Sunday, March 29, 2009

The Road To Car Tomb

Today, the day before the auto companies' deadline with the government, where President Obama announced that the carmakers were "not there yet", we have sudden news that GM CEO Rick Wagoner has stepped down.
It is unclear if Wagoner's resignation is one of the stipulations for the federal government to lend billions more to GM. But sources close to the talks say tough conditions will be attached to any future aid.

President Obama will update the public on the Treasury Department’s next step in helping GM and Chrysler on Monday afternoon.

A senior White House official did not deny to CNBC that the Obama administration influenced Wagoner's departure.

Asked if the administration forced him out, the senior official replied, "'forced' is a little strong."

Odds of this being a coincidence roughly equal the odds GM can make it without government help. Smart money has to be on GM's "orderly bankruptcy" now proceeding. The CEO leaving at this juncture strongly suggests the tough new restrictions go far beyond forcing Wagoner's resignation. Bloomberg notes that as recently as ten days ago, Wagoner had no intention of resigning. There has to be a CEO to run the company, and the government asking GM to change the CEO without forcing a bankruptcy seems pointless. Regardless of the deal involving bankruptcy or not, a deal has been struck, and part of that deal is Wagoner's resignation.

If only Obama would attach the same caveats to all the bank bailout money and bank CEOs.

[UPDATE] The NY Times reports:

A person with direct involvement in the auto bailout discussions said the administration would set a new deadline of April 30 for the automakers to come to terms with the bondholders and the union.

“Thirty days from now, there will either be a bankruptcy or the naming of a chief restructuring officer who will have government authority to ‘knock heads together,’ ” this person said. In addition, the government must come up with a backup guarantee on loan for G.M. to operate during bankruptcy because the banks will not do it.

So that's it then: it's either nationalization or bankruptcy for GM.

More tomorrow.

Timmy On The Teevee

Dday gives us the rundown on Geithner's appearances today on the Sunday shows.
On both shows, Geithner was asked about the potential flaw in the plan for toxic assets, that the banks simply won't sell at the prices set by private investors, because taking losses would reveal the banks to be insolvent. Geithner didn't have the best answer for this other than to urge the banks to "take risk again." Indeed, there is no mechanism to force the banks to sell.
Once again, the No Right Price Problem says the Geithner Plan can't work on the truly insolvent banks -- there's no right price that meets both the criteria of "high enough so the banks will sell" and "low enough that the buyers will make any money buying", but No Right Price is only part of the real issue:
On some other fronts, however, Geithner displayed a definite concern to reel in the massive financial sector and build a broad-based economy that can better manage systemic risk. Here is an answer from Meet the Press on his regulatory proposals:
SEC'Y GEITHNER: Core thing is to make sure that the institutions at the center of our financial system are subject to much more conservative, much tougher requirements on capital and leverage that are applied more evenly and more effectively, frankly. We need to make sure that hedge funds and derivatives come within a framework of oversight so we protect the system from the risks they may present. And we need to make sure the government has the authority it needs to come in more quickly, to help contain the damage, restructure the system, so we can have a stronger system going forward [...] We need a better model. What we're proposing to do is use a model that exists for small banks that was designed by the Congress in the wake of the S&L crisis, build on that model and give the government a capacity to act more quickly, more effectively to contain the damage at least risk to the taxpayer and the economy as a whole.

Certainly, over-leveraging caused a good deal of this crisis; other countries where the banks are leveraged more conservatively are in better shape. Obviously, the devil is in the details - there are currently no capital requirements for hedge funds in the Geithner proposal, for example, and the real issue is whether the regulation will be strictly enforced. Our experience with bank regulators who are too cozy with the subjects they regulate recently suggest that the real problem is a lack of will.

Regulations will have to be enforced at this point, but you notice Geithner keeps falling back on Congress for not having provided him with the authority needed to deal with the issue. It seems to me that Geithner is passing the buck to Congress, and Congress has no real intention of giving Geithner any more powers.

So yeah, Geithner raised many more questions than answers. He certainly talks the talk, but his actions leave much to be desired so far.

In Which Zandar Answers Your Burning Questions

So, nothing good can really come of our new Pakistan policy, which is basically our old Pakistan policy:
President Obama said Sunday that his administration remains prepared to order strikes against "high-value" targets within Pakistan.

Obama reiterated a previous assertion that the U.S. military would pursue extremists within Pakistan's borders after consulting with the Pakistani government.

The U.S. policy doesn't change American recognition of Pakistan's "sovereign government," Obama said during an appearance on CBS's "Face the Nation." But the United States needs to hold that government "more accountable."

"This is going to be hard," he added. "I'm under no illusions."

Obama said his administration remains determined to weaken or destroy al Qaeda until it no longer presents a threat to the United States.

He added that his administration is prepared to continually adjust its strategy in Pakistan and Afghanistan as necessary.
So the Progressive Realist asks two really good questions:
If we're at war in Pakistan, who authorized it?
Is anyone going to call President Barack Obama on this?
To which the answers are "nobody did" and "hell no" respectively. Bottom line is now we're fighting three wars: Iraq, Afghanistan, and now Pakistan to boot.

You know, at least the nice upcoming financial collapse will stop us from sending so much blood and treasure overseas.

Has Cramer Seen The Light?

Well damn. I dunno who kidnapped the old Jim Cramer, but this new guy is actually making a modicum of sense.
Executives padded their paychecks for President George W. Bush’s entire term, Cramer said Friday, but these critics were silent the whole time. Plus, there were tax cuts for the rich, wholesale deregulation, unchecked short selling – how come there were no congressional hearings then?

Well, Congress is the epicenter of this class war now, Cramer said. Just look at that bonus-tax bill. Executives of TARP-participating companies who make more than $250,000 have to pay 90% of their bonuses to the government. Strange, though, that not a hearing took place prior to the financial crisis. There was little regulation during the run-up to the meltdown, and even less enforcement of what rules there were.

Well now. Welcome to the party, Jim. Glad you could finally join those of us who have been asking that question for a very, very long time now.

Video below:

Dear America:

"Hey Liberals! Yeah I'm talking to YOU, pal! Listen up! Here's the deal! Since you, as a Liberal, don't spend four hours a day every weekday listening to Rush Limbaugh, you cannot judge anything he says! If you do, you're a liar and taking out of context! So listen to Rush's show or you're just as small-minded as you proclaim he is! Try to argue your way out of that! Hah!"

--Andrew Klavan, LA Times

Bonus Verbatim Stupid: "Now let me tell you the real answer: You're a lowdown, yellow-bellied, lily-livered intellectual coward. You're terrified of finding out he makes more sense than you do.

I listen to Limbaugh every chance I get, and I have never heard the man utter a single racist, hateful or stupid word. Do I always agree with him? Of course not. I'm a conservative; I think for myself. But Limbaugh, by turns insightful, satiric, raucously funny and wise, is one of the best voices talking about first principles and policy in the country today."

Remember, this isn't racist, hateful, or stupid at all or anything, so if you overlook the fact it took me all of 15 seconds on Google to completely annihilate Klavan's argument, and you ignore the racist, hateful, and stupid things that Limbaugh says on an almost daily basis, Klavan's 100% right!

To Sarah Palin's Credit...

...she was the last one into the pool on the whole "Let's reject as much of the stimulus DREAD PORKULUS as possible! GOP GOVERNORS GOOOOOOO!" thing.

The bad news for her was that she had the worst excuse of the bunch and now it's coming back to majorly bite her in the ass via the Politico Sunday Hack Job.
A seemingly unending series of public relations gaffes has Sarah Palin loyalists frustrated and worried she is diminishing her stature. And they blame an inner circle they say is composed of not-ready-for-primetime players.

Interviews with Alaska and Washington-based GOP political professionals who are familiar with the Palin operation describe the governor’s team as a gang that couldn’t shoot straight, a staff whose failure to execute basic political maneuvers too often entangles the governor in awkward and embarrassing situations that could have easily been avoided.

The state of confusion is compounded by two separate Palin spheres that don’t communicate with each other, one based in the governor’s office and another based in the D.C.-area, where Palin’s political action committee is located—and the incongruous presence of a high-profile Democratic trial lawyer among her political advisers.

The lawyer, John Coale, is a former supporter of Hillary Clinton’s presidential campaign who became a Palin confidante as his wife, Fox News host Greta Van Susteren, interviewed the former GOP vice presidential nominee and her family numerous times during and after the election.

Their presence around Palin has become Topic A among many of her allies as well as other Republican insiders who are mystified as to why an anti-abortion rights conservative who ran against Washington elites is now turning to a pair of capital insiders for counsel.
Because she really, really, really wants to be President, you twits...and the sooner she gets out of this Alaska dump, the happier she will be. She's hedging her bets on her advisors, folks. I don't blame her, it's not like the ones in 2008 gave her good advice or anything.

Of course, now Alaskans are increasingly pissed at her for rejecting stimulus money and at least she's picking up on that now, which once again seems to put her light years ahead of her fellow GOP governors. Figure that one out.

Know Your Role And Shut Your Mouth

Here's Nia-Malika Henderson over at Politico (natch!) doing a great disservice to both African-Americans and to women by implying very strongly that Michelle Obama is above her station:
Traditional? Hardly. In fact, Obama’s approach so far is decidedly different from the usual model of the modern first lady — pick a platform of two or three issues and stick to it, by and large, for four years.

She’s become the spokeswoman for all sorts of issues and topics — from fitness, parenting, the environment and women’s rights, to redefining images of black women in American culture and promoting self-esteem for young girls.

Yet in the midst of all those themes, it isn’t yet clear whether her self-described core messages — about military families, volunteerism, and helping working women balance work and family life – are truly breaking through. Some wonder if she’s spreading herself too thin to emerge in the public mind as a leading voice on those topics.
Give me an almighty break. If Michelle Obama was nothing more than a feel-good accoutrement on the arm of the President, I swear conservatives would be attacking her for "not doing enough given all the problems facing the average American family these days".

Yet here we have an accomplished, intelligent African-American woman in her own right as First Lady and the charges leveled against her are "she's trying to do too much." That smacks of the code word "uppity", a double foul against a black woman, charges being tossed at her by another black woman, as it somehow makes it all okay.

It does not. Only at the end of the article does Nia-Malika Henderson grudgingly admit that the First Lady's approval ratings are in the mid-60's and that she's "connecting" with Americans.

Those Obamas. Trying to do too much in an age where Presidents and their spouses are apparently supposed to do nothing but demogogue and snatch at low hanging fruit.

New long overdue tags: Michelle Obama and Gender Stupidity.

It's Always The Quiet Ones

Another must read article on the financial industry, this time from Atlantic's Simon Johnson: "The Quiet Coup".(emphasis mine)
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

And that's really the heart and soul of the problem and why I'm so frustrated that Geithner, Bernanke, and Obama continue to fail to see it for what it is: The financial industry created this collapse, and yet we continue to reward the people who created the collapse with leadership roles in solving the crisis.

Obama is now going out of his way to assure the banksters that the government and the American people aren't going to be picking on them anymore. Geithner and Bernanke continue to run almost the exact same Paulson/Greenspan playbook. The GOP continues to say that over-regulation caused the problem in the first place. Everything our government is doing seems to be first making sure the financial medevac helicopter teams are attending the banksters and seeing they aren't injured by the crash while the American economy lies bleeding from the carotid on the pavement.

The call for regulatory power is almost an afterthought...and I'd bet large amounts of money that like the AIG bonus tax, Congress will wait until the Village is looking the other way and then kill the legislation. As I said on Tuesday, "The banksters know they're still holding all the cards: if they don't want to lend, the economy crumbles." Despite Obama laying down the law on the banksters on Friday, they now know they can operate with virtual impunity.

Honestly, what's Obama going to actually do that won't run into the Sensible Centrist Senate buzzsaw? The Senate's bought and paid for by the banks and has been for almost 30 years now.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.

Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government.

And this will continue until we insist that it changes. It's clear at this point until the system explodes completely and Obama has no other choice, that the same financial industry will be preying on us until we have nothing left.

The way out? Plan N.
To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

That's change I can believe in. Until we get it, we're just a violently armed third world banana republic with an unstable currency. Plan N is needed not only to solve the financial issues, but to bust the trusts.

It's us or the oligarchy, Mr. President. Choose one.

What Digby Said

I used to think the political media was as bad as it gets, with their high school kewl kid mentality and their boundless lack of self-awareness. The financial media make them look like sober, mature professionals by comparison.
I mean honestly, in what other field can your widely disseminated advice be wrong to the tune of losing billions of dollars and yet you're still considered an expert about it on the teevee?

Our Lady Of Guada-Loopy

Now, I come from a pretty long line of New York state Irish Catholic Dems, myself. I'm nowhere near as spiritual as my parents are, but I respect them for it. The point is however, if you're the Secretary of State for the US, the country's top diplomat, you're in heavily, heavily Catholic Mexico, you are visiting the Basilica of Our Lady of Guadalupe, one of the more famous Catholic shrines in North America, you should probably read up on it first.

This saves you from asking embarrassing questions like "Who painted it?"
The image of Our Lady of Guadalupe was miraculously imprinted by Mary on the tilma, or cloak, of St. Juan Diego in 1531. The image has numerous unexplainable phenomena, such as the appearance on Mary’s eyes of those present in the room when the tilma was opened and the image’s lack of decay.

Mrs. Clinton was received on Thursday at 8:15 a.m. by the rector of the Basilica, Msgr. Diego Monroy.

Msgr. Monroy took Mrs. Clinton to the famous image of Our Lady of Guadalupe, which had been previously lowered from its usual altar for the occasion.

After observing it for a while, Mrs. Clinton asked “who painted it?” to which Msgr. Monroy responded “God!”

Obama has enough of a problem with Catholics these days anyway, Madam Secretary. And you're not helping him. Whether or not you personally believe in the Miracle of Our Lady of Guadalupe, Clinton as a diplomat shouldn't have asked that and implied a question in their beliefs right in front of a whole hell of a lot of people who obviously do believe.

On the other hand, the Pope has enough of a problem with science too. Which one's more embarrassing?

An Evolving Position

A follow-up on Monday's post on the Texas Board of Education voting on removing evolution from the state's science textbooks. The good news, evolution stays. The bad news, science textbooks in Texas have regressed about 150 years to where evolution is just another competing theory with intelligent design.
The new standards remove current requirements that students be taught the "strengths and weaknesses" of scientific theories. Instead, teachers will be required to have students scrutinize "all sides" of the theories.

The new standards will determine what will be included in science textbooks in Texas. Because of its size, Texas could influence what publishers print in books used in other states. Friday's adoption comes after many months of debate over drafts for the standards, which were last revised in 1998.

On the one hand, the standards encourage questions about certain evolutionary concepts, satisfying those who are critical of the theory. But those supportive of evolution were partly mollified because calls to teach "insufficiencies" or "weaknesses" of the theory were rejected.

The Discovery Institute, which encourages teaching that the universe is the product of an intelligent designer, called the vote "a huge victory for those who favor teaching the scientific evidence for and against evolution."

So starting in 2011, Texas teachers must now openly question evolution's worth, viability, and accuracy and give equal time to the "scientific" evidence that God just made the planet 10,000 years ago and put fossils there to test us. You stay classy, Lone Brain Cell State!

I can't be too hard on Texas however. Northern Kentucky has the Creation Museum, and it's about 25 minutes from my friggin' apartment.

[UPDATE]Christopher Hitchens in Newsweek:

The Texas anti-Darwin stalwarts also might want to beware of what they wish for. The last times that evangelical Protestantism won cultural/ political victories—by banning the sale of alcohol, prohibiting the teaching of evolution and restricting immigration from Catholic countries—the triumphs all turned out to be Pyrrhic. There are some successes that are simply not survivable. If by any combination of luck and coincidence any religious coalition ever did succeed in criminalizing abortion, say, or mandating school prayer, it would swiftly become the victim of a backlash that would make it rue the day. This will apply with redoubled force to any initiative that asks the United States to trade its hard-won scientific preeminence against its private and unofficial pieties. This country is so constituted that no one group, and certainly no one confessional group, is able to dictate its own standards to the others. There are days when I almost wish the fundamentalists could get their own way, just so that they would find out what would happen to them.
I can sort of see that (see Jeff Amestoy's California's Prop 8 argument) but it seems altogether weird to me.

Still, having to codify this stuff into law means the laws can then be challenged.

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