“I Told You So”

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More of this please.

First, we must confront head-on the pervasive misunderstanding of what constitutes a "free market." For long stretches of the past 30 years, too many Americans fell prey to the ideology that a free market requires nearly complete deregulation of banks and other financial institutions and a government with a hands-off approach to enforcement. "We can regulate ourselves," the mantra went.

Those of us who raised red flags about this were scoffed at for failing to understand or even believe in "the market." During my tenure as New York state attorney general, my colleagues and I sought to require investment banking analysts to provide their clients with unbiased recommendations, devoid of undisclosed and structural conflicts. But powerful voices with heavily vested interests accused us of meddling in the market.

When my office, along with the Department of Justice, warned that some of American International Group’s reinsurance transactions were little more than efforts to create the false impression of extra capital on the company’s balance sheet, we were jeered at for attacking one of the nation’s great insurance companies, which surely knew how to balance risk and reward.

And when the attorneys general of all 50 states sought to investigate subprime lending, believing that some lending practices might be toxic, we were blocked by a coalition of the major banks and the Bush administration, which invoked a rarely used statute to preempt the states’ ability to probe. The administration claimed that it had the situation under control and that our inquiry was unnecessary.

Eliot Spitzer is one of the people best suited to help clean up the mess on Wall Street. After all, he was screaming about where all the bodies were buried back when everyone was in denial, up until the time Michael Garcia took him out for a high-priced hooker.

Here’s what he recommends:

One of the great advantages U.S. capital markets have enjoyed over the decades has been the view — held worldwide — that there was an underlying integrity to the representations market participants made, because the regulatory framework in which they were made was believed to provide genuine oversight. But as we all know, the laws requiring such integrity are meaningless without a government dedicated to enforcing them.

Second, our corporate governance system has failed. We need to reexamine each of the links in its chain. Read more →

Reid to McConnell: Don’t Be a Scrooge! Pass Auto Stimulus

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There has been a lot of reporting that an auto bailout is unlikely. While I think that’s probably true, I also wonder whether Chris Dodd’s claim that the votes aren’t there is based exclusively on discussions with Richard Shelby.

Dodd was listening, and in televised remarks later he appeared to dash any hopes of action until the new Obama administration is in place and Democrats have more Senate votes next years.

“Right now, I don’t think there are the votes…Dodd said. “You’ve heard Senator Shelby publicly speak out about his opposition to doing anything in the automotive area. So I want to be careful about bringing up a proposition that might fail in light of the fact the authority exists and under an Obama Administration there seems to be a greater willingness to deal with the issue.”

As I’ve pointed out, Shelby would love for the Big Three to fail so Japanese and Korean and German manufacturers can continue to make big gas guzzlers in his state, only without any competition from domestic manufacturers.

That said, Harry Reid has noticed something I did too: like Shelby, Mitch McConnell’s got some Japanese manufacturers in his state (though those factories produce more of the efficient cars in Kentucky–like the Camry–that every one thinks of Japanese manufacturers making). In addition, McConnell’s state is also home to some Ford and GM plants, including some key Ford truck plants. Those Ford plants, incidentally, are going to be idling through the entire Christmas season.

The United Auto Workers union says Ford’s Louisville Assembly Plant will be idled for five weeks beginning the first of next month.

Also, The Courier-Journal reports that UAW Local 862 says the Kentucky Truck Plant will apparently shut down in mid-December until early February.

I would imagine, with thousands of his constituents out of work, Mitch McConnell is going to be hesitant to take a strong stand against bailing out those constituents.

Which is probably what Harry Reid is thinking, as he plans to push for unemployment and an auto bailout in the lame duck session.

Unless I hear from you to the contrary, I plan to press forward with two provisions of that package – an extension of unemployment benefits, which passed the House by a bipartisan vote of 368-28 and legislation to protect the millions of workers at risk from the possible collapse of our domestic auto industry. Read more →

How’s that Bankruptcy Bill Working Out for You, Chase?

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A lot of people are (justifiably) beating up on the auto industry for lobbying to have CAFE standards eased so they could continue to produce gas-guzzling behemoths that used to be but are no longer profitable.

But while we’re beating up short-sighted corporations, we ought not forget the credit industry–who demanded changes to bankruptcy laws that are now having adverse effects on the industry.

Federal bank regulators have rejected a request by banks and consumer advocates for a program to let lenders forgive huge portions of credit card debt.

The Office of the Comptroller of the Currency rejected the request for a special program that would allow as much as 40 percent of credit card debt to be forgiven for consumers who don’t qualify for existing repayment plans.

[snip]

The Financial Services Roundtable, which represents more than 100 large banks, brokerage firms and insurance companies, will "continue to look for ways to help consumers in these extraordinary times," said the group’s senior vice president, Scott Talbott.

Travis Plunkett, legislative director of Consumer Federation, said that with the number of deeply indebted consumers growing dramatically, "we still hope to work with bank regulators or Congress to create an alternative" to bankruptcy for them.

Gosh. If you hadn’t gotten greedy and just kept the old bankruptcy process in place, it would have been a lot easier to get partial payment on credit cards in lieu of nothing. 

The Ideological Battle Over the Auto Overhaul Heats Up

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I wanted to draw your attention to two statements about an auto bailout to show where this is going to go ideologically. First, Richard Shelby:

The financial straits that the Big Three find themselves is not the product of our current economic downturn, but instead is the legacy of the uncompetitive structure of its manufacturing and labor force. The financial situation facing the Big Three is not a national problem, but their problem. I do not support the use of U.S taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers in such a way that allows them to continue and compound their ongoing mistakes. [my emphasis]

Note his emphasis on "competitive" structures of doing business–and paying labor.

What Shelby doesn’t mention, of course, is that Alabama is a right to work state. Shelby also doesn’t mention that Alabama is home to Honda, Toyota, Hyundai, and Mercedes plants. Shelby also doesn’t reveal that many of the cars those manufacturers make in Alabama, without unions, are precisely the kind of behemoths critics attack Detroit for making–only these have foreign nameplates: M-Class SUV, GL-Class SUV (a new model), Pilot SUV, Santa Fe SUV, plus engines for Tacoma and Tundra pick-ups and Sequoia SUVs.

In other words, Shelby isn’t opposed to car companies that are stupidly committing and recommitting to SUVs. Rather, he’s just opposed to car companies that make SUVs with union labor.

Meanwhile, here’s Jennifer Granholm’s spin supporting a bailout.

Beyond the massive job loss, beyond the potential collapse of an entire economic sector, Congress and the Bush administration need to provide immediate assistance to the auto industry because America’s energy independence is a critical national need. And the U.S. auto industry is the sector to lead the way to that energy independence.

How? The car you drive will be the storage unit for your energy needs. Your home, your car, your appliances can all be powered through the advanced battery that will sit inside your plug-in electric vehicle. Today, most batteries come from Asia, and much of the oil comes from the Middle East. It is a national-security, energy-security imperative to produce advanced batteries and next-generation biofuels here at home.

[snip]

Supporting the automotive industry through the current crisis and steering a clear transition to a low-carbon future will create millions of middle-class jobs that are vital to a strong economy while reinvigorating American technological superiority.

Read more →

Bush to Declare “Economic Mission Accomplished” to G20

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I’m as flabbergasted by this as Americablog’s Chris is: George Bush is going to lecture the G20 today about how lovely free trade is.

President George W. Bush today will urge leaders of the world’s biggest industrial and developing economies not to abandon principles of free-market capitalism as they seek a way out of an international financial crisis, calling it the "best system” for delivering growth. 

Even better, the Dim Son is going to lecture his counterparts about the history of the financial crisis.

He will also review how the crisis began and how markets are more interconnected than in the past. 

Haven’t you heard, George? The victors get to write the history, and the US is probably not going to be the victor this time around. 

In fact, this sounds like it will be an attempt to pre-empt a lot of the blame other leaders are ready to heap on Bush for the economic meltdown.

Leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators. 

[snip]

Officials overseas have heaped blame on the U.S. and the notion of unfettered markets promoted by Bush for sparking the crisis. German Chancellor Angela Merkel last month attacked "greed, speculation and mismanagement” and criticized the U.S. for ignoring her call of last year for stronger market regulation. Rudd said "the root of this malaise” lay in the "twin evils” of greed and fear that went unchecked because of “obscene” failures in oversight. 

While defending capitalism as the "most efficient system ever created,” Sarkozy has described as "over” the view that "everything could be solved by deregulation, free competition and the market.” 

And finally, do you find it at all amusing that the President who refuses to tell us which companies have gotten bailed out and has not yet appointed an Inspector General to oversee the bailout is going to lecture his counter-parts about transparency and regulation?

Bush will outline why markets should be subjected to greater transparency and appropriate regulation, while urging international financial leaders to strengthen cooperation, the White House said. 

Which brings me to this whole "we have one president at a time" thing–the mantra that Obama keeps repeating. Read more →

A New Obama-Rahm Leak Policy?

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Maybe it’s the addition of beltway leaker extraordinaire, Rahm Emanuel, to the team, but it appears that the Obama team may have adopted a new policy on leaks, departing from their eerily disciplined no-leak approach during the campaign.

Note this passage in NYT’s coverage of Obama’s request that Bush support a bailout for the auto industry.

The struggling auto industry was thrust into the middle of a political standoff between the White House and Democrats on Monday as President-elect Barack Obama urged President Bush in a meeting at the White House to support immediate emergency aid.

Mr. Bush indicated at the meeting that he might support some aid and a broader economic stimulus package if Mr. Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia, a measure for which Mr. Bush has long fought, people familiar with the discussion said. [my emphasis]

Here’s how the WaPo reported the same detail.

Bush, speaking privately to Obama during their first Oval Office meeting, repeated his administration’s stand that he might support quick action on those bills if Democratic leaders drop their opposition to a Colombia trade agreement that Bush supports, according to people familiar with the discussions.  [my emphasis]

And here’s how Bush’s team reported Bush’s ire about these leaks to Drudge.

Just hours after President Bush and President-elect Obama met in the Oval Office of the White House, details of their confidential conversation began leaking out to the press, igniting anger from the president, sources claim.

"Senator Obama would be wise to keep close counsel," a top Bush source warned. 

[snip]

Bush advisers view the leaks as an effort to undermine the president’s remaining days in office.

"Senator Obama may not be familiar with a long-standing tradition of presidents holding their private conversations, private," a senior adviser explained to the DRUDGE REPORT. [my emphasis]

Seeing as how this obviously organized leak may well have come from the latest addition to the previously leak-proof Obama team–Rahm Emanuel–the Bushies aren’t really in a position to lecture about what past Presidents have done. Rahm’s been there, and was leaking in the Clinton days as well, I’m sure. (One other candidate to be the leaker is another Clinton veteran, John Podesta, though my money’s on Rahm.)

So my question has more to do with the efficacy of the leak. Read more →

Pelosi and Reid Back an Auto Bailout

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As the NYT reported yesterday, Nancy Pelosi and Harry Reid have written Hank Paulson requesting he provide relief to the auto industry using TARP funds. First, in her statement on the meeting with the auto industry, Pelosi emphasized what I did in my first post on this–the need to preserve manufacturing in this country.

It is essential that we preserve our manufacturing and technology base in this country.

In addition, in their letter, Pelosi and Reid stress accountability and energy efficiency–pushing precisely the kind of goals that many commenters described in this post.

Were you to determine that the automobile industry is eligible for assistance under EESA, we would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry’s recovery.  An automobile industry that is forward-looking and focused on ingenuity, competitiveness, and the creation of green jobs for the future is essential to its long-term viability.  Other taxpayer protections should mirror those required of financial institutions currently participating in the Troubled Assets Relief Program (TARP), such as limits on executive compensation and equity stakes to provide taxpayers a return on their investment upon the industry’s recovery.  Any assistance to the automobile industry should reflect the principles contained in EESA that guard against the need to recoup costs to the taxpayers.

We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy.  It is our hope that the actions that Congress has taken, and that the Administration may take, will restore the preeminence of our domestic manufacturing industry so that it can emerge as a global, competitive leader in fuel efficiency and in new and path-breaking energy-efficient technologies that protect our environment. [my emphasis]

While Pelosi and Reid seem convinced the auto industry needs this bailout, they seem intent on placing conditions on it–with the goal of energy efficiency paramount.

I am pessimistic that Paulson will respond to Pelosi and Reid’s request–he has thus far resisted GM’s requests to be considered for funds under TARP–and that Treasury has the capability to offer the kind of oversight that this would require. Read more →

The Dying Auto Industry: Should We Save It?

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Image By Popmayhem

Image By Popmayhem

While we’ve all been distracted by the election, the American auto companies (and, to a lesser extent, the auto industry more generally) has been brought to the edge of collapse. I’m going to do a few posts on why that happened (CW oversimplifies the issue dramatically), what to do about it, and–in this post–whether we should save it.

Why to Save It: To Salvage Our Non-Financial Economy

Different people have different reasons to argue for saving the Big Two and a Half. Some people talk about nationalism, some people talk about the sheer number of jobs tied to the auto industry. But the most compelling reason, IMO to save the US-owned auto industry, is to reverse the trend toward an increasingly financial-based economy.

Kevin Phillips, among others, has written a lot about how unstable economies become as they become more and more dependent on the house of cards of financial-driven economics. We have seen about the risks of such a shift in the last few months and years. Our economy has been largely built on consumer spending driven by credit card debt and the housing industry–and by the "profits" of real estate-related debt (and, in the auto industry, more debt-driven spending as I’ll explain later). But that growth was largely illusory and largely reliant on the goodwill of other nations to the dollar economy.

Our economy increasingly relied on finance (at the expense of agriculture and manufacturing and other productive industries) for several reasons: it’s what we did well, the developing world was increasingly competitive in other sectors, and our own government made conscious policy decisions that favored finance. You could say that even while manufacturing was disappearing because NAFTA and other policies our government adopted made us increasing uncompetitive, our government refused to let finance fail.

And look where that got us.

The biggest reason I can offer for salvaging the US auto industry is because, given the lessons of the financial meltdown, we need to return our economy to one that better balanced making stuff with financing stuff. Sure, we should have bailed out textiles before it all went overseas. We should have slowed the loss of electronics. But because we didn’t save those industries doesn’t mean we shouldn’t now–particularly given the lesson of the financial collapse–work to save what manufacturing we have left.

We need to save the auto industry because cars are one of the few things we make anymore–and we need to focus our economic recovery on the things we make rather than on the bubbles we finance.

Read more →

Yes

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This morning I asked,

Did McCain Reverse Course on His New Economic Plan to Wait for Obama’s New Plan?

 It appears the answer to that question is, "yes."

On a conference call just now, McCain policy adviser Doug Holtz-Eakin said that Sen. McCain would address the economy tomorrow — "he never intended to speak about the economy today," according to Holtz-Eakin.

"He will in fact talk about economic conditions and those harmed most deeply harmed by them," Holtz-Eakin said.

And he’ll unveil new proposals.

I guess McCain just needed to take a peek at what the smart kid had answered before he finished his own take-home test.

Did McCain Reverse Course on His New Economic Plan to Wait for Obama’s New Plan?

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There’s been a fair amount of coverage of the way the McCain campaign promised–then reneged on their promise–to deliver new proposals to fix the economy.

Despite signals that Senator John McCain would have new prescriptions for the economic crisis after a weekend of meetings, his campaign said Sunday that Mr. McCain, the Republican presidential nominee, would not have any more proposals this week unless developments call for some.

The signs of internal confusion came as the campaign was under pressure from state party leaders to sharpen his message on the economy and at least blunt the advantage that Democrats traditionally have on the issue in hard times.

[snip]

On Saturday, his advisers were considering a range of economic ideas, one indicated. On Sunday, on the CBS News program “Face the Nation,” Senator Lindsey Graham of South Carolina, a confidant of Mr. McCain, confirmed a report on Politico.com that Mr. McCain was weighing proposals to cut taxes on investors’ capital gains and dividends. “It will be a very comprehensive approach to jump-start the economy,” Mr. Graham said, “by allowing capital to be formed easier in America by lowering taxes.”

But McCain advisers later said they did not know why Mr. Graham said that. One noted that Mr. McCain’s economic plan already would cut capital gains and dividend tax rates, by extending President Bush’s 2003 tax cuts. At the phone bank, Mr. McCain declined to answer a question from a reporter about what he was considering.

“We do not have any immediate plans to announce any policy proposals outside of the proposals that John McCain has announced, and the certain proposals that would result as economic news continues to come our way,” said a campaign spokesman, Tucker Bounds. Mr. McCain’s policy adviser, Douglas Holtz-Eakin, said, “I have no comment on anything, to anybody.”

(See also TP’s smackdown of Politico’s crappy "reporting" on this head fake.)

Meanwhile, hidden behind the quiet facade of a campaign that doesn’t have this turmoil, look what Obama’s doing this morning:

Toledo, OH

Today in Toledo, OH, Senator Obama will deliver a major policy address to lay out his economic rescue plan for the middle class. Our economy is facing its greatest uncertainty in over 70 years, we have lost 760,000 jobs this year and the unemployment rate is expected to reach 8 percent. Families, who saw their incomes decline by $2,000 in the economic “expansion” from 2000 to 2007 now risk seeing deeper income losses. Retirement savings accounts have lost $2 trillion. Millions of homeowners who played by the rules have seen their housing values plummet and are having a hard time making their mortgage payments. And credit markets are nearly frozen, preventing businesses large and small from accessing the credit they need to meet payroll and create jobs.

Read more →

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