14 posts tagged “economy”
What, you may ask, do Wall Street bonuses have to do with the NASA budget? Bear with me for a moment. By now most of us have heard about the tone-deaf avarice of executives at AIG, Bear Stearns, Merrill Lynch, Citigroup etc. etc. taking huge amounts of “stimulus” money from the taxpayers and then spending millions on luxury trips, private jets, ostentatious decorations, and bonuses. The only surprise here is that the angry mobs with torches and pitchforks haven’t materialized…yet.
Now, it is common these days whenever the subject of NASA and space exploration comes up for people (sad to say, including many Liberals with whom I agree on the vast majority of issues) to say things like, “Who cares about space? We should be spending that money here on Earth.” Well, that is just wrong on so many levels. NASA and the U.S. space program has been the source of so much benefit, from the mundane to the existential to the simply practical, that it’s hard to list all the ways. Yes, it costs a lot of money. That’s why the government has to do it. But wait…
How much does it really cost, in context? That’s the point I’m working toward here.
According to the New York Times, Wall Street firms paid out an estimated $18.4 Billion in bonuses in 2008. That’s right, the geniuses who are largely responsible for the worldwide financial crisis got $18.4 Billion last year in addition to their already obscene salaries and benefits. Now, for comparison, the proposed 2009 budget for NASA is $17.6 Billion. Let that sink in for a moment.
All the money for the space shuttle program, the Mars program, the various planetary and Earth-sciences missions, the salaries for the engineers, astronauts and support personnel — ALL of it — is substantially less than the bonuses paid to a handful of investment bankers on Wall Street.
[UPDATED BELOW]
The latest company to go to Washington asking for a handout is General Motors, and after the less than auspicious start to the $750 Billion Wall Street/bank bailout, many people, not just "free market" conservatives, are asking, "Why should we bail out the big American auto companies?" The underlying implication among conservatives is that labor unions are the source of the problem. Others think, rightly so in my opinion, that the car companies got themselves into this mess by ignoring fuel efficiency and building ever bigger and heavier gas-hogs. So why not let them go belly up? That'll teach 'em a lesson! As is usually the case, it's not that simple.
Jane Hamsher at Firedoglake has an interesting post discussing the impact of a possible GM bankruptcy on the development of the greatly anticipated Volt electric car:
So maybe the people who seem to know even less about auto manufacturing than they do about economics should consider that GM is in the forefront of green engineering with the Chevy Volt. From US News:
But before you put the Volt on your 2010 wish list, consider that sending GM into bankruptcy would do more than just break the UAW -- it could condemn the Volt from ever reaching the market:The prototype Volt that GM has been showing off is a sporty four-seater with futuristic touches meant to draw in mainstream gearheads. The dashboard controls are touch-sensitive and set in a white console reminiscent of an iPod. Instead of standard gauges for speed and RPMs, there's a digital display that looks like the screen of a Sony PSP. Wind-tunnel engineering has made the Volt even more aerodynamic than a Corvette, critical for milking the most mileage possible out of the battery. GM says that recharging the car at home, through an ordinary household outlet, will cost less than $1 per day and drain less power than it takes to run a refrigerator.
Ever since Ronald Reagan fired all the striking air-traffic controllers in his first year in office (a strikingly irresponsible thing to do), conservatives have fantisized about ridding the country of labor unions. Never mind that labor unions were largely responsible for the rise of the middle class in American in the mid-twentieth century. As Hamsher points out:
In fact, in their last contract the UAW made deep concessions that put GM wages at a par with their non-union counterparts in the US. But this isn't about facts, this is a religious crusade where "free-marketeers" want to impose Shock Doctrine tactics for philosophical reasons with little regard for the consequences.
The president of GM once famously said "What's good for GM is good for America." Most of us would probably take exception to that these days. But there is a kernel of truth there: letting GM fail could be disastrous for America, especially now with the economy, after eight years of the Bush administration, careening like a football bouncing down a staircase. Bush's own suggestion is particularly poor (who would've guessed...).
George Bush is in favor of helping GM. But he wants to take the $25 billion in loans to automakers from the 2007 Energy Bill and repurpose them, he doesn't want to use funds from the $700 billion Wall Street bailout (which Harry Reid and Nancy Pelosi have indicated they would like to do).
Congress approved the funds for a Department of Energy program that would help the automakers to develop fuel-efficient vehicles.
Got that? George Bush wants to kill the program that would build more fuel-efficient vehicles.
There are some other ideas floating around that make a lot of sense in the long run, like this one via Atrios:
As Josh says, if we're throwing around billions and trillions of dollars we might as well get something good. Instead of writing a big check to the auto companies or loaning them money we could, you know, enroll all their employees in the new national health insurance system.
The point has been made repeatedly that the cost of healthcare is one of the big factors that makes it difficult for U.S. automakers to compete effectively with companies in countries that have some form of national health insurance (that would be ALL of them, except the U.S.). So, what an elegant solution it would be to remove the financial burden of providing health insurance from the car companies as part of a universal health insurance program. Makes sense to me.
UPDATE: Digby has more on this here. Regarding the role of unions in all this:
You simply can't wipe out a million jobs or more as we are just going into a terrible worldwide recession. It's like telling someone they have to go on a diet when they are in the middle of a heart attack. There has to be a bailout.
But there is something else going on, which I mentioned last week in this post --- the Republicans' reflexive political response is to take the opportunity to break the unions...
[...]
And, in the big scheme things, I think we can all agree that well paid, secure employees make for a stable society. The problem with the Big Three has far less to do with their employees than it does with their management --- and a capitalistic ethos that requires a myopic obsession with quarterly profits over long term investment. The union members just make the cars they're told to make. It's not their fault if Americans insisted on buying behemoth gas guzzlers and the auto executives insisted on giving them to them knowing full well a day of reckoning was coming.
You can't make this stuff up. This is what the Christian Right has come to in this country. Via John Cole:
“We are going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the ‘Lion’s Market,’ or God’s control over the economic systems,” she said. “While we do not have the full revelation of all this will entail, we do know that without intercession, economies will crumble.”
I grew up in a fundamentalist Christian church, so I spent a lot of my youth reading and studying the Bible. Although I have abandoned the literal, supernatural interpretation of the Bible, I have retained the core principles of Jesus' philosophy, along with enough grounding in the Bible as literature to see the irony in this situation. Obviously I'm not the only one to see the comparison to this episode from the book of Exodus:
For those who aren't familiar with the story, while Moses was up on the mountain getting the Ten Commandments, the people he had just led out of slavery in Egypt, the Hebrews, were down below melting their gold jewelry to make an idol in the shape of a calf. When Moses came down and saw them praying to it, he was really mad. What followed was 40 years of wandering in the wilderness.
Praying for wealth is the antithesis of Christian philosophy. The self-proclaimed leaders of the right-wing religious movement in America have a lot more in common with another group of people, and I don't mean Jesus' disciples, but the Pharisees.
The next time you see or hear someone claim they are doing God's work by persecuting the "sinners" and praying for success in the stock market, I think it's safe to say that Jesus would be seriously offended. I know I am.And found in the temple those that sold oxen and sheep and doves, and the changers of money sitting:
John 2:15 And when he had made a scourge of small cords, he drove them all out of the temple, and the sheep, and the oxen; and poured out the changers' money, and overthrew the tables;
John 2:16 And said unto them that sold doves, Take these things hence; make not my Father's house an house of merchandise.
Those of you who've read my scribblings know that I often cite Paul Krugman, particularly with regard to economic matters. In case you missed it, he was recently awarded a Nobel Prize in Economics, so add that to his bona fides in this area. In his column today he discusses why the massive bailout passed by Congress is not having the intended effect:
It was good news when Mr. Paulson finally agreed to funnel capital into the banking system in return for partial ownership. But ... the U.S. Treasury’s bank rescue plan ... contains no safeguards against the possibility that banks will simply sit on the money. “Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead.” And sure enough, the banks seem to be hoarding the cash.
There’s also bizarre stuff going on with regard to the mortgage market ... and as a result, markets are still treating [Fannie Mae and Freddie Mac's] debt as a risky asset, driving mortgage rates up at a time when they should be going down.
What’s happening, I suspect, is that the Bush administration’s anti-government ideology still stands in the way of effective action. Events have forced Mr. Paulson into a partial nationalization of the financial system — but he refuses to use the power that comes with ownership.
If, like me, economic discussions tend to make your eyes glaze over, Annonymous Liberal has a great analogy for what's going on that makes the point in a way a regular "Joe" can understand:
The analogy to sports betting is apt. When you bet on who's going to win the Super Bowl, you're not investing in anything. You're just placing a bet that is tied to an external event. That's what the derivatives market is. And for the financial industry, the bursting of the housing bubble was the equivalent of the Giants beating the Patriots in last year's Super Bowl, an unexpected outcome that caused a lot of people to lose money.
[...]
The saddest part of the whole story, though, is that the event that brought the whole house of cards down really wasn't unexpected; it wasn't the equivalent of the Giants beating the Patriots. That was a genuine upset. Not too many people placed large bets on the Giants winning that game. But lots of people saw the collapse of the housing market coming. There were numerous scholarly papers written on the subject. And there were lots of investors who were willing to bet big on the impending collapse. Those people are all billionaires now. And the companies who took their bets--venerable institutions like Bear Stearns, Lehman Brothers, and AIG--are bankrupt.
Many of the devotees of unfettered free markets, notably Alan Greenspan, now are having second thoughts about the ability of the magic of the market to overcome basic human greed. Others, like Krugman, never bought that idea to begin with. America, and the rest of the world, needs a major change in economic policy thinking that will not come from John McCain and the Republicans.
From McClatchy:
As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.
Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis. [Emphasis added]
Once again the Republicans seek to blame the victim and distract from the real perpetrators of the crime. You really can't believe anything they say. It's clear that predatory lending practices and toothless government regulation are the real culprits.
At TPMCafe Robert Reich, former Clinton Secretary of Labor, comments about the reaction of a majority of Americans to the current economic bail-out working its way through Congress:
While more Americans are coming around to "supporting" the bailout bill, the vast majority still hate the idea of bailing out Wall Street. They're for the bailout bill now only because they fear that a failure to pass it will have worse consequences -- drying up credit at a time when Main Street is struggling. But make no mistake: America is mad as hell. They resent what they perceive as extortion by the Masters of the Universe.
[...]
Barack Obama, whose plans for middle-class tax relief and affordable health care will genuinely help America's middle and working classes, has been expressing more indignation lately on behalf of them. But anger doesn't come as easily to Obama as it does to McCain -- even though McCain seems quite ready to aim his anger anywhere and everywhere.
Democrats should be angry populists, given their traditional role of protecting and championing the underdogs in American politics, and especially considering the absurdly wide gap that's opened up between the rich and everyone else.
We don't need someone with a short-fuse temper like McCain, but there are times when righteous anger is appropriate, and this is one of them. This is time, especially in the two remaining presidential debates, when Obama would do well to channel a bit more Muhammad Ali and a little less Ghandi.
Ian Welsh at FireDogLake writes about some of the alternatives to the Bush/Paulson version of the bail out that are currently being worked on:
There are currently two bills being worked on in the House as alternatives to the Paulson-Obama bill. The first is the DeFazio bill, which is intended to fix the banking system by providing, not a bailout, but insolvency relief. The second is being put together by Rep. David Scott and Rep. Doggett, with the aid of economist James K. Galbraith, and is intended to help ordinary people by creating a modern version of the Home Owner's Loan Corporation (HOLC) to take over mortgages and keep people in their homes with reasonable serviceable mortgages.
From Paul Krugman:
So now what? Like Jamie Galbraith, I’d rather see Dodd-Frank-Paulson, which is much better than the original plan, pass than not. The true cost to taxpayers will probably be close to zero, and it would buy some time. But I’m not passionate about this. The real financial rescue still lies in the future, probably under the Obama administration.
There is also a plan from George Soros, but I've misplaced the link here. I'll update when I find it.
Specifically, the liberal philanthropist has proposed that government funds should be used to recapitalize the American banking system by purchasing equity in banks and investment firms.
[...]
"Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system," Soros wrote.
I've been trying to get my head around the financial crisis/bailout, given that I'm as much of an economist as Sarah Palin is a NEW-CLEAR physicist. So I pretty much have to depend on knowledgeable commentators who have earned my trust in the past. One such authority is New York Times columnist and Princeton economics professor, Paul Krugman. His explanations have been invaluable to my understanding, such as it is, of the situation, and he has proved to be consistently prescient. In addition to his op-ed columns that regularly appear Mondays and Fridays, professor Krugman also has a blog, which is a great source of information. It's can still be complex reading for those of us who are not conversant in the ways of Wall Street, but it's less complicated than figuring out the NBA playoff schedule. Here's an example from this morning:
There’s a reason Paulson et al had such a hard time communicating the case for their plan — they didn’t have a very good case. To this day they’ve never been able to explain clearly why buying up bad mortgage assets at market prices will solve the credit crunch. The Wise Men, as far as I can tell, have never had a clear idea of what they’re doing.
My view, which I think is now shared by many economists, is that Paulson grabbed hold of the wrong end of the stick — he should have been seeking to expand bank capital, taking an ownership share in compensation, rather than trying to push up the value of toxic paper. In the end, that’s what we’ll probably do.
Of course, the best chance of getting a complete picture of a complex situation requires considering multiple sources in trying to form an opinion that's not just hot air. One term that has come up since the original Bush/Paulson plan was unleashed is "mark to market" which many Republicans are touting as a solution. Here's Daily Kos writer Hunter:
Of course, we got away from "mark to market" accounting for the very reason that it was so manipulatable, and companies were using it to cook their books, leading us to situations where companies were reporting inflated asset values to investors while in reality being financially quite sick. And that's exactly why it's so wanted now, in the current situation: instead of forcing companies to report an estimated current value for their "toxic assets", we can make this whole problem go away by simply letting the companies report theoretical "future" values for those same assets -- the same as they were doing in years past, leading to this very bubble.
On that same topic, here's Josh Marshall:
But this new push to get rid of 'Mark to Market' strikes me as trying to solve or ameliorate the financial crisis by giving executives more leeway to lie (or perhaps fantasize) about the value of the assets they hold. Sort of like there's nothing about the collapse of the housing bubble that couldn't be solved by bringing in the folks from Arthur Andersen and Enron to give another look at the books.
[...]
I'm inclined to think this is not so black and white as I initially supposed. Certainly this accounting measure didn't 'cause' what's happening. But there appears to be at least some argument that it can be an accelerant -- something that could make a bubble spin even more out of control than necessary. The rub seems to come down to whether you think the spooked markets are dramatically undervaluing these assets -- saying they're worthless because no one wants to buy them even while many continue to have substantial 'intrinsic' value. In any case, the read I'm getting is that it's probably a rotten idea that would only give a patina of accounting respectability to going back into willful denial about the fact that a lot of our biggest financial institutions are sitting on a lot of complete crap. But there's at least some sense, even from people not at all inclined to believing in deregulatory mumbojumbo that the argument isn't completely devoid of merit. In any case, I'm going to leave this one to the economists.
There's more here than I can come close to really understanding. My gut feeling is that any solution should be a bottom-up one, rather than top-down. In other words, if you bail out the homeowners who are having trouble paying their mortgages in such a way that those mortgages don't become worthless, then all the fancy financial creations that are based on the mortgages will stablize. Again, I'm no economist, so sorting this all out can really be a monumental challenge. I'll keep trying.
The economy is in a mess. Had you heard? After the initial totally over-the-top proposal from the White House ("Just give us $700 billion, no questions asked, and trust us.") it looked like leaders in Congress were working together in a bipartisan way to come up with an acceptable solution that would address the immediate crisis without handing over a blank check and shredding the Constitution. And then...John McCain rides in to the rescue! That's just what we needed. Or was it? via Mahablog:
This morning a number of news stories say that McCain was a near non-participant in yesterday’s White House
photo opmeeting. Adam Nagourney and Elisabeth Bumiller write for the New York Times,At the bipartisan White House meeting that Mr. McCain had called for a day earlier, he sat silently for more than 40 minutes, more observer than leader, and then offered only a vague sense of where he stood, said people in the meeting.
That was the “giving McCain the benefit of the doubt” version of the story. David Kurtz provides a little more detail...
This is the latest political stunt in a campaign that has devolved into directionless chaos.
According to Bloomberg News:
Obama called for the overhaul of the financial-regulatory system and tougher enforcement well before this past week's traumas.
Detached observers who watched him last week, especially in a Bloomberg Television interview, were taken by how conversant and comfortable he was on the subject, despite his thin record. Few detached observers came away with that impression watching the Arizona senator.
And what is the principled position of the House Republicans that McCain has rushed in to champion? From Politico.com:
According to one GOP lawmaker, some House Republicans are saying privately that they’d rather “let the markets crash” than sign on to a massive bailout.
“For the sake of the altar of the free market system, do you accept a Great Depression?” the member asked.
Right. Less government regulation and tax cuts for rich people. That's the answer.
The Bush administration's $700 Billion investment banker bailout plan could be called the "Authorization to Use Monetary Force" because it's just as short-sighted and suspect as the previous AUMF. People will not sit still for spending billions of dollars to reward companies whose irresponsible and illegal practices have led to this situation. Any plan must focus on keeping people in their homes and not providing golden parachutes to corporate executives.
What's the hurry? Bush and Paulson have been telling us up till just recently that everything was fine and the situation was under control. Here's Paulson on April 20, 2007:
"I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained."
And on January 7, 2008:
"... our financial institutions entered this period well-capitalized, and we expect them to remain so."
And on March 16, 2008:
"... I've got great confidence in our financial market, our financial institutions. Our markets are resilient. They're flexible. Our institutions, our banks and investment banks, are strong. And I am very confident with the help of the regulators and market participants we're going to work our way through this."
Then on September 15, 2008:
Paulson said he is taking Monday’s stock tumble as a good sign — because the fall was less-severe than expected and occurred in a relatively orderly way. “I think we’re making progress,” he said. [...] "I’m playing the hand that was dealt me.”
Were they lying then, or are they lying now? Or are they just greedy and clueless? Those are not very attractive options, but they appear to be the only ones.
