Ben Bernanke on The Huffington Post

Fed's Outlook Darkens On Economy

2009-01-07T00:49:23Z

Policy makers at the Federal Reserve appeared almost stunned by an economy that was sinking faster than they had expected on almost every front in December, so much so that they even toyed with the idea of not announcing an official target for overnight interest rates, according to minutes of the meeting released on Tuesday.

At the meeting on Dec. 15 and 16, Fed policy makers jumped through the looking glass and slashed the benchmark federal funds rate on overnight loans between banks virtually to zero. Vowing to use "all available tools" for stimulating the economy, the Fed then outlined a radical new approach of pumping money into the economy through its own lending programs and through heavy purchases of mortgage-backed securities and possibly longer-term Treasury bonds.

Jeffrey Klein: Obama's Perilous Compromise with Looters

2009-01-03T16:15:57Z

Looters have taken over America's Treasury. The executives who successfully ransacked their own banks, investment funds and insurance companies have set their eyes on Obama's stimulus. Tragically, the architects of the current economic fiasco have been placed in charge of America's recovery.

President Obama has made an enormous mistake. Instead of cracking down on serial looters and complicit regulators, he wants to guarantee the financial sector's obligations, which are several times larger than America's economy. This is a Ponzi scheme far beyond Bernie Madoff's imagination. Simply put: The government is breaking the rules of capitalism to reward the most reckless capitalists. Such is not the "creative destruction" Schumpeter hailed.

Is it unfair to criticize President Obama before he and his experienced team have a chance to enact new laws and regulations? For guidance on this question, let's turn to the father of capitalism, Adam Smith. Here's how Smith concludes Wealth of Nations, Book I:

"The proposal of any new law or regulation of commerce which comes from this order [the capitalists], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

Consider Obama's Economic Czar, Larry Summers, who comes fresh from heading a highly secretive hedge fund. As Clinton's Secretary of the Treasury, Summers championed the repeal of the Glass-Steagall Act, which led directly to the excessive risk-taking by newly enlarged financial entities deemed too big to fail when they failed. Additionally Summers and Robert Rubin lobbied intensely for legislation signed by Bill Clinton that forbid government oversight of derivatives, the toxic instruments that have poisoned balance sheets around the world. Summers' former deputy Tim Geithner, the new Secretary of the Treasury, has supervised more recent rip-offs. He bears significant responsibility for the Lehman Brothers' catastrophe and for the flawed Fannie Mae, Bear Stearns and AIG bailouts. At Geithner's confirmation hearing, he must be asked repeatedly why the looters were rewarded and why plans giving taxpayers more equity were rejected.

Sherlock Holmes was once famously asked by a Scotland Yard detective: "Is there any other point to which you would wish to draw my attention?" Holmes: "To the curious incident of the dog in the night-time." Detective: "The dog did nothing in the night-time." Holmes: "That was the curious incident."

Why haven't America's economists barked timely alarms? Are they blinded by their faith in markets? Perhaps the old saying should be reworked: In America, those who can, loot. Those who can't, teach wealth-friendly philosophies masquerading as hard science. In their mind-set, fraud is the province of Bernie Madoff, not Robert Rubin.

But what could be more criminal than Rubin's former employees, Hank Paulson and Tim Geithner, awarding the sweetest of all bailout deals to Citi, where Rubin sits as a highly-paid senior counselor and director. Throughout his career Rubin has pushed for more complex risk instruments and less government regulation. How stupid does the quintessential Wall Street/Washington wise man think people are when he claims never to have heard of Citi's most toxic assets? And to brag that he's been "very involved" at Citi, but blames the company's excessive risk-taking on a presentation made one day by an outside consultant? After confessing such failures of oversight, an honest man would have resigned his posts.

Yet it's not only Rubin's acolytes who are pushing Obama's recovery plan. Experts from both parties have also endorsed it. The only catch? These are the same experts who were blind-sided by the mortgage security frauds that led to the credit freeze that triggered the de-leveraging that's plunged the world close to a Depression.

Does all this sound like a simple-minded diatribe? Perhaps it is. But when analyzing America's financiers, a simple-minded (as opposed to a naïve) approach may be best. For example, Hank Paulson, Ben Bernanke and Tim Geithner thought that the banks they generously recapitalized with the taxpayers' money would begin lending again. Instead the banks used the bailout cash to buy other banks, issue dividends or simply profit on Treasury spreads - i.e., to make what bookies call their juice.

It's altogether possible that Barack Obama's recovery plan will bless sweetheart deals and generate enough public debt to destroy global confidence in our government's bonds. Foreigners, who own about half of all Treasuries, could stop funding America's deficit-driven recovery plan. During Obama's administration, the dollar might lose its reserve-currency premium.

Would all Americans then suffer equally? No. Those likely to profit most from Obama's stimulus before we go bust are his political allies, and especially his big donors. That's the nature of the doling-out beast. To minimize corruption, Obama must pro-actively prevent Chicago-style swindles. E.g., who owns the real estate adjacent to the infrastructure the government will build? What specific penalties will be incorporated into Obama's recovery plan to punish politically-connected profiteers?

If a spiraling out-of-control stimulus seems as if it's undermining the full faith and credit of the U.S. government, Obama's biggest donors will hedge their personal risk by parking some of their capital abroad. Have they've done so already? A senator should ask prospective nominees this question at their confirmation hearings.

Obama could be a different kind of president. His broad base of financial support ensures he won't lack funds for a reelection run. The dark side of Obama's presidency, however, is likely to come less from ethical failings than from his fondness for compromise.

You can't compromise with America's looters. They're too opportunistic. The economics team Obama assembled betrays his respect for elites and a caution that may doom his presidency. A bolder politician would stimulate the economy and simultaneously expose the moral violations at the core of our economic predicament. Leaders who sent the cops home need to be shamed, not promoted. Financiers who misled investors should be prosecuted, not bailed out. Attorney General nominee Eric Holder, the man who pardoned Marc Rich, doesn't seem likely to take up these tasks.

On Inauguration Day, President Obama will surely deliver an inspirational address. But the confidence he inspires will be worthless until he calls out and cuts off the thieves.

Now Where'd I Put That $700 Billion?

2008-12-31T14:59:16Z

WASHINGTON — Government officials overseeing a $700 billion bailout have acknowledged difficulties tracking the money and assessing the program's effectiveness.

The information was contained in a document, released Wednesday, of a Dec. 10 meeting of the Financial Stability Oversight Board. The panel, headed by Federal Reserve Chairman Ben Bernanke, includes Treasury Secretary Henry Paulson and Securities and Exchange Commission chief Christopher Cox.

John Tepper Marlin: Missing Minsky

2008-12-27T06:23:35Z

Martin Wolf, at FT.com, wrote on December 24 that Keynes offers us the best way to think about the financial crisis:

We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race. The ghost of John Maynard Keynes, the father of macroeconomics, has returned [and] that of his most interesting disciple, Hyman Minsky.

I first heard Hy Minsky talk in the 1960s. His main message I summarize as follows:

1. Financial systems have a built-in tendency to euphoria. The financial market does not tend toward stability. The opposite is true. Bankers and other financial actors borrow more and more heavily, making the system increasingly vulnerable to panic. Lenders start after a scare by being conservative, hedging their bets. But eventually confidence returns and speculation takes hold again. Then investors get to the Ponzi phase - manic use of credit, a euphoria or bubble.

2. The credit cycle tends to manic, ends with panic. The Ponzi phase continues until some investors exit with their profits, or the central bank raises interest rates to reduce investor euphoria, and then a financial institution runs into difficulty. The failure causes a bankers' panic. Turning points in the five stages of the cycle are called "Minsky moments".

3. The system tends to instability and must be regulated. Fashions in monetary theory have moved from a belief that Keynesian sophisticates could "fine-tune" the economy, to fear that the Fed had lost control of the ability to contain inflation, to a belief that markets work best with minimal interference. Hy rejected all these ideas, preaching consistently about the need for regulation and the importance of leaning against the excesses of what Keynes called the animal spirits of investors.

Born in Chicago, Hy taught at Brown, Berkeley and Washington University (St. Louis). He died 12 years ago in Rhinebeck, 77 years old, near Bard College's Levy Institute, which has a special interest in business cycles and treated Hy as a star in his last six years. Hy didn't live to see how closely this year's meltdowns would follow his predicted scenario, with the Lehman failure being one of several clear Minsky moments.

Former Fed Governor Laurence Meyer, who spoke in New York City last week, has said of Minsky: "Few have influenced my thinking about economics more than Hy." If Hy had been listened to more than he was, we would have seen less deregulation and permissiveness - Ninja mortgages, lax SEC oversight, highly leveraged instruments and institutions, Treasury deficits - during the credit runup. Fed Chairman Alan Greenspan and then-Governor Ben Bernanke were anxious not to "pop the bubble" because (citing the Milton Friedman-Anna Schwartz history) that's the mistake the Fed made in 1928. The Fed was concerned not to stifle financial innovation, arguing that it is ready with new weapons in the event of an asset-destroying credit freeze.

This last theory is now being tested. The stakes are high, beyond an academic debate. Any sensible person should be rooting for the outgoing and incoming Fed-Treasury teams to succeed in restoring confidence and the flow of credit.

Michael Pento: Should The World's Reserve Currency Yield Zero Percent

2008-12-22T11:23:27Z

U.S. investors must ask themselves how long the U.S. dollar can remain the world's reserve currency when the Fed is targeting interest rates at zero percent. Following the end of WWll, the United States owned most of the world's gold supply, manufacturing base and war machines. It made sense for countries to desire to peg their currencies to the globe's only super power. However, in little more than half a century, we have moved from the world's largest creditor nation to the world's largest debtor nation. And now after this week's policy change, we have the lowest overnight lending rate of any industrialized country on the planet.

A major consequence of our current $10.6 trillion national debt is that we are beholden to China, Japan and the Euro zone to finance it. In addition to our current debt, we have a government push to stimulate the economy buy exploding annual deficits to over a trillion dollars. One outcome from our effort to repeal the business cycle has been to pull the rug out of the nascent bull market in the U.S. dollar. After making a stunning 22% advance from July to December, recent Fed policy moves have served to crush the dollar down 12% in just three weeks.

Even though all global currencies have adopted a fiat currency system, the U.S. zero interest rate policy makes the Euro zone's target rate of 2.5% and the Bank of England's 2.0% look like hard currencies. More importantly, the evidence of our falling currency will be most evident in the huge reflation trade in hard assets.

But it is not only that the Fed is in the vanguard when it comes to printing money in order to lower Fed Funds and the Discount rate. It is now striving to artificially control many "free market" rates including commercial paper, mortgage backed securities and Treasuries. And it's not only Ben Bernanke's actions that are so egregious; it is also his rhetoric that may cause international investors to take umbrage. The Fed head's statement following the conclusion of the F.O.M.C. meeting contained some frightening clues about the future direction of dollar. He stated that he will stimulate the economy "...through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level." He went on to say that "The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the Fed Funds rate for some time."

The Law of Unintended Consequences

If the Fed is successful in driving domestic investors out of Treasuries and into assets such as stocks and real estate, what makes them think that international investors won't do the same? However, if foreign investors curtail their purchases of treasuries, the Fed may be forced to be the buyer of last resort. Printing money to purchase a nation's debt is the formula for wrecking a currency and creating intractable inflation. Is that really the best strategy to fighting a recession? Tax cuts and spending cuts are the only long term solution. We must grow the economy by empowering the private sector. I would have hoped by now we learned that inflation doesn't solve anything.

David Sirota: We Were Punked

2008-12-20T14:27:28Z

Hale "Bonddad" Stewart counters the argument I made on Rachel Maddow's MSNBC show this week and that I've been making in my columns and blog postings for the better part of the last three months. He says the American people weren't deceived on the Wall Street bailout; implies that handing over a trillion-dollar no-strings-attached blank check to the financial industry was perfectly appropriate; and explicitly states that "to say we were 'punked by Wall Street' flies in the face of every available fact on the crisis."

Oddly, Bonddad then goes on to prove - arguably better than anyone else to date - that we were, in fact, punked.

Bonddad spends most of his post telling us that banking profits are down, noting that "financial stocks are down almost 70% since the summer of 2007." No argument there from me, or anyone else. He creates a straw man by suggesting that many people are claiming there was no "serious problem with the financial system that needed fixing" - nobody, not me, not even the authors of a controversial Minneapolis Fed report, claim there isn't a real financial problem. He then goes on to note that the Federal Reserve Bank's Beige Book has been saying that credit conditions were somewhat tightening before the bailout and - here's the most important part - that "loan demand was decreasing." Again, no argument there from me, or anyone else.

But that's the whole point - Americans were told we needed to give a trillion dollars of taxpayer cash, no strings attached, to Wall Street, not because huge banks saw their profit margins cut, not because financial shareholders saw their stocks lose value, but because banks had allegedly completely stopped lending to each other and to other businesses. Politicians, reporters and financial executives made the latter argument - and not the former - because they knew that while there would probably be opposition to any bailout of the size being proposed, there would be revolution-in-the-street-type outrage had they admitted the bailout was needed - and specifically structured - to preserve bank profits and the wealth of financial industry shareholders.

But as the Federal Reserve's own data shows that latter argument claiming lending had seized is simply not substantiated by fact. Indeed, nobody has been able to factually refute the very simple statement by Celent's Octavio Marenzi who said the claims by Henry Paulson and Ben Bernanke about a full-on, apocalyptic credit crisis "are flatly contradicted by the data provided by the very organizations they lead."

Now, this is not to say there hasn't been any problem of tightening credit. Nobody's saying that, and certainly not me. What I and other bailout opponents have been saying is that those who backed the bailout in its current form "were using an admittedly real [credit] problem to manufacture the perception of a full-on earth-shattering crisis." That is, they sensationalized a real problem to create the belief that if we didn't do something unfathomably (and irresponsibly) unprecedented, and without any oversight whatsoever, the world would end. Sound familiar? Of course it does. That's what happened in the lead up to the Iraq War - government leaders and the media seized on the very real problem of Saddam Hussein and sensationalized it into an "imminent threat" that required unprecedentedly destructive action.

Bonddad proves that it's the real economy that needed - and needs - the most help, not just the financial industry. Read through his post and notice how many times the stuff about decreasing loan demand is mentioned - that's it right there. Because the real economy is in crisis, loans are being sought a lot less - that is, businesses aren't expanding, they are contracting, and thus many are not looking for new loans to finance investments; and individuals aren't looking as much for new loans either. Put another way, just because demand for loans has decreased, doesn't mean loans are completely unavailable.

As the Celent report found, "overall U.S. bank lending is at its highest level ever, U.S. commercial bank lending is at record highs and growing particularly fast since May 2007...overall interbank lending is up 22 percent [and] bank lending for real estate reached a record level in October 2008." Those claims are backed up by both the Minneapolis Fed report and the NFIB report.

Celent guesses that what's going on is that lawmakers are likely "taking the situation of a handful of institutions and generalizing that to the market as a whole, incorrectly." That makes some sense, if you understand how Washington works. When the profits of huge campaign contributors like the Citigroups and the AIGs decrease, the Beltway (not surprisingly) prioritizes helping those campaign contributors preserve those profits, and therefore rationalizes handouts to those behemoths by making lots of generalizations - even if, for instance, the data at the time of the bailout suggested that the rush away from such behemoths was helping local banks. In D.C. - as we all know - the little guy doesn't matter, only the wallets of the big fat cats do.

So we were punked not by those who said there was a real credit problem - there certainly was and is a credit problem, though it's only one of many problems, and it certainly isn't a problem that justified spending a trillion dollars of no-strings-attached money in less than two weeks of deliberation. We were punked by those politicians and pundits who said what we had to do to fix the problem was not to both inject capital into the real economy (spending on infrastructure, health care, unemployment benefits, mortgage relief, etc.) and target reasonable amounts of well-overseen taxpayer cash to the specific banking sectors that required immediate aid, but instead to exclusively throw an ungodly amount of unregulated money at Wall Street while completely ignoring the real economy, and more specifically, to throw that ungodly amount of money at Wall Street with absolutely no strings attached.

That argument was not backed up by fact. It was a lie - and a lie with a motive: to make sure as much taxpayer cash as possible was given to one of the largest segments of campaign contributors, and that that cash could be used to subsidize executive pay, shareholder value, shareholder dividends bank consolidation and financial industry profits. And to date, nobody has been able to answer really simple questions that make this point as clear as possible.

As just one example, consider the fact that when aggregating what both the Treasury and Federal Reserve bank has have done, taxpayers have allocated $8 trillion to the financial industry. In a country where 18,000 people die each year because they lack health insurance (that's six 9/11's every single year), most believe it would cost about $75 billion to $100 billion a year for universal health care. So just to account for critics, let's say it costs $200 billion. How does giving $8 trillion to the financial industry save more lives, better help the economy (whose fastest growing sector is health care) and better benefit society than using that $8 trillion to finance universal health care for the next 40 years and save 720,000 American lives?* The fact that Congress didn't even ask such a simple question and simply allowed that $8 trillion to be allocated to its campaign benefactors on Wall Street means we were punked in a historic way. Or, to use Bonddad's own phrase, it means that to say we weren't punked flies in the face of every available fact.

The path forward from here is pretty obvious. As I noted in an earlier post, there are three steps to take:

1. We have to pressure, cajole, lambaste and downright humiliate Wall Street stooges on Capitol Hill who claim nothing can be done to reform the bailout and actually start working to fix the economy.

2. Before releasing the next installment of bailout money for Wall Street, Congress can add strings to that money - for instance, making sure that it is subsequently used to increase lending and not to subsidize bank profits, shareholder dividends and executive pay. If those strings aren't attached - and if the Treasury Department continues to refuse to give federal bailout regulators like Elizabeth Warren access to basic information - Congress should refuse to release the next installment of bailout money.

3. Congress can allocate some of the unspent bailout money to a robust economic recovery package focused on job-creating infrastructure and health care priorities - and Congress can pass that economic recovery package right now, rather than waiting for the next president.

* $200 billion a year multiplied by 40 years is $8 trillion dollars. 40 years multiplied by 18,000 lives a year is 720,000 lives.

Larry Summers At Federal Reserve By 2010?

2008-12-17T15:08:49Z

He hasn't even taken office yet and the rumors about President-elect's musical chairs are starting. The latest: That Obama won't reappoint Federal Reserve Chief Ben Bernanke in 2010 and will instead put his economic czar Larry Summers in the powerful post. Financial industry sources close to the Obama campaign say that it's more about the new prez wanting to reward Summers for his efforts so far than any punishment of Bernanke, who gets applause in Democratic circles for moving aggressively to reverse the credit crunch and recession.

Summers should be a natural for the post, having served as a treasury secretary under former President Clinton and also as president of Harvard University. "It's a big rumor in the financial world," says a source. Others, however, suggest that the transition team is focused solely on fielding the new president's team, not already looking at who to sub in two years from now. Should the rumor come true, it would also be good news for Jason Furman. He will be Summers's No. 2 on the National Economic Council.

Bernanke's Shock-And-Awe Easing

2008-12-17T09:45:56Z

In a monetary version of shock-and-awe, the Federal Reserve unleashed a massive easing move with its FOMC policy announcement Tuesday -- one that represents a sea change in central-bank operations.

For starters, Bernanke & Co. established a new target range for the federal funds rate of zero-to-one-quarter percent. That's right: zero-to-one-quarter percent. In doing so, the Fed is abandoning its fed funds target and essentially following Treasury bill rates in the open market, which have been trading close to zero for many weeks. The Fed also signaled the near-zero funds rate could last for "some time."

However, the really big news is not the fed funds target. It's this sentence:

"The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level."

Federal Funds Rate Record Low Point: Fed Makes Historic Cut

2008-12-16T14:33:58Z

WASHINGTON — The Federal Reserve has cut its target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

The central bank on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. Many analysts had expected the Fed to make a smaller cut to 0.5 percent.

Fed reduces benchmark rate to as low as zero

2008-12-16T07:59:06Z

WASHINGTON — The Federal Reserve, urgently rewriting its playbook to fight a deepening recession, cut its benchmark interest rate to as low as zero Tuesday, a surprisingly strong step that should make it cheaper for Americans to borrow on credit cards and pay their mortgages.

Wells Fargo, Wachovia and U.S. Bancorp immediately lowered their prime lending rates from 4 percent to 3.25 percent, and other banks will probably follow suit. Economists cautioned, though, that people frightened by the economy and worried about their own jobs may not feel like taking on more debt.

Interest Rate Cut Toward Zero Expected From Fed On Tuesday

2008-12-15T09:41:38Z

WASHINGTON (Reuters) - The U.S. Federal Reserve is expected to drop interest rates close to zero on Tuesday, but anticipated remarks on unconventional methods to dispel a year-old recession are what will really matter.

Economists forecast a clear statement that the U.S. central bank will aggressively deploy so-called quantitative easing measures to shelter the economy from a steepening downturn, but do not expect details of what steps it will actually take.

Those words would accompany a decision by the Fed to lower its target for overnight rates by at least a half-percentage point, economists believe.

Fed Rates Headed Close To Zero

2008-12-14T14:09:01Z

WASHINGTON — With the country spiraling deeper into recession, the Federal Reserve is ready to slash its key interest rate _ perhaps to an all-time low_ in hopes of cushioning some of the economic fallout felt by many struggling Americans.

To battle the worst financial crisis since the 1930s, Fed Chairman Ben Bernanke and his colleagues already have ratcheted down their main lever for influencing the economy _ the federal funds rate _ to 1 percent, a level seen only once before in the last half-century.

Fed Refuses To Disclose Recipients Of $2 Trillion In Emergency Loans

2008-12-12T20:55:39Z

The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

Danny Schechter: Did God Do It? Blaming The Crisis On The Divine

2008-12-07T15:30:51Z

Donal Trump Blames Crisis on Divine Intervention:
As the Job Losses Mount, the Government's Bailout Flouders/Fails

It has taken a while for the stars to align and the truth to come dripping down. Now we know who caused the financial crisis:

God did it.

Just as Jerry Falwell saw a divine hand behind 9/11, our golden boy icon of Capitalism By My Rules, Mr. "You're fired" Donald Trump, has now unearthed the secret, blaming our great recession on the One above.

The Donald came up with this conspiracy -- along with the not totally unreasonable assertion that the banks engineered the disaster -- in a lawsuit filing offering a reason for not paying on a big construction loan from a German Bank for a skyscraper he was building in Chicago. He cites an Act of God -- "unlikely events," clause in his contract to justify not paying.

A New York Times columnist also recycles a Trumpian fairy tale in which this master publicity seeker reveals that in some cases he told banks not to finance his projects because they were a "bad deal." The banks, he claimed, went ahead anyway. This could be true, given what we have learned about banking practices. (He will no doubt sell them the Brooklyn Bridge in the future.)

So now the proverbial S is hitting the fan on every front. Xmas shopping will not save us this year. We are being warned about the likely onset of stag deflation. Sounds bad.

The brilliant young economist Max Wolfe -- soon to star in my film in-the-making based on my Plunder book in-the-selling -- says the latest jobs report is a recipe for more pain on the way

"We have lost 533k jobs in November and over 2.5 million for the year 2008. Thus, we see the worst jobs report in 34 years... We have seen the Fed and Treasury swallow toxic assets as the markets turn more and more assets toxic. Today's job losses assure many more delinquent and default experiences for creditors...This is a sad day for the world economy."
(Note: These figures don't count people who have stopped looking for work,
an estimated 637,000.)

And our government's response? If there is a plan, it is this: Open the sluice, get the money printing press working overtime, and try to bail the sinking ship. (Is that where the term bailout came from?) The costs are stratospheric and going up. In fact, we have just learned that the stock the bailout boys bought to supposedly make money for the American people dropped over $8 billion in value just last week.

Nicholas Jones writes on the Seeking Alpha finance website:

"The $3.2 trillion spent thus far is a massive figure, but dwarfs the $8.5 trillion that is all but committed. Unfortunately, I don't expect it to stop there. I would be fully shocked if we don't see that $8.5 at least double from here[emphasis added].

The problem is that nobody really understands the true size of these figures. It's shocking how quickly America just accepted whatever -illion it was whether it started with a M, B, or T. I mean, what the hell... what's $30 billion for Detroit when Citi just got $300 billion and the Fed has doled out some $2 trillion in other lending programs."

Clearly, we need a new TV show: Who wants to be an illionaire? ... Slum dogs, are you listening?

We still need a full investigation into how Wall Street firms, asleep at the switch regulators and a passive media drove this crisis. We can't ignore compromised politicians either. A Joint Economic Committee study says: "Government Policy Blunders Largely Caused the Global Financial Crisis."

Missing in all of this is what our goal is. Is it to just rebuild the financial architecture that already failed, to go back to status quo ante, to put the same bankers and institutions that betrayed their customers and investors back in business? The goal should not be to revive financial markets as they have been but to remake them. As Nobel-winning economist Joe Stiglitz explains, "The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression."

Has going backwards now been redefined as going forward?

The resolution of this crisis is too serious to be left in the hands of the people who created it. Yet they have the power and the purse. Ben Bernanke has finally come around to the notion that we have to do something about housing. This most obvious crisis is being considered last.

May I remind you that this distinguished Chairman took a while to "get it." (Maybe it is something in the water in Princeton.) A New York Times columnist reminded us of a hearing back in 2005:

"It came in November 2005, toward the end of his all-day Senate confirmation hearing, when Senator Paul Sarbanes brought up the mortgage business. Mr. Sarbanes, the ranking Democrat on the Banking Committee then, pointed out that the number of people taking out adjustable-rate mortgages soared in 2004. 'Are you concerned about the potential for a bubble in the housing market?' the senator asked Mr. Bernanke. 'And specifically, does the drastic increase in the use of risky financing schemes, including interest-only and even negative amortization mortgages, concern you?'

Mr. Bernanke replied that the Fed was reviewing its guidelines for these loans and planned to issue new ones soon. The guidelines, he added, 'would have on the margin some beneficial effects in reducing speculative activity in some local markets.' At no point, though, did Mr. Bernanke suggest that he was concerned."

Gag me with a spoon.

And now dear fellow recessionaires, let us think about what to do.

First, we need to suspend all trust in these wannabe saviors. Next, we need to organize a massive people's campaign for economic fairness. After that we need to use media campaigns, protests and lobbying to demand that an economic state of emergency be declared.

We need

l. To Stop Foreclosures: An immediate moratorium on all foreclosures.

2. To Provide Debt Relief: A rollback of credit card interest and write downs of what's owed. 110 million Americans are said to be in arrears on loans.

3. Forge An Economic Plan For The Middle Class: Not this current leave-no-banker-behind approach.

Idea: Create a powerful Economic Czar to whom Treasury and the Fed must report. I would suggest someone with compassion and insight take the helm, someone like former Labor Secretary Robert Reich, the one progressive in Clintonland. We may need a small man for this big job.

We need also need people's council to advise him, including economists like Nouriel Roubini, Max Wolf, Jamie Galbraith, and Paul Krugman, leaders from NACA and ACORN, Union and church people, folks from food banks, etc.....

Oversight and accountability are essential -- as Elizabeth Warrren of Harvard, who is on a Senate panel, said earlier in the week, the government has no plan and is floundering with Hank Paulson's ping-pong approach.

Even Donald Trump knows, or he should know, that the Good Lord helps those who help themselves. Top-down imposed solutions are not working.

We need a bottom-up and far more democratic approach.

Barack Obama was elected with the support of an activated public. If he is to make a dent in this crisis, he needs continuing active and critical support. As I have said many times; 'It's not the ship that makes the waves, it's the motion on the ocean.'

Motion, people. Motion.

News Dissector Danny Schechter is making a film based on his book Plunder: Investigating Our Economic Calamity (Cosimo Books, at Amazon.com) Comments to dissector@mediachannel.org

Have a look at the trailer for my new film:
Let me know what you think? Can you help?
Read more: Barack Obama. Hank Paulson, Jerry Falwell, Joe Stiglitz, Depression, Economy, Donald Trump, Economic Crisis, Banker Bailout, Recessionaires, Recession, Economic Czar, Bailout, Donald Trump Blames God, Congressional Bailout, Deregulation, Financial Crisis, Ben Bernanke, Business News

Manisha Thakor and Sharon Kedar: Lasting Homeowner Help? Try (Financial) Fishing Lessons

2008-12-05T16:22:11Z
The American Dream has turned into The American Scream.

According to the Mortgage Bankers Association, a record 1 in 10 borrowers in the US were either delinquent or in foreclosure at the end of the third quarter of 2008. Given this data point was tallied before the massive wave of layoffs announced in October and November, things are likely to get worse before they get better. Against this grim backdrop, Washington is struggling with how best to help homeowners.Current proposals include government-engineered modifications for existing home loans and government-subsidized 30-year fixed-rate mortgages for new home purchases. Such programs, intended to jump-start our housing market, represent rational first steps given the magnitude of this crisis. Such steps, however, should not be our last. In many ways the housing bubble is merely a repeat of the internet stock bubble. More importantly, it is potentially the precursor to a college loan or an annuity crisis.

If we do not address the root issue that enabled home prices to rise to such ludicrous levels in the first place, history will repeat. We Americans continue to create asset bubbles and make serious mistakes with our personal finances because we are not financially literate. After two plus decades of unfettered consumerism, it is time to confront this harsh reality.

The statistics are shocking.

A recent survey conducted by Charles Schwab of 1,000 parents of 13 to 18 year-olds revealed that while 70% had taught their kids how to do laundry, only 43% taught them how to pay bills. The same survey also showed that while 97% of parents think it is important to teach their children to save and invest for retirement, only 14% have explained what a 401(k) is. Perhaps the reason for the disparity is that parents themselves aren't doing such a good job with their own finances. According to the American Savings Education Council in a February 2008 press release, less than 1 in 3 Americans routinely save the recommended 10% a year of their income. As a nation, we have lost our financial way. Founded on the principles of thrift, frugality, and hard work, our beloved country has morphed into a giant financial couch potato.

Who is to blame?

One culprit is our increasingly complex financial landscape. In years past, limited choice helped us save ourselves from ourselves. In the case of home ownership the twin forces of a 20% minimum down payment and 30-year fixed rate mortgage were self-policing mechanisms. However, in today's world of seemingly limitless financial choice we need to learn how to more effectively fish for our financial supper. Had more Americans understood how much home they could truly afford, what kind of mortgage was appropriate for their particular situation, and how to live within their means, housing prices would never have escalated to the bubble point. To date, many angry fingers have been pointed at predatory lenders, greedy mortgage brokers, and scurrilous investment bankers. Their role in our current economic malaise is irrefutable, and it must be addressed. Yet that is not enough.

As the debate swirls in Washington about how to "help the homeowners," we are reminded of this time-tested proverb: "Give a man a fish, and you have fed him for today. Teach a man to fish, and you have fed him for a lifetime."

A nationwide, mandatory financial literacy class in high school would be a nice start. To create lasting improvements, however, we must dream even bigger. We've changed the way Americans think about everything from smoking to wearing seat belts. Why not use a tiny sliver of the potential profits from government-subsidized 30-year fixed-rate mortgages (lending at 4.5%, borrowing at 2.7%...) to create a coast-to-coast financial literacy campaign ("Got Money $marts?"). Or perhaps we could offer Americans the choice of attending personal finance workshop after two late bills - sort of a traffic school for your wallet. And why stop there? We could offer a tax credit to Americans who take a government sponsored personal finance class.

The bottom line is this: Good personal finance does not have to be difficult. The guiding rule is to live within your means. Across the nation this basic principle should be emphasized in schools, colleges, houses of worship, and most importantly in our homes. As we work together to dig our country out of this financial mess let's identify creative ways to give ourselves, and our children, a gift that will last a lifetime - (financial) fishing lessons.

Read more: Debt, Household Budgets, Saving Money, Personal Debt, Household Debt, Personal Finance, Housing Crisis, Economy, Treasury Department, Financial Crisis, Henry Paulson, The Bailouts, Federal Reserve, Ben Bernanke, Business News

Bernanke: More Action Needed To Cut Foreclosures

2008-12-04T16:12:31Z
WASHINGTON — Federal Reserve Chairman Ben Bernanke called on the government Thursday to ramp up efforts to stem soaring home foreclosures, which are feeding into the country's deep economic troubles.

Although a flurry of actions have been taken to ease the housing crisis, foreclosures still remain "too high" with adverse consequences for struggling homeowners, squeezed lenders and the broader economy, Bernanke said in remarks to a Fed conference on housing finance.
Read more: Financial Crisis, Housing Crisis, Foreclosure, Ben Bernanke, Finance, Economy, Business News

Hale "Bonddad" Stewart: An Overview of the Recession

2008-12-04T07:49:17Z
From the WSJ:

The U.S. economy has been in recession for about a year, according to the research organization that tracks economic cycles.

In a statement, the National Bureau of Economic Research said its Business Cycle Dating Committee determined that the U.S. entered recession in December 2007, marking the end of the economic expansion that began in November 2001. That month marked the end of the last recession for the U.S. economy.

It's official. The National Bureau of Economic Research formally announced the US has been in a recession since December 2007. However, it is the Federal Reserve's Beige Book released yesterday which gives us a very detailed look at the breadth of the problems the economy faces. Let's see what the report's overview says:

Overall economic activity weakened across all Federal Reserve Districts since the last report. Districts generally reported decreases in retail sales, and vehicle sales were down significantly in most Districts. Tourism spending was subdued in a number of Districts. Reports on the service sector were generally negative. Manufacturing activity declined in most Districts, and new orders were soft. Nearly all Districts reported weak housing markets characterized by reduced selling prices and low, but stable, sales activity. Commercial real estate markets declined in most Districts. Lending contracted, with many Districts reporting reductions in residential, commercial and industrial lending and tightening lending standards. Agricultural conditions were mixed with a relatively good harvest but concerns about profitability. Mining and energy production and exploration started to soften due to lower output prices.
District reports generally described labor market conditions as weakening. Wage pressures were largely subdued. District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly energy, fuel, and many raw materials and food products.

There is nothing good in that paragraph. Retail sales were down "significantly"; manufacturing activity declined in "most districts"; housing markets are still in terrible shape, lending contracted ... you get the idea. Let's take this information apart piece by piece to see exactly what is going on.

Consumer spending weakened during the reporting period. Retail sales were described as weak or down in the New York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and San Francisco Districts. In Kansas City, consumer spending slowed sharply.

Here is a chart showing the year over year percentage change in personal consumption expenditures:

Retail sales aren't much better:

Basically, consumers have been slowing down their spending for a year. That is a very important trend. And it's no wonder -- a little over a year ago consumer confidence started to drop:

Remember -- the credit crunch started in July/August 2007. Also remember the financial markets started to drop about that time which created a second asset class that was losing value (the first being real estate). When the two primary sources of personal wealth start to drop, consumers stop spending.

Activity in the services sector generally contracted in most Districts since the last report. New York, Richmond, Chicago, Minneapolis, Dallas and San Francisco reported deteriorating conditions. Most of these Districts were seeing weakness across a wide range of services, including advertising, architecture, business support, information technology, legal services and temporary help firms.

This shouldn't be a surprise either -- considering the latest release:

Business conditions are deteriorating quickly, the latest indication from the ISM's non-manufacturing report that showed wide declines across readings. The headline composite index fell more than 7 points to 37.3 with new orders, perhaps the most important index of all, falling more than 8 points to 35.4. The business activity index, equivalent to a production index, fell more than 11 points to 33.0. The employment index fell more than 10 points to 31.3 with backlogs down nearly 5 points to 39.5. Prices paid, as it did in the ISM manufacturing report, confirms the extent of the weakness, down nearly 15 points to 36.6 in a drop reflecting declining demand for goods and services including declining demand for energy. Many of the readings in this report, as well as month-to-month changes, are record lows. Stocks dipped and money moved into Treasuries in immediate reaction to the results.

Manufacturing is also suffering:

Manufacturing activity declined noticeably since the last report. All 12 Districts reported weaker manufacturing conditions, to varying extents. Boston, Philadelphia, Cleveland, Richmond and Kansas City reported reductions in orders. Almost all Districts noted reductions in exports. Philadelphia, Cleveland, Richmond, Chicago and Atlanta reported lower shipping volumes. Dallas reported weakness in most forms of transportation. Nearly every District reported decreased demand for construction materials; Cleveland and Chicago noted, in particular, decreased steel production. Several Districts reported multiple plant shut-downs, and expectations for capital expenditure were down.

The ISM manufacturing index has been dropping for the last 4 years:

Industrial production has fallen off a cliff:

And capacity utilization has dropped, indicating we're using less and less of out productive capacities:

Real estate is still a huge problem:

Residential real estate continued at a slow pace nationwide. Sales were down in most Districts, but mixed activity was noted in the Boston, Atlanta and Minneapolis Districts. Boston, New York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas noted decreases in housing prices. Inventories of unsold homes remained high in the New York, Atlanta, Kansas City and San Francisco Districts, but declined in Chicago and Minneapolis. Philadelphia, Richmond, Chicago and Kansas City reported relatively stronger demand for lower- and middle-priced "starter homes."

Here's the central problem. Inventory is still at incredibly high levels (thanks to Calculated Risk for the graph):

Lending standards are tightening:

Large majorities of domestic respondents reported having tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the previous three months. About 70 percent of domestic respondents--down from about 75 percent in the previous survey--indicated that they had tightened their lending standards on prime mortgages.2 Responses differed somewhat by bank size, with about 80 percent of the largest banks, but only 55 percent of the smaller banks, reporting tighter standards for prime borrowers. About 90 percent--up slightly from July--of the 29 banks that originated nontraditional residential mortgage loans reported having tightened their lending standards on such loans.3

As a result, home prices are dropping:

The decline in the S&P/Case-Shiller U.S. National Home Price Index -which covers all nine U.S. census divisions - remained in double digits, posting a record 16.6% decline in the third quarter of 2008 versus the third quarter of 2007. This has increased from the annual declines of 15.1% and 14.0%, reported for the 2nd and 1st quarters of the yer, respectively.

Finally there is employment, which has been dropping for over a year on a year over year comparison:

As a result, the unemployment rate has been increasing for over a year:

So -- we're clearly in a recession. However, remember that a lot of people are on the case (as it were). While I have personally made fun of everybody involved, I have the luxury of doing so. Bernanke has been given the most unenviable task of cleaning up one of the largest financial messes in history. While he is struggling with the task -- he's supposed to be considering the size of the problem. I have disagreements with Paulson, but it's not as though I think he's incapable. Frankly, I think there are times when he is just as perplexed as the rest of us at times.

And for everybody out there who is saying "there is no organized central plan to this problem" -- there isn't one available. There is no book out there that says, "this is how you undo years of financial damage in 3 easy steps." It just doesn't exist. There are a lot of armchair economists out there saying this is a bad idea or that is a bad idea. What these people are forgetting is the previously made point -- no one has a clear plan on what to do because one doesn't exist. It's that simple.

The point of the previous two paragraphs is to point out that we are in clearly uncharted waters in a big way. There are no rules that apply -- we're trying to figure this thing out as we go along. Also remember that no one in the incoming administration has a crystal ball either. While there are a lot of very smart and capable people out there, they don't have the magical "how to fix this crisis in three easy steps" book either. In other words -- it's going to be a long and difficult road going forward.

Read more: Economy, Real Estate Market, Unemployment, Economic Recession, Financial Crisis, 2008 Recession, Henry Paulson, Ben Bernanke, Recession, Business News

Rick Horowitz: It's Official: A Recession (Really?)

2008-12-03T12:27:34Z
When the phone rang, we were just hunkering down for another evening of ice packs and ibuprofen.
The guy on the other end of the call couldn't have been nicer, or more polite. The first thing he did was apologize for interrupting whatever it was we might have been doing; with so many calls to make, he explained, naturally some of them wouldn't get done until pretty late in the day.

"Naturally," I said.
Then after he was finished apologizing, and before he said anything else, he needed to confirm that we were actually who his records indicated we were -- the right name (middle initial included, of course), at the right address.

"Yes, and yes again," I told him. When all of that was finally out of the way, he gave me his own name and got down to business.

"We're with the National Bureau of Discomfort Research," he said, "and we're calling to let you know that you have a headache."

"Excuse me?"

"No, really -- we've checked and rechecked our data, and you definitely meet all our criteria for a headache. Just thought you'd want to know."

It took a few seconds for his words to sink in, mostly because my head was pounding so hard I could barely think straight. But eventually I caught the gist of it.

"You're calling to tell me I have a headache."

"Exactly," he said. "No two ways about it."

"I already know I have a headache."

This was absolutely true. There was this throbbing thing happening right behind my eyeballs, plus this burning thing trying to eat through the back of my skull. I'd been practically horizontal for days, in a room with all the lights off, popping painkillers by the fistful.

I said it again:
"I already know I have a headache."

"But not officially," he said. "You didn't have a headache officially. Now you do."

It was all about the data, he explained. At the National Bureau of Discomfort Research, they have teams of experts combing through every wince and every spasm, coast to coast. You may think you're hurting -- you may be totally convinced you're hurting -- but until you hear it from the folks at the National Bureau of Discomfort Research, it's only speculation.

"It doesn't really count," he explained.

"And now it counts."

"Absolutely! In fact, we're showing that this headache of yours is a real doozy. One of the worst we've seen in quite a while."

I hardly knew what to say. Part of it was the pain, which hadn't gotten a dot better during our little chat. And part of it was the surprise, the very idea that someone would --

"Do you want to know when it started?"

"Excuse me?"

"Your headache. Do you want to know when it started? With the data we have, we can narrow it down almost exactly."

"No, thanks," I said. "It's been weeks. Months. Who knows? Who -- "

"Last December," he said. "December of 2007."

"Thanks for sharing," I said.

"Most people appreciate the information."

And now that you've told me, I asked him, what exactly am I supposed to do with the information? With all his research and all his experts, I told him, surely he'd picked up a few miracle cures he'd be willing to pass along. Something quick and easy to get rid of my headache and get me back on my feet again.

"We don't do cures," he told me. "That's not our department."

I'm still waiting for the second call.

Rick Horowitz is a syndicated columnist. You can write to him at rickhoro@execpc.com.

Read more: George Bush, Economic Slowdown, Treasury Department, Hank Paulson, Tim Geithner, Bush Administration, Economy, George W. Bush, Henry Paulson, Federal Reserve, Timothy Geithner, Ben Bernanke, National Bureau of Economic Research, Barack Obama, Recession, Political Commentary, Political Satire, Business News

Bernanke: lower interest rates are "feasible"

2008-12-01T14:07:45Z
WASHINGTON — Federal Reserve Chairman Ben Bernanke said Monday that further interest-rate cuts are "certainly feasible," but he warned there are limits to how much such action would revive an economy likely to stay weak well into next year.

The Fed's key interest rate now stands at 1 percent, a level seen only once before in the last half-century. To help lift the country out of a recession that started in December of last year, many economists predict Bernanke and his colleagues will drop the rate again at their next meeting on Dec. 15-16.
Read more: Federal Funds Rate Zero, Finance, Economy, Interest Rates Zero, Fed Funds Rate Zero, Banks, Financial Crisis, Ben Bernanke, Interest Rates, Business News

Fed Ramps Up Emergency Loan Program

2008-11-28T19:29:06Z
WASHINGTON — The Federal Reserve boosted its lending to commercial banks and investment firms over the past week, indicating that a severe credit crisis was still squeezing the financial system.

The Fed released a report Friday saying commercial banks averaged $93.6 billion in daily borrowing for the week ending Wednesday. That was up from an average of $91.6 billion for the week ending Nov. 19.
Read more: Ben Bernanke, Henry Paulson, Federal Reserve, Emergency Loan Program, Bank Loans, Financial Crisis, Business News

The New Bernanke-Bair-Paulson Insurance Company

2008-11-28T08:13:50Z
After first trying in vain to become toxic-asset managers and, next, non-voting equity investors in shaky banks, the peripatetic trio composed of the Federal Reserve chairman, Ben S. Bernanke; the chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair; and the Treasury secretary Henry M. Paulson Jr. decided last weekend to reinvent itself as an insurance company -- hereafter the BBP Trio Insurance Inc.

Here are the terms of the Citigroup insurance plan: the bank has on its balance sheet about $2 trillion in assets of which $306 billion, mainly related to real estate, are of uncertain value. In the event that those assets turn out to be worth less than $306 billion, American taxpayers will cover -- that is, reimburse -- Citigroup for some losses. But before taxpayers start reimbursing Citigroup for anything, up to $29 billion in losses will be absorbed by Citigroup. (This is the deductible.) After the $29 billion is reached, taxpayers will absorb 90 percent of any additional losses, and Citigroup will absorb 10 percent (this being the co-insurance).

As in a health insurance policy, there is a maximum amount of potential losses that the taxpayer will bear, but that level has not been determined. According to the "Summary of Terms" published by the United States Treasury, that maximum exposure will be "based on a valuation [of the $306 billion book value of assets] to be agreed on between institution [i.e., Citigroup] and USG [the United States government]."
Read more: Fdic, Treasury Department, Insurance, Finance, Economy, Financial Crisis, Henry Paulson, Banks, Personal Finance, Ben Bernanke, Sheila Bair, Business News

Henry Blodget: New Bailout Actually Working!

2008-11-26T08:42:08Z
The latest government bailout, the $800 billion trash-asset-removal-plan announced yesterday, is actually making a difference, at least so far.

One of the goals of the plan is to reduce mortgage rates through government buying of mortgage-backed securities and Fannie and Freddie debt. And it worked immediately. Yesterday saw the biggest mortgage refinancing activity in a year.

If this trend continues, it will allow some homeowners to get out from under onerous adjustable rate mortgages and into cheaper fixed-rate ones--possibly even ones they can afford (at least until they get laid off). This, in turn, will free up some debt-service payments to be used on other things.

The bailout won't solve the whole problem, unfortunately: consumers are still struggling under a massive debt load, and those who are already underwater on their houses won't be able to refinance. But it's a small step in the right direction.

See Also: The Biggest Losers: 20 Global Moguls Who Have Been Creamed By The Market Collapse
Read more: Ben Bernanke, Bailout, Housing Slump, Housing Market, Wall Street Bailout, Government Bailout, Bailout Working, Business News

Leo W. Gerard: Congress Bails out Those Who Shower Before Work, but not Those who Shower After Work

2008-11-25T14:15:27Z
Congress drove the Big Three CEOs out of Washington, D.C. last week, ordering them not to return with their tin cups until they could guarantee their companies would be viable after a $25 billion bailout.

Just days later, Citigroup, a bank that had already received a $25 billion bailout in October, held its hands out for more. Within 48 hours, federal officials approved giving the bank another $20 billion and providing backing for $306 billion in its risky loans and securities. Even though Citigroup was failing just weeks after getting its first government bailout, Congress didn't subject its CEO to the public lecturing and demands for business plans that it did the Big Three.

The message here could not be more clear: Washington will bailout out those who shower before work but not those who shower afterwards.

Washington, D.C. is a white collar town. President Bush and members of Congress understand their suited counterparts on Wall Street. In fact, several prominent figures in the banking industry - including Citigroup's Robert Rubin, a former Secretary of the Treasury, and UBS Investment Bank's Phil Gramm, a former Texas Senator, - worked in Washington first, aiding and abetting the current crisis by de-regulating the financial markets and everything else they could.

Detroit, by contrast, is a blue collar town. It's a place where workers at the Big Three earn thousands of dollars -- the average production employee making $67,480 last year -- not hundreds of thousands, and certainly not Wall Street's millions. The Citigroup CEO credited with overseeing the bank's ill-fated investments, Charles O. Prince III, was forced out a year ago as the bank's massive sub-prime losses began mounting but the board of directors still gave him a $12.5 million bonus, $68 million in salary and accumulated stockholdings, a $1.7 million pension, an office, and a car and driver for up to five years. Heading the board executive committee at that time was Rubin, who would briefly serve as chairman and receive $17 million in compensation as the bank declined further into financial ruin.

Detroit is a place where workers are unionized; Wall Street is not. And right-wing Republicans and conservative pundits have made it clear they want the union workers to suffer. They want federal aid denied to the Big Three so that the firms go bankrupt. Then the companies can renege on pensions they guaranteed to retirees and can break salary and benefit promises to workers in current contracts.

Senate Minority Whip Jon Kyl writes on his web site that Chapter 11 bankruptcy would be best for the Big Three because it would enable them to break their pledges to retirees receiving health care and other benefits earned over decades of service, what he calls "legacy debts": "Like many other industries, including the airlines, the goal under Chapter 11 is to gain temporary protection, reorganize in a way to reduce legacy debts, and emerge as a more viable and competitive company."

Conservative columnist George Will, similarly, wrote: "Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled. . ." Will's fellow Washington Post Columnist Martin Feldstein blamed all of Detroit's problems on the unions, writing that the basic reason the Big Three can't compete: "is labor costs imposed by union contracts." He said if Congress gives the Big Three a loan, it must require "that the unions accept reductions in wages and benefits to levels that allow the firms to compete with imports and with non-union U.S. auto firms. The trustees of retiree benefits should be required to accept reductions in those benefits."

They want the unions broken. They want retirees' benefits slashed and union workers' wages and benefits cut, which, of course, will enable the foreign auto makers - whose U.S. plants are non-union - to reduce their wages. It'll be an all-American race to the bottom, rather than the preferable opposite, where workers and retirees are treated with dignity and respect for their hard labor.

None of those conservatives, however, is calling for Citigroup's Charles O. Prince III, who took down Citigroup at a cost of untold billions to taxpayers, to return his $1.7 million pension, office and car and driver.

Unlike Citigroup and the other Wall Street banks, which have their very own inside-the-beltway apologists in the form of Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson to argue their case before Congress, the Big Three CEOs had to appear before Congress to plead for themselves.

There, legitimately, lawmakers grilled them about flying to the hearings in expensive private jets and about their multi-million dollar compensation packages. Still, none of the lawmakers has asked Citigroup's CEO, Vikram S. Pandit, to take $1 for next year's compensation, as they did the auto executives. Nor have they asked any of the CEOs from the nine banks that shared $125 billion in bailout money in October to sell their private jets, as they did the auto executives.

Conservatives also argued that the Big Three should be left to die because in a free market, that's what happens to poorly operated companies offering inferior products.
Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, said, for example, "I do not support the use of U.S. taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers."

Shelby made this accusation while part of the Congress that ran up the largest federal deficits known to man and allowed Paulson to broker a deal to sell troubled Wachovia bank to troubled Citigroup -- a bank that so far got two bailouts, the first of which arriving within weeks of the failed Wachovia marriage.

Shelby, of course, has a lot to lose if Michigan does well. His home state of Alabama gave tax breaks to foreign car companies Mercedes-Benz, Honda and Hyundai to locate factories there - hardly a free market approach.

So, like many conservatives, he twists reality to suit his circumstances. He's right that American car companies made mistakes. In October, GM's sales were off 45 percent from the year before, Chrysler 35 percent and Ford 30. But he's wrong about that being a result of mismanagement alone, well, unless he thinks his precious foreign car companies made the same mistakes. Toyota was down 23 percent, Honda 25 and Nissan 33 for the same month.

And if aid denial is based on bad products, Wall Street definitely should be the first refused. Its firms built and sold what are now being called "toxic securities," products so defective that they took down banks, the U.S. economy and international financial stability -- creating the deepest economic crisis since the Great Depression. Now that's mismanagement for you!

When the representatives of blue collars went to Congress hat in hand, lawmakers insisted that to get loans automakers would have to present viable business plans. Congress didn't impose similar conditions, however, when Bernanke and Paulson went to Congress seeking grants for reckless white collar firms.

In fact, they gave $125 billion to nine big Wall Street banks in October, contending the direct infusion of money would melt frozen credit. It didn't. The firms apparently didn't lend the money, and the deal didn't require them to. There's a viable business plan for you!

Paulson and Bernanke gave insurance giant AIG $85 billion. And when that didn't work, they forked over more until it all added up to $150 billion. Now, it's not clear that will be enough to resolve AIG's problems. Sen. Jon Kyl, the Republican from Arizona who voted for the Wall Street bailout, didn't demand a viable business plan for AIG or Citigroup, yet said this about the auto industry request: "There's no reason to throw money at a problem that's not going to get solved."

This year, as Wall Street's recklessness destroyed the American economy, a million Americans lost their jobs. It's no wonder no one is buying cars. It's not just that they can't get credit. It's also that they don't have money to spend or they're afraid to spend the money they have.

Some of those furloughed had been on Wall Street. Citigroup announced recently it would cut 52,000 jobs by early next year. But of the million jobs lost so far, 100,000, or one in ten, have been auto workers or employees of auto suppliers. Unemployment in Michigan is 9.3 percent -- while in the rest of the nation it is 6.5.

Just like Paulson who couldn't see that Citigroup was too weak to buy Wachovia, the conservatives intent on denying the Big Three loans are shortsighted. They don't see that 2.3 million jobs in and dependent on the auto industry could be lost. They don't see the effect of slashing the wages and benefits of people who get their hands dirty for a living.

It would mean even more mortgage foreclosures and even more credit card debt unpaid to those struggling banks. It would mean the Big Three defaulting on the $100 billion they owe to those weak banks and bondholders, some of which is secured, some not.

It's the big circle of economic life. If Congress spits on the autoworkers and the millions whose jobs depend on the Big Three, the lawmakers may find themselves using more and more taxpayer dollars to scrub new blood off Wall Street.

Should the Government Bail Out the Big Three U.S. Automakers? HuffPost Bloggers Weigh In
Read more: Congress, Phil Gramm, Hank Paulson, Chrysler, United Auto Workers, Senate Banking Committee, Economy, Honda, U.S. Treasury, Cars, Mercedes-Benz, Federal Reserve, $700 Billion Bailout, Vikram S. Pandit, Ford, Charles O. Prince III, Automakers, Nissan, Unemployment, Bailout, Default, George Will, Hyundai, Sen. Jon Kyl, Detroit, Big Three, Financial Crisis, Washington Post, President Bush, Detroit Bailout Reaction, Detroit Bailout, Automaker Bailout, Big Three Automakers, Toyota, Sen. Richard Shelby, Detroit Three, Gm, The Big 3, Chysler, Detroit Automakers, Robert Rubin, Wall Street, Martin Feldstein, Ben Bernanke, Wachovia, Auto Industry, Bankrupt, Citigroup, Business News

Fed Will Buy Mortgage-Related Assets

2008-11-25T11:07:18Z
WASHINGTON — The Federal Reserve said Tuesday it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.
Read more: Economic Bailout, Wall Street Crisis, Economy, Mortgage Crisis, Federal Reserve, Henry Paulson, Ben Bernanke, Business News

Kashkari: One Of People's Sexiest Men Alive

2008-11-20T17:44:54Z
This explains why he got such a harsh grilling the other day in Congress. Nobody likes a pretty boy!

Wonder if he knew in his Ferrari-posing high school days that this would be his fate. His teachers really would have hated him even more.

But this is kind of hilarious especially considering the people who he is sharing the pages with: Todd Palin, New Kids on the Block (?), Ben Bernanke.

(Kidding, but if they're picking Kashkari anything could happen.)
Read the full story here.

Related:
"Is Kashkari A Chump?" (VIDEO)
Neel Kashkari, Bailout Czar, Not A Fan Of Public Questions
Read more: Sexiest Man Alive, Us Treasury, Ben Bernanke, New Kids on the Block, People Magazine, Neel Kashkari, Todd Palin, Business News