The Economy, stupid

[Cknolls]

So how much of our money is Schwarzzy going to take back to Cally with him? 5 billion, 10 billion, or more than 10 billion?

[Balta1701]

How this hasn't gotten more press I have no idea.

Congress on Monday sent the president a bill to clamp down on mortgage fraud and set up a $5 million independent commission to investigate the cause of the worldwide financial meltdown.

 

President Barack Obama is expected to sign the legislation, which received broad bipartisan support. The House agreed on Monday to a Senate version of the bill by a 338-52 vote.

 

Obama and other supporters say the bill's estimated cost of some $265 million a year will more than pay for itself because of the fines and penalties that would result from increased government oversight.

 

"No one should want to see those who engaged in mortgage fraud escape accountability," said Sen. Patrick Leahy, D-Vt.

 

 

...

The bill also would establish a new "financial markets commission." Sens. Johnny Isakson, R-Ga., and Kent Conrad, D-N.D., proposed creating the group to "examine all causes, domestic and global" of the economic crisis.

 

Democrats would hold sway on the panel, with the majority party able to pick six members and Republicans to pick four. In a bid to ensure the panel is apolitical, members of government are not allowed to participate and at least one Republican-appointed panel member must sign off on subpoenas issued by the group's Democratic-appointed chairman.

 

The commission will focus on more than 20 areas, including how the government failed to protect investors and the role financial fraud may have played in the meltdown. The group would report its findings by Dec. 15, 2010.

 

It's a bit long but I'm going to steal from this blog the actual text of the thing being sent to the President...what this commission is charged with.

(1) to examine the causes of the current financial and economic crisis in the United States, specifically the role of–

 

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;

 

(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;

 

© the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;

 

(D) monetary policy and the availability and terms of credit;

 

(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;

 

(F) tax treatment of financial products and investments;

 

(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;

 

(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;

 

(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;

 

(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;

 

(K) the concept that certain institutions are ‘too-big-to-fail’ and its impact on market expectations;

 

(L) corporate governance, including the impact of company conversions from partnerships to corporations;

 

(M) compensation structures;

 

(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;

 

(O) the legal and regulatory structure of the United States housing market;

 

(P) derivatives and unregulated financial products and practices, including credit default swaps;

 

(Q) short-selling;

 

® financial institution reliance on numerical models, including risk models and credit ratings;

 

(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;

 

(T) the legal and regulatory structure governing investor and mortgagor protection;

 

(U) financial institutions and government-sponsored enterprises; and

 

(V) the quality of due diligence undertaken by financial institutions;

 

(2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;

 

(3) to submit a report under subsection (h);

 

(4) to refer to the Attorney General of the United States and any appropriate State attorney general any person that the Commission finds may have violated the laws of the United States in relation to such crisis;

If they actually make use of their mandate, an awful lot of people could go to jail before they finish their work.

[kapkomet]

How this hasn't gotten more press I have no idea.

 

 

It's a bit long but I'm going to steal from this blog the actual text of the thing being sent to the President...what this commission is charged with.

If they actually make use of their mandate, an awful lot of people could go to jail before they finish their work.

Hooray! I'm glad these money grubbing capitalists are going to get what's coming to them.

 

[kapkomet]

Gratuitous Filibuster Post of the Day.

 

 

 

[Balta1701]

Gratuitous Filibuster Post of the Day.

 

So...Mark 2 Market accounting sucks right?

[kapkomet]

So...Mark 2 Market accounting sucks right?

I don't know what it is.

 

[Balta1701]

Both of tonight's FDIC meals were in Illinois.

[mr_genius]

House rejects state income tax hike

 

http://www.suntimes.com/news/politics/1600...fe.suntimes.com

 

 

[lostfan]

GM formally files for bankruptcy. It's funny how the market doesn't even seem to care, it's up 213 right now.

Edited June 1, 2009 by lostfan

[NorthSideSox72]

GM formally files for bankruptcy. It's funny how the market doesn't even seem to care, it's up 213 right now.

They were headed there for a while, and even before that were headed to what amounted to a controlled version of it anyway. Already priced in, and they probably realize its better for the long run anyway.

 

[southsider2k5]

They were headed there for a while, and even before that were headed to what amounted to a controlled version of it anyway. Already priced in, and they probably realize its better for the long run anyway.

 

It would have been nice to have not wasted $20 billion to get to the point we all said it would anyway.

[mr_genius]

GM formally files for bankruptcy. It's funny how the market doesn't even seem to care, it's up 213 right now.

 

so i guess GM going into bankrupcy doesn't automatically put the US in another great depression. it seems some of us were right all along.

 

Edited June 1, 2009 by mr_genius

[Balta1701]

so i guess GM going into bankrupcy doesn't automatically put the US in another great depression. it seems some of us were right all along.

 

Dude, there's a huge, huge difference between the government putting up $60 billion to finance the bankruptcy and GM shuttering its plants completely as was the option in December pre-bailout.

[southsider2k5]

Dude, there's a huge, huge difference between the government putting up $60 billion to finance the bankruptcy and GM shuttering its plants completely as was the option in December pre-bailout.

 

People keep saying that, but it wasn't going to happen. Minus the ginormus debt and labor costs, GM is profitable, and the whole world knows it. Even if it got to liquidation (which it wouldn't) someone would have bought it, and reopened it without all of the burdens, just like many of the steel mills did during the 90's. There are plenty of historical references here.

[Balta1701]

People keep saying that, but it wasn't going to happen. Minus the ginormus debt and labor costs, GM is profitable, and the whole world knows it. Even if it got to liquidation (which it wouldn't) someone would have bought it, and reopened it without all of the burdens, just like many of the steel mills did during the 90's. There are plenty of historical references here.

But could a "Brand name" really have survived having its doors closed for a few months the way a steel mill can? You don't exactly think "This is Republic Steel" when you go buy something made out of steel, you do think "This is a Chevy" when you buy a Chevy.

[southsider2k5]

But could a "Brand name" really have survived having its doors closed for a few months the way a steel mill can? You don't exactly think "This is Republic Steel" when you go buy something made out of steel, you do think "This is a Chevy" when you buy a Chevy.

 

Yes it would have. Hell how many times has Chrysler gone under? How many times have different airlines gone under? How many major banks have been bailed out? The whole bankruptcy equals doom crap is union propaganda that has no basis in reality.

[Balta1701]

Yes it would have. Hell how many times has Chrysler gone under? How many times have different airlines gone under? How many major banks have been bailed out? The whole bankruptcy equals doom crap is union propaganda that has no basis in reality.

None of the banks were allowed to enter bankruptcy, that's a terrible comparison. If it wasn't for absolutely massive government intervention and the explicit government guarantee of deposits through the FDIC then virtually every big bank in this country would have been gone last year. The airlines were also given, quite frankly, massive government handouts in the post-911 environment, at least 2 times. Basically your argument is that bankruptcy is fine for companies as long as there is a monstrous federal intervention at the same time.

[Balta1701]

I also did want to post this commentary by Robert Reich as I found it interesting.

But why would U.S. taxpayers want to own today’s GM?

 

Surely not because the shares promise a high return when the economy turns up. GM has been on a downward slide for years. In the 1960s, consumer advocate Ralph Nader revealed its cars were unsafe. In the 1970s, Middle East oil producers showed its cars were uneconomic. In the 1980s, Japanese auto makers exposed them as unreliable and costly. Many younger Americans have never bought a GM car and would not think of doing so. Given this record, it seems doubtful that taxpayers will even be repaid our $60 billion. But getting repaid cannot be the main goal of the bail-out. Presumably, the reason is to serve some larger public purpose. But the goal is not obvious.

 

It cannot be to preserve GM jobs, because the U.S. Treasury has signaled GM must slim to get the cash. The company has only slightly more than 60,000 Americans today (83,000 around the world), and plans to shut half-a-dozen factories and sack at least 20,000 more U.S. workers this year. It has already culled its dealership network. Plans call for laying off another 18,000 U.S. workers by the end of 2010.

 

The purpose cannot be to create a new, lean, debt-free company that might one day turn a profit. That is what the private sector is supposed to achieve on its own and what a reorganization under bankruptcy would do.

 

Nor is the purpose of the bail-out to create a new generation of fuel-efficient cars. Congress has already given auto makers money to do this. Besides, the Treasury has said it has no interest in being an active investor or telling the industry what cars to make.

 

The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. Yet if this is the goal, surely there are better ways to allocate $60 billion than to buy GM. The funds would be better spent helping the Midwest diversify away from cars, as the auto industry continues to shrink. And eventually, for the reasons stated in Parts I and II of this series, diversify away from manufacturing assembly. Cash could be used to retrain car workers, giving them extended unemployment insurance as they retrain.

 

But U.S. politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view.

 

So the Obama administration is, in effect, paying $60 billion to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.

 

Behind all of this is a growing public fear, of which GM’s demise is a small but telling part. Half a century ago, the prosperity of America’s middle class was one of democratic capitalism’s greatest triumphs. By the time Wilson left GM, almost half of all US families fell within the middle range of income. Most were headed not by professionals or executives but by skilled and semi-skilled factory workers. Jobs were steady and health benefits secure. Americans were becoming more equal economically.

 

But starting three decades ago, these trends have been turned upside down. Middle-class jobs that do not need a college degree are disappearing. Job security is all but gone. And the nation is more unequal. GM in its heyday was the model of economic security and widening prosperity. Its decline has mirrored the disappearance of both.

 

Middle-class taxpayers worry they cannot afford to bail out companies like GM. Yet they worry they cannot afford to lose their jobs. Wilson’s edict, too, has been turned upside down: in many ways, what has been bad for GM has been bad for much of America. The answer is not to bail out GM. It is to smooth the way to a new, post-manufacturing economy.

[southsider2k5]

None of the banks were allowed to enter bankruptcy, that's a terrible comparison. If it wasn't for absolutely massive government intervention and the explicit government guarantee of deposits through the FDIC then virtually every big bank in this country would have been gone last year. The airlines were also given, quite frankly, massive government handouts in the post-911 environment, at least 2 times. Basically your argument is that bankruptcy is fine for companies as long as there is a monstrous federal intervention at the same time.

 

What the heck do you think the bailout was? It was corporate bankruptcy. And despite the bailouts, the airlines all still went through massive bankruptcies (except for one large one). Guess what, everyone still flies those airlines, they still use those banks, and they still bought chryslers.

 

My argument isn't what you want to make it, my argument, as always, is that bankruptcy was never going to shut down the auto companies. In a historical context, that is just stupid propaganda that has no basis in reality.

[Rex Kickass]

Chrysler filed for bankruptcy once, in 2009.

[kapkomet]

Chrysler filed for bankruptcy once, in 2009.

Ok, Rex. Funny.

 

[Balta1701]

On the '00s (the "Naughts") ...

 

Employment Dec 1999: 130.53 million

Employment Jun 2009: 131.69 million

 

A gain of just 1.16 million. What are the odds that the economy loses another 1.16 million jobs over the next 6 months? Pretty high. That would mean no net jobs added to the economy for the naughts: Naught for the Naughts!

 

And for the stock market?

 

S&P 500, Dec 31, 1999: 1469.25

S&P 500, July 2, 2009: 897.29

 

Equity investors wish they went Naught for the Naughts.

CR

[Balta1701]

5 different banks in Illinois have been seized by the FDIC today. 1 more in Texas, so far.

[Balta1701]

So...last year's nobel prize winning economist yesterday gave us this figure from the bad BLS numbers, showing that not only is the job market shrinking, but wages are stagnating and could soon start trending downwards. That's how one gets in to a deflation spiral. Wages go down, forces prices down, forces wages down.

[Balta1701]

Sweet, Matt Taibi's screed on Goldman Sachs and how they're basically this patronage machine where people walk between them and the government and use those connections to enrich Goldman at the expense of everyone else is finally online. Have to read this today.