President Obama's economic speech at Georgetown University on April 16, 2009

The President's economic speech at Georgetown University on April 16: See the text here. And an introductory blog entry by Gerald F Seib at the Wall Street Journal, here.
Its a good speech designed to define the plan's separate pieces and then how they all fit together to create a cohesive overall plan that will slowly but surely change direction in the country. I only hope nobody puts a monkey wrench in the plan because it seems like it all has to fit together in order to work. With any part of it gutted by whiny Republicans in congress, or the progressive left trying to get more than is practical (even though I support them!) I would worry about its success.

Your best bet is to read the full text or watch the video, but if you want...following is my summary of the speech. I enjoyed reading it slowly and taking notes because it helps stick in my head that way. Its a pretty darn good speech I'd say.

Obama lays out his vision...

I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America's future - a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, or reckless speculation, or fleeting profits, but is instead built by skilled, productive workers, by sound investments that will spread opportunity at home and allow this nation to lead the world in technologies and innovation and discoveries that will shap the 21st century. That's the America I see. ... That is the future that I know that we can have.

Obama lays out how we got here...
lenders and investment banks wanted to make quick profits, people believed they could buy houses their incomes did not support, credit agencies gave a rubber stamp approval to securities they didn't understand and couldn't quantify. Investors and banks passed off risks to others and believed the housing market would never bust. Even companies that were considered conservative, safe, and secure - AIG, Fannie Mae, Freddie Mac - wanted in on the action. Little, if any, accountability from Washington or Wall Street. The housing bubble burst - oh! home prices really DO go down.

Greed gave way to fear. Investors pulled their money out of the market. Large financial institutions that didn't have enough money on hand to pay off all their obligations collapsed. Other banks held on tight to their money and simply stopped lending.
Now, this is when the crisis spread from Wall Street to Main Street. After all, the ability to get a loan is how you finance the purchase of everything from a home to a car to a...college education. Its how stores stock their shelves, and farms buy equipment, and businesses make payroll. So when banks stopped lending money, businesses started laying off workers. When laid-off workers had less money to spend, businesses were forced to lay off even more workers. When people couldn't get a car loan, a bad situation at the auto companies became even worse. When people couldn't get home loans, the crisis in the housing market only deepened. Because the infected securities were being traded worldwide and other nations also had weak regulations, this recession soon became global. And when other nations can't afford to buy goods, it slows our economy even further.
So this is the situation, the downard spiral that we confronted on the day that we took office. So our most urgent task has been to clear away the wreckage, repair the immediate damage to the economy, and do everything we can to prevent a larger collapse. And since the problems we face are all working off each other to feed a vicious economic downturn, we've had no choice but to attack all our fronts of our economic crisis simultaneously.

Obama lays out the steps he's taking...
Step 1 - fight a severe shorgage of demand in the economy by lowering interest rates (Federal Reserve), pass the American Reinvestment and Recovery Act which includes a tax cut, extend unemployment benefits and continued health care for Americans who have lost their job through no fault of their own.
Argument against Step 1 - this is irresponsible spending and the federal government should be cutting instead of increasing spending right now. What about our long-term deficit?
Counter argument for Step 1 - if everybody - every business and family in America - curtails spending and cuts back all at once, "then no one is spending any money, which means there are no customers, which means there are more layoffs, which means the economy gets even worse." The recovery plan represents a tiny fraction of the long-term deficit. "As I'll discuss in a moment, the key to dealing with our long-term deficit and our national debit is to get a handle on out-of-control health care costs - not to stand idly by as the economy goes into free fall."

Step 2 - "heal our financial system so that crdit is once again flowing to the businesses and families who rely on it." Continue TARP. "We must provide banks with the capital and the confidence necessary to start lending again." Stress Tests on banks to determine how much additional capital will be needed to support lending at our largest banks. When we give money to banks "we will hold accountable those who are responsible, we'll force the necessary adjustments, we'll provide the support to clean up those bank balance sheets...". Pair government resources with private investment in order to clear away the old loans and securities that are also preventing banks from lending money. Increase guarantees for small business loans, unlock the market for auto loans and student loans. Stabilize the housing market with a foreclosure/refinance plan. Work with the auto industry.
Argument(s) against step 2 - a) the government should let the banks fail since it was their bad decisions that helped create the crisis in the first place. b) Give the money directly to the people and the businesses instead of the banks. c) nationalize the banks already! Do like the FDIC does with smaller banks. Why aren't you tougher on banks?
Counter argument(s) for Step 2 - a) history shows us that if you don't take early and aggressive action to get credit flowing again, the crisis will last years and years instead of months and months. b) "a dollar of capital in a bank can actually result in $8 or $10 of loans to families and business. So, that's a multiplier effect that can ultimately lead to a faster pace of economic growth." c) "we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because its more likely to undermine thatn create confidence."
A note from me: Its important to quickly get credit flowing again IF you want to live in an economy based almost exclusively on credit. It seems to me we might want some businesses and purchases to be credit based, but our lifestyle should not be built on it.

Step 3 - Coordinate a global response to the global recession. Go to the G20 summit in London. All countries agreed to toughen regulatory reforms, triple the lending capacity of the Internation Monetary Fund, pledged to avoid trade barriers and protectionsism, and plan to meet again.

So that's where we've been, that's what we've done in the last three mnths. All of these actions - the Recovery Act, the bank capitalization program, the housing plan, the strengthening of the non-bank credit market, the auto plan, and our work at the G20 - all have been necessary pieces of the recovery puzzle. They've been designed to increase aggregate demand to get credit flowing again to families and businesses and to help families and bsinesses ride out the storm. And taken together, these actions are starting to generate signs of economic progress.

...

2009 will continue to be a difficult year for American's economy, and obviously, most difficult for those who've lost their jobs. The severity of this recession will cause more job loss, more foreclosres, and more pain before it ends. The market will continue to rise and fall. Credit is still not lowing nearly as easily as it should. The process for restructuring AIG and the auto companies will involve difficult and sometimes unpopular choices; we are not finished yet on that front. And all of this means that there's much more work to be done. But all of this also means that you can continue to expect an unrelenting, unyielding, day-by-day effort from this administration to fight for economic recovery on all fronts.

Obama lays out his plan for the future...
Make sure this type of crisis never happens again. Rebuild our economic house on a solid foundation.
a) work with congress to create new rules for Wall Street that reward drive an innovation, not reckless risk-taking, create a regulatory framework for banks, lenders, etc.
b) investment in education that will make our workforce more skilled and competitive, expand early childhood education, innovative education programs help schools meeting high standards and close achievement gaps, review teacher compensation, every American should commit to at least one year or more of higher education or career training, tax credits for college education, develop more scientists and engineers.
c) invest in renewable energy and technology to create new jobs and new industries, the Recovery Act has some investment in renewable energy, market-based cap on carbon pollution.
d) investment in health care to cut costs for families and business, Recovery Act has investment in electronic health records, invest in preventative care, in the current budget just passed there a commitment to reform health care - work with Congress to make that happen.
e) restore fiscal discipline in the federal budget - procurement reform to greatly reduce no-bid contracts, waste and cost overruns in the defense budget (announced by Secretary Gates), end education programs that don't work, root out waste and fraud and abuse in Medicare, go through federal budget line by line.

These are the 'five pillars' "...that will grow our economy and make this new century another American century."

I know there is a criticism out there that my administration has somehow been spending with reckless abandon, pushing a liberal social agenda while mortgaging our children's future.

Well let me make three points.

First, as I said earlier, the worst thing that we could do in a recession this severe is to try to cut government spending at the same time as families and businesses around the world are cutting back on their spending. So as serious as our deficit and debt problems are - and they are very serious - major efforts to deal with them have to focus on the medium and long-term budget picture.

Second, in tackling the deficit issue, we simply cannot sacrifice the long-term investments that we so desperately need to generate long-term prosperity. Just as a cash-strapped family may cut back on luxuries but will insist on spending money to get their children through college, so we as a country have to make current choices with an eye on the future. If we don't invest now in renewable energy or a skilled workforce or a more affordable health care system, this economy simply won't grow at the pace it needs to in two or five or ten years down the road. If we don't lay this new foundation, it won't be long before we are right back where we are today. And I can assure you that chronically slow growth will not help our long-term budget situation.

Third, the problem with our deficit and debt is not new. It has been building dramatically over the past eight years, largely because big tax cuts combined with increased spending on two wars and the increased costs of government health care programs. This structural gap in our budget, between the amount of money coming in and the amount going out, will only get worse as Baby Boomers age, and will in fact lead us down an unsustainable path. But let's not kid ourselves and suggest that we can do it by trimming a few earmarks or cutting the budget for the National Endowment for the Arts. Along with defense and interest on the national debt, the biggest costs in our budget are entitlement programs like Medicare, Medicaid, and Social Security that get more and more expensive every year. So if we want to get serious about fiscal discipline - and I do - then we are going to not only have to trim waste out of our discretionary budget, a process we have already begun - but we will also have to get serious about entitlement reform.

Nothing will be more important to this goal than passing health care reform that brings down costs across the system, including in Medicare and Medicaid. Make no mistake: health care reform is entitlement reform. That's not just my opinion - that was the conclusion of a wide range of participants at the Fiscal Responsibility Summit we held at the White House in February, and that's one of the reasons why I firmly believe we need to get health care reform done this year.

And the end of the speech is really quite good as well...

All of these efforts will require tough choices and compromises. But the difficulties can't serve as an excuse for inaction. Not anymore.

This brings up one final point I'd like to make today. I've talked a lot about the fundamental weakness in our economy that led us to this day of reckoning. But we also arrived here because of a fundamental weakness in our political system.

For too long, too many in Washington put off hard decisions for some other time on some other day. There's been a tendency to score political points instead of rolling up sleeves to solve real problems. There is also an impatience that characterizes this town - an attention span that has only grown shorter with the twenty-four hour news cycle, and insists on instant gratification in the form of immediate results or higher poll numbers. When a crisis hits, there's all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died away and the media coverage has moved on, instead of confronting the major challenges that will shape our future in a sustained and focused way.

This can't be one of those times. The challenges are too great. The stakes are too high. I know how difficult it is for Members of Congress in both parties to grapple with some of the big decisions we face right now. It's more than most congresses and most presidents have to deal with in a lifetime.

But we have been called to govern in extraordinary times. And that requires an extraordinary sense of responsibility - to ourselves, to the men and women who sent us here, and to the many generations whose lives will be affected for good or for ill because of what we do here.

There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America's future that is far different than our troubled economic past. It's an America teeming with new industry and commerce; humming with new energy and discoveries that light the world once more. A place where anyone from anywhere with a good idea or the will to work can live the dream they've heard so much about.

It is that house upon the rock. Proud, sturdy, and unwavering in the face of the greatest storm. We will not finish it in one year or even many, but if we use this moment to lay that new foundation; if we come together and begin the hard work of rebuilding; if we persist and persevere against the disappointments and setbacks that will surely lie ahead, then I have no doubt that this house will stand and the dream of our founders will live on in our time. Thank you, God Bless you, and may God Bless the United States of America.

I don't know where I live anymore.

What's going on?
I live in a world in which we're politely discussing how to deal with a group of elite, wealthy, greedy, and ambitious people who turned the world's economy on its ear. Isn't this a scandal at least as grieveous as Watergate? As any sex scandal?
I understand the audaciousness of this 'crime' is overwhelming and there are so many at fault we don't know who to punish. But, we're not only not punishing anyone - we're debating how to reward the perpetrators! Right? I mean, we're discussing how or if we should take away their bonus money.
Isn't that odd? It seems there shouldn't even be a question of whether any of those people should get a bonus. The obvious answer is no. Its common sense. Right? Right?

AIG Bonuses

A lot of sturm und drang about AIG bonuses in the last day or two.
In yesterday's New York Times, Andrew Ross Sorkin wrote a piece to make the case for why we must pay the bonuses to AIG:
1. Sancity of Contracts - employees have airtight contracts that guarantee bonuses.
Answer: When the government became an 80% shareholder in the company, the contracts meant nothing. I don't know about the legality of that, but it seems reasonable that when you get a new boss, new rules are put in place. The new rule is, you get bonuses when we say you get bonuses.
2. Breaking the contracts would set a precedent that other companies would take advantage of.
Answer: Hypothetical fear-mongering. I think that's an illegitimate argument in defense of bonuses.
3. "A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it."
Answer: Really? That's a reason to pay people bonuses? That may be a reason not to fire someone (I don't concede it is, only for the sake of this argument I accept it could be), but its hardly a reason to give people MORE money. It may take people longer, but I suspect there are one or two people who could get everything unraveled.
4. If the employees don't get bonuses, and because of that, leave the company, "they might simply turn around and trade against AIG's book. Why not, they know how bad it is. They built it."
Answer: Wow - and these are the kind of people you think we should not only keep around at the company, but also give more money to them so they'll STAY at the company? If their morality and integrity is that shoddy, then we've got more problems than paying them money will solve. The author is showing his cynical view of the world. Sad for him. Hey Andrew - there are good people in America you know. Some of them even live in New York City and work on Wall Street. Some AIG employees might even be good people outside the clutches of a bad leader who developed a company with bad rules. Give them a good leader and good rules, and they'll be good too. I may be underestimating the depravity of Wall Street employees, but you might be underestimating the desire of most people to live and work in a sane world.
Besides, whether we give them a bonus or not, many employees are probably leaving AIG anyway.
6. Retaining the best and brightest.
Answer: The best and the brightest don't have any use to me if they aren't also people of integrity and character. I'll allow that they played along to get along under a bad system (they might still be redeemable), but if not getting bonuses is enough to drive them away from the company, good riddance to bad rubbish.
7. Employee "compensation is subject to continued and arbitrary adjustment by the US Treasury."
Answer: All we're saying is don't pay bonuses. Again, fear-mongering. The CEO of AIG Edward Libby (who made the statement) is trying to create a picture of the government rubbing their hands together in glee because they get to exercise their newfound power over AIG. I see no indication the government is requesting anything other than to stop the employee bonuses this year, and put a cap on executive salary while the company is being supported by the United States taxpayers. Reasonable.

My final conclusion - Andrew Ross Sorkin, your case was not made. Dismissed.

My strategy for the economic crisis

Posters from You The Designer blog and here

Here's my plan:
Save money, but not be spartan. Bottom line - I need to keep my job and build my cushion so I have six months salary in the bank - right now, I don't. My concern for myself is that I'll be blindsided by a layoff or getting fired. I don't want to panic or be vulnerable. 22 more months will give me enough time to get my six month cushion.

By the end of 2009 I expect the 'experts' will have a better idea of what's working and what isn't and what we can save and what we can't. We'll either have hit bottom or have a better idea where bottom is.

If Obama's strategies aren't showing visible signs of working by the end of 2009, we'll at least know what doesn't work and try something else. In that case I'll hold my breath through 2011.
If, at the end of 2009 Obama's strategies are working, it will probably still take another year for people to regain their confidence. By the end of 2010, though, we should be in much better shape - still struggling, but at least feeling stronger.

That gets me through the next 22 months.


Even still, I have faith in my fellow man. People will find ways to create an economy from the ruins of this economy - new industry, new ideas, new ways to make money, new resources. Eventually, people will purchase things they value.
Young people are always hopeful.
Smart people find ways to make things work.
Daring people are willing to take risks in good economies and bad.

If everyone will remain calm and believe in themselves, we can get through this. We can build the America we want for our children and grandchildren. We can live the America our parents believed in on our behalf. We can be the dream of America that has survived from farm to factory, from toddler to senior, from wealthy to poor, from lonely to loved, and for more than 200 years. We are the United States of America.

So, that's my plan. Be calm and carry on. Be positive and ever vigilant. Be prudent and always hopeful. Wait and see.

The Credit Crisis - A Primer - Well Worth Watching

Good job Jonathon Jarvis!


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Stock Market as economic indicator for the masses????

Today, I watched a bit of John King's "State of the Union" on CNN.
He was speaking to Shaun Donovan, Secretary of Housing and Urban Development about Obama's new housing plan.
John King asked him why, if these programs are so good, is the stock market registering such steep drops every time a new program is announced?

I can't believe how stupid that question is. And it bothers me that no one stops him, and his compatriots who ask similarly silly questions.

Why do I think it wasn't a good question? The stock market doesn't move up and down because smart, altruistic economic thinkers are making their opinions known. The stock market shifts when the financial security of wealthy people is threatened. Wealthy people (and the money managers on Wall Street who wield enough monetary power to move the market up and down) invest for their own benefit, not the benefit of the whole country.

Why would a journalist assume that the investment strategy of wealthy people is a good barometer of the economic health of an entire nation mostly comprised of less wealthy people?

Details of the American Recovery and Reinvestment Act of 2009 - House Resolution 1

Here is the link for text of House Resolution 1 - the American Recovery and Reinvestment Act of 2009.

Open Congress is a great resource for what's happening in Congress!

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Republicans and the Economic Stimulus Plan

House Republicans lose nothing when they vote no on the economic stimulus plan; they come from staunchly Conservative districts, they know Democrats will pass the bill with or without Republicans, and if the plan fails, they didn’t vote for it but if the plan succeeds, the economy is functioning. In either case, they get elected again. Win-Win.

Republicans are short-term thinkers. Goal One: get elected. Goal Two: present themselves as fiscal conservatives (after a Republican administration that created the largest deficit in US history)

Their public objection to the stimulus is that it includes spending items that don't affect the economy until 2011/2012, which, defeats the point of the stimulus - to immediately jump-start the economy.

Obama’s plan recognizes our economy is a long-term problem with fundamental flaws. The stimulus includes spending for the next several years so the economy can sustain itself during the long road to reform and recovery.

Republicans must think once the stock market is up to X points again, the free market will trickle down and take care of the rest of us. Which is why they’re so keen on helping the banks and financial companies, but object to helping middle class Americans.

The Senate might be a different story because they aren’t beholden to one district in a state. It’s harder to be a one-note party when you have to bring moderates into the fold as well as conservatives.

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Republicans and the Obama Economic Stimulus Plan

I heard a discussion today with Chris Hayes of The Nation about the Republicans who voted no on the economic stimulus plan - the entire Republican House delegation. He pointed out that many of the Republicans come from districts that are conservative and wouldn't want their representatives to work with the Democrats (even if our economy is destroyed in the process, it seems). Those representatives have nothing to lose by voting no. I blame Tom DeLay and the excessive redistricting. I'd like all the congressional districts to be 1/2 and 1/2 or something like that.

I don't know for sure Obama's plan will work, but it would be nice if everyone could work together so we can get something that's not too extreme in either direction.

No reason for the green peppers pictures. I just added it to the blog for some color and interest.

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Obama's economic stimulus plan

Peculiar that none - not one - of the Republicans voted for Obama's economic stimulus plan. I understand this is only round one, but it sounds like partisan politics to me.

From Huffington Post -

Obama ventured to Capitol Hill on Tuesday and met separately with House and Senate Republicans in hopes of garnering their support. He invited roughly a dozen GOP moderates to the White House Tuesday evening for an extended discussion -- and cookies and soda -- with chief of staff Rahm Emanuel. And before Wednesday's vote, six House Republicans, five Senate Republicans and an equal number of Democrats gathered for a White House meeting.

Obama persuaded House Democrats to remove provisions related to family-planning from the stimulus and -- over the objections of many Democrats -- inserted large tax cuts for businesses that Republicans wanted.

None of it was enough.

Partisan hacks.

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Auto Bailout

Republican Senators have voted against the auto bailout.

Who do you believe?

The people who say a failure in the auto industry will have such devastating effects on unemployment and ripple throughout the economy that its not in the country's best interests to allow it to happen?

Or the people who feel the Big 3 auto makers hasve created the situation they find themselves in today (mismanagement) and its up to the free market to allow them to suffer the consequences.

It appears that the first group have won. There will be a bailout. So, that question has been answered.

The question is now in the details.

Senato Republicans were involved in the negotiations to get a bailout passed in the Senate (it passed in the House), but it all feel through when the UAW would not agree to match the pay rates of American workers at Honda, Toyota, etc with a specific date. The Republican Senators wanted it done in 2009 or 2010, but the union wouldn't agree to any specific date. That is a characterization of the issue based on a CNN interview with Repbulican Senator Tom Coburn of Oklahoma.

Reading between the lines, I think the union wanted to give rate concessions but they wanted them to take effect slowly over time. That's the union's way.
It makes sense to me. The Republican Senators want the American auto makers to pay the same amount of money for present workers as the foreign automakers are paying - who aren't unionized. According to Tom Coburn, the American automakers have a 60% disadvantage in total absorbed payroll costs.
Which tells me the American workers are paid about 130% of the foreign auto workers. ?? I don't know if that's accurate, but whatever. The point I want to make is that its unreasonable to ask the workers to take a huge pay cut immediately (even 2010 is practically immediate) when they've had a contract and created a financial lifestyle based on that contract. Can you imagine if suddenly nearly half of that income is gone? If you think there's a foreclosure problem now, this would just add to it.
And why should the workers take that huge a paycut when the top management staff aren't going to take the same percentage cut? (I don't know the details but I suspect that's true - I could be wrong though).

The Republicans are trying to bust the unions.

Update: David Brooks on The NewsHour said the reason the parties couldn't come to an agreement is because there wasn't any reason to; they knew the government was going to get the money to the automakers so they had no reason to compromise to make a deal.

That comment disappoints me because it implies the parties were never negotiating in good faith. How can I ever expect to formulate reasonable opinions about anything when I can't trust what I read. I have to be an 'insider' to really know. Or be cynical? No wonder people don't want to stay informed. We don't know the real facts so why bother trying to care? I hope I can figure a way out of that way of thinking.

Here is Obama's statement on Friday December 12, 2008.

"I am disappointed that the Senate could not reach agreement on a short-term plan for the auto industry. I share the frustration of so many about the decades of mismanagement in this industry that has helped deliver the current crisis. Those bad practices cannot be rewarded or continued. But I also know that millions of American jobs rely directly or indirectly on a viable auto industry, and that the beginnings of reform are at hand. The revival of our economy as a whole should not be a partisan issue. So I commend those in Congress as well as the Administration who tried valiantly to forge a compromise. My hope is that the Administration and the Congress will still find a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required."

Barack Obama is saying the right thing.

I still blame the Republican Senators because they're putting too much emphasis on busting the unions. Why don't they require as much concessions from the executives as they do the labor unions?

I guess I find it easier to be cynical about more right leaning people and ideas than left leaning people and ideas.

Sigh.

"Face The Nation" and "Meet the Press"

Meet the Press Transcript: http://www.msnbc.msn.com/id/27873500/

Face the Nation video: http://www.cbsnews.com/video/watch/?id=4628191n

"Face The Nation" this morning:

I heard Austan Goolsbee, a member of Obama's Economic team talk about the auto makers. He said, it's reasonable that if companies want to avoid bankruptcy and they're having problems they restructure their company. And, part of that restructure often includes a bridge loan. However, and most importantly, the loan is contingent on a business plan. If the government is going to provide a bridge loan to the automakers because the current credit markets are too frozen to provide it, then its even more important to the taxpayers that we have a reasonable plan from the automakers.

The auto maker CEO's displayed their incompetency this week when they not only flew to Washington DC on private jets, but incomprehensibly did not have a plan in place. That's strange and ridiculous. So, I'm glad a plan is being required.

*****

Nancy Pelosi discusses the auto maker bailout. A person commented on the Face the Nation website. I don't like registering for the websites so I'm not going to comment, but this is the person's comment and what I would have said: http://www.cbsnews.com/stories/2008/11/23/ftn/main4628137.shtml

Comment: "Bob, another puff piece interview this time with Pelosi. After you two roundly criticized the Big 3''s management, you didn''t ask the next question. What about labor and the UAW? Was this a mistake, or were you told to dtay away from that topic? The biggest expense for any organization is labor. With union members making an unrealistic $100,000 or more per year, there has to be a reduction. Nor did you mention the job bank workers who get paid for doing nothing. If a plan emerges from the next administration that doesn''t touch excessive labor costs, we will know that Obama is tied to big labor. That won''t fly with a lot of people. You should have challenged Pelosi on that. Since you didn''t, your interview might as well have never happened."

My response: "I disagree...Nancy Pelosi has no obligation to make any comment about the unions. Its the auto makers who signed the union agreements and agreed with the current labor costs. The CEO's will be developing some kind of business plan to discuss their restructuring. Its incumbent upon them to work with the unions to create a workable solution for the company and the workers. I hope the unions will consider the companies a partner in regional economic survival. But, that's between them. The suggestion that the government - congress, even - should interfere with labor relations is the kind of government interference in the free market that will only compound the problems we currently face."

*****

Nancy Pelosi also discussed the 700 billion dollar bailout.

BOB SCHIEFFER: Let me talk to you just about the economy in general. So far, the Treasury, I guess, has used 250 billion of the 700 billion dollar financial bailout that passed the Congress. Yet the stock market seems to be in free fall, nobody seems to know what's going on. Do you have confidence in this plan that Secretary Paulsen has put forward. And do you have confidence in him generally?

NANCY PELOSI: Well, earlier this week, on Monday, the House Democrats called in Secretary Paulsen and Chairman Bernanke. We're all busy people, and I said to them 'I know you're busy and you're under pressure. So are we. We want to know what's going on with this rescue plan. It was supposed to instill confidence, we don't see that in the markets.' They maintain matters would be much worse if we had not made that infusion of cash. We thought that this money was going to circulate credit, put credit out there, so many more people could function in a business sense. And that doesn't seem to be happening. They tell us it will. We were very concerned about the fact that the legislation called very specifically for them to help with mortgage forebearance to help people stay in their homes. They've done nothing on that score. They've testified to that effect the next day in front of all of Congress. And I think they got the word that we want to see some results from this legislation. But, again, as they say, it would be worse without this. Now we have another installment of the money, and I think that Congress is going to demand some real accountability - I know they will - before we can proceed with other money.

*****

I no longer trust Henry Paulsen. Well, I only barely did before, but I was willing to give him a chance. And then, on "Meet the Press" I hear this exchange:

MR. BROKAW: Well, let, let me take this to the next phase, if I can. I want to share with you what Secretary Paulson had to say recently, November 13th, about the stabilization of the American banking system. Here's what he had to say.

(Videotape)

SEC'Y HENRY PAULSON: I believe the banking system has been stabilized. No one is asking themselves anymore is there some major institution that might fail and that we would not be able to do anything about it. So I think that is a positive.

Unidentified Man: There could be a failure of another major institution?

SEC'Y PAULSON: I, I got to tell you, I think our, our major institutions have been stabilized. I believe that very strongly.

(End videotape)

MR. BROKAW: And shortly after that statement, as we all know, Citibank, one of the largest financial institutions in the world, had its stock drop by 64 percent in a matter of days, hours. It was in free fall. It's now looking for additional government assistance.

*****

And then, there's this article from the New York Times yesterday:
http://www.nytimes.com/2008/11/23/business/23citi.html?_r=1&partner=rss&emc=rss&pagewanted=all

The headline is The Reckoning: Citigroup pays for the rush to risk.

Which leads to another sidenote. The article states:
"The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article."

Who is Robert E Rubin? From the article:
"When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another."

And that's all for the sidenote.

*****

On "Meet the Press" James Baker suggests that it would help confidence if Obama and Bush could find even one thing that they agree on to help the economy for the immediate days and weeks ahead. I agree. Somebody's got to be in charge. Bush is President, but doing nothing. And Obama is President-elect and can't do anything. Unfortunately, they have differing views on solving the problem, but there must be ONE thing they could agree on.

"MR BAKER: May I say one other thing, Tom? I, I think that a lot of what we're seeing out there today is a lack of confidence, and the president-elect and, as a matter of fact, the current president have to face this problem over the next 60 days. It's unfortunate that we're in this interregnum of a transition, but I think that something very useful might even come out of the two of them sitting down together and addressing not the, not the midterm, not the mid and long-term problem that we face that was the subject of the president-elect's speech, but the--but facing--but addressing stability of our financial system and to see if there isn't something that they could do jointly, together, over the next 58 to 60 days that would help us make sure that the--that the financial system is stabilized and, and secure. Because if that goes under, then this thing is even, believe it or not, going to get worse. And I think just the mere fact of their sitting down together and seeing if there's not one thing that they could come together on would do a lot to restore confidence and, and remove the anxiety and fear that's out there."

"MR. BAKER: I agree. I agree 100 percent. We can only have one president at a time, but nothing would do more to create confidence and, and eliminate the fear and anxiety that's out there, particularly in the finance--in financial markets, than to see the incoming president and the outgoing president get together on a--on some sort of a proposal or, or program over the short term. I'm not talking about the, the mid, the mid-term or, or long-term correction of the economy, but something that would do a little more perhaps to make sure that our, that our banks don't continue to slide down and, and that would stabilize our financial system, which is critical."

*****

Tom Brokaw spoke to Joe Lieberman. I don't like Joe Lieberman anymore. I won't support him. Its not because he supported his friend John McCain. Its because he supported the campaign of his friend John McCain. He liked Sarah Palin, he said Obama wasn't experienced enough. He's lucky I wasn't deciding his fate because I would have kicked him out of the Democratic caucus. I would shun him. Another reason I'm not in charge of anything. I'm not temperate enough.

*****

In the roundtable discussion of Meet the Press, the group seems to think Baker's idea to get Bush and Obama to present something jointly is a good idea. Also, they think the unions should be part of the testimony on capital hill. I don't - let the company and union work it out themselves.

Big 3 loan again

This morning I feel like we should let the Big 3 auto manufacturers (GM, Ford, Chrysler) fail.
Why?

1. Those CEO's are unbelievable and have no idea what they're doing. I don't trust them at all.
2. According to some, the alternative to bailing them out is a depression like we've never seen before. Somebody is trying to scare me into agreeing with them. I don't think its good to make decisions from fear.
3. Where does it end? What industries will be determined to be so important to the American economy that we need to save them? What is the criteria? Nobody knows.
4. The problem with the auto industry is that it hasn't stayed competitive. A bailout won't change that.
5. I have said I'd support a loan to the automakers with S T R O N G strings attached. But, I don't trust the government to make a good negotiation that will stick.

The other side of the coin, for me, is all those workers who might lose their jobs. That's a stiff price to pay. I don't feel comfortable making a decision that doesn't directly affect me (though indirectly it could), but could cause other people to suffer. Especially through no fault of their own.

Which makes me wonder what the workers think.
And then I remember that part of the problem is that the government has been supporting the automotive and big oil companies for years with their lackadaisical fuel efficiency policies and that was done with the support of congress. The same workers who might now be affected are probably the same people who voted for congresspeople who supported the bad policies of the big oil and big 3 automakers.

So, maybe the people in that area have helped to create the situation they're in by their selection of congress people? I'd have to research the policies of congresspeople in that area.

That's an example of the how important our votes can be and how easily we can be manipulated to vote against our own interest.

As of this moment, Harry Reid has decided not to vote in the Senate today about auto manufacturers loan. Those private jets really did them in! What a bunch of idiots!

I still think the issues that have been brought out in this discussion and the previous one about the financial markets are important. We need to come to terms with this.

And what about all the other industries that are supported by the government, but we don't even talk about? Farmers still get subsidies and price supports don't they? We add tariffs (?) to countries that want to import commodities that we consider special. Right?
So, all this talk about socialism and stuff like that is a little disingenous.

Auto manufacturer's loan

Some additional pros and cons about an automaker loan (not all my thoughts - I watched C-SPAN this morning):

1. Auto manufacturing is the last manufacturing base in America.
2. If we attach strings to the loan we have leverage to make the automakers move quickly on alternative energy cars.
3. In the 80's Chrysler received a loan from the federal government. They paid it back more quickly than required, and the government got about 800 million extra dollars.
4. There is a 50 billion dollar infrastructure bill that the Congress is/will be looking at.
5. The automakers want a 25 billion dollar LOAN. Where would the money come from? Additional money from the government?, as part of the 700 billion already allocated to Treasury?, or can it be taken from an energy bill that is giving automakers money to retool for green type cars?
6. Automakers support communities and families. If they go under, the whole region is at risk. Not to mention the people who depend on the pension money.
7. Chrysler was bailed out by the Federal Government and still made a mess, so Mercedes Benz partnered (?) with them and even they gave up. So, now they want more money.
8. All the CEO's of the automakers flew to Washington to testify today and to ask for money. They flew here in private jets.
9. All these companies have been sending jobs out of the country all these years.
10. The management of these companies must be bad, otherwise they wouldn't keep getting in trouble.
11. It was the car manufacturers who scrapped the electric car - "Who killed the electric car?". So, they haven't built the kind of cars for the futre.
12. Apprently, their cars are not well made. I like my Ford car and haven't had any troubles, so I'm not sure what this is about. But, the American cars do have a reputation.
13. By 'bailing' out the automakers we're fighting the trend of competitive forces.
14. Its unconstitutional for America to selectively bail out some companies and industries and not others. The government shouldn't be making that choice.
15. Domestic manufacturers pay about $30/hour of fully absorbed payroll costs more than foreign car companies manufacturing in the US. The problem with the car manufacturers is their union contracts, and bad product mix. Bailing them out won't help.
16. One option is to let the companies go bankrupt, but (in order to keep customers from shying away from a bankrupt company) let the federal government warranty the cars or something like that.

I still don't know what the right answer is. As of this evening, it looks like the chances of a loan in the lame duck congress is slim. Henry Paulsen is against helping the auto makers. it didn't help when it got out that the CEO's used the private jets today.

Once again, we're left with some crappy choices.

I guess I gotta go with the best interest of the workers and advocate for the loan.
However, I wouldn't do it unless there are some really powerful strings attached related to energy efficient cars, and new management personnel and style, and bringing jobs back to America.

I don't know if I trust Congress to get a lot of concessions though.

Some people talked about letting the big 3 go bankrupt and support the smaller car manufacturers in the country. That would be okay, but I don't know who those car makers are.

Bailouts

I wrote a few days ago about the bailout of auto makers. If it weren't for the fact that its regular workers who would be getting screwed, I'd be against the bailout.

A Personal Side Note:
In my life, my mother would help me out if I followed her rules and was accountable to her for every penny, etc. Which is why I've asked my mother for help rarely, and never for any significant sum. (In all honesty, my mother has been generous with Christmas and birthday presents though.)
I learned to live with my mother's philosophy, essentially - you made your bed, you have to sleep in it. Its true - its my fault for getting into trouble and I'll have to pay the consequences.

That's an easy philosophy when no one else is involved. Nobody else depended on me for money or jobs or support. So, I dealt with it.

When I was in my early 20's my Grandmother bought me a bookcase that I like, and still use. While talking afterward, she kind of whined that I should get my hair cut. "Won't you get your hair cut?" "For me?" When I told her I didn't want to get my hair cut, she said that if she'd known that, she wouldn't have bought me the bookcase. That exchange, while not the first time it had happened - nor the last, is the one I remember that describes the relationship between money and control in my house. And why asking for financial help is my last resort. (My Mom and Grandma are good people - they just learned that money is control and passed it on to me. And, individually, it is. I have control over my own destiny when I can afford it. But, I wouldn't want to use money to get what I want from people.)

So, my personal feelings color my public feelings about bailouts. You made your bed, you lie in it.

But, I also understand, that at this point, I'm not sure our economy can stand having a lot of unemployed people in one region of the country.

I don't know what the right answer is.

My only solution is to do what my mother did - if we give them money, they have to follow our rules for running the company.

I'm also concerned that the government not artificially support an economic model or a product that is no longer in the country's best interest, just to save a job. We asked forestry workers to find new jobs when a lot of them were laid off to save the spotted owl. Maybe its time we asked automakers to find a new industry.

If we do bail them out and we have some say in how they run their business, its a good idea to require automakers to create cars that are fuel efficient beyond our current standards.

Anyway - as usual, I don't have an answer, only considerations and conflicting points of view.
And I didn't write about it all that well, either.

Unions

I like unions. I like the idea of people working together for a common cause.

And why were unions necessary? Because company owners were not valuing workers. Working conditions were bad, companies took advantage of people with few options, and sweat equity was not rewarded.

So, unions came into being.

After awhile unions started asking for more and more.

Companies are being taken down by the excessive union contracts (automakers).

I think the unions should give a little for the sake of all of us. But, I also think the company big shots should share the wealth among the workers more. On their own. If the company could be trusted to share a reasonable amount of profit with the workers, a union wouldn't be necessary. A CEO receives 20 million dollars a year and a worker makes less than 100, 000 a year. That sounds unreasonable. Maybe the CEO should receive 10 million a year and the workers can get a bit more.

That's all I'm asking for. But, I'm not in a union.

Taxes

I don't mind paying taxes. Its the price I pay for living in a great country with good roads, good water, police and fire protection, a court system, etc, etc, etc.

Nothing comes from free and if we want things to work well, we have to pay for it.

Nobody likes waste though. All Americans (Democrats and Republicans alike) can agree that wasting tax payer money is the sin.

Of course, what some people call a waste, other people call a necessity.

I think the social security limit should be changed. We shouldn't have a dollar value limit, but a percent limit. Everyone should pay the same rate up to x% of their pay. Wouldn't that solve the problem of rich people having to pay considerably less tax as a percentage of their income?

I don't understand the reasoning behind the estate tax. I haven't researched it. I wonder if its a way to protect against an aristocracy? I don't know. I'll look into it. But, it doesn't seem reasonable to tax estate money, because, hasn't it already been taxed as income?

Capital gains tax is fine. Its income (or loss). And mostly rich people are the ones who get this, so I'm even okay with a reasonably higher rate than normal income. I should research that one a little more as well, though.

Henry Paulson changes directions on TARP

I'm disappointed the federal bailout is not working. Paulsen is changing course. It appears he doesn't know what he's doing. It reminds me of John McCain's campaign - a little of this, a dash of that, and a whole lot of whatever.

My mistake was giving him the benefit of doubt.
It was described as such a bad situation that I assumed the experts would come together and find a responsible way out of the mess. I don't know that these people are smart, though. Maybe they're smart in small ways.

I'm so sick and tired of plain old bad managers and leaders.
It doesn't do any good to have an ideology if you can't make things happen.
Even if I don't agree with your ideology, you should be able to implement.

Originally, Paulsen was going to buy bad assets from the banks, etc. That would free up the balance sheet so banks can lend again. They gave away about 290 billion dollars to banks around the nation, but its done nothing.
Now, Henry Paulsen says their going to focus on consumer credit.
I don't like that idea.
It makes no sense to continue supporting a credit society. How consumers handle credit is partially responsible for the current mess.
I think the idea is that when consumers can get credit again, that will be the 'charge' the economy needs to get jump-started.

I suggest we see more of the home mortgages refinanced by the banks themselves - no government intervention.
I suggest the government invest in infrastructure - now. Barack Obama will do it, but we need it now. That will create jobs, which will create money, which will create demand.

Should the government bail out the automakers?
Wow - I see it's important to regional economies and individual employees. I get it.
But, I also think its crazy to continue bailing people out.
I still have a good recollection of Lee Iacocca getting bailout money for Chrysler in the 80's. Its only twenty years later and we need to do it again? No, I say.

I've also become disillusioned with the government's efforts so far. Although I don't expect to see overnight results, I expect to see less volatility and less flailing around.
It seems they're trying to find a way to artificially get things going.
Why not go back to the fundamentals and work from there. We've been in the fairy tale world for too long. Invest in producing things - invest in developing new ideas - start making credit an exception rather than the rule.
I'd rather see that than additional bailouts.

Nobody listens to me, and I don't expect they should. I don't have any specialized knowledge. I'm responding with emotion.
But, it appears to me that the people who supposedly do have specialized knowledge aren't doing anything that well themselves - so why not listen to people like me who are just trying to make sense of it all.

In essence, I gave the Bush Administration a chance - they mucked it up, and I'm done with them.

The House votes again...HR 1424

Too often, the policies of the Bush administration and Republicans in general put us in a position where we have no good options to get us out of a crisis. First the surge, and now this economic crisis.

I like the bill from Monday more than the bill being signed today. I blame the Republican 12, and the Republican leadership for the continued stock market volatility during this week and the deepening of the crisis that is now forcing passage of a bill with even more items that will continue to negatively affect the economy into the future. Note: I do not blame the Democrats who voted no, because the Democratic leadership gave their 50% of the Democrats and the Republicans did not give theirs. In order for this to be a bipartisan effort they needed at least half of each half.

Additional tax credits beyond the 'tax extender' package and cosidering suspension of mark to market accounting rules for example. The bill on Monday, while not perfect, had fewer 'extras' which focused the bill on solving the actual economic problem. The extras in the current bill could cloud the issues. And, I might add, make for political blame and deflection
in elections down the road as well. That is boring.

The House must pass the bill, but I think it would have been better for the United States if they'd passed it on Monday.

I reserve the right to find out I'm mistaken about the details of the current bill, but I understand the 'bailout' portion of the bill hasn't changed all that much.
I understand why the Senate attached the 'bailout' bill to the tax extender bill (which I believe had previously passed easily in the House), so I exclude that from my critique of the current bill.

I don't think most Americans have a true understanding of what the bill is intended to do. Without actually taking time to find this stuff out, they have to rely on mainstream news media. And I'm going to write another post about the lack of news in mainstream broadcast media. Its hard to find objective information on television.

I don't appreciate the Republican leaders twisting the truth that they're the ones who stood up for regular Americans on Monday by forcing a better bill that supports the taxpayers. I think that's a lie and a joke. They thought they had the votes but they couldn't convince their members to buy into it. Before the vote John McCain swooped in and helped convince Republican House members to understand how important the bill was. But, after the vote didn't happen (and the Republican leaders blamed their hurt feelings over Nancy Pelosi's speech), John McCain's swooping in was characterized as John McCain standing up for the American taxpayer. Which is pretty clearly bullshit (since he voted for essentially the same bill in the Senate).
And even now, the Republicans are saying they've spoken up for the American people by the adjustments they've made to the bill.
But, I contend that there are hidden consequences to this bill that will reverberate for years to come. And, as I underand, there isn't even any bankruptcy adjustment.

I think this is salvageable if the House and Senate use this bill to forestall the current crisis, and then come back to actually solve the problems. I will accept that this bill buys us time to prepare a comprehensive and fundamental solution later. I still think they could have done that on Monday as well.

Again, the Bush administration and the Republican members of Congress have put us in an untenable situation. We're stuck. Pass the bill.

(As many Republicans are noting in their floor comments, this bill isn't all that much changed except that it adds 150 billion in tax credits)

P.S. I have increased respect for Barney Frank. He's been there all along. He seemed to want people to understand and come to agreement.

P.P. S. Nancy Pelosi seems to be detailing the positives in the bill. I've missed a bunch of that. Too bad.

*****

While they're voting, the stock market is waiting. Right when they started to vote, the market went up a bit, and now its moved down and its just waiting. Interesting. I wonder what the volume is right now?

Its both refreshing and disturbing that George Bush is so out of this, at least publically.

While I watched the debate on C-SPAN, I switched to CNN while the vote is going on. One commenter suggested John McCain will take credit for this when (if) it passes. How ludicrous is that?

I wish Barack Obama had included more educational information in his speeches over the last couple weeks. Maybe he has, but not where I've seen it. I would like him to have been more involved, but I realize there are pitfalls to that strategy.

For some of us who are not professionals or educated in economics, but who tried to figure out what's going on, we'll definitely remember the new terms we've learned mark-to-market accounting, LIBOR rate, credit default swaps, the credit market vs the equity market, capitalization, etc.

*****

Hmmm...the bill has passed, and yet the equity market is dropping. Before the vote the Dow was hovering around 254.15 to 270.72. Just after voting it increased up to 310.15, and now my last check was 194.66.
Why?

According to the CNN guy, its uncertainty that's causing the lower numbers...what's next - how fast can the bill get signed, when does money start funneling into the system. will credit loosen up?
Common understanding among traders: "Buy the rumor, sell the news"

There is also mixed news...
Job loss numbers came out today, for the year 750,000 jobs have been lost.
Wells Fargo offerred to buy all of Wachovia instead of Citigroup's offer to buy parts of Wachovia.

We might not have anything changing in the stock market until the end of the month.

Current DOW is 116.20.

This has been like watching a big soap opera in the last couple weeks. Always something happening. Cliffhangers.

I am not a decider...

I should not be in charge of hiring or firing, being on a jury, or being a voting member of congress.

When I don't have to be the one who decides, I can come up with what I think are essentially the right choices.

In the case of this vote in the Senate and the economic crisis vote, well - I see both sides and I don't really know what the exact right answer is, but I'm willing to trust the people in charge.
Even though the people who will help us get OUT of this problem are some of the people who got us IN to this problem (at least in this term). So, why should I trust them?
Well, I guess I feel I can trust them to at least get us back to where we were because they have a vested interest in the way the economy made them rich before.

Anyway - I know a lot of Americans aren't really hearing anything but bailout. And the truth is, the little provision they put in the plan to limit executive compensation is going to be meaningless in the scheme of things and was only put in because they wanted to satisfy the people (even though it hasn't helped yet).
But, there are a lot of economists who really do think either 1) we shouldn't do the 700 billion bill, or 2) we shouldn't do THIS bill.
And, on the other hand, there are lots of economists who believe we have to do it whether we like it or not.
I'm kind of in that group, but I hope I never have to defend it.

Passing the bill means the people will still be left with a crappy situation and the only way they will know what they avoided is to go to a parallel world.
Not passing the bill means we would have a more clear understanding of which was the right answer - the economy will either right itself or we'll all be in a huge mess.

Okay - so if they pass it, which it seems they will, then tomorrow is the VP debate and Friday the House will vote. Hopefully in time to cheer the stock market.

I read on a left blog that some expect McCain to vote no so he can get the 'people's vote'.
He decided not to speak at the podium today.
He's an odd one - he keeps saying he is playing these great roles but he doesn't say anything in the meeting with the President, he doesn't say anything on this vote, he makes statements and then doesn't stay to answer questions (his statement about the bailout, and his statement that he was suspending his campaign.)
That doesn't bode well for an open McCain administration.

Anyway - I suspect the idea that McCain would vote no is wishful thinking on someone's part. It would definitely be an intereting development. I don't need anymore interesting developments.

I wish Obama would be more vocal and more of a leader. He doesn't have to usurp anyone, but I wish he was explaining things to the people more instead of just giving versions of his stump speech.

That's all for now. No more tonight unless something crazy happens.