Tag Archives: Obama Administration

Stupid, Greedy, and/or Delusional

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Yesterday the House and Senate passed budget bills with no Republican votes whatsoever. Yet even without the GOP the bill passed the House with the biggest majority for a budget in 12 years. Carl Hulse writes for the New York Times,

Democrats said the two budgets, which will have to be reconciled after a two-week Congressional recess, cleared the way for health care, energy and education overhauls pushed by the new president. The Democrats said the budgets reversed what they portrayed as the failed economic approach of the Bush administration and Republican-led Congresses.

Of course, spending on health care, energy, education and other long-neglected matters is vital to any meaningful economic recovery. So what did the GOP offer? Tax cuts for the rich and a domestic spending freeze — during a recession, mind you –which is so breathtakingly wrongheaded one can only assume most congressional Republicans are either extremely stupid or extremely delusional. Or both.

I considered a third alternative, that they are extremely invested in protecting the wealth of the wealthy and don’t care if the rest of the nation turns into a third-world sinkhole. However, I think anyone who doesn’t understand even the wealthy eventually would suffer if the nation turns into a third-world sinkhole is either stupid or delusional.

The passage of the budget is particularly good news because all segments of the House Dems supported it, including many of the Blue Dogs. On the other hand, 38 Republicans voted against the GOP Clown Alternative.

Two Senate Dems voted against the budget — Ben Nelson of Nebraska and Evan Bayh of Indiana. Steve Benen: “Yes, Bayh is the new Lieberman.”

This CNN story has more details on the budget; see also Media Matters. Also note that in many ways passing the budget was the easy part. Crafting the health care, education, energy, etc. programs will be a fight. But maybe the Dems are learning they can, you know, do stuff without worrying about what the GOP thinks.

Which brings me to today’s David (“If I only had a brain”) Brooks column, titled “Greed and Stupidity.” Brooks writes that there are two competing explanations to the crash of the financial sector, which he calls “the greed narrative” and “the stupidity narrative.”

The greed narrative, he says, is explained in Simon Johnson’s Atlantic article “The Quiet Coup,” which many of us read this week. Brooks encapsulates Johnson’s article pretty well. “The U.S. economy got finance-heavy and finance-mad, and finally collapsed,” Brooks writes. (See also Thomas Geoghegan’s “Infinite Debt,” which you really can read online here.)

But then Brooks says, nah, that can’t be right. It’s more likely the captains of finance were just stupid.

The second and, to me, more persuasive theory revolves around ignorance and uncertainty. The primary problem is not the greed of a giant oligarchy. It’s that overconfident bankers didn’t know what they were doing. They thought they had these sophisticated tools to reduce risk. But when big events — like the rise of China — fundamentally altered the world economy, their tools were worse than useless.

Yes, Mr. Brooks, and what made them “overconfident” and “stupid”? To me, it’s obvious much of their hubris came from the fact that they had become such a force of power — a true oligarchy, as Simon Johnson says — that they felt untouchable. And much of the “stupid” was a by-product of greed. They didn’t see how fallible they really were because they didn’t want to see it.

Brooks likes the “stupid” narrative because, he thinks, the stupid problem doesn’t require a big-government regulatory solution, whereas the “greed” problem does. “Instead of rushing off to nationalize the banks, we should nurture and recapitalize what’s left of functioning markets,” he says. “To my mind, we didn’t get into this crisis because inbred oligarchs grabbed power. We got into it because arrogant traders around the world were playing a high-stakes game they didn’t understand.”

Brooks fails to explain why those causes are mutually exclusive. I say they’re both true.

Update: Reuters on unemployment:

The U.S. unemployment rate soared to 8.5 percent in March, the highest since 1983, as employers slashed 663,000 jobs and cut workers’ hours to the lowest on record, government data showed on Friday.

In a report underscoring the distress in the labor market, the Labor Department also revised its data for January to show job losses of 741,000 that month, the biggest decline since October 1949.

Yes, a domestic spending freeze is just what we need right now. And we can see how much Bush’s tax cuts for the wealthy “trickled down.”

GM Engine Overhaul

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Never fear for Rick Wagoner. He’s walking away from GM with a $23 million pension. It’s the rank-and-file GM worker who is more likely to suffer.

Stupid Alert: David Brooks today argues that restructuring doesn’t work. The automakers have been “restructuring” for years, he says. He prophesies that

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever. That will amount to the world’s most expensive jobs program. It will preserve the overcapacity in the market, create zombie companies and thus hurt Ford. It will raise the protectionist threat as politicians seek to protect the car companies they now run.

What should happen? Brooks says,

It would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician.

Let’s go back to what the Anonymous Liberal wrote yesterday:

When a company files for bankruptcy under Chapter 11 of Bankruptcy Code, it doesn’t just disappear into a puff of smoke. The goal of a Chapter 11 bankruptcy is a reorganization of the company, and that reorganization process is overseen at every step by the government. Upon filing of the Chapter 11 petition, a federal bankruptcy judge takes jurisdiction and all important decisions from that point forward must by approved by the court. The officers and executives of the company are often replaced. Sometimes a trustee is appointed to run things. All sorts of business issues get litigated during the process. Eventually, if things go according to plan, a plan of reorganization is approved by the judge and the reorganized company emerges from bankruptcy.

In other words, bankruptcy is a process by which a company relinquishes ultimate control of its destiny and its operations to the government in exchange for protection from its creditors. It gives the government a veto power over everything. What the Obama administration is doing right now is no different in principle from what a bankruptcy judge does; they’re just trying to do it outside of the formal bankruptcy process because they believe that doing so will minimize the harm to GM and the overall economy.

As I understand it, the concern is that if a big automaker actually did go into formal bankruptcy, consumers would be frightened away from buying the products. The other concern is that, at the moment, the automaker would be unlikely to get the loans needed to continue operations while the bankruptcy was in process.

Brooks insists that GM already was “restructuring” and had been for some time. I assume Brooks defines “restructuring” as “trying to wriggle out of Union contracts,” because that’s about all I saw the old GM management doing. Brooks continues,

Corporate welfare rarely works when the government invests in rising firms. The odds are really grim when it tries to subsidize fading ones. (In the ’80s, Chrysler already had the successful K-car in the pipeline.)

I’m not sure if he thinks that what the Obama Administration is doing amounts to corporate welfare, or if just shoveling money at Detroit while the old management floundered is corporate welfare.

Wingnut hysteria to the contrary, I don’t think President Obama or anyone else in Washington really wants to be running a car company right now. My interpretation is that the administration is putting GM through the steps of a bankruptcy while reducing the risk that GM will fail completely.

Beep Beep

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“I believe that the power to make money is a gift from God.” -John D. Rockefeller

I ran into that quote this morning, on the Forbes website. Forbes seems to think it exemplifies wisdom.

Anyway, this morning President Obama announced a policy toward the automobile industry, GM and Chrysler in particular, that lays out what the administration thinks needs to be done to put the automobile industry back on its own four wheels without subsidizing it forever and ever. Alex Koppelman has a succinct explanation of the policy.

Also at Salon, Andrew Leonard asks the question on many minds — Why so hard on the Rust Belt, and so easy on Wall Street?

Treasury Secretary Tim Geithner’s plan to create a market price for toxic assets has been widely lambasted as a scheme to paper over banking sector insolvency. If Obama can force Wagoner to resign, based on his record, then why haven’t Citigroup’s Vikram Pandit and Bank of America’s Ken Lewis been forced to step down? If the White House can declare that G.M.’s bond-holders must accept they will not be repaid in full what they are owed, then why aren’t Citigroup and Bank of America’s debt-holders being told the same thing?

Well, yeah?

Leonard cites Simon Johnson’s article “The Quiet Coup” at The Atlantic, which argues there’s a long pattern of nations being unwilling to squeeze the financial sector hard enough to correct crises such as ours. The Obama Administration appears to be falling into this pattern. The financial team has excessively close ties to Wall Street. Obama policies are crafted to prop up failing executives, not resolve the financial crisis.

However, Leonard continues,

But it is not the only possible explanation. There are a few brave, or perhaps foolhardy, analysts who are willing to argue that the administration’s approach to the banking sector could actually be preparation for the ultimate endgame of nationalization or government-expedited bankruptcy restructuring, rather than the free pass to the banks it currently appears to be.

In this scenario the ongoing stress tests, in conjunction with the price discovery mechanism for toxic mortgage-backed securities that is at the heart of of the Geithner plan to fix banking balance sheets, will reveal once and for all which banks are truly insolvent and cannot survive in their current form. Having established that beyond a doubt — much as the government’s analysis of G.M. and Chrysler’s situation has established pretty conclusively that they cannot continue as currently structured — there will be no other alternative than a government takeover.

See also The Double-Standard Question Haunting Today’s Detroit Announcement.

Glorious Revolution, Comrades!

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Or, maybe not. The CEO of GM is resigning at the behest of the Obama Administration. Some elements of the Right already are working themselves into a frenzy over the communist takeover, although other elements are fairly subdued. I haven’t seen much commentary from anyone who actually understands anything, so I’m withholding judgment until I learn more.

Via Joan Walsh, there’s an article on the financial oligarchy at the Atlantic that I haven’t read yet, but it looks interesting.

Meanwhile, let’s see what the real communists are up to —

A cyber spy network based mainly in China hacked into classified documents from government and private organizations in 103 countries, including the computers of the Dalai Lama and Tibetan exiles, Canadian researchers said Saturday.

Nasty stuff.

The Press Conference

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I missed last night’s televised press conference. What did you think? I’m reading a critique at the Anonymous Liberal, and it sounds as if the questions sucked.

The “anger moment” seems to be getting a lot of notice. Ewen MacAskill writes for The Guardian:

The CNN White House correspondent, Ed Henry, who asked the question, also suggested that the New York attorney-general, Andrew Cuomo, was doing a better job of dealing with AIG than the White House.

Obama gave a general answer and Henry again asked why he had taken a few days to tell the public. The normally cool and controlled president replied sharply: “It took us a couple of days because I like to know what I’m talking about before I speak.”

The exchange was unusual, both because it is rare to hear US journalists ask Obama hard questions and rare to see Obama in a testy mood. Much of the rest of the press conference was so carefully choreographed, with a long opening statement, it seemed at times like an extended political broadcast

See also Mike Madden at Salon.

So What’s Wrong With Being Sweden?

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Kevin G. Hall writes for McClatchy Newspapers:

If the plan doesn’t work, the next step might be nationalizing some banks, as some high-profile analysts have advocated, including former Treasury Secretary James Baker, pointing to Sweden’s successful exercise in the early 1990s.

Geithner rejects the parallel.

“We’re the United States of America. We are not Sweden,” he said, arguing that the U.S. financial system is much larger and more complex than any other and includes the world’s largest capital markets and many nonbank financial institutions.

Which may be the problem. Maybe the whole financial sector needs to be taken down a few pegs.

I’ve mentioned Thomas Geoghegan’s “Infinite Debt” article in the April issue of Harper’s a couple of times. Very simply, the financial sector and the financial services industry is eating America. Directly or indirectly, we’re all indebted to and working for the financial industry. We’re turning into sharecroppers, basically, except the “crop” is money.

In a balanced economy, the financial sector should support manufacturing and labor. Instead, the financial sector drains manufacturing and labor.

What we’re looking at here is capitalism hitting the rocks. Fifty years ago the world seemed locked in a giant struggle between capitalism and communism. Communism collapsed from the inside; it is not a sustainable economic system.

Now its capitalism’s turn. I am all for private ownership and entrepreneurship and all that, but if capitalism isn’t kept in check it will eat itself. That’s what we’re seeing; capitalism eating itself. The financial sector metastasized and is destroying the economic body.

On the up side, Binyamin Appelbaum and David Cho report for the Washington Post that

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

This suggests the Obama Administration hasn’t ruled out taking stronger measures. It would be good for the administration to declare right now that if the Geithner plan doesn’t do the job, receivership is the next step. That would be reassuring to me, at least.

About the Plan

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The Timothy Geithner financial rescue plan has been released. I’ve been cruising around look for people who understand the financial sector for comments.

Consensus: Yeah, right.

The most optimistic analysis is Brad DeLong’s, here updated in a post titled “I Think Paul Krugman Is Wrong.” Professor DeLong admits he is uncomfortable disagreeing with Professor Krugman, however. Professor Krugman’s column today was written before all the details were released, but he is opposed to the parts of the plan released earlier. Economist’s View has a roundup of reactions from economists, most of them pessimistic.

No one on the blogophere, Left or Right, is happy about it. Of course, the Right wouldn’t like anything Obama does, meritorious or not, so there’s no point reading them. But the Left generally is in agreement with James K. Galbraith at Washington Monthly, who writes, “Geithner’s banking plan would prolong the state of denial.”

The big concern, expressed by many, is that when Geithner’s plan flops (as most predict it will) President Obama will have lost the political capital necessary to do what really needs to be done, which is nationalize the bleepers.

Are We Depressed Yet?

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Brad DeLong has a Geithner Plan FAQ that makes it sound as if it could work, although Professor DeLong’s still appears to be a minority view. Paul Krugman responds to DeLong and says he’s not buying it.

Frank Rich says, in effect, that Obama’s attempts at communication are fine, but the financial team has way too many ties to the old Wall Street boy’s network and is not going nearly far enough to overhaul the system. I cannot argue with that.

Tom Friedman wrote a reasonably perceptive “pox on both their houses” column that some rightie bloggers are selectively quoting as a slam on Barack Obama and the Democrats. But no, Friedman is pissed at everyone. So for the record, here is a paragraph the right-wing bloggers did not quote:

I saw Eric Cantor, a Republican House leader, on CNBC the other day, and the entire interview consisted of him trying to exploit the A.I.G. situation for partisan gain without one constructive thought. I just kept staring at him and thinking: “Do you not have kids? Do you not have a pension that you’re worried about? Do you live in some gated community where all the banks will be O.K., even if our biggest banks go under? Do you think your party automatically wins if the country loses? What are you thinking?”

Thinking? Who’s thinking? Anyway, a number of rightie bloggers gleefully link to Friedman’s column as evidence that Obama is failing, which is what they are rooting for. Their side wins if he loses, you know.

See also Comments From Left Field.

We Are Really, Really Angry

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Welcome to another episode of AIG: The Outrage. People are angry! They are really, really angry! They are starting to remind me of Mr. Furious, Ben Stiller’s character in Mystery Men. Which is a pretty good film, btw. If you’ve never seen it, add it to your Netflix queue.

Anyway, being angry is so de rigueur in Washington right now that even Edward Liddy, CEO of AIG, is angry. CNN reports that Liddy is expected to tell Congress today, “We are meeting today at a high point of public anger. I share that anger.” That’s one hell of a bandwagon effect.

Public discussion is devolving into anger correctness. Mo Dowd says President Obama is not angry enough. On the other hand, Ruth Marcus of WaPo thinks Obama is way overdoing the anger. Clearly, we need an Emily Post-type arbiter of what’s appropriate, anger-wise.

David Stout reports for the New York Times that there is an outpouring of anger on the Hill today. I’d turn on CSPAN, but I’m afraid my television set would melt.

It’s not so clear to me that anything will have changed after all the public displays of anger are done and everyone goes home for a nap.

In their defense, AIG’s management team explained that they asked employees last year to go without their bonuses, and the employees said, take a hike. So AIG execs were helpless. They had to pay out those bonuses. I’m sure they are angry about it.

As for politicians, I’ve seen news stories saying the feds knew for months that bonuses would be paid, and others saying they were caught by surprise. Whatever. I just want to know what they’re going to do now, other than be really, really angry about it.

Chaos and Opportunity

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Seems to me the outrage over the AIG bonuses presents an opportunity. If the feds are ever going to nationalize failing financial institutions, now would be the time to do it. The public will understand.

Unfortunately, what this episode shows us is that the Obama Administration is being much too cautious — or much too something — in dealing with the financial crisis. Let us not be weenies, Mr. President. Although the President may be, as Glenn says, “sounding the right note,” talk ain’t gonna cut it.

See also the Talking Dog and Balkinization.