As expected the Labor Department has released employment report for November and it is dire. Employers laid off 533,000 workers last month raising the unemployment level to 6.7% its highest level since 1974. Secretary of the Treasury Paulson believes unemployment could rise to 11% before this is through. I recall a Risk Rap post from 5/1 that quoted Paulson saying that we were half way through the economic slowdown. If Paulson’s past prognostications concerning the duration of the recession matches his assessment of its severity I fear that an 11% unemployment rate might just be a best case scenario.
This should have all the lights on Capitol Hill and in the nations corporate board rooms flashing red. This is truly a hair on fire moment. But as the country floats along in the existential netherworld of the Bush/Obama interregnum, America’s economy is in a free fall, rudderless and bereft of any leadership. Our leaders see the flashing red lights but they are more concerned with “free market” political posturing on the right and “big business bashing” on the left then getting down to the business of fixing a very broken a listless ship of state.
First order of business is too expeditiously lineup a credit facility for the Big Three auto makers. That will send a powerful message that America is dedicated to its workers and the country’s future by supporting and encouraging its manufacturers to reaffirm their preeminent position as world class providers.
You tube video: Bing Crosby, Brother, Can You Spare a Dime
Risk: depression, unemployment, government policy
I always thought the quote “Whats good for General Motors is good for America.” was a vile admission that the rights and interests of individual citizens was subservient to the vested interests of corporations. I always thought this was uttered by Calvin Coolidge or Herbert Hoover, the historical poster boys of an out of touch presidency intellectually immune and emotionally removed from the pain and troubles of the working class. Happily ignorant or seemingly unconcerned of a country slipping into a paralyzing depression while they whistled past the grave yard.
More recently the voices of average citizens have again been raised to decry the power and privilege of special corporate interests. They buy access and favor through the deft abilities of well compensated lobbyists and generous financial contributions by the monied interests to encourage politicians to adopt their world view. America’s economic and political history is a sometimes sordid, sometimes splendid tale of the restive relationship of labor and capital and how their respective political interests are made manifest in our laws, policies and programs that emanate from Capitol Hill.
Since at least the beginning of this year we have been barraged with prognostications of a catastrophic economic collapse. The Federal Reserve and Treasury Department have moved with dispatch to bolster bank capital to assure that liquidity and confidence in the banking system is protected. The EESA and TARP responded to the capital formation needs of banks. Most legislators supported EESA even though it only had tepid support by taxpayers. But the deal went through because we were told that if we failed to pass the bailout legislation for banks our nation would be swallowed by an economic black hole. Paulson’s defense of the TARP and its strategic transformation will be covered in subsequent posts but this authors skepticism of the TARP and Paulson’s intention is on record. The TARP and EESA are temporary short term liquidity fixes to frozen credit and capital markets. Supporting and protecting manufacturing is how the US will transition its bankrupt merchant capitalism to an economy based on the manufacture of value capable of long term sustainable growth.
So today we go on record in support of a Federally mandated capital infusion and formation initiative for the automotive industry. As we have previously stated the dismantling of our countries manufacturing infrastructure lies at the root of our current economic dilemma. We advocate acceptance of The Hamilton Plan to address economic recovery and long term sustainability of the US economy. Manufacturing is the bedrock of recovery and the Federal Government needs to encourage the formation of capital clusters of all stakeholders to incubate support structures that will accelerate the recovery of manufactures. The support program is not about writing a blank check to an industry that is badly managed. The automotive recovery plan needs to recognize, aggregate and focus all forms of capital to address this rapid deterioration of our ability to create value through manufactures.
The Hamilton Plan advocates that the Treasury Department form an SME Development Bank to encourage manage and administer the capital formation required to address a GM turnaround. The recovery proscription will need capital, cooperation and political will from all parties. Those include, government, business, labor, social service and academic institutions. The need to support manufacturing is paramount if we hope to recover from structural economic malaise. The failure of GM would have a profound impact on the fiscal, physical and psychological health of the US economy and its citizens. In this instance what is good for GM is not only good for America but it is vital for its survival.
We will offer a more detailed outline in future posts.
You Tube Music Video: James Cotton, Rocket 88
Risk: manufacturing, recession, unemployment, sustainability
“The People, Yes!”
The economic recovery program is creating new acronyms faster then Hank Paulson can spend a $100 billion of taxpayers money.
This is an modest attempt to develop a glossary of acronyms so taxpayers can keep track of where, how and who is spending the dough.
EESA: Emergency Economic Security Act
TARP: Toxic Asset Recovery Program
VEPP: Voluntary Equity Purchase Program
LIBOR: London Interbank Overnight Rate
FDIC: Federal Deposit Insurance Corp
SEC: Security Exchange Commission
The US passed EESA to legalize TARP and VEPP to lower LIBOR so the FDIC and SEC can help banks get us out of this xo#*!&^ mess.
You Tube Video: Carl Sandburg: The People Yes!
Risk: language, communication, humanity
It seems they clinched the TARP deal. (Troubled Asset Release Program). Paulson’s Ark the USS TARP is about to leave port. Our elected representatives have christened the USS TARP with a $700 bn bottle of Christol. The USS TARP will immediately set sail to conquer the intrepid sea of bad debt and clean up massive pools of dirty US banking assets. We wish the USS TARP great success and offer our prayers for a successful dispatch on its maiden voyage.
The launch of the USS TARP was the result of a strange and unexpected political alchemy. Democrats took the lead in the bailout bill and are now the official party of the big money on Wall Street. If the USS TARP fails to conquer the calamitous economic seas severe partisan warfare will surely plague our nation and threaten to swallow it in a swirling whirlpool of political instability.
If Obama wins the election and if the USS TARP grounds itself on the troubled shoals of the global economy; he will be the focus of scorn, derision and vitriolic invectiveness by Country Firsters. It will make effective governance by Obama’s Administration difficult if not impossible. I can already hear the first taps of the syncopated drum beats of divisiveness by the howling yodelers of Country First Talk Radio. Their aim will be to cripple the possibility of civil political discourse. Country Firsters will closely chart the progress of the USS TARP and will loose a fusillade of political attacks if it starts to take on water. They’ll certainly refuse to help man the pumps to prevent the USS TARP from swamping. No doubt they’ll be first to launch the life boats as Country Firsters quickly become Me Firsters.
The Country Firsters will look to repeat the vitriol imposed on the Clinton Administration. The extreme Rovian attack politics on Clinton’s sexual dalliances put this country through an unnecessary national trauma. The Monica Lewinsky affair distracted the Executive Branch from focusing on the pressing issues confronting the nation. This distraction made it impossible for Bill Clinton to focus on terrorism, the economy, social welfare and national security. Our Country Firsters were only too willing to back burner these critical national security issues to prosecute Clinton. This sorry chapter in our nations history contributed to our country’s unpreparedness that lead to the devastating losses from the 9/11 attacks.
Constitutional democracies need consensus to function. If consensus cannot be achieved democracies cannot survive. Consensus is built with dialog, trust, honesty and compromise. If our nation cannot form consensus due to our inability to communicate and negotiate a democratic republic cannot function. If democracy cannot function authoritarianism and fascism will be the bastard incubus born from our political impotency.
Patriots will serve their country first. All Americans must rise to serve our country first, last and always.
God Speed USS TARP.
Music: Beach Boy’s “Sail On Sailor”
Risk: depression, fascism
On the night John Kerry ceded the election to Bush’s second term, I can still see W smirking while his smiling brain, Karl Rove looked on with smug satisfaction. Opined Bush, “I earned some political capital and I’m gonna spend it.” Spend it he did and his administration has nearly bankrupted the trust, treasure and security of this country.
As the United States limps to the blessed close of 8 years of the Bush Administration and the rule of a party that professes a disdain for government while demonstrating a striking ineptitude for governance; American’s are left holding a massive bag of bad debts reaping the painful yields of much squandered political and economic capital.
The regime that has refused to govern has left the door unguarded. Making it possible for a clique of collective interests that has the will, intelligence, verisimilitude and motive to take the reigns of state and to guide it in a dire hour of need.
Paulson’s bank bailout might just be a bloodless putsch of financial elites led by an alumni of investment and merchant bankers and their well placed confederates. The monied interests who have enriched themselves by gorging at the public troughs creating unfathomable pools of wealth for themselves are now trying to seize the country as their grandest prize. To be sure they remain hungry for returns, crave capital preservation and see the crisis as a great investment play to enlarge their riches. They smell the stench from the stinking corpse of the US banking system and are looking to claim the opportunity of a lifetime. They will go to great lengths to achieve their objectives. They are ready to employ economic blackmail to extort a massive tribute from multiple generations of US taxpayers to finance a takeover of the banking system.
This is the triumph of state capitalism. It is a similar model utilized by China, the EU, OPEC and other countries practicing the fine art of a state managed economy. This is not socialism. If this where socialism, all American’s would be receiving stock certificates and purchase warrants in the companies the Treasury is looking to finance. That is not in the cards. China is managed by a class of technocrats embedded in a centralized political party. America will now be ruled by a class of managers employed by Americas financial services whose sole goal is to maximize shareholder returns.
Is this a grand fleecing of America? The powerful and well placed are raiding the public treasury to fix past mistakes of their making and to bankroll their next bold move. When the state assets of the former Soviet Union were privatized, a class of oligarch’s arose out of the depths of the CCCP to seize control of them. The bank bailout is an event that bears similar characteristics. In Russia the private sector took control of state assets expropriating state ownership. Our bank rescue plan will provide US Treasury assets to the private sector so they can recapitalize and buy distressed bank assets on the cheap. No doubt sometime in the future, these privateers will be lauded by our elected officials as capital market heroes who single handedly rescued America by rationalizing the banking system.
Under normal circumstances the public trust would be secured by the social compact we have entered into with our Federal Government. Tragically, our three branches of government have all failed in their fiduciary duty to protect and serve the interests of American citizens. Special interests, ideologies, privilege and the rights of the stronger has trumped and crushed the will and interest of “We the People.” We are a representative democracy; republicans all, who believe in the democratic ideal who freely give our informed consent to be governed in exchange for the protection of public interest. This trust has been grievously violated. Our consent needs to be revoked.
Chris Dodd the Senator from Connecticut emerged from a weekend meeting with his head shaking. Said Dodd on the need to bail out the banks, “they painted a picture that was absolutely frightening and devastating for America. We must do this deal.”
The monied interests are holding the promise of America hostage. They say if we don’t comply with their demands, we will not be able to send our children to school, our retirement system and social security program will collapse, interest rates will go to double digits causing a cascade of mortgage defaults and bank failures. There will be anarchy in the streets. Sovereign Wealth Funds and other well heeled global investors will liquidate their holdings in US Treasuries and place the Federal Government in default. We’ll be no better then a banana republic.
It all looks very suspicious. Hank Paulson fully in control at the US Treasury making major moves to drastically alter our nations books and ledgers. Robert Rubin, former GS Chair and current well placed executive at Citicorp is now seen escorting Barack Obama no doubt offering real time sage advice. Jon Corzine, Mike Bloomberg and Governor Paterson are all bewailing the pending doom state and city budgets will suffer. State governments all over the country are growing more concerned each day as tax revenues fall, expenditures increase and the angst of American’s grow.
I’m having a hard time with this one. If its only about writing that $1 Trillion check to acquire a bunch of worthless assets I’m down with it. It’s only funny money anyway. Whats another $1T on a Federal debt of $11T. But this rescue plan serves a special interest more then it serves the general good of the common polity. As Alexander Hamilton taught us, debtor nations cede political liberty. It is unconscionable to saddle our country with this debt burden. Doing this deal will bind future generations to cover an obligation that condemns them to a life of indentured servitude.
This is not the way of free people. There is a better way.
Music: Bertolt Brecht’s Alabama Song Performed by The Doors
Risk: Democracy, Federalism, Free Markets, Debt, managed economy, state capitalism
Hank Paulson, the Senate and Congress are taking earnest steps to hammer out an agreement to create a super fund to acquire toxic bank assets, package them up, securitize the assets and release them in global secondary markets.
The program, Fund for Asset Remediation of Toxicity (FART) is requesting $700 billion dollar capital infusion from taxpayers. Paulson and leading members of the legislative branch of government are pumped to get a deal done and leading democrats are smelling sweet success of pushing this major legislative action through.
Though bipartisan support is strong some republicans are getting a whiff of potential problems in the plan. Tennessee Senator Jim Bunning, says the deal stinks and he won’t support socialists and communists running the Treasury Department. Says Bunning, “We won the cold war. We beat them. Why are they imposing their stuff on us. This reeks to high heaven.”
As part of the deal a special entitlement rider was added to the bill. All banks who participate in the FART program will be required to provide odor eaters to all new loan applicants to make sure that they are comfortable with the terms and conditions of the loan agreement.
Sarah Palin thinks she smells a rat. She said she’s oiling up her 22 and will shot on sight any rat or any rascally critters that will skunk the deal.
McCain and Obama were unavailable for comment at press time.
Music: Loudon Wainwright 3rd, Dead Skunk in the Middle of the Road
Risk: Taking things to seriously
He’s been hunkering down in some fox hole all summer as the economic storm was raging through the global banking and capital markets system. Keeping his head low and his powder dry. Every once and awhile he would lift his head to survey the wreckage in the credit markets. He would enjoy the Beijing Olympics and offer prayers to the Gods of Commerce in the hope that his tax rebate program would provide the stimulus to kick start an economy droning to a halt.
When pressed to comment on the deteriorating balance sheets and financial conditions of his GSE problem children Fannie and Freddie, Paulson with all the sternness of a father committed to the practice of tough love would say, “I have a bazooka in my bag of tricks and if I have too I’ll use it.” Well Paulson fired his bazooka this weekend and it blew Fannie and Freddie into the protective conservancy of the Federal Government. Tough love indeed.
Though the action will wipe out current equity holders of the GSE’s the overall equity markets are responding favorably. This is probably a good time to sell.
Sovereign Wealth Funds, Central Bankers and large institutional holders of debt securities and bonds welcome the action and are signaling that with the Fed’s interventionist policy protecting any downside risk will once again begin to invest in US banks to shore up solvency and maintain liquidity in credit markets.
Investment bankers are lining up lunches with bank CEO’s and private equity firms to stoke the M&A fires and perform a vital national service of rationalizing the US banking system.
Lastly the nationalization of Fannie and Freddie will create lots of grain for the political gristmill for the presidential election.
TBTF, socialism, activist Feds, Wall Street vs. Main Street, big business vs. the little guy are all of the political platitudes and cliches that will be bandied about. Senator Jim Bunning from Tennessee called Bernanke a socialist after the bailout of Bear Stearns. Bunning will be calling the Treasury Department the Polit Bureau West after this move.
This is state capitalism. The United States is moving ever so closer to the economic model of China.
Song: The International
Risk: credit markets, liquidity, housing market, recession
According to Paulson “we are closer to the end of the credit crisis then to the beginning.” He surmises that we are about half way through an 18 month cycle. If the Credit Crises were a baseball game we would be in the bottom of the 5th. Ideally would be sending our best hitters “the sweet spot in the lineup” to face a measly rubber arm that is running out of steam. “Ideally” being the operative word.
We just escaped a quarter of .6% growth in our GDP. Paulson believes that the only reason any growth occurred at all was that manufacturers built stockpiles and increased inventory. Apparently had that not occurred the US economy would have experienced negative growth.
Yesterday ADP reported that April employment in the service-providing sector of the economy grew 64,000, while employment in the goods-producing sector declined 54,000, the seventeenth consecutive monthly decline. Manufacturing employment fell 26,000 in April and marked the twentieth consecutive monthly decline.
What gives me pause is ADP’s assertion that manufacturing employment has fallen for 20 consecutive months. It’s not news to anyone that the manufacturing base of America continues to dwindle but if manufacturers did not “build up inventories and stockpiles” during the past quarter the US economy would not have grown at all because service industries can’t build inventory. So at least for this quarter American factories and a little dollop of inflation saved the day. Hoping that the credit crisis doesn’t go into extra innings we still got 4 and a half innings to go.
Banks will not be lending to build commercial space and new housing construction probably won’t pick up until later in the year when the excess inventory is worked out of the market. That leaves manufacturing as the strategic economic engine to get some base hits, put runners in scoring position and start putting some runs on the board.
Automakers can provide some leadership but their earnings continue to be anemic. We need them to get out of their slump. The economy needs this industry to hit the ball well. Automakers can become a locker room leader that manufacturers can look to for indications of forward traction and a restored sense of confidence. The bad news is that banks will not lend capital to manufacturers to build inventory. The better news is that the weak dollar is a good and present helper to manufacturers that export goods. It is the national interest of the US to promote the growth and stability of the global economy. Brand America needs to reposition itself as a promoter of peace so we can win the war against recession at home. We only have a few more innings to win this game.
You Tube Video: Eddie Vedder, Take Me Out to the Ballgame
Risk: Recession, Manufacturing, Banking, Credit, Employment
O the wild charge they made!
All the world wondered.
Honor the charge they made,
Honor the Light Brigade,
Noble six hundred.
Charge of the Light Brigade
Alfred Tennyson, 1870
Today the Department of Treasury is sending out its economic stimulus checks to the US taxpayers. Each taxpayer will receive a tax rebate of $600 with additional amounts of $300 paid for each household dependent.
As a taxpayer I welcome the small relief from the burden of excessive taxation. As a business owner, I welcome the infusion of money into the economy with the hope that some of the dollars will find themselves into our corporate coffers. Though many deride the amount as just a small token, (after all what can one do with $600?) when viewed in the aggregate we are taking about a major cash infusion into the slowing US economy.
Sounds great but these types of financial gymnastics of our “managed economy” can in the long run produce some ill effects that will prolong and deepen economic malaise that we are all looking to avoid at any cost. In classic economics, pumping money into an economy is highly inflationary. Lots of money chasing goods drives prices up. This is happening on a global scale. In the case of the US dollar, more dollars in circulation will put additional pressure on the value of the dollar and may drive it lower.
This could be the Treasury Departments objective. The package will help to reset market driven interest rates, stimulate consumer demand at home and make US exports more attractive because of a cheap dollar. This might work but some think the cure is worse then the illness. The fear that the economic stimulus will spark an acceleration of inflation and add to the massive budget deficit of the Federal Government is real. Many critics are suggesting that the stimulus package is borne more from political expediency that does not address the systemic and structural issues that lie at the root of the countries current economic problems like shrinking manufacturing, crumbling infrastructure, wasteful spending, unfunded budgetary commitments and misplaced investment priorities.
So as Americans eagerly wait for the merry mailman to arm them in the current war against recession, General Paulson will be watching to see how his armies perform on the battlefields of the Malls of America.
Sony Hi Def TV’s to the right
Life Good GPS in front of me
Black berries in the rear..
Rode on the $600…
Risk: inflation, behavioral, consumerism, deficit spending, interest rates
Our heads continue to spin as events unfold in the global credit crisis. Investment and central bankers are doing a two step tango to temper reeling capital markets, restive politicians and the growing concern and confusion of citizens.
The corporate emissaries of Merrill Lynch, Morgan Stanley, UBS and Citibank goes hat in hand to the Sovereign Wealth Funds of Singapore, Abu Dhabi, Kuwait and The Peoples Republic of China. They dive head first into these giant liquidity pools to refresh their credit worthiness in the hope that by pouring many billions of dollars of equity capital into their porous balance sheets corporate solvency and national prosperity will be assured.
Remember how Lou Dobbs howled when the Emirates tried to buy the service contract for American shipping ports. I don’t believe I’ve heard a negative word from any of the isolationists about the same interests cornering the American banking market. I’m scratching my head.
The bluest of blue, blue chip private equity firm Carlyle gets a margin call from its broker while Fed Chairman Bernanke arranges a shotgun wedding between Bear Stearns and JP Morgan offering JP a sweet dowry of loan guarantees to take the plunge. I thought the world was ending.
By yesterday things were looking up a bit. Charlie Schumer gave Bernanke high marks for tempering his comments during his testimony to the Senate Banking Committee for his discretion on failing to betray confidences culled from secret discussions and brokered deals going on in the world’s central banks boardrooms. It was our Head of the Fed’s high point of the day and only chance to smile in an otherwise trying day as he squirmed a bit when asked about recession, moral hazards, sub prime mortgage bailouts and other central banking boog -a-lous.
I thought I even saw him shudder a few times as he considered his lonely position as the lender of last resort and grew a bit miffed as he pondered what an activist Fed entailed and how the US is slowly adopting the model of Chinese State Capitalism brought to our shores in the belly of a Trojan horse ordered by Walmart. Why its getting so crazy it almost fills you with nostalgia for the relative stability of the good old Long Term Capital Management days.
Ironically this is all transpiring while the major global banking institutions are preparing to implement the capital accords of the Basel II agreements prior to looming deadlines that never seem to arrive. Basel 2 has been in the works for the better part of this decade and if this current crisis can teach us anything it’s the need to take the funding of risk seriously.
Risk funding is an amorphous and complicated subject. It requires the honesty of objective assessment; unclouded by perceptions and methodologies that are prejudiced by pedestrian transactional, political and cultural interests.
The duality of risk- half opportunity half threat -always dances in a real time dialectic. It’s choreographed by algorithmic tempos noted in the scale of C++. It needn’t be so alien to our business practices nor anathema to unregulated egos of America’s uber free marketers who extol Milton Friedman during times of plenty but are the first ones at the federal trough when the markets are mean. Brother can you spare a dime to fund my misplaced risk, after all I’m too much of a fat cat to fail.
A great example of the failure to fund risk is The Peoples Republic of China. The PRC had a great opportunity to not repeat the historical mistakes the western capitalist economies made during their phase of rapid industrialization. But China seems to be following the same path as the west. They have not made an accurate accounting of the social and environment risks associated with its industrialization and the bill will soon arrive in the form of environmental remediation, health care for its citizen’s and dealing with political and social unrest.
I wonder if this was on Paulson’s Beijing agenda today. This along with scoring some great box seats for him and President Bush for this summers Olympic Games and secure a pledge to up their purchase of govies at the next US treasury auction.
Music: Yo Yo Ma “Brazilian Tango”