Now you know I am a huge Yankees fan. I was telling my dear friend Bronwyn’s Harbor about the series, and got her started watching the games. I mentioned that I had a shrine to the Yankees in my living room. She suggested I share it with you, so here it is:

Let me just say, besides the t-shirt, and the baseball, I didn’t buy ANY of those things. My Mets loving cousin was kind enough to send most of them to me. She has an eye for all things Yankees for me. She knows of my deep and abiding love for both the Yankees and their captain, Derek Jeter. The small framed piece is actually a painted feather from Belize that my niece gave me.

I might add, the baseball you can see there was not purchased, either, at least not with money from me. My partner took me to Cleveland for 3 games with the Indians for my 50th birthday (it just happened that they were in Cleveland for the day of my birthday). We were in the section to get autographs during batting practice. That baseball was hit by A-Rod, a screaming foul ball that hit my partner. While it was bad that it hit her, had she not been where she was, it would have hit the very pregnant woman next to her in the abdomen, which would NOT Have been good. Anyway, after batting practice, Johnny Damon came over and signed it for me while my partner was getting medical treatment (no permanent damage, but the bruise lasted for WEEKS. Seriously. It was A-Rod, after all!).

Speaking of Derek Jeter, he has been playing sick the past few days. Not that that has stopped him from hitting a home run, and getting on base in every game, not to mention great defensive plays. He embodies the very best of a Yankees Captain, IMHO.

And in a totally “Entertainment Weekly” kind of way, don’t you think Derek Jeter and the singer, Leona Lewis, would make a beautiful couple? Check them out:

(PRNewsFoto/J Records)

Right?? I know! But, Derek is with the actress, Minka Kelly, and Leona lives with her high school boyfriend. Oh, well, as long as they’re happy…(Don’t worry - this is but a slight foray into Hollywood-style gossip. I’ll be back to political pontificating ASAP.)

Anyhoo - I’m not going to take any chances about the Yankees winning tonight. I’ll don my Yankees away gray t-shirt, put on my Derek Jeter official jersey, grab my Yankees cap, and watch the game with a Diet IBC Root Brewski or Diet Dr. Pepper in hand. Maybe if I play the video below a bunch, my prayers will be answered (major H/T to Nunly at Bad Habit). I warn you, the song may get stuck in your head, but it is SO worth it:

I just hope I won’t be laughing so hard I don’t miss a great play by the Captain, or another home run by A-Rod. And say what you will, but despite some apparent clashing between his new girlfriend, Kate Hudson, and the other Yankees’ wives/girlfriends, he is having the very best post season he has ever had since he started seeing her (h/t to Bronwyn for the link). Maybe he’s just a big Kurt Russell and/or Goldie Hawn fan, and likes having them around, too, since they often accompany Kate. Who knows? As long as he keeps hitting like this, I am happy, happy, happy.

So, you know what I’ll be doing tonight - wishing, hoping, and yes, praying. Hopefully, I’ll be CELEBRATING, too. Then, you know I’ll be at the MLB shop getting my new American League Champions t-shirt to add to the shrine for the upcoming World Series!

Consider this an Open Thread. What’s on YOUR mind today? Maybe that it’s been fifty-four days since Gen. McChrystal;’s recommendations landed on Obama’s desk about Afghanistan? Maybe the economy? Health Care Reform? Whatever it is, have at it!

UPDATE: And No. Swisher, for the second time with runners in scoring position (top of the 9th, bases LOADED), popped up. The series is going back to New York.

Since Neil Barofsky, Special Inspector General for the (TARP) Troubled Asset Relief Program and Elizabeth Warren, Chair of the Congressional Oversight Panel of the (TARP) Troubled Asset Relief Program were guest witnesses, it seemed a good time to get some answers to the $700 billion dollar questions of how well is TARP working and how stable has our economy become.

And, well, you might want to hold off on the champagne.

From SIG Neil Barofsky:

“I think we may be in a far more dangerous place today than we were a year ago,” he said.

As Ms. Warren points out in her testimony:

EESA [Emergency Economic Stabilization Act] listed five specific objectives for TARP: to restore financial stability, protect home values and family savings, promote jobs and economic growth, maximize returns to taxpayers, and provide public accountability.

——

Since EESA was enacted one year ago, the apprehension that pervaded this country has turned into something else: frustration and anger. Taxpayers have committed over $531 billion through TARP, and although there is no doubt that the financial system has begun to stabilize, families are still feeling the pain of rising unemployment, rampant foreclosures, higher bank fees, and limited access to credit.

Today’s fragile stability has come at an enormous cost to the American people. Taxpayers have a right to expect full clarity, full transparency, and full accountability in Treasury’s use of their money. They also have a right to know what has fundamentally changed to prevent this crisis from ever happening again….

From Mr. Barofsky testimony:
On Maximizing Returns to Taxpayers

The progress on meeting the goal of “maximiz[ing] overall returns to the taxpayer” is unclear. While several TARP recipients have repaid funds for what has widely been reported as a 17% profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment. For example, certain TARP programs, such as the mortgage modification program which is scheduled to use $50 billion of TARP funds, will yield no direct return, and for others, including the extraordinary assistance programs to AIG and the auto companies, full recovery is far from certain.

Similarly, Treasury’s original stated goal of increasing lending has not yet occurred, although, as SIGTARP’s recently issued audit on TARP recipients’ use of funds indicates, it is likely that lending from TARP recipients would have decreased far more in the absence of TARP funding.

On Protecting Home Values and Family Savings;
On Promoting Jobs and Economic Growth

…the goals of “preserving homeownership,” “promot[ing] jobs and economic growth” have not yet been met, and the ultimate success of meeting these policy goals will depend on programs that are just now reaching the implementation stage, such as the TARP’s mortgage modification program and the public-private investment funds. In the meantime, the risk of foreclosure continues to affect too many Americans; unemployment continues its rise to levels that Treasury has characterized as “unacceptable”; the so-called “toxic” assets that helped cause this crisis for the most part remain right where they were last fall – on the banks’ balance sheets; and it is becoming more and more clear that the commercial real estate market might be the next proverbial shoe to drop, threatening to increase the pressure on banks and small business alike yet again.

On Providing Public Accountability

“Treasury’s default position should always be to require more disclosure rather than less and to provide the investors in TARP — the American taxpayers — as much information about what is being done with their money as possible. …TARP largely remains a program in which taxpayers are not being told what most of the TARP recipients are doing with their money and will not be told the full details of how their money is being invested.”

More from Ms. Warren:
On Restoring Financial Stability

“The toxic assets remain on the books of the banks. The commercial real estate mortgages are a coming crisis. Small banks are continuing to fail. We were talking a year ago about too big to fail. We are now facing an industry that’s more concentrated than it was a year ago and too big to fail is up on us now in a much larger sense.”

“Until we get down to dirt, to something that’s solid, that we can put our feet on, our financial institutions are standing in a secure place, we can’t rebuild and know that we are safely past this crisis”

“The question about how we’re going to get these toxic assets out of here at a time when the real estate mortgage market is still in trouble and the commercial real estate mortgage market may be getting into more and more trouble – I’m not hearing the plan.”

Then again, the way our government has been working of late, maybe it is a good thing if they don’t have a plan for this.

Clearly Mr. Van Dyk was a huge fan of this President, thought his campaign “superb” and appreciated his promises of “reaching across party and ideological lines to get the public’s business done.” Van Dyk opines:

“You displayed an intellect and sense of cool that made us think you would weigh decisions carefully and view advisers’ proposals with skepticism.”

You know what I get from that phrase? Since the President acted “cool,” some mighty educated people actually believed this to be more than just a pose on his part. Not unlike Madonna’s use of “Voguing” back in the day. Now perhaps they begin to see that a pose has neither to do with governing nor an ability to adapt to the changing realities on the ground.

At that point, Mr. Van Dyk goes off the rails and we see that his blanket approval has come to an end:

The first warning signals for me came with your acceptance speech at the Democratic National Convention. In it, you stressed domestic initiatives that clearly were nonstarters in the already shrinking economy.

He then complains of Obama stocking his White House with “Clinton administration retreads who had learned their trade in the never-ending-campaign culture of the Clinton years.” Again, blame Clinton. But who did Mr. Van Dyk think this man was going to hire? He faults Obama for his “reliance on these Clinton holdovers.”

Your chief of staff, Rahm Emanuel, defined your early strategy by stating that the financial and economic crises presented an “opportunity” to jam through unrelated legislation. To many of us, the remark was cynical and wrong-headed.

The crises did not represent an opportunity. They presented an obligation to do one thing: Return our financial system and our economy to good health.

Does Van Dyk assume any Democratic president would have been this reckless? Hillary Clinton had different health care proposals, different proposals for helping homeowners in this crisis and a much better understanding of the economy. None of her ideas are being utilized, I’m afraid. She just may have exhibited the good sense Mr. Van Dyk longs for and put the financial floor back under us before attempting a more drastic change. But we’ll never know…

Van Dyk discusses Mr. Obama being unfairly compared to FDR & LBJ. Discussing President Johnson’s “Great Society legislation”…

…at every stage, congressional leaders of both political parties and financial, business, labor and other private-sector leaders were consulted. Johnson wanted to assure that his legislation was substantively sound and could get consensus support in the Congress and the country.

Your strategy, by contrast, has been to advocate forcefully for health-care and energy reform but to leave the details to Democratic congressional committee chairs. You did the same thing with your initial $787 billion stimulus package. Now, you’re stuck with a plan that provides little stimulus until 2010. A president should never cede control of his main agenda to others.

President Obama is in over his head, so of course he “outsourced.” Why is this gentleman surprised? Mr. Van Dyk willfully ignores the fact that the biggest culprit here is not a “Clinton retread,” but the Queen Bee herself, Speaker Nancy Pelosi. She crafted the stimulus package behind closed doors and the President willingly allowed her this control. Perhaps that was his devil’s bargain for her help in kicking the ladder out from under Hillary. Republicans were not the only ones to be shut out of the crafting of the Stimulus package. Many Democrats were as well. Van Dyk continues:

This tactic has already had negative consequences. Frightened by the prospective costs of your health-care and energy plans — not to mention the bailouts of the financial and auto industries — independent voters who supported you in 2008 are falling away. FDR and LBJ, only two years after their 1932 and 1964 victories, saw their parties lose congressional seats even though their personal popularity remained stable. The party out of power traditionally gains seats in off-year elections, and 2010 is unlikely to be an exception.

He then offers up a prescription for a fix:

- Cut back both your proposals and expectations. You made promises about jobs that would be “created and saved” by the stimulus package. Those promises have not held up. You continue to engage in hyperbole by claiming that your health-care and energy plans will save tax dollars. Congressional Budget Office analysis indicates otherwise.

It’s time to re-examine these initiatives. Could your health plan be scaled back to catastrophic coverage for all — badly needed by most families, but quite affordable if deductibles are set at the right levels? Should the Rube Goldbergian cap-and-trade proposals be replaced with a simple carbon tax, with proceeds to be allocated to alternative-fuels development?

The evolving health and cap-and-trade bills are loaded with costly provisions designed to gain support from congressional leaders and special-interest constituencies. In short, they have become an expensive mess. This legislation will not clear Congress by the August recess, as you have requested, and could be stalled for the remainder of 2009. Settle for incremental change: Do not press Democratic legislators to vote for something they fear will destroy them in 2010.

- Talk less and pick your spots.

Applause and adulation are gratifying. But the more you talk, the less weight your words will hold. Let voters see you at your desk, conferring with serious people about serious matters. When you do choose to talk, people will understand that it’s important and they should listen.

“Let voters see you at your desk!” Doing some “work.” Great ideas!

- Conform your 2009 politics to your 2008 statements. During your campaign, you called for bipartisanship and bridge-building. You promised to reduce the influence of single-issue and single-interest groups in the policy process. Yet, in your public statements, you keep using President Bush as a scapegoat.

You have ceded content of your principal proposals to Democratic congressional leaders who in large part have yielded to special-interest constituencies and excluded Republican leaders from policy formulation. This certainly was the case with the stimulus plan. It has been the case with health and energy legislation, with the notable exception of Sen. Max Baucus’s attempt in the Senate Finance Committee to develop genuinely bipartisan legislation.

He concludes by telling Obama

“You have an enormous reservoir of goodwill among Americans of all persuasions. They want you to succeed. Level with them and trim your proposals to what is practical in the current environment.”

But ironically, it is Mr. Van Dyk’s closing statement with which I most take issue:

You had things right in 2008. Take a timeout. Get back to yourself. Make a fresh start.

He did not have things “right” in 2008 because there is no “self” to ‘get back to’. His campaign was always “words, just words.”

While I graduated college with high honors, I am no genius, yet I figured this out from my living room couch back in January of 2008. I watched this man at a debate and his “performance” told me everything I needed to know. I then looked at his voting record and the corporate interests with whom he surrounds himself, his addiction to pretty sound bytes and an over reliance on canned speeches rather than a resume that indicated he had worked even on a smaller level to achieve his stated goals. His current proposals are loaded with top heavy payback for special interests that arguably got him elected in the first place. Wall Street has gotten bailed out. Not Main Street. He lives in support of an oligarchy, like his immediate predecessor. If these are true Democratic principles, its the first I’ve heard of it.

The obscene amount of money spent on his inauguration, expensive “dates” and pizza parties and his hiring not less than 30 “czars” all of whom require staff and total salaries in the millions are more accurate indicators of the man than any of his campaign rhetoric.

Like Obama’s other supporters, perhaps Mr. Van Dyk has yet to understand that speeches will never equal governing ability. He too, blamed the Clintons for being “polarizing” as Bush was, but how true is his claim? Clinton passed true bi-partisan legislation. He had to, as he was working with a Republican Congress for 6 of his 8 years and did very well in that regard. But in his case, he also had deep knowledge of the economy and a willingness to reach across the aisle and conform to the existing reality. He certainly left the country in better shape than he found it.

President Obama, by contrast is the “salesman in chief.” That is what the DNC wanted. How is he supposed to pull us back to “reality” with his proposals when he clearly did not have these reasoned intentions in the first place, or a true understanding of how to get us there?

Apparently, Mr. Van Dyk has yet to travel the last mile in his awakening.

Is it even possible to track the massive government outlays across the entire economic landscape? Is it further possible to measure the actual cost of the outlays as a percentage of the overall subsidies? Can we navigate this terrain without getting bogged down in the midst of a thicket of government data and statistics? You have come to the right place.

Subsidyscope has just released a report, entitled Estimated TARP Subsidy Rate Rises, which links to a report from the Congressional Budget Office highlighting all aspects of the TARP (Troubled Asset Relief Program).

Just as “you can’t tell the players without a program” when attending a sporting event, “you can’t track Uncle Sam without Subsidyscope and Sense on Cents.”

What do we learn? Uncle Sam is still holding some TARP firepower. The TARP was launched as a $699 billion capital commitment. If you recall, the TARP legislation was passed as a vehicle to purchase toxic assets from banks. It has moved a long way away from that.

The TARP now covers 4 initiatives:

1. capital purchase and repayments from financial institutions

2. additional support for large financial institutions

3. financial assistance to automakers and related businesses

4. other actions, such as mortgage modification, TALF subsidies, and purchasing securities backed by Small Business Administration loans.

To be perfectly frank, I think it is very plausible that the actual capital commitments and activities ongoing under the TARP may not have met the pure letter of the initial legislation. That said, in an environment in which so many initiatives are capital constrained, there is no real legislative pushback. When was the last time we worried about the spirit or letter of our laws when we had bigger issues concerning money?? Money is more important than legal precedents, correct? We’ll get into that on another post.

On the numbers front:

Of the $699 billion in total capital, $142 billion has yet to be committed. Of the funds already allocated, Uncle Sam has incurred a total cost of $159 billion. What does that mean?

Recall the number of times that government officials told taxpayers that we would make money on investments in AIG and the like. Well, so far we’ve lost $159 billion dollars across all our TARP investments. The loss is calculated as the difference in funds committed and allocated to securities and the market value of those securities. That loss represents 36% of the funds committed and actually allocated.

Not that anybody in the media or the financial industry would want you to know that.

Program, here….get your program….step right up…program, here!!

Enjoy the ballgame, folks!!

LD

Today, Morning Joe had Jim Cramer on to put out Spitzer’s fire. Who’s right?

versus Jim Cramer:

So, WHO IS CORRECT? My money is on Spitzer.

Spitzer, by the way, is a regular columnist these days for Slate.com.

His latest column is “Fed Dread: The New York Fed is the most powerful financial institution you’ve never heard of. And look who’s running it.”

And you ALL know who used to run the New York Fed, right? Yes, one Timothy Geithner. Here’s why the New York Fed is so important, and why it is ethically compromised. From Spitzer’s latest column, “Fed Dread“:

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken—from raising capital to stopping lending—to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.

Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for—but did not receive—harsh examination from the N.Y. Fed.
The composition of the New York Fed’s board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are “public” representatives. …

Here’s more from “Class, Required Overnight Reading on “Toxic Assets”and A.I.G. by Spitzer“:

“There should have been a very different regulatory framework. Not in the sense that we needed more words in the books. We needed more aggressive voices at the SEC, the FTC, the OCC – this welter of federal agencies — people who came to Wall Street and said, ‘Wait a minute. That leverage is crazy’. … [E]verybody derided leverage in public, but in private, participated to the hilt. … This was sort of a disease that got into the bloodstream and the DNA of Wall Street leadership. … The more traditional, old-fashioned investment bankers — you think of Felix Rohatyn, who said, ‘Wait a minute, guys. This doesn’t work’.

“AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued. …

“[A.I.G.'s] fundamental accounting structure was wrong. … [W]e brought a case alleging that they had manufactured false, fictitious reinsurance contracts. … [T]he underlying effort was to create an illusion of financial strength that was not there. … [F]our people have been convicted. …

“[A.I.G.'s problems] stemmed from an effort from the very top to gin up returns whenever, wherever possible, and to push the boundaries [to] garner returns almost regardless of risk. …

“When AIG initially received $80 billion — a decision that was the consequence of a very brief meeting of the president of the New York Fed [GEITHNER], the secretary of the Treasury [PAULSON], perhaps Chairman Bernanke and [some say the] chairman of Goldman Sachs — $80 billion, virtually all of it flowed out to counterparties, $12.9 billion to Goldman Sachs.

“Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions, if we had to pay anything? What would have happened to the financial system, had it not been paid?”

[...]

HOT UPDATE: John Boehner is taking it right to Nancy, proving that “what goes around comes around,” and that Obama just did NOT think through the torture memo “blowback.”

Politico’s Glenn Thrush reports that Rep. Boehner is “asking the Obama administration to release CIA notes taken during a 2002 briefing session with Pelosi and other Congressional leaders.”

Even “Dear Abby” could have given PBO the advice he needed: “THINK!. And make a careful list of the pros and cons, including the possibility you’ll throw your own party leaders under the bus (!). Your MoveOn and Kossack rabblerousers are NOT deep thinkers! Seek the counsel of savvy, experienced men and women.”

Obama’s increasingly heavy reliance on D.C. novice David Axelrod is folly. All Axe envisioned was Republican blood in the water. But Axelrod has NO background — none, zippo! — in Capitol Hill politics warfare. Rahm? Does he think with his gonads or his brain? Methinks that, like Obama, he’s more politician than legislator, and he probably didn’t recall that both Democrats and Republicans attended those intel meetings in 2002. But now it’s too late, the water is bloodied by Democrats and Republicans alike, and here we go:

Boehner is backing efforts by Rep. Pete Hoekstra (R-Mich.), the ranking member on the House intelligence committee, to release agency’s records of meetings with Congressional members from both parties.

The GOP is hoping to spotlight the fact that Pelosi and other Democrats raised few objections when told about details of the Bush administration “enhanced interrogations” of terror suspects.

“Congress and the American people deserve a full and complete set of facts about what information was yielded by CIA’s interrogation program, and they deserve to know which of their representatives in Congress were briefed about these techniques and the extent of those briefings,” says Boehner, backing Hoekstra’s letter to DNI Dennis Blair.

He adds: “To date, the administration has fallen short in providing this information.

Mr. Hoekstra’s request to Director Blair is straightforward, and the information he is seeking is essential. The American people have been provided an incomplete picture of exactly what intelligence was made available by the interrogation program. It is now the Administration’s responsibility to ensure they are given the full picture — including which members of Congress were briefed on the methods and how extensive those briefings were.”

EARLIER POST:

When one attempts to obsure, deflect, and outright prevaricate as much as Speaker Nancy Pelosi, one can expect critics galore. And that’s just what’s happened. Politico’s Glenn Thrush has been hammering Nancy hard. This article was published less than an hour ago:

“Pelosi playing defense on torture“:

Nancy Pelosi didn’t cry foul when the Bush administration briefed her on “enhanced interrogation” of terror suspects in 2002, but her team was locked and loaded to counter hypocrisy charges when the “torture” memos were released last week.

Many Republicans obliged, led by former CIA chief Porter Goss, who is accusing Democrats like Pelosi of “amnesia” for demanding investigations in 2009 after failing to raise objections seven years ago when she first learned of the legal basis for the program.

Had President Obama and team THOUGHT through the blowback from their we’ll-have-it-both-ways approach to the torture memos, they’d have immediately realized the can of worms they were opening for members of their own party. Furthermore, Obama’s failure to look at the entire chessboard is endangering his other programs:

Pelosi finds herself on the defensive at a time when she needs to be on the offensive, pushing through a record-breaking budget, health care reform, a controversial cap-and-trade proposal and a supplemental funding bill for Iraq and Afghanistan.

Someone on Pelosi’s staff spoke anonymously to Thrush:

“As soon as the president made the decision to release [the memos], I was telling people that the Republicans were going to come after us, saying she knew about it and did nothing,” said an adviser to Pelosi (D-Calif.), speaking on condition of anonymity. “And I’m sure we’re going to get hammered again when they release all those new torture photos,” the person said.

Republicans are grateful for the gift:

But Pelosi’s allies were less prepared to confront the fallout from her convoluted answers during three sessions with reporters last week — answers that raised new questions and handed Republicans a fresh line of attack on a speaker at the height of her power.

“I’m puzzled, I don’t understand what she’s trying to say,” said Rep. Pete Hoekstra (R-Mich.), former chairman of the House Permanent Select Committee on Intelligence and currently the committee’s ranking minority member.

“I don’t have any sympathy for her — she’s the speaker of the House; there should be some accountability. She shouldn’t be given a pass,” added Hoekstra.

Minority Leader John Boehner (R-Ohio) promised to keep up the heat, telling reporters last week, “She and other leaders were fully briefed on all of these interrogation techniques. There’s nothing here that should surprise her.”

This next quote left me both flabbergasted and infuriated — because the Dems’ main concern seems to be how they appear in the media, not whether what Pelosi did and said are right or wrong:

“The Republicans may have won a news cycle, but we’re doing what we want to do,” said Pelosi spokesman Brendan Daly, pointing to Pelosi’s legislative successes during President Barack Obama’s first 100 days in office.

Check Memeorandum.com for blog posts related to Thrush’s article.

For more on Nancy Pelosi’s modus operandi, see “On Pelosi’s Duplicity and Apparent Sandbagging of Elizabeth Warren.”

This attack piece proves how Pelosi and other Democratic leaders let Bush have his way with TARP and ceded ENORMOUS control to the Treasury Department. Now that Elizabeth Warren is analyzing and describing the real problems with TARP, Pelosi is maneuvering to cut her off at the knees. It’s quite a read.

As I write this, Bloomberg reports Bank of America is speculated to need another $10-20 billion in equity capital. BofA’s earnings were reported this morning at .44 earnings per share versus an expectation of approximately .03 earnings per share. Analysts are panning the earnings due to the propsects for ongoing increases in credit losses within BofA’s loan portfolio. BofA’s stock is down approximately 8% in early trading.

If BofA does need another $10-$20 billion in equity capital, where might it come from? In my opinion, in a non-public transferral of capital, those funds may come from JP Morgan and/or Goldman Sachs, and would actually be recycled TARP funds. Effectively, JPM and GS will merely be a conduit for increased government funds injected into BofA and Citigroup, as well. Remember JPM has $25 billion in TARP funds, Goldman has $10 billion. If BofA took $15 billion of these funds then Citi could receive $20 billion. What would JPM and GS receive in return? I would think these negotiations would be private and not released, although given that the capital provided is public money all information should be released.

The administration has released word that the focus of the Bank Stress Tests will be on the industry as a whole and not individual institutions. The FT reports, U.S. to Put Conditions on TARP Repayment. What are the conditions?

Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.

“Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.”

His comments come as Goldman Sachs, JPMorgan Chase and other relatively strong banks are pressing to be allowed to repay their bail-out funds. On Sunday, Lawrence Summers, President Barack Obama’s top economic adviser, told NBC’s Meet the Press that repayments could eventually help the government provide further resources to help the sector. Such a move could also allow healthier institutions to differentiate themselves from weaker banks and free them from constraints on executive pay, and other activities, that come with bail-out money.

The most restrictive covenant of holding TARP funds centers on compensation limits. How JPM and GS negotiate their way out of that noose is the big carrot for playing ball with Uncle Sam.

We also should not forget that every banking institution on Wall Street has issued FDIC-backed debt. That support has allowed the banks to save themselves 3-4% on the cost of funds and is another version of the private profit vs. public risk scenario.

Despite statements from Obama and team, the political game plan of buying time and spreading the banking risks across the taxpaying public is in place. I do not see that changing at this juncture. The “games” being played via the Bank Stress Tests will likely be another version of Games of Chance: TALF, PPIP, TARP, FDIC, FASB.

LD

No TARP for you!

Who can ever forget the Seinfeld episode featuring the Soup Nazi? Well, in that same vein, the insurance company Genworth Financial was just summarily thrown out of the Treasury “line” to receive TARP funds. The WSJ reports, Genworth Financial Shares Slump on TARP Ineligibility:

Shares of Genworth Financial Inc. fell as much as 31% Monday as investors responded to the insurer’s late-Thursday announcement that it is ineligible to participate in the Treasury’s Capital Purchase Plan because it missed a deadline that Treasury won’t extend.

The mere fact that Genworth, Hartford Financial, Protective Life, or any other insurer are requesting government funds is another version of the “putting perfume on a pig” play we saw with the FASB relaxation of the mark-to-market. Why is that?

The TARP (Troubled Asset Recovery Program) was designed by Congress for banks needing increased capital. If investment banks can become bank holding companies, why not insurance companies as well? Perhaps, the next thing you know, we’ll have plumbers designating themselves as banks. How about construction companies? Maybe a bakery or two? Anybody for a newly defined U.S. Financial Blogging Bank? Where do I sign? We could all use some “soup.”

Effectively, Genworth was late in returning their homework. The WSJ article highlights:

Late Thursday, Genworth said it was informed by Treasury that the deadline it set for approval by the Office of Thrift Supervision to become a bank-holding company wouldn’t be extended. As a result of the announcement, Genworth said it won’t be able to complete its intended acquisition of Minnesota-based Interbank. The two companies had entered an agreement last November.

Wow! Genworth had 5 full months to complete necessary approvals, akin to a homework assignment, and they did not get it done. With a performance like that, Genworth truly does not deserve to get TARP money. In all honesty, insurance commissioners around the country may want to check what else Genworth has not completed. When you’re on life support and you don’t follow the directions to apply for medication, how badly do you really want to live?

While insurance executives may put out the “All Is Well” sign, the WSJ highlights a widely known fact:

Life insurers have struggled with losses related to their guarantees on variable annuities as well as their portfolios that are largely exposed to the financial sector and equities in general. Their troubles led to a string of rating-agency downgrades that, in a vicious cycle, made it more difficult for some insurers to raise funds.

TARP “likely will temporarily boost investor confidence, but TARP funds alone cannot eliminate the capital/liquidity pressures caused by weak credit, equity market and economic conditions.”

As for Genworth . . . No Tarp for You!!

LD

Will Sarbanes-Oxley be dusted off and put to use now? The Financial Times reports that it will not be for lack of opportunity that Sarbanes-Oxley is not used. In regard to bank earnings, TARP investigator Neil Barofsky offers:

“I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case,” said Mr Barofsky, who has been dubbed the “Tarp cop”.

If this is in fact the case, what about some perp walks? Is white collar crime still an activity tolerated by the system? Who is providing the cover? Are the perpetrators in bed with the legislators? Don’t tell me that cooking the books is a victimless crime. Every taxpayer is being victimized in terms of lessened credit, higher taxes, a growing deficit, and outrageous fees. Victimless? I don’t think so.

If bank executives’ “cooking the books” is the ultimate inside job, is the TALF (Term Asset-Backed Lending Facility) the equivalent of having the tellers throw on a smile while the banks’ back doors are wide open? To wit, Barofsky shares:

Mr Barofsky also said the Treasury’s expanded term asset-backed securities loan facility (Talf) was ripe for fraud.

The former New York prosecutor said the decision to expand the Talf to encourage investors to buy distressed, or “legacy”, assets from banks could put public money behind investments that were backed by fraudulent mortgages.

“One of our strongest recommendations of the last report was do not expand the Talf to buying legacy assets. If its structure is not changed considerably it’s very, very dangerous,” he said.

The full FT report, TARP Investigator Seeks Evidence of Book Fiddling, is a simple blueprint for building a case against bank executives. However, are certain of these bank executives nothing more than modern day versions of Willie Sutton?

Who is Willie Sutton, you may ask? From the files of the Federal Bureau of Investigation:

Willie Sutton acquired two nicknames, “The Actor” and “Slick Willie,” for his ingenuity in executing robberies in various disguises. Fond of expensive clothes, Sutton was described as being an immaculate dresser. Although he was a bank robber, Sutton had the reputation of a gentleman; in fact, people present at his robberies stated he was quite polite. One victim said witnessing one of Sutton’s robberies was like being at the movies, except the usher had a gun. When asked why he robbed banks, Sutton simply replied, “Because that’s where the money is.”

LD

::::::

From The John Batchelor Show (on which Larry Johnson appears every Sunday night)

Long-term financial health and well being is predicated on fiscal discipline, core values, and strong management. These principles are necessary for major corporations and also individual family units. The market has a means of rewarding corporate units that practice these principles and punishing those that don’t. Enter into the world of finance 2009 when a number of financial units (Citi, AIG, Freddie, Fannie) are kept alive despite not practicing those principles.

Both shareholders and employees of these companies bear the risk of being connected to such institutions. It remains a challenge as to how to operate these institutions in the context of truly free and open markets. In light of these challenges, it is no surprise why other organizations would not want to have Uncle Sam as a partner.

Who needs a Washington bureaucracy dictating business principles? Who needs a Washington bureaucracy involved with lending decisions? Who needs a Washington bureaucracy influencing compensation practices? Isn’t the market supposed to figure out these practices on their own?

Stuart Varney, highly regarded commentator and a native of the U.K., offers chilling commentary on this topic and why the government is not accepting repayment of money that had been provided to banks against their wishes. In the WSJ Varney writes:

The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell ‘em what to do. Control. Direct. Command.

It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration’s thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.

The government may indicate that they do not look to control the banks. Is there any doubt, though, as to the desires of those controlling Congress? I think all we needed to see was their performance during the AIG bonus fiasco to understand their controlling and vindictive nature.

I do not condone or promote excessive pay for government employees. Make no mistake, the employees of Citi, AIG, Freddie Mac and Fannie Mae are government employees and should be paid as such. Beyond that, private companies should have strong corporate boards that are held accountable to promote responsible compensation practices.

As an example of what should not happen in a free and open market that promotes capitalism, Varney offers:

Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Markets badly need strong rules and regulations. Markets do not need excessive political interference. Why hasn’t the Pay for Performance Act received more coverage? Varney sheds further light:

Which brings me to the Pay for Performance Act, just passed by the House. This is an outstanding example of class warfare. I’m an Englishman. We invented class warfare, and I know it when I see it. This legislation allows the administration to dictate pay for anyone working in any company that takes a dime of TARP money. This is a whip with which to thrash the unpopular bankers, a tool to advance the Obama administration’s goal of controlling the financial system.

Varney’s analysis reminds me of something I wrote on February 3rd in a piece entitled Be Careful What You Wish For:

“Be careful what you wish for!” I make this statement because if government is actively involved in establishing compensation practices throughout an industry, then do not be surprised if they look to use that precedent across other industries and other situations. Some may view that as unlikely, but I have already been hearing about situations that would question the validity of contracts, the belief in private business, and results of corporate negotiations. If government intervenes in areas they deem as in the public interest, where does one draw the line?

Varney concludes:

After 35 years in America, I never thought I would see this. I still can’t quite believe we will sit by as this crisis is used to hand control of our economy over to government. But here we are, on the brink. Clearly, I have been naive.

LD

No doubt I will have the Obots screaming again about being partisan in siding with a Republican spokesman about the “stimulus package”, but GOP Congressional leader John Boehner raises a very important question:

How the hell can anyone have actually read all of the provisions in the 1,100 pages of the plan within the 12 hours before the House was called on to vote on it?

As Boehner points out, Congress voted for a bill that not a single representative had time to read before casting their votes.

The same, of course, goes for the Senate.

A manuscript of that size takes at least a week to read carefully, and even longer to digest before anyone can give a balanced judgment on its provisions. Even Tolstoy’s monumental opus “War and Peace” is shorter, and a lot easier to read and understand, yet even some of the most educated readers take at least a few days to finish reading this book.

What kind of democracy is it that will not allow its citizens to digest and understand a bill of this magnitude before it becomes law?

Of course the Obots will scream that, as the idiot Nancy Pelosi said, it was necessary to rush the bill through as quickly as possible to prevent any further decline in the economic situation.

What has happened, of course, is that a lot of socialist measures have been enacted behind a smokescreen of urgency, when the most important thing is not to rush into anything until all options have been carefully considered.

Careful consideration is the last thing this bill has enjoyed.

Rabble Rouser Reverend Amy recently wrote about Krauthammer’s wry, skeptical observations in her must-read recent article, “‘The Fierce Urgency of Pork’”

BELOW, you’ll find a link to the full text of the humungous bill (that not a single member of Congress read, let alone any of their staffers — especially since the bill was written by lobbyists (!) — as well as portions from Amy’s great article …

These longtime, sharp observers on Fox News’s “Special Report with Bret Baier” can’t be fooled by rah-rah rallies, election campaign glitz, and all that inside-the-Beltway schmoozing (even though it’s amusing how LITTLE Obama’s schmoozing paid off in actually moving any Republicans to his side, except for the Senate’s renegade three, who got undue influence strictly because a pull-out by any of the three would have killed the bill).

Reverend Amy covered this in her great story that focused on Krauthammer’s sharp observations about the stimulus bill:

Catastrophe, mind you. So much for the president who in his inaugural address two weeks earlier declared “we have chosen hope over fear.” Until, that is, you need fear to pass a bill.

Uh, yeah. There again, many of us knew that the Hope-y Change-y Rainbow Unicorn was a crock from the very beginning. I wonder how Oama’s followers felt about him using the word, “catastrophe”??? Oh, they probably found some way to make it okay in their brains that this is a far cry from much of his campaign rhetoric. Whatever. Kind of like they did when it came to many of the people Obama nominated to be in his Administration:

And so much for the promise to banish the money changers and influence peddlers from the temple. An ostentatious executive order banning lobbyists was immediately followed by the nomination of at least a dozen current or former lobbyists to high position. Followed by a Treasury secretary who allegedly couldn’t understand the payroll tax provisions in his 1040. Followed by Tom Daschle, who had to fall on his sword according to the new Washington rule that no Cabinet can have more than one tax delinquent.

The Daschle affair was more serious because his offense involved more than taxes. As Michael Kinsley once observed, in Washington the real scandal isn’t what’s illegal, but what’s legal. Not paying taxes is one thing. But what made this case intolerable was the perfectly legal dealings that amassed Daschle $5.2 million in just two years.

He’d been getting $1 million per year from a law firm. But he’s not a lawyer, nor a registered lobbyist. You don’t get paid this kind of money to instruct partners on the Senate markup process. You get it for picking up the phone and peddling influence.

At least Tim Geithner, the tax-challenged Treasury secretary, had been working for years as a humble international civil servant earning non-stratospheric wages. Daschle, who had made another cool million a year (plus chauffeur and Caddy) for unspecified services to a pal’s private equity firm, represented everything Obama said he’d come to Washington to upend.

Well, I think that pretty much sums it up. Shrug of the shoulders is about all we’re going to get from those who were SO certain Obama was going to bring real change to Washington, D.C.

How about this, then:

And yet more damaging to Obama’s image than all the hypocrisies in the appointment process is his signature bill: the stimulus package. He inexplicably delegated the writing to Nancy Pelosi and the barons of the House. The product, which inevitably carries Obama’s name, was not just bad, not just flawed, but a legislative abomination.

It’s not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It’s not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It’s the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus — and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress’s own budget office says won’t be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Anything, Obama followers? Anything?? *Crickets* … READ ALL of Rabble Rouser Reverend Amy’s article.

Krauthammer is also right about the “little pieces” of it that will be discovered. Will YOU be one of those discovering one of those shockers?!?!?!?

OF NOTE: You can begin reading the bill. Thanks to bert for sending this to me. Here are Bert’s instructions:

Let’s provide a concise review of the newly designated Financial Stability Plan proposed today by Secretary Geithner. I’ll then move toward a further review of our economy and what it means for us going forward.

Financial Stability Plan
Secretary Geithner prefaced his remarks by highlighting that this process will “take time to resolve.” He offered that there is plenty of blame to go around to the public and private sectors, including the regulatory and rating agencies. He acknowledged that public distrust has heightened in the process. While he believes the government is being appropriately aggressive with this plan, I do not share that opinion. I commend him for emphatically stating that there will be total transparency in the process, along with strong contingencies for any entities that borrow public funds. All details will be posted on www.financialstability.gov.

While Geithner did lay out the overview of the plan, he did not extensively provide details. The market has sold off 3% in the process. I believe the market also sold off given the realization that this plan is going to take a LONG time to make a real impact. Let’s get to the meat of the plan:

1. Banks will undergo a comprehensive stress test. What does that mean? The government will provide further capital injections as necessary. Loans provided will be tied to lending. What was the alternative here? The formal nationalization of certain institutions and immediately writing off debts.

2. Public-Private Investment Fund along with TALF (Term Asset Backed Lending Facility). The market is disappointed at the lack of details provided on this piece of the plan. I believe this component will incorporate an “insurance program” in which the government provides both a lending facility and a loss mitigation vehicle in an attempt to incent private capital to purchase Asset Backed Securities (securities backed by auto loans, credit cards, et al). This sector of the market has effectively closed because so many of the current loans in the banking system were not properly underwritten and have either already defaulted or are at risk of defaulting. Will this work? It’s all about pricing. Risks here truly center on making sure that the sellers of these positions do not collude with the buyers knowing that the government is backstopping a large percentage of the losses. It may help banks to sell some positions, but will it lead to increased lending? In order to lend, banks need qualified borrowers who WANT to borrow. Certainly there are plenty of qualified borrowers right now who are having problems getting credit but IMO there is not and will not be sufficient loan demand to turn our economy. Why? Many borrowers are already too indebted.

3. Comprehensive Housing Program. The government will likely implement a “mortgage cram down” that lowers the principal and interest payments on behalf of homeowners who are at risk of foreclosure. Certainly commendable but the unintended consequence here is that mortgage rates will likely move higher as a result. Why? Investors will not buy a mortgage-backed security in which the underlying loans can be unilaterally modified. There is too much risk for an investor with that product. In the face of higher mortgage rates, real estate values around the country will likely not soon rebound.

Geithner indicated there needs to be broad regulatory reforms, a substantial and sustained commitment of public resources, and significant cooperation from all parties. At times of crisis we are all Americans.

Nobody should expect a quick improvement in the economy or the markets. The markets are actually selling off even further as I write this piece. Ultimately, the best this plan can do is “slowly” take the air out of the balloon that was our massively overlevered economy. My concern is that we spell s-l-o-w-l-y as J-a-p-a-n i-n t-h-e 9-0-s!!!

Why?? Our economy is so massively overlevered that until the economy delevers (unwinding of debt), we can’t truly grow again. Our collective U.S. debt as a percentage of GDP is almost 350%!!!!! While a large percentage of that are the entitlement programs, our Federal government’s debt has doubled in the last eight years (golfer’s clap tip to Larry Johnson for highlighting this) and will soon approach 100% of GDP!! Consumer debt is currently approximately $2.6 trillion or 20% of GDP.

Although any proposed economic policies are always important, the fact remains that the global economy, led by the United Sates, is experiencing one MASSIVE margin call in which borrowers can either put up more collateral or have their assets sold.

I read an outstanding interview in Barron’s with Ray Dalio of Bridgewater Associates, one of the world’s largest hedge funds that highlights this very point. It is a MUST read: Recession? No, it’s a D-process and It Will be Long. I will offer a few highlights:

–our incomes are increasingly unable to service our debts (private, public, personal).

–debts must either be restructured (part of Geithner’s plan), extinguished (bankruptcy or nationalization), or devalued (via inflation!!).

–assets will decline in value in an attempt to sell them and retire debt.

–government plans to increase lending will not work because borrowers are already too indebted.

–the only entity that will take on debt is the government, but while that may provide a temporary salve it may actually exacerbate the problem by driving interest rates up and “crowding out” qualified borrowers.

–while nationalization of banks or other entites may currently be off the table, do not discount the fact that we will likely revisit this idea.

–the government will print money in an attempt to reflate the economy, but this will only lead to inflation. Note from LD: while Dalio does not believe we will have hyperinflation, I have greater concerns on this front.

–China, our largest creditor, will not likely want to “continue to double down” in buying dollar denominated debt; thus our government interest rates will likely head higher.

–in regard to stocks, “buying equities and taking those risks in late 2009 or more likely 2010 will be a great move because equities will be MUCH CHEAPER than now.”

While Dalio uses the D-word for Depression, that to me conveys an unnecessary fear and anxiety. I use the D-word for delevering and that is the simple reality of what is and will continue to occur regardless of the details in the Stimulus Plan and the Financial Stability Plan. Certainly each of those plans can provide a degree of cushion, but they can also add to the debt burden and prolong the period of extended economic underperfomance if not outright pain!!

Wish I was writing something differently, but this is how I see it.

LD

A “Savior-based” economy. Well, Heaven knows, Obama has certainly been set up as The Messiah, so it makes sense that this would be the kind of economy he would want. Ahem. (If you want to read the text of Gov. Sanford’s interview, please click HERE.) Bear in mind that SC has a very high unemployment rate right now, so we most definitely have a horse in this race. Gov. Sanford is not being a PollyAnna here. Rather than continue the band-aide mentality and prolong the agony like Japan did, Gov. Sanford wants to deal with the issues up front. The recovery would come sooner through the natural course of events (a bit of Darwinism, if you will), rather than prolonging it by continuing with the Stimulus Package that doesn’t do enough for job creation. It is an interesting take by the governor.

And another Southerner has spoken up, too. Rep. Heath Shuler, former NFL quarterback who is in his second term, represents the Western part of NC. And he supported Hillary Clinton for president. Well, he is taking Nancy Pelosi and Harry Reid to task for their “failed leadership” in drafting this stimulus package. He claims they have failed by not engaging in a bi-partisan manner in detailing this package. He said in this AP article:

“In order for us to get the confidence of America, it has to be done in a bipartisan way,” Shuler said in Raleigh following an economic forum. “We have to have everyone - Democrats and Republicans standing on the stage with the administration - saying ‘We got something done that was efficient, stimulative and timely.’”

He continued:

“I truly feel that’s where maybe House leadership and Senate leadership have really failed,” Shuler said.

Wow. A Democrat who actually cares about fulfilling the promises made by Obama (though honestly - why did anyone believe him? There were NUMEROUS examples of Obama failing to work across the aisle during his exceedingly brief time in the Senate, unlike, say, CLINTON, who did actually work in a bi-partisan manner.).

Oh, and get this - Shuler thinks the package should actually be about job creation through infrastructure spending, though he was very concerned about the amount of debt the current package would create. Huh. What a concept. Shame that didn’t occur to any of these other bozos who allegedly represent us.

And I am sure you have heard by now about what else has been hidden in this package. Oh, this is a DOOZY. Seems there were some, um, INTERESTING little health care tidbits in the package the Senate is trying to ram through. Turns out there are three very odd components in there: 1. ration health care for senior citizens; 2. limit medical research; and 3. and monitoring doctors’ treatment decisions. You should hear the hooey being spewed by some of the senators I have seen today on how stuff like this got in there, and how they didn’t know if it was really there or not BECAUSE THEY HAVEN’T HAD TIME TO READ IT ALL!!!! Yet, they are VOTING on it this morning! As I have previously reported, there is all KINDS of pork built into this package, and now this on health care. Reports are that Tom Daschle got these items put in - which begs the question, HOW? He is not an elected official, and I am pretty sure he had already canned himself for the Health and Human Services job because he, too, is a tax evader (on a MASSIVE scale). Here is Megyn Kelly talking to Senator Arlen Specter about this add-in:

So, how did it get in there, then??? And, how are we to know if it is taken out? Since, as Senator Specter kept saying, this package is hundreds and hundreds of pages long, it seems to me that maybe, just MAYBE, SOMEONE could have taken the time to read the damn thing before they decided to vote on it. Oh, but that would mean “CATASTROPHE!!!!” to the country for them to actually take a day or two for them to have committee meetings and know what the hell is in there. How could I forget?? Pathetic. What a pathetic bunch of legislators they are. And Specter should be ashamed of himself for keeping his “commitment” to pass this package. His “commitment” SHOULD be to the people of the country. Funny how these senators and representatives keep forgetting that…

On a different note, wild fires continue to rage in Australia in an area beset with drought for a decade. Now they believe the fires were the work of an arsonist. Sadly, almost 200 people have died, some in the most horrific ways imaginable (trapped in their cars). Many people have lost their homes in these fires. It is a senseless tragedy, and if I may, let us just take a moment and remember that we are all connected. Even in the midst of the frustrations with our political leaders, our own economic or health concerns, let us remember that others are suffering, too, or have lost their lives, through no fault of their own. Rather, through an act, deliberate in nature, that has affected so many. And continues to do so, with thousands of firefighters working to squelch these flames. We are, all of us, connected.

My thoughts and prayers go out for those lost, and for those who have lost so much…May these fires be contained quickly, and with no more loss of life…

I was struck by the paradox of two poll questions asked by CBS News during the first week of February:

In your opinion which will do more to get the U.S. out of the current recession: increasing government spending, or reducing taxes?

16% Increasing government spending
62% Reducing taxes

Would you approve or disapprove of the federal government passing an economic stimulus bill costing more than 800 billion dollars in order to try to help the economy

51% Approve
39% Disapprove

Logically, these poll results make no sense. The majority of Americans want a tax cut, and the majority of Americans want a stimulus bill that is a tax increase. While it is true that not every poll respondent holds this contradictory position, at least some do, representing confusion among the American people.

This confusion is understandable because politicians on both sides of the aisle continue to pander to the public by misleadingly labeling tax increases as tax cuts. The current stimulus package is no different.

Let me explain.

The current US federal budget is roughly $3 trillion. The stimulus package looks like it will be around $800 billion. So, before the stimulus package passes, Americans needed to pay $3 trillion to fund the government. After the stimulus package passes, they will need to pay $3.8 trillion. They won’t pay that extra $0.8 trillion this year, but they will have to pay for it as some point (with interest). This should be known as a tax increase.

It gets confusing because the stimulus package proposes “tax cuts” for some Americans. But these really aren’t tax cuts but tax loans. Basically, some Americans will have a reduction in taxes this year, but that reduction will have to be paid for in future years (with interest).

In order for it to be a real tax cut, there has to be a cut in government services or a change in the tax code so that someone else pays more taxes to make up for the lost government revenue. Without this, these so-called tax cuts are nothing more than what happens when you get cash back from your VISA card. It is a loan – not income – that you (or someone else if you default) will have to pay. And once that VISA is maxed-out, real economic troubles begin.

The failure to distinguish a tax cut from a tax loan has produced the mess we are in.

When George W. Bush gave “tax cuts” to his rich buddy friends without cutting government services – in fact he increased overall government spending – he was really giving Americans a tax loan. Bush’s tax loans amount to the largest tax increase ever.

When Arnold Schwarzenegger gave Californians a “cut” on their car taxes without cutting the corresponding $6 billion per year of government services – in fact he increased overall government spending – he was really giving Californians a tax loan.

In all fairness, we can see why politicians continue to offer us tax loans masquerading as tax cuts. It makes everyone happy in the short-term – we have lower taxes and all the government services we want. But in the long-run, as the VISA maxes out from purchasing junk at the mall and too many cash-backs, the bill becomes due and the economy freezes up.

As the stimulus package worked its way through Congress, we saw the “same old-same old” as each partisan attempted to pander to their constituencies resulting in what in all likelihood will be at best an ineffective measure.

Now, it may surprise you but I am in favor of a stimulus package. Sometimes it makes sense to take out a loan. For example, an individual is smart to take out a home mortgage (not necessarily at the peak of a housing bubble, however) or invest in job skills. A business is smart to take out a loan to increase productivity and efficiency or to expand to meet market demands.

There are times when a nation needs to take out a loan to invest in its future too. FDR was smart to run deficit spending to stimulate the economy out of the Great Depression (and it worked too, until the right-wing Supreme Court prevented him from implementing some of his programs). I think that the current recession-near-depression calls for similar measures. George W. Bush has left us in just this big of a mess.

The rub is this: God or the devil is in the details (depending if you prefer to quote a poet or an architect). It makes sense to increase spending – even if it is a tax loan – if that spending increases productivity and economic growth. Examples of such spending includes development of infrastructure, aid to small businesses (one of the main sources of jobs), and promoting favorable conditions for innovation and entrepreneurship. Nevertheless, we should always remember that such spending is not a tax cut but a tax loan that at some point will need to be paid back – hopefully at a point when our economy is stronger and we can better afford to pay it back.

Obama’s leadership on the stimulus package has demonstrated a lack of vision and communication skills. What he should have done is stated very clearly his vision of what is wrong with the economy and how to fix it. Part of that vision should have included the need to take out a tax loan to build our nation’s productivity and to jump-start the economy. To communicate his stimulus package, he should have then justified each spending item with a clear statement on how it meets economic goals.

Had he done this, there would not have been the hodge-podge political process that we saw with the current bill, Americans would be less likely to hold a contradictory opinion as evidenced in the CBS News Poll, and the Democrats would not be squandering their political capital.

THE LATEST: The bill is supposed to be voted on tonight. Does Obama have the 60 votes he needs? What have you heard? Are any of you watching C-Span2? UPDATES: Two more clips on the status of the stimulus bill. One is titled, “Is Obama losing the stimulus battle?” The last video below the fold features John McCain and other Republicans fighting the bill.

UPDATE #3: “CBO: Obama stimulus harmful over long haul,” Washington Times:

President Obama’s economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary. … [Read all.]

So let me get this right. Senator Gregg — who has been nominated by President Obama to be Secretary of Commerce — is handing over an anti-stimulus package letter to the Washington Times? The same Senator Gregg who, as I wrote last night, had planned to vote against the stimulus package but is now indicating he’ll support it (scratch my back, I’ll scratch yours?), voted in 1995 to abolish Commerce, and was involved with Jack Abramoff?

Is Obama SO NAIVE that he doesn’t see that Judd Gregg will be the “mole” in his administration and that he can’t count on him for loyalty, let alone full-throated support for Obama’s and the Democrats’ plans?That Gregg is NOT one of the Democrats and shares NO policies in common with Democrats? Why in the name of god is he putting Gregg in the cabinet? Now, back to the original:

It was only a matter of time before the losses embedded in our banking system caught up and surpassed the capital injected. As such, our politicians and bankers are now forced to be somewhat honest with the public at large.

At long last the “news” is out: there’s another expected $1 trillion in embedded losses in our banking system. I have tried to judiciously, but clearly, highlight that very fact here at NQ over the last three months. In today’s WSJ:

Goldman Sachs economists estimate that financial institutions and investors world-wide will ultimately realize $2 trillion in losses on U.S. loans, but have recognized only half those losses so far. That scares investors who might otherwise give banks needed capital, and makes banks reluctant to make new loans. Regulators say they worry that the only remaining source of capital for banks is the government.

While I know a few readers here at NQ, blogs are generally anonymous communities. Given the nature of my writings, a month or so ago I realized it would be more effective and compelling if I opened myself to public criticism if warranted. For that reason, I went from identifying myself as LD to Larry Doyle. For those who know me, I think they would say that I am a very competitive, honest, and humble individual. I’d like to think that I am. That said, I have plenty of shortcomings. As we look to grow our audience and community, I beg your indulgence as I retrace the posts since I started writing in mid-October in which we wrote about these massive unrealized but embedded losses. We’re all about sharing here, so please pass this along to your friends. We’ll try to stay ahead of the curve for you. ~LD

Without further adieu . . .

The Economy - What Lies Ahead (October 14, 2008)

This injection of capital will not necessarily fully flow through to the economy. The banking system here in the U.S. likely has $1 trillion in embedded losses. This plan is trying to buy time for the system to recognize those losses. The recognition of those losses will curtail future growth for the banking system and the economy as a whole.

Economic/Market Highlights 10/16 (October 16, 2008)

Remember the overall banking system has upwards of $1 trillion in losses that need to be recognized. Both Citi and Merrill know this and have pre-announced that they do not expect to show a profitable quarter in the near future.

McCain/Palin’s Economic Stimulus Plan (October 23, 2008)

. . . what these steps have done is buy time so that the banking system can generate revenues over the next few years to both write down and realize losses that are currently on their books, but which if were currently acknowledged would have rendered certain banks as already bankrupt.

Markets Selloff 10% Overnight (October 24, 2008)

In the midst of all this though, please remember that as I have tried to highlight, that there are likely $1 trillion in embedded losses in the banking system. That bill must be paid.

The Wall St. Model is Broken … and Won’t Soon be Fixed!! (November 12, 2008)

The losses in the banking system alone are upwards of $1 trillion. From there let’s move into insurance companies, hedge funds et al. Paulson, Sheila Baer, Bernanke and others know that any money that goes into the system is purely going to help the banks recapitalize themselves in the face of these losses.

When Barney Frank, Nancy Pelosi, and Barack Obama complain that they need to make sure that credit lines open and remain open, they are not addressing the fact that the banks have an overwhelming amount of non-performing assets already and that those assets are likely going to grow in the face of an unemployment rate headed up by 2% to 4%!!

Economic/Market Highlights 11/12 (November 13, 2008)

Transparency
I had an exchange with a reader as to why the government is not revealing which banks have been participating in certain specific programs launched over the last few months. I made the case that the government is trying to protect the participating banks and in turn the taxpayers by not revealing the names.

The reader responded as to why and how could he ever invest in a bank. That is a very good point, investing in banks now is a much higher risk proposition because one does not know just how deep losses are in individual banks. Who does know?? Hank Paulson knows and he does not want to reveal those figures because they would further spook the markets.

“The Greatest Generation”…… (November 14, 2008)

The TARP bailout/rescue plan proposed to date has not inspired confidence nor generated any real impact for three reasons:

1. the banks have such sizable embedded losses that the funds already injected are being and will be used to recapitalize the balance sheets …

Economic/Market Highlights 11/17 (November 17, 2008)

Markets read this as a further indication that losses are so deeply embedded in the system that only time and “private money” can truly bring needed change. But how does “private money” receive incentive to enter the market?

Economic/Market Highlights 11/19…The Pain Increases!! (November 20, 2008)

Neither Paulson nor Congress nor anybody in Washington or Wall St. will tell you that the system has trillions in embedded losses but they do and our markets know it and are showing it by their prices.

“IT’S EASY TO FIND FAULT…especially if you’re clueless!! (December 11, 2008)

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:
banks need to replenish capital against these losses.

“Where’s The Money??….!!” (December 29, 2008)

In large measure, our mainstream media has done an exceedingly poor job as to highlighting the dynamics at work in the banking system. I will utilize a tape from a high profile financial show to reveal how the media is largely pandering to the public on this topic. Prior to doing that, though, let me get very detailed in answering the question as to “where’s the money?”

The business of banks is to lend money and in so doing they provide the liquidity to keep our economy moving. The banks lend money in a number of sectors but they can be summarized as follows: credit cards, residential mortgages, commercial mortgages, corporate loans. In addition to their lending role, most banks maintain a separate investment portfolio to further augment their revenue.

We have maintained that as a result of these investment activities, banks retained a wide array of what are now qualified as “toxic mortgage assets”. Globally, while banks and investment banks have taken $1 trillion in write-downs on these assets, by my estimation, confirmed by independent research and analytics, there are likely at least another $750 billion in write-downs yet to take on these assets.

Larry Doyle’s (LD’s) Dollars and Sense “Central Station” (January 10, 2009)

Comment by LD | 2009-01-10 10:45:43

Citi will inevitably sell other units at discounted prices.

In summary, it is not outside the realm of possibilities that this institution ends up being nationalized much like has occurred with some banks in the UK.

Against this backdrop, do not expect access to credit to improve anytime soon.

“Market Musings on a Monday . . . “ (January 12, 2009)

We have highlighted extensively why the embedded losses in the banking system would inhibit credit from flowing.

“Where’s The Money?” on December 29th specifically addressed the extent of losses and expected chargeoffs in our banking system. Why do the mainstream media and politicians continue to pander to the public on this topic?

“When Big Ben Speaks . . .” (January 14, 2009)

What does this mean? The banks need more money along with government guarantees against further losses from their deteriorating portfolios. To wit, Citigroup is selling divisions to raise capital. How will those government guarantees be structured? Potentially the nationalization of a banking institution, like Citi, or the splitting of Citi and perhaps other banks into “good banks” and “bad banks”. The “good banks” will house the day to day operations, while the “bad banks” will house the toxic and deteriorating assets and will be capitalized by, you guessed it, “Uncle Sam!”

Against the backdrop of the frozen tundra, numerous members of the storied Pittsburgh Steelers franchise have reached legendary status. Included in this family are such greats as Jack Lambert, Mean Joe Greene, Terry Bradshaw, Rocky Bleier, Franco Harris, John Stallworth, Lynn Swann, Chuck Noll, and the longtime owner Art Rooney. For lovers of the NFL, these men are true giants. The current Steelers franchise is led by budding legend and All-Pro quarterback Ben Roethlisberger. When “Big Ben” leads, Pittsburgh follows. You can discuss this “Big Ben” tonight and every Wednesday night at 9PM on “No Topic Taboo . . . Everything Else with Jay.”

With all due respect to Mr. Roethlisberger, though, there are two other “Big Bens” that crossed paths just yesterday and hold much greater sway and impact in world affairs. I speak of Ben Bernanke and the famous London clocktower.

While the NFL is a great diversion, we ultimately return to the real world and need to deal with the realities it presents. Fed chairman, “Big Ben” Bernanke, presented chilling testimony yesterday in the shadows of the famous clocktower at the London School of Economics.

Understand that every message delivered by a Fed chairman is very carefully scripted. In years past, the Fed was much less transparent than it is today. That said, the Fed chairman speaks carefully so as not to unsettle markets but also to provide an outline as to future policy. In so doing, the general public is often hard pressed to decipher what he is saying and what it means. The general media typically does not capture the nuances and subtleties offered by the Fed. To that end, our work here at No Quarter looks to fill that void.

Before deciphering “Big Ben” Bernanke’s message, I find it somewhat uncanny that his speech was delivered near the famous clocktower. Why? Simply because we have tried to highlight that our economy and markets need an extended period of time to recover. We tried to convey that very message last week in our piece, “Time, Why You Punish Me?…”

“Big Ben” set the stage for his immediate outlook by providing a rather lengthy review of the landscape in 2008 and actions taken. He offered, “financial institutions have seen their capital depleted by losses and writedowns and their balance sheets clogged by complex credit products and other illiquid assets of uncertain value.” He further added, “markets for securitized assets, except for mortgage securities, have shut down.”

These losses and the shutdown of the these markets for securitized products were the major topics of our pieces “Where’s The Money” (on December 29th) and “The Wall Street Model is Broken…and Won’t Soon Be Fixed” (on November 12th)

We have addressed at length these very topics, their implications for our markets and economy, and most importantly why we thought credit would not flow. From my very first piece here at NQ on October 14th, I wrote of the government rescue package, “this injection of capital will not necessarily flow through to the economy. The banking system here in the United States likely has $1 trillion in embedded losses. This plan is trying to buy time for the system to recognize those losses. The recognition of those losses will curtail future growth for the banking system and the economy as a whole.”

In light of the regular onslaught of criticism from Congress, the incoming administration, and the general media, “Big Ben” is most assuredly sending a message highlighting the actions taken and the results generated. While the sandbags have been piled high enough to currently protect our populace, rest assured the waters are still rising and time marches on.

“Big Ben” goes into real detail about the specifics of each step taken and the impact they had in stabilizing our markets. For our purposes, we do not need to review this material. We will again provide the link that provides transparency into these programs:

http://www.globalresearch.ca/index.php?context=va&aid=11236

Just as “Big Ben” is trying to provide a historical context for his outlook for the economy and markets, I provide links to all of those past stories for our newer readers and passengers that we are picking up along the way. I beg the indulgence of our longer term readers in the process.

As the clocktower ticks, what does “Big Ben” see in our future? He offers, “the incoming Adminsitration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity. In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system. History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively.”

This statement is a major shot across the bow for the incoming administration and Congress as they deal with the prospects of allocating the next $350 billion in TARP money and beyond that. “Big Ben” is stating that the embedded losses and growing losses within our banking system must be addressed, recognized, and alleviated before we can start to truly move forward.

“Big Ben” further adds, “the worsening of the economy’s growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance sheet capacities of financial institutions. Consequently, more capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.” Goldman Sachs just yesterday released that they believe the global banking system will ultimately realize $1.8 trillion in losses. Only slightly more than half of those losses have been realized to date.

What does this mean? The banks need more money along with government guarantees against further losses from their deteriorating portfolios. To wit, Citigroup is selling divisions to raise capital. How will those government guarantees be structured? Potentially the nationalization of a banking institution, like Citi, or the splitting of Citi and perhaps other banks into “good banks” and “bad banks”. The “good banks” will house the day to day operations, while the “bad banks” will house the toxic and deteriorating assets and will be capitalized by, you guessed it, “Uncle Sam!”

**U.S Government Negotiating with Bank of America To Provide More Capital To Facilitate Purchase of Merrill Lynch**

http://online.wsj.com/article/SB123197132814683053.html?mod=testMod

“Big Ben” says as much, “another approach would be to set up and capitalize so-called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad banks.”

In finishing his speech, “Big Ben” addresses the fact that these issues are truly global in nature and as such the world will need to develop a global regulatory system.

Market reaction to the revealing of these realities is decidedly negative this morning, as equities are down 3-4%.

We will continue to try to stay ahead of the curve for you here at NQ.

In an attempt to tie this piece together, I recommend “take the Steelers, lay the points, and go with the under.”

LD