A quickly assembled House bill was approved 328 to 93. It struck hard at Wall Street's compensation system, which has come under fire because of the $165 million in bonuses distributed last week by American International Group to executives of the troubled unit that helped lead the insurance giant to the brink of collapse. Under the legislation, those who received bonuses of more than $125,000 would surrender 90 percent of their payments to a special income tax.
But the bill's reach would extend to bonuses paid to tens of thousands of employees at the nation's nine largest institutions that have received at least $5 billion in assistance under the $700 billion financial rescue package Congress approved last year. The measure also applies to Fannie Mae and Freddie Mac, the mortgage giants the federal government took over in September.
Half the GOP House crossed over to vote for the bill ... after they voted against it... And now, the bankers respond!
Although leading Democrats thought the bill's chances were threatened when House Minority Leader John A. Boehner (R-Ohio) condemned it, about half of the GOP House members backed the measure. The lopsided House tally sent shock waves across the financial sector. Officials predicted dire results, saying the brightest talent could flee institutions that remain wobbly as the firms themselves leave the rescue program prematurely.
"It will have a chilling effect on participation in any government recovery effort," warned Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group. "It harms middle management and the rank-and-file sales force, thereby weakening the very firms we are working to strengthen."
Lawmakers said they are aware of the potential consequences, but are unfazed. "Frankly, bonuses for what?" said Sen. Olympia J. Snowe (R-Maine), a co-sponsor of the Senate bill. "They have to engage in more financially prudent behavior."
"We're all going to lose on this thing," said an executive at a large bank that took federal aid. He and other bankers expressed shock at the rapid progress of legislation that could impose large pay cuts on thousands of worker, and dismay that the industry is at the mercy of an angry Congress.
... While most American workers are compensated primarily by a fixed annual salary or through regular commission payments, people who work in the capital markets receive the majority of their annual income in a lump-sum payment based on their performance, the success of their unit and company profits. Paying bonuses allows firms to tie employee compensation to performance in a given year, something management experts have long regarded as a good practice. But some experts believe that tying bonuses to short-term results encourages employees to take risks with long-term consequences.
Exactly. And how was that end of year performance at AIG looking last year?
Tim Geithner hasn't had a single good day since becoming Treasury Secretary. He's faced multiple theoretical votes of "no confidence," from Congress, from the financial media (a/k/a Wall Street's public relations A-team) and from the general press. He's looking more and more like the administration fall guy in the AIG bonus mess, as defensive Senators point the finger at the White House for stripping bonus caps out of the stimulus bill (AIG's hapless new president is now seeking to get back at least half the money.) And it doesn't help that the guy just looks goofy, has no eyebrows, and doesn't explain himself very well. Unfortunate, since apparently he's a very smart man.
So the question is: does Team Obama have to throw him overboard in order to regain control of the message? Firing someone is usually a good way to send a strong message, but of course, if they were to show him the door, Republicans will pounce on the president for having nominated him in the first place. A nasty dilemma...
AIG’s new management team last year proposed that its employees give up their “retention” bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010?
Take a hike.
“We suggested that early on, but there are people who feel this money was due them,” a source close to the company told The Hill.
It apparently didn’t matter that taxpayers have provided $170 billion and counting to bail out AIG. “Quants,” the people who put together the computer-programmed algorithms behind the complicated hedges and trades that brought down the company, pushed back hard against any notion they should sacrifice their bonuses, the source said.
If that doesn’t warm the hearts of taxpayers and lawmakers alike, maybe this will: Many of those receiving bonuses already have made enough money not to have to work again.
Not all of the workers in AIG’s financial products division were taking home million-dollar bonuses. But according to New York Attorney General Andrew Cuomo, the division’s top recipient got $6.4 million, while the top 10 bonuses totaled $42 million. Seventy-three people received bonuses of $1 million or more, according to Cuomo, who subpoenaed the company for information.
It’s terrible; it’s disheartening,” the source said.
Okay, maybe not so long on the charm... And who gives a crap about the "quants?" The beleaguered company believes AIG’s quants, who created the complicated credit swap defaults that got much of Wall Street into the financial crisis, are the only ones who can unwind them. If they leave, it could make today’s crisis worse.
What? There are no smart, unemployed people left in New York? It gets worse:
AIG’s previous management signed contracts providing $450 million in bonuses to the financial division. On Friday, $165 million went out the door, and another $230 billion is set to be paid in 2010.
Where is the Bastille when we need it? Hey, at least they've convinced Ruth Marcus.
The AIG story has been percolating all weekend, and while I haven't watched my TiVo of "60 Minutes" yet, and I'm not overly conversant with it, apparently Ben Bernanke is PISSED! Well, take a number, brother. My only real thoughts on the subject are that I thought the Bushies didn't like Europeans! Apparently they liked them enough to shovel tens of billions of money to European banks via AIG. And guess who else got money? Our old friends (and Treasury/Fed revolving door company) Goldman Sachs:
(Politico) In all, AIG disclosed payments of $105.3 billion between September and December 2008. And some of the biggest recipients were European banks. Societe Generale, based in France, was the top foreign recipient at $11.9 billion, Deutsche Bank of Germany got $11.8 billion and Barclays, based in England, was paid $8.5 billion.
Here in the U.S., Goldman Sachs received $12.9 billion. Edward Liddy, the government-installed CEO of AIG, sat on the board of directors of Goldman Sachs until he joined AIG.
He took the position while President George W. Bush's Treasury Secretary, Henry Paulson — who until joining the administration had served as Goldman's chairman and CEO — arranged the insurance company's initial government bailout.
Back to the bonuses. Larry Summers and AIG execs said they had to pay them by contract, even though they went to the same London unit that the company blames for its financial collapse, and even though the federal government is in the process, right now, of trying to get Detroit to bust its contracts with American labor.
The undertaker: Richard Shelby tries to provoke a run on Citibank
Richard Shelby proved that he is far too crazy to be in the United States Senate, when this morning on "This Week," he suggested a surprising fix to the banking crisis: close down Citigroup and other major banks. Writes George Stephanopoulos:
Sen. Richard Shelby, R-Ala., the top Republican on the Senate Banking Committee, said today on "This Week" that the government should let trouble banks fail.
"I don't want to nationalize them, I think we need to close them," Shelby told me this morning. "Close them down, get them out of business. If they're dead, they ought to be buried," he said. "We bury the small banks; we've got to bury some big ones and send a strong message to the market. And I believe that people will start investing [again] in banks."
Shelby didn't explain, nor was he asked, by the way, how pulling a Lehman Brothers on potentially dozens of megabanks would inspire investors to re-enter the markets, nor did he explain the particular free market principle behind having the federal government come in with the padlocks and shut down a private bank. George did ask Shelby if he had a particular hit list in mind:
I asked Sen. Shelby if he was referring specifically to Citigroup, the struggling bank that has received about $45 billion in taxpayer money.
"Well whatever. Citi's always been a problem child," said Shelby, who has long opposed giving federal TARP money to struggling banks.
But Thomas Donohue, head of the U.S. Chamber of Commerce, disagreed. "It's not practical to talk about closing a bank that is integrated throughout the whole global economy," he said. "It is practical to talk about buying some of those assets away from those banks and holding them in an institution that would have both public and private money."
Question: is it responsible, in the middle of a recession, for a United States Senator to suggest killing off major banks, by name? If there is a run on Citi, or a major sell-off, on Monday, would Shelby be to blame?
By the way, do you remember who pushed for BofA to complete the Merrill acquisition, effectively tainting its balance sheet with Lynch's toxic assets? You guessed it: the last-minute bank robbers of the Bush Treasury Department:
Friday, Jan. 16, 2009
Treasury, Bank of America reach bailout deal
By MARTIN CRUTSINGER AP Economics Writer
WASHINGTON (AP) - The government has extended a new multibillion-dollar lifeline to one of the country's biggest banks as officials continue to struggle with a serious crisis in the financial system.
After a marathon negotiating session, the Bush administration reached an agreement early Friday to provide Bank of America with an additional $20 billion in support from the government's $700 billion financial rescue fund.
The administration, the Federal Reserve and the Federal Deposit Insurance Corp. also agreed to participate in a program to provide guarantees against losses on approximately $118 billion in various types of loans and securites backed by residential and commercial real estate loans.
The bulk of these holdings were assumed by Bank of America when it acquired Merrill Lynch in a deal that closed earlier this year.
Bank of America had already been granted $25 billion from the bailout fund that Congress passed on Oct. 3, but found it needed more as it sought to cope with rising losses related to its acquisition of Merrill Lynch. ...
The economy shrank at a 3.8 percent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending.
Although the initial result was better than economists expected, the figure is likely to be revised even lower in the months ahead and some believe the economy is contracting in the current quarter at an even faster pace.
The new figure, released Friday by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5 percent decline logged in prior quarter.
Although economists expected an even worse fourth-quarter performance — a staggering 5.4 percent rate of decline — the results were still grim.
Meanwhile, things weren't as bad for some people as for others. Those who did better than the rest of us include...
Bank executives, who handed out about $18 billion in bonuses to themselves, as a reward for screwing up the mortgage market... (President Obama scolded them roundly for it today.)
Exxon Mobile, which posted earth shattering, record profits of $45.2 billion, due to Bushian sky-high oil prices through most of last year. And get this: those profits were DOWN 33%...
And last, and actually, least ... Rudy Giuliani, who's still getting people to listen to him warble, on cable TV, talk radio and on and on, despite having gotten exactly ONE electoral vote during his presidential campaign, and becoming the laughing stock, not just of New York, but of the world, with his scandal-tainted, one state strategy bid for greatness.
The White House plan to use $17 billion in TARP funds to provide short-term loans to automakers was greeting with cheers on Capitol Hill, and in the boardrooms of General Motors and Chrysler, the two companies who will split the cash. But the UAW isn't cheering, and neither should American workers, including in the South, because at the end of the Republican rainbow is plan to not just bust the United Auto Worker union, and paralyze it politically, but also, and more important to conservatives, a plan to break the middle class wage itself, for workers north ... and south. You see, the Bush plan calls on the union to accept wages comparable to those paid by foreign automakers, located down South. But what is it that those automakers really want? They want to pay workers what's called a "prevailing wage," and they want the UAW to be forced to do the same. Why? I'll explain in a moment. First, let's look at the specific terms of the White House rescue plan, which I'll add, needed to be passed, only I wish it hadn't been passed in this form. The details, courtesy of the White House website:
Terms And Conditions
The binding terms and conditions established by the Treasury will mirror those that were supported by a majority of both houses of Congress, including:
Firms must provide warrants for non-voting stock.
Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
Debt owed to the government would be senior to other debts, to the extent permitted by law.
Firms must allow the government to examine their books and records.
Firms must report and the government has the power to block any large transactions (more than $100 million).
Firms must comply with applicable Federal fuel efficiency and emissions requirements.
Firms must not issue new dividends while they owe government debt.
The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
Reduce unsecured debt by two-thirds via a debt for equity exchange.
Make one-half of Voluntary Employee Beneficiary Association (VEBA) payments in the form of stock.
Eliminate the jobs bank.
Work rules that are competitive with transplant auto manufacturers by December 31, 2009.
Wages that are competitive with those of transplant auto manufacturers by December 31, 2009.
Sounds good, right? Limits on executive pay, scaling back on the corporate jets, and the federal government gets stock. Great. But look at the last two provisions again:
Work rules that are competitive with transplant auto manufacturers by December 31, 2009.
Wages that are competitive with those of transplant auto manufacturers by December 31, 2009. [Emphasis added]
What does that mean? Let's go to the Los Angeles Times, and an op-ed by Unite Here food service union president Bruce Raynor, which takes us back to last week's failed Senate vote on an auto bailout that looks suspiciously similar to what Bush announced today:
The foreign nonunion auto companies located in the South have a plan to reduce wages and benefits at their factories in the United States. And to do it, they need to destroy the United Auto Workers.
Last week, Senate Republicans from some Southern states went to work trying to do just that, on the foreign car companies' behalf. Senate Minority Leader Mitch McConnell (R-Ky.), Sen. Bob Corker ( R-Tenn.) and Sen. Richard C. Shelby (R-Ala.) -- representatives from states that subsidize companies such as Honda, Volkswagen, Toyota and Nissan -- first tried to force the UAW to take reductions in wages and benefits as a condition for supporting the auto industry bailout bill. When the UAW refused, those senators torpedoed the bill.
Again, these are American Senators, colluding with foreign auto companies, many of whom are so heavily subsidized by their home governments, they practically are part of those governments, to LOWER THE WAGES OF WORKERS IN THEIR OWN STATES, not just the workers in Detroit. The L.A. Times piece continues:
When one compares how the auto industry and the financial sector are being treated by Congress, the double standard is staggering. In the financial sector, employee compensation makes up a huge percentage of costs. According to the New York state comptroller, it accounted for more than 60% of 2007 revenues for the seven largest financial firms in New York.
At Goldman Sachs, for example, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.
UAW President Ron Gettelfinger realized that the existence of the union was under attack, which is why he refused to give in to the Senate Republicans' demands that the UAW make further concessions. I say "further" because the union has already conceded a lot. Its 2007 contract introduced a two-tier contract to pay new hires $15 an hour (instead of $28) with no defined pension plan and dramatic cuts to their health insurance. In addition, the UAW agreed that healthcare benefits for existing retirees would be transferred from the auto companies to an independent trust. With the transferring of the healthcare costs, the labor cost gap between the Big Three and the foreign transplants will be almost eliminated by the end of the current contracts.
These concessions go some distance toward leveling the playing field (retiree costs are still a factor for the Big Three). But what the foreign car companies want is to level -- which is to say, wipe out -- the union. They currently discourage their workforce from organizing by paying wages comparable to the Big Three's UAW contracts. In fact, Toyota's per-hour wages are actually above UAW wages.
However, an internal Toyota report, leaked to the Detroit Free Press last year, reveals that the company wants to slash $300 million out of its rising labor costs by 2011. The report indicated that Toyota no longer wants to "tie [itself] so closely to the U.S. auto industry." Instead, the company intends to benchmark the prevailing manufacturing wage in the state in which a plant is located. The Free Press reported that in Kentucky, where the company is headquartered, this wage is $12.64 an hour, according to federal labor statistics, less than half Toyota's $30-an-hour wage.
If the companies, with the support of their senators, can wipe out or greatly weaken the UAW, they will be free to implement their plan.
So you see, southerners, you've been had ... again. Your Senators want to crack your wages IN HALF, and make you take the pay cuts with a smile (you beat those dirty old unions, hooray! The South shall rise again...!)
But of course, a provision in the Bush plan makes that plan unlikely to succeed, at least not unless Hank Paulsen has a Jeb Bush style "devious plan" to crush the UAW by January 20th. The provision is married, paragraphically speaking, to an afterthought of the deal: making the other major stakeholders, besides labor, share the load:
These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case that it will achieve long-term viability in spite of the deviations. In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009. [Emphasis added by the White House, not me]
The union can, and will, appeal the work rules and pay "targets" in an appeal to the Obama administration. And Barack Obama has done us the considerable favor of nominating a true friend of the labor movement, California Rep. Hilda Solis, to be his next labor secretary (witness the frothy-mouthed reaction of anti-unionites here), not to mention Bill Richardson, who will be heading the Commerce Department, and his in-coming financial team. Un-American mission (by the Dixie Axis of Corker, McConnell and Shelby, et.al.) not accomplished.
Michigan Gov. Jennifer Granholm (D) said it was "un-American" for senators to have voted against approving a bailout of troubled automakers last night, saying their vote may cause a recession to become a depression.
"It is unacceptable for this un-American, frankly, behavior of these U.S. senators to cause this country to go from a recession into a depression," Granholm said during a radio interview Friday morning.
Negotiations over an agreement to assist Michigan's Big Three stalled last night in a 52-35 vote on a procedural motion to bring up the package for a vote. Republicans largely opposed the bill after it failed to win concessions from the United Automotive Workers union on wages and benefits.
“It is such an unbelievable stab at workers across the country,” Granholm added. “You give this big bailout to these financial institutions–don’t ask a single question, they can do what they want–and then you lay the blame for the auto industry, which is a victim of this financial meltdown, on the backs of the people who are working on the line.”
Bottom line: there is a party of working men, and a party of capitalists, and the latter's mantra is "low prices, low wages, maximum profits."
UAW President Ron Gettelfinger said today that U.S. automobile companies are being put at a disadvantage by government in competing against Volkswagen’s new auto assembly plant in Chattanooga.
The union leader questioned why government leaders in Tennessee are willing to provide assistance to the German-based Volkswagen while the state’s U.S. senators declined to back a federal loan to help the Big Three U.S. car makers.
Mr. Gettelfinger said that trying to equalize UAW pay with what foreign car makers pay in the United States, as urged by U.S. Sen. Bob Corker, R-Tenn., is like comparing apples to oranges. In its home country, Germany provides government-paid health care for Volkswagen workers, and VW is receiving $577.4 million in tax breaks and direct assistance from Tennessee governments to build an automobile plant in Chattanooga.
“They use taxpayer dollars to subsidize our competition,” Mr. Gettelfinger said during a news conference. “It doesn’t help our industry.”
The GOP has, officially I think, lost the Great Lakes region for at least a generation. Ohio included. Good luck being the party of the former Confederacy, boys.
ThinkProgress has the list of Senators who said "oh yeah!" to bailing out Wall Street bankers to the tune of $700 billion, but who couldn't find it in their little coal colored hearts to help the American auto industry. Here they are:
Sen. Max Baucus (D-MT) Sen. Robert Bennett (R-UT) Sen. Richard Burr (R-NC) Sen. Saxby Chambliss (R-GA) Sen. Tom Coburn (R-OK) Sen. Norm Coleman (R-MN) Sen. Bob Corker (R-TN) Sen. John Ensign (R-NV) Sen. Chuck Grassley (R-IA) Sen. Judd Gregg (R-NH) Sen. Orrin Hatch (R-UT) Sen. Kay Hutchison (R-TX) Sen. John Isakson (R-GA) Sen. Jon Kyl (R-AZ) Sen. Blanche Lincoln (D-AR) Sen. Mel Martinez (R-FL) Sen. John McCain (R-AZ) Sen. Mitch McConnell (R-KY) Sen. Lisa Murkowski (R-AK) Sen. John Thune (R-SD)
There were another 10 Senators who voted for the TARP but were absent for last night's vote on the automakers:
Sen. Lamar Alexander (R-TN) Sen. Joe Biden (D-DE) Sen. John Cornyn (R-TX) Sen. Larry Craig (R-ID) Sen. Lindsey Graham (R-SC) Sen. Chuck Hagel (R-NE) Sen. John Kerry (D-MA) Sen. Gordon Smith (R-OR) Sen.Ted Stevens (R-AK) Sen. John Sununu (R-NH)
Some had better excuses than others for not being around:
iden was tending to transition duties, while Kerry was in Poznan, Poland, participating in U.N. climate change talks. Alexander was home recovering from surgery. Why did these other Senators feel auto workers weren’t as deserving as Wall Street? We’d like to know.
The White House appears ready to step in to prevent General Motors and Chrysler from collapsing on George W. Bush's watch. From the WaPo:
The Bush administration said today it is willing to consider using funds from other sources to provide emergency aid to the nation's Big Three car companies following the Senate's rejection Thursday night of a congressional bailout plan.
The statement from White House spokeswoman Dana Perino marks a shift in tone for the administration, which has so far rejected the idea of using money from the $700 billion Troubled Asset Relief Program or other sources under its control to help the auto industry survive. After the collapse of negotiations in Congress, however, the White House said all options are on the table to help keep the automakers in business. GM and Chrysler have said they are in critical need of help, while Ford's position is less dire.
"Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms," the White House statement said. "However, given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of
"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," the statement said.
An official at the Treasury Department, which administers the TARP, said separately that the agency was "ready to prevent an imminent failure" of the auto companies, the Reuters wire service reported.
The reason for the urgency: suppliers to GM can't extend credit to the company so it can keep producing cars, so GM will have to ... stop producing cars. And the reason for that? The banks who received hundreds of billions of your tax dollars, refuses to lend the money out, including to the suppliers.
DETROIT -- Cash-starved General Motors Corp. and Chrysler LLC within weeks will be hit by $9 billion in bills for already-delivered auto parts, a tab they likely can't afford to pay without emergency government assistance.
Parts suppliers, hammered in recent months by a severe downturn in U.S. auto sales, face shortfalls of their own if the auto makers fail to pay.
The impending payments to suppliers, which in GM's case account for nearly half the cash the company had available at the end of the third quarter, present the most immediate threat to the auto makers as they plead for a lifeline from the Bush administration following the defeat of a $14 billion auto loan package late Thursday by the Senate.
Concerns are rising that parts manufacturers now could take steps to tighten payment terms, which would accelerate the cash burn that threatens the viability of the auto makers.
"We need to satisfy suppliers that there is going to be a tomorrow," United Auto Workers President Ron Gettelfinger said Friday at a news conference.
"If suppliers believe they can't operate, what are they going to do? They aren't going to deliver the goods. If they don't deliver the goods, the plants go down," the UAW chief added.
The reality is that many of the suppliers are just as challenged as GM and Chrysler, which have said they need more than $10 billion in government assistance by year's end to avoid collapse. Just as the auto makers rely on their suppliers and the trade credit they provide, parts manufacturers have suppliers of their own.
Meanwhile, in one of those patented "strange bedfellows situations," the UAW is now putting its faith in President Bush, having been failed by a weak Senate majority leader, and a wicked bunch of Dixiecans whose goal, after all, was to crush the UAW.
UPDATE: Dubya has apparently been warned by George Voinovich that if he doesn't act, he'll be known as "George Herbert Hoover Bush," and apparently, the Dark Lord sent the same message to his party ...
Asian markets are down sharply this morning after southern Republicans tank the auto bailout. From CNN Money, proof that Shelby, Corker and McConnell's scheme to tank Detroit in order to
help Japan and Germany didn't quite work that way:
A week of solid gains ended on a sour note for Asian markets Friday as stocks across sectors got hammered after a $14 billion government bailout of the Big Three automakers collapsed in the U.S. Senate.
Regional car makers such as Toyota Motor Corp., Honda Motor Co. and Hyundai Motor Co., who depend heavily on the U.S. market, plunged in afternoon trading.
Major global currencies also plunged against the yen as risk-averse investors reversed their short sales of the Japanese currency after Senate Majority leader Harry Reid said the Democratic and Republican Senators failed to reach a compromise on the bailout package, which cleared the House of Representatives Wednesday night.
Left to right: Senators Bob Corker (R-TN), Mitch McConnell (R-KY) and Richard Shelby (R-Bama.) Are they acting as agents of foreign governments?
The pared down, $14 billion Big Three bailout loan deal, passed the House today, but appears dead in the Senate after talks broke down late tonight, mostly because of the objections of a trio of southern Senators, who had vowed to kill the bill there with a good old fashioned, Old Dixie filibuster, unless the auto workers' union agrees to "bring their members' wages and benefits in line with those of Japanese automakers.' And while you digest the fact of American Senators calling for U.S. workers to bow and scrape for whatever foreign companies have on offer, ask yourself these questions:
Why would three southern Senators want to kill the American automotive industry? Would United States Senators really attempt to crush a crucial part of our homegrown industrial base on behalf of foreign automakers? And if so, shouldn't Richard Shelby of Alabama, Bob Corker of Tennessee and Mitch McConnell of Kentucky have to register with the attorney general as agents of foreign governments? After all, Japan and Germany heavily subsidize their auto industries, and both countries provide universal healthcare, which is one big reason Toyota, Honda, Volkswagon, et.al have much lower legacy costs than the Big Three. And when these companies earn profits, what they don't pay in federal and payroll taxes, goes right back to their home governments, hence our three Senators are in essence, lobbying on behalf of Tokyo and Berlin.
To backtrack, these three gentlemen, and I use the term very loosely, all-but promised to kill a deal to bail out the Big Three in Washington, even though one of them, McConnell, was key to passing the much bigger bank bailout. The problem? Again, not bailouts, per se. They're for them when it comes to the banks (except Corker, who voted against the Wall Street handout.) The trouble here, is that all three of these guys have major foreign automakers implanted in their states, those automakers having been drawn to places like Alabama, Kentucky and Tennessee by billions of dollars in ... you guessed it ... (state) government handouts. Crippling Detroit, even at the cost of millions of American jobs, could only help the Senators' foreign clients out, in no small part by breaking the United Auto Workers union, and preventing it from attempting to unionize southern auto workers, thereby reserving the preferred status conferred on the Toyotas, Hondas and Volkswagons of the world. From the Detroit Free Press:
Alabama is home to plants for Mercedes-Benz, Honda, Hyundai and Toyota. Tennessee is getting a new Volkswagen plant and is home to Nissan’s North American headquarters and other manufacturing facilities.
Georgetown, Ky., in McConnell’s home state, is the site of Toyota’s biggest plant outside Japan.
Sen. George Voinovich, R-Ohio, a supporter of the auto industry rescue plan, said he’s still waiting for specifics on what the legislation’s critics are demanding.
“I think it’s antiunion. I think that’s the motivation behind it,” said Mike Kennedy, 44, of Warren, a member of UAW Local 961 who works at Chrysler’s Detroit Axle plant on Lynch Road. “They want us to file for bankruptcy so they can walk away from their obligations.”
Kennedy said he’s hearing a lot of anger toward Southern senators among rank-and-file members, likening it to a civil war ready to break out again, North against South.
And then there's the small matter of politics: the UAW is a big booster of Democratic Senate candidates, and who needs that, right boys?
What this crisis has created is the unbelievable spectacle of supposedly loyal Americans, starting with Mssrs. Shelby and Corker, demanding that American auto workers accept whatever wages foreign automakers pay their employees, essentially reducing these United States Senators to bag men for the former Axis powers. In fact, freshman Senator Corker's plan read like a World War II appeasement letter:
Corker's four-point plan requires existing bondholders to accept 30 cents on the dollar to help reduce automakers' debt, and force the car companies and United Auto Workers to bring wages immediately in line with foreign automakers. It also would drop supplemental unemployment payments to workers. He also wants the UAW to agree to take half of the payments they are owed from Detroit's automakers to fund a trust the union would manage beginning in 2010 to pay for retiree health care. In exchange, General Motors Corp. and Chrysler LLC would get up to $14 billion in emergency loans immediately to help them fund their operations. If they didn't get concessions by March 15, they would have to file for bankruptcy.
He grew up in Chattanooga, a city that was repeatedly rejected by U.S. auto makers as a site for new plants. But Volkswagen turned around Chattanooga’s fortunes in July by agreeing to build a $1 billion assembly plant near the city–the German auto maker’s first assembly plant in the U.S. Volkswagen plans to build hundreds of thousands of vehicles there in the next few years, providing 2,000 manufacturing jobs as well as countless more jobs in supply and logistics. So, where the Big Three had let the city down, Volkswagen capped the city’s long-desired industrial revival. As Corker told the Associated Press at the time, the city “will never be the same again.” Volkswagen is building the plant to compete with Toyota Motor, which puts Chattanooga inside the most competitive dynamics in the global auto industry.
McConnell, the Senate minority leader, has made no secret of his eagerness to see the American auto industry say "sayonara" so that the Japanese can keep greasing up non-union Kentucky:
“We also have other auto manufacturers who are doing quite well,” McConnell said, naming Toyota’s Georgetown, Ky., operation. “It happens not to be American companies and that is sad. But it’s not like we don’t have success in the auto industry. We do.”
And Shelby, the ranking Republican on the Senate banking committee, has been equally skeptical of the absolute need to have a strictly "American" automobile industry:
WASHINGTON (Nov. 19) - Sen. Richard Shelby, who represents a state with 134,000 people who help build cars for Asian and European companies, was unpersuaded Tuesday when American auto executives asked Congress for emergency financial aid to stay afloat.
"Are we here in the Senate being asked to facilitate a stronger, more competitive auto manufacturing sector, or to perpetuate a market failure?" Shelby asked at the opening of a standing-room-only hearing on Capitol Hill.
After the hearing, he concluded that it was the latter.
And about those state subsidies, you know, the government money being thrown at an auto industry, only the governments are former Confederate states and the automakers are NOT American? Well ... it's a LOT of money:
Shelby's position is not merely that of a fiscal conservative. His home state has provided millions of dollars in taxpayer subsidies to lure Honda, Hyundai, and Mercedes-Benz to build huge plants there. Indeed, some critics believe that without the incentives from Alabama - and similar tax breaks given by a number of other states to a dozen foreign automakers - the Detroit companies would not need a federal bailout.
The foreign-based automakers have received relatively little attention during the debate over the auto bailout bill because they have not asked for money from Con gress. Yet their role is immense: In 2007, for the first time, foreign firms produced a majority of cars sold in the United States. While Detroit's auto industry is shutting plants and slashing union jobs, the foreign-based auto companies have been booming, particularly in the South, with new nonunion plants slated to open in Tennessee and Georgia.
House Financial Services Committee chairman Barney Frank of Massachusetts, who is playing a key role in hammering out a loan deal, said in an interview that some opponents are "completely hypocritical" because they back local tax incentives to lure foreign companies that now pose some of Detroit's stiffest competition. Frank also denounced those members of Congress who oppose the assistance for the Detroit automakers as a matter of fiscal prudence at the same time they fight for agricultural subsidies for their states.
So how much money are we talking?
It is difficult to ascertain the exact amount of tax subsidies provided to the foreign automakers because they are provided by so many localities and in different ways, including property tax breaks and corporate tax abatements. One study found that the total subsidies to foreign automakers exceeded $2 billion.
Alabama paid more up front per job in tax subsidies to the foreign automakers than Detroit is asking per job with the loans, said Cole of the automotive center.
I've heard figures of upwards of $250,000 per job gained. Meanwhile, the GOP is about to preside over the flushing of 3 million jobs and the pensions of 850,000 retirees ... many in swing states. For Shelby, Corker and McConnell, who live in ruby red states, that may not matter. But it will matter to their party, which will be blamed ... make no mistake about it ... if the Big Three, or even just General Motors, vanish under Bush's watch. Believe it.
I say all of this, by the way, as one who is no fan of the "built in obsolescence" crowd that's been running the U.S. auto industry for a generation (and the moron politicians who heaped SUV tax break largesse on them), and as somebody who specifically detests the Ford Motor Company (my three-year-old Expedition having literally exploded in my driveway a couple of years ago, and the company having sniveled out of responsibility for it, and sent me a nice letter about the ignition switch recall the NEXT DAY.) My mother had a Chevy Cavalier when I was growing up that was a piece of shit, too. In fact, all our cars when I was growing up were made by General Motors, and the only one that was worth a plug nickel was my gigantic 1974 Buick Apollo that my mom's best friend gave me for $300 my senior year in high school (in 1986. Hey, you can fit a lot of friends in a Buick Apollo...) I have, on occasion, vowed out loud to never buy another mother-bleeping American car. And yet, at my house, we have one foreign and one domestic -- an Acura and a Jeep Grand Cherokee Limited. I drive the Jeep. And I must admit, I love the bloody thing. But what's most important is that for all their faults, and I think all of the management should be fired, I believe that whatever Shelby, Corker and McConnell might think, America simply cannot remain an industrial power without a homegrown manufacturing industry, and right now, the auto industry is the biggest manufacuring sector left. If we let it go, even 10 million Honda jobs in Dixie at Wal-Mart wages won't buy us back our economic clout.
In the 1950s, we made all our own toys, clothes, shoes, bikes, furniture, motorcycles, cars, cameras, telephones, TVs, etc. You name it. We made it.
Are we better off now that these things are made by foreigners? Are we better off now that we have ceased to be self-sufficient? Are we better off now that the real wages of our workers and median income of our families no longer grow as they once did? Are we better off now that manufacturing, for the first time in U.S. history, employs fewer workers than government?
We no longer build commercial ships. We have but one airplane company, and it outsources. China produces our computers. And if GM goes Chapter 11, America will soon be out of the auto business.
Our politicians and pundits may not understand what is going on. Historians will have no problem explaining the decline and fall of the Americans.
Just a thought: why would Congressional Democrats consent to the creation of a "car czar" who serves at the pleasure of, and reports to, President Bush? Are they not setting Bush up perfectly to appoint an uber union-buster who will, from the moment he or she takes office until they leave in 40 odd days, be a lame duck on a pop up timer, with the game being, "break the UAW before you go?" Sayeth the WaPo:
Under the plan, unveiled by Democratic leaders, the Treasury Department would cut checks for the car companies as soon as next week. The proposal also calls for President Bush to name a "car czar" to manage a vast restructuring of the firms and restore them to profitability.
Democrats bent to the will of the president on several key demands, most notably in agreeing that the emergency funding would be drawn from an existing loan program aimed at promoting fuel-efficient technologies.
Still, the White House objected yesterday to several elements of the Democratic proposal, congressional aides said, including requirements that the car companies notify Washington of any transaction of more than $25 million and that they pull out of lawsuits against states seeking to enforce tougher tailpipe-emissions standards.
Under the proposal, the car companies would be required to submit detailed plans for restructuring by March 31, when they would be eligible for additional government assistance. The Bush administration was pressing to strengthen those provisions to make clear that only companies that were either financially viable or taking steps to achieve viability could receive more federal cash.
Wow. Giving in to Bush demands. That's a new one for Congressional Dems ... (yeesh)...
Aside from the distastefullness of Pelosi and Company's hapbit of ALWAYS giving in to a weakened president, it seems to me that the proposed $15 billion "mini-bailout" does three things:
1) Ties President-Elect Obama's hands, by making all deals binding through March, thus giving a Bush appointee, who if history is any guide, will be a union-busting Kleptocrat, authority that reaches into the next administration.
2) Jeopardizes the UAW, by creating conditions that can likely only be met by eviscerating the current, slimmed down union contract, and/or by laying off thousands more workers, to meet Wall Street's standards of "profitability."
3) Puts suppliers in jeopardy, but potentialy forcing the Big Three to break contracts with these, typically smaller, companies in order to meet the bailout requirements.
Instead of such a deal, can't Congress simply appropriate money for the automakers, within their constitutional authority, and dare the lame duck president to veto? The bottom line is that the auto companies are practically worthless, particularly GM and Chrysler, and as Michael Moore says, they could be bought outright for a fraction of the cost of bailing them out. The Congress holds the whip hand, but as usual, they are too timid to use it. Nancy Pelosi can talk about "haircuts" all she wants, but the fact remains that this is a big give to the outgoing president.
It's a shame when ordinary Americans, like the workers at Republic Windows and Doors, are ballsier than the people who supposedly represent us in Congress.
“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance, but after due consideration, has decided not to act,” Bernanke wrote Dodd. The letter was dated Dec. 5 and released Tuesday.
... lending directly to an auto company would represent a “marked departure” in the use of the Fed’s emergency program, which is aimed at promoting financial stability, a crucial underpinning for the broader U.S. economy, the Fed chief wrote.
“It would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities,” Bernanke wrote. “Our view is that questions of industrial policy are best resolved by Congress.”
Dec. 9 (Bloomberg) -- Republic Windows & Doors workers who staged a protest at the company’s Chicago factory won a victory today when Bank of America Corp. offered loans to the firm to resolve a pay dispute.
Bank of America said in a statement today that it was “prepared to provide a limited amount of additional” loans to Republic and “expressed concern” over “Republic’s failure to pay their employees the employee Claims to which they are legally entitled.” Workers were upset that they did not receive vacation pay when the plant shut down.
Workers blamed Bank of America, the biggest U.S. retail bank, for the factory’s Dec. 5 closure after it canceled a line of credit to the manufacturer, whose sales have been gutted by the housing slump. The Charlotte, North Carolina-based bank has received $15 billion from the U.S. Treasury as part of its effort to boost capital, while Merrill Lynch & Co., the securities brokerage it is buying, has gotten $10 billion.
The workers’ union has been planning a rally at noon tomorrow at the Bank of America building in downtown Chicago. The factory sit-in has become the center of the debate over how more than $700 billion in federal funds are used to help the world’s largest economy weather the worst economic decline since the 1930s. Government bailout money should be used to help businesses such as Republic rather than Wall Street firms and global banks, the United Electrical, Radio and Machine Workers of America, which represents the Republic workers, said on its Web site.
The worker sit-in at Chicago's Republic Windows and Doors enters its fifth day, as those facing layoffs demand severance and vacation pay. The problem: the company is out of cash, and its banker Bank of America, won't extend a line of credit, even after BofA received billions in bailout money from taxpayers. From today's Chicago Tribune:
A standoff between workers at Republic Windows & Doors and its owners and bank over the plant's closing stretched into a fifth day after talks produced no agreement despite considerable political pressure and threats of investigations.
The 240 union workers staging a sit-in at the plant on Goose Island in Chicago decided to stay put at least until negotiations between their representatives and company owners and Bank of America continue Tuesday afternoon.
On Monday, workers were visited by a parade of politicians, including Gov. Rod Blagojevich and U.S. Sen. Dick Durbin (D-Ill.), who voiced their support for the workers while threatening Republic and Bank of America with lost business, legal action and federal inquiry. At City Hall, Chicago aldermen called for hearings on Republic, which had received about $10.4 million in city redevelopment funds as of the end of 2007, according to city documents.
Workers have been occupying the building since its abrupt closing Friday. They are protesting the loss of what they said is vacation and severance pay they've earned and the lack of notice about the closing. The federal WARN Act requires 60-day notice of a plant's closing.
Many said Monday that they appreciated the encouragement and national attention, recognizing that their effort had tapped into concerns about job security in a declining economy.
"I'm not scared because I'm not alone on this," said Raul Flores, 25, who had worked at Republic for eight years. "We're strong and we're going to stay. This gives us the strength to keep going. This is going to be for everyone."
Durbin said he would raise questions in Washington about whether billions of dollars of federal bailout money given to struggling banks is being properly used. Gutierrez urged a federal investigation into the company's failure to make required severance payments.
"The taxpayer dollars going into these big banks are not for dividends, they're not for executive salaries, they're for loans and credit to businesses just like Republic so they can stay in business and so these workers won't be out on the street unemployed," Durbin said.
Bank of America cut its line of credit to Republic, which the company said forced the plant's closing last week. Blagojevich threatened that the state would suspend all business with the bank until the Republic matter was resolved. Aldermen and Cook County officials also proposed suspending business with the bank and withdrawing hundreds of millions of dollars. ...
Of course, the governor has got his own problems, but that's a whole 'nother post...
Republic says its business tanked because of a sharp decline in home building. BofA says Republic needs to "manage its own affairs." Dueling statements were issued yesterday, by the bank, a "don't look at us":
"We agree with the statements of public officials that Republic Windows and Doors should do all it can to honor its obligations to its employees and minimize the impact of failure on those employees.
We are reaching out to the management and ownership of the company to see what they can do to help resolve this issue.
As a creditor of the company, we continue to honor all of our agreements with the company and have provided the maximum amount of funding we can under the terms of our agreement.
By any objective measure, Republic Windows and Doors is unable to operate profitably given the challenges of the current economic climate and its industry. Public statements by management of the company have made this clear.
When a company faces such a dire situation, its lender is not empowered to direct the company's management how to manage its affairs and what obligations should be paid. Such decisions belong to the management and owners of the company.
Bank of America has worked with the company and shared our concerns about the company's situation and its operations for the past several months. It is unfortunate that the company has been unable to reverse its declining circumstances."
10/16/08 a- Republic presents plan for "orderly" wind down including ceasing manufacturing in January 2009. INFORMS BANK OF AMERICA OF POSSIBLE WARN ACT NOTICE ISSUES AND VACATION PAY. 10/15/08 a- Informed Bank of America that Republic had a 10/24/08R buyer for the existing Note for ±$3.0M, discount of $1.5M. 10/15/08 a- Offer rejected by Bank of America stating they believed they were "over" collateralized. 10/15/08 a- Bank of America demands plans for "orderly" wind down Republic. 10/18/08 a- Bank of America rejects plan and demands a shorter wind down period. 10/27/08 a- Republic responds with a new plan to cease operations January 2009. 10/29/08 a- Bank of America rejects plan. 11/25/08 a- Republic requests permission from Bank of America to issue vacation pay to all employees. 11/26/08 a- Bank rejects Company request to make vacation pay.
“They want the poor person to stay down,” said Silvia Mazon, 47, a mother of two who worked as an assembler here for 13 years and said she had never before been the sort to march in protests or make a fuss. “We’re here, and we’re not going anywhere until we get what’s fair and what’s ours. They thought they would get rid of us easily, but if we have to be here for Christmas, it doesn’t matter.”
The workers, members of Local 1110 of the United Electrical, Radio and Machine Workers of America, said they were owed vacation and severance pay and were not given the 60 days of notice generally required by federal law when companies make layoffs. Lisa Madigan, the attorney general of Illinois, said her office was investigating, and representatives from her office interviewed workers at the plant on Sunday.
And of course, from the president-elect:
At a news conference Sunday, President-elect Barack Obama said the company should follow through on its commitments to its workers.
“The workers who are asking for the benefits and payments that they have earned,” Mr. Obama said, “I think they’re absolutely right and understand that what’s happening to them is reflective of what’s happening across this economy.”
Question: why not designate Bank of America bailout funds to save this business?
Word broke on the Rachel Maddow Show tonight that House leaders appear to have reached a compromise on the auto bailout. And of course, in the finest tradition of the Democratic Party, the deal was made by caving in to George W. Bush:
WASHINGTON - Jolted by the loss of thousands of jobs, congressional Democrats and the White House reached for agreement Friday on about $15 billion in bailout loans for the beleaguered auto industry. President George W. Bush warned that at least one of the Big Three carmakers might not survive the current economic crisis.
Several officials in both parties said a breakthrough on a long-stalled bailout came after House Speaker Nancy Pelosi bowed to Bush's demand that the aid come from a fund set aside for the production of environmentally friendlier cars. The California Democrat spoke to White House chief of staff Josh Bolten during the day to signal her change in position, they added.
The developments came as desperate auto executives pleaded for a second straight day with lawmakers for loans to help them survive, and the government reported the worst single month’s job loss in 34 years.
I liked Barney Frank's take. Saying we only have one president at a time greatly overstates the number of presidents we have. Why Nancy and company continue to do the lame duck's bidding is beyond me. The funds have to be given, but I can't for the life of me understand why the money couldn't have come from Henry Paulsen's $700 billion kitty. By the way, should it trouble us that the incoming Treasury Secretary reportely would like to get rid of the FDIC chairwoman, Sheila Blair, who has been the sole voice crying out for direct help to homeowners? (BTW Team Obama denies...)
While you were busy bitching about the UAW's contracts and saying "hell no" to a Big Three, blue collar bailout, AIG is using your money todouble the salaries of some of its white collar workers.
Dec. 4 (Bloomberg) -- American International Group Inc., whose bonuses and perks drew fire from lawmakers after the insurer accepted a federal bailout, will make special retention payments that more than double the salaries of some senior managers, according to a person familiar with the matter.
Some executives among 130 recipients will get more than $500,000, about 200 percent of their salaries, to stay through 2009, said the person, who declined to be named because the information hasn’t been publicly disclosed. An undetermined number of lower-paid employees will also get cash awards to dissuade them from quitting, the person said.
“It seems like more than what you’d need to pay to get people to stick around,” said David Schmidt, a senior consultant at executive pay firm James F. Reda & Associates. “Nobody’s hiring, so where are you going to go?”
Wow. You can screw up a company and then get paid to stay in your job when nobody else is hiring anyway? Maybe these guys should get government jobs. Oh, wait, they already have them.
Meanwhile, while the boss is over in China begging for table scraps, Treasury is turning to Team Obama for help getting Congress to fork over the second half of the $700 billion top hat and tails, bonuses for CEOs free cash giveaway.
From Jack Welch on the overly solicitous "Morning Joe" this morning, to Sen. Robert Bennett of Utah a few minutes ago during the automakers hearing, the consensus on the right is that to save the American auto manufacturing industry, step one is to break the United Auto Workers Union. Step two: break American workers and force them to accept the model set up by Japanese automakers who operate in "right to work" (read: "right to pay you crappy wages") states in the American South. That model involves highly automated plants staffed by fewer, low skill, modestly educated workers, who make nearly half what GM, Chrysler and Ford workers, who are more skilled, and operate more technical machinery, earn per year. And no, it's not $70 an hour. That's a read herring. It's more like $28 on average, $14-15/hour to start.
Welch's latest Business Week column is out, in which he proposes that the U.S. automakers be shuttled into bankruptcy, with the federal government assuming stewardship of the various warranties offered on their cars. That way, Welch told his drooling, sycophantic audience on the set of "Morning Joe," the Big Three can finally rid themselves of the UAW, break their union contracts, and void the contracts they currently hold with suppliers. The beauty of Welch's idea is that it crushes middle class wages, and kills off the suppliers, too, forcing U.S. manufacturers to seek parts overseas, where workers make the preferred wage: subsistence. And of course, Welch also proposes the favored strategy of the "free marketeers": consolidation:
Talk about a fresh start. For more than a decade, U.S. carmakers have chipped away incrementally at massive legacy costs. But reorganization would open the doors to meaningful structural change through the renegotiation of contracts with creditors, dealers, and unions. And it would offer better odds of paying back taxpayers.
Once in Chapter 11, a merger would further galvanize real change. Three companies are too cumbersome to unite, and Ford has a two-tiered, family-owned structure, so we'll leave them out of this for now and propose GM and Chrysler join forces. Such a merger could create $15 billion in synergies from reduced capacity and overhead, money that could lower production costs and boost R&D spending. Granted, GM and Chrysler could lose share during the transition, but a merged entity would still end up with more than a quarter of the U.S. market.
Bennett, who pushed hard (video) for the passage of the Wall Street bailout and who brags about it on his website,, just sent my jaw dropping by proposing during the hearing, by proposing that instead of giving loans to the Big Three, the government give still more money to the banks, since after all, they are the ones to whom most of the automakers' debt is owed, and in his words, they "won't bee too happy" with the notion of switching out their debt holdings for equity in the companies. Wow. So the answer is: give more money to the very banks who brought us to the brink of economic collapse, since they, unlike the grunts in Detroit, are white collar, highly paid money changers.
Bush meets with his economic team on March 17, 2008. To Bush's right are Treasury Secretary Henry Paulsen (center) and National Economic Council Director Keith Hennessey. Photo: Getty Images
An AP headline this morning shows that, surprise! ...okay, no surprise ... the Bush administration was forewarned about the mortgage meltdown, and backed off regulating non-bank and bank profligates anyway. The bottoom line:
WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.
"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.
Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.
"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.
The warnings were contained in a 2005 set of proposals from banking industry regulators. The recommendations were promptly ignored. A bit more from the AP story:
Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.
In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:
_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
_Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.
_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.
"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.
So, who will be held accountable for this disaster? Not the banks. They're being paid off for their malfeasance. And not anybody in the Bush administration, either. Democrats in Congress simply don't have the stomach for it, even after the big November win. And I wouldn't hold my breath waiting for the incoming A.G. to start racking up the prosecutions, either. The Obama administration will come into office feeling that it has bigger fish to fry than the old fish stinking from the previous administration. And that's a shame.
Lame Duck Teasury Secretary Henry Paulsen insisted on talking again today, as did his boss, sending the markets south, as happens every time either of these clods drops jaw. Meanwhile, the latest brand new proposal out of George Bush's Washington sounds as lame as the first twothree ten. And as usual, it's focused on handouts to Paulsen's friends in the banking industry. The idea is artfully cloaked in the pretense of "helping Main Street":
The Federal Reserve and Treasury moved today to boost consumer spending and lower home mortgage rates, committing up to $800 billion to make it easier for households to borrow money for cars, tuition bills and new homes as part of a broad effort to rekindle economic growth.
The new program puts the balance sheet of the country's central bank behind two critical but troubled parts of the economy -- consumer spending and housing. It is largely separate from the $700 billion Troubled Asset Relief Program, administered by the Treasury Department and focused on shoring up the country's financial system.
Ah, that sounds lovely. But what this really is, is a bailout of wealthy investors:
A Treasury news release noted that in 2007, about $240 billion in car, student and other consumer loans had been packaged by the companies that issued them into larger securities and sold to investors, who then benefit from the flow of payments from borrowers. That system of packaging and reselling loans keeps money flowing to banks and other lenders, allowing them to make even more money available to consumers.
However it all but stopped over the past two months, leading to rising interest rates, a downturn in lending -- and a risk that economic growth could be dragged down even further.
The Fed said it would provide up to $200 billion to investors who put the money toward consumer loans in the form of credit cards, auto loans and student loans, as well as some forms of small business lending.
In other words, Uncle Sam is about to write a big, fat check to erase the risk that big investors took when they bought junk credit card and mortgage debt. Then, magically relieved of the burden of that bad paper, banks will suddenly decide to start lending packagable money again. Tada! But wait, there's more:
The Fed's consumer lending program is partially backed by $20 billion from the TARP, which will be used to absorb losses on the program up to that amount. The Fed loans to investors will earn interest and also a fee from those who take advantage of it.
Paulson said the initial $200 billion "is a starting point" and could grow over time.
In addition to consumer spending, the Fed announced it would buy up to $100 billion in mortgages held by Fannie Mae, Freddie Mac and the Federal Home Loan Bank in an effort increase the flow of money into the housing markets and lower interest rates. The Fed will also buy another $500 billion in bundles of mortgage-backed securities issued by the agencies.
The fact that TARP money is wrapped up in this is just one problem. The federal government is clearly going to have to become the spender of last resort, given that consumers aren't secure enough in our jobs to start buying things (or gassing up) any time soon. But for the government to use tax money to eliminate investment risk, and to bail out big investors, is criminal. Oh, and the banks that have been getting these shovels full of your money? They've been using them to bail out THEIR investors too, by paying dividends (something they plan to keep doing for the next three years), and they've been using their TARP money to pay bonuses to their executives, and even (hello, Citibank and Wells Fargo,) to buy other banks. I'd like to see the Big Three automakers even think about doing anything like that.
Meanwhile, the administration continues to reject a reasonable proposal from the head of the FDIC, which would directly help struggling homeowners stay out of foreclosure, while protecting taxpayers, all at a cost of just $40 billion -- a fraction of the $7 trillion estimated cost of all these serial bailouts of the rich.
The Paulsen regime's eagerness to hand out taxpayer cash to the investor class on their way out the door is so brazen, it's like a bank robbery in broad daylight, with the police holding open the vault door. And Paulsen and Bush used alarmism, and threats of a "Great Depression II" to scare Americans into going along with the $700 billion (and climbing) bank bailout. Meanwhile, the U.S. auto industry, with 3 million "regular folks' jobs" in the balance, isn't worthy of help. Fancy that.
From the Iraq money pit to the Bush tax cuts for the top 1 percent income earners to the Wall Street bailout, the Bush administration has been one, eight year long mugging; a reverse Robin Hood spree in which we, the middle class working people, are being robbed blind, right before our eyes, in order to give to the rich.
Nancy Pelosi and her wussy counterpart from Joe Lieberman's very own, personal Senate lay down the law to automakers, demanding from them the same thing a bank would before lending anyone, let alone such a dubious client, money: a business plan.
Democratic leaders said Thursday that they want the struggling American car manufacturers to submit a business plan in the next two weeks in order to receive billions of dollars in emergency aid from the federal government.
Senate Majority Leader Harry Reid (D-Nev.) and House Speaker Nancy Pelosi (D-Calif.) said they would return in December to review the plans, which are due by Dec. 2. Congress would then return on Dec. 8 to consider a proposal to help the auto industry.
The leaders made the announcement after saying they would not accept a deal, worked out by Republican and Democratic senators from Rust Belt states, that would lift restrictions on $25 billion in money previously approved to help automakers retool their plants to make more fuel-efficient cars.
“Executives for auto companies have not been able to convince this Congress or the American people that this bailout will be the last,” Reid said.
Instead, they want automakers to come up with a plan that shows how they would use the money.
“Until they show us a plan, we cannot show them the money,” Pelosi said.
Have you noticed the concerted effort, on talk radio, in the Wall Street Journal, and on the political right, to blame the Big Three auto makers' woes, not on the management whose bloated salaries and bad decisions helped get their industry into the fix their in, but rather on "greedy," unionized workers, who over the years demanded too much pay, and too many health and retirement benefits, all via their evil union, the United Auto Workers? A sample:
Sen. Jim DeMint: “Some auto manufacturers are struggling because of a bad business structure with high unionized labor costs and burdensome federal regulations. Taxpayers did not create these problems and they should not be forced to pay for them.”
Sen. Jon Kyl: “For years they’ve been sick. They have a bad business model. They have contracts negotiated with the United Auto Workers that impose huge costs.The average hourly cost per worker in this country is about $28.48. For these auto makers, it’s $73. And for the Japanese auto companies working here in the United States, it’s $48.”
Gov. Arnold Schwarzenegger: “You know, if you pay the auto workers or the benefits and all of those things, are maybe too high. … We have, like, in America, you sell a car, and you have $2,000 of each car just goes to benefits. So I think that there’s a way of reducing all of that, make them more fiscally responsible.”
And this from right wing CNS News, whose Dan Gainor says a proposed bailout:
... has little to do with saving Detroit and a lot to do with helping out the Democratic Party’s political machine. The chief recipient of this deal isn’t the companies, it’s the union. A bailout of Detroit would secure that the Big Three continue to fail and pay exorbitant sums to thousands of union workers.
The Los Angeles Times says unions funded the Democratic victory to the tune of more than $80 million just this election. The San Francisco Chronicle puts the number a bit higher – $450 million. Either way, they want their payback. They already have two things in mind – eliminating secret ballots in union elections and saving their 139,000 brothers and sisters in the United Auto Workers.
So let me get this straight: it's a bad thing for the American blue collar worker to reach for the highest wages and best benefits he can get, but fine for the CEO of his company to make 400 times his salary? And by the way, these are the same types who advocate ever increasing tax cuts for CEOs, who deserves the break, apparently, while the working screw deserves a pay cut. That's one of the tenets of right wing economic theory: that CEOs should be able to amass huge, tax-free fortunes, and be trusted to "trickle down" the benefits to the slobs who work for them. I suppose Kyl and Gainor and friends would rather see American workers paid more like the workers in "more efficient" countries, like India? As Pat Buchanan put it recently, it used to be a badge of honor in this country that our workers were the best paid, hardest working people in the world. Meanwhile, as ThinkProgress points out:
Financial firms AIG, Merrill Lynch, and Bear Stearns did not have unionized workers but still suffered economic collapses. Frozen credit markets and a spiraling recession were major contributors to Detroit’s current state.
And the financial services firms pay a hell of a lot more than Detroit. The ethos of the Republican right -- that the wealthy should have unlimited earning potential, but average Americans are "greedy" if they want the same thing, and that tax cuts should be weighted always toward the wealthy, who shouldn't be punished, while workers should, at all costs, be prevented from unionizing, and thereby gaining wages and benefits that rightly belong to their betters. No wonder Republicans have lost everyone in this country who isn't dumb enough to cheer for his or her own demise.
If the Henry Paulson press conference yesterday bugged you, you're not alone. I'm still not clear on what, exactly, this guy has done with $300 billion of the $700 billion, or was it $1.2 trillion, he was shoveled by Congress to "save the banks." Now, we're not buying their worthless assets? Oh, and there has been no oversight? Brilliant! Now, there's a big push on, including from the in-coming administration, to bail out the Big Three U.S. auto-makers, whose bad decisions and bad products (try selling a Hummer in Europe. I dare you) over three decades or so got them into the mess they're in. All are headed to Capitol Hill with tin cups in hand, but many in the real world are asking why they should get another $25 billion in government loans (they got that amount before. Did you know that?) from the same taxpayers they've been screwing with their crappy cars?
And as they will, Wall Street Journal types want the bailout, but they want the pensioners, who slaved away in the plants for a quarter century and were promised a decent retirement, to take one for the team. Figures. And Michigan's attractive governor, who can't run for president because she's Canadian, might be in line to be the nation's "car czar," something she earned by being a loyal Obamacrat during the campaign. Great for her. She deserves it. Now, back to the bailout. Why should we do it? (And why not just let the automakers declare bankruptcy, like millions of Americans have had to do? A pro-bankruptcy argument here, and GM's rebuttal to that here.) Five arguments you'll hear today:
1. Detroit is "too big to fail." The industry employs, directly or indirectly, more than 3 million Americans. If GM, Ford and Chrysler (who the hell buys a Chrysler anymore...?) go down, they take their workers, and the restaurants, supermarkets, stores and schools their families patronize, with them. As Dem strategist Peter Fenn puts it:
Let's put aside the 3 million jobs that would be lost in the first year, that 1 in 10 American jobs depend on the industry, that there would be lost wages of $150.7 billion or we would lose $156 billion in taxes paid over three years. Let's look down the road. Do we really want to deep six the cornerstone of American manufacturing when only 13% of the world's population drives cars and this is one of the greatest growth industries of the 21st century?
2. It's not a bailout, it's an opportunity. Any bailout pushed through Congress would likely force Detroit to do what it has resisted for generations: retool and modernize, produce "green" cars that get 40 mpg, and yes, even the electric car they bought up and killed during the 1980s.
3. We must save the workers to save the Obama agenda. Ford has announced it's "temporarily" closing 11 more plants. And GM parts suppliers, even NASCAR, hang in the balance if the Big Three fail. If a failed U.S. auto industry ripples through the economy, it could multiply the potential job losses from 3 million to three times that number. Try doing anything on Obama's list with a cratering tax base.
4. We're not doing much else with the money. The bank bailout is already a hot mess. Henry Paulson can't seem to figure out what else to do, so we might as well do this.
5. 2012. Michigan is a reliable blue state. Democrats owe them, and will need them to re-elect President Obama in four years, especially with a Mitt Romney re-run looming. Okay, a crass argument, but politics is crass.
Stuffed into the 451- page bill are more than $1.7 billion worth of targeted tax breaks to be doled out for a sty full of eyebrow-raising purposes over the next decade.
The special provisions include tax breaks for:
* Manufacturers of kids' wooden arrows - $6 million.
* Puerto Rican and Virgin Is- lands rum producers - $192 million.
* Wool research.
* Auto-racing tracks - $128 million.
* Corporations operating in American Samoa - $33 million.
* Small- to medium-budget film and television productions - $10 million.
Another measure inserted into the bill appears to be a bald-faced bid aimed at winning the support of Rep. Don Young (R-Alaska), who voted against the original version when it went down in flames in the House on Monday.
That provision - a $223 million package of tax benefits for fishermen and others whose livelihoods suffered as a result of the 1989 Exxon Valdez oil spill - has been the subject of fervent lobbying by Alaska's congressional delegation.
Lots of the breaks and set-asides are designed for "rural communities." Here's just a few from the Library of Congress summary of the bill:
The Senate passes the "economic rescue bill" by a wide margin, after loading it with good old fashioned gimmes (corporate and AMT tax cuts, rural school funding, raising the FDIC limit to $250,000, mental health parity and all the lard that makes John McCain's head spin, but which are the way business gets done in "Warshington." ... am I the only one who finds it ironic that the way to woo conservative Republicans is to give them more pork?) ... and they do it on the day Obama heads back to the Senate and gives a speech in the well. Poor McCain. He wasn't even involved, other than to vote for the package, too. The Senators are gratuitously thanking each other now. The House tries again on Friday. With the goodies packed in for them, they should approve.
... The Senate bill would raise Federal Deposit Insurance limits to $250,000 from $100,000, as called for presidential nominees Barack Obama and John McCain only hours earlier.
... The Senate measure will graft the bailout language to a tax bill it approved last week, on a 93-2 vote. It includes: a provision to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana and some $78 billion in renewable energy incentives and extensions of expiring tax breaks.
In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.
That wasn't enough earlier this year for the House, which insisted that there be complete offsets for the energy and extension part of the package.
The Senate version also may include a measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses. The House and Senate have passed similar mental health parity measures, but none has gone to Bush for his signature.
So its cookies and cream all around! And if Obama and Biden back it, Nancy P will be backed into a wee little corner. This as Pelosi and Harry Reid take the extraordinary step of attempting to come to the rescue of President Bush (a man no one trusts, in or out of his party...)
Other bailout news: two Yale professors say: why not just pay off all the delinquent mortgages? The Financial Times has more global doom and gloom. Meanwhile, in the WaPo, CFR conservative Michael Gerson excoriates Nancy Pelosi for her now infamous "mean-girl" speech, and then says this about House Republicans:
... whatever their provocations, pressures and justifications, House Republicans once again revealed the souls of backbenchers -- spouting their ideological purity from atop the ruins of the financial system. The temporary government purchase of bad mortgage debt is not equivalent to the liquidation of the kulaks. Serious conservative thinkers such as Ryan and Cantor, who chose to work within the legislative process, got many of the improvements they sought. But most House Republicans with ideological objections had nothing better to propose and no intention to try. They chose allegiance to abstract principles over practical reality. It is the political philosophy of Samson: Bring down the entire temple to make a political point. In this case, the president, their own congressional leadership, their own presidential candidate and the world economy are now wounded and struggling amid the rubble. I suppose the point is made. But it is a reminder of why Republicans are no longer trusted as the congressional majority.
If Newt is the roaster, is John Boehner the weenie?
John Boehner went all-in on the bailout bill, and got hosed. He failed to deliver more than 65 GOP votes, and looks like he can't whip worth a damn. Some are even questioning whether he could lose his leadership post to a more "conservative" conservative.
Former House Speaker Newt Gingrich was working aggressively behind the scenes to defeat the Wall Street rescue plan minutes before he himself released a public statement in support of the package, NBC's Andrea Mitchell reported on Tuesday.
Gingrich was whipping up votes for the opposition, Mitchell said, apparently without the knowledge of the current GOP leader, John Boehner, who was responsible for recruiting enough support from his caucus to help ensure the bill's passage. Ultimately, the GOP was only able to rally roughly a third of its members.
"Newt Gingrich," she said on MSNBC, "I am told reliably by leading Republicans who are close to him, he was whipping against this up until the last minute, when he issued that face-saving statement. Newt Gingrich was telling people in the strongest possible language that this was a terrible deal, not only that it was a terrible deal, it was a disaster, it was the end of democracy as we know, it was socialism -- and then at the last minute [he] comes out with a statement when the vote is already in place."
After the vote, Gingrich played the phony and lamented the non-passage of the bill. But not everybody was buying it, especially since Newt was one of the righties urging John McCain to kill the bill, and send out a press release... From the July 23 edition of The Hill:
Former Speaker of the House Newt Gingrich said Tuesday that any lawmaker who votes for the Bush administration's $700 billion bailout package, which he called a “dead loser,” will face defeat in November.
Gingrich (R-Ga.) said he thinks Treasury Secretary Henry Paulson is trying to scare lawmakers into passing the bailout plan quickly and without thorough study.
“I think what Paulson hopes to do is say, ‘If you don’t do exactly what I want you to do, the whole world’s going to collapse on Tuesday’,” Gingrich said.
The former Speaker, talking to reporters at a lunch, added that he expects Democratic presidential candidate Sen. Barack Obama (Ill.) to back the plan. He predicted that, if Republican presidential candidate Sen. John McCain (Ariz.) ends up opposing the administration proposal, there will be an overnight “emergence of a McCain/reform wing of the Republican Party.”
Gingrich said that occurrence would turn the election on its head, with Republicans running ads that feature Obama with President Bush on the same team in pushing for a “nightmare” bailout plan.
Newt also predicted, 6 days before the vote, that if the bill failed to pass on Friday, it would fail because lawmakers would read it on Saturday and cringe. How clairvoyant...
So what could Newty be up to? Is he preparing to run for president in 2012, as Mike Barnacle accused on "Morning Joe" yesterday? Could be. His big "Drill Here, Drill Now" gambit is heavily funded by the oil industry, whose money would also be useful in a national election, not to mention in key states like Louisiana, Florida and out West. If he runs, the scandal-plagued Gingrich would need to build a firewall on the libertarian right, to mitigate against any evangelicals who won't be able to force themselves to stomach him, as they are with McCain because of Sarah Palin. And he very much shored up that firewall with the 130 Republicans he denied to John Boehner. Now, they listen to Newt.
And Boehner? I'm sure Newt is saying, to hell with him. After all, they have a history:
House members are no strangers to political treachery either, although you need to go back nearly a decade to find a world-class example. To get rid of House Speaker Newt Gingrich (R-Ga.), a loosely organized band of co-conspirators proved less deft than their Roman legislative forebears did in mounting their secret scheme. Although the coup fell apart the day after it was launched, the reputations of almost all those involved -- including their intended victim -- never fully recovered.
A core group of rebels, drawn mostly from the large GOP class of '94, sought to find a way to oust the imperious speaker. But to do so, they needed help from the top Republican leadership. It soon came from Majority Leader Dick Armey (Texas), Majority Whip Tom DeLay (Texas), GOP conference Chairman John Boehner (Ohio) and Rep. Bill Paxon (N.Y.), then a trusted Gingrich capo.
The plan was to have Armey, DeLay, Boehner and Paxon -- each an independent actor with his own power base -- confront Gingrich with a fait accompli: step down or face being voted out of office. Armey, however, backed out when it appeared that Gingrich wanted Paxon to succeed him. In the murky aftermath, DeLay confessed his role, which helped to rehabilitate his reputation. Armey never did. And Paxon -- who was to Gingrich what Brutus was to Caesar -- was out of a leadership job. After the 1998 midterm elections, waged by congressional Republicans as a (failed) referendum on impeaching President Clinton, Gingrich himself was soon gone. (after spending some time in political purgatory, the former Speaker has once more become a hot commodity.)
With Armey and DeLay long gone, could this be Newt's little payback for the fourth member of the wolf pack, while enhancing his own presidential / populist portfolio in the process? You've got to wonder...
McCain should take no credit for the bailout bill, before its time...
Is it just me, or has John McCain lost it? He's suspending his campaign ... he's not suspending his campaign ... he won't debate ... he will debate ... he's headed back to Capitol Hill to lead House Republicans to pass the $700 Bush bailout bill ... but he's also dining at a posh hotel restaurant while the work is being done ... he won't phone it in ... but he conducted his "leadership" on the phone ... he takes all the credit for the bailout bill, until it doesn't pass, in which case it's Barack Obama's fault ... (but of course, this is no time for partisanship. although that, too, is Obama's fault...)
It's exhausting just keeping up with the stunts, twists, turns, backtracks and utter, careening craziness of the McCain campaign. Can you imagine the hot mess he'd be as president???
"To a certain extent, I think John gets hurt by [the bailout bill's failure]," said Ed Rollins, a CNN contributor who worked on former Gov. Mike Huckabee's primary campaign earlier this cycle. "He obviously, at the end of the day, said he was for it. But more important than that, he said he was the one who would bring them to the table and to a certain extent he will be viewed now as not being able to do that."
And when it comes to McCain's "leadership," apparently it had better be bi-partisan, because it sure doesn't extend to his own party:
Rollins added, "McCain is our nominee and [congressional Republicans] will do everything they can to help him, but they are not going to go over the cliff for him. They did that for Bush, and they thought that this measure was just too dramatic for their constituencies."
The GOP strategist spoke to the Huffington Post just an hour after the House failed to pass the $250 billion bailout package by a margin of 205 to 228. Republicans in that body were quick to cast blame on Speaker Nancy Pelosi for giving a "partisan" speech earlier on Monday -- a doubtful assertion given the benign text of Pelosi's remarks. When it came to McCain's leadership qualities, however, Rollins argued that the last week has left much to be desired.
"I think the reality is, he made a big show coming in and at the end of the day it really wasn't realistic for him," he said.
Damn. Well who can this guy lead? Joe Lieberman? Hell, even Lindsey Graham is getting worn out!
I don't blame John McCain for not rounding up enough Republican votes to get this bailout bill through the House of Representatives--he's not a member of the House, he's never held a leadership position and therefore doesn't know how to whip votes and finally--well, uh--there is one tried and true method for getting members of Congress to vote aye and McCain opposes it: a sweetener, like say, funding for a bridge in their districts. That is one reason why we have earmarks. McCain is opposed to giving away baubles for the greater good.
I do blame McCain for his puerile histrionics and for dragging this issue--which should have been above partisanship--into presidential politics. Let's make no mistake about it: his various gimmicks had absolutely nothing to do with the substance of the issue.He doesn't know all that much about the substance of the issue. The gimmicks were a failed attempt to make it seem as if he had powers, and knowledge, he didn't have. Clearly, he was in a more difficult position than Obama--the populist conservative wing of House Republicans was unwilling to take responsibility for the fruits of the deregulation that they promoted--and that might have required a more aggressive effort to move votes on his part, but the flailing about only confused Republicans (was he for, was he against?) and made matters worse.
Geez. I sure wish we had someone in the campaign who would bring some calm, sober leadership to this messy situation...
Barack Obama told a crowd in Westminster, Colo., not to panic at the House of Representatives' failure to pass the Bush administration's $700 billion bailout bill.
"It's important for the American public and for the markets to stay calm,” Obama said, “because things are never smooth in Congress, and to understand that it will get done.”
Maybe he shouldn't have bothered ... John McCain suspended his campaign and rushed back to Washington to make the bailout deal happen. Well, funny thing, that...
The bailout fails. Here's how the win-loss column looks:
First, the winners:
Conservative House Republicans -
They beat back not just their own president, but the Democratic majority, Barney Frank, and Henry Paulson. If nothing much happens, and the economy doesn't go completely into the ditch, they'll look like geniuses. If the bottom falls out of the market, and small businesses can't get basic credit, or we do go into a deep recession, they'll be the goats.
Liberal Democrats -
Led by Dennis Kucinich and several members of the Black Caucus, they defied their leadership and held out for more bennies for the little guy. They now have a platform for their preferred solution, which channels FDR: help for homeowners, a federal jobs through infrastructure investment program, and the like. But they also risk taking the blame if things go to hell.
The angry populace -
Angry Americans likely scared many members into voting against the bailout. Now, they'll feel empowered. Again, if nothing happens: they're the smartest kids in the room. If the sky falls, they'll be left holding the bag ... literally.
The media -
They get to talk about this for another week. Jim Cramer should do really well, as should CNBC.
Barack Obama -
By steering clear of the entire mess, Obama can now claim a healthy distance, not only from the process, but also from the failure. Staying cool in a crisis: priceless.
Barney Frank (semi-winner...) -
Frank is more winner than loser on this one. Even though he led the failed effort, Frank emerged as a leading voice in the process, and bought himself a national platform to become the chief "I told you so" if the markets crater. He also will have a strong hand in the next negotiation, if things go badly on Wall Street and Main Street. On the other hand, if nothing much happens, he'll look like Bush's bitch.
... now, for the much longer list: the losers (in the approximate order of their loseriness)...
President Bush -
He's the single biggest loser in this whole, messy affair. In short: nobody believes him anymore, not even when he says we're headed into the next Great Depression. His credibility has been so shot through, by his pushing around Congress for seven years, and mostly, by the lies attending the invasion of Iraq, that he can't even convince 70 Republicans to do as he asks. What a pathetic end to the War Presidency.
Hank Paulson -
Probably as a residew of Bush's unpopularity and lack of credibility, Mr. Goldman Sachs reached way too far with his two page grab for dictatorial power. His bill was so outrageously bad, so audacious, that he probably doomed the result as much as anyone. Even a fixed-up Paulson bill wasn't palatable to many of members who rose to microphone today.
John Boehner -
The Boner's leadership position can't be considered secure if he couldn't whip more than 66 votes for a bill he helped negotiate. Also, he's not the star of the ascendant right wing of his party today, he's the enemy. Look for a leadership fight in the minority.
Nancy Pelosi -
Even though Barney Frank was equally visible, Pelosi ultimately had the responsibility for getting the bill passed, and she failed to build the bi-partisan consensus needed to do it. Already, she's become the chief culprit in the public statements of the GOP. Apparently, they didn't like her speech or something ... (since when do Republicans care about "nice?")
John McCain -
He injected himself into what turned out to be a failed process, where bi-partisanship only happened to the extent that the most liberal and most conservative House members voted against the bailout bill. And McCain's own campaign narrative suggested that he swooped into Washington to bring conservative Republicans along. By that standard, he failed as utterly as Boehner did -- and in far more high-profile fashion.
Those in the center in both parties lost big in the vote today, and they will be wringing their hands and nervously watching "Power Lunch" every day until November 4th.
Wall Street -
They got soundly spanked in the House of Representatives today, and it seems that nobody really cares what happens to their cherished investment houses and banks. They'll have to find another way to survive, probably by merger, perhaps by international takeover. And no matter what happens, they will be blamed.
Main Street -
With no uncertainty in the market, the credit crunch will continue. And those who are feeling puffy chested over defeating the bailout today, might have trouble getting basic credit, or find their paychecks harder to cash, tomorrow. What will they demand then? Meanwhile, the likelihood of average mortgage holders getting anything close to a bailout of their own remain somewhere between "slim" and "none."
This is likely just the first round. There will be new negotiations, and both of the winning sides (liberal Dems and conservative Republicans, are already lining up to put their priorities on the table. They can't both win, however, since one side wants a "Main Street bailout" for individual Americans, and the other basically wants corporate tax cuts and very little more.
Barney Frank just rose to plead with his fellow liberals on the Democratic side "not to throw out" the bailout bill because "it doesn't have everything they like." He said he is only in Congress because of his commitment to poor people, and that he fought for everything he could for the disadvantaged, but he added that if the bill fails, they get nothing.
Now, John Boehner is making his pitch, saying the "risk of doing nothing is too great" not to act, and acknowledging "nobody wants to vote for this ... I didn't come here to do this, to vote for things like this ... but these are the votes that separate the men from the boys, and the men from the women. These are the votes that your constituents sent you here to vote on their behalf."
He challenged his colleagues to "ask what's in the best interests of the country." He said that his judgment is that the House must vote for the bill, "to keep ourselves from the brink of an economic disaster."
Both men received healthy applause after their statements, but it's not at all clear that there are enough votes -- given the defections on the left and the right -- to pass this bill.
On the day that Citigroup swallowed Wachovia before it too, failed, and as world financial markets are cratering, the debate is on in the House over the, I must say, much improved, bailout bill (details, text). The debate is shaping up as one of the clearest cut dichotomies between liberalism and conservatism in recent memory. Conservatives in the House, including Ron Paul, are railing against the bill on the floor, decrying it as a quick slide toward government ownership of capital and socialism. Some are calling for even less deregulation, and, surprise, surprise, more corporate tax cuts.
Liberals are also railing, some decrying the bill as too helpful to Wall Street, but the consensus on the Democratic side is generally pro-government intervention, in keeping with the liberal belief that the government represents the backstop against economic meltdown at both the macro, and micro level.
Interestingly enough, a number of Black Caucus members are ranting that the bill doesn't have enough help for individual homeowners and to stop predatory lending, and some, including Sheila Jackson Lee of Texas, are urging a "no" vote.
But for the most part, most mainline Republicans and Democrats are indicating they will, however reluctantly, vote for the bill. Many are praising Rep. Barney Frank for creating a palatable compromise to Hank Paulsen's initial attempt at a massive power grab.
What's really interesting is the position of President Bush, who having pleaded for the bill's passage can now, clearly, finally, no longer call himself a conservative.
Located in the Portals project just east of the 14th Street bridge and overlooking the Washington Channel and its yacht moorings, the hotel is not convenient either to the marble corridors of Capitol Hill or the office buildings of downtown. The streets nearby are mostly deserted in the evenings.
The hotel's management seems to be counting on the draw of two high-profile restaurants to help to make the hotel a destination. The first, Café Mozu, the hotel's less formal restaurant, opened in March. The second, Cityzen, under the command of Eric Ziebold, formerly at the very highly regarded French Laundry under Thomas Keller, will open for dinner only in September.
Café Mozu belies the Washington rule that restaurants with views don't have very good food. The room is modern, serene, and full of light. Floor-to-ceiling windows look out--across a freeway--to the Washington Channel and the Jefferson Memorial. The hotel's Asian roots are alluded to in the restaurant's waiting area, built to evoke the veranda of a grand colonial hotel and furnished with white rocking chairs.
To run Café Mozu and serve as the hotel's executive chef, the Mandarin Oriental has hired Hidemasa Yamamoto, for many years chef of the Jockey Club on Massachusetts Avenue. Limited by the preferences of the Jockey Club's clientele--a coalition of politicians and cavedwellers who never got much beyond crabcakes, red meat, and chicken salad--Yamamoto never really had a chance to spread his wings. At Café Mozu, the menu is his own.
Yes, well it seems a satisfied palate is the best foundation for arms length deal-making. Even more about the fine dining establishment from the Mandarin Hotel website:
Lunch and dinner menus showcase irresistible selections such as Roasted five spices Duck, raisincouscous, orange scented curry jus”, Crispy Wild Salmon with fingerling potatoes, Brussels sprouts and haricots verts, Braised Pork Belly with sweet potato puree, baby onions and goat cheese polenta and Black Sea Bass with bok choy, string beans, snow bean sprouts and aromatic lemongrass broth.
Heavenly desserts from our pastry department include a Bitter Chocolate and Passion Fruit Mousse, Flourless Poppy Seed Cake, Lychee Crème Brulee and Champagne-Verbena Parfait.
Mmm-mm. Pass the bailout, AND the fingerling potatoes!! Hey, did you say couscous? John McCain LOVES coucous! (It's very down-home...)
By the way, why did the completely "fair and balanced" Politico feel the need to scrub its references to McCain's dinner? Per the Huffpo:
Politico reports (update: Politico has updated the article and removed the reference to McCain's dinner, but as you can see in this Google search, the reference was there in the original article):
As his colleagues worked on the deal at the Capitol Saturday night, McCain and his wife, Cindy, dined with Sen. Joe Lieberman and his wife, Hadassah, at CityZen, one of Washington's best restaurants. [Note: they got the right hotel, wrong restaurant...]
Could it be that Roger Simon has pulled yet another Ron Fournier on behalf of McCain? After all, Simon was almost alone among the pundits not working for Fox News, in saying that McCain was the winner of Friday's debate...
To be fair, McCain did say of his whereabouts last night:
I was working on all of the other stuff that I was working on, and contacting people, and working away."
Yeah, working away on a $300 bottle of wine (after which even Joe Lieberman probably sounded interesting...)
Thursday's seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday.
Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses.
Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.
Apparently, news leaks forced an early announcement. Usually, these things are done on Friday, so the auditors can spend the weekend going through the books. The bank has $307 billion in assets and $188 billion in deposits. What's also on tap here? Mega consolidation of U.S. banks:
... The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.
JPMorgan said the transaction means it will now have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business.
It vaults JPMorgan past Bank of America Corp to become the nation's second-largest bank, with $2.04 trillion of assets, just behind Citigroup Inc. Bank of America will go to No. 1 once it completes its planned purchase of Merrill Lynch & Co.
John McCain goes to Washington, tries to look busy...
An unwittingly hilarious account of John McCain's "wince-worthy" return to Capitol Hill to "shepherd" the bailout process (and the lame attempts by Republicans to make him look relevant):
Sen. John McCain returned to Washington on Thursday after declaring that he has suspended his campaign, but he appeared largely detached from the flurry of negotiations on a $700 billion economic rescue package that appeared to be headed to a successful conclusion.
McCain's "Straight Talk Air" landed at National Airport just after noon, and McCain's motorcade sped toward the Senate. But by then, senior Democrats and Republicans were already announcing that a deal in principle had been reached.
That news appeared to be somewhat premature as House Republican leader John Boehner told his members that "no deal" had yet been reached. McCain arrived at 3:40 p.m. at the White House, where he and his rival, Sen. Barack Obama, were scheduled to meet with President Bush and congressional leaders at 4 p.m.
The leading Democratic negotiator on the Bush administration's $700 bailout plan accused John McCain of undermining the proposal and prodding House Republicans to lay out a wholly different approach that is opposed by the White House.
"This is the presidential campaign of John McCain undermining what Hank Paulson tells us is essential for the country," said Democratic Rep. Barney Frank, (D-Mass.), chairman of the House Financial Services Committee. "This is McCain at the last minute getting House Republicans to undermine the Paulson approach."
McCain really, really wants to help out ... I mean REALLY...
But for most of the afternoon, McCain has not visibly been part of the action on the issue. He was not present when House and Senate negotiators emerged from a two-hour meeting to declare success. That announcement was made by Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, Sen. Robert F. Bennett (Utah) and Frank.
McCain, by contrast, spent some time in his office with several Republican colleagues, briefly stopped at Boehner's office, then left for lunch at the Capitol's Mansfield Room before returning to his office in the Russell Senate Office Building.
Republican Rep. Spencer Bachus (Ala.) said he had spoken to McCain yesterday, had breakfast with two McCain advisers this morning and spoke to McCain again immediately after today's meeting. But, Bachus said, "John's not trying to call the shots for the House caucus, I can tell you that. He's just opposed to the plan in its present form."
Frank reacted angrily to Bachus's statements, insisting that lawmakers were well on their way toward an agreement they could put to a vote, and that this afternoon's meeting at the White House was largely irrelevent.
"We'll be glad to go and tell them there really isn't that much of a deadlock to break," Frank said. "But I'm always glad to go to the White House."
McCain aides expressed cautious optimism, saying that there is "no deal until there's a deal," but McCain made no comments to the reporters trailing him around the Capitol.
Maybe he should just find a Starbucks and wait till someone calls ... DOH! Not computer literate, so WiFi availability not enticing...
So, yes, apparently there is a deal ... and all before the presidential candidates even got to shoot the shizznit with Dubya...
The leaders of House and Senate banking committees reached a bipartisan agreement Thursday on the framework for legislation authorizing Treasury’s ambitious $700 billion rescue plan for the financial markets.
The final language of the bill must still be negotiated with Treasury, which watched nervously from the outside as the closed-door meeting ran close to three hours in the Capitol. But the announcement gives renewed momentum to the massive government intervention, which the administration badly wants approved before the markets open next week.
The plan would phase in the bailout, but still give Paulson virtually free reign with the first $350 billion. Also:
There is a greater emphasis on efforts not just to relieve Wall Street firms of their bad debts but also to help homeowners threatened by foreclosure. Companies that benefit from the plan would be expected to limit pay and severance packages for their executives, and community banks are expected to benefit from a new $3 billion tax break as a result of their stock losses in the government takeover of the two mortgage finance giants, Fannie Mae and Freddie Mac.
The announcement came just hours before a White House meeting planned for Thursday afternoon, at which President Bush and the two presidential candidates, Sens. John McCain and Barack Obama, are expected to meet with congressional leaders as well as some of the same lawmakers from the House Financial Services and Senate Banking Committees.
Nice picture, but where is our captain, John McCain??? Oh right ... the meeting... hope it helps!
Just one of the reasons why I love Thom Hartmann's show. Today, he read from an op-ed piece published in the Washington Post on February 14 -- Valentine's Day -- and written by then- New York Governor Elliot Spitzer, about the origins of the mortgage crisis. I'll reprint the entire piece, since it's important that you take in the entire thing:
Predatory Lenders' Partner in Crime How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer Thursday, February 14, 2008; A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
One month later, Spitzer was splashed across the tabloids as "Client 9" in the now notorious prostitution scandal. A sealed affidavit concerning his illicit activities was leaked on March 10. He resigned his governorship on March 12. Even at the time, more than a few people wondered whether Spitzer was being paid back for something he had said or done as governor, or as attorney general of New York. As the Chicago Tribune's "The Swamp" blog surmised:
Is it just me or does the complaint implicating New York Gov. Eliot Spitzer in a frolic with a call girl read like it was written by people with a very large axe to grind with the now former rising star of the Democratic Party?
Charging documents like this one typically contain the absolute minimum necessary to sustain the accusations.
Prosecutors act as though they'd rather be waterboarded than give up anything beyond what they like to call "the four corners of the complaint."
Not to worry. There was journalistic catnip larded throughout the complaint, enough to stoke the media frenzy for days. Of particular note is the heavy involvement of "Kristen", Spitzer' Valentine eve tryst partner. (Helpfully described as "American, petite, very pretty brunette, 5 feet 5 inches, and 105 pounds.)
...Yeah, conceivably there's some value in broadly hinting at kinky predilections in case Spitzer wants to claim that the financial transactions were unconnected to sex. Maybe it's a warning to him that if he struggles too much, the contents of the sock drawer where the sex toys are stored will be strewn on the carpet.
But it also has the feel of a pile-on -- some payback, a come-uppance for a guy who made a lot of enemies in prosecutions of Wall Street crooks and was seen by some to overplay his hand, to needlessly embarrass his quarry.
Another indicator of an "I'll fix your wagon" flavor to L'Affaire Spitzer is the speed at which the whole thing has unfolded.
The charging affidavit which, remember, doesn't refer to Spitzer by time or other even vague identifier like 'prominent government official', was unsealed last Thursday and by 2 p.m. or so on Monday, when the New York Times posted its first story on the scandal and the governor effectively was toast.
While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.
This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.
Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.
Spitzer was, by the way, taken down by the very domestic surveillance powers grabbed by President Bush after 9/11. Coincidence? Maybe.
Hartmann also reminded listeners about President Bush's push in 2002 for the "ownership society" -- and his grandiloquent desire for every American to own their home, their health insurance policy, and on and on. At the time, Bush said that just because a person is low income doesn't mean they shouldn't own a home that's "just as nice as anybody else's." Far from the moves by Andrew Cuomo's HUD agency to reverse redlining, Bush's HUD allowed banks to stretch the boundaries of lending propriety to their limits, and Bush's scandalized HUD secretary, Alphonso Jackson, was one of the administration officials who pushed back against attempts to reign in the industry. Here's how the administration described the home ownership plank of the "ownership society" on the White House website in 2004:
Expanding Homeownership. The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security. In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade. Under his leadership, the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent. Minority homeownership set a new record of 51 percent in the second quarter, up 0.2 percentage point from the first quarter and up 2.1 percentage points from a year ago. President Bush's initiative to dismantle the barriers to homeownership includes:
American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
Affordable Housing. The President has proposed the Single-Family Affordable Housing Tax Credit, which would increase the supply of affordable homes;
Helping Families Help Themselves. The President has proposed increasing support for the Self-Help Homeownership Opportunities Program; and
Simplifying Homebuying and Increasing Education. The President and HUD want to empower homebuyers by simplifying the home buying process so consumers can better understand and benefit from cost savings. The President also wants to expand financial education efforts so that families can understand what they need to do to become homeowners.
First of all, that doesn't sound much different than the right wing's snide accusations about the "affirmative action lending" programs of the Clinton administration. But it also fails to describe the Bushies' preferred method of achieving success: relaxed lending standards that pushed more "entrepreneurs" into the lending and brokerage market, with ever riskier "financial products" that wound up sold off as securities on Wall Street. Hence, our current problem.
Meanwhile, few would recall that Bush's push for relaxed lending standards was actually fought by the very builders who were profiting from the real estate boom. From CNN Money, back in June 2004:
NEW YORK (CNN/Money) - Home builders, realtors and others are preparing to fight a Bush administration plan that would require Fannie Mae and Freddie Mac to increase financing of homes for low-income people, a home builder group said Thursday.
The National Association of Home Builders, along with the National Association of Realtors and the Mortgage Bankers Association, are drafting a letter to Alphonso Jackson, secretary of the Department of Housing and Urban Development (HUD), arguing that middle-income home buyers are the ones that will get hurt by the proposed plan, the NAHB told CNN/Money.
In April, the HUD proposed new rules that would raise the percentage of loans bought by the two government-sponsored enterprises (GSEs) that finance borrowers whose incomes are at or below the median for their area, according to the Wall Street Journal .
But the groups will warn in the letter that the proposed rules requiring the two GSEs to finance more "affordable housing" may have "unintended consequences," hurting some poor and middle-income people struggling to afford houses, the Journal said.
Fannie and Freddie, which use their ability to borrow cheaply in the government agency bond market to help middle-to-low income people buy homes, would be compelled to provide more funds to low-income home buyers by slashing their financing of middle-income home buyers, David Crowe of the NAHB told the paper.
The points being raised by the groups have also mirrored objections raised by Fannieand Freddie. Both GSEs said they favor more efforts to promote affordable housing, but say HUD has made some unrealistic assumptions about how much more the GSEs can do over the next few years, the Journal said.
The Limbaugh crowd seeking to blame the Clinton administration for the current crisis must be made to answer for the "ownership society," Bush's HUD, and the administration's further relaxation of lending standards (and their promotion of predatory lending) long before we start blaming minorities and the poor for our troubles.
McCain and Obama meet with Dubya today. Meanwhile, via an astute Politico commenter, a new SurveyUSA "snap poll" of 1,000 Americans finds little support for John McCain's debate delaying "time out" for his campaign. Key findings from the poll:
Should the debate be delayed? -- 50% say hold it as scheduled. -- 36% say hold as scheduled but make the focus of it the economy. -- 10% say delay it. -- 4% say they aren't sure.
Should the Presidential campaigns be suspended? -- 31% say continue campaigns as is. -- 48% say continue campaigns but focus on the economy. -- 14% say suspend campaigns. -- 7% say they aren't sure.
If Friday's debate is delayed, is that good or bad for America? -- 14% say good for America. -- 46% say bad for America. -- 35% say no difference. -- 6% say they aren't sure.
Going inside the tabs, it turns out those who support delaying Friday's debate tend to think McCain would win a debate with Obama, while those who support going forward, either as is or with a changed focus, think Obama would win. So again, the reactions are mostly partisan. Not exactly a win for McCain.
The Obama campaign finally comes out with that joint statement, more than 12 hours after Obama contacted John McCain privately, to suggest they put one out, and nearly eight hours after McCain double-crossed him by rushing before television cameras to try his "suspend the campaign!" stunt. Here's the statement:
Joint Statement of Senator Barack Obama and Senator John McCain
“The American people are facing a moment of economic crisis. No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings, and prosperity of the American people are at stake.
“Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people. The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.
This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. Now is our chance to come together to prove that Washington is once again capable of leading this country.”
And in a smart move, I think, the campaign has taken a cue from McCain, and gone their own way, with Obama releasing the following statement on his own:
Speaking for himself, Senator Obama outlined the following principles that he calls on Senator McCain to support:
I believe that several core principles should guide this legislation.
First, there must be oversight. We should not hand over a blank check to the discretion of one man. We support an independent, bipartisan board to ensure accountability and complete transparency.
Second, we need to protect taxpayers. There should be a path for taxpayers to recover their money, and to turn a profit if Wall Street prospers.
Third, no Wall Street executive should profit from taxpayer dollars. This plan cannot be a welfare program for CEOs whose greed and irresponsibility has contributed to this crisis.
Fourth, we must help families who are struggling to stay in their homes. We cannot bail out Wall Street without helping millions of families facing foreclosure on Main Street.
Fifth, we both agree that this financial rescue package should move on its own without any earmarks or other measures. We have different views about the need for other action, but this must be a clean bill.
This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. This is not a Democratic problem or a Republican problem – this is an American problem. Now, we must find an American solution.
Sound principles, and again, Obama waxes presidential, while McCain just goes bat crap crazy. As Chris Matthews said on Rachel Maddow's show tonight, the McCain strategy is that every time the compass needle points to "true north," which is change from the party that's screwed things up, McCain pulls a "razzle dazzle" play. As Chris then said, "do you want four years of razzle dazzle?"
The Obama campaign released a slew of comments slamming John McCain for his "stop the campaign, I want to get off" gambit. A few classics (besides Letterman, not to mention Jon Stewart, who's skewering him as we speak in the 11 p.m. broadcast of his show...)
Mickey Edwards, former Republican Congressman: “Oh, brother. What idiot came up with this stunt? It ranks somewhere on the stupidity scale between plain silly and numbingly desperate. McCain and Obama are both members of the senate and they're both able to help craft a solution if they wish to do so without putting the presidential campaign on hold; after all, I’m sure congressional leaders would be willing to accept their calls if they have some important insights to impart. And while one of them will eventually become president, neither one is president yet, nor is either one a member of the congressional leadership; I’m confident that somehow the administration and the other 533 members of congress will be able to muddle through without tapping into the superior wisdom and intellect of their nominees. Sorry, John; it really sounds like you're afraid to debate. This sounds like the sort of ploy we used to use in junior high school elections.” More
The Atlantic (Ambinder) “What is Politics?”: This is the time when politics matters the most, not the least. When the philosophical differences that each party organizes around are put to the test of reality. When conflict builds consensus, not by ignoring conflict. When the public craves answers and debate from their politicians. When the stakes of the presidential election could not be more acute. Comparative advantage: the best thing the presidential candidates can do now is to practice their politics honestly, not to abandon politics altogether -- itself, of course, a political move. Suspending your campaign basically says: all that over the past sixteen months? It wasn't important. Ignore what I said or did. Too late. The tough thing here for McCain is that nobody in Washington asked him to come back; nobody seems to need him to come back; and that Democrats simply do not trust John McCain's motives. More
TIME (Joe Klein): McCain suspends his campaign because of financial crisis? Oh please. Given today's poll numbers--even Fox has him dropping--it seems another Hail Mary (like the feckless selection of Palin) to try make McCain seem a statesman, which is difficult given the puerile tenor of his campaign's message operation. More
The New Republic (Jonathan Cohn): So, no, I don't think this is such a great idea. In fact, it feels to me a bit like McCain is trying to use this crisis as a way to prop up his political fortunes. More
TPM (Greg Sargent): If this version of events was true, McCain's public call for a suspension was anything but apolitical. If McCain had truly intended to keep this apolitical, he would have asked Obama to jointly suspend the debates and waited for Obama's private and definitive answer before going public. More
Tahman Bradley Reports: A senior University of Mississippi official reacted Wednesday to the news that Sen. John McCain R-Ariz., wants to postpone Friday's presidential debate, saying that such a move would be "devastating" for the university which has already invested millions in preparation for the debate.
Andrew Mullins, special assistant to university Chancellor Robert Khayat, told ABC News that the Ole Miss campus has been transformed to accommodate the candidates and the press. Road blocks are in place on campus and in the community and the debate television set for the candidates has already been constructed. He said the university has spent roughly five and half million dollars getting ready for the debate.
Mullins also noted that if the Commission on Presidential Debates asks the campus to hold the debate at a later date, he is not sure the university would be able to accommodate them.
"It's huge. You cannot just say that you're not going to do this thing," Mullins said. "I don't have any idea whether we do the debate" at a later date. "(We) probably wouldn't do it."
Earth to McCain: it's the economy stupid. You can't crusade to save the nation's economy by wrecking the University of Mississippi's.
McCain had phoned Reid to ask about the prospects of him, Sen. Barack Obama, D-Ill., and others to sit down and work together on hammering out a bipartisan proposal.
"Sorry," Reid said to him, a Democrat close to Reid says.
Reid then read McCain the statement he had just put out: "This is a critical time for our country," says the Reid statement. "While I appreciate that both candidates have signaled their willingness to help, Congress and the administration have a process in place to reach a solution to this unprecedented financial crisis. I understand that the candidates are putting together a joint statement at Sen. Obama’s suggestion. But it would not be helpful at this time to have them come back during these negotiations and risk injecting presidential politics into this process or distract important talks about the future of our nation’s economy. If that changes, we will call upon them. We need leadership; not a campaign photo op. If there were ever a time for both candidates to hold a debate before the American people about this serious challenge, it is now.”
A source close to Reid said McCain didn't have much to say after that. Reid, the source says, thinks McCain's maneuver is a gimmick born from bad poll numbers and the fact that "debate prep must not be going very well."
Reid isn't about to let McCain come back to D.C. and grandstand for his campaign.
Obama says thanks, but no thanks, to the McCain to nowhere
Barack Obama responds to John McCain's indecent proposal:
The White House rivals maneuvered to claim the leadership role on the financial crisis that has overshadowed their campaign six weeks before Election Day. Obama said he would proceed with his debate preparations while consulting with bailout negotiators and Treasury Secretary Henry Paulson. McCain said he would stop all advertising, fundraising and other campaign events to return to Washington and work for a bipartisan solution.
"It's my belief that this is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess," Obama said at a news conference in Clearwater, Fla. "It's going to be part of the president's job to deal with more than one thing at once."
Meanwhile, it's becoming clear that not only does McCain, who hasn't been to the Hill in five months, but suddenly has rediscovered his love for legislating, hope to forestall a potential Rick Davis campaign ad from the Obama side, not to mention keep from answering questions about the crisis (and take a respite from the polls) McCain is also hoping to use this window of media opportunity to try and lash himself to Obama, and gain political cover for whatever deal comes out of Capitol Hill:
Sen. Lindsey Graham, McCain's representative in debate negotiations, said McCain will not attend the debate "unless there is an agreement that would provide a solution" to the financial crisis. Graham, R-S.C., told The Associated Press that the agreement would have to be publicly endorsed by Obama, McCain, the White House and congressional leaders, but not necessarily given final passage by the House and Senate.
The Obama campaign has read this thing correctly, I think. And I wonder what voters in Mississippi would think if their debate, at one of their cherished universities, was called off do to bad atmospherics? (The university told the AP they are going ahead with preparations, and plan to hold a debate.) Meanwhile, when the McCain-centric Associated Press says this about you:
Even as McCain said he was putting the good of the country ahead of politics, his surprise announcement was clearly political. It was an attempt to try to outmaneuver Obama on an issue in which he's trailing, the economy, as the Democrat gains in polls. He quickly went before TV cameras minutes after speaking with Obama and before the two campaigns had hammered out a joint statement expressing that Congress should act urgently on the bailout.
And while McCain's campaign said he would "suspend" his campaign, it simply will move to Washington knowing the spotlight will remain on him no matter where he is.
... you know you're losing the media. And now, to the timeline of events, which is interesting to say the least:
Obama said he suggested they first issue a joint statement showing bipartisanship.
"When I got back to the hotel, he had gone on television to announce what he was going to do," Obama said.
McCain said he would return to Washington after addressing former President Clinton's Global Initiative session in New York Thursday. He canceled his planned appearance Wednesday on CBS' "Late Show With David Letterman" program and a meeting with the prime minister of India.
Barney Frank just suggested another scenario on MSNBC: that McCain is trying to "air drop himself in here tomorrow" to "set himself up to take credit for something that's going forward without him." Kind of like the G.I. Bill...
Oh, okay, so now, Republicans believe in socialism...
On "This Week" on Sunday, Bush Treasury Secretary Henry Paulson confirmed that the administration is prepared to up the ante on American socialism by not only taking over the vast majority of Wall Street's bad assets (meaning, as George Will pointed out, that after the bailout, the government would control most U.S. investment banks) but that the White House would push for the $700 billion bailout to include buying up the bad assets of foreign financial firms, too:
"We are talking very aggressively with other countries around the world," Paulson said in an interview on ABC News' "This Week." "If a financial institution has business operations in the United States, hires people in the United States...they have the same impact on the American people as any other institution."
Paulson, the architect of the bailout, also said that he will fight requests by Democrats to include a broader stimulus package in the bailout legislation.
"We need this to be clean and quick, and we need to get it in place," said Paulson.
By "clean and quick," he means rush through a bailout for the big boys, with nothing for you, except the bill.
So much for Republicans' belief in the free market. In their former Darwinian belief system, failed companies are supposed to be allowed to fail. Not anymore. Now, Republicans believe in aggressive government intervention to help the richest of firms and investors stay rich. Bailouts for ordinary people who are in danger of losing their homes: not so much. You see, those people are actually to blame...
Meanwhile, the world begins to notice our sudden love of socialism. From the Herald, UK:
Today we will learn further details of what could turn out to be the greatest act of grand larceny in history: the US treasury secretary, Henry Paulson's, trillion-dollar bailout of the US banks. Following last week's crash, the US government has decided to use taxpayer money to buy up all the bad mortgage debts of the banks and investment houses and insurance companies and let them start again with a clean sheet. In other words, save them from the consequences of their own folly. Nothing similar is yet proposed here, but it will.
The Bad Bank bailout is a bad idea. If the bankers get away with this we really will be one step from serfdom. I'm someone who has always tended to the left of the political spectrum, but on this issue I side with the American conservatives, such as Republican Congressman John Culberson, who are saying that this is socialism for the rich. Congress has no right bailing out private investors with money pledged in advance from the children and grandchildren of American citizens.
Advocates of the Bad Bank fund cite the success of the Resolution Trust Corporation (RTC) which sorted out the wreckage from the US savings and loans bust in 1989. But the RTC was very different from this Bad Bank. It collected and eventually sold off loans made by banks that had already gone bust; what is being proposed now is to buy loans before the lenders go under. In other words, it will create an artificial market with artificial prices to perpetuate the bankers' delusion that they are not actually bankrupt.
Still less is Paulson's bailout any kind of legitimate descendant of the Reconstruction Finance Corporation set up by Roosevelt in 1933 to cope with the last comparable banking crisis during the Great Depression. The first thing FDR did was shut the banks down, throw out their managements and halt all dividend payments. He then reopened the banks under new management and under US Treasury supervision, giving federal loans to banks prepared to behave.
E pluribus hokum or When the gamblers bail out the casino By Spengler
Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.
None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, onany terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.
Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?
Believe it or not, there is a rational explanation, and quite in keeping with America's national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can't understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.
Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole. Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn't worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.
As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less), plus a good deal more to compensate for the missing savings of the 1990s.
Altogether, they'd rather gamble, and if that requires a bailout of the house, they gladly will chip in to pay for it. After all, today's baby boomers won't pay for the bailout. The next generation of taxpayers will pay for Paulson's $700-$800 billion. If that enables the present generation to keep borrowing rather than saving, it is no skin off their back. If home prices continue to collapse, the baby boomers will die in debt anyway, working at low-paying jobs until the day before their funerals.
And Spengler has this additional, interesting note:
Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. If Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.
... Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?
If a liberal Democratic administration had put hundreds of billions of dollars of taxpayer money at risk by bailing out Bear Stearns and nationalizing American International Group (AIG), Fannie Mae and Freddie Mac, wouldn't conservatives accuse Democrats of "socialism"? Can Mr. McCain now square a circle by calling himself a conservative while favoring increased regulation?
In fact, Mr. McCain championed financial deregulation for years. In 1999, he supported legislation crafted by Phil Gramm, then a senator from Texas, that removed Depression-era walls between banking, investment and insurance companies -- allegedly to make the country's financial institutions more competitive and free to take entrepreneurial risks in the marketplace. (Many Democrats, including Sen. Joe Biden, the party's vice presidential nominee, supported this ill-considered legislation as well.)
The result was the creation of a free-market free-for-all of banks approving home mortgages to people who clearly couldn't afford to repay them if real-estate values stopped rising. It also spurred investment banks to buy and sell packages of mortgages after they had convinced themselves that by "spreading the risk," bad loans could become less-bad loans. Then they bought insurance contracts from gargantuan insurance companies like AIG to spread the risk even further. Investors banked on the fact that if real-estate values stopped rising (impossible!), and more and more people defaulted on their mortgages, Fannie and Freddie would pick up the tab. And, if Fannie and Freddie went down, there would be -- The-Ultimate-Bearer-Of-All-Risks -- the lowly taxpayers.
Now I know what former Sen. Gary Hart meant when he told an audience of wealthy Republican businessmen during his 1984 presidential campaign, "I know why you are conservatives -- you favor private enterprise for the poor and socialism for the rich."
And the boos keep coming, from Krugman, from Roger Cohen, and from Bill Kristol, who advises John McCain to flip-flop again and oppose the bailout. Personally, I'd give the same advice to Barack Obama...