Works for me!

Ian, did you see this recent remark from O’Neill… I’d posted it earlier downstairs…

If the United States doesn’t get its finances in order, the coming years will make the current recession “look like a child’s birthday party,” said former Treasury secretary and Alcoa chairman Paul O’Neill.

“We’re headed for the wall at lightning speed. And every day that we don’t deal with that set of problems is another day closer to absolutely vaporizing our economy,” he said.

“Not to overstate the problem.“

Overstate…?

Didn’t. It’s certainly one possibility. A lot will depend on what Obama’s team does. If they blow this badly enough…

Congress also needs to stop playing chicken with the Big 3. If GM goes under, you’re so screwed you’ll never know what hit you.

At least he’s beginning to shoot himself in the foot before confirmation. Obama’s not even prez yet and he’s got a power junkie on his hands.

While I’m still googling on how exactly a head of FDIC is removed, Geithner best be a bit more smart. Bair has a position that exceeds the tenure of his:

Sheila C. Bair was sworn in as the 19th Chairman of the Federal Deposit Insurance Corporation (FDIC) on June 26, 2006. She was appointed Chairman for a five-year term, and as a member of the FDIC Board of Directors through July 2013.

(My Bold)

And note that FDIC head is a position that requires Senate confirmation.

There is a word like “out” or “gone” missing in the first sentence.

I was down on Geithner from the start for his failures at the New York Fed before the bubble bursting and the financial meltdown and then his subsequent role in the Bear Stearns and AIG deals.

I think your description of him as a number two man is right on. We are at a point where we need real leadership and Geithner plain and simple doesn’t have it. He was chosen as a stand in for Summers who to some extent was chosen as a stand in for Rubin. This is not change or leadership that you, me, or really anyone can believe in.

That Geithner would act with such a tin ear to Bair, someone who has tried to do a lot more to help distressed homeowners than Geithner ever did and who I should add even tried to head off (unsuccessfully) the housing bubble back in 2003, says a lot –after the OCC (Comptroller) derailed state efforts to curb predatory lending back then, she tried to get the industry to adopt voluntary standards.

Henry Kissinger once admitted in his own words:

“I kept the British Foreign Office better informed and more closely engaged than I did the American State Department”

Heh, another lesson of watching out for whom’s toes you step on while on your way up….! ;-)

Uh, no. This has nothing to do with the home mortgages. It’s about Shelia always wanting to structure deals in a fashion that minimizes FDIC exposure without appreciating the consequences for market expectations of future deal structures. She’s been trying to save her ammunition, and I think she’s been short-sighted.

But I think Paulson has been terribly short-sighted as well, wanting to minimize the hit to shareholders and bondholders so that, in theory, the bailed-out banks could go to the market to raise much-needed additional capital as they continue to deleverage. Despite Paulson’s temporizing, current shareholders are ultimately going to be diluted to the vanishing point or completely washed out, and there are going to be major debt cram downs. Similarly, FDIC (or a new RTC-type agency) is going to wind up in a big bank-takeover and deposits/assets disposition business eventually.

Both Blair and Paulson have been excessively ad hoc and their respective ad hocery has reflected too much their personal bias. Since the Bush ideology represented by Paulson is until Jan 20 calling the overall shots, Blair should be working to help make Paulson’s less than ideal approach to the banking system work as well as it can. And she’s being increasingly criticized for not being all that helpful on the deposit-insurance side of her agency’s mandate. Her role as FDIC head vis a vis the immediate design of TARP and Fed programs is much broader than the battle over how to deal with home mortgages, even though in the long term stemming the blood bath on the housing front will be required to stabilize the financial system.

I expect Geithner, Summers et al will introduce a new, comprehensive approach to restructuring the financial system come Jan 20. I’d be delighted to see Shelia put in charge of a home mortgage workout program with a nice chunk of cash to manage. But I wouldn’t be sorry to see someone else take on FDIC when the new team comes in. It wouldn’t surprise me if that’s what’s behind the murmurs are about “not a team player”, whether coming from Geithner’s allies or not.

Ian,

I’d like to point out that you couldn’t be more wrong about Geithner. Obama has incredibly good judgement and acumen for picking solid political allies who have shown a firm history of being capable of doing potential harm by themselves in order to do good by the public trust. From his VP selection, all the way down, it’s an almost superhuman crack-squad of altruistic, benevolent, and prescient officials for whom the very idea of having any conflict-of-interest would induce so much shame as to cause their self-shunning from any realm of public-service.

/s

Dare to be hopeful, prepare to be disappointed; indeed.

In the short term and the long term, no floor under housing means no end to the blood bath.

I’ve had some issues with the FDIC’s deals, but nowhere near the issues I’ve had with Paulson’s approach. What Sheila was doing on the mortgage front was looking at the hole in the hull of the ship and saying “unless we patch that all the people manning the pumps won’t save the ship.”

It’s always a question when someone’s doing the wrong thing if you should “get onboard and help them do the wrong thing as well as possible” or whether you should say “well, actually, I don’t report to you and in the areas where I don’t have to obey your orders, I’m not going to.”

Constitutionally I tend towards the second camp. Spending too much time working to do stupid things makes me literally physically ill.

Thanks for that perspective

Thanks IF. I am aware of Obama’s superhuman hiring abilities but had forgotten for a moment. I am sure anything the leader does is right. I would like to express my deepest and most sincere apologies for forgetting that Obama’s judgment is superior to mine, or indeed to anyone’s, and that my job as a pundit is to reinforce the message that everyone should trust the leader and all will be well.

It’s about Shelia always wanting to structure deals in a fashion that minimizes FDIC exposure without appreciating the consequences for market expectations of future deal structures. She’s been trying to save her ammunition, and I think she’s been short-sighted.

example please? if you are willing – how did bair want to structure the deal and what consequences did she not appreciate? thanks.

p.s. btw, calling shelia bair “shelia” while using last names for all the men (geithner, summers) sets off all kinds of alarm bells with me.

I have difficulty understanding your point of view. In particular could you expound on your first paragraph.

Unlike Paulson, Bair does not have $700 billion to play with. The FDIC has a fairly conservative mission and given the size of the crisis insufficient funds. So I am wondering how Bair could do more with what she has. At the same time, she is the only one who has actually suggested addressing a core problem of the meltdown, something that neither Paulson nor Bernanke have done. All they do is throw trillions into an oversized liquidity trap.

And I am not sure what it would mean to be more helpful to Paulson since a bigger idiot and empty suit has not been seen outside the Oval Office these last 8 years.

As for a putative comprehensive plan come January 20, dream on. There will be an insufficiently large stimulus, some piecemeal help for some homeowners, and lots of hearings will accomplish very little and not produce the re-regulation of the financial sector that is needed.

Do you think there really is a chance that Congress will let them go into bankruptcy?

Do you think there really is a chance that Congress will let them go into bankruptcy?

Insane Republicans. Impotent Democrats. It’s not so much that they will let it happen, more like they will stumble into it.

Impotent Dems about sizes it up… Collusion could be thrown in too, tho…!

I’m sure glad I went long on rice, beans, and bullets. Yep it’s a Sad state of affairs on it’s way to all us.
jo6pac
The race to the bottom continues.

it will be interesting to see what frank does tomorrow at his auto industry hearing, and especially next week when i understand kashkari is going to be testifying on the TARP.

Some have predicted on previous threads that Congress will not let them fail, so I’m just doing a lil informal survey to see if that is a common belief around here. I absolutely believe they will let ‘em fail and then dance on the grave of the UAW.

What on earth can Kashkari actually state for the record…? I mean, ‘I have no knowledge of it, Senator…’ only goes so far…! ;-)

kashkari testified before kucinich’s subcommittee not long ago. if you like gallows humor, it was kinda funny in a perverted, twisted and sick sort of way.

from CR’s semi regular update on the credit crisis indicators today:

The yield on 3 month treasuries is 0.005% (bad). Let’s just call it zero! I think we know where the banks are parking all that TARP money – in three month treasuries!

i’m sure this is because sheila bair is not a team player.

also via CR, from james fallows

In his first interview since the world financial crisis, Gao Xiqing, the man who oversees $200 billion of China’s $2 trillion in dollar holdings, explains why he’s betting against the dollar, praises American pragmatism, and wonders about enormous Wall Street paychecks. And he has a friendly piece of advice: “Be Nice to the Countries That Lend You Money”

interesting perspective. here’s one example:

About Wall Street jobs, wealth, and the cultural distortion of America:

I have to say it: you have to do something about pay in the financial system. People in this field have way too much money. And this is not right.

When I graduated from Duke [in 1986], as a first-year lawyer, I got $60,000. I thought it was astronomical! I was making somewhere a bit more than $80,000 when I came back to China in 1988. And that first month’s salary I got in China, on a little slip of paper, was 59 yuan. A few dollars! With a few yuan deducted for my rent and my water bill. I laughed when I saw it: 59 yuan!

The thing is, we are working as hard as, if not harder than, those people. And we’re not stupid. Today those people fresh out of law school would get $130,000, or $150,000. It doesn’t sound right.

Individually, everyone needs to be compensated. But collectively, this directs the resources of the country. It distorts the talents of the country. The best and brightest minds go to lawyering, go to M.B.A.s. And that affects our country, too! Many of the brightest youngsters come to me and say, “Okay, I want to go to the U.S. and get into business school, or law school.” I say, “Why? Why not science and engineering?” They say, “Look at some of my primary-school classmates. Their IQ is half of mine, but they’re in finance and now they’re making all this money.” So you have all these clever people going into financial engineering, where they come up with all these complicated products to sell to people.

from roubini:

The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation.

A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labour costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation.

Deflation is dangerous as it leads to a liquidity trap, a deflation trap and a debt deflation trap: nominal policy rates cannot fall below zero and thus monetary policy becomes ineffective. We are already in this liquidity trap since the Fed funds target rate is still 1 per cent but the effective one is close to zero as the Federal Reserve has flooded the financial system with liquidity; and by early 2009 the target Fed funds rate will formally hit 0 per cent. Also, in deflation the fall in prices means the real cost of capital is high – despite policy rates close to zero – leading to further falls in consumption and investment. This fall in demand and prices leads to a vicious circle: incomes and jobs are cut, leading to further falls in demand and prices (a deflation trap); and the real value of nominal debts rises (a debt deflation trap) making debtors’ problems more severe and leading to a rising risk of corporate and household defaults that will exacerbate credit losses of financial institutions.

damn. roubini’s expectations keep getting worse. ‘course he warned congress in october that they must act immediately. i understand they are considering his advice very seriously. /s

guess i better quit, since i’m the only one going to be reading my own links….

LOL well some of us read them.

though i was alone down here just muttering to myself. *g*

Someone remind me why Obama picked Geithner (a Paulson sidekick) for Treasury and Bob Rubin (who along with Alan Greenspan enacted the deregulations which have put us in our present financial mess) for an advisor.

A little birdie told me that in fact Ms. Bair does not play nice in the sand box.

But I think that the significance of this beef is that the turf she happens to be defending is an interface of government and Main Street, while Geithner, who I agree is a Rubin/Summers stand-in, represents the casino monetarism of the FIRE interests on Wall Street.

I’m pretty much a neanderthal when it comes to economics, but I read this on Roubini’s opinion of Obama’s picks, including Geithner…

http://www.newsweek.com/id/170712

Thoughts, experts?

My problem with Geithner, Summers, Rubin, etc. is they are the ones who brought us this mess. They represent the rich. The rich Hooverites don’t actually mind the cleansing effect of a hard recession/depression. They will always only propose solutions like corporate tax cuts and spending cuts ( which would make things worse as the govt is the spender of last resort)

I think its possible this is what they have wanted for sometime. The idea of starving the beast has permeated their thought processes for a long time. Remember these are the people who think the constitution was lost since FDR’s time ( Commerce clause based congressional lawmaking ) The history of the US includes a number of deflationary periods (1873 was particularly vicious) Their ancestors where not part of the 25 % unemployed, evicted, foreclosed on, and otherwise beaten down in the 1929-1933 time period. Even though there are “liberal” and “conservative” economists saying we need a big stimulus, economics also has a political dimension.

Another small mater here is that if Obama pulls off an economic miracle then GOP is not only a rump party buy officially toast. They will do almost anything to prevent BO from having a good term so they have something to run on in 2010 and 2012. Don’t expect the honeymoon to last very long. And with Conservative Dems in the senate don’t expect much to pass very quickly mandate or no.

I think we are screwed, hope to be proven wrong though.

bille

Roubini’s prescription in the linked article is:

‘First the fiscal stimulus [this is Krugman’s mantra], because the troubled economy is in a freefall, so we really need to boost aggregate demand, and the sooner and larger the better. The second thing they should do is recapitalize the financial system.’

My (non-expert) take is that the stimulus, which is supposed to be aimed at Main Street, and is opposed by BushCo, doesn’t have sufficient support in the present Congress, and possibly won’t in the next one. And we can’t assume that Rubin/Summers/Geithner (& Obama?) will support a stimulus on the scale that Roubini/Krugman say is necessary to rescue Main Street. (Rubin vetoed Clinton’s first term public works promises, declaring that priority had to be given to reducing Reagan’s deficits.)

‘Recapitalizing the financial system’ is what Rubin/Summers/Paulson, etc (& Obama?) are all about. Despite Wall Street’s recklessness, insolvency, dishonesty, and self-dealing, our reigning economic theory dictates that we must re-prime the pump with unlimited public money, and re-start the trickle-down.

Good link here:
http://www.huffingtonpost.com/…..48614.html
FINALLY!

I hope not