Allison Kilkenny: Unreported

Damning Bloomberg Article Reveals Geithner As Incompetent

Posted in Barack Obama, deregulation, Economy, politics by allisonkilkenny on March 1, 2009

Yalman Onaran and Michael McKee, Bloomberg News

timothy_geithner_reutersIt was 2004 and Tim Geithner, president of the Federal Reserve Bank of New York, had a message for the Federal Open Market Committee in Washington. He told his 18 colleagues gathered around the long mahogany table that a clearinghouse was needed to monitor risks in the burgeoning $5 trillion market for credit-default swaps — the over-the-counter derivatives that would later spin out of control and help take down Wall Street.

In a move that may have foreshadowed his role as President Barack Obama’s Treasury secretary, Geithner over the next two years nudged financial firms to voluntarily clear a backlog of swap trades. They stopped short of creating a clearinghouse to bring more transparency to the market.

“Geithner was making noise on reining in derivatives, but he didn’t push hard enough,” says Jane D’Arista, a former economist at the Congressional Budget Office in Washington and a longtime Fed observer. “Maybe he’ll be more forceful now that he’s in a position with real power. But I’m not so sure.”

From his years as a Dartmouth College student and mid-level Treasury official through his stint at the New York Fed, Geithner, 47, has thrived as a backroom negotiator and conciliator. Now, as he struggles to rescue Wall Street from a crisis that happened on his regulatory watch, investors and economists question whether the 75th Treasury secretary can transform himself into a bold leader equal to the challenges ahead.

Wall Street executives have cheered Geithner’s nomination.

Brief Honeymoon

“Treasury Secretary Geithner possesses the intelligence and experience needed to partner with President Obama and his economic team to lead us to a recovery,” says Robert Wolf, head of UBS AG’s Americas unit based in Stamford, Connecticut.

The rookie secretary has already learned that the honeymoon won’t last long. After Geithner presented a $2.5 trillion financial rescue plan on Feb. 10, the Dow Jones Industrials tumbled 4.6 percent because investors found it bereft of details. Geithner also gave no indication that he would act quickly to dismantle the weakest of the banks, a move that Joseph Mason, a former bank regulator who teaches finance at Louisiana State University, says he should take now.

Japan prolonged its credit crunch and recession for almost a decade before it finally nationalized two of its biggest banks, the Long-Term Credit Bank of Japan and Nippon Credit Bank, in 1998.

“The key to all our problems is the zombie banks,” Mason says. “We’re giving them money, which is not going to solve anything. We’re repeating the mistakes of Japan, which wasted a decade by not moving decisively against its zombie banks.”

Henry Morgenthau

No Treasury secretary since Henry Morgenthau, who served from 1934 to ‘45 under President Franklin D. Roosevelt, has faced so many crises at once. After receiving $800 billion in loans, guarantees and capital injections since October, the financial industry is still hunkered down, unwilling or unable to put the wind back into the sails of capitalism. Geithner played a role in shaping the $787 billion stimulus plan, and now he and Lawrence Summers, head of the National Economic Council, must recommend to President Obama whether to give General Motors Corp. and Chrysler LLC an additional $14 billion in loans on top of the $17.4 billion Bush administration bailout or force them into bankruptcy. At the White House, the new Treasury secretary may have to compete for the president’s attention with Summers, his former mentor, and Paul Volcker, who has been clamoring for more power as chairman of the Economic Recovery Advisory Board.

Methodical Style

Geithner’s strengths — his methodical style and bureaucratic savvy — were honed over 21 years in government, as he dealt with crises from Asia to New York.

“He really understands process and decision making and how to advance an agenda,” says Michael Froman, who was former Treasury Secretary Robert Rubin’s chief of staff. “Some people are just better at it than others, not just having the big idea but breaking it down into the several dozen steps that need to make it work. That’s Tim.”

The Treasury secretary’s experience at the New York Fed from 2003 to ‘08 gave him an inside view of Wall Street that will help him choose the best remedies for today’s crisis, says Alex Pollock, resident fellow at the American Enterprise Institute in Washington and a former president of the Chicago Federal Home Loan Bank. “He’s very well qualified,” Pollock says.

‘He’s Not Change’

Keep reading…

(more…)

The Ecstasy and the Agony

Posted in Barack Obama, corporations, Economy, politics by allisonkilkenny on March 1, 2009

Frank Rich, NYT

BARACK OBAMA must savor the moment while he can. It may never get better than this.#mce_temp_url#

As he stood before Congress on Tuesday night, the new president was armed with new job approval percentages in the 60s. After his speech, the numbers hit the stratosphere: CBS News found that support for his economic plans spiked from 63 percent to 80. Had more viewers hung on for the Republican response from Bobby Jindal, the unintentionally farcical governor of Louisiana, Obama might have aced a near-perfect score.

(Illustration by Barry Blitt)

(Illustration by Barry Blitt)

His address was riveting because it delivered on the vision he had promised a battered populace during the campaign: Government must step in boldly when free markets run amok and when national crises fester unaddressed for decades. For all the echoes of F.D.R.’s first fireside chat, he also evoked his own memorably adult speech on race. Once again he walked us through a lucid step-by-step mini-lecture on “how we arrived” at an impasse that’s threatening America’s ability to move forward.

Obama’s race speech may have saved his campaign. His first Congressional address won’t rescue the economy. But it brings him to a significant early crossroads in his presidency — one full of perils as well as great opportunities. To get the full political picture, look beyond Obama’s popularity in last week’s polls to the two groups of Americans whose approval numbers are in the toilet. There is good news for Obama in these findings, but there’s also a stark indication of the unchecked populist rage that could still overrun his ambitious plans.

The first group in national disfavor is the G.O.P. In the latest New York Times/CBS News survey, 63 percent said that Congressional Republicans opposed the stimulus package mostly for political reasons; only 17 percent felt that the Republicans should stick with their own policies rather than cooperate with Obama and the Democrats. The second group of national villains is corporate recipients of taxpayer money: only 39 percent approve of a further bailout for banks, and only 22 percent want more money going to Detroit’s Big Three.

The good news for Obama is that he needn’t worry about the Republicans. They’re committing suicide. The morning-after conservative rationalization of Jindal’s flop was that his adenoidal delivery, not his words, did him in, and that media coaching could banish his resemblance to Kenneth the Page of “30 Rock.” That’s denial. For Jindal no less than Obama, form followed content.

The Louisiana governor, alternately smug and jejune, articulated precisely the ideology — those G.O.P. “policies” in the Times/CBS poll — that Americans reject: the conviction that government is useless and has no role in an emergency. Given that the most mismanaged federal operation in modern memory was inflicted by a Republican White House on Jindal’s own state, you’d think he’d change the subject altogether.

But like all zealots, Jindal is oblivious to how nonzealots see him. Pleading “principle,” he has actually turned down some $100 million in stimulus money for Louisiana. And, as he proudly explained on “Meet the Press” last weekend, he can’t wait to be judged on “the results” of his heroic frugality.

Good luck with that. He’s rejecting aid for a state that ranks fourth in children living below the poverty line and 46th in high school graduation rates, while struggling with a projected budget shortfall of more than $1.7 billion.

If you’re baffled why the G.O.P. would thrust Jindal into prime time, the answer is desperation. Eager to update its image without changing its antediluvian (or antebellum) substance, the party is trying to lock down its white country-club blowhards. The only other nonwhite face on tap, alas, is the unguided missile Michael Steele, its new national chairman. Steele has of late been busy promising to revive his party with an “off-the-hook” hip-hop P.R. campaign, presumably with the perennially tan House leader John Boehner leading the posse.

At least the G.O.P.’s newfound racial sensitivity saved it from choosing the white Southern governor often bracketed with Jindal as a rising “star,” Mark Sanford of South Carolina. That would have been an even bigger fiasco, for Sanford is from the same state as Ty’Sheoma Bethea, the junior high school student who sat in Michelle Obama’s box on Tuesday night and whose impassioned letter to Congresswas quoted by the president.

In her plea, the teenager begged for aid to her substandard rural school. Without basic tools, she poignantly wrote, she and her peers cannot “prove to the world” that they too might succeed at becoming “lawyers, doctors, congressmen like yourself and one day president.”

Her school is in Dillon, where the Federal Reserve chairman, Ben Bernanke, grew up. The school’s auditorium, now condemned, was the site of Bernanke’s high school graduation. Dillon is now so destitute that Bernanke’s middle-class childhood home was just auctioned off in a foreclosure sale. Unemployment is at 14.2 percent.

Governor Sanford’s response to such hardship — his state over all has the nation’s third-highest unemployment rate — was not merely a threat to turn down federal funds but a trip to Washington to actively lobby against the stimulus bill. He accused the three Republican senators who voted for it of sabotaging “the future of our civilization.” In his mind the future of civilization has little to do with the future of students like Ty’Sheoma Bethea.

What such G.O.P. “stars” as Sanford and Jindal have in common, besides their callous neo-Hoover ideology, are their phony efforts to portray themselves as populist heroes. Their role model is W., that brush-clearing “rancher” by way of Andover, Yale and Harvard. Listening to Jindal talk Tuesday night about his immigrant father’s inability to pay for an obstetrician, you’d never guess that at the time his father was an engineer and his mother an L.S.U. doctoral candidate in nuclear physics. Sanford’s first political ad in 2002 told of how growing up on his “family’s farm” taught him “about hard work and responsibility.” That “farm,” the Charlotte Observer reported, was a historic plantation appraised at $1.5 million in the early 1980s. From that hardscrabble background, he struggled on to an internship at Goldman Sachs.

G.O.P. pseudopopulism ran riot last week as right-wing troops rallied around their latest Joe the Plumber: Rick Santelli, the ranting CNBC foe of Obama’s mortgage rescue program. Ann Coulter proposed a Santelli run for president, and Twitterers organized national “tea parties” to fuel his taxpayers’ revolt. Even with a boost from NBC, whose networks seized a promotional opening by incessantly recycling the Santelli “controversy,” the bonfire fizzled. It did so because — as last week’s polls also revealed — the mortgage bailout, with a 60-plus percent approval rating, is nearly as popular as Obama.

The Santelli revolution’s flameout was just another confirmation that hard-core Republican radicals are now the G.O.P.’s problem, not the president’s. Rahm Emanuel has it right when he says the administration must try bipartisanship, but it doesn’t have to succeed. Voters give Obama credit for trying, and he can even claim success with many Republican governors, from Schwarzenegger to Crist. Now he can move on and let his childish adversaries fight among themselves, with Rush Limbaugh as the arbitrating babysitter. (Last week he gave Jindal a thumb’s up.)

But that good news for Obama is countered by the bad. The genuine populist rage in the country — aimed at greedy C.E.O.’s, not at the busted homeowners mocked as “losers” by Santelli — cannot be ignored or finessed. Though Obama was crystal clear on Tuesday that there can be “no real recovery unless we clean up the credit crisis,” it was telling that he got fuzzy when he came to what he might do about it. He waited two days to drop that shoe in his budget: a potential $750 billion in banking “asset purchases” on top of the previous $700 billion bailout.

Therein lies the Catch-22 that could bring the recovery down. As Obama said, we can’t move forward without a functioning financial system. But voters of both parties will demand that their congressmen reject another costly rescue of it. Americans still don’t understand why many Wall Street malefactors remain in place or why the administration’s dithering banking policy lacks the boldness and clarity of Obama’s rhetoric.

Nor can a further bailout be easily sold by a Treasury secretary, Timothy Geithner, whose lax oversight of the guilty banks while at the New York Fed remains a subject of journalistic inquiry. In a damning 5,600-word article from Bloomberg last week, he is portrayed as a second banana, a timid protégé of the old boys who got us into this disaster. Everyone testifies to Geithner’s brilliance, but Jindal, a Rhodes scholar, was similarly hyped. Like the Louisiana governor, the Treasury secretary is a weak public speaker not because he lacks brains or vocal training but because his message doesn’t fly.

Among the highlights of Obama’s triumphant speech was his own populist jeremiad about the “fancy drapes” and private jets of Wall Street. But talk is not action. Two days later, as ABC News reported, the president of taxpayer- supported Bank of America took a private jet to New York to stonewall Andrew Cuomo’s inquest into $3.6 billion of suspect bonuses.

Handing more public money to the reckless banks that invented this culture and stuck us with the wreckage is the new third rail of American politics. If Obama doesn’t forge a better plan, neither his immense popularity nor even political foes as laughable as Jindal can insulate him from getting burned.

What We Don’t Know Will Hurt Us

Posted in Barack Obama, Economy, media, politics, torture by allisonkilkenny on February 22, 2009

Frank Rich

self-denialAND so on the 29th day of his presidency, Barack Obama signed the stimulus bill. But the earth did not move. The Dow Jones fell almost 300 points. G.M. and Chrysler together asked taxpayers for another $21.6 billion and announcedanother 50,000 layoffs. The latest alleged mini-Madoff, R. Allen Stanford, was accused of an $8 billion fraud with 50,000 victims.

“I don’t want to pretend that today marks the end of our economic problems,” the president said on Tuesday at the signing ceremony in Denver. He added, hopefully: “But today does mark the beginning of the end.”

Does it?

No one knows, of course, but a bigger question may be whether we really want to know. One of the most persistent cultural tics of the early 21st century is Americans’ reluctance to absorb, let alone prepare for, bad news. We are plugged into more information sources than anyone could have imagined even 15 years ago. The cruel ambush of 9/11 supposedly “changed everything,” slapping us back to reality. Yet we are constantly shocked, shocked by the foreseeable. Obama’s toughest political problem may not be coping with the increasingly marginalized G.O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.

This phenomenon could be seen in two TV exposés of the mortgage crisis broadcast on the eve of the stimulus signing. On Sunday, “60 Minutes” focused on the tawdry lending practices of Golden West Financial, built by Herb and Marion Sandler. On Monday, the CNBC documentary “House of Cards” served up another tranche of the subprime culture, typified by the now defunct company Quick Loan Funding and its huckster-in-chief, Daniel Sadek. Both reports were superbly done, but both could have been reruns.

The Sandlers and Sadek have been recurrently whipped at length in print and on television, as far back as 2007 in Sadek’s case (by Bloomberg); the Sandlers were even vilified in a “Saturday Night Live” sketch last October. But still the larger message may not be entirely sinking in. “House of Cards” was littered with come-on commercials, including one hawking “risk-free” foreign-currency trading — yet another variation on Quick Loan Funding, promising credulous Americans something for nothing.

This cultural pattern of denial is hardly limited to the economic crisis. Anyone with eyes could have seen that Sammy Sosa and Mark McGwire resembled Macy’s parade balloons in their 1998 home-run derby, but it took years for many fans (not to mention Major League Baseball) to accept the sorry truth. It wasn’t until the Joseph Wilson-Valerie Plame saga caught fire in summer 2003, months after “Mission Accomplished,” that we began to confront the reality that we had gone to war in Iraq over imaginary W.M.D. Weapons inspectors and even some journalists (especially at Knight-Ridder newspapers) had been telling us exactly that for almost a year.

The writer Mark Danner, who early on chronicled the Bush administration’s practice of torture for The New York Review of Books, reminded me last week that that story first began to emerge in December 2002. That’s when The Washington Post reported on the “stress and duress” tactics used to interrogate terrorism suspects. But while similar reports followed, the notion that torture was official American policy didn’t start to sink in until after the Abu Ghraib photos emerged in April 2004. Torture wasn’t routinely called “torture” in Beltway debate until late 2005, when John McCain began to press for legislation banning it.

Steroids, torture, lies from the White House, civil war in Iraq, even recession: that’s just a partial glossary of the bad-news vocabulary that some of the country, sometimes in tandem with a passive news media, resisted for months on end before bowing to the obvious or the inevitable. “The needle,” as Danner put it, gets “stuck in the groove.”

For all the gloomy headlines we’ve absorbed since the fall, we still can’t quite accept the full depth of our economic abyss either. Nicole Gelinas, a financial analyst at the conservative Manhattan Institute, sees denial at play over a wide swath of America, reaching from the loftiest economic strata of Wall Street to the foreclosure-decimated boom developments in the Sun Belt.

When we spoke last week, she talked of would-be bankers who, upon graduating, plan “to travel in Asia and teach English for a year” and then pick up where they left off. Such graduates are dreaming, Gelinas says, because the over-the-top Wall Street money culture of the credit bubble isn’t coming back for a very long time, if ever. As she observes, it took decades after the Great Depression — until the 1980s — for Wall Street to fully reclaim its old swagger. Not until then was there “a new group of people without massive psychological scarring” from the 1929 crash.

In states like Nevada, Florida and Arizona, Gelinas sees “huge neighborhoods that will become ghettos” as half their populations lose or abandon their homes, with an attendant collapse of public services and social order. “It will be like after Katrina,” she says, “but it’s no longer just the Lower Ninth Ward’s problem.” Writing in the current issue of The Atlantic, the urban theorist Richard Florida suggests we could be seeing “the end of a whole way of life.” The link between the American dream and home ownership, fostered by years of bipartisan public policy, may be irreparably broken.

Pity our new president. As he rolls out one recovery package after another, he can’t know for sure what will work. If he tells the whole story of what might be around the corner, he risks instilling fear itself among Americans who are already panicked. (Half the country, according to a new Associated Press poll, now fears unemployment.) But if the president airbrushes the picture too much, the country could be as angry about ensuing calamities as it was when the Bush administration’s repeated assertion of “success” in Iraq proved a sham. Managing America’s future shock is a task that will call for every last ounce of Obama’s brains, temperament and oratorical gifts.

The difficulty of walking this fine line can be seen in the drama surrounding the latest forbidden word to creep around the shadows for months before finally leaping into the open: nationalization. Until he started hedging a little last weekend, the president has pointedly said that nationalizing banks, while fine for Sweden, wouldn’t do in America, with its “different” (i.e., non-socialistic) culture and traditions. But the word nationalization, once mostly whispered by liberal economists, is now even being tossed around by Lindsey Graham and Alan Greenspan. It’s a clear indication that no one has a better idea.

The Obama White House may come up with euphemisms for nationalization (temporary receivership, anyone?). But whatever it’s called, what will it mean? The reason why the White House has been punting on the new installment of the bank rescue is not that the much-maligned Treasury secretary, Timothy Geithner, is incapable of getting his act together. What’s slowing the works are the huge political questions at stake, many of them with consequences potentially as toxic as the banks’ assets.

Will Obama concede aloud that some of our “too big to fail” banks have, in essence, already failed? If so, what will he do about it? What will it cost? And, most important, who will pay? No one knows the sum of the American banks’ losses, but the economist Nouriel Roubini, who has gotten much right about this crash, puts it at $1.8 trillion. That doesn’t count any defaults still to come on what had been considered “good” mortgages and myriad other debt, whether from auto loans or credit cards.

Americans are right to wonder why there has been scant punishment for the management and boards of bailed-out banks that recklessly sliced and diced all this debt into worthless gambling chips. They are also right to wonder why there is still little transparency in how TARP funds have been spent by these teetering institutions. If a CNBC commentator can stir up a populist dust storm by ranting that Obama’s new mortgage program (priced at $75 billion to $275 billion) is “promoting bad behavior,” imagine the tornado that would greet an even bigger bank bailout on top of the $700 billion already down the TARP drain.

Nationalization would likely mean wiping out the big banks’ managements and shareholders. It’s because that reckoning has mostly been avoided so far that those bankers may be the Americans in the greatest denial of all. Wall Street’s last barons still seem to believe that they can hang on to their old culture by scuttling corporate jets, rejecting bonuses or sounding contrite in public. Ask the former Citigroup wise man Robert Rubin how that strategy worked out.

We are now waiting to learn if Obama’s economic team, much of it drawn from the Wonderful World of Citi and Goldman Sachs, will have the will to make its own former cohort face the truth. But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word — depression — is next on America’s list to avoid.