Zandar's Thought Of The Day

If neocon con man Max "Bomb Em All" Boot is "gobsmacked" with happiness over Obama's foreign, military, and economic policy picks, then there's something seriously f'ckin wrong with "change we can believe in."

I Can Guess Where More Bailout Cash Is Going

To the FDIC, of course.

The Federal Deposit Insurance Corp. said that the list of banks it considers to be in trouble shot up by 46 percent, to 171, during the third quarter.

Total assets held by troubled institutions climbed from $78.3 billion to $115.6 billion -- a figure that suggests that the nation's top 20 banks aren't on the list, even though they also are getting slammed by the ongoing credit crisis. The FDIC does not reveal the names of institutions it deems troubled.

On average, about 13 percent of institutions on the FDIC's list end up failing.

Nine banks failed during the third quarter, decreasing the FDIC's deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter.

And of course these are far worse than average times.

It's that last paragraph that bothers me the most. Nine banks failed at a cost of $10 billion. More will fail this quarter, indeed some already have.

The $34.6 billion that's left in the FDIC won't make it through spring. Billions will be fed into it. Billions more will be paid out as more and more banks fail.

But it's okay, Bloomberg says Obama's a smart guy for putting some of the same folks responsible for this mess in charge of it.

After all, that philosophy worked so very well for Bush and America over the lest 8 years. It's not like Obama ran on "change" or anything.

StupidiNews!

• More US troop deaths in Iraq this week, bringing the total to 4,206.
• 6,400 uncounted absentee ballots in Minnesota could make the difference in the Senate recount there.
• Yesterday's announced plan to buy half a trillion worth of mortgages lowered 30-year rates across the board.
• After suffering deadly wildfires earlier this month, now California faces major mudslides.
• A Florida judge has overturned that state's 30-year ban on gay adoption.

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.

Mandate.

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.

Maybe.

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.

StupidiNews!

• More than half of Americans are planning to spend less this holiday season.
• President Bush cranks up the pardon machine.
• Russia's Vladimir Putin wants his old job back.
• After Citigroup, is Bank of America next?
• Forget the NFL in HD, how about the NFL in 3-D?

Another Look At Obama's Team

HuffPo's Robert Kuttner takes a pretty detailed look at Obama's economic plan from a progressive's point of view.

As progressives, we can view President-Elect Obama's emerging economic team in one of two ways. Either he has disappointed us by picking a group of Clinton retreads--the very people who brought us the deregulation that produced the financial collapse; the fiscal conservatives who in the 1990s put budget balance ahead of rebuilding public institutions. Or we can conclude that he has very shrewdly named a team of technically competent centrists so that he can govern as a progressive in pragmatist's clothing--as he moves the political center to the left.

My fears of course are of the former, especially with Tim Geithner as SecTreas. He's constrained of course by *not* having Hank Paulson's job right now, and still having to deal with Bush's plans. But to fix this problem both Geithner and the rest of Obama's economic team are going to have to completely change gears.

I just don't see that happening. As Kuttner says, these are the same people that worked to come up with the Gramm-Leach-Bliley Act, the legislation that massively deregulated the financial industry. Clinton signed it into law and it passed with broad bipartisan support in both houses of Congress.

To his credit, Geithner has been a voice for more regulation. But nobody's talking about repealing GLB, which should be among the first of the major consequences the financial sector should have to accept for taking trillions of taxpayer dollars in corporate welfare.

Still, Kuttner has more confidence than I do.

In fairness, adults are not merely tools of their patrons. In recent months, Larry Summers has disagreed with Rubin on the scale of the needed stimulus. Tim Geithner is for far more regulation than Rubin. Jason Furman, though suggested by Rubin for his campaign post of economic policy director, actually spent more of his career working for Joseph Stiglitz than for Robert Rubin. Peter Orszag has done a fine job as director of the Congressional Budget Office, and is not averse to large scale public spending.

Obama is the president, and he will do what he deems necessary. In my writings during the campaign, I sometimes found myself second-guessing Obama's strategy--and he invariably turned out to be smarter than I was.

Obama is also famous for listening to a wide variety of views. Others among his senior staff, such as legislative director Phil Schiliro, are further to the left. But this economic team will have influence--in posing options, playing the role of gatekeeper, writing position papers, and serving as an echo chamber of each other's advice.

Obama is intelligent enough to reach his own conclusions, and they are likely to produce far more heartburn for conservative Republicans than for those who worked so hard to elect him. But it would be helpful if his senior economic team included even one person who was not a member of the same centrist club - a Joseph Stiglitz, a Jamie Galbraith, a Jared Bernstein or a Sheila Bair. We shall soon see whether the most interesting team of rivals in the Obama White House will be the president and his own economic advisers.

We'll see, indeed. Radical, earthshaking action will be needed to save our economy from depression over the next several months. Will Obama's team, as Obama has said, "do what will be necessary" to save the US economy?

I'm still not so sure. Obama will have to pleasantly surprise me.

Home, Home I'm Deranged

Where the fear and the antipathy play...

The pace of sales of existing homes in the United States fell 3.1 percent in October to a 4.98 million-unit annual rate, while the median home price dropped to its lowest in more than four years, a National Association of Realtors report showed on Monday.

Economists polled by Reuters were expecting home resales to set a 5.00 million-unit pace. September's figure was revised downwards to 5.14 million from 5.18 million.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,'' said Lawrence Yun, NAR chief economist.

The inventory of existing homes for sale slipped 0.9 percent to 4.23 million from 4.27 million in September. The median national home price declined 11.3 percent from a year ago to $183,300, the lowest since March 2004 when the median price was $183,200.

The percentage drop in prices was the biggest since the NAR started keeping records in 1968.

"We have favorable affordable conditions, but we need more than that to give buyers with jobs the confidence they need. Without home price stabilization, there will not be an economic recovery,'' Yun told reporters.

Ding ding ding!

Smartest piece of economic analysis you'll hear all year, right there.

Without home price stabilization, there will not be an economic recovery.

And as long as home prices continue to fall month after month, we're trapped in a deflationary spiral. Who's going to buy a home if the price is falling at 15-20% per year, guaranteeing negative equity in a few months and seeing an underwater mortgage in a year?

The problem is deflation now, not inflation. Particularly on long-term borrowing, deflation is going to be a killer on the markets. Less demand leads to price deflation, leading to higher unemployment as people are laid off, leading to even lower demand: the classic deflationary spiral.

The housing collapse is leading to trillions in deflationary pressure. Until housing stops falling, we're in trouble. The housing depression has gone on so long it's becoming self-perpetuating now, and that's the real danger.

Unless Obama can stabilize housing prices, everything else is spitting in the wind.

Team Obamanomics

Obama officially named his economic team today.

President-elect Barack Obama said Monday that the country is facing an "economic crisis of historic proportions," and unveiled the team he has chosen to help get the economy back on track.

Obama said he sought leaders who share his fundamental belief that "we cannot have a thriving Wall Street without a thriving Main Street."

Obama has tapped New York Federal Reserve President Tim Geithner as treasury secretary and former Treasury Secretary Larry Summers as chief of the National Economic Council.

Geithner helped manage Wall Street's financial meltdown earlier this year, overseeing the acquisition of Bear Stearns by JPMorgan Chase, the bailout of AIG and the collapse of Lehman Brothers. He was appointed as the New York Federal Reserve president in November 2003.

Summers served as treasury secretary in the Clinton administration. He was the chief economist of the World Bank from 1991 through 1993. Prior to his career in government, Summers taught economics at Harvard.

University of California-Berkeley economics professor Christina Romer has been chosen to be the chair of the President's Council of Economic Advisers.

The Council of Economic Advisers is a group of economists --including three who are appointed by the president and need Senate confirmation -- that advise the president on economic policy.

Obama also announced Melody Barnes as director of the Domestic Policy Council and Heather Higginbottom as deputy director of the Domestic Policy Council.

So far, nothing about this team makes me think they can handle this crisis any better than the current administration.

I fully expect to see bailout after bailout over the next several months. With today's Citigroup bailout, we're already approaching the $5 trillion $7.7 trillion mark in total loan guarantees, direct intervention, and stock purchases for the financial sector alone.

Citigroup: The Morning After

As noted, Citigroup will get $20 billion in cash and $300 billion more in guarantees.

Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week.

Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend. Citigroup rose as much as 41 percent in German trading today.

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and help restore economic growth. The decision came after New York-based Citigroup’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.

“It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”

Citigroup’s stock plunged 83 percent this year and dropped below $5 last week for the first time since 1995. The shares were up $1.26 at $5.03 in Germany in recent trading.

If the government had not taken action last night, Citigroup stock would have likely dropped to under $2 a share. Citibank's major depositors would have lined up around the block today to get money out of the bank.

The one thing we've been able to avoid so far is a confidence breaking and very visible public bank run on one of these financial institutions. Imagine what video of Citibank customers lined up around to block to get their money would do to the markets and to the country, when every bank in the country has less than 1% of deposits available on hand as a business decision.

Imagine what would happen if Citibank branches were turning people away, saying "we don't have any more cash right now." Imagine ATMs emptied out across the country.

Panic. Pure, adrenaline fueled national panic.

And it would get worse from there.

That's why Citigroup gets $20 billion in a weekend, and the auto industry will most likely go under as the Big 3 are forced to reorganize under Chapter 11.

StupidiNews!

• Citigroup is saved to the tune of $20 billion and $300 plus billion in loan guarantees.
• Democrats are planning a massive new stimulus package to be signed into law by Obama on January 20.
• Venezuala's Hugo Chavez scored significant wins in national elections last night.
• The world's biggest cruise ship takes to the seas in Finland.
• The MPAA is looking to handcuff tens of millions of HDTVs by forcing secure digital cable output only, rendering HD antennas worthless.