(A little debate on the auto bailout... - promoted by Jay Stevens)
I sent Jay's post, Let's keep the good jobs, to a friend this morning. We had been discussing the bailout this weekend and Jay did an excellent job of saying what I meant. My friend replied with the following email...
Wasn't the bailout for about 15 billion dollars...............and they're saying that a collapse will put 3 million people out of a job? How about just giving all those people the 15 billion.......(which would be 5 million a piece). What sort of impact would that have.........where 3 million people "burst onto" the economy with that much money to blow!
Now I understand this would be massively disruptive to the auto industry supply chain, but it strikes an interesting chord. Just protect the people and let the companies die. What exactly is wrong with that anyway? It seems like it would be a lot cheaper, because let's be honest, $5 million apiece is a bit exorbitant.
Instead of giving workers a one-time $5,000 check, giving the industry a bailout would preserve workers' paychecks, health care, and pensions, along with preserving the equipment and factories that can be used for national security purposes, if needed.
After listening to a newly contrite appeal for billions in taxpayer help for the struggling auto industry, U.S. Sen. Jon Tester said Thursday that there are merits to throwing a tax-funded lifeline to the Big Three, but "the devil is in the details."
"There are grounds to support a bailout, but there are some deal breakers," Tester said in an interview with the Gazette State Bureau on Thursday afternoon.
He also gave some criteria:
Taxpayers would be first in line when the debt is repaid.
The money would be spent in America, on American manufacturing, rather than expanding American-owned plants in Mexico, for example.
A government board would have oversight of the package and would potentially help craft a bankruptcy package for an automaker, should bankruptcy prove inevitable.
Tester also correctly notes that this bailout is a far better deal for taxpayers than the bailout of Wall Street. It would be stupid of us to stop a smarter bailout because of anger over a stupid one. Ideally, the money for this would come from the already approved $700b anyways.
Final thought: as the newspaper account and the video highlight, Tester is neither bending over backwards to support or to oppose this deal. Rather, he appears to be demanding a good deal and saying he'll support it if it has its ducks in a row. That's a good position -- especially for someone like him who has some real say in how this thing gets crafted (although, even in a club of 100, he lacks the seniority still to be in the driver's seat).
Jon Tester asked and now they've agreed. The CEOs of Ford and GM will cut their pay to just $1 if they receive the bailout they're pining for (Chrysler's CEO had already agreed; also it is unclear if that pledge extends to their salary or to their total compensation package).
That's good news -- and Tester explains that it goes a bit beyond symbolism (which is true, given the size of their salaries).
So good work to our Senator, but this isn't over yet. Before another dime of public money is handed out, Washington better think long and hard. I'm far more sympathetic to Detroit's situation than I am to Wall Street. For all of their dumb management decisions (including to keep health care in-house and oppose universal health care against the UAW's wishes decades ago), Detroit makes stuff of real value and employs middle class workers. Wall Street got rich trading BS at the cost of the country.
Anyways, there is more to ponder on this proposed bailout. Here's some suggested reading for anyone (including our Senator or his staff) who may be interested:
I have to say, I'm torn on this. The bailouts are bothersome. A vibrant economy has a place for failure and bankruptcy. But the auto manufacturing market is far from a competitive market (witness Ford's support for a bailout package it claims it only needs indirectly). How do we get it to the point where it is? I have no idea.
(A bailout for the building industry? Are you kidding me? - promoted by Jay Stevens)
Like the US Auto Industry (which for decades actively fought higher fuel efficiency standards and shunned any principles of sustainability while producing larger and larger cars and trucks) the National Association of Homebuilders wants a 250-billion-dollar bailout package.
This, despite the fact, that nobody at the National Association of Homebuilders sounded the alarm about the industry's own over-development and unsustainable practices, especially during the past ten years, that are one of the root causes of the current economic crisis.
On September 30, in a 5 sentence notice, the Treasury Dept. eliminated Section 382 of the Internal Revenue Code, legislation created in 1986 limiting tax shelters when banks merge with one another. This tale of further unitary executive deceit was broken by the Washington Post on Tuesday. Twelve different tax experts interviewed by WaPo opined the Treasury lacked authority to make the ruling. One of them, Candace Ridgway, said:
It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops. I've been in tax law for 20 years, and I've never seen anything like this.
Why is this distressing? Because there is no law, no constitutional provision, no regulation, that gives an administrative agency the authority to unilaterally repeal an act of Congress. As clear a violation of the Constitutional separation of powers doctrine as one could ever dread to see.
Eliminating the limits on bank merger tax shelters also silently added up to an estimated $140 billion dollars to the $700 billion taxpayer bailout bill.
A time line is helpful in looking at this. On September 29, Citigroup announced a plan to take over the struggling bank Wachovia. On September 30 the Treasury Department launched their 5 sentence strike on Section 382. On October 3, Wells Fargo announced it was buying Wachovia instead for $15.1 billion. With the elimination of Section 382, buying Wachovia became much more attractive for Wells Fargo, which gained an additional $25 billion in tax reductions through the merger. Thus this Treasury action has come to be known as "the Wells Fargo Ruling." Bank people (who focus on mergers and acquisitions) knew right away about this change, but Congress did not. Reports stated that Congress was furious, because they heard second hand and were reasonably concerned about whether this was legal at all.
From the WaPo article, in an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Eric Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
Lawmakers, including Max Baucus, chair of the Senate Finance Committee included, were "nervous" about discussing their concerns publicly, however. According to the WaPo article, Baucus' staff asked that the entire conference call be kept secret. Speaking on condition of anonymity, one congressional aide said:
We're all nervous about saying that this was illegal because of our fears about the marketplace. To the extent we want to try to publicly stop this, we're going to be gumming up some important deals.
Basically, they are afraid that calling this illegal could tank some of the bank merger deals and "crash the economy." "None of us wants to be blamed for ruining these mergers and creating a new Great Depression."
Others, however, expressed concern, but no so far as to say it was illegal. On October 24, Sen. Charles Schumer released a letter to the Treasury Dept. He stated, in part:
I am concerned that the Notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars, on top of the hundreds of billions of dollars already approved by Congress in the financial rescue plan. . . . I also fear that the Notice could have the unintended consequence of motivating more financial firms wanting future tax deductions to shelter their earnings to buy competitors, leading to more consolidation in the financial industry than would be necessary to restore stability in the financial sector.
From then to now, two more bank mergers have taken place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said.
These faint objections are comparable to the tiny voices and foot shuffling that was later described as opposition to the AUMF. Lee A. Sheppard, tax attorney and contributing editor at the trade publication Tax Analysts stated:
It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system. We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?
(Just who is going to be responsible for overseeing where our bailout money goes should be of interest. Just how many of Paulson's Goldman Sachs buddies are going to be in charge of the trough? And keep your eyes open to see who gets to manage the money -- the privilege and associated management fees are doled out by no-bid contract, of course. - promoted by Jay Stevens)
Neel Kashkari is the new interim head of the Department of Financial Stability (yes, that's its name). He's 35 years old, senior advisor to Paulson at Dept of Treasury since 2006 (and senior advisor at ATF?), former Goldman-Sachs vp and protégé of Paulson, worked on the bailout bill "until 4 am" (for the six months prior to it becoming, umm, necessary), $2000 political contribution to Bush/Cheney '04, wife Minal works for defense contractor Lockheed Martin.
Congress would have to approve full appointment, so expect to learn a bit more about Mr. K in the near future. Seems like an appropriate inquiry...
The bailout bill is driving some odd alliances in the Senate today. Jon Tester just released a statement that the bill "doesn't deserve my vote," while our senior Senator Max Baucus has been one of the people leading the efforts to pass it.
I haven't had a chance to digest the Senate version under consideration today. My gut is that if I was in Washington, I'd probably vote against it, but I can also understand why Max would support it.
When I've been knocking doors lately, the bailout bill inevitably comes up quite often. The voters I'm talking to sound a lot like what you'd expect -- looking for a solution, frustrated by the cost, but wanting Congress to make sure this doesn't spread to the rest of the economy.
In that environment, most members of Congress face the options they're facing right now: either vote for a mediocre bill because it is better than nothing and we need to do something or vote against a mediocre bill because it is too friendly to the rich bastards who mucked this up in the first place.
Daily Kos has a round up of who is coming down on which side with some rather interesting pairings appearing.
But it should be no surprise that this bill is causing some weird divisions because it is not a stereotypical ideology question. To some extent, the best predictor of how someone will vote on this bill is whether the person is an a) sit down and make things work even if they're imperfect or a b) populist rager who works to push the system closer to perfection by fighting hard against it. Our country needs both those things. Any observer of Montana politics also knows that Baucus is more the former and Tester more the latter.
Unsurprisingly, both Clinton and Obama are in the first camp. My guess is McCain would be there, too, today, but would possibly or even probably have been a no vote if he wasn't running for President.
Edwards, I should say, would almost certainly be a no vote if he was still in the Senate.
(Ol' warthog wants a bailout -- and I'm not opposed. But can't we see the data Paulson showed Congress about the economy? What's the problem? Is this the best solution? Why do we have to get something done by Monday? - promoted by Jay Stevens)
I have spent the last couple of days trying to get my head around the bailout and its implications. Although every fiber of my being is suspicious of motive (see earlier post), and my gut reaction is to want Wall Street to bear the pain their risk has incurred, I have come to the conclusion that the action is needed - at least in the form that Congressional leaders announced earlier on Thursday before the McCain campaign screwed it up and started talking about a "private solution."
First, let's just talk about how we got here. The best simple quote I've heard about the financial crises is from Senator Jon Tester (paraphrased): "The crisis on Wall Street is what happens when you have a football game without a referee." The issue is a lack of regulation. Despite all of the talk about free markets, any economist worth their salt will also discuss the regulatory environment in which the market exists. This environment is crucial to the proper functioning of the marketplace. The most simple example is the protection of private property. Without private property laws, there would be no commerce because those with the greatest force would bully until they got all the toys. Therefore, it is obvious to everyone that we need to strengthen the regulatory environment.
Here are the reasons I believe the bailout is needed:
1. A portion of the financial crisis arose from foreign investors bailing on the U.S. market. In the past few years, the U.S. has relied on foreign investors to finance our over-consumption, both as a government and as a society. These foreign investors are scared and have pulled out their money. We need it. I think foreigners have much greater trust in America than I do, and they expect to see government action. Our global leadership and our economic hegemony depend on rescuing our financial system.
2. The U.S. economy is pulling down the economies of every other country in the world. I'm sure everyone has heard of the difficulties in the European housing markets, particularly in Britain. But we should also recognize that many currencies are tied to the value of the dollar. And many global transactions depend on the financing on Wall Street to happen.
3. Although the Montana economy keeps chugging along, we have started to see the impact of the national economic troubles harming our economy. The longer the national economy is in trouble, the more Montana will be impacted.
4. The Federal Reserve first attempted to address the financial difficulties through conventional means, then by taking fairly liberal actions of decreasing the required loan liability, and then by extreme measures. There were also efforts to stimulate the economy with the tax rebate, which provided temporary relief, but perhaps only accentuated the problem and allowed investors to profit by short-selling. None of these measures worked. I believe more extreme measures are needed. Purchasing the "toxic securities" may be the solution (although it may not).
I was very hesitant of the original plan, which called for Washington to throw taxpayer money at the problem as soon as possible without addressing the underlying problems with market operation and regulation. It was a sure-fire way to lose money. And we all know how things work in Washington- if there is no need to pass the legislation, it will be tied up in process and dominated by the financial lobbyists. I think we have all seen that the financial industry can't regulate themselves. The deal announced this morning would have provided $300 million immediately, then allowed Congress to come up with an oversight and regulatory plan. Good idea.
That being said, it looks like McCain has figured out a way to mess up that good plan and give some handouts to his rich buddies...I will be watching.
I am deeply suspicious of the speed and timing that this financial crises has had. Not to be a conspiracy theorists, but a market brought down by a few short sellers, plus a readymade plan to benefit their richest friends, and right at the time when the vote-loosing presidential candidate needed to get himself off the campaign trail and let his vote-getting VP take over. The McCain campaign is well aware that Obama gets his votes and enthusiastic backers when he visits voters in person. What a great way to win the election. I hope it backfires.
Things are really heating up against the bailout. You have to think passing something by Monday would be a political disaster for whoever is involved. Check out this CNN report on the bailout buzz in Montana:
Suzanne Studer is patient and polite, her greeting constant: "Congressman Denny Rehberg's office, Suzanne speaking .."
Bush addressed the nation Wednesday night to sell the administration's financial rescue package.
To spend an hour with her on Wednesday was to understand firsthand why consensus in the Congress is proving hard to come by, and why President Bush felt compelled to address the nation in a prime time effort to sell the administration's $700 billion financial rescue package.
"Absolutely not on the bailout," Studer repeated as she took notes on one call.
"Protest on the bailout, OK," as she took another.
"You are calling to protest -- well you know I have heard a lot of those so let me just get this written down," she says politely to yet another frustrated constituent.
Studer has worked in the office two years now and says she has never experienced anything like the flood of calls in recent days, and not a one in support of the package....
Montana's two senators report similar calls, e-mails, faxes and in some cases walk-in complaints from constituents who don't trust what they are hearing from Washington, and increasingly worry they will get stuck with the bill but not share in any economic benefits.
And the report comes with, naturally, a money quote from the Good Guv:
"They say, 'My God, this looks like a condition where the powerful are going to give money to the rich. What's new?' " Schweitzer told CNN in an interview at a ranch on the outskirts of Helena.
Curiously, Schweitzer thinks Congress should hold off a few days before voting for a bailout bill.
Meanwhile, the latest bailout terms are something like this: $250 billion immediately, another hundred available, and the last $350 billion only with Congressional approval; caps on executive compensation; and an equity stake for taxpayers in the companies helped by the bailout. Having bankruptcy judges modify mortgage terms is still being debated.
In this scenario, it seems House Republicans (without Dennis Rehberg?) are the heroes: they oppose using taxpayer funds to bail out Wall Street:
Instead, they issued a statement of economic rescue principles that calls for Wall Street to fund the recovery by injecting private capital...into the financial markets. Easing tax laws would prompt investors to put in their own dollars, they said.
But you knew more deregulation would be part of their plan, didn't you?
Senator Richard Shelby (R-AL) wants to ditch the Treasury plan unless there is "serious consideration of the alternatives." That's what I like to hear!
And I love what I hear from Bernie Sanders: "Larry, if I ask you that the government should intervene like every other industrialized country does and provide health care for all people, you'd say 'oh no!' And if I ask you to support government intervention so that we don't have the highest rate of childhood poverty in the world, you'd say 'oh no!' But when Wall Street screws up because of their greed, you say, 'oh yes, it's a great idea!'"
Update: It appears McCain is playing a political gambit with the bailout and has derailed it (for now). He's offered up an alternative plan. So...what's the alternative?
BOB ORR: We're told at the White House Senator McCain offered an alternative plan that would include fewer regulations and more corporate tax breaks for businesses, kind of a private solution.
Yeah, because deregulation and tax cuts worked so well with the finance industry in the past.
(I guess I'm not the only becoming increasingly disillusioned by the bailout. And Bob is on to something I've noticed for a while: the proclivity of "free market" conservatives to rail and rant against social security nets for the poor, but who are the first in line when it comes to getting their government handouts. - promoted by Jay Stevens)
Everyone is now aware of just how unprecedented the proposed Paulson Plan is, and how, though it proposes a short term "fix" (in a junky sense) for economic woes, all it does is treat the flashiest symptom of the problem, not the problem itself.
There are many other unaddressed symptoms of the unregulated Paulson (Goldman-Sachs' - can't be said enough) Wall Street, ones that most people are very aware of. This problem is not so esoteric as they would want us to believe, and I tend to think that people are not so stupid that they can't understand a clever and massive criminal scheme if given the facts, and IF FEAR DOESN'T GET IN THE WAY.
People are familiar with poverty, the inevitable consequence of an extraordinary concentration of wealth that's crept up on us over the last 30 years, and been going gangbusters the last 8. Foreclosures, evictions, and still banks go under. Huge, as yet uncalculated, loss of retirement investments. State and federal funding availability for infrastructure just drying up. Government funding for education, healthcare, and any hope of a concerted effort to address global warming from (what used to be) the wealthiest government in the world... just floating away like a CO2 laden cow-fart on the wind. These are just a few within the cascade of symptoms caused by, well, it's hard to say it simply, but greed, I suppose comes closest. Avarice.
For five long and intense hours Tuesday, U.S. Sen. Jon Tester, D-Mont., sat through the Senate Banking Committee hearing and listened to the country's top financial experts explain why Congress needs to pass President Bush's $700 billion banking bailout bill by Friday, and without significant changes.
Tester was not impressed.
"They said, 'Trust us. You give us a blank check. We feel as much frustration with this process as you do, but just trust us,' " he said. "That's not good enough for me."
