Monthly Archives: March 2009

Congress Does Something

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The House actually did something. Reuters reports,

Responding to public and political outrage to the bonuses after the insurer received a government bailout up to $180 billion, lawmakers voted 328-93 for a bill to impose a 90 percent tax on bonuses for executives whose incomes exceed $250,000.

The tax would apply to executives of any company that received at least $5 billion in government bailout money.

From the Associated Press:

In all, 243 Democrats and 85 Republicans voted “yes” on the bill. It was opposed by six Democrats and 87 Republicans. . . . although a number of Republicans cast “no” votes against the measure at first, there was a heavy GOP migration to the “yes” side in the closing moments.

The six Dems who voted “no” were Bean, Kissell, McMahon, Minnick, Mitchell and Snyder. If any of those congress critters are your’n, tell ’em what you think.

As I keyboard, the 85 Republicans who voted “yes” are drafting a letter of apology to Rush Limbaugh.

At the Washington Post, Brady Dennis writes about the bonus babies of AIG, huddling in their office building feeling misunderstood.

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

“They’ve chosen to throw us under the bus,” said a Financial Products executive, one of several who spoke on condition of anonymity, fearing reprisals. “They have vilified us.”

They say what is missing from this week’s hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm’s former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

I remember reading that Marie Antoinette had a new dress made to wear at her beheading. That may not be true, but for some reason it pops into my mind.

Listen, guys, “disaster” has already arrived. The ship has struck the iceberg. Just because the water hasn’t reached the upper decks yet doesn’t mean life can go on as usual. It’s time to put down the brandy and cigars and work with the rest of us to keep the boat afloat, or else we’re all going to end up in the water grabbing for ice floes. Is that clear?

Analogies

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Steve M has a great analogy in the title of a recent post — “AIG is to righties’ economic theories what George W. Bush is to their political theories.” So true.

Of course, as Steve says, to righties nothing is ever the fault of rightie ideology. In many ways George W. Bush was more Reaganite than Reagan, but as soon as he became overwhelmingly unpopular the Right suddenly discovered Bush was not a “real conservative.” Just so, in their minds the financial sector gurus who drove the economy off a cliff are traitors to free market theory, not the naturally selected consequence of it.

More fascinating — Greg Sargent reports that rightie politicians and rightie media are going separate ways on the AIG scandal.

GOP Congressional leaders have roundly condemned AIG and its executives, as part of a strategy to position themselves as heroic defenders of the taxpayers and to paint the Obama administration as weak and ineffectual. … But increasingly, leading conservative media figures are moving in a different direction: Defending AIG.

Rush Limbaugh recently said: “I am all for the AIG bonuses” and attacked the Obama administration for trying to undo them. He also blasted Dem efforts to get the names of the AIG bonus recipients as “McCarthyism.”

Fox News followed suit, also comparing Dems to “Joe McCarthy.” And Sean Hannity has now derided efforts to tax the execs by saying: “In other words, we’re going to just steal their money.”

If you were a Faux Nooz viewer, exactly how stupid would you have to be to agree with Hannity?

It gets better. Today there’s a story that the House plans to slap a 90 percent tax on the bonuses. Actual title of a Michelle Malkin post in response: “First They Came for the AIG Bonuses.” You can’t make this up.

As I said, this is fascinating; the sort of thing social psychologists ought to be studying. Put the Right under a bell jar, or better yet, on a dissecting table.

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.

Editorial Pencil Alert

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Before it scrolls into oblivion, be sure to read Fareed Zakaria’s latest column at Newsweek. Then notice the slight editorial change made in the same column at the Washington Post.

Newsweek version (emphasis added):

Two weeks into Obama’s term, Charles Krauthammer lumped together a bunch of Russian declarations and actions—many of them long in the making—and decided that they were all “brazen provocations” that Obama had failed to counter. Obama’s “supine diplomacy,” Krauthammer thundered, was setting off a chain of catastrophes across the globe. The Pakistani government, for example, had obviously sensed weakness in Washington and “capitulated to the Taliban” in the Swat Valley. Somehow Krauthammer missed the many deals that Pakistan struck over the last three years—during Bush’s reign—with the Taliban, deals that were more hastily put together, on worse terms, with poorer results.

Many normally intelligent commentators have joined in the worrying.

WaPo version:

Two weeks into Obama’s term, Charles Krauthammer lumped together a bunch of Russian declarations and actions — many of them long in the making — and decided that they were all “brazen … provocations” that Obama had failed to counter. Obama’s “supine” diplomacy, Krauthammer thundered, was setting off a chain of catastrophes across the globe. The Pakistani government, for example, had obviously sensed weakness in Washington and “capitulated to the Taliban” in the Swat Valley. Somehow Krauthammer missed the many deals that Pakistan struck with the Taliban over the past three years — during Bush’s reign — deals that were more hastily put together, on worse terms, with poorer results.

Even liberal and centrist commentators have joined in the worrying.

I guess at WaPo one is not permitted to imply that Krauthammer is an idiot.

Nothing’s Too Big to Fail

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AIG execs don’t want to talk about the bonuses they continue to pay themselves, but they did release a list of the banks and financial institutions that received federal bailout money through AIG. This is, I assume, their way of saying they are putting most of the money to good use.

Still, what about those bonuses? Robert Reich said,

Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid; indeed, AIG’s executives would have long ago been on the street. And any mention of the word “talent” in the same sentence as “AIG” or “credit default swaps” would be laughable if it laughing weren’t already so expensive.

More significantly,

Apart from AIG’s sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that’s “too big to fail” and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG’s bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.

Put another way, AIG already has failed. The question in front of us is not whether AIG should be “allowed” to fail, but what role government should play in softening the broad economic fallout of the failure. It’s not about rescuing AIG, but about rescuing everybody else. It may be that propping up AIG somehow is a sensible move, but the execs who took it into failure need either to be removed or made to understand that they are no longer in charge, and everything they do is now open to public scrutiny.

There is talk of a “bailout backlash.” Showing the AIG execs the door would be a hugely popular move right now, I think, and would reassure the public — well, that part of the public that thinks, as opposed to the brainless part — that the Obama Administration isn’t just throwing good money after bad.

Paul Krugman has some interesting comments about the financial crisis in Europe. In a nutshell, Europe is facing the same financial meltdown, but it’s doing even less than we are to deal with it.

Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.

Strictly speaking, Europe is not a confederacy, but in some ways it acts like one. Confederacies of sovereign states have a long track record of quickly crumbling apart. Sometimes “big government” is a big advantage.

Update: Josh Marshall writes,

What’s really driving this forward — and what makes it such a dangerous moment for the White House — is the jarring image of the administration’s impotence.

Secretary Geithner found out about the bonuses. He told AIG CEO Edward Liddy it wouldn’t fly. And Liddy, in a curiously imperial letter, tells Geithner that much as he is pained by the situation — to blow it out his ass. Which he apparently proceeded to do.

I think the Obama Administration needs to take this situation in hand before public support for the President’s economic policies melts away.

How to Be an Expert

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Yesterday the blogosphere was buzzing about the Jon Stewart-Jim Cramer smackdown (if you missed it, see James Fallows). Via Memeorandum I found this article called “How much money would taking Jim Cramer’s advice have cost you?” The title pretty much tells the story.

Even when times were good CNBC and other “money” channels depressed me, so I’m far from a regular viewer, and I’ve seen only occasional blips of Cramer. But yesterday I wondered, “where does this guy come from?” I checked out his bio, and he did in fact make a lot of money as a hedge fund manager. He also has some background as a reporter. But his hedge fund success, I noticed, came during the late 1990s. You didn’t have to be a genius to make money in the late 1990s.

I put Cramer in the category of “unexpert expert.” These are people who somehow gained reputations in something and are considered experts, but if you check out their backgrounds, and what “wisdom” they actually offer, there’s nothing there. Most political “pundits” are unexpert experts, of course.

The prototype of the unexpert expert is William Bennett, who is considered an “expert” on morality in spite of his gambling addiction and the fact that his ideas about morality never advanced beyond Sister Gertrude’s third grade class at Our Lady of Perpetual Chagrin. All you need to be an expert is (1) your own certitude that you are one; and (2) an ability to project an aura of knowing what you are talking about (see Dick the Dick Cheney). Actual expertise is, of course, not necessary.

Infinite Debt

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harpercoverIf you’re anywhere near a newsstand this weekend, look for the April issue of Harper‘s. I scanned in a photo of the cover. There’s an article in it by Thomas Geoghegan called “Infinite Debt” that’s a must read. As in must. read.

It’s a long and complex article, but Geoghegan makes a case that the financial sector has been sucking the life out of the economy. There’s a huge imbalance between finance and industry. Money has been going into financial instruments, not manufacturing. Consumer debt plays a part in this mess also.

Here’s a snip:

What is history, really, but a turf war between manufacturing, labor and the banks? In the United States, we shrank manufacturing. We got rid of labor. Now it’s just the banks.

Which is why the middle class is shrinking. Basically, we’re all waiters now; we’re bowing and scraping and working for the banks. Look closely at any American, and it’s even odds that he or she, directly or indirectly, is somehow employed by the “financial services sector,” which covers insurance and real estate and financial instruments of any kind. As brokers, lawyers, loan collectors, loan consolidators, secretaries at big investment firms, chauffeurs of private limousines, or even the high-tech types who exist solely to service banks — all of us, millions of us, are part of it, living off it in some way, as three generations ago we lived off manufacturers.

When the Music Stopped

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There are those rare moments in the flow of daily life, about as rare as a solar eclipse, when history does a quiet, tectonic shift, and the ordinary landscape suddenly looks irrevocably dated, in an unannounced, unnerving way. Mark Morford – at the San Francisco Chronicle (give yourself a treat and subscribe to his feed) – writes what it was like during a recent trip to Lowes:

…One fine and sunny Saturday just recently, I visited a sparkly new Lowe’s home-improvement megastore to spec out a replacement oven for my apartment, an experience I was dreading not merely because it was the last place I wanted to spend a pristine Saturday, but because on weekends those places tend to be crammed and torturous and teeming, and such crowds generally give me hives.

I needn’t have worried.

It was like walking into a private game reserve, or some sort of museum of the long-lost American dream, a spectacle not unlike being the last person on the planet. The huge doors swooshed open, and I was greeted with the eeriest scene imaginable, aisle after aisle of shiny new roto tillers and chainsaws and barbeques, lawn furniture and rolls of sod and lighting fixture and every exotic gorgeous manly power tool imaginable.

And not a single human in sight.

Check that: a handful of humans milled about, but most were sales clerks looking equal parts bored, lonely, confused. The few actual customers I finally noticed were barely visible at all, swallowed up by the gleaming mountains of unsold goods, like a few tiny ants in a farm designed to hold ten thousand.

It was, in a word, disquieting. It was, in six more, strange and dreamlike and unexpectedly sad.

I had the same experience a few weeks ago – of walking into a big home improvement store, with mountains of shiny, pristine merchandise on shelves stocked to the gills, aisles and aisles of it, and no customers in sight. A few days ago, I visited a gigantic Whole Foods Market – which had plenty of customers – but I couldn’t help but wonder whether the moment has passed for ever-bigger retail stores. This store seemed as big as a football field, with who knows how many tens of thousands of square feet. How they could possibly run it at a profit baffled me. At the checkout, high end boho lifestyle magazines with names like "Simplify" called out, but they too, seemed to be published from an earlier age when there was such a thing as "discretionary income".

I felt like getting a camera and taking pictures of the inside of Lowes and Whole Foods to show my grandkids, what the full-blown consumer lifestyle was like, in all its glory, back in America, before the crash.