the clip, on August 18, 2007, Ben Stein recommends buying Merrill Lynch (MER) at a “bargain” $76. It’s at $13/share today.

Charles Payne recommends buying Bear Stearns, which is now out of business, and he says “the financials are a great place, absolutely.”

Tracy Byrnes recommends Goldman Sachs (GS), which is the “creme de la creme” and like getting “Dolce & Gabbana on sale”. It was at $175/share in the clip, and is now at $69.99.

In early 2008, Payne recommends buying Washington Mutual (WAMUQ) at $13/share. It is now on the OTC at 6 cents per share. He goes on to predict Dow at 16,000 by the end of 2008.

Peter Schiff recommends Street Tracks Gold Shares (GLD), which was at $83/share, and is now at $72.15.

It’s amazing how patently disrespectful they all are to Schiff.

Detroit Needs a Bailout

11 Nov

Let’s recall why our automotive industry found itself hemorrhaging cash and with massive losses. This didn’t just happen overnight when the credit crunch hit. This was many years, and a lot of half-assed design and materials decisions, in the making.