TARP

by Lance Thompson 

The Dow passed to the good side of 10,000 last week, and celebration was widespread because it was heralded as a sign of better times ahead.  As early as May 27, Treasury Secretary and Turbo Tax tyro Timothy Geithner said the US economy was in the early stages of recovery, and in late August announced “We are back from the brink.”  Fed Chairman Ben Bernanke, the financial equivalent of the Magic 8 Ball, has been saying since March that “signs point to recovery.” Administration spokesmen point to improving home sales, rising stock prices, and make-work jobs programs and credit the stimulus spending for curing the economy from its ills.  They conveniently overlook the virus of unemployment, the contagion of home foreclosures, or the consumptive decline of the dollar’s value.   Here in Idaho, one of our state’s favorite outdoor activities is white water rafting.  The confidence of the various predictors of economic recovery reminds me of a raft full of people that has just gone through a particularly turbulent stretch of river.  After overcoming the challenge of the rapids, they find that the white water subsides, the surface appears smooth, and all are thankful they prevailed over adversity. Yet if this raft was full of economists, and the river was the American economy, they serenely overlook what’s waiting downriver–a waterfall of staggering height which will make the rapids they’ve passed seem insignificant.  The waterfall cannot be passed safely–it is the dead end of a wild ride on the tracherouis waters of financial tumult. The waterfall is the staggering debt that has been amassed with the government bailouts and spending initiatives that began with the TARP bill under President Bush and grew geometrically with President Obama’s stimulus bill, and subsequent massive government programs.  The spending that under Obama has eclipsed that of all previous administrations combined has multiplied the American debt to a level beyond possible repayment.  To ignore this downstream hazard and speak of economic recovery is to blindfold oneself to reality. The government cannot create wealth, a fact which will probably come as a great surprise to Obama supporters who believe in his ability to provide largesse at a whim.  But all the money the government spends and distributes has to come from the American people and American business.  Government consumes wealth, but it is up to us to produce it. The more the government spends, the more we must produce, and the more of it we must surrender to the government through taxes.   So the debt must some day be repaid by us, just as the economic raft must eventually reach the waterfall.  But with each new trillion-dollar spending initiative–health care, cap and trade, or any other massive government program–the waterfall gets higher.  As our economy floats downriver on a temporarily smooth current, there is no cause for complacency.  In fact, our fate grows more dire with each addition to the debt. Unfortunately, we have not yet had to pay the price for this debt.  It will come with the sudden impact of higher taxes–the only way the government can take the wealth from those who produce it.  And those taxes will fall upon all of us–income taxes, consumption taxes, property taxes, fees and licenses will all be raised, and all of us will pay them.  At that point, the economic raft will be over the edge and plunging into the abyss of fiscal ruin.  The damage to our economy, our industry, and our system of government will be too massive to reverse.   So when you hear happy prospects of a recovery that is just around the corner, listen more carefully.  You’ll hear in the background the distant but growing rumble of the coming fall.  As spending multiplies, as the debt continues to grow, as government persists in hobbling our private sector with takeovers and punishing regulation, the roar of the cataract will also grow.  At some point it will be louder than those who are telling us not to worry.  The question is, which sound will we listen to, and which will we believe?

This is the anniversary of a tragic day, September 29, 2008. That was the last day I believe John McCain could have salvaged the 2008 Presidential election.

The McCain campaign started losing altitude following the mid-month collapse of Lehman Brothers, leading McCain to leave the campaign trail to stay in Washington to respond to the crisis.  This led to a confusing set of events surrounding whether McCain would attend the first debate; which he did.  By Monday morning, September 29, it a ppeared a deal to approve the $700 billion bailout was in place and the House was supposedly in line to vote "aye".

Assuming the time had come to return to the stump, McCain left Washington to join Sarah Palin at a rally in Columbus, OH.  This decision doomed his chances.

Many argue McCain was politically dead for even supporting the unpopular bailout , but if there's one thing worse than being unpopular, it's' being both ineffective AND unpopular.  Having chosen the unpopular path, McCain had to, as an absolute necessity, get the bill passed and gotten back on the trail arguing the crisis had been addressed and he helped promote a solution..

While McCain was in Ohio that morning, Speaker Pelosi decided that insulting the Republican party was a good way to spout off when she needed their votes. Enough bailed to scuttle the bill. Many flipped back to support a somewhat amended version a week later. Many of these folks are no longer in Congress.

John McCain faced incredible obstacles in 2008 ...a popular opponent, having to defend an unpopular incumbent President from his own party, and a weak economy. Given this, he needed to maximise his own assets. And he absolutely needed every possible day to draw the contrast with Barack Obama. One rally, even in Ohio, wasn't worth the risk he would lose the chance to punch through with his own message nationally because of events in Washington.

We don't know if McCain whipping the House Republicans would have gotten TARP passed a week sooner, but by failing to put his shoulder to the wheel (and not "assuming the second out of the double play"), McCain cost himself two things he could never recover--he lost a week of the campaign and he lost credibility for returning to Washington only to see things fall apart anyway. The split in the polls reached  double digits in early October, never to fully close.

There's a lesson here somewhere, not that I expect the Beltway brain trust to figure it out. 

We've been told that the cause of the Great Recession was plummetting home values which rendered financial institutions that lent on this collateral illiquid or insolvent. 

Guess now the value of homes isn't that big a problem anymore. Here's a little-known feature tucked into the Cap & Trade debacle which is guaranteed to cost  virtually every American time and money

The bill forces sellers to have an energy inspection prior to being able to sell their home. Windows, appliances and insulation will have to be inspected and approved by a government inspector and modifications would have to be made for compliance before you can close the sale.

Basically, you won't be able to sell until you go through the expense of bringing your house up to the new code. This will cost a prohibitive amount in many cases. For example, let's say that you own an older house which you bought in 2003 for $250,000 and you now need to sell. Not only has the value fallen to or below the level of the mortgage due the the drop in prices, but you are now faced with re-insulating the entire house, installing new windows, and changing the HVAC & other appliances. The total cost for this type of renovation might easily come to well over 10% of the house's value.

I'm sure this is going to reduce the toxic asset problem all the TARP banks have with underwater mortgages, not.  How many hundreds of thousands of homes will  prove too expensive to retrofit and be simply abandoned upon vacancy?  Bailout II for those banks---green style?

And will ACORN hire all these new "government inspectors"?...hey these will be "green jobs"!

I have a rhetorical question. Is there anything that the Obama Administration doesn't want to regulate?

In this interview with Larry Kudlow yesterday, Dick Cheney said about TARP:

KUDLOW: But did you anticipate the degree of government control over the banks? No question throwing a safety net from Federal Reserve liquidity was appropriate. I don’t think any economist left or right disagrees with that. On the other hand, what we’ve seen now is that this Congress has moved in to declare, for example, compensation and pay limits, repurchase agreements, dividend policies, merger and acquisition policies. You yourself know these things because you were a CEO of a big company once upon a time. Did you anticipate how Congress would move in to take control of the banks when you made these initial loans?CHENEY: No, I don’t believe we did. I don’t recall any debate within the administration. There may have been some over at Treasury or someplace that focused on the extent of which government would try to control these institutions once they provided financing for them. You know, I’ve got experiences going back to the wage price controls in the Nixon administration where, in effect, we had what I think was a terrible mistake, in that case a Republican administration, where moved in and tried to control the wages, prices and profits of every enterprise in America. It was a huge mistake. We finally got out of it, but it took a long time to do it, and it does a lot of damage.

If you liked that, just wait, it gets better:

CHENEY: Well, some of us at the time wanted GM to go bankrupt, go to Chapter 11.KUDLOW: Were you in that camp?CHENEY: I was.

Essentially, Cheney is saying that he was against bailout nation and Bush overruled him.  I'm not surprised.  Cheney has always been a much more genuine small-govt. guy than Bush ever was.

That said, maybe Quinn Hillyer was right: Cheney, not Bush, should have been President!!!

I was discussing the recent financial crisis with a friend tonight.  He said: "The Problem with the GOP is that they deregulated until the banks became too big to fail." BULLSHIT!!! Had our political leaders had a pair of brass balls last year, they would have realized letting the banks fail would benefit America.  We could have re-built a solid banking system instead of the politicized BS we have now.

Unfortunately, the Republican President and Treasury Secretary didn't have the courage of their alleged free market convictions.  Thus, we're stuck with a politicized banking system for the next decade.

And some people are trying to say the GOP has moved too far to the right...ha!

The cause 

A big New York Times story this morning strongly suggests that Team Obama is about to up the ante in an effort to control the banking system for as long as the eye can see.White House and Treasury officials are now talking about turning government TARP loans into common stock for the 19 biggest banks. It’s clearly a backdoor path to nationalization, as Uncle Sam would be the largest shareholder in these institutions. What’s more, it’s not at all clear that the administration will even let certain banks pay down their TARP loans.This is government intervention into the private sector on a grand scale. It is financial/industrial policy. Banks will be kept on a very short leash regarding compensation, loans, credit-card issuance, mergers, acquisitions, and all the rest.Not surprisingly, stocks opened down 200 points today — with banks leading the freefall — and finished down about 300 points. 

The effects

   You can check out any time you want...but you can never leave.....   

Goldman Sachs cash-out boy Jim Himes narrowly ousted Chris Shays from the 4th District after the financial meltdown last fall. Now he's being blamed by those sorts of voters for pouring his own gasoline on  the fire. 

About 65 residents of area communities gathered at the Wilton public library Sunday for what turned out to be a heated town hall-style debate headed by freshman Congressman Jim Himes...

Himes called last week's outcry in Washington over the $200 million bonuses, "a week-long distraction," which sidetracked legislators from working to fix the broader economy. Still, residents, many of whom admittedly work for TARP recipient companies, wanted to know why Himes voted for the bill, which the Congressmen himself admitted was hastily introduced and emotionally approved."This legislation had all the hallmarks of something that wasn't thought through,'" said Himes, of the tax bill. He voted on it, he said, because he is confident that the bill passed last Thursday would not become law..

One Greenwich resident, who said he works for a TARP recipient, said the market downturn last week was evidence that the tax bill wasn't the way to go. "This country has done as well as it has for so long because of contract law being upheld," said the Greenwich resident, who didn't wish to be named. "If we move away from contract law, that will significantly weaken this economy."Himes, a former Goldman Sachs executive, tried to regain control over the forum as concerned residents shot back over the AIG bonuses. "What about our contracts as voters?" said one concerned resident. "I thought as an American citizen, I could rely on our system of checks and balances in everything our government passes."

As Francis Cionfrrocca points out, the proposed limit on TARP firm compensation is now proposed to be only $250,000, which is not a lot of money in high cost areas like suburban New York. 

Like we've been trying to tell the yuppies with "Bush Lied" stickers on their Infinitis, when the Democrats talk about rescinding "tax breaks for the rich", they mean you. Not the firm in Bermuda  Mrs. Dodd managed.

I also note 65 folks showed up to dress down Himes in Wilton, while only 40 showed up to hassle AIG executives, hmmm. Jim Himes. The next cycle's "3 M".  Screwing your own consituents isn;t a good political move, Jim. You'll have lots of time for reflection after the next election. 

Looks like Senator Chris Dodd and his family go back quite a-ways with financially rewarding ties to fallen insurance giant AIG. Here's what the relentless Kevin Rennie posted yesterday on Real Clear Politics

From 2001-2004, Jackie Clegg Dodd served as an "outside" director of IPC Holdings, Ltd., a Bermuda-based company controlled by AIG. IPC, which provides property casualty catastrophe insurance coverage, was formed in 1993 and currently has a market cap of $1.4 billion and trades on the NASDAQ under the ticker symbol IPCR.....

Clegg was compensated for her duties to the company, which was managed by a subsidiary of AIG. In 2003, according to a proxy statement, Clegg received $12,000 per year and an additional $1,000 for each Directors' and committee meeting she attended. Clegg served on the Audit and Investment committees during her final year on the board.

So the Mrs. was part of the management team at an AIG subsidiary. There's not problematic for a member of the Senate Banking Committee, now is it?

This leads Rennie to conclude "Dodd is likely more familiar with the complicated workings of AIG than he was letting on last week"

There's a local angle here Rennie misses, however. Bermuda is a notorious tax haven for foreign corporations. Bermuda does not levy income tax on foreign earnings, and allows foreign companies to incorporate there under an "exempt" status.  The insurance industry has aggressively incorporated affiliates there to skirt US and EU corporate tax rates.

In 2002 one of CT's leading manufacturers, The Stanley Works, announced plans to reincorporate in Bermuda for tax purposes,  When the hardware icon made this announcement, it because a huge issue around the firm's headquarters in the hotly contested 5th District.  Public outcry caused Stanley to back off from its plan.

The point here is I well remember Rep. James Maloney and Rep. Nancy Johnson, as well as Attorney General Dick Blumenthal scolding Stanley, but I don't recall Dodd saying boo about the plan and his name does not readily surface in web searching today on the topic.

Is that because Mrs. Dodd was running a firm that had done the same thing? Guess former Congressman Maloney would have called her firm "unpatriotic" and compared their management to "Benedict Arnold" had he paid attention.  So Dodd hid out, and let the brass at Stanley get harangued for doing something his wife's firm had already done.  

Another further layer of chutzpah is Dodd eagerly advocates a "corporate carbon tax".   while his nearest and dearest ran a company that skirted the business taxes we already have.

The more you think about it you'd rally have to be a meathead not to see these conflicts of interest.. I guess "those were the days" for Dodd-- when folks weren't turning over his rocks and not liking what's underneath.

 http://www3.merriam-webster.com/opendictionary/newword_search.php?word=tox

H/T Tim White

Last night I pointed out that various Democrats were playing one-upsmanship in who could offer the least plausible explaination for the AIG bonus debacle.  

Well, someone from the Democratic senate caucus has broken ranks from the Obamatons about this farce, and has added a new name to the existing participants in the

The Geithner-Dodd Deception Derby

Who in the Administration pressed for the AIG bonuses?FoxNews' Trish Turner offers:Sen. Ron Wyden, D-Ore., all but pointed the finger of blame directly at the "Obama economic team" Wednesday for allegedly stripping a provision from the stimulus package last month that would have slapped a heavy tax on bonuses like the ones doled out at AIG...Asked to whom he spoke with back in February when he was fighting to keep the item, Wyden said, "Secretary Geithner, Larry Summers, and I'll leave it at that." 

OK, Dodd blames "Treasury"  Now Geithner admits he "talked to Dodd".  Funny how this little detail wasn;t mentioned by either gentleman until late this afternoon.  Dodd says he still has confidence in Geithner. Then again he also had confidence in Fannie Mae.

Jeez, if any more people claim not to know what was going on when the Porkulus bill was drafted I'll think this guy works for Obama   

Tonight's's party line seems to be the entire senior management of the Obama adminstration knew about the bonuses, put an amendment in to protect the bonuses, and then a) failed to inform the President and b) acted surprised when the issue blew up like a Roman candle

RRRIGHT!

Well, the President says Geithner is doing "an outstanding job" Then again, while Obama may be the first sitting President on a late night talk show, I doubt he wanted to use the occasion to fire a cabinet officer.  

 Let's just hope this isn;t like the last time a President had to so frequently defend an embattled federal official