Tuesday, November 25, 2008

Gates At The Barbarians

No surprise here, right before Thanksgiving, America gets another Obama turkey.
Several officials close to President-elect Barack Obama's transition tell CNN that Defense Secretary Robert Gates is expected to stay on the job for at least the first year of the new administration.

One source called it "all but a done deal" that the announcement could come as early as next week.

"It's now pointing in that direction," one of the sources close to the transition said of Gates being part of Obama's national security team, which may include Sen. Hillary Clinton as secretary of state.

"It's likely to happen," a second source close to the transition said of Gates staying on.

This source noted that Gates could stay for longer than a year if he and Obama end up working well together.

So let me get this straight:

The man who ran primarily on ending the Iraq War is now content in hiring the man who helped sell Bush's surge, there's nobody in Washington among all the generals and admirals and brilliant managers Obama knows that is qualified to run the Pentagon better than the incompetent guy in charge for the last two years, and we're now supposed to believe that magically, things will now improve in Iraq enough so that we can bog ourselves down in Afghanistan.

Oh, and we clearly can't afford either war right now. We gave that money to Citigroup, AIG, and Fannie and Freddie.

Raise your hand if you still believe we'll be out of Iraq before Obama first term ends. I've got a nice package of securitized subprime mortgages to sell you.

But I'm supposed to lay off the guy because he's not in office yet.

His SecDef is in office. Can I criticize him at least? Did Obama's campaign to end the war over the last two years mean a damn thing if he keeps Bush's Pentagon team?

Greg Sargent spells out what Obama's choice means.

It's also worth making a crucial distinction between two different ways of critiquing Obama's staff picks.

The first involves looking at the choices in order to extrapolate Obama's policy priorities -- a somewhat useless exercise, since we won't know what policy direction he's headed in until he proposes actual policies, no matter who he appoints. The second, and more valid, way of looking at his staff choices is to ask whether they're inherently good ideas, regardless of what they suggest about his possible policy priorities.

For instance, as Chris Bowers argues persuasively, keeping Defense Secretary Robert Gates is inherently a bad idea, because it keeps the same leadership in charge of half the Federal budget and, worse, sends the message that Republicans are needed to manage national security.

That mode of critique doesn't involve making any speculative extrapolations about Obama's future policy directions, and seems like a far more sensible way to look at his choices.
It also signals strongly that Obama's chief argument -- that the Bush Administration was filled with incompetent people that John McCain would keep on in full capacity-- is a moot point now.

Obama's foreign policy is now about to be run by the same woman who called his foreign policy "irresponsible and naive" 18 months ago, and he in turn called her" irresponsible and naive" for voting to authorize the Iraq War.

Obama's economic policy is being run by some of the same people who Obama argued got America into this "crisis of historic proportions" not more than a few weeks ago.

Now Obama's military policy is being run by the same folks who brought us the last two years in the Middle East.

Surprised? I'm not. Obama's been angling to keep Gates on since June.

And yes, this does constitute strike three for Obama. Your honeymoon is now over.

Count on it.

Dear America:

"Don't say I didn't warn you when Obama completes America's transformation into a Socialist nightmare of granola-spewing, Prius-driving, welfare-state protectionist bureaucracy and destroys our economy, which was doing perfectly fine until you crazy assholes voted him into office."

--Matthew Continetti, Weekly Standard

Wall Street Journal Stopped Clock Is Right Twice A Day Update

The WSJ asks the smartest question I've heard all week about the CitiBailout:

Why are Robert Rubin and other directors still employed?

More than a year into the financial crisis and decades into the perception that Citi is too big to fail, we once again have three tired guys making it up as they go. We wish Treasury Secretary Henry Paulson, New York Federal Reserve President Tim Geithner and Fed Chairman Ben Bernanke cared as much about their obligations to U.S. taxpayers as they do about the expectations of Asian investors. Few would argue that a bank with Citi's size and scope wasn't too big to fail, but is it too much to ask Washington to develop a policy that isn't crafted in a scramble of private phone calls?

To be fair, there are virtues here, when placed in the context of this year of bailouts. Unlike the initial AIG "rescue," this deal appears to be helping the intended beneficiary. In contrast to Bear Stearns, there is a more plausible case for systemic risk. What is missing is a statement that at least some American bankers still have the freedom to fail, an essential ingredient if we hope to restore functioning capital markets. Not a single one of Citigroup's senior managers and directors will be let go as a condition of taxpayer assistance that now totals close to $350 billion.

"Citi never sleeps," says the bank's advertising slogan. But its directors apparently do. While CEO Vikram Pandit can argue that many of Citi's problems were created before he arrived in 2007, most board members have no such excuse. Former Treasury Secretary Robert Rubin has served on the Citi board for a decade. For much of that time he was chairman of the executive committee, collecting tens of millions to massage the Beltway crowd, though apparently not for asking tough questions about risk management.

The writers at the Deal Journal blog remind us of one particularly egregious massaging, when Mr. Rubin tried to use political muscle to prop up Enron, a valued Citi client. Mr. Rubin asked a Treasury official to lean on credit-rating agencies to maintain a more positive rating than Enron deserved. What signal will President-elect Barack Obama send if his Administration, populated with Mr. Rubin's protégés, allows this uberfixer to continue flying hither and yon on the corporate jet while taxpayers foot the bill?

They have a valid point.

I'm still not convinced the new boss is any different from the corruption of the old boss. Obama's Economic Team(tm) has a lot of questions to answer.

The M Word

And Obama used it today. In public on the Teevee Box.

An interesting moment at Barack Obama's presser on the economy today: He declared in more direct terms than I've heard before that his "decisive" win has unquestionably given him a "mandate."

"We had, I think, a decisive win, because of the extraordinary desire for change on the part of the American people," he said in response to a reporter's question. "And so I don't think there is any question that we have a mandate to move the country in a new direction, and not continue the same old practices that have gotten us into the fix that we're in."

Of course Obama, being smart enough to know exactly what use of the M Word would then entail, promptly backtracks on it.
But Obama also tempered his claim to a mandate by acknowledging that he needs Republican help to succeed.

"I won 53 percent of the vote," he said. "That means 46 or 47 percent of the country voted for John McCain."

He added that he was entering the White House"with a sense of humility and a recognition that wisdom is not the monopoly of any one party. In order for us to be effective given the scope and the scale of the challenges we face, Republicans and Democrats are going to have to work together."

It's a start. No use rubbing it in the faces of the GOP he'll need in order to pass his legislation.

...I'm lying about that. Obama should really just tear into these assholes. Just once. Samuel L Jackson style.

Zandar's Thought Of The Day

If Nouriel Roubini can live with Obama's economic team, I guess I should stop being hard on Tim Geithner.


Hey Look, Another Bailout Program

The Treasury is tossing another $800 billion at the financial sector this morning. What's 12 figures between friends?
The U.S. Federal Reserve, in another massive life-support intervention for the U.S. financial system, Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.

The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises.

The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

The move is intended to strike at the heart of U.S. economic woes, the collapsed housing market.

Another $600 billion to take near worthless securitized debt off the books of banks. Of course the program is "intended to strike" at the housing depression. The real beneficiaries will continue to be banks with these toxic derivatives on the books.

And after the money comes in, they'll continue to sit on it, or use it to fund mergers and acquisitions. What they won't do is lend money to businesses and consumers, because the housing market and the accompanying collapse in the commercial real estate market is making lending that money out right now too much of a risk.

Besides, the banks know they have trillions and trillions more in bad derivatives lurking just off their balance sheets. $600 billion is just pissing on a skyscraper fire.

The $200 billion for securitized consumer loan products? A nice little gift to credit card companies this holiday season. The consumer is tapped out, and millions of defaults on credit card payments are going to be coming. Credit outfits aren't going to make effort one to use this to loan to new customers. They're going to need it just to stay alive. In this consumer-driven recession, with retail sales falling off a cliff and auto sales stalled out, credit card companies are on the front lines right now. They're in tremendous amounts of trouble.

If Americans walk away from their credit card payments, or even worse, pay off their debts and then cut up their cards in order to get their own financial houses in order, the credit card companies are screwed. This recession is going to put many of them out of business, and those that survive will have to do so by charging usurious rates, exorbinate fees and maximum penalties for cardholders who miss even one payment by one day.

The next couple of years will only be worse, no matter what Obama does.


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