Obama hurls lightning bolts from above at Wagoner, Chrysler, and GM

I kinda feel bad for Wagoner.  I wonder if he — like me — thought all that “you’ll get more money if you meet target X” stuff attached to the previous bailouts were just for voter consumption, and not to be taken seriously.

But apparently Obama was for reals, no fooling, and Wagoner has now been shown the door in the dignified coat-covering-the-handcuffs manner reserved for the wine and cheese crowd.

More about Wagoner’s ride into the sunset can be found at Mish’s site.  I think the knowledge that Wagoner was ousted and Obama’s administration was behind it is all that really matters.  Mish goes into a bit more detail about his replacement, as well as the popularity (or lack of) of the chronically bailed out domestic auto industry.

Bad week for Rick Wagoner.  This just adds insult (getting a dignified shitcanning years too late to matter) to injury (mighty Duke getting blown out by Villanova last week).

The rest of the execs at GM, Chrysler, and the companies themselves have made it to the Elite Eight but things don’t look promising for them either, as they have had their “funding denied” and “plans rejected”.  I had “financial industry” winning it all over “taxpayers” on my bracket, so I’m still looking pretty good.

… and the cow goes moo

Former chief economist at the IMF, Simon Johnson, reporting on America’s bailed out oligarchy

Mr. Johnson’s (who blogs at the aesthetically barren The Baseline Scenario and teaches at MIT’s Sloan School of Management) frankness in regards to the political, more than the economic, realities of the crisis and the responding bailouts is shocking considering the stature of the source, and the political significant of the institution (the International Monetary Fund).

His article in The Atlantic can be found here (found at Naked Capitalism, where it was Yves Smith’s must read link of the day and I would definitely concur that it is a must-read for anyone baffled by the continuing refusal by federal officials to consider options other than bigger versions of those that have already failed.  Barry Ritholtz at The Big Picture links to and provides a short comment to it as well).  The video of his similar-in-content interview with PBS’s Bill Moyers from a month ago can be streamed for free here.

Short summary: Taxpayers bear the costs of bailouts in captive governments as the taxpayers have a higher threshold for pain than the fragiles hides of the business elite.

Implication: Since American heads of finance are being treated with the kiddie gloves, and taxpayers are being thrown into further debt without regard, America is acting like a crony capitalist system.

Conclusion: ‘We’, whose economic well-being is largely tied to the country we live in, are fucked.  Those whose great wealth allows them access to the elaborate welfare programs of the state (PPIP?) will have their fall broken by the resilient and slow-to-complain taxpayers.

And one quick observation:

“So the IMF staff looks into the eyes of the minister of finance and decides whether the government is serious yet. The fund will give even a country like Russia a loan eventually, but first it wants to make sure Prime Minister Putin is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the fund can wait. And when he is ready, the fund is happy to make helpful suggestions—particularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious “entrepreneurs.””

How many failed CEOs have been brusquely shown the door as corollary to a bailout?  America wouldn’t qualify for an IMF loan.  There are a number of lessons we could learn from emerging markets.

… and the cow goes moo

The Public-Private Investment Program (PPIP) as a Grade 10 math problem

See The Big Picture’s short post for the wonderful breakdown of the apparent function of Geithner’s PPIP.

It’s a fantastic way of explaining the program to a layperson.  And to give you an idea of the conclusion, here is the poster’s final comment:

“As a money manager for our clients, the Cumberland firm [Cumberland Advisors] will look at PPIP and may use it on behalf of clients after we have reviewed an official form of an offering document. As a private citizen concerned about my country and its policy direction, I think this reeks and stinks.”

That’s very honest of him and it is exactly the way it should be looked at:  A goose for the investment community and a delayed robbery of  taxpayers (as taxpayers won’t know how much they’ve lost until the TRUE market values for these toxic assets are revealed months or years down the road, and that’s assuming that the government exits the market-creation business by then.  Or, I suppose, the government could maintain it’s role as the very visible hand of the market indefinitely, and we can each take time and resources robbing ourselves at the expense of the few people who decide not to participate in the raid on taxpayer coffers)

Damn, it feels good to be a bankster.

… and the cow goes moo

Matt Taibbi responds to AIG Executive, Jake DeSantis’s NYT Op-Ed

Following up his immensely popular, well-researched, very easy to comprehend dissection and summary of the banking crisis (The Big Takeover: How Wall Street Insiders are Using the Bailout to Stage a Revolution), Rolling Stone’s Matt Taibbi takes time to respond in his usual off-the-cuff manner (compared to his occasional highly-researched articles like The Big Takeover) to Wednesday’s revealing New York Times op-ed written by an AIG Financial Products (yes, that AIGFP) executive VP Jake DeSantis… Or, perhaps, former executive VP if their is truth to his op-ed/resignation e-mail.

When I read the op-ed earlier this week, I had a response similar to Barry Ritholtz’s (of The Big Picture):

“DeSantis argues that anyone not involved in the CDS side of FP was entitled to their contractual bonus, and that penalizing those people with nothing to do with bringing down AIG is counter-productive. He makes a very persuasive argument”

Well, I didn’t feel quite as strongly as Mr. Ritholtz, but I was leaning in that direction.

After reading Taibbi’s angry screed, and reviewing DeSantis’ argument once more, I have to admit I am solidly on Taibbi’s side (Taibbi’s rebuttal to DeSantis’ plumber/electrician analogy is especially poignant).

As someone who is doing very well (performance-wise) in a banking sector with diminishing profits, I am unhappy that the failures of others within my company and my industry will adversely effect my annual bonus (and even has an appreciable impact on my performance bonus), but I understand it.  A company cannot realistically pay an employee a negative income when his or her department loses absurd amounts of money.  But if one department negates all other department’s profits, I’m shit out of luck and I understand that.  I don’t expect my company to pay me out of profits that no longer exist just because I have expectations of receiving a big fat hairy bonus.  It is my misfortune to have selected a poor company or poor industry to work for, if that were the case.

And that seems to be the case for Mr. DeSantis (except he seems to imply he had a contractual guarantee for that bonus).

Taibbi does an excellent job of responding to DeSantis’ woe-is-me national guilt-trip with an appropriate amount of vitriol and shock at the hubris of claiming, in a manner, that AIG’s promises it cannot afford that it made to the employees who benefited from years of phantom profits and have, at best, worked adjacent to those that sent the insurance giant into the arms of the national ownership, should not be made whole in payment by funds derived directly from the taxpayers.

Mr. DeSantis may be honestly not responsible for AIGFP’s destruction.  Perhaps he was a surprisingly powerless executive VP receiving million dollar bonuses but having no real impact on the direction or practices of the unit.  Perhaps.  If so, he should feel goddamn lucky he’s been paid millions for being an empty suit.

So if, assuming Mr. DeSantis is truthful in his resignation letter — and who ever is truthful in a resignation letter let alone a self-serving letter-to-the-public op-ed? — and assuming the truth does not reveal a greater level of negligience and malfeasance on his part… big assumptions both, he had no responsible for hte failure of AIGFP and, ultimately, AIG, I can understand his argument that he deserves the bonuses promised to him still.  To a degree.

But I absolutely cannot understand how taxpayers, who paid all their insurance premiums to State Farm, bought houses they could afford, and were paid the same inflation-adjusted wages that their mothers and fathers were paid in the ’70s, should be more responsible and liable to foot the bill for the deadbeat fraudsters that ran AIG and made promises based on pie-in-the-sky money tree projections.

Hell, by conclusions that might be drawn from DeSantis’ own omissions, he seems hardly deserving of the paltry base executive’s salary and bonuses he received over the eleven years of custodial work he put in at history’s greatest financial failure.  He should feel damn lucky that clawback provisions are anathema to American thinking.

[Note:  Please read Taibbi's response.  His reaction is far more ably written and convincing than mine.  It is short and to the point.  The best three minutes you're likely to spend today.]

… and the cow goes moo

NYT: “Inquiry Asks Why A.I.G. Paid Banks “

Umm. Because AIG owed them money?

Read this article at the New York Times and explain something to me: Does AIG have the option to renege on the terms of credit default swap protection it sold just because it didn’t collect as much in premiums as it will need to pay out in protection?  I think it’d need to be in bankruptcy protection to do that, and I thought the whole point of the AIG bailout was to keep it out of bankruptcy?

And so what if it used TARP and bailout funds to fill commitments to major banks, American and foreign.  Wasn’t the whole point of the TARP to keep those major American banks from failing and taking down our financial system with it?  And wasn’t the whole point of the AIG bailout to keep AIG out of bankruptcy, which we feared would risk bringing down the entire weakened financial system?

I wasn’t against the furor over the AIG bonuses, as I thought the hysteria actually functioned as a proper check against outlandish compensation in the face of failure in general (not just at AIG, but to the executives that have been compensated in the manner of royalty in the past decade).  But this new lawmaker consternation about the bailouts they authorized performing the exact function that the bailouts were purportedly meant to do is just ridiculous.

These lawmakers are attempting to appear both prudent financial stewards — pawns to their corporate donors in finance — and outraged leaders of men, leading the crest of populist outrage against the parasitic institutions that survive entirely off the vitality of the government.

This is getting overwhelmingly stupid.  Are lawmakers so incompetent as to not know (or understand) what they asked for just a few months ago?  Or are all of these grandstanding douchebags in on the joke, understanding full well that AIG’s answer will be: “… because you asked us to.”

… and the cow goes moo

Paul Volcker to work on tax laws for Obama

According to Naked Capitalism (linking to a Reuters article and quoting from it).  For more information, click on the Reuters link.  To track some of the comments and discussion, try the Naked Capitalism link.  The post itself is pretty sparse except that Yves Smith expresses some sarcasm and dismay in having someone of Paul Volcker’s stature (she considers him “arguably the best Fed chairman ever ready to roll up his sleeves during the worst financial crisis since the 1930s”, I’ll take her word for it) being tasked to something as peripheral to the crisis as the tax code.  Especially when the current Fed chairman has shown little ability to control the crisis (though his approval remains very high among economists polled by the Wall Street Journal and he is exceptionally well-received among investors with household incomes over $100,000 according to Bloomberg).

I do trust Yves Smith’s judgment when it comes to Volcker, and in the limited exposure I have had to him, I have never noticed anything less than competence, but I think she discounts the importance of the changes that could be made in the tax code.

Granted they are not flashy, and nothing done will have as many zeroes attached to it’s figures as anything Bernanke or Geithner throw out, I believe that permanent changes in the tax code are requisite for any real recovery beyond blowing another bubble.  If the growing (even before the crisis) national debt ( already at $11 trillion!) is ever to be addressed, the economy will have to recover and the tax code will have to become more responsive to the increasing sophistication of those who wish to evade their contributions to the state.

And if the decades-old issue of stagnating wages for the majority of people and astronomical income growth for the slimmest fraction of the top percent of Americans is to be addressed (and the out-of-control nature of the AIG bonus debalce suggests that we will have to address this at some point), modifying the tax code to give the poor a fair chance at defending themselves against prosecution, as well as giving the rich an equal chance at being scrutinized, will be essential.

What makes Volcker a fantastic candidate as a principal in rewriting the tax code is that the changes necessary are very unpopular.  As he has proved in his history as Fed chairman in the ’70s, he is perfectly willing to do the painful and the unpopular if he believes it is in the best longterm interests of the nation to do so.  And it would appear that the mercurial Larry Summers, Tim Geithner, and Ben Bernanke (the current big dogs in Obama’s economics team) would be ill-equipped to stand against a well-heeled political class in uproar.

I’m honestly excited.  It’s a bit under the radar, and perhaps chewing at the periphery, but I think this is a fantastic move that will have a long-lasting positive effect for America as a whole.  This is like the Elizabeth Warren call-up from a few months back.  Easily overlooked, but a substantive move towards restoring the concept of real public service.

(See David Cay Johnston’s books ‘Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)‘ and  ‘Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else’ for more about the manner tax laws are abused and evaded by those who can afford to hire someone to help them do so)

… and the cow goes moo

No amount of shame enough to reverse bonuses. But violence works just fine

I’m sure no background is needed about the brewing rage in response to the AIG bonuses (and to a lesser extent, bonuses at any financial institution), but the Exiled Online has a particularly jubilant post by Mark Ames about the growing popular response to it.  And the violent (or at least, threatening) turn it has taken.

When I first heard about the bailouts via Naked Capitalism maybe a month or two ago, I figured public shaming would be far from adequate to have anyone give up the millions I’m sure they believe they earned (or need).

I must admit, I quietly hoped that popular outrage and the threat of violence would be enough to cause most of the recipients of taxpayer-funded bonuses to refuse or return them.  And, according to Exiled Online, that seems to be the case (they cite a NY Post article).

Is violence, or the threat of violence, the only tool available to the regular taxpayer to stem the flood of public funds to the top 1% of income earners in the country?  That the response should turn violent at some point seems fairly inevitable should government continue to fail in its duties of enforcing something faintly resembling justice.  And when mob violence is viewed with such approval (I know Exiled is a niche, to say the least, publication, but I also know that the fomenting rage about bonuses for boondoggles is not far from the Exiled’s rah-rah for proletarian uprising), even among the useless members of our government, what does it say about the relevance and power of our government?

The failure of our entire financial system is less shocking to me than the spectacular failure of our government that the financial system’s failure has revealed.

… and the cow goes moo

President Obama is a thoughtless giftgiver

According to the USA Today, Obama’s famous gift to visiting UK Prime Minister Gordon Brown was not only kind of cheap and underwhelming, but actually technologically inept too.

Prime Minister Brown gave a very thoughful penholder that had ties to Obama’s place in history as the first black president (it was made out of the timber of the HMS Gannet, the sister ship to the HMS Resolute that provides the material for the desk that adorns the oval office. The Gannet also served as an anti-slavery ship off Africa.  A more thoughtful gift one would be hard-pressed to conceive).

The US President responded with what would have been merely a hoaky, afterthought of a generic gift (25 American DVDs) had it not been for a minor overlooked detail:  UK DVD players cannot play Region 1 coded America discs.  That, and I’d think the Prime Minister probably has BluRay by now.

So Obama gave Gordon Brown absolutely nothing, unless Prime Minister Brown decides to go with a not-so-legal region-free player, I suppose.  Or watches them in a hotel room the next time he visits Canada or the USA.

With the AIG bonus debacle, increased forces in Afghanistan, an economy continuing to flounder, and now these inept gestures on the world stage, does Obama seem all that different from George W. Bush?

… and the cow goes moo

Presidential Power AND Responsibility. Who would have thought?

This is straight from my New York Times daily e-mail:

“- QUOTATION OF THE DAY -

“Washington is all in a tizzy over who’s at fault. Some say it’s the Democrats’ fault, the Republicans’ fault. Listen, I’ll take responsibility, I’m the president.”
- PRESIDENT OBAMA, over executive bonuses at the American International Group.”

They’re just words but, man… That is beautiful to see and hear.  Let’s hope it continues.  You could almost swear that the most powerful man in the world was a reasonable adult.

… and the cow goes moo

Prof. William Black on the AIG-Treasury lover’s quarrel

… can be found at everyone’s favorite econoblog, Naked Capitalism (even though Yves Smith seems to be posting in a part-time capacity, at best, as she works on her book.  I’m a bit disappointed now, but am very excited for the book).

It’s a short read, so I’d recommend jumping over to NC and reading the full post (it’s an excerpt from an e-mail sent from current professor of law and economics at the University of Missouriand former bank regulator William Black.

Prof. Black quickly runs off a list of the major failings of the Treasury in their bailing out of the big FIs so far.  The list of failures isn’t necessarily going to surprise anyone following the ongoing AIG failure – bailout – bailout – bonus – bonus – bailout (in that order, I believe) scandal, but it means a lot to see that those who are clearly qualified to be a major player in regulation feels the same way most of us humble defrauded bystanders feels, and is willing to state so publicly and unequivocally (apparently).

Yves summary of Prof. Black’s point is the kicker though, and something I feel is sorely misunderstood (and it surprises me that Yves doesn’t feel the same way I do, since much of my understanding of the situation comes straight from her blog):

“And to Black’s point, the real issue is fraud. Why is no one at Treasury willing to use the F word? Who would it embarrass? There is not reason for NOT pursuing that angle…”

Actually, I think there is one big, fat, hairy reason not to pursue it as fraud:  It opens the floodgates for every other bonus-paying failed (or near-failed) institution, it adds a Lehman’s-sized free radical into the financial system as every single major FI is probably guilty of similar fraudulent behaviour to some extent (think Merril’s $3.6 billion pre-marital bonus tryst) and could become a target by regulators and a commie socialist ‘Bama presidency, should they have the inclination to bring the hammer and sickle down.

More importantly, I believe, is the political effect:  the public, and the play-to-the-public Congress, won’t discern AIG’s f-bomb from those of Merrill and Financial Institution X.  So next time ‘Bama, Bennie, or Dr. Strangelove wish to rally our esteemed legislators behind a bailout bill, we’ll have a slightly increased number of grandstanding legislators claiming that anything resembling a bailout or stimulus package in the future is further payola to f-bomb-ulent criminals that have brought our economy to the brink.

Really.  How do you propose a bill that might benefit financial institutions (and those are the only bills being offered at the moment) when those same institutions are basically called out by the President as being criminals?  And – at least in the minds of Obama’s team – how do you fix this mess without retaining the option to blow more money on stimulus and bailouts?

… and the cow goes moo