VIDEO: Bernie Sanders to the Rescue
ZP Heller, Brave New Foundation (h/t Alternet)
President Obama delivered a fantastic speech Tuesday night. It’s tone alone will go a long way toward reassuring a nation mired in economic crisis.
And amazingly, there were many moments of bipartisan applause, like when Obama tackled corporate greed: “I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.”
This was music to my ears, but as Robert Scheer astutely pointed out at The Nation, the problem Obama had in discussing regulation to fix our financial woes is that many of his top economic advisors, including Lawrence Summers, were responsible for gutting the regulatory system that helped cause this mess in the first place.
Don’t get me wrong, Obama’s speech was strong, and hopefully it will symbolize a fundamental change in thinking from his economic team. But I’m just glad we have someone like Sen. Bernie Sanders, I-Vt., to help Obama make good on his demagoguery.
The independent senator from Vermont says we need a new Wall Street. He wants to confront the culture of greed head on, get rid of the CEOs of these corrupt financial institutions and establish a much stricter regulatory process.
Sanders has been a vocal critic of TARP spending from the beginning, and last month he called for the congressional TARP Oversight Panelto expand its focus and dig into the causes of the financial crisis, using subpoena power to expose the roots.
Sanders’ vigilance and frankness, coupled with Obama’s rhetoric Tuesday night, gives me hope.
ZP Heller is the editorial director of Brave New Films. He has written for The American Prospect, AlterNet, The Philadelphia Inquirer, and The Huffington Post, covering everything from politics to pop culture.
Citigroup’s Clever Plan to Screw Taxpayers Again
So Citigroup (C) has proposed that the US taxpayer and other preferred shareholders convert up to $75 billion of preferred stock into common stock, thus bolstering the company’s tangible equity and putting it in less desperate need of a complete takeover.
And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports. The reports add that Citigroup’s goal here is to keep the US’s ownership under 50%, so this won’t be a de facto nationalization.
Well, that’s nice for Citigroup…and another ream-job for taxpayers.
Citigroup’s common equity is currently worth $10 billion. If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%.
For the US to convert $45 billion of preferred to common and only get 40% of the company, Citigroup’s existing common equity would have to be valued at $65 billion, not $10 billion, and the conversion price would have to be about $10 a share. Or the US would only be able to convert $4 billion of its $45 billion, which wouldn’t help Citigroup’s tangible equity ratio much.
So is that what Citigroup is trying to do here? Persuade the US goverment to convert to common stock at a price miles above the current trading price, screwing the US taxpayer yet again?
Or does Citigroup have some other secret plan up its sleeve whereby it can take up to $75 billion of debt (preferred stock) off its books and not end up diluting its current shareholders 90%?
GM: Twittering ‘Til The Bitter End
General Motors and Chrysler’s requests for $21.6 billion in federal loans have a lot of citizens up in arms. GM has already asked for (and received) $13.4 billion in loans under the auto industry bailout, and the company claims it would need another $100 billion in government financing if it goes bankrupt.
But the good news is that the auto giant has a comprehensive, full-proof business model to confront the worsening recession:
1. Cut 47,000 American jobs
2. Close five North American plants
3. Drop several brands, including the lightweight, more fuel-efficient Saturn, and to counterbalance that, the “Why Jesus?!” Hummer brand
4. Hope the UAW doesn’t raise too much hell over GM’s inability to pay retirees’ health care costs
5. Twitter
I learned of step five in GM’s Vision of the Future when I twittered the following innocuous (or so I thought) comment:
allisonkilkenny: sees GM is phasing out the small, fuel efficient Saturn. Oil companies: 1, Earth: 0.
Seconds later, I received a reply tweet from something called GMBlogs:
@allisonkilkenny we don’t have indiv trash cans at ofc cubes at hq, just an ex, not sure total $ saved from small ideas, but likely large
In other words, GM is still environmentally-friendly because interns have to share trash cans. Shaky reasoning aside, I was surprised that I had popped onto the radar of GM with my casual mention of their brand, especially when the company should theoretically be preoccupied with, ya know’, going out of business.
I contacted Christopher Barger, GM Director of Global Communications Technology, about this weird prioritizing. Barger quickly responded to my questions, and he explained that GM is using TweetDeck to just search for mentions of GM, as well as interacting with the people who were already following the company. It’s not unusual for a corporation to use Twitter to monitor customer reactions to its products, and Barger equated the practice to customer service, though he seemed to take offense when I pointed out the slim differences between corporate acts of “good will” and propaganda.
I responded that, unlike customer service, I didn’t approach GM with a question or complaint. They specifically searched Twitter for mention of their product and then sent a messenger my way to post some talking points about The Corporation.
An entire department devoted to the cause of Tweeting and blogging may seem like a strange choice for budget allocation considering their economic turmoil, but GM has burst onto the technological scene with great gusto. GM is quick to rationalize, claiming this is totally 100% normal because corporations need to keep their fingers on the pulses of clients and customers, and GM is hardly the only corporation to engage in the magic world of Twitter.
“We knew that when [the loan request] was submitted last night, there would be a lot of people reacting to it — on Twitter, on Facebook, in the blogs. We wanted to be out there answering as many questions as possible about the viability plan itself, the progress we’ve made in its execution since December 2, the impact of the restructuring on our brands and upcoming vehicles, trying to let people know that Saturn still may have life after GM, trying to gauge how people were reacting to the plan,” said Berger.
Of course, gauging customer reaction shouldn’t take a back seat to providing actual products and services, say cars and health care. If GM is looking for a reaction from American citizens about their billions of dollars in requested loans and mistreatment of their employees, I can save them a lot of time and Tweeting:
It’s not good. It’s very bad. Less people want to buy your heavy, fuel-inefficient cars, and almost no one is thrilled that taxpayers are paying you billions of dollars to close domestic plants and ship jobs across our borders. Few people like that you mistreat unions. No one likes that in your rush to modernize and embrace the technology of the internet (complete with Twitter experts,) you forgot how to compete with foreign car companies.
It is possible to make tweets private and avoid the watchful eye of corporations, though that protection has already been hacked. For now, know that while you may never again own a good American car, you’re sure to get a prompt reply whenever you Twitter about GM.
Comrade Greenspan: Seize The Banks!
The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.
In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
Mr Greenspan’s comments capped a frenetic day in which policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.
“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”
Speaking to the FT ahead of a speech to the Economic Club of New York on Tuesday, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.
The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”
But he cautioned that holders of senior debt – bonds that would be paid off before other claims – might have to be protected even in the event of nationalisation.
”You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks,” he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt.”
Mr Greenspan’s comments came as President Barack Obama signed into law the $787bn fiscal stimulus in Denver, Colorado. Mr Obama will announce on Wednesday a$50bn programme for home foreclosure relief in Phoenix, Arizona. Meanwhile, the White House was working last night on the latest phase of the bailout for two of the big three US carmakers.
In his speech after signing the stimulus, which he called the “most sweeping recovery package in our history”, Mr Obama set out a vertiginous timetable of federal decisions in the coming weeks that included fixing the US banking system, submission next week of the 2009 budget and a bipartisan White House meeting to address longer-term fiscal discipline.
“We need to end a culture where we ignore problems until they become full-blown crises,” said Mr Obama. “Today does not mark the end of our economic troubles… but it does mark the beginning of the end.”
House Votes Against Bailout
The U.S. House today publicly rebuked the Obama administration’s economic team, voting overwhelmingly to disapprove the second half of the Wall Street bailout money that Obama has been demanding. Because this resolution of disapproval was rejected by the Senate, the House’s vote does not have the force of law (both chambers would have needed to pass the bill in order to block the money). However, this is a major victory for the progressive movement in that the House has formally gone on record against kleptocracy.
What’s great about this vote is its juxtaposition of true bipartisanship with Beltway buypartisanship. Indeed, as the roll call shows, the House vote for the resolution of disapproval forged a coalition of about a third of the Democratic caucus, and most of the Republican conference – all voting for a progressive cause: namely, preventing Wall Street from ripping off the American taxpayer. Though we are led by the media to believe that “centrism” means corporatism, this vote is the kind of populist bipartisan coalition that reflects the real centrism in the country at large – a centrism where the “center” is decidedly against letting big corporations raid the federal treasury.
Couple this vote with the House’s vote yesterday to attach more strings to the bailout money, and with our work in getting the Senate – through Ohio Sen. Sherrod Brown (D) – to pass a bailout regulation bill, and we’re seeing real progress – or, dare I say, the possibility of real, actual, substantive change.
Let’s remember that this economic fight isn’t over – not by a longshot. The Politico reports that at his confirmation hearing, incoming Treasury Secretary Tim Geithner – one of the architects of the current kleptocratic bailout – suggested that he may ask Congress for even more bailout money. That means the House’s display of strong bipartisan opposition and our work getting the Senate to support tough restrictions is laying the groundwork for the next fight. As these successes accrue, we could also be changing the fundamental dynamics. It’s entirely possible that if/when Geithner comes back to Congress asking for more money, he will submit legislation that is – at its origination – far more progressive in transparency, oversight, and objectives than the original bailout, knowing that it must be more progressive to have a shot at passing the new Congress.
So all in all, we should be pretty unhappy that another $350 billion of taxpayer cash – or roughly $1,100 for every man, woman and child in America – is likely headed to Wall Street, no strings attached. But other than failing to stop that money (an almost impossible task because the new president could have effectively vetoed his way to the money), the legislative wrangling over the bailout has been a huge success for the progressive movement. We’ve helped build a bipartisan coalition in Congress on these issues, and forced the new administration to – at least rhetorically through letters – acknowledge the deep concerns we have with kleptocracy. In defeat, we have scored some real victories that we can build off of.
Merrill Shocker: CEO Thain’s $87,000 Office Rug
(Andrew Harrer, Bloomberg News / Landov)
In a Daily Beast/CNBC exclusive, Charlie Gasparino reveals how Merrill Lynch’s CEO spent over $1 million and hired the Obamas’ decorator to redecorate his office last year—even as the firm faced a financial crisis.
UPDATE: Bank of America has just announced that Thain will leave the firm, less than a month after its merger with Merrill.
In early 2008, just as Merrill Lynch CEO John Thain was preparing to slash expenses, cut thousands of jobs and exit businesses to fix the ailing securities firm, he was also spending company money on himself, senior people at the firm say.
According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.
Big ticket items included $87,000 for an area rug, four pairs of curtains for $28,000, a pair of guest chairs for $87,000 and fabric for a “Roman Shade” for $11,000.
The other big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs of curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; six wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of fabric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.
The documents also show that Thain signed off on the purchases personally. “Labor to relamp the six wall sconces” cost $3,000, and Thain authorized the payment of another $30,000 to pay the expenses Smith incurred in doing the work. Thain has hired Smith—whose celebrity client list includes Steven Spielberg, Michelle Pfeiffer, Cindy Crawford and Sir Evelyn de Rothschild—to design and decorate his private residences. They include a Manhattan apartment at 740 Park Avenue, and his 10-acre mansion in Rye, NY.
Thain was tapped to run Merrill Lynch as the firm suffered massive losses from investments tied to the depressed real estate market under his predecessor Stan O’Neal, who was ousted in late 2007. Those losses continued through 2008, forcing Thain and his management team to sell the brokerage firm to Bank of America in mid-September or face near certain liquidation as investors fearing further losses began pulling lines of credit and other financing.
Just last week, Bank of America announced that Merrill has suffered an unexpected loss of $15 million for the fourth quarter of 2008, nearly collapsing BofA’s purchase. Bank of America CEO Ken Lewis said that without $138 billion in government assistance, including the infusion of $20 billion from the federal government he would have pulled out of the Merrill deal, which was approved by BofA shareholders in early December.
Thain has come under pressure in recent weeks after several top executives at Merrill, including brokerage chief Bob McCann and investment banking head Greg Fleming, abruptly resigned from the firm citing differences with Thain. People close to Lewis say his relationship with Thain was further strained by the recent massive loss. Lewis himself has faced withering criticism for rushing the buy Merrill for $28 billion after less than two days of due diligence.
“I don’t want to convey to you that Ken was delighted in mid-December when he found out about the losses, in fact he was pissed at Thain,” one person at BofA who is close to Lewis told The Daily Beast earlier in the week. “He’s not doing anything about Thain now because it isn’t clear whether Thain should have told him sooner. So at least for now, Ken is sticking with Thain.” (A spokeswoman for Thain denied a rumor inside Merrill that Thain is poised to step down from the firm.)
It’s unclear how the disclosure of the personal expenses will effect now Thain’s position. Thain signed off on the purchases in January, people close to Merrill say, when Merrill was still an independent firm and when some analysts believed the company was poised for a rebound with Thain as the new CEO. Thain came to Merrill after a largely successful stint as CEO of the New York Stock Exchange, where he converted the not-profit entity to a public company. Before that, he was a long-time executive at Goldman Sachs, where he served as former CEO Hank Paulson’s No. 2.
Still others say spending so much company money on personal items shows incredibly bad judgment on the part of Thain since Merrill was in the middle of a financial crisis that ultimately led to its demise as an independent company. At the time, Thain was preaching the virtues of cost control, telling employees to reduce expenses including car services, entertainment and travel. In addition to the personal expenses on his office, documents show Thain paid his driver $230,000 for one year’s work, which included the driver’s $85,000 salary and bonus of $18,000, and another $128,000 in over-time pay. Drivers of top executives are often paid about half that amount.
“If this is accurate it has shades of Dennis Kozlowski’s $6,000 shower curtain,” said investor Doug Kass of Seabreeze Capital Management, in a reference to former Tyco CEO Dennis Kozlowski who was convicted of fraud and is serving prison time for improperly spending millions of dollars on personal items. While there is no evidence that what Thain did is either illegal or of the magnitude of the spending by Kozlowski, Kass said “Merrill was on the fence and Thain came into save the company. It’s still a lot of money and there is no rationalization for something like this.”
Charles Gasparino appears as a daily member of CNBC’s ensemble. Gasparino, in his role as on-air Editor, provides reports based on his reporting throughout the day and has broken some of the biggest stories affecting the financial markets in recent months. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.
Obama’s Economic Plan Is Not Going to Save Us
The nation’s fast-darkening circumstances define the essential dilemma of Barack Obama’s presidency. His instinct is to govern by consensus, in the moderate middle ground of politics. Yet dire events are pushing the new president toward solutions more fundamental than those he had intended. The longer he resists taking more forceful action, the more likely it is that he will be overwhelmed by the gathering adversities.
Three large obstacles are blocking Obama’s path. The first is one of scale: his nearly $800 billion recovery package sounds huge, but it is perhaps two or three times too small to produce a turnaround. The second is that the financial system–still dysfunctional despite the bailouts–requires much more than fiscal stimulus and bailout: the government must nationalize and supervise the banks to ensure that they carry out the lending and investing needed for recovery. This means liquidating some famous nameplates–led by Citigroup–that are spiraling toward insolvency. The third is that the crisis is global: the US economy cannot return to normal unless the unbalanced world trading system is simultaneously reformed. Globalization has vastly undermined US productive strength, as trade deficits have led the nation into deepening debtor dependence.
While Washington debates the terms of Obama’s stimulus package, others see disappointment ahead. The Levy Economics Institute of Bard College, an outpost of Keynesian thinking, expresses its doubts in emotional language that professional economists seldom use. “The prospects for the US economy have become uniquely dreadful, if not frightening,” Levy analysts reported. The institute’s updated strategic analysis warns that the magnitude of negative forces–the virtual collapse of bank lending, private spending, consumer incomes and demand–“will make it impossible for US authorities to apply a fiscal and monetary stimulus large enough to return output and unemployment to tolerable levels within the next two years.” Instead, the unemployment rate is likely to rise to 10 percent by 2010. Obama’s package amounts only to around 3 percent, annually, of GDP in a $13 trillion economy. Levy’s analysis calculates that it would require federal deficits of 8 to 10 percent of GDP–$2 trillion or more–to reverse the economic contraction. And yet, the institute observed, it is inconceivable that this level “could be tolerated for purely political reasons” or that the United States could sustain the rising indebtedness without terrifying our leading creditors, like China.
Stimulus alone by a single nation will not work, in other words, given the distorted economic system that Obama has inherited. The stern warning from the Levy analysts and other skeptical experts is that the United States has no choice but to undertake deeper systemic reforms right now, rather than wait for recovery. Will Obama have the nerve to tackle these fundamentals? To do so he would have to abandon some orthodox assumptions about free trade and private finance that he shares with his economic advisers.
The most obvious and immediate obstacle to systemic change is the dysfunctional financial system. It remains inert and hunkered down in self-protection, despite the vast billions in public money distributed so freely, no strings attached, in the last days of the Bush administration. We will learn soon enough whether Obama intends to start over with a more forceful approach. Obama and his advisers are eager to get another $350 billion in bailout funds, but they have remained silent on whether this will finance a government takeover of the system. Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return.
The most complex barrier to recovery is globalization and its negative impact on the economy. Given our grossly unbalanced trade, we have kept the system going by playing buyer of last resort–absorbing mountainous trade deficits and accumulating more than $5 trillion in capital debt to pay for swollen imports, while our domestic economy steadily loses jobs and production to other nations. Renewed consumer demand at home will automatically “leak” to rival economies and trading partners by boosting their exports to the US market–which subtracts directly from our GDP. This is the trap the lopsided trading system has created for recovery plans, and it cannot be escaped without fundamental reform.
To put it crudely, Obama’s stimulus program might restart factories in China while leaving US unemployment painfully high. In fact, some leakage may occur via the very banks or industrial corporations that taxpayers have generously assisted. What prevents Citigroup and General Motors from using their fresh capital to enhance overseas operations rather than investing at home? The new administration will therefore have to rethink the terms of globalization before its domestic initiatives can succeed.
A global recovery compact would require extremely difficult diplomacy but could be possible because it is in everyone’s self-interest. The United States could propose the outlines with one crucial condition: if the trading partners are unwilling to act jointly, Washington will have to proceed unilaterally. A grand bargain could start with US agreement to serve once again as the main engine that pulls the global economy out of the ditch. That is, the United States will have to continue as the buyer of last resort for the next few years, and China and other nations will have to bail us out with still more lending. In the short run, this would dig us into a deeper hole, but the United States could insist on a genuinely reformed system and mutually agreed return to balanced trade, once global recovery is under way.
Congress can enact the terms now–a ceiling on US trade deficits that will decline steadily to tolerable levels, as well as new rules for US multinational enterprises that redefine their obligations to the home economy. Unlike in other advanced nations, US companies get a free ride from their home government when they relocate production abroad. That has to change if the United States is to reverse its weakening world position. Tax penalties plus national economic policy can drive US multinationals to keep more of their value-added production at home. These measures can be enforced through the tax code and, if necessary, a general tariff that puts a cap on imports. Formulating these provisions now for application later, once the worst of the crisis is over, would give every player the time to adjust investment strategies gradually.
President Obama and his team may at first scorn the notion of saving the world while negotiating a bailout for the United States. They will be reluctant to talk about reforming the global system by threatening to invoke emergency tariffs. But we are in uncharted waters. Impossible ideas abruptly begin to seem plausible. Six months from now, if the Obama recovery does not materialize, the president may discover he has to reinvent himself.
William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and–due out in February from Rodale–Come Home, America.
Where The Money Is
A trillion here, a trillion there …
The economy is in a precipitous downturn and no one, on the left or right, is advocating tax increases that would jeopardize a recovery.
In the meantime, we’re spending money as fast as we can: the Troubled Asset Relief Program ($700 billion and counting); Mr. Obama’s proposed stimulus program ($800 billion and counting); and important initiatives still to come, like an overhaul of the way we pay for health care.
China, which has purchased more than $1 trillion of American debt, is getting antsy. As Keith Bradsher of The Times has reported, the global downturn has prompted Beijing “to keep more of its money at home, a move that could have painful effects for U.S. borrowers.”
Mr. Obama has tried to assure the public that his administration will be as careful as possible with its monumental spending, promising to invest wisely and manage the expenditures well. And he has made it clear that he is aware of the minefields that accompany mammoth long-term deficits.
At some point, however, someone is going to have to talk about raising revenue. The dreaded T-word is going to come up: taxes.
Well, there’s a good idea floating around that takes its cue from the legendary Willie Sutton. Why not go where the money is?
The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee — ranging up to, say, 0.25 percent — on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.
According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually — money that the government sorely needs.
But there’s another intriguing element to the proposal. While the fees would be a trivial expense for what the general public tends to think of as ordinary traders — people investing in stocks, bonds or other assets for some reasonable period of time — they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino.
“It raises money in a way that comes primarily at the expense of speculation,” said Mr. Baker. “The fees would be a considerable expense for someone who is buying futures, or a stock, or any asset at 2 o’clock and then selling it at 3. The more you trade, the more you pay.
“For the typical person holding stock, who is planning to hold it for a long period of time, paying the quarter of one percent on a trade is just not that big a deal.”
The fees, though small, could amount to a big deal for speculators because in addition to the volume of their trades they often make their money on very small margins. Someone who buys an asset and then sells it an hour later at a one percent appreciation might feel quite pleased. He or she would be less pleased at having to pay a quarter-percent fee to purchase the asset in the first place and then another quarter percent to sell it.
This, according to Mr. Baker, is part of the beauty of the transfer tax; it tends to curb at least some speculation. “It’s a very progressive tax,” he said, “that discourages nonproductive activity.”
A hallmark of the Bush years has been the rampant irresponsibility — by the White House, Congress and the general public — when it comes to matters of finance. The costs of the wars in Iraq and Afghanistan were placed on credit cards and off the books. Their ultimate overall costs will be in the trillions.
Incredibly, President Bush and Congress cut taxes in wartime, which is insane.
Budget deficits and the national debt are streaking toward the moon. And the only remedy anyone has come up with for fending off Great Depression II has been deficit spending on a scale reminiscent of World War II.
Excuse me, but did somebody say the baby boomers are about to start retiring?
Maybe the piper will never have to be paid. Maybe the deficits will someday magically right themselves. Maybe some prosperous future generation will be more than happy to clean up the mess we left behind.
If none of that is true, we should start looking now for some real money somewhere. A stock transfer tax is not a bad place to start.
Bush OKs $17.4B Bailout of the Auto Industry
WASHINGTON – Citing danger to the national economy, President Bush approved an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers.
Allowing the massive auto industry to collapse in the middle of what is already a severe recession “would worsen a weak job market and exacerbate the financial crisis,” Bush said. “It could send our suffering economy into a deeper and longer recession. And it would leave the next president to confront the demise of a major American industry in his first days of office.”
President-elect Barack Obama, who takes office a month from Saturday, praised the White House action but also warned, “The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it, while also creating the fuel efficient cars of tomorrow.”
Stock prices rallied on Wall Street as investors cheered the government’s action. Republicans on Capitol Hill, though, expressed disdain for the bailout. And while the United Auto Workers said the plan would keep factories running, the union said it was upset by loan conditions “singling out workers.”
“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed,” said Ron Gettelfinger, president of the UAW.
Obama will be free to reopen the arrangement from the government’s side if he chooses, an administration official said.
Bush said, “The time to make hard decisions to become viable is now, or the only option will be bankruptcy. The automakers and unions must understand what is at stake and make hard decisions necessary to reform.”
Some $13.4 billion of the money would be available this month and next — $9.4 billion of it for General Motors and $4 billion for Chrysler LLC. GM is slated to receive the remaining $4 billion in loans after more money is released from the financial rescue account.
Under terms of the loans, the government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry. Bush said the companies’ workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.
And he called for elimination of a “jobs bank” program — negotiated by the United Auto Workers and the companies — under which laid-off workers can receive about 95 percent of their pay and benefits for years. Early this month, the UAW agreed to suspend the program.
Treasury Secretary Henry Paulson said Congress should release the second $350 billion from the financial rescue fund that it approved in October to bail out huge financial institutions. Tapping the fund for the auto industry basically exhausts the first half of the $700 billion total, he said.
If the carmakers fail to prove viability by March 31, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans.
General Motors Corp. CEO Rick Wagoner said in Detroit that GM had much work ahead but he was confident it could reinvent itself with the government help and even lead an economic recovery in America.
House Republican leader John Boehner called the administration’s plan “regrettable.” He said that granting loans for automakers was never the intention when Congress passed the $700 billion plan to rescue financial institutions and that the new plan “has failed both autoworkers and taxpayers.”
Rep. Jeb Hensarling, R-Texas, chairman of the congressional oversight panel for the Wall Street rescueprogram, decried the decision, saying a Chapter 11 reorganization, not loans rewarding decades of mismanagement, would have been a better decision.
“Unless union contracts are renegotiated, and unless demand picks up for domestic autos, $14 billion, $34 billion, $74 billion — even $104 billion — will not solve the problem,” Hensarling said. “I fear that a devastating precedent has been set that the federal government will now be pressured to bail out every failing company in America — something that taxpayers and future generations cannot afford.”
Under terms of the loan, GM and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.
Paulson, who plans to discuss the deal with congressional leaders and Obama’s transition team in the near future, said he was confident that the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. have the resources to address a significant market crisis if one should occur before Congress approves the use of the second half of the rescue fund.
Friday’s rescue plan retains the idea of a “car czar” to make sure the auto companies are keeping their promises and moving toward long-term viability.
The short-term overseer will be Paulson. But the White House deputy chief of staff, Joel Kaplan, said that if the Obama team wants someone else installed to bridge the administrations, Bush is open to that. Kaplan said there have been discussions with Obama’s aides throughout the process and the White House believes Obama’s view of the problem and the solution tracks with theirs.
The White House package is the lifeline desperately sought by U.S. automakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for cars.
The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories — many for the entire month of January — to cut vehicle production.
Chrysler CEO Bob Nardelli thanked the administration for its help.
In a statement Friday morning, Nardelli said the initial injection of capital will help the company get through its cash crisis and help eventually return to profitability. He said Chrysler was committed to meeting the conditions set by Bush in exchange for the money.
Ford President and CEO Alan Mulally said his company would not seek the short-term financial assistance but predicted the aid would stabilize the industry.
“The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy,” Mulally said.
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