Even the corrupt Sen. Dodd is expressing consternation and confusion about the legal authority under which the Administration is acting with respect to the auto industry. The TARP legislation was specifically designed to make funds available to financial institutions, but as with last year's auto bailout, the Obama Administration wants to use those funds for GM and possibly Chrysler. While the Administration will undoubtedly make the same arguments advanced by President Bush (that the Treasury Secretary has broad discretion and that the auto industry has its own lending institutions that qualify), both the Democratic and Republican Congressional leadership seems uneasy about the power grab. I wrote about this the other day, but it does seem that the President and his Administration are intent on imposing their will on the private sector. Rep. Frank is helping them along with his proposal to dictate compensation packages for all employees of any institution receiving federal assistance. I love the new NBC show, Kings, but this is taking the whole life imitating art thing too far.
But, too cheer us all up, Fox Nation has provided us with a new music video to accompany tea party coverage. It's a lot of fun, so link over (I'll upload when Blogger stop freaking out on me) and enjoy.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
29 March 2009
GM's CEO takes the fall - UPDATED UPDATES
GM's CEO, Richard Wagoner, has abruptly resigned at the request of the Obama Administration as a condition of new federal funding. While the recent moves by the Administration toward tighter control of private industry are of great concern, at least this resignation will force some restructuring of the company (along with Chrysler). Of perhaps greater concern, however, is the continued flood of tax dollars to prop up failing industries. The sad truth is that the American auto industry (particularly as centered in Detroit) started failing long before the current recession, and should have restructured themselves years ago. Ford is the closest thing Detroit has to a success story, and that is not saying much.
The newest requests from GM and Chrysler total $21.6 billion, and even before meeting the requirement to present a restructuring plan to Congress, the Obama Administration appears to have promised a new bailout (although a figure has not been named). There is no indication on how far Congress and the Administration are prepared to go with the bailouts, what the final total will be, what the vetting process is, or if there is any kind of a plan whatsoever in place to ensure that the companies will be successful in the end. It all seems a little like fiddling while Rome burns.
UPDATE 1:
President Obama stated today that a short bankruptcy/restructuring period may be necessary for GM and Chrysler, and is giving them a 30-day extension on the original deadline to present a recovery plan. Additional federal funding is the carrot in all of this. Chrysler is also expected to complete a merger with Fiat within that time-frame. The shotgun wedding is being negotiated, in part, by the Administration, with pot-sweetener of $8-$10-billion likely. GM shares dropped like a rock (22.9%) in response to the firing of Wagoner and today's announcement.
UPDATE 2:
One has to wonder if Wagoner is being punished for funneling more GM pac-money to the GOP instead of the DNC. If they had been more like Sores, would he have survived?
The newest requests from GM and Chrysler total $21.6 billion, and even before meeting the requirement to present a restructuring plan to Congress, the Obama Administration appears to have promised a new bailout (although a figure has not been named). There is no indication on how far Congress and the Administration are prepared to go with the bailouts, what the final total will be, what the vetting process is, or if there is any kind of a plan whatsoever in place to ensure that the companies will be successful in the end. It all seems a little like fiddling while Rome burns.
UPDATE 1:
President Obama stated today that a short bankruptcy/restructuring period may be necessary for GM and Chrysler, and is giving them a 30-day extension on the original deadline to present a recovery plan. Additional federal funding is the carrot in all of this. Chrysler is also expected to complete a merger with Fiat within that time-frame. The shotgun wedding is being negotiated, in part, by the Administration, with pot-sweetener of $8-$10-billion likely. GM shares dropped like a rock (22.9%) in response to the firing of Wagoner and today's announcement.
UPDATE 2:
One has to wonder if Wagoner is being punished for funneling more GM pac-money to the GOP instead of the DNC. If they had been more like Sores, would he have survived?
18 February 2009
Money Grows on Trees in the Land of Nod
UPDATE:
The GOP is raising important questions about the foreclosure plans.
The Obama Administration apparently thinks that money grows on trees!
Doubling the aid to Fannie and Freddie, propping up failing industries no matter the cost, $75 billion in foreclosure backing (separate from the Fannie/Freddie bailout), a stimulus bill with little in the way of direct stimulus spending - it never ends.
The President has made it clear that this is only the beginning.
The GOP is raising important questions about the foreclosure plans.
The Obama Administration apparently thinks that money grows on trees!
Doubling the aid to Fannie and Freddie, propping up failing industries no matter the cost, $75 billion in foreclosure backing (separate from the Fannie/Freddie bailout), a stimulus bill with little in the way of direct stimulus spending - it never ends.
The President has made it clear that this is only the beginning.
24 November 2008
Bailout kings
As Pres-Elect Obama looks at a $500B - (by some estimates) $1trillion rescue package, it's important to look at the fundamental differences between idea of an economic stimulus and a 'bailout.' Obama's plan calls for a massive government jobs creation program (2.5 million on government-funded and regulated infrastructure, green-technologies, and other jobs), a large tax credit program, and a rescue of mortgage-holders going down the river. While Obama wouldn't specify numbers in today's news conference (he says he wants his new economic team to propose to him first), one thing is certain. A stimulus of this size would create a massive deficit and long-term debt, far beyond what we're looking at already. Obama acknowledged this fact in his news conference, but made not commitments as to how this debt would be dealt with, other than the shop-worn promise to look at the budget line-by-line. I don't think he's going to find $2 trillion (an estimate of all of the stimulus & rescue packages combined) to cut from the budget, so several generations are going to be footing this bill. He seems to have moderated his position on eliminating the Bush tax cuts somewhat, hinting that they may be allowed to expire on schedule rather than be eliminated.
Obama was asked about what he thought of the Citigroup bailout and proposed rescue of Detroit, and managed to dance mightily around these questions as well. In case you haven't turned on the news in the last couple of nights, Citigroup lost over half its stock value in less than a week after investors decided they were probably exaggerating the stability of their positions. The government promised to guaranteed a $306-billion loan package, which made Wall-Street happy, but may or may not be of long-term benefit. Sec. Paulson seemed uncertain of why this bailout will work in the long-run, and gave the same basic explanation provided with the AIG rescue - too big to fail. Probably true, but it's a bit disconcerting when there seems to be no clear plan for execution and success. Obama seems to think that as long as it looks like it could be successful, it's worth trying.
When Obama was asked about the Detroit bailout, he took the Nancy Pelosi line of 'we can't let them fail, but they need a good plan.' The Guardian had an interesting look at this on Sunday, comparing the successful rescue of Chrysler in the 1980s with the failed rescue of the UK's Leyland auto company which involved a government takeover. Two important facts jumped out of that article: in the case of Chrysler, Lee Iacocco was an expert who had already cleaned house and made an intensive restructuring plan before coming to Congress for the loan; the Leyland takeover involved major, intensive government-management of all aspects of the company, dooming it to failure. Neither Congress nor the federal government have good track records of managing much of anything. They need to leave that to the experts in individual fields, and deal with basic governance. My problem with the current proposed rescue is that Congress just promised the big-three a $25B loan in September, and rather than justifying how it will be used and how they'll restructure, the auto-industry is turning right around, hat in hand to ask for more. The auto industry has demonstrated failed planning and structure for years now, and shows no sign of turning that around.
There are certainly economists of all stripes right now recommending a further economic stimulus, but there's a big difference between a stimulus and a bailout. A bailout rescues someone or something, maybe with strings attached, but with no real means of ensuring operational change. A stimulus provides incentives to change, maybe with shot of cash, but leaves it to the market, or the individual, to correct mistakes. A stimulus doesn't make the assumption that government can and should be the major employer, manager and baby-sitter of record. That's just what the packages on the table will do - seems like a bailout to me.
Obama was asked about what he thought of the Citigroup bailout and proposed rescue of Detroit, and managed to dance mightily around these questions as well. In case you haven't turned on the news in the last couple of nights, Citigroup lost over half its stock value in less than a week after investors decided they were probably exaggerating the stability of their positions. The government promised to guaranteed a $306-billion loan package, which made Wall-Street happy, but may or may not be of long-term benefit. Sec. Paulson seemed uncertain of why this bailout will work in the long-run, and gave the same basic explanation provided with the AIG rescue - too big to fail. Probably true, but it's a bit disconcerting when there seems to be no clear plan for execution and success. Obama seems to think that as long as it looks like it could be successful, it's worth trying.
When Obama was asked about the Detroit bailout, he took the Nancy Pelosi line of 'we can't let them fail, but they need a good plan.' The Guardian had an interesting look at this on Sunday, comparing the successful rescue of Chrysler in the 1980s with the failed rescue of the UK's Leyland auto company which involved a government takeover. Two important facts jumped out of that article: in the case of Chrysler, Lee Iacocco was an expert who had already cleaned house and made an intensive restructuring plan before coming to Congress for the loan; the Leyland takeover involved major, intensive government-management of all aspects of the company, dooming it to failure. Neither Congress nor the federal government have good track records of managing much of anything. They need to leave that to the experts in individual fields, and deal with basic governance. My problem with the current proposed rescue is that Congress just promised the big-three a $25B loan in September, and rather than justifying how it will be used and how they'll restructure, the auto-industry is turning right around, hat in hand to ask for more. The auto industry has demonstrated failed planning and structure for years now, and shows no sign of turning that around.
There are certainly economists of all stripes right now recommending a further economic stimulus, but there's a big difference between a stimulus and a bailout. A bailout rescues someone or something, maybe with strings attached, but with no real means of ensuring operational change. A stimulus provides incentives to change, maybe with shot of cash, but leaves it to the market, or the individual, to correct mistakes. A stimulus doesn't make the assumption that government can and should be the major employer, manager and baby-sitter of record. That's just what the packages on the table will do - seems like a bailout to me.
19 November 2008
The Dems Shop 'til We Drop
You have to love the 'audacity of hope' among the Congress and the big-three auto companies. Despite massive resistance nationally, and among many Congressional Republicans and the White House, they are pushing not one, but two competing plans to bail out the auto industry. Wagoner's testimony not-withstanding, the auto industry certainly doesn't deserve the bailout. They've already been bailed out on several occasions, and have continued to waste resources and time. The only ad that was on t.v. for Chevy over the past two weeks was for, you guessed it, a big-ole truck. The industry still doesn't seem to understand that it has dug its own grave and is now heading for the earth's molten core.
Don't get me wrong. It is very clear that bankruptcies among the major auto firms (as GM now claims it is heading for despite claiming adequate cash reserves and predicting a recovery just two months ago) will have a tremendous impact on the economy. But the big-three have become like that annoying uncle who's a hapless (and bad) gambling addict. They just keep coming back for a little more, swearing that this time they'll straighten up and fly right. And if you believe that one, there's a really cool bridge waiting for you in Brooklyn. Mitt Romney is right: bankruptcy is the only thing that will straighten out the industry. Whatever survives will emerge stronger, leaner and ready for competition. That's a much better scenario than the addicted uncle spending the nights on your couch, and it's a whole lot better than bailing him out again and again. Then again, Barney Frank and Harry Reid seems to find the uncle endearing. Maybe they can shop for a new couch on their own - mine's full up and I hate shopping.
Don't get me wrong. It is very clear that bankruptcies among the major auto firms (as GM now claims it is heading for despite claiming adequate cash reserves and predicting a recovery just two months ago) will have a tremendous impact on the economy. But the big-three have become like that annoying uncle who's a hapless (and bad) gambling addict. They just keep coming back for a little more, swearing that this time they'll straighten up and fly right. And if you believe that one, there's a really cool bridge waiting for you in Brooklyn. Mitt Romney is right: bankruptcy is the only thing that will straighten out the industry. Whatever survives will emerge stronger, leaner and ready for competition. That's a much better scenario than the addicted uncle spending the nights on your couch, and it's a whole lot better than bailing him out again and again. Then again, Barney Frank and Harry Reid seems to find the uncle endearing. Maybe they can shop for a new couch on their own - mine's full up and I hate shopping.
12 November 2008
Fluidity: The Ever Changing Bailout Plan
Henry Paulson defended himself before Congress today, arguing that the original concept of the bailout plan (excuse me, economic recovery plan), which largely involved buying up 'toxic securities' (tied to unknown amounts of bad mortgages), is no longer the best solution to the credit and financial crises. Paulson now argues that $700 billion in tax dollars should be used to buy partial ownership stakes in the banks themselves. Nationalization of banks in the good 'ole USA? The idea boggles the mind. Perhaps it'll mean better management; at least AIG won't use any more of the loan to take its Exec's on nice spa trips; but I can't help thinking that this trip down socialism's memory lane it just going to keep getting darker.
In the meanwhile, AIG is getting another $40B, while American Express convinced the Fed. to allow them to become a real bank in record time, which may now use that status to request a share of the pie. And to top it all off, the Dynamic Duo of Henry Reid and Nancy Pelosi, backed by that happy socialist, Barney Franks, is demanding to bailout the auto industry, mortgage-holders, and just about anything not nailed down, while increasing spending at an enormous pace, deficit-be-damned.
Most of us are sensible enough to cut back on spending when times get tough - to be a little more thrifty. Not the Congress. They seem to think that increasing spending, increasing taxes, and taking over private industry is just the ticket to fix the economy. Now where have we heard this before?
In the meanwhile, AIG is getting another $40B, while American Express convinced the Fed. to allow them to become a real bank in record time, which may now use that status to request a share of the pie. And to top it all off, the Dynamic Duo of Henry Reid and Nancy Pelosi, backed by that happy socialist, Barney Franks, is demanding to bailout the auto industry, mortgage-holders, and just about anything not nailed down, while increasing spending at an enormous pace, deficit-be-damned.
Most of us are sensible enough to cut back on spending when times get tough - to be a little more thrifty. Not the Congress. They seem to think that increasing spending, increasing taxes, and taking over private industry is just the ticket to fix the economy. Now where have we heard this before?
08 October 2008
28 September 2008
A first look at a bailout (and potential fallout)
I think I have just as many concerns as I did at the beginning of last week. It looks very much like a plan for Congress and the Administration to avoid their responsibilities in the crisis (including the failure to agree to change the regulatory structure of Fannie & Freddie that Sen. McCain pushed for two years ago), and to protect businesses that failed to meet their fiduciary responsibilities, and to protect individuals from facing their own personal responsibilities. Here's the link (http://www.foxbusiness.com/pdfs/rescuebill_First%20Draft.pdf). You decide.
Wading through Fed. financial rescue plan will take a while, but here's a first look at some sections that jumped out at, and concerned, me.
(5) ensuring that all financial institutions are
16 eligible to participate in the program, without dis17
crimination based on size, geography, form of orga18
nization, or the size, type, and number of assets eli19
gible for purchase under this Act;
20 (6) providing financial assistance to financial
21 institutions, including those serving low- and mod22
erate-income populations and other underserved
23 communities, and that have assets less than
24 $1,000,000,000, that were well or adequately cap25
italized as of June 30, 2008, and that as a result
14
O:\AYO\AYO08C04.xml
1 of the devaluation of the preferred government-spon2
sored enterprises stock will drop one or more capital
3 levels, in a manner sufficient to restore the financial
4 institutions to at least an adequately capitalized
5 level;
Hmmm, there's a good argument to be made that insistence on the part of Congress that financial institutions provide easy-credit mortgages to under-served communities is part of the root of the current problem. Of course, there's also a good argument to be made that individual homeowners should have known better than to take out loans with payment terms that exceeded their income. Either way, should we be bailing out everyone and their brother?
22 (a) ESTABLISHMENT.—There is established the Fi23
nancial Stability Oversight Board, which shall be respon24
sible for—
23 (b) MEMBERSHIP.—The Financial Stability Over24
sight Board shall be comprised of—
16
O:\AYO\AYO08C04.xml
1 (1) the Chairman of the Board of Governors of
2 the Federal Reserve System;
3 (2) the Secretary;
4 (3) the Director of the Federal Home Finance
5 Agency;
6 (4) the Chairman of the Securities Exchange
7 Commission; and
8 (5) the Secretary of Housing and Urban Devel9
opment.
10 (c) CHAIRPERSON.—The chairperson of the Financial
11 Stability Oversight Board shall be elected by the members
12 of the Board from among the members other than the Sec13
retary.
Excellent - a new gov't agency to suck in money and find new ways to spend it.
8 (a) STANDARDS REQUIRED.—The Secretary shall
9 issue regulations or guidelines necessary to address and
10 manage or to prohibit conflicts of interest that may arise
11 in connection with the administration and execution of the
12 authorities provided under this Act, including—
13 (1) conflicts arising in the selection or hiring of
14 contractors or advisors, including asset managers;
15 (2) the purchase of troubled assets;
16 (3) the management of the troubled assets held;
17 (4) post-employment restrictions on employees;
18 and
19 (5) any other potential conflict of interest, as
20 the Secretary deems necessary or appropriate in the
21 public interest.
Does this mean Sen. Dodd and Sen. Obama can no longer get money from Fannie Mae and Freddie Mac. Given that they were number 1 & 2 in accepting funding, and that Sen. Obama has the disgraced former head of Freddie on his team, it might be advisable to look at conflicts of interest among Congress.
1 SEC. 109. FORECLOSURE MITIGATION EFFORTS.
2 (a) RESIDENTIAL MORTGAGE LOAN SERVICING
3 STANDARDS.—To the extent that the Secretary acquires
4 mortgages, mortgage backed securities, and other assets
5 secured by residential real estate, including multifamily
6 housing, the Secretary shall implement a plan that seeks
7 to maximize assistance for homeowners ...
9 (c) CONSENT TO REASONABLE LOAN MODIFICATION
10 REQUESTS.—Upon any request arising under existing in11
vestment contracts, the Secretary shall consent, where ap12
propriate, and considering net present value to the tax13
payer, to reasonable requests for loss mitigation measures,
14 including term extensions, rate reductions, principal write
15 downs, increases in the proportion of loans within a trust
16 or other structure allowed to be modified, or removal of
17 other limitation on modifications.
What, no limits on who gets assistance? Encouraging renegotiation of basic loan terms? I have no problem with limiting packages to departing CEO's who failed to manage their firms and assets well, but this sounds like tough love on one level and a love fest on the other. There's enough blame and responsibility to go around, and everyone should be willing to swallow their medicine. I think we won't do that however. Given the likelihood that we will do something, we all need to read this proposal and give out input to our respective representatives and senators. At least the House and Senate GOP leadership is now talking about their acceptance of the proposal, and taxpayer protections.
Wading through Fed. financial rescue plan will take a while, but here's a first look at some sections that jumped out at, and concerned, me.
(5) ensuring that all financial institutions are
16 eligible to participate in the program, without dis17
crimination based on size, geography, form of orga18
nization, or the size, type, and number of assets eli19
gible for purchase under this Act;
20 (6) providing financial assistance to financial
21 institutions, including those serving low- and mod22
erate-income populations and other underserved
23 communities, and that have assets less than
24 $1,000,000,000, that were well or adequately cap25
italized as of June 30, 2008, and that as a result
14
O:\AYO\AYO08C04.xml
1 of the devaluation of the preferred government-spon2
sored enterprises stock will drop one or more capital
3 levels, in a manner sufficient to restore the financial
4 institutions to at least an adequately capitalized
5 level;
Hmmm, there's a good argument to be made that insistence on the part of Congress that financial institutions provide easy-credit mortgages to under-served communities is part of the root of the current problem. Of course, there's also a good argument to be made that individual homeowners should have known better than to take out loans with payment terms that exceeded their income. Either way, should we be bailing out everyone and their brother?
22 (a) ESTABLISHMENT.—There is established the Fi23
nancial Stability Oversight Board, which shall be respon24
sible for—
23 (b) MEMBERSHIP.—The Financial Stability Over24
sight Board shall be comprised of—
16
O:\AYO\AYO08C04.xml
1 (1) the Chairman of the Board of Governors of
2 the Federal Reserve System;
3 (2) the Secretary;
4 (3) the Director of the Federal Home Finance
5 Agency;
6 (4) the Chairman of the Securities Exchange
7 Commission; and
8 (5) the Secretary of Housing and Urban Devel9
opment.
10 (c) CHAIRPERSON.—The chairperson of the Financial
11 Stability Oversight Board shall be elected by the members
12 of the Board from among the members other than the Sec13
retary.
Excellent - a new gov't agency to suck in money and find new ways to spend it.
8 (a) STANDARDS REQUIRED.—The Secretary shall
9 issue regulations or guidelines necessary to address and
10 manage or to prohibit conflicts of interest that may arise
11 in connection with the administration and execution of the
12 authorities provided under this Act, including—
13 (1) conflicts arising in the selection or hiring of
14 contractors or advisors, including asset managers;
15 (2) the purchase of troubled assets;
16 (3) the management of the troubled assets held;
17 (4) post-employment restrictions on employees;
18 and
19 (5) any other potential conflict of interest, as
20 the Secretary deems necessary or appropriate in the
21 public interest.
Does this mean Sen. Dodd and Sen. Obama can no longer get money from Fannie Mae and Freddie Mac. Given that they were number 1 & 2 in accepting funding, and that Sen. Obama has the disgraced former head of Freddie on his team, it might be advisable to look at conflicts of interest among Congress.
1 SEC. 109. FORECLOSURE MITIGATION EFFORTS.
2 (a) RESIDENTIAL MORTGAGE LOAN SERVICING
3 STANDARDS.—To the extent that the Secretary acquires
4 mortgages, mortgage backed securities, and other assets
5 secured by residential real estate, including multifamily
6 housing, the Secretary shall implement a plan that seeks
7 to maximize assistance for homeowners ...
9 (c) CONSENT TO REASONABLE LOAN MODIFICATION
10 REQUESTS.—Upon any request arising under existing in11
vestment contracts, the Secretary shall consent, where ap12
propriate, and considering net present value to the tax13
payer, to reasonable requests for loss mitigation measures,
14 including term extensions, rate reductions, principal write
15 downs, increases in the proportion of loans within a trust
16 or other structure allowed to be modified, or removal of
17 other limitation on modifications.
What, no limits on who gets assistance? Encouraging renegotiation of basic loan terms? I have no problem with limiting packages to departing CEO's who failed to manage their firms and assets well, but this sounds like tough love on one level and a love fest on the other. There's enough blame and responsibility to go around, and everyone should be willing to swallow their medicine. I think we won't do that however. Given the likelihood that we will do something, we all need to read this proposal and give out input to our respective representatives and senators. At least the House and Senate GOP leadership is now talking about their acceptance of the proposal, and taxpayer protections.
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