Tag Archives: Bailouts

President Obama: “I have a plan to pay off the entire national debt. Unfortunately, …”

Wednesday, September 12, 2012

“..unfortunately, it requires electing Mitt Romney President.” Thank you, Mr. President. What irony. Here’s how the plan works.

Yesterday, it was announced that our government has made another $2.7 billion by exercising our option to buy additional AIG stock, and then selling it. The stock market is up. Our total profit to date on the AIG bailout is now $15.1 billion. This is great. ..Or is it?
Keep reading…

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Suggestion: Let’s use tax credits as down payments.

Monday, April 20, 2009

Hello, Obama Administration? Paying attention?

Let’s give consumers a tax credit encouraging them to buy fuel efficient cars, or any new car for that matter, but find a way for them to use those tax credits as their down payments. Maybe by letting us designate the manufacturer to receive the tax credit directly from the IRS?

This trick moves the benefit of the tax credit back to the point of sale where it will have its greatest impact. It enables the customer to put more down on the car, keeping the monthly payments lower and more affordable, leaving more of his or her disposable income leftover for other consumption.

Brilliant, even if I do say so myself. (And if not me, who will?) What do you think?

-wf

Separation of Economy and State

“It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations…”
Thursday, October 9, 2008

I’m an ardent capitalist who understands the occasional usefulness of traditional fiscal and monetary policy to accomplish marginal changes to the economy in an effort to smooth out naturally occurring business cycles. I emphatically do not, however, believe in the nationalization of our country’s financial institutions. It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations, nor should it attempt to affect the behavior of our financial and other markets through the establishment and support of quasi-public institutions such as Fannie Mae and Freddie Mac.

Forget President Bush, the first zero President in my lifetime. He understands and does nothing. Our current Administration and the Federal Reserve, under the leadership of Secretary Paulson and Chairman Bernanke, have told us that our economy in very deep trouble of a nature and to an extent that requires extraordinary measures to avoid catastrophic consequences from which only they can save us.

For the second time in this Administration’s history – the first being the authorization of the use of military force in Iraq due, in large part, to the threat of non-existent weapons of mass destruction – our Administration has convinced Congress to authorize the use of massive amounts of money to solve a major problem which they have blown way out of proportion. Without question, their rhetoric and sense of panic has contributed to the problem, to a loss in consumer and entrepreneurial confidence, and has allowed us to be played for everything we’re worth, and then some, to the advantage of certain corporate interests. (Unbelievable, but I’m beginning to sound like some nutball talk radio host – and all I really wanted to do is write stuff.)

Their solution – from the same people who allowed and even encouraged the problem – has been hurriedly and ill-conceived. It is not at all clear that other, less expensive solutions might not have been more effective at facilitating the natural recovery process in which the economy was already engaged, and would have been more helpful to reduce the extent and duration of the negative impacts of any downturn on our families and businesses.

Careful, wise regulation of financial institutions is prudent and essential. No doubt about it. No, what I find disturbing is the way in which the Administration has chosen to involve itself in the finances of specific companies such as AIG, for example, Morgan Stanley and Goldman Sachs which they have now allowed to become banks, and others. Paulson and Bernanke are selectively reaching into the economy and using public money we don’t have to affect the fortunes of specific firms. With what impact on their competitors? With what consequences for their markets? Not that our economy doesn’t need help from time to time, but from a government that understands the difference between assistance and control. This is not fiscal policy which focuses on employment and income (personal and corporate) on a broad spectrum basis. This isn’t monetary policy that uses changes in the interest rates to affect the cost and supply of money on a broad spectrum basis. This is something very different.

It is, at the risk of sounding overly dramatic, nothing less insidious than a form of the nationalization of our economy – and I don’t think partisan politics has anything to do with it. Republicans, as a party, certainly don’t believe in this kind of government. Quite to the contrary, Senator McCain is a champion of less government participation in our economy. If anything, it’s more consistent with Democratic thinking given the endless stream of promises Senator Obama has made, the realization of which will involve much more government spending and involvement in our lives. This is a Paulson/Bernanke thing. – with President Bush having lunch on the sidelines.

In today’s headlines, and within the authority granted by the bailout program legislation Congress has just passed, Secretary Paulson is considering taking an ownership interest in certain of our major banks. This is not a good thing. True, it’s something which has happened in Europe, but I don’t live in Europe. This is my country, and I like our brand of capitalism.

I want Paulson and Bernanke out of office. Paulson goes in January with the change in Administration. Bernanke should be replaced as quickly as possible – by Greenspan II, if we can find one. And I want a new Administration which is, from the top down, committed to assisting the economy by using traditional fiscal and monetary policies in a way which allows a well-regulated, but otherwise free market economy to accomplish its own recovery.


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Just because the Dow drops 777.68 points…

Monday, September 29, 2008

… doesn’t mean the entire economy is having a bad day.  Sure, if you’re holding stock that’s gone down, you’re net worth is lower – but then the market has a long history of coming back.

What it could also mean is that a lot of people were betting on the fact the government was getting ready to spread around some serious money.  That didn’t happen today and so lots of people got nervous and assumed that everyone else would get nervous, so they sold to get out ahead of the drop, and then the other people saw the prices falling and said, “I knew it!” and they sold…  Hey, it’s a speculative market.  What did you expect?

Actually, stock prices are driven by two factors:  real changes in the fortunes of our publicly held companies, and speculation.  Some of the speculation is about profits and potential growth, but a lot of it, especially in the context of wild ass (pardon me) doomsday language coming out of the Administration, is just pure speculation, plain and not so simple.  (Keep in mind that some people on Wall Street and elsewhere in investment banking make as much or more money during downturns than upswings.  Even among we ordinary people, who out there on isn’t wondering, “You know, honey, maybe this would be a good time to buy?” …”Don’t be ridiculous. Not until we redo the kitchen.”)

The point is, nothing has happened to the real component of our economy in the last few hours.  Prices will go back up, eventually.  They always have.  This is not the end of our economy as we know it.  Not even close.  (Citicorp helped out Wachovia today, and they did it all by themselves without government assistance.)

I’d like to personally ask Congress to avoid being distracted by stock prices, whichever way they’re moving, and focus on defining the extent of the current problem and evaluating alternative solutions.  To borrow a phrase from James Carville of the Bill Clinton campaign, “It’s about the economy stupid,” which is something much larger, much more powerful, much more deserving of your attention, than the momentary fluctuations of a very, very speculative market.


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Secretary Henry Paulson: Is this the person we want devising a program to save Wall Street?

“He also owns options to purchase 680,474 shares of [Goldman Sachs] common stock, all of which [were] exercisable.”
Monday, September 29, 2008

Before we go any further, I don’t have an answer to the question posed by the title.

On one hand, it’s certainly a good idea to have someone with Secretary Paulson’s understanding of finance and our financial institutions handling the current crisis. On the other hand, do we really want someone this close to Wall Street in charge? The same Secretary of the Treasury who, for more than two years, has watched us inch closer and closer to the emergency he now tells us the worst peril for our economy since The Great Depression? Close advisor, maybe, but in charge? The primary source of information about the crisis on the basis of which our Congress is ready to spend $700 billion?

The first of the two enclosed PDFs is the Treasury Department biography for Mr. Paulson.* (I’m giving you the link to the PDF I made, but also to the website which contains the original material.) It confirms that, prior to assuming his current position at Treasury, he “was Chairman and Chief Executive Officer of Goldman Sachs since the firm’s initial public offering in 1999,” and where he had been employed since 1974.

What’s interesting is what the Treasury biography omits, that being any reference to the $492 million of Goldman Sachs stock Secretary Paulson sold when he was confirmed by the Senate, and his other Goldman Sachs-related holdings and options. See the Wall Street Journal “Market Watch” report I’ve included below.** Interesting reading, to say the least. Among other notable details, “He also owns options to purchase 680,474 shares of common stock, all of which [were] exercisable” as of the publication date, June 30, 2006.

Goldman Sachs Group (NYSE: GS) closed on Friday at $137.99. Over the past 52 weeks, Goldman Sachs has traded between $86.31 and $250.70.

So what do you think?

*Link to PDF… PDF Version of Treasury Biography
Link to original source… Original Treasury Biography

**Link to PDF… PDF Version of WSJ Market Watch Report
Link to original source… Original WSJ Market Watch Report


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Financial Armageddon: Weapons of Mass Destruction, the Sequel?

Monday, September 22, 2008

Much in the same way the Bush Administration convinced us of the need to invade Iraq, once again it is asking us take emergency action to spend hundreds of billions of dollars to solve a problem that we have little more than its word to believe exists. Sound familiar?

We need to calm down, and demand that the Administration answer the following questions, among others, in detail and with hard evidence to prove their assertions:

1. Define the objective(s). What, specifically, can we reasonably expect to accomplish by spending the $700 billion dollars our Administration has requested?

2. Other than the understandable panic and tightening of credit associated with our government leaders predicting a worst case scenario for the economy, what specific evidence is there that our financial markets will not recover in due time, on their own? What proof is there, in other words, that the private sector will not recover, that there will be vast and horrendous repercussions for our citizens, without government assistance?

3. How does the government explain the resolution of problems at Merrill Lynch, Lehman Brothers and other corporations involved in trading (Constellation Engery, for example) without the need for government support? Please include in that list the pending merger of Wachovia with Morgan Stanley which was derailed when the Administration allowed Morgan Stanley and Goldman Sachs to become commercial banks.

4. Other than spending $700 billion to buy defaulted subprime mortgages, what other solutions might accomplish the same objectives, perhaps even more effectively? Alternatives to be considered might include: Guarantying the firms who hold these notes against losses resulting from their liquidation, including the sale of collateral real estate, to be paid when those losses are realized, and not before. Directing our resources to protect those ordinary citizens who may eventually suffer as a result of this bad debt – given that it’s not clear what these losses might be, if any. And my personal favorite, doing nothing at all.

5. Precisely how was the $700 billion calculated, within what margin of error? What assurances do we have that this $700 billion will accomplish the objective, rather than just being the down payment on a more expensive program with additional installments to come?

6. And finally, what specifically are the negative consequences of our incurring this gross amount of additional national debt, while interfering with the natural corrective measures and other competitive behavior of our economy?

For being asked to spend $700 billion dollars we don’t have, and to put control of that money in the hands of a single person without meaningful oversight, answering the questions I’ve posed would seem to be the least our government can do – which is ironic given that doing the least it can do is certainly a major explanation for how we got into this mess.


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Thinking Out Loud About Our Government’s Turning Morgan Stanley and Goldman Sachs Into Banks

Monday, September 22, 2008

I’ve got to be careful here. Things are moving so fast in Washington that it’s hard to keep track of the specifics of what’s happening, let alone conduct a thorough analysis of the situation – all for what amounts to a hobby while I work, probably like you, 10+ hour days making a living doing something else. And then there’s the problem that, while my education and experience are helpful, I’m no world class authority on finance and banking. On the other hand, those shortcomings have never stopped me before, so, what the hell, here goes…

My gut and my brain both tell me that allowing Morgan Stanley and Goldman Sachs to function as banks may be a bad idea, certainly one that needs a lot more careful consideration on the part of the Bush Administration and Congress. True, as banks they will be more tightly regulated, and will have access to capital from depositors and from within the banking system itself the way commercial banks do. If only that was all there was to it.

1. Morgan Stanley and Goldman Sachs made some bad investment decisions. So, instead of allowing the economy to impose its own, naturally occurring penalties, we reward them by allowing them, in perpetuity, to be commercial banks.

2. In addition to allowing them to be commercial banks, are we also going to buy the bad subprime debt they’re carrying on their books?

3. There are other ways to regulate investment banking behavior other than turning the investment banks into commercial banks or “thrifts.”

4. In the process, we’re not only pulling the rug out from under Wachovia which was negotiating a merger with Morgan Stanley, we create two huge new competitors in a commercial banking system our own government tells us is already struggling. (Talk about interfering with the economy.)

5. I’m fairly certain our regular banks are constrained by law and regulation in their ability to also engage in investment banking and securities transactions. The idea is that we don’t want unacceptably high risks to be taken with our deposits. Doesn’t turning two of the world’s largest investment banks and brokerages into commercial banks fly in the face of that general principle? Are they no longer going to be allowed to do investment banking?

6. What about the other investment banking firms – such as Merrill Lynch and Lehman Brothers – who managed to save themselves without being allowed to be commercial banks? Are we penalizing them for having resolved their problems without public assistance?

Yes, I have more questions than answers, but the one thing I am sure about is that our government is moving way too fast. In what’s got to be the “bum’s rush” of the decade – any decade – the Administration is asking Congress to give our the Secretary of the Treasury what is basically unfettered authority to spend upward to $1 trillion dollars to resolve the current crisis – the extent of which, and the array of possible solutions for which, we have yet to confirm or debate. And they expect Congress to legislate this authority by Friday. One unnamed media contact in Congress went so far as to describe the legislation they have been asked to approve as a “Financial Patriot Act.” To quote from Senator McCain’s reaction, “We can’t solve a problem that has poor oversight with [a solution that has] no oversight.”

We need to calm down. Congress needs to stay all Administrative actions, including this conversion of investment banks into commercial banks, until it (Congress) has had time to study the situation more carefully.


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