Friday, March 20, 2009

WHEN A GUY WHO PROMISES NOTHING BUT CHANGE INSTEAD CHANGES NOTHING

Pretty busy with work, so I don't really have time to put together a full post. But Cunning Realist has a sharp -- and blunt -- take on Obama's first 50 days or so. It's a pretty short post, and it's always worth checking out what he has to say, but here's the core of it:
Since Inauguration Day it's been obvious that Obama either never really wanted to "fix" this, or was convinced by administration insiders and/or top Democrats to lay off. When I wrote in early February that I was losing confidence in him because of his sudden lassitude on executive compensation, I got a few nasty emails about how I needed to give him a chance. But presidents can be made or broken by symbolic, high profile issues early in their first term -- especially when "change" was the overarching issue that brought them to office.
We're waiting. But meanwhile, Geithner and Summers continue Paulson's policies, and the same hack heads the federal reserve.
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Update -- Here's his first big chance: seems that Geithner admits that he knew about the loophole in the "Stimulus" legislation that allowed AIG executives to receive bonuses from taxpayer money.

Guess what Mr. Obama? Time to make your first big administration "change." And all it takes is a quick request for Timmy to stop by the Oval Office on his way home today.

The second change would be putting someone with a little integrity into the position after you kick Geithner's ass to the curb (and make him pay his goddamn back taxes). Paul Volcker would be a nice place to start.

Replacing Summers and firing Bernanke would be nice places to continue.

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18 Comments:

Anonymous Applesaucer said...

My read on this is that Geithner more-than-knew about the loophole, since it turns out that Treasury ASKED for it.

Geithner claims that he wanted to make sure that the loophole could "survive legal challenges."

More likely, he wanted to make sure that AIG employees were properly incentivized to keep the billions of taxpayer dollars flowing to his bosses over at Goldman, and disincentivized from blowing the whistle.

Anyway, it's amazing to me how so many people around the blogosphere want to continue to ignore this issue. They can't admit to themselves that their messiah is just taking over for Dumbya as Looting-Facilitator-In-Chief.

Either that or they can't turn past the USA Today's Purple and Red sections.

Applesaucer

7:45 AM  
Blogger Mike said...

it's amazing to me how so many people around the blogosphere want to continue to ignore this issue.

Or acknowledge it, but argue that it's not as important as 100 other far less important issues.

8:11 AM  
Blogger Smitty said...

They can't admit to themselves that their messiah is just taking over for Dumbya as Looting-Facilitator-In-Chief

Look, it hurts. It's like finding out that Santa doesn't exist. We don't want to admit it right away because we wrapped an inordinate amount of (dare I say) hope in him that to see this fumbling...purposeful or not...really just bites deep.

9:23 AM  
Blogger steves said...

I just keep waiting for some in the media to question the gov'ts role in the AIG incentives, but they just keep covering the hearings and the faux outrage by Congress and Obama.


...still waiting.

9:47 AM  
Blogger Mr Furious said...

After the piece I read and posted about yesterday by Galbraith (Mike can elaborate) all of this Geithner-bashing and bonus uproar is merely rearranging deck chairs on the Titanic.

This looks to be bigger than even the mythical Obama everyone wanted.

Volcker instead of Timmy? Couldn't hurt, but I'm not sure it's gonna help much.

(BTW, I'm interested in your take on that piece applesaucer...)

11:09 AM  
Blogger Weaseldog said...

Has the blogosphere lost hope in Nancy Pelosi yet? It seems like yesterday that I was still arguing that she's a Bushie in drag. Folks kept telling me that she had to cave and get on her knees, because capitulation, I mean bipartisanship was the only way, to some day, get the agenda moving in the right direction.

When Obama was Senator, I kept pointing out that Obama kept lying to us. He'd say one thing and do another. I was told that as a Senator he didn't have the power to follow his convictions, but as President he would. I called bullshit on that argument. The President is not the only man that has the power to act with conviction, honesty and a strong sense of ethics. Senators, factory workers, and sometimes even lawyers have this power. Right Mike?

Obama showed us what kind of man he is, while still a Senator. His supporters fooled themselves.

A con man doesn't make someone believe anything they didn't already want to believe. He doesn't fool his victims, he let's them fool themselves.

1:48 PM  
Blogger Weaseldog said...

Oh and, I'm not convinced that Geithner is getting dumped in the near future.

Obama doesn't need to pretend to do real housecleaning until the last year of his presidency, when he's campaigning for re-election.

1:50 PM  
Anonymous wfta said...

The bonuses are a gaff certainly. The real money, however, is flowing through AGI to its swaps counterparties (contracts that I assume would have been voided by an AGI bankruptcy.)

To date, I think Continental Illinois is the largest bank ever to be closed by regulators. Citi-group is 20 times larger. Nobody, including you and me, knows what’s going to happen when they force the mark-to-market on one of these behemoths and send in the FDIC. I’ve never seen an avalanche, but I’ve seen where one’s been.

I am afraid that what Obama, Geithner, et. al. know is that if we are not very careful we are headed for a Greater Depression. Letting BOA go tits up will almost certainly guarantee it. Perhaps the hope is that if everybody can tread water long enough to allow companies to unwind all the derivatives, then we only have the actual sub-prime bonds to work through, not 30 X that amount.

And I hope that’s right. I’m 53 and have watched half (or more) of my retirement savings swirl down the drain in the last eight months. I don’t much care who does it as long as they do it correctly. I don’t recall having any choices for president that I think would do better.

3:15 PM  
Blogger Weaseldog said...

WFTA said - "I don’t recall having any choices for president that I think would do better."

Obama was the best speaking corporate shill we were presented with.

I still consider Presidential elections to be akin to picking the tastiest dog turd sandwich. I'd rather have ham and swiss, but all we're presented with is dog turds on wry.

I long ago, got past the foolishness in believing that we can guide our destinies through elections. We only get to choose between corporately vetted clones. they all represent exactly the same people and the same ideals.

3:43 PM  
Anonymous Applesaucer said...

Mr. Furious, thanks for your interest in my opinion.

I suspect that you might not like or agree with it in whole, but here goes:

1. I mostly agree with Galbraith on the banks; more precisely I agree in whole with:

"Delay is not innocuous. When a bank’s insolvency is ignored, the incentives for normal prudent banking collapse. Management has nothing to lose. It may take big new risks, in volatile markets like commodities, in the hope of salvation before the regulators close in. Or it may loot the institution—nomenklatura privatization, as the Russians would say—through unjustified bonuses, dividends, and options. It will never fully disclose the extent of insolvency on its own.

The most likely scenario, should the Geithner plan go through, is a combination of looting, fraud, and a renewed speculation in volatile commodity markets such as oil. Ultimately the losses fall on the public anyway, since deposits are largely insured. There is no chance that the banks will simply resume normal long-term lending. To whom would they lend? For what? Against what collateral? And if banks are recapitalized without changing their management, why should we expect them to change the behavior that caused the insolvency in the first place?"


2. Regarding Galbraith's argument that a big stimulus package is necessary and beneficial, I completely disagree; that is, I think it will do great harm by exacerbating the US' basic problem: under-capitalization and over-indebtedness. And I think it will do so without sufficient associated levels of PRODUCTIVE economic activity.

True, it could spur economic activity and create jobs, but, to my mind, economic activity isn't something that is good for its own sake. In fact, if economic activity is unproductive, it wastes time, energy, natural resources and capital that could be directed elsewhere or at another time.

Who is to decide what is productive? Could there be things in Obama's stimulus package that will provide future benefits that outweigh the costs? I'm certainly not the one to decide and I won't say, categorically, that everything in the bill is wasteful pork (though just because a bill says something about "infrastructure" does not mean that it will produce infrastructure-related benefits that outweigh the costs).

Anyway, you see the legislative process that goes into producing one of these bills; I'm guessing that it doesn't inspire too much confidence.

But even if the vanguard of American society were to produce such a bill -- the best and brightest economists, businessmen, engineers, entrepeneurs, etc. -- I have to wonder whether the unitary, fixed-in-time, unavailable voice of that one group would be better suited to the task of providing goods, services, and innovation to the American public than would the daily interaction of millions of producers and consumers.

And the more the government borrows and spends, the greater the percentage of the American economy it will become -- it will attract, divert and crowd out a great deal of private capital and private economic activity.

Maybe you, personally, would prefer that. I don't know you well-enough to say. But I think we'd agree that vis-a-vis its cost structure, pricing and its consumers, government has a wholly different set of concerns than does wholly private industry.

3. I saw in your post, and Galbraith's article, suggestions that somehow WWII finally pulled out of the Depression, or "got us through." Something like that.

Here's my thinking: if you define a "Depression" as a combination of highly negative GDP and steep unemployment -- some sort of mixture of really bad activity- or consumption-related stats -- then I would concede that WWII or any war or man made or natural disaster would create sufficient employment, production and consumption to end the Depression.

However, in my humble opinion, it is more meaningful to define a "Depression" as an appreciable reduction in living standards. And, under that definition, the WWII time period, with casualties in the tens of thousands abroad, and shortages and other hardships at home INTENSIFIED the Depression.

Patriotism and full-occupation made it more palatable, but I would argue that the "Standards of Living" Depression didn't end until the war, price controls and rations ended.

My general prescription for the state we find ourselves in is to 1) stop diverting capital from more productive parts of the economy to the less productive; (2) start saving and accumulating capital.

The Geithner plan(s) and Stimulus Package stand will "achieve" precisely the opposite.

Applesaucer

4:28 PM  
Anonymous Applesaucer said...

By the way, Galbraith's article and its emphasis, in part, on government spending to create jobs and drive consumer demand, reminded me Frederic Bastiat's "Parable of the Broken Window Fallacy."

I think the Parable's Wiki page is well-worth a read or three:

http://en.wikipedia.org/wiki/Broken_window_fallacy

Applesaucer

4:36 PM  
Anonymous Applesaucer said...

"I am afraid that what Obama, Geithner, et. al. know is that if we are not very careful we are headed for a Greater Depression. Letting BOA go tits up will almost certainly guarantee it."

Let's assume that you are correct (I would argue that the diversion of precious capital to sick, corrupt banks is making the Depression longer and worse, but that's a debate for another day):

Why should we preserve BofA's management and its equity-, preferred, and debt holders?

If every in every other industry, companies can continue to operate in bankruptcy, why can't the banks?

Why would you trust anything that Tim Geithner sees to be correct? Afterall, he was head of the NY Fed while all of these banks raged out of control, and then as it all fell apart.

What has he done to inspire your confidence in him?

Applesaucer

4:45 PM  
Blogger Mr Furious said...

I happy with where we agree, applesaucer... His discussion of the banks and the bailouts was one of the key takeaways from that piece—that the current mindset of restoring the financial system is fatally flawed and a horrible mistake.

That, and the fact that this is worse than everyone is letting on.

My point (and his, I think) about WWII wasn't to get caught up in the semantics of The Depression and when it ended, but that without the war, none of the stuff FDR did would have resulted in the 50s as we know them.

Setting aside the obviously horrific costs of war, the post-war era of a surging middle-class, rising quality of life for most was an improvement on pre-war America, and probably pre-Great Depression America.

What I take from his advocacy of a massive public works project—not mere stimulus checks—would be a bottom-up employment and work-based strategy to rebuild the economy rather than a trickle-down from lending institutions plan—which is what we're getting.

Without the massive productivity ramp-up and sacrifice of a WWII, even that effort might be ineffective or too slow...

But in five or ten years, I'd prefer to have a new power grid, rail system and schools to show for those trillions than shoveling that same money across a bunch of balance sheets.

After reading Matt Taibbi's piece on AIG", I'm ready to take a torch to Wall Street.

5:44 PM  
Blogger Mike said...

Volcker instead of Timmy? Couldn't hurt, but I'm not sure it's gonna help much.

Well, since Timmy's doing so much hurting, let's stop the pain as a first step. Anyhow, as opposed as I am to central banking, Volcker's about as good as it gets. Wikipedia William McChesney Martin too.

sometimes even lawyers have th[e]power of conviction, integrity and ethics]. Right Mike

Uhhhh, in theory.

A con man doesn't make someone believe anything they didn't already want to believe. He doesn't fool his victims, he let's them fool themselves.

Well-stated. Cynical, but true.

I am afraid that what Obama, Geithner, et. al. know is that if we are not very careful we are headed for a Greater Depression . . . . I don’t recall having any choices for president that I think would do better.

Applesaucer covered this one pretty well, but I don't trust Geithner at all. He headed the NY Fed when all this shit went down. He's a CAUSE of all the trouble. And . . . he's an acolyte of Rick Rubin, who turned Citigroup into the wonderful entity we see today.

And Obama nominated him. Despite tax problems worse than those that took down a 30 year Democratic party veteran (Daschle). Connect the dots.

And as for the choices for Prez, I hear what you're saying. If the Libertarians or Greens had real candidates I'd have voted for them (Ron Paul would've won my vote, no doubt). But even though I voted for Obama doesn't mean I can't criticize him.

I can. And will.

I long ago, got past the foolishness in believing that we can guide our destinies through elections. We only get to choose between corporately vetted clones. they all represent exactly the same people and the same ideals.

In "interesting times," as Chinese cursers would call them, the best one can do is understand the lie of the land and keep his own powder dry.

(And use every cliche possible.)

Without the massive productivity ramp-up and sacrifice of a WWII, even that effort might be ineffective or too slow...

Then give me too slow. Poor is better than dead.

8:29 PM  
Anonymous wfta said...

Saucer,
I don’t disagree. I want to see these management teams gone. Gone to fucking jail, if possible. But generally in an FDIC removal the bond holders only get a haircut while the shareholders get wiped out. In this scenario, the bondholders from BOA and another 100 supposedly solid institutions get wiped out. Ideological purism is something I’m too old to indulge. If we have a real “come to Jesus” I’ll be working about 15 years after I’m dead.

Mike,
I am not defending Geithner. It’s just who do you get that understands Wall Street who’s not corrupted by Wall Street? That is why for the moment, I’ll leave my money on Obama.

And for anybody who doesn’t believe fantasy works: you’ve never masturbated.

10:35 PM  
Blogger Mr Furious said...

Then give me too slow. Poor is better than dead.

No kidding. I'm not hoping for a war, I'm noting that there ain't gonna be one. And if there were? This country's way too fucking soft to pull a Greatest Generation off now.

1:35 AM  
Blogger Mr Furious said...

who do you get that understands Wall Street who’s not corrupted by Wall Street?

I like what I hear from plenty o economists mush more than any of these insiders. Give them a shot.

1:36 AM  
Blogger Mike said...

This country's way too fucking soft to pull a Greatest Generation off now.

Good. Nothing against the personal bravery of the guys who actually fought.

It's the "tough" generals and politicians I could live without.

7:55 AM  

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