Results filed under: “economy”
Banks made alot of sketchy investments, and those investments turned into shit. Now, somebody has to eat all that shit.
The banks don't want to eat that shit, so they've convinced the government to make the taxpayers eat shit instead. The taxpayers are getting upset, but, in reality, we've only eaten a small amount of the shit there is to eat. As we've seen with AIG, as soon as your done eating your pile of shit, they come back with more and refill your plate. Dig in.
Eventually, we must come to the realization that yes, we are going to have to eat shit. But before we eat shit, we should make the banks eat shit. So you make the bank executives, stockholders, and private investors eat all the shit they can handle. Stuff them full of it. Then, the taxpayer will eat whatever shit is left over. And believe me, there will still be lots of shit to eat.
But then, when it is over, the shit will be gone, and we'll all have stomach aches, but we can all move past this shit.
Then this is article by Simon Johnson required reading.
Because I know some of you don't like reading anything that can't fit into a Twitter post, I'll try to give you the Cliff's Notes version.
If you described the nature of the economic problems in the US to economic experts but hid the name of the country, the unanimous answer would be that we should nationalize the banking system.
Bailouts are not, and will never be, enough to solve the problems these banks are facing. Bailouts do not make the banks healthy, but give them enough cash to limp along a little further, delaying the inevitable.
Cleanup of the banking sector will be incredibly expensive, but it only becomes more expensive with each day that passes without the proper action being taken.
If a bank is considered too big to fail, then it must be nationalized and sold off in smaller pieces. Regulations must be put into place to prevent any financial institution from achieving "too big to fail" status again. In Johnson's words: "Anything that is too big to fail is too big to exist."
I will quote verbatim my favorite paragraph, in which Johnson discusses the merits of limiting compensation:
[O]utright pay caps are clumsy, especially in the long run. And
most money is now made in largely unregulated private hedge funds and
private-equity firms, so lowering pay would be complicated. Regulation
and taxation should be part of the solution. Over time, though, the
largest part may involve more transparency and competition, which would
bring financial-industry fees down. To those who say this would drive
financial activities to other countries, we can now safely say: fine.
When it is money laundering.
American Insurance Group received $85 billion in taxpayer money in September of 2008 to keep it from crashing. We, the taxpaying public, were told at the time that this money was necessary to keep the crisis from spreading. Not being a financial expert, I failed to understand this, and was thus credulous about claims that AIG was the lynch pin holding the US economy together that must be saved at all costs. But my failure to understand also meant that I could not muster the proper outrage at what was going on. I no longer have that problem.
We are now, as a nation, $152 in the hole to AIG. Where has that money gone? And how did it help save the economy? Yesterday, those questions were answered when AIG published a list of counterparties.
Counter-whatsits? What does that have to do with anything? What is going on? I feel like this should make me angry but I don't know why! Help!
If you forced me to choose which one to watch, I pick the Colbert Report, because it makes me laugh every single time. But if you only let me keep one on the air, I would keep The Daily Show.
In the recent flap with CNBC, The Daily Show shows why it is primary source for analysis of the way the media covers the news. After single-handedly shutting the doors on the original political shoutfest, CNN's Crossfire, Jon Stewart and company have set their sights on CNBC after Rick Santelli's now-famous rant on the floor of the Chicago Mercantile Exchange, where he complains about the government bailing out the "loser's mortgages."
TDS and Stewart responded in their signature style: with CNBC's own words.
If you've been paying attention to the news, you know that today unemployment hit 8.1%. Highest level in 25 years, financial apocalypse, prepare your 'camping equipment', the living will envy the dead, yadda yadda.
But don't you wish you could see the economy and your future employment prospects heading off the cliff, instead of just read about it? Well you're in luck, since there's a new edition of the graph that will make you want to hang yourself out today. Thanks, Speaker Pelosi!
I saw this graph this morning and might have pooped myself a little bit.
Somebody look at this, and then tell me that some kind of government intervention in the market is not necessary. Tell me its going to correct itself. Because that looks like the economy jumped out of an airplane without a parachute.
My wife and I were in your store on Saturday night. Your store is going out of business, so we decided to see if there were any deals - specifically, we wanted another guitar for Guitar Hero World Tour. The store had it, but we didn't know how much of a discount we would get, so we took it to you, at the counter.
The sticker price was $65. You told us that we could get it for $35. My wife and I excitedly high-fived at our good fortune.
I immediately regretted this act of spontaneous shopping excitement. We are saving $30 on our plastic guitar because your store is going out of business, and you are losing your job. The look on your face made it clear that you thought we were horrible, insensitive people, and you hoped we would get in a terrible car wreck before we ever got to use our new purchase.
So, uh, sorry about that. Not about the purchase, or the saving money, or even you losing your job. But sorry for rubbing your nose in it.
I had to stop by the supermarket yesterday on the way home from work. I had run out of tortillas for my delicious pulled pork
, and I had run out of peanut butter. So I get in the express line with my peanut butter, and my 20 flour tortillas. The cashier gives me an odd little smile.
On my way to the car, I realize: the cashier thought I was buying dinner. A recession-inspired dinner of flour tortillas and peanut butter.
Did you know Eliot Spitzer is still alive? And he has a column on Slate.com? And yes, it is in fact Disgraced Former New York Governor Eliot Spitzer(tm), not just some unfortunate jerk with the same name. Today he writes about the failed auto bailout
"We all know that a significant downsizing of auto-industry capacity is
necessary. Maintaining all three companies is probably not economically
feasible. We also know that the incipiency of bankruptcy tends to focus
the mind and produce real offers. Why don't we tell the current Big
Three that $25 billion in capital is available--but only to two of them?"
He wants to dangle the money in front of the 3 auto makers, and then have them fight it out to decide who actually gets bailed out. Incidentally, this is the same process he used to decide which hookers to have sex with.
Okay, low blow, but this idea is still a complete joke. Even as we watch the slow-motion collapse of our economy brought about by a slavish devotion to the concept of the free market, I still need to listen to nonsense like this. We are going to create a MARKET FOR GOVERNMENT BAILOUTS? Are you serious? I don't know, maybe my irony detector was malfunctioning as I read this. Go back and tell me if Spitzer was being serious, or if this was meant to be a "Modest Proposal"-esque essay on the state of free market economics.
After spending over $300 billion dollars to bail out banks with absolutely nothing to show for it, the US government, specifically the Senate, has decided that we do not have $15 billion to loan to the American auto companies to keep them from failing. Talks failed last night when the United Auto Workers union would not agree to an immediate reduction in union wages. Republican Senators wanted union workers to accept wages commensurate with those paid to non-union workers in other US auto plants, which would amount to a reduction of approximately $10 per hour (inclusive of benefits). UAW and Democrats countered that the auto companies should honor the current contracts, but they would accept the proposed wage reduction when those contracts ended in 2011.
This proved to be a deal breaker.
For some perspective, consider: despite the hand-wringing about the cost of high wages and benefits to current and retired workers, labor costs account for approximately 10% of the cost of a union built car. In other words: UAW members could volunteer to work on the assembly lines for free, and the car companies would still need the bailout.
What we have here, then, is some good old-fashioned union busting. And, I have to admit, Republicans have the UAW by the balls: either tear up your current contract right now, and along with it any ability you have to ever enforce a contract with your employers again, or your employers will likely end up out of business.
$300 billion to the companies that made the bad investments and caused the problem to begin with. These companies did not have to give any meaningful concessions. But the auto companies, who employ people who actually make a product and helped build the middle class in America, get nothing unless the union completely forfeits all its contractual rights.
Does this make anyone else kind of mad?
or: Stimulus Here, Stimulus Now!
This post is going to have a ton of charts, so it'll mostly be after the jump, but here's the gist:
1. The overall economy (not just the financial sector) is worse than it looks, and it looks really bad.
2. Given the particulars of how this rec/depression is likely to play out, the federal government is the only actor who has the ability to reverse the spiral of low employment->low retail sales->lower employment->lower sales.
3. Stimulus is the right thing to do, but all stimulus is not created equal.
We are about to take a long, dizzying trip through some current events. We're going to start at oil prices, make our way through fuel conservation, take a brief rest stop at the pork store, and eventually find out way to the auto maker bailout. Does that sound like fun? It doesn't?
Uh... weren't we supposed to be bailing the economy out or something?
So here we are, the Monday after the bailout finally passes, and what do I see? Oh, is that a 600 point drop in the Dow? And the market is going to close below 10,000 points for the first time in four years?
Do you pay taxes? Congratulations. You've been scammed.
I'm not claiming to be an economy expert, but I like to think I can spot a scam when I see it. And when the former CEO of an investment bank pulls
an enormous amount of money out of his ass
and says, "We have to give this money away to the banks RIGHT NOW WITHOUT THINKING ABOUT IT OR ELSE THE ECONOMY WILL EXPLODE ZOMFG!!" it sets off a red flag or two.
And also listen: I'm not saying that a bailout was not necessary, or that it won't help in the long run - I don't feel qualified to make that statement. The problem is, and has been from day one, the way the conversation changed in one week from, "The fundamentals of the economy are strong" to "We need to give out $700B immediately or we are all doomed" that makes the whole thing smell like yesterday's diapers. Why the rush? Clearly it hasn't changed anything.
PS: did you know that George W. Bush is the first president to ever have an MBA? It's true. Time even called him the CEO President
. Good times.
Short version: House Republicans are spineless, backstabbing bitches. And that's coming from someone who thinks the proposed bill was terrible and should have failed.
From the perspective of lawmakers, there's a classic collective action problem. Every Congressman (with the exception of the diehards like Kucinich or Paul), has been convinced that the bill is necessary. However, they also know that it's exceedingly unpopular with their constituents. The optimal outcome for any individual congressman is the same: the bill passes while they vote 'No' and then run on it. This is what Congressional Whips are for.
However, there's a bigger problem. If either party can get away with letting the majority of their members vote against it, then they all benefit, since the party can run nationally against it in 2010. So Speaker Nancy Pelosi and Majority Leader Steny Hoyer met with Minority leader John Boehner to come up with a scheme to get the bill passed without endangering their incumbents. The members of the party with the safest seats would vote for it, letting the 40% who were in trouble safely vote against. Each party would deliver 50-60% of their membership, keeping either side from getting demagogued badly for something that they both believed necessary.
Pelosi delivered: 60% of Democrats voted for the bill. 33% of Republicans did. Boehner apparently screwed up his count, since if he had delivered a few more he might have been able to get it passed with majority Democratic support. Keep in mind how cynical this is. He (and the rest of the caucus) believes this bill is absolutely essential for the health of the American economy. But he was perfectly willing to promise support, then stab the other party in the back by voting no at the last second, panning to run against 'the 700 billion dollar giveaway to corporate fatcats' in 2010. And what was the figleaf given for the betrayal, the willingness to sink the economy? Nancy Pelosi was mean to Republicans in her floor speech.
So where does Congress go now? I'm reminded of an ancient fable. During wartime, a Greek king was holding court one day when a mystic showed up with twelve scrolls of prophecy that held the key to winning the war . After proving that they were perfectly accurate, she demanded a staggering sum of gold for them. The king refused, saying that they weren't worth that much. So the prophet grabbed a nearby torch and set one of the scrolls on fire. She then repeated the same price for the remaining eleven scrolls. Again, the king refused. So once more she incinerated one of the scrolls. This continued until after burning the sixth scroll, the king gave in and paid the full price. Because he knew it was necessary.
EDIT: Just in case you don't believe that they're really that bad, the Republican National Committee already cut an ad against the bailout when they thought the vote was going to succeed on the backs of Democrats.
[This entry is long, and I am irate. You have been warned.]
When a horse named Barbaro started the 2006 Preakness Stakes, he was a heavy favorite. Barbaro had already won the Kentucky Derby, and some horse racing experts were predicting that he be the first horse to win the Triple Crown since Secretariat.
There are bettors that like to bet large sums of money that huge favorites like Barbaro will "show" - that is, finish in the top three. A typical payout is that, for every $1 that you wager, you'll get 5 cents back. To make serious money, a bettor must lay out an incredible amount of cash. A $100,000 bet would win you $5,000. In horse racing circles, there is a name for these types of bettors. They are called bridge jumpers.
Barbaro did not win the 2006 Preakness Stakes. He did not place, and he did not show. He shattered his leg before the first turn, and despite several surgeries, he had to eventually be put down. The bridge jumpers were left to deal with the consequences of their decision.
Chumps. They should have been investment bankers.