November 28, 2008In the debate about bailing out the Big 3 automakers, it is said that we just can't allow a bankruptcy. Despite the fact that Chapter 11 bankruptcies have taken place for retailers such as Circuit City and many airlines such as U.S. Airways, autos are said to be different because of the duration of time that people hold on to their cars for.
Horrific senarios are painted of consumers not being able to get parts for their automobiles if manufacturers are no longer in existence. But of all the many admittedly complicated aspects of a bankruptcy of General Motors (the company the Congressional hearings established was in the most trouble), these consumer issues provide the least reason for worry.
In a Chapter 11 bankruptcy, GM would most likely be reorganized into a new company, sans the current management and heavy costs. This is something that has proved impossible so far due to lax...
November 21, 2008If news accounts are true, and Presidet-Elect Barack Obama has indeed decided on Timothy F. Geithner to be his Treasury Secretary nominee, it represents a giant step away from Obama's promise of "change you can believe in."
The Geithner nomination would be "more of the same" in almost every respect -- more bailouts, more lack of transparency in the bailouts, and more corporate welfare. Geithner was the architect of the Bear Stearns bailout and cohort of Treasury Secretary Paulson in American International Group and the TARP bailouts. In choosing Geithner, Obama might as well have nominated Hank Paulson to another term!
Geithner's financial qualifications are in many respects quite thin. He has never been a banker nor an academic economist. As liberal columnist Robert Kuttner noted recently...
November 20, 2008President-Elect Barack Obama just nominated former Senate Democratic Leader Tom to be his Secretary of Health and Human Services. Much is being written about Daschle being a Washington insider, which he certainly is, but after leaving the Senate after his defeat in 2004, Daschle has commendably taken on the Beltway conventional wisdom on an important issue: The Sarbanes-Oxley accounting mandates.
In late 2005, Daschle became one of the first Democrats to criticize the 2002 law, rushed through Congress in the wake of the Enron and WorldCom falures, for its unintended consequences on entrepreneurs. In doing so he helped make the cause of Sarbox relief and reform biparisan. In a Wall Street Journal...
November 12, 2008Today, in addition to Treasury Secretary Henry Paulson's expected announcement of a major mortgage modification plan through the $700 billion TARP, Barney Frank's House Financial Services Committee is holding a hearing entitled "Private Sector Cooperation with Mortgage Modification." However, despite the word "cooperation" in its title, it's clear from letters Frank and others sent out that the hearing will be confrontational rather than cooperative. Specifically, Frank and some fellow committee members seek to villify investors in mortgage-backed secuties who assert their property rights under contracts with banks servicing the mortgages.
The harsh tone was set in a letter that Frank and fellow...
October 31, 2008As soon as the elections are over, Congressional leaders are planning to have a "break the bank" party. On top of the $700 billion bailout that unfortunately both Republicans and Democrats supported, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid plan to call Congress back into a "lame duck" session in mid-November to pass a $300 billion "stimulus" package. The attitude seems to be, what's $300 billion for "Main Street" after we just approved $700 billion for Wall Street fat cats?
But all the package is really likely to do is add $300 billion to Main Street's public debt without spurring economic growth. There is no reason to believe that the hodgepodge of programs Pelosi and Reid want the stimulus to fund -- from food stamps to unemployment benefits to infrastructire -- will be any more successful at jumpstarting the economy than the hundreds of billions spent...
October 14, 2008Since the $700 billion bailout was first proposed, whatever the stock markets did, much of the press took that as a sign that the market wanted more government intervention. The markets sinking on Sept. 29, the day the House voted down the first bailout bill (although much of the sinking was before the bailout was defeated), was a sign that markets needed the bailout. Then, when it went up about 500 points the next day, it was somehow explained as anticipation of Congress passing a new bailout.
The press was somewhat at a loss for words when the market tanked all last week, just after the bailout had been passed. But yesterday, when the Dow Jones Industrial Average zoomed up 900 points, the explanation was that the markets just loved the forthcoming global bailouts and partial nationalizations. Comedy Central's Stephen Colbert, as he so often does, cleverly mocked this conventional...
October 10, 2008Bailouts. Global interest rate cuts. More bailouts. Global government liquidity injections into banks. Direct government buying of commercial paper. And even more types of bailouts.
But nothing seems to stop the downward spiral of equity and credit markets throughout the world that have been accelerating this week. But there is one intervention the governments of the world haven't tried yet: Standing up to the high priests of the accounting profession and suspending requirements of mark-to-market accounting for illiquid assets.
Markets are more connected across the world than ever before, but, more importantly, so are accounting rules. Over the past decade or so the U.S. Financial Accounting Standards Board (FASB) and the European International Accounting Standards Board (IASB) -- private professional organizations that basically have a monopoly on setting the accounting rules that...
October 8, 2008Poor little Delaware. In every presidential election since 1992, she has been in the "blue" column voting for the Democratic candidate. She has long had a Democratic governor. Although she is represented at large by moderate GOP Rep. Michael Castle in the U.S. House, her Senate representation has been 100 percent Democrat since Tom Carper defeated the late Sen. William Roth in 2000.
And of course, her other U.S. Senator, Joe Biden, is now the Democratic Party's vice presidential candidate. Yet this didn't prevent this bluest of blue states from getting a thrashing in Tuesday night's debate from none other than the Democratic Party front-runner, Barack Obama.
In a strange, little-noticed tangent that Obama got onto in responding to a health care question and attacking opponent John McCain for being a deregulator in every policy area (...
October 6, 2008At the hearing being held today by the House Oversight and Government Reform Committee, in which former Lehman Brothers CEO Dick Fuld is now testifying, an earlier panel attempted to look at the causes of Lehman's collapse and the broader credit cirisis. And this gave an opportunity to committee members to ride their various hobby horses.
Rep. Carolyn Maloney's horse and "whipping boy" was deregulation. She blamed the entire crisis on deregulation, and specifically the repeal of the Depression-era Glass-Steagall law that separated commercial and investment banking. The repeal was done through the Gramm-Leach-Bliley Act, which Maloney neglected to say was passed on an overwhelmingly bipartisan vote and signed by President Bill Clinton in 1999. Clinton, in fact, recently defended the law, saying it didn't contribute much to the...
October 3, 2008Today -- five days after a courageous independent vote against Treasury Secretary Hank Paulson's $700 billion bailout for Wall Street -- the U.S. House of Representatives disappointingly approved the same basic measure. Many of the bill's other "sweeteners", such as earmarks and a regressive increase in deposit insurance for upper income bank customers --will also cost taxpayer hundreds of billions of dollars.
All this week I and my colleagues have pointed out ways this bailout could, in addition to being costly, be counterproductive for the economy. Wall Street may have been feeling this "buyers' remorse" today as the Dow Jones Industrial Average pared back ealier gains to end the day down by 150 points. As Yahoo Finance noted, "financial stocks, which had traded sharply higher on the promise the bill would be passed, fell after the House vote on profit-taking and as the market...