RSS Feed for This PostCurrent Article

“IT’S EASY TO FIND FAULT…especially if you’re clueless!!

By Larry Doyle on December 11, 2008 at 10:10 AM in Current Affairs

Given the pressure applied by the general public on elected officials who passed the $700bln dollar TARP (Treasury Asset Repurchase Program) it is not surprising that those very elected officials are now openly critical of Treasury. Nothing like casting a few aspersions to keep the crowd back home somewhat at bay. This statement is not to say that Treasury has not fumbled in certain aspects of this program. That said, as we have tried to highlight here at NQ, there are so many holes to fill that one single, albeit massive, “tourniquet” is not going to cover an entire body riddled with life threatening wounds.

Read here how, “Watchdogs Chide Treasury on Bailout“…

For Congress to think that the economy would see near “immediate” positive reaction to the injection of capital into the system is both naive and ignorant. I am going to guess that most Congressmen failed Economics 101.

IMO Treasury should not have played “whack a mole” but should have proactively highlighted the areas of need throughout the system. In properly managing expectations it is always better to be as comprehensive as possible and simultaneously “under-promise and over-deliver”. Paulson and Bernanke along with Paulson’s boy wonder, Neel Kashkari, have played way too much defense and not enough offense. The risk they ran in this regard, though, is that they may have “spooked” the markets and “scared” the public.

Additionally, Treasury lacks the intellectual capital in terms of sufficiently intelligent and market savvy financial pros to stay ahead of the game. Paulson should have known that right from the get go and “retained” human capital from Wall St. under terms of a temporary contract to stay ahead of the curve.

That said, in defense of the Treasury and the Fed, it has been two months since they received TARP funds. To think that there would be material change in that time frame is the equivalent of expecting the Titanic to be turned around on Park Avenue.

It keeps getting back, though, to the fact that the current situation as well as our future situation under any reasonable economic scenarios highlight the fact that the Wall St. banks are sitting on enormous embedded losses and expected future losses (continued increasing defaults on residential mortgages, credit cards, commercial loans, corporate loans). The money is not flowing through because:

  1. banks need to replenish capital against these losses; and
  2. consumers and corporations have limited demand for credit as they look to pay down debt.

The next plan that is being discussed is truly revolutionary in nature.

Our government has always been financed by the Treasury issuing bonds (fiscal policy) while the Fed monitors and manages the economy via changes in interest rates (monetary policy). In a potentially revolutionary move the idea is being bandied about that for the first time in the history of our country the Federal Reserve would issue long term debt and use the proceeds to aggressively purchase a variety of mortgage, consumer, and corporate assets which would hopefully bring the interest rates for those assets down thus igniting further demand for credit.

The markets think the Fed is proposing this idea given the fact that with the Fed Funds rate already at 1% they have limited “monetary policy” ammo left. The markets also think that there is concern that the Treasury’s deficit has already exploded so far so fast that they need another entity to issue debt.

This seems ridiculous but the Treasury has regularly scheduled debt auctions so given the cash needs, they seemingly need another governmental entity to raise LOTS of cash. Enter the Fed. The commodities market today is taking this proposed plan as a likelihood that the money supply will grow way too fast and thus ignite inflation. To that end, most commodities today are up 4 to 5%. Gold is back over $800.

This story bears watching.

Now if we could just get these Congressmen into a remedial Economics class maybe we might get somewhere.

LD

  • HARP

    The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.

  • CentralMass

    Quis custodiet ipsos custodes?
    “Who watches the watchers?”

    • LD

      Central….absolutely!!! Who is guaranteeing the guarantors??

  • lark

    For Congress to think that the economy would see near “immediate” positive reaction to the injection of capital into the system is both naive and ignorant. I am going to guess that most Congressmen failed Economics 101.

    Now if we could just get these Congressmen into a remedial Economics class maybe we might get somewhere.

    This is your mistake LD, what you lack in your educated view: IBM.

  • jbjd

    OT but… This article on “standing” in federal court appeared in the Philadelphia Bulletin today. Finally, an explanation that clarifies, none of the lawsuits involving BO’s Constitutional eligibility for POTUS has been dismissed on substantive grounds. That is, no court of law has ruled on whether he is a natural born citizen. Read this excerpt from that article.

    Usually, a plaintiff must prove that he is or would be particularly harmed by the actions of the defendant. He must have suffered, or will soon suffer, some actual injury from the defendant. The harm may not be abstract or theoretical. Further, the link between the actions of the defendant and the harm caused to the plaintiff must be demonstrated. Finally, a person lacks standing if a favorable court decision would not guarantee relief for his harm.
    http://www.thebulletin.us/site/index.cfm?newsid=20218735&BRD=2737&PAG=461&dept_id=576361&rfi=8

    Now you know why we have been looking for a member of the military, or the family of a member of the military to file suit; and it has to be before January 20. Because if BO is sworn in as CIC then, the Uniform Code of Military Conduct would likely prohibit questioning his eligibility for office.

    http://jbjd.wordpress.com/

    • lark

      My view is a little different but I believe congruent with your posting.

      We need to allow Obama to swear and take the office of President. Once he does that, because he obviously either lacks the qualification of natural born or has not proven it yet, he assumes full liability for his decision to each and every citizen of the country. Now that’s my view. In other terms, if I was Obama I would not do it – take the office on my own recognizance that I do have the prescribe specific requirement. So.

      After he is President, any citizen that feels the President has harmed him can file a suit against damages he has received from Obama’s decisions.

      I make sense to myself if to no one else.

      • touchet

        Wait a second. It is my belief that once someone becomes president, he is immune to all lawsuits except after impeachment. Thats why impeachment exists. So once BO becomes president, it will take congress impeaching him on the terms that he is not natural born, THEN the lawsuit can take place.

        Why else would Obama be delaying. So once again, we have the supreme court deciding for us what should be a straight forward proceedure. SHOW YOUR BIRTH CERTIFICATE TO A JUDGE!

        I don’t think anything will come of this. Obama’s team will delay long enough to get him into office.

        The reason is simple if you think about it. The government knows already there is question here. They WANT Obama to take office. They NEED him to. Why? To pay off our debt. We are going into Africa and minning there for resources that we will sell to the rest of the world to make up our debt. Its quite simple. With the loss of our economy america needs a strong card again.

        • bob

          No, the reason is: the Constitution doesn’t say what documents prove citizenship.

          Section 301 of the INA [8 USC § 1401] defines the following classes of people as having US citizenship from the time of birth:

          anyone born in the US and subject to its jurisdiction (basically meaning anyone other than a child of foreign government representatives with diplomatic immunity);

          Indians and other aboriginal people born in the US;

          anyone born outside the US, if at least one parent is a US citizen and certain residency or physical presence requirements were fulfilled by the citizen parent or parents prior to the child’s birth;

          • lark

            That means that you believe he was born in Kenya. No? Otherwise why post the INA code. So if you believe he was born in Kenya why not ask of Obama to show papers since his only witness now alive was his Kenyan grandmother. She said he was born in Kenya. Documents are unnecessary according to you.

            So if his mother was a U.S. citizen in Kenya and the INA code says ‘certain residency or physical presence requirements’ then anyone could sue him after he becomes President if he causes them damages to find out if those ‘certain residency and physical presence requirements’ were present at the time of his birth. Or are you going to deny the due process of the courts to us Americans? No of course you wouldn’t.

            Let him take the office as a personal liability act and then sue him for damages if he happens to cause damages. His only scape would be to show he is a ‘natural born’ citizen, thus qualified.

            • bob

              The Supreme Court has turned down an emergency appeal from a New Jersey man who contended President-elect Barack Obama was ineligible to be president because he was a British subject at birth. The court did not comment on its order Monday rejecting the call by Leo Donofrio of East Brunswick to intervene in the presidential election. Donofrio said that since Obama had dual nationality at birth —- his mother was American and his Kenyan father at the time was a British subject —- he could not possibly be a “natural born citizen,” one of the requirements the Constitution lists for eligibility to be president.

              • WildChild

                we figured they would. LOL they haven’t been very strict constructionist when it comes to presidential elections.

              • lark

                They did because there was no point for the suit. Donofrio has had no damages and there is no point on wasting time for nothing.

                Once BO becomes President then (as I understand) if he damages anyone he will have to pay, unless he can prove he is constitutionally eligible for his office.

                If he isn’t then he may exercise his options. Continue to exercise the office and be financially responsible for damages or resign.

    • lark

      If a person who is unqualified to be President because he lacks a Constitutional qualification willfully takes and assumes the office of President then she/he must do something extraordinarily difficult. She/he must not do anything to harm anyone when exercising her/his office. That’s the way I see it.

      • bob

        Don’t stop now. You’re on a roll. Don’t worry about that TARP stuff. Let’s talk more about the birth certificate and the whitey tape and Jon Favreau.

  • fiscalliberal

    Gee – how about the curtesy of staying on topic.

    Just a comment about “Neel Kashkari” in the TARP hearings. My intitial reaction to him is one of distrust or incompetence. His tone of voice is condesending and often talks about “I hear you and we are working on it”. When I was working as an engineer, I reported to bosses and finance people. I never could answer with that level of crap.

    As a minimum I had to talk about status, progress and expected results. No wonder a lot of the Congresspesons were realy ticked at him. In fact Paulson should be there answering the questions. Shame on the Democratic Leadership for not demanding Paulson.

    LD – I think the level of frustration is from the bait and switch. Also hearing from constituents who are trying to get loans. Olso the “no doc” real estate loans really tick a lot of people off.

    Rule number one in something like this is to manage expectations. However, Paulon bait and switching with no explanation raises the level of distrust. Then GAO comes out with a report saying they are not traking the money. It would appear the whole concept of metrics is no something Paulson was planning on addressing.

  • DAB

    I agree with LD that to expect immediate results from TARP is naive. We really should have an election system that outlines exactly what the qualifications/job description of a Congressperson should be and have them fill out a questionnaire as any potential employee should.

    I saw a bit of the Congressinal hearings and they are indeed a colossal waste of time, with everyone grandstanding for the folks back home.

    Thanks LD for your detailed analysis of what is going on financially and adding some clarity to this mess, since confusion seems to be reigning right now.

    • LD

      Thanks for the plug.

  • getfitnow

    Thanks LD

  • Linda C.

    Why are we propping up AIG again? Another 10 billion down some rabbit hole. Has anyone keeping tract of the total? I think half of the TARP money spent has gone to AIG if my memory of the figures are right.

    Why did we let Leehman Bros fail? Didn’t it have to do with there was no hope in saving them no matter how much money we threw at them?

    • LD

      Linda…We,as in all of us, own 79.9% of AIG. The “systemic” risk if the government simply let them fail would be a massive selloff in both equity and bond markets. For that reason and others I remain decidedly cautious on the markets overall. AIG is trying to buy time and sell assets to pay off the U.S> loan. The markets know this and thus the sectors /assets that AIG would like to ssell remain “well offerred” and will continue to remain well offerred. In fact, the pressure of this AIG situation is pressuring the businesses and valuations for other insurance companies.

      In regard to lehman, the government could not save them because there were no other banks or companies that wanted to take them over. It was only a matter of time before they were going down .

  • Choo Choo Magoo

    Thanks for another great article LD. Enjoyed how you lay bare the problem in straightforward, fundemental way. Particularly enjoyed your wack-a-mole analogy on a previous post. The powers that be can not seriously be so lacking in intellegence that they actually think these piece meal money plays will resolve, let alone solve such massive intertwined problems. So one must assume it is willful ignorance once again in play. (Willful ignorance being what got us in such a mess in the first place) And they want us all to play make believe along with them. And if we close our eyes and click our heels and wish very very hard, we will all be back in Kansas and all will be right with our world.

    • LD

      Choo Choo…thanks for the plug. Again, I think the powers that be are concerned about spooking the markets if they lay out more details about just how widespread the losses and problems are. That said, Treasury and Fed are flying all over the place and thus displaying uncertainty which the markets NEVER like.

  • Pingback: Who Did They Think They Were Kidding? : NO QUARTER

  • mary

    Thanks, Larry for an insightful article here. But I’m wondering about bank interest rates and future mortgage rates. Would Obama address the supply or demand side, or is he totally clueless….