That is, why it isn’t the solution it is touted to be. Jeffrey Sachs of the Financial Times:
The Geithner-Summers plan, officially called the public/private investment programme, is a thinly veiled attempt to transfer up to hundreds of billions of dollars of US taxpayer funds to the commercial banks, by buying toxic assets from the banks at far above their market value. It is dressed up as a market transaction but that is a fig-leaf, since the government will put in 90 per cent or more of the funds and the “price discovery” process is not genuine. It is no surprise that stock market capitalisation of the banks has risen about 50 per cent from the lows of two weeks ago. Taxpayers are the losers, even as they stand on the sidelines cheering the rise of the stock market. It is their money fuelling the rally, yet the banks are the beneficiaries.
If you’ve been wondering why the stock market had a short rally upon its announcement, there’s your explanation. You need to read the whole thing as Sachs uses a simple example to explain his point. He concludes with:
Tim Geithner, Treasury secretary, and Lawrence Summers, director of the White House national economic council, suspect that they cannot go back to Congress to fund their plan and so are raiding the Federal Reserve, the Federal Deposit Insurance Corporation and the remaining Tarp funds, hoping that there will be little public understanding and little or no congressional scrutiny. This is an inappropriate institutional use of the Fed, the FDIC and the Tarp. Mr Geithner and Mr Summers should at the very least explain the true risks of large losses by the government under their plan. Then, a properly informed Congress and public could decide whether to adopt this plan or some better alternative.
But, of course, we’re just in too big of a hurry and the situation is too dire to actually discuss and debate the situation or do it properly through Congressional action. Instead we’ve been sold a bill of goods which, disguised as a way out, is simply a rip off of the taxpayer – again. As Jennifer Rubin notes:
So to avoid the overwhelming popular objection to perpetual bailouts and expenditures, the Obama administration will do this all “off budget” and with no hearings, Congressional debates, or votes. Not very transparent and quite imperious, when you get right down to it.
Yeah, not very “hopey changey” is it?
I’m warming more and more to my suggestion that government officials be compensated the same way they think CEOs should be compensated. If this ends up being a big loss to the taxpayer, Geithner and Summers should receive zero compensation for the outcome. And that would also go for anyone else in the administration or Congress who had a hand in implementing this plan.
This is such a basic lesson I’m surprised it has to be repeated so often.
Under pressure to narrow projected deficits, President Barack Obama’s 2010 budget proposal calls for raising more than $31 billion over the next decade by eliminating the oil and gas industry’s eligibility for various tax breaks.
When you’re thowing around 3.6 trillion dollar figures for budgets, someone is going to ask, “how are you going to pay for it?” A 3.6 trillion dollar budget certainly doesn’t answer, “by cutting spending” does it? So new sources of revenue have to be found. But in a consumer society who is the ultimate source of all revenue? If you answered, “the consumer” you get a gold star.
So revenue is the purported reason for the focus on oil companies. Additionally, they’re easy to demonize which makes for easy political pickings. That seems to be the modus operandi of this administration.
The plan would slap companies with a new excise tax on production in the Gulf of Mexico worth $5.3 billion between 2010 and 2019, and repeal the industry’s eligibility for a manufacturing tax credit worth $13.3 billion in that period.
In an era in which the word “trillions” is uttered with abandonment, billions suddenly don’t seem like much do they? Unless of course you’re a middle or lower income family. Then trillions and billions are meaningless. It’s how far can you stretch the thousands of dollars you earn each year?
Well that $13 a week tax cut you’re contemplating will quickly disappear at the gas pump if Congress and the adminstration get their way. Fuel prices will rise at the pump and may rise rather dramatically. That’s because that approximately 20 billion you see above will most likely morph into about 400 billion cost to the oil companies during that period:
The industry says the final cost of Mr. Obama’s proposals on petroleum production could top $400 billion, once his plan to put a price on greenhouse-gas emissions is factored in.
The Obama administration has generally justified its proposals by arguing that taxpayers deserve a better deal.
Yeah, I know, “lie” is a strong word. I’ve always considered it to be the knowing telling of a falsehood. And that’s precisely what this “justification” is. The “taxpayer” being talked about isn’t you in this scenario. It’s the government. You will be paying the passed through tax at the pump which the oil companies will then send to DC.
For the seeming millionth time, corporations don’t pay taxes, they collect them and pass them on. Individuals pay taxes.
Last but not least – Raising taxes in recessionary times (not matter how indirect) is a recipe for economic disaster. Additionally such taxes in recessionary times may have the effect of driving jobs offshore where taxes and restrictions are less onerous and seeing oil companies produce less oil and natural gas domestically in a time when there is a growing and increasingly worrisome energy gap.
Not a very bright policy.
It won’t be. There’s nothing “sacred” about wind and solar, certainly nothing which is going to see environmentalists back off of their opposition to anything with despoils the vision they hold of how mother earth should be:
As David Myers scans the rocky slopes of this desert canyon, looking vainly past clumps of brittlebush for bighorn sheep, he imagines an enemy advancing across the crags.
That specter is of an army of mirrors, generators and transmission towers transforming Mojave Desert vistas like this one. While Whitewater Canyon is privately owned and protected, others that Mr. Myers, as head of the Wildlands Conservancy, has fought to preserve are not.
To his chagrin, some of Mr. Myers’s fellow environmentalists are helping power companies pinpoint the best sites for solar-power technology. The goal of his former allies is to combat climate change by harnessing the desert’s solar-rich terrain, reducing the region’s reliance on carbon-emitting fuels.
Mr. Myers is indignant. “How can you say you’re going to blade off hundreds of thousands of acres of earth to preserve the Earth?” he said.
As I’ve said before, if you think that these groups are going to let anyone carpet the Mojave Desert with solar panels and endanger its eco system, you haven’t been paying attention to what has been going on here for the last 50 years.
Terry Frewin, a local Sierra Club representative, said he had tough questions for state regulators. “Deserts don’t need to be sacrificed so that people in L.A. can keep heating their swimming pools,” Mr. Frewin said.
But that’s precisely what it will take for solar to make any appreciable difference, given the technology available today. The ironic thing is the movement to plus up solar is being driven by a Democratic administration and putting it into direct conflict with one of its more loyal constituencies.
It is also causing dissent within environmental organizations as well:
“It’s not enough to say no to things anymore,” said Carl Zichella, a Sierra Club expert on renewable power. “We have to say yes to the right thing.”
We’ll see who wins in the end and what the eventual political cost will be – but you can rest assured, there’ll be nothing easy about implementing solar and wind if environmentalists have any say.
Believe it or not, it was AP which undertook this job. And although superficial, it was interesting to see the agency actually attempt some objectivity. That said, the one that really stands out as almost laugh outloud funny was where Obama did a little chiding of the Republicans:
First of all, I suspect that some of those Republican critics have a short memory, because, as I recall, I’m inheriting a $1.3 trillion deficit, annual deficit, from them.
Well, first of all, only Congress can appropriate money and for the last two years, when that 1.3 trillion was pile up, it was appropriated by a Democratic Congress.
Yes, Paulson rolled them and they ran around like a bunch of chickens with their heads cut off – and that includes Republicans – but trying to lay this deficit solely at the feet of the Republicans is simply laughable.
Laughable point two came when Obama claimed “In this budget, we have made the tough choices necessary to cut our deficit in half by the end of my first term even under the most pessimistic estimates.”
Well, that’s just not true. The “most pessimistic estimates” (in this case the CBO) essentially disagree with his point.
The Congressional Budget Office forecasts that Obama’s spending plan would leave a deficit of $672 billion by the end of 2013. Explaining the differences between his projections and CBO’s, Obama said his administration projects a higher growth rate.
It is also important to understand that “cutting the deficit in half” is a mask for the fact that it means he’ll still be running up a record deficit of over 600 billion a year. That is not progress in deficit reduction or “fiscally responsible” government. But it sounds good when thrown out there in a sound bite. Here, maybe this will help make the point:
As you can see, both the most “pessimistic” and his own projections see huge deficits projected well into the future – and, as many economists have said, unsustainable deficits.
So let’s get a few facts straight concerning spending and deficits then and now:
-President Bush expanded the federal budget by a historic $700 billion through 2008. President Obama would add another $1 trillion.
-President Bush began a string of expensive financial bailouts. President Obama is accelerating that course.
-President Bush created a Medicare drug entitlement that will cost an estimated $800 billion in its first decade. President Obama has proposed a $634 billion down payment on a new govern ment health care fund.
-President Bush increased federal education spending 58 percent faster than inflation. President Obama would double it.
-President Bush became the first President to spend 3 percent of GDP on federal antipoverty programs. President Obama has already in creased this spending by 20 percent.
-President Bush tilted the income tax burden more toward upper-income taxpayers. President Obama would continue that trend.
-President Bush presided over a $2.5 trillion increase in the public debt through 2008. Setting aside 2009 (for which Presidents Bush and Obama share responsibility for an additional $2.6 trillion in public debt), President Obama’s budget would add $4.9 trillion in public debt from the beginning of 2010 through 2016.
Yes, Bush did contribute to an expanded deficit. But Obama’s plans expand it beyond anything Bush did and it continues the spending well into the future. Obama’s budget is the blueprint for a huge and unsustainable expansion of government over the next decade. What you see going on now is all Obama.
And don’t let him get away with pretending otherwise.
Michael Goodwin at the NY Daily News gives this assessment of Obama in a recent column:
He is the most radical President of our times, far outside the mainstream of our political philosophy.
He is not a reformer who fixes things. He fancies himself “transformative,” a man who reshapes and reorders. It apparently begins with smashing the existing order under the pretext of managing the crisis he inherited.
During the campaign, a fellow journalist confided that “I know Obama is a Manchurian candidate, I just can’t figure out what for.”
I laughed then, but no more. Obama represents a secular religion that believes, no matter the malady, Washington is the antidote. More government is the chicken soup of his tribe.
In those four sentences, Goodwin capsulizes the essence of Obama and the “secular religion” he heads. Apparently we finally have a theocracy in place.
A closer look at the recent problem with Mexico – when the Obama administration, without consultation ended the NAFTA agreement which allowed Mexican trucks the ability to deliver in the US – reveals the answer to the question in the title:
We speak of the Democratic Congress’s recent approval of a law, signed by Mr. Obama, that killed any chance that long-haul freight trucks from Mexico could operate in the United States, as had been promised under the North American Free Trade Agreement. Giving U.S. and Mexican trucks reciprocal access to each other’s markets would save fuel and money. An international arbitration panel has also found that the United States is legally required to let Mexican trucks in.
Yet the Teamsters union bitterly resisted, claiming that poorly regulated trucks from south of the border would be menaces on U.S. highways.
To meet legitimate safety concerns and this country’s legal obligations, the Bush administration promoted a pilot project under which Mexican trucks, screened by U.S. personnel, could operate freely within the United States. The Mexican trucks compiled a safety record comparable to that of American rigs. Almost everyone was happy with the deal — except the Teamsters, for whom economic turf rather than safety has always been paramount.
So we now know that it was a payoff to the Teamsters for their help during the election. Mexican trucks had met the safety concerns of the critics and compiled an excellent safety record in the US. Given that, how else do you explain a move which may end up costing us billions of dollars in agricultural exports to one of our major trading partners for no apparent legitimate reason?
It certainly seems to me that at least in this particular situation, political payback took precedence over what was best for America.
Hope and change.
Over the past several weeks we’ve been pondering Pres. Obama’s handling of the economic crisis. For the most part we’ve all agreed that Obama’s lack of leadership (whether from a dearth of experience or ability) is only serving to exacerbate the situation. But we also have somewhat divergent views as to whether there is a method to Obama’s madness.
Bruce is pretty convinced that the problem is a lack of executive experience, and the fact that Obama is learning on the job, while in the one government position that simply won’t allow for that sort of training. Being devoid of leadership skills or abilities, and being overly confident in his abilities to talk his way out of trouble, is driving Obama into mistake after mistake. Call this the Boy-King scenario.
Dale has suggested that Obama is simply disinterested in things like foreign and economic policy, thus he’s put little effort into guiding those efforts, and instead has handed these messy areas off to subordinates. That those on whom he is depending are not terribly proficient is not helping matters (e.g. Hillary and the “reset” button). But at bottom, the real problem with Obama is that his only real concern is with implementing his social agenda. This is bascially the Louis XVI problem (the King who famously recorded “Rien” as the sole entry to his July 14, 1789 diary, referring to his hunting exploits that day).
Last night on the podcast, I ventured that, in addition to a lack of experience and a disinterest in anything other than social policy, Obama is perfectly happy to let the economy flounder because (he thinks) it will drive more people into the arms of government dependency, and allow him to push forward with the radical transformation he envisions for this country. What he wants most, in my opinion, is to greatly expand the desire and need for government, to instill “democratic” controls into as many areas of life as possible (and especially in economic affairs), and to revise what he sees as a top-down power structure into a bottom-up one. Regardless of whether Obama is right or wrong in any of his thinking, it seems to me that his apparent lack of concern with respect to the economic crisis (only one of seventeen post filled in Treasury, despite the frightening prospects of a new depression?) has more to do with the fact that he does not envision the crisis interfering with his social agenda, and perhaps sees it as an enabler of that agenda. Call this the Commodus explanation.
I’m loathe to suggest that Obama is some sort of Manchurian Candidate, aiming to secretly impose socialism on the US, primarily because we’ve been teetering on that edge for several decades now, and he’s not been shy about wanting to give the final nudge. At the same time, I believe that Obama truly wants what’s best for this country. It’s just that what he views as “best” is something similar to European social-democracy, to which I am absolutely opposed.
So, I’m curious. How do you all see it? Is Obama the Boy-King, Louis XVI, or Commodus? Some combination of the three? Something different altogether?
On April 3-4, President Obama will attend a summit in Strasbourg, France and meet NATO leaders for the first time. One of the promises he made during his campaign for the presidency is he’d improve relations between the US and other countries around the globe. One would assume that means those who we are friendly with as well. Yet since taking office he has managed to humiliate the Brits, piss off the Mexicans (who’ve now applied tariffs on over 2 billion dollars worth of our agricultural exports), see us embarrassed in front of the Russians, and now, treated NATO like a bastard step-child.
On Wednesday afternoon, e-mails circulating between Brussels and Berlin suggesting that, within the course of the day, Washington would name General James N. Mattis as the Supreme Allied Commander in Europe. The commander is in charge of all US troops in Europe as well as NATO deployments, including the ISAF security force in Afghanistan.
Traditionally, the United States appoints the supreme commander and the Europeans pick the NATO secretary general. The decision to appoint Mattis appeared to be a logical one. He has long carried the title “Supreme Allied Commander Transformation.”
In the end, though, Mattis didn’t get the appointment. Instead, Defense Minister Robert Gates announced that Admiral James Stavridis would be nominated for the highly prestigious position. The US Senate and the NATO Council must approve his nomination, but it appears likely he will get through. Gates said Stavridis was “probably one of the best senior military officers” in the US.
In Brussels, though, many felt bluffed. “America treats this like it’s purely an American matter — and they didn’t even give any hints about the appointment,” one NATO employee said. “The conspiratorial manner of the personnel search was almost reminiscent of the way the pope is selected,” Stefani Weiss, a NATO expert at the Bertelsmann Stiftung foundation in Brussels, told SPIEGEL ONLINE.
Not exactly the way NATO should be treated on the eve of a meeting in which it is clear that Obama is going to ask NATO nations to contribute more to the Afghanistan effort. As Ed Morrisey at Hot Air points out:
Democrats accused the Bush administration of “arrogance” in diplomatic efforts, mostly because we chose to bypass the UN and finish the Iraq War with our own coalition of partners. I doubt that Donald Rumsfeld, with all his New/Old Europe talk, would have appointed a Supreme Allied Commander without at least consulting the major partners in NATO. Obama’s decision to do that speaks to his own arrogance and a certain level of disdain for the Western military alliance.
Obama has spoken constantly during the past two years about the critical nature of the fight in Afghanistan, and how the Bush administration allowed themselves to get distracted by Iraq. He also criticized the damage Bush supposedly did to our alliances that hurt the Afghanistan effort. This snub looks a lot more direct and a lot more damaging than anything Bush did.
So, we’ll see what help NATO’s nations decide to offer in early April after this move.
And speaking of Afghanistan, the Obama administration is getting ready to present its strategy for our fight there. One of the first things expressed by Obama is the need for an exit strategy. Naturally that being the first thing mentioned by the new CiC bothers me. Although obviously true, I’m reminded that his “exit strategy” for Iraq was “get out, get out now and that will force the Iraqis to stand up and take charge.” I can’t help but wonder if that’s not going to be something reflected in his “new” Afghanistan strategy.
Then there’s this very strange report:
The US and its European allies are preparing to plant a high-profile figure in the heart of the Kabul government in a direct challenge to the Afghan president, Hamid Karzai, the Guardian has learned.
The creation of a new chief executive or prime ministerial role is aimed at bypassing Karzai. In a further dilution of his power, it is proposed that money be diverted from the Kabul government to the provinces. Many US and European officials have become disillusioned with the extent of the corruption and incompetence in the Karzai government, but most now believe there are no credible alternatives, and predict the Afghan president will win re-election in August.
Now Hamid Karzai may not be the leader of choice in Afghanistan for most of the West, and he may essentially be the “mayor of Kabul” in a real sense. But, like it or not, he is the duly elected president of Afghanistan. What is being talked about here is technically a coup.
The proposal for an alternative chief executive, which originated with the US, is backed by Europeans. “There needs to be a deconcentration of power,” said one senior European official. “We need someone next to Karzai, a sort of chief executive, who can get things done, who will be reliable for us and accountable to the Afghan people.”
Really? And how do these people think those who voted in Karzai will greet such interference in the internal affairs of Afghanistan? Do they suppose this is going to make the fight we have there easier? This is exactly what the Soviets did. Are they freakin’ nuts?
The risk for the US is that the imposition of a technocrat alongside Karzai would be viewed as colonialism, even though that figure would be an Afghan. Karzai declared his intention last week to resist a dilution of his power. Last week he accused an unnamed foreign government of trying to weaken central government in Kabul.
“That is not their job,” the Afghan president said. “Afghanistan will never be a puppet state.”
Can anyone think of a better way to create another class of enemy within the state of Afghanistan than to essentially depose their leader? Can you imagine the propaganda value of such a move to the Taliban who will surely say “we told you so?”
I’m getting a very bad feeling about all of this.
James Joyner wonders:
To my non-economist mind, that sounds eerily remniscient of the Troubled Assets Relief Program (TARP), the $700 billion plan passed last October to prop up the frozen financial system by buying, well, troubled assets. Granting, arguendo, that the Bush administration, which ran the first part of TARP, was evil and incompetent and the Obama administration is all sweetness, light, and omniscience, why would this work any better the second time around?
Paul Krugman, as we noted last week, is not impressed by this plan at all:
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Krugman goes on to discuss the economics of the situation and a relatively easy way to solve the banking problem. Probably one of the more striking lines in his discussion is:
But the Obama administration, like the Bush administration, apparently wants an easier way out.
This speaks to a theory we’ve all discussed about certain aspects of the job of president in which Barack Obama displays very little interest. From his chuckling though his “punch drunk” interview with Steve Frost yesterday on “60 Minutes” (an invitation to view him as unserious about the crisis) to his seeking an easy and fast solution to the banking crisis, it seems that this is one of those areas which holds little interest for him. He wants it dealt with as quickly as possible (or at least seemingly dealt with so it is at least off of the front pages) so he can move on to his real interest – his costly social agenda.
Anyway, read all of the Krugman critique.
Brad DeLong thinks Krugman may be wrong and lists 3 reasons why:
1. The half empty-half full factor: I see the Geithner Plan as a positive step from where we are. Paul seed it as an embarrassingly inadequate bandaid.
2. Politics: I think Obama has to demonstrate that he has exhausted all other options before he has a prayer of getting Voinovich to vote to close debate on a bank nationalization bill. Paul thinks that the longer Obama delays proposing bank nationalization the lower it’s chances become.
3. I think the private-sector players in financial markets right now are highly risk averse–hence assets are undervalued from the perspective of a society or a government that is less risk averse. Paul judges that assets have low values beceuse they are unlikely to pay out much cash.
While it is nice to be optimistic, it is also important to be realistic. Frankly I think DeLong’s optimism isn’t realistic in the face of this particular crisis and I’m inclined to believe the Krugman critique to be more “spot on”. I have no confidence that this plan will solve the problem.
One of the problems the administration faces which is above and beyond the “workability” of the plan itself is related to the AIG bonus blowup in Congress. Private investors are gunshy about participating – for good reason:
The backlash on Capitol Hill means private firms may think twice about taking part in Geithner’s public-private partnership, even though government financing will limit their risk and increase the potential of earning profits, said David Kotok, chairman and chief investment officer of Cumberland Advisors Inc., in Vineland, New Jersey.
“We expect that the participation in the program to be announced this coming week will be tepid at best” because of “fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation,” Kotok said.
A real “chilling effect” given Congressional and adminstration overreaction to the bonus situation. Reports are Obama is cooling to the idea of retroactive taxation, but, right or wrong, there is still going to be a demand for some sort of action. We’ll see what sort of leadership Obama tries to exert concerning those bonuses if any.
Not that I’m particularly upset that he’s managed to re-sour (is that even a word?) relations with Venezuela before he even got to meet with Hugo. But you do remember the promise:
Venezuela’s President Hugo Chavez said on Sunday his U.S. counterpart Barack Obama was at best an “ignoramus” for saying the socialist leader exported terrorism and obstructed progress in Latin America.
“He goes and accuses me of exporting terrorism: the least I can say is that he’s a poor ignoramus; he should read and study a little to understand reality,” said Chavez, who heads a group of left-wing Latin American leaders opposed to the U.S. influence in the region.
Chavez said Obama’s comments had made him change his mind about sending a new ambassador to Washington, after he withdrew the previous envoy in a dispute last year with the Bush administration in which he also expelled the U.S. ambassador to Venezuela.
“When I saw Obama saying what he said, I put the decision back in the drawer; let’s wait and see,” Chavez said on his weekly television show, adding he had wanted to send a new ambassador to improve relations with the United States after the departure of George W. Bush as president.
Apparently during the January interview with Spanish language Univision, Obama said Chavez hindered progress in Latin America and accused him of exporting terrorist activities and supporting Colombian guerrillas. As you might imagine this was not something El Supremo found to be helpful:
“My, what ignorance; the real obstacle to development in Latin America has been the empire that you today preside over,” said Chavez, who is a fierce critic of U.S. foreign policy.
Mark up another victory in that promised attempt to have the world “like us better”. The upcoming Summit of the Americas scheduled for next month ought to be a real circus – both Chavez and Obama will be attending.
Man, am I glad that doofus Bush is out of office.
Hope and change.