America Is Already Bankrupt

One of two things is going to have to happen to our economy, either deflation, or hyper-inflation. Right now we're in deflationary mode with the housing death spiral, but odds are pretty good that Helicopter Ben will try to inflate our way out of this mess. Remember, our total debt including treasuries is over $50 trillion. Our economy is barely a fourth of that.

To make up the difference, we're going to be forced to hyper-inflate the dollar all to hell as Hong Kong's Puru Saxena explains.
Saxena's not kidding. No democracy ever defaulted, they always inflated out of the mess. The value of the dollar is going to disintegrate and our standard of living will go along with it. We will have to pay China, Japan, and the Gulf oil states back the trillions we owe them or default. They will not be able to afford our debt much longer. When they come calling, our time is up.

The Forest For The Trees

I agree with TPM's David Kurtz: Obama's guys don't seem to get how truly pissed people are at AIG and how they have latched onto it as a symbol of everything that is wrong with the bailouts so far. David Axelrod saying stuff like "People are not sitting around their kitchen tables thinking about AIG" is flat out wrong. People are very much thinking about AIG, and what Obama is going to do to stop them.

Whoever ends up on the wrong side of this (AIG's side, fair or not) is going to pay dearly in the court of public opinion. The Wingnuts are already finding this out. The GOP is following suit. Obama needs to stay on the path.

[UPDATE] The Congressional Budget Office says AIG can't pay back those billions. This problem is not going away. Plan N, please!

If It's Thursday...

...It must be yet another record high for people on unemployment benefits again.

The number of U.S. workers drawing state unemployment benefits scaled another record high early this month, according to government data on Thursday that highlighted the difficulties of getting new jobs in the recession-hit economy

However, the number of people filing new claims for jobless benefits fell to a seasonally adjusted 646,000 in the week ended March 14, the Labor Department said, still at levels consistent with a distressed labor market. The prior week's number was revised up to 658,000 from 654,000.

Analysts polled by Reuters had forecast 652,000 new claims.

650,000 new jobless each week is not good, and with a staggering 5.47 million people on benefits now, it's just getting worse. 4.1% of American workers are now on benefits, the worst since June of '83.

It will continue to get worse for a long, long time.

The Wrong Side Of History

As I pointed out on Tuesday, the wingnuts are happily lining up on the wrong side of this AIG issue. Now we see the Grand Kleegles of Galtism have weighed in, as Doug at Balloon Juice reveals.

This is kind of interesting, given the negative reaction from GOP Congressional leaders (from Greg Sargent via Sully):

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.”

And here’s Glenn Beck:

They have a contract. You want to break a contract, then you file Chapter 11. You let the company fail. If the government can just break a contract, well, then how do you know you’re safe? It’s their contract with AIG that they would have to break first! They would have to break two contracts, the one they made with AIG that Christopher Dodd wrote and then they would have to break the contracts that AIG broke. They have to break two contracts. “Well, if I can’t trust the United States government and their contract, why should I trust their money. Why should I trust the treasury. Why should I trust the Fed. I know I can’t trust Washington and congress and the White House. I haven’t been able to trust them for years.” Why should you trust the contract that you have with your boss? Why should the unions be able to trust their contract?

Nice. In other words, El Rushbo, The Manatee, and Doom Bunker are all lining up behind AIG on this. The natural question to now ask is "When will the GOP do a complete 180 and vote against the House measure to tax bailout bonuses by 90%?"

Oh please, please, please let the GOP fold under the weight of Rush's ego on this and start backing AIG. PLEASE. You want to talk about the end of the GOP...

[UPDATE] Ask and ye shall receive!

Republican leaders today slammed a Democratic bill that would tax the now-infamous AIG bonuses out of existence, but it's not clear if Republicans are completely unified in their opposition.

House Minority Leader John A. Boehner (R-Ohio) called the bill “nothing more than a sham” and an effort to cover up for “the damage that’s already out there.”

But Boehner was quick to point out that he's not pushing for party unity on this bill. The Republican Study Committee this morning sent out a notice encouraging conservatives to vote against the bill, but Boehner is not trying to enforce that message.

"We're not whipping," Boehner said. "Members will make their own decisions."

House GOP Conference Chairman Mike Pence (R-Ind.), meanwhile, called the bill a “cynical attempt to divert attention from the truth: that Democrats in Congress and the administration approved legislation that made these payouts possible."

My lord, can the Republican Party really, really be this stupid?

Coulda At Least Sent An E-Mail

Front pager of today's WaPo: Helicopter Ben's crew knew about AIG and didn't tell Timmy or the Boss.

Federal Reserve officials knew for months about bonuses at American International Group but failed to tell the Obama administration, according to government and company officials, exposing problems in a relationship that is vital to addressing the financial crisis.

As pressure mounted on AIG employees to return the bonuses, new details emerged yesterday about what the Fed, the Treasury Department and the White House knew regarding the payments and when. AIG executives said the Fed was informed three months ago by the company that it would pay $165 million by March 15 to employees working at its most troubled division. The Treasury and White House said they learned of the payments from Fed officials only days before they were due.

So really, Helicopter Ben's the guy we should all be mad at then? Not necessarily...

Although Treasury Secretary Timothy Geithner told congressional leaders on Tuesday that he learned of AIG's impending $160 million bonus payments to members of its troubled financial-products unit on March 10, sources tell TIME that the New York Federal Reserve informed Treasury staff that the payments were imminent on Feb. 28. That is 10 days before Treasury staffers say they first learned "full details" of the bonus plan, and three days before the Administration launched a new $30 billion infusion of cash for AIG.

"Treasury staff was informed about the new bonuses in a Feb. 28 memo that the March 15 [bonus-payment] date was upcoming," a Federal Reserve source tells TIME. A Treasury Department source, speaking on background, confirmed the e-mail memo and its contents, saying, "Everybody knew that [AIG] had a retention issue."

So Timmy knew for at least a couple of weeks. Lots of finger pointing, lots of not telling the President, lots of egg of faces. Gets worse for Timmy too.

The Treasury Department official says the fault appears to lie with career staffers at the department who failed to report the imminent bonus deadline up the chain to Geithner. This failure may be a by-product of the difficulty Geithner has had staffing up at Treasury. But he still has personal vulnerability on the issue. It was Geithner, as head of the New York Federal Reserve, who negotiated the AIG bailout last September. At that time, he could have sought to get bonuses repealed as part of the massive government loan.

And frankly no matter how you looked at it, Geithner (having negotiated the deal for AIG's bailout including keeping its bonuses) knew exactly what was going down: it was his deal in the first place.

If the e-mail chain shows Geithner knew and then, you know, lied to Congress about it, he's gone. Worst case scenario: Obama pulls a Gonzo and claims executive privilege on Timmy's e-mails, which would drop the President's approval ratings by about a third. Best case scenario, Geithner falls on his sword and Obama follows Oliver Willis's advice:

On the off-chance that does happen, just send a car for Professor Krugman.

In the Kroog we trust.

StupidiNews!

• New Mexico Gov. Bill Richardson has repealed that state's death penalty.
• Obama's plan for Afghanistan could involve doubling the number of troops there.
• Companies are doing an end run around layoff announcement laws in Charlotte.
• The House plans to vote on taxing bailout bonuses for a number of companies by 90%.
• IBM plans to make a move to buy out rival Sun Microsystems, but what does Big Blue really get?

Last Call

You have no clue how much it burns to type "Jennifer Rubin is right" but there you are.

The ball is now in Treasury’s court once again. It seems testimony under oath is the only way this will all come out. And if the Treasury Secretary lied or hid the ball, our modern day Alexander Hamilton certainly will be heading out the door.

Obama did come out swinging pretty hard tonight in California and he did take responsibility for the AIG situation. After eight years of Bush, that's a refreshing change of pace.

But Timmy is in serious trouble here if Dodd is telling the truth. Republicans are going to want to know what he knew, when he knew it, and if Obama is truly serious about transparency in government, he's going to either have to hand over Geithner or accept his resignation.

Underwater The Fish Don't Stink

...but the mortgages do, and people are starting to simply walk away from them at a much higher rate.

In California's Inland Empire east of Los Angeles, where Barnard lives and sells real estate, median home values have plunged more than 40 percent in the last year as formerly sidelined buyers snapped up foreclosed properties.

Those bank-owned homes moved at fire-sale prices that decimated the value of neighboring homes -- many of which are owned by people who have limited "skin in the game" because they put little or no money down at purchase.

Deflating home prices thus threaten to accelerate a negative feedback loop that has sent prices lower, said economist Ed Leamer, director of the UCLA Anderson Forecast.

"Should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes," Credit Suisse said in a December report.

Barnard, who already has stopped making payments on five investment properties purchased in 2005, is on the verge of giving up on his own home that is now worth roughly half its $800,000 purchase price.

Others weigh the predictable and relatively short-term foreclosure-related hit to their credit ratings against the diminishing likelihood of breaking even on their investments or even making monthly payments on such severely "underwater" homes.

The death spiral is accelerating, and unless Obama's foreclosure relief plan makes a real dent in home prices, it's just going to be too much downward pressure to keep the housing market stabilized.

The more people who choose to abandon their homes, the lower the surrounding homes will go in value, putting more homeowners underwater, causing more of them to walk away...the vicious cycle is pretty well set now.

Pray this works. If it doesn't, next stop is Hooverville. We're in the Great Recession. We're playing for avoiding a Depression here. I'm not convinced it'll work.

Officer, He Fell On My Knife 37 Times, It Was An Accident

Aaaaaaaaand Chris Dodd scores a critical hit plus sneak attack damage on the Obama administration.

In a stunning development, Sen. Christopher Dodd said that Obama administration officials asked him to add language to last month's federal stimulus bill to make sure the controversial AIG bonuses remained in place.

Dodd, chairman of the Senate Banking Committee, told CNN that Obama officials wanted the language added to an amendment limiting bonuses that could be paid by companies receiving federal bailout money. He said they were afraid that without it, the government would face numerous lawsuits from employees who were promised bonuses.

Ouch. If this is true, somebody's in deep trouble. So who told Dodd to do this?

On Tuesday, Dodd denied to CNN that he had anything to do with adding the language, which has been used by officials at AIG to justify paying millions of dollars in bonuses to executives after receiving federal money. The nearly $800 billion stimulus bill was approved by Congress in February.

Dodd told CNN he did not speak to high-ranking administration officials and the change came after his staff spoke with staffers from Treasury. The White House did not immediately respond to CNN's request for comment.

Ding ding ding ding! Senator Dodd in the Billiard Room with the Wednesday Night News Dump. Do I win?

Odds of Timmy The Invisible Boy getting tossed under the bus just went way, way up.

However, this means odds of Plan N just went way, way up too. Obama's going to get zero help on bailouts now from Congress or the American people, which means he has no choice but to pursue nationalizing the banks. If this is all true, if Treasury allowed AIG to keep their bonuses and they specifically killed the measure to stop bailout companies from getting bonuses, then Timmy is done.

Obama will not have a choice. The heat really will come down on him for this. That means Geithner thrown under the bus, and that leaves Plan N as the only card in the deck. Calls for him to go are already coming in.

That is if this is all true. Even if it's not entirely the truth, Timmy still has to go.

I Want My Car Loan To Work Like This

So Helicopter Ben and the Fed decide they're going to take $300 billion in borrowed money to buy up Treasury debt.

No really, that's the plan. Take $300 billion in already borrowed money to buy $300 billion in long term debt. Apparently now is the time for HISTORICALLY LOW RATES or something.

It must be a horrendously stupid plan because the markets went from 1-2% loss to 1-2% gain within 15 minutes of this being announced. Behold, the myriad superpowers of Helicopter Ben.

[UPDATE] Jim Cramer says REFI NOW! HISTORICALLY LOW RATES! (insert dancing Jim Cramer here.)

Zandar's Thought Of The Day

Who loses their job first, embattled RNC Chairman Michael Steele, or embattled Treasury Secretary Tim Geithner?

[UPDATE] Republicans seem to really, really want both of them gone. Democrats on the other hand ironically want both of them to stay.

The Most Hated Guy In America Right Now Gets An Op-Ed

That would be AIG CEO Edward Liddy in today's WaPo. Gotta love the Village.

I am mindful of the outrage of the American public and of the president's call for a more restrained compensation system. I am also mindful that every decision we make at AIG has consequences for the American taxpayer. We weigh decisions with one priority in mind: Will this action help or hurt our ability to pay money back to the government?

Although we have wound down more than $1 trillion in the portfolio of the AIG Financial Products unit that is at the root of the company's troubles, there remains substantial risk in that portfolio. The financial downside for taxpayers is potentially very large, and that's why we're winding down this business.

To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.

To paraphrase the Joker in The Dark Knight:

"Tonight you're all gonna be part of a social experiment. Through the magic of derivatives and counterparties, I'm ready right now to blow you all sky high. Anyone attempts to recoup our bonuses, you all die. Each of you has legislation... to blow up the other political party. At midnight, I blow you all up. If, however, one of you presses the button, I'll let that political party live. So, who's it going to be: Barack Obama's most wanted Wall Street scumbag collection, or the sweet and innocent taxpayers? You choose... oh, and you might want to decide quickly, because the people on the other political party might not be so noble."

With all due respect to Heath Ledger.

Throw Timmy Under The Bus

Henry Blodget takes Timmy The Invisible Boy out back and applies a 2x4 to his forehead as Timmy comes clean to Nancy Pelosi in a letter.

The more troubling part of the letter, though, is Tim Geithner's description of his own approval of the bonuses. He says he registered "strong objections" and then asked for a written legal analysis of why the bonuses had to paid. This does not sound like the behavior a man who has the balls necessary to stand up to the many constituencies that want to roll right over him right now (which is the kind of man we need during this crisis). It sounds like the behavior of a man who is already thinking of how to defend a decision he knows is a bad one.

What Tim Geithner should have said, in our opinion, was "No."

We're also not encouraged by Geithner's defense of AIG CEO Liddy in the penultimate paragraph (people are being unjustifiably mean to him, apparently). Edward Liddy is the CEO of a Fortune 500 company. By now, he should be able to look after himself.

Our concern about Tim Geithner as Treasury Secretary during this crisis is that he's too close to Wall Street to make the kind of decisions that need to be made right now. This exchange bears that out.

In other words, yet another call for Geithner to go. I've been saying that Timmy was always too close to Wall Street to fix this problem from the beginning, but if he actually thinks he can weasel his way out of this and start defending Liddy on the AIG bonus thing, he's toast in every sense of the word.

It's looking very much like Obama's going to have to make a choice damn soon, and that's "Do I throw Timmy under the bus?"

I say Timmy's got to go. Granted, I've been saying that since, oh, November, but now may be the point where he gets the heave-ho.

Nice Bluff, Now Let's See Your Cards

White House Budget Director Peter Orszag isn't backing down on the threat to use a process called reconciliation in the Senate to get the President's agenda through, which would allow the Senate to pass bills with a simple majority of 51 votes instead of having to defeat filibusters with 60 votes.

Peter Orszag, the director of the White House Office of Management and Budget, said the Obama administration would prefer not to use the budget "reconciliation" process that allows measures to pass the Senate on simple majority votes.

Orszag said he wouldn't rule it out, however. The legislative tactic is being considered to push through Obama's global warming and health care programs, and perhaps his proposals to raise taxes on the wealthy.

"We'd like to avoid it if possible," Orszag told reporters at a luncheon in Washington. "But we're not taking it off the table."

Members of Congress are bracing for a political donnybrook should the Democrats use the reconciliation process to sidestep the Republicans and their power of the filibuster in the Senate. Under normal Senate rules, it requires 60 votes in the 100-member Senate to shut off debate and force a final vote. Democrats currently have 58 Senate votes. Under reconciliation, 51 votes can force anything through.

How HORRIBLE! Orszag is throttling the Senate! it's unconstitutional! Why, this reconciliation thing never happens! Republicans would never do that if they were in charge!

Oh wait, not only would they, they did on several occasions.

There is plenty of historical precedent of using it by both parties, including Republican Presidents Ronald Reagan and George W. Bush, who used it force through big tax cuts.

"Pretty much every major piece of budget legislation going back to April 1981, April '82, April 1990, April 1993, the 1990 act, the 2001 tax legislation, they were all done through reconciliation. Yet somehow this is being presented as an unusual thing," Orszag said.

"The historical norm as opposed to the exception is for a major piece of budget legislation to move through reconciliation."

Yep, Saint Ronnie, Poppy Bush and Dubya all used them to jam through tax cuts, as did the Big Dog for his budget in '93 (and that was before Newtie and the Contract With America when, like today, Dems were running the whole show.) Obama will be no different on this, looks like.

Clearly the administration is calling out the Senators' bluff from Friday. Good for them. BooMan has argued several times that the GOP will fall in line and stop obstructing Obama once they understand that Obama will resort to reconciliation to give them zero voice at the table when crafting legislation, just like House Republicans have no real voice right now. Obama has plenty of precedent for it, and the GOP knows it. Ergo, the GOP has to play ball and not only has to stop obstructing the President on principle, but they also have to vote for the legislation they helped to craft if they want any say in where the money goes in the future.

If the GOP were logical, BooMan would be correct. The GOP we're actually stuck with however is counting on a 1994 style revolt in the populace, giving Republicans control of both chambers of Congress in 2010. The only way they can engineer that of course is to completely obstruct the President on everything, force him to take measures like reconciliation, proclaim the economy is now 100% Obama's fault, and then pray the financial system fails badly enough and that enough Americans then lose their jobs in the next 18 months to give the GOP a massive landslide next year. They are executing The Plan. Destroy Obama, Destroy The Country. This, they believe, will convince you to vote Republican in 2010.

We'll see who is right.

[UPDATE] Sensible Centrist Senate Democrats are in fact calling out Orszag on this, saying they have enough votes (8) to kill Obama's agenda even with the 51 vote threshhold of reconciliation. This is getting serious.

StupidiNews!

• AIG CEO Edward Liddy faces Congress in hearings on Capitol Hill today over "outrageous bonuses."
• Protests and flying shoes greet former President George W. Bush as he gives a speech in Canada.
• The provision in the stimulus bill for state legislators to overrule governors on what to do with the money may be unconstitutional.
• Britain faces the fastest monthly rise in unemployment since 1971.
• U.S. universities are seeing the first rise in Computer Science majors enrolled since the dot com bust.