Quote of the Week

Comes from Neil Barofsky (pictured), former Inspector General for the TARP program, from a New York Times article.

"The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true," Mr. Barofsky said in an interview last week. "It really happened. These suspicions are valid."

The regulators at the SEC and Treasury are in on this scam, and Democrats and Republicans alike are guilty. Democrats however, committed the latest foul with their passage of Dodd-Frank, which perpetuates Too Big To Fail. (Peter, a friend of mine noted that any justification of monopoly on a basis other than consumer choice, like TBTF, is ripe for collapse.) But none of these bank shenanigans would be sustainable without a compliant Federal Reserve, manipulating the currency to keep Wall Street and the Big Banks afloat. This is why I have been converted to a gold standard enthusiast. The gold standard carries its own problems, but at least it prevents the kind of currency manipulation that leads to the financial crises that continue to plague the industrialized world.

H/T Dean. Also, I have at times castigated the NYT for its reporting, but bringing these issues to light is what a free press is all about.

I can't resist one more quote.

“So much of what’s wrong with Dodd-Frank is it trusts the regulators to be completely immune to the corrupting influences of the banks,” he said in the interview. “That’s so unrealistic. Congress has to take a meat cleaver to these banks and not trust regulators to do the job with a scalpel.”

Knowing Nothing About Cars

...doesn't prevent you from running an auto company. A year ago I opined that Big Ed Whitacre didn't need to know anything about cars to run GM. Today both Michelle Malkin and Dean alerted me to the TARP Inspector General report that shows that the decision to close Chrysler and GM dealerships was essentially arbitrary and counterproductive; but Big Ed is still GM CEO with the full backing of the Shareholder-in-Chief. Dean's commentary is highly recommended. You can read the whole TARP IG report here.

Michelle Malkin points out the most outrageous point on page 33 of the report:

Mr. Bloom, the current head of the Auto Team, confirmed that the Auto Team "could have left any one component [of the restructuring plan] alone," but that doing so would have been inconsistent with the President's mandate for "shared sacrifice."

In other words, concerns over social justice, rather than the most economically viable plan to allow the companies to recover, guided decision making. This will play itself out in the health care arena as all manner of insurance companies and hospitals will be harmed in the name of "shared sacrifice" as Obamacare is implemented. This is more than mere justicialism, it puts squarely on the road to socialism as the economic basis of free enterprise is destroyed.

TARP Losses ONLY $117 Billion

According to the Treasury Department spokesman, Andrew Williams, projected losses for the Trouble Asset Relief Program (TARP) are only going to be $117 billion not the $341 billion earlier projected. What a relief. When this program was first debated, and tea party types objected, we were told this isn't government spending, it's just a loan; it won't add to the national debt; it will all get paid back. Right. It galls me that the so called elites don't think the average person can understand the workings of finance and financial regulation. (Meanwhile Fannie and Freddie unlimited bailout cash doesn't even make the TARP books, so even this figure is an underestimated lie.) Screw ups like TARP are predictable by everyone except these elites. And to remind every Republican running for office, this donkey of a program was initiated with Republican votes under a Republican administration. If you jackasses want any Tea Party votes, you better start doing some serious work in cutting spending.

Not supporting Jim Bunning isn't such a good start either. Get with the program, I know you can't shut down everything, but one Senator showed some principle in demanding some offsets to deficit expanding extension of unemployment benefits. No matter how popular the programs being halted, unless the Republicans can show some fortitude on deficit reduction, they aren't really catching the mood of the country. Bravo to Scott Brown for applauding Bunning's stand. I know Bunning has issues, but the leadership in the Senate should have gotten their caucus together and made a principled stand on the long avoided promise that all programs will be offset to ensure they don't increase the deficit.

Losing the White House - The Turning Point

It is not often in politics that one can pin point an exact turning point in a campaign. It's not like an unsuccessful on side kick in football. Henry Paulson has published memoirs that paint John McCain in a bad light and help explain more clearly what happened in the fall of 2008 at the dawn of the first stimulus. I will admit upfront that Paulson has several axes to grind and his memoir is in all likelihood extremely self serving. However, there can be no doubt about the outcome of those events.

To set the stage, McCain had gotten a great bounce after nominating Sarah Palin as Vice President and at one point was leading Obama in the polls. He started to sink again, and the first debate on September 27 didn't seem to help. After the convention, the markets started to collapse and Paulson and Bush seemed panicked by the financial situation. There was some debate about bailing out AIG, and McCain initially spoke out against that, but didn't really follow through. AIG had been bailed out September 16. This seemed to stop his freefall in the polls. As the financial crisis seemed to deepen, McCain suspended his campaign and returned to Washington. He also suggested that the second debate be postponed. Further, McCain called for a meeting regarding the crisis, while Boehner was saying that he might not have the votes in the House to carry the TARP package for the President, and the Democrats were not going to pass it alone.

From the WSJ excerpt:

Then he sprang the trap that the Democrats had set: "Yesterday, Senator McCain and I issued a joint statement, saying in one voice that this is no time to be playing politics. And on the way here, we were on the brink of a deal. Now, there are those who think we should start from scratch. ... If we are indeed starting over, the consequences could well be severe."

But, of course, there was no deal yet. [Rep. Spencer] Bachus [R., Ala.] had been maneuvered into giving credibility to the appearance of one. But he, [House Minority Leader John] Boehner and [Senate Minority Leader Mitch] McConnell had since issued statements disclaiming the idea that there ever had been a deal. Now Obama and the Democrats were skillfully setting up the story line that McCain's intervention had polarized the situation and that Republicans were walking away from an agreement. It was brilliant political theater that was about to degenerate into farce. Skipping protocol, the president turned to McCain to offer him a chance to respond: "I think it's fair that I give you the chance to speak next."

But McCain demurred. "I'll wait my turn," he said. It was an incredible moment, in every sense. This was supposed to be McCain's meeting—he'd called it, not the president, who had simply accommodated the Republican candidate's wishes. Now it looked as if McCain had no plan at all—his idea had been to suspend his campaign and summon us all to this meeting. It was not a strategy, it was a political gambit, and the Democrats had matched it with one of their own.

There it is. McCain had no alternative. You can disagree all you want about the details of that meeting, but the fact remains that McCain could have derailed the first stimulus and distanced himself from both Obama and Bush. Obama had called McCain's bluff. But McCain did not have the free market economics team in place to call "all in." After that it was all down hill for McCain and he never came any closer than that day to catching Obama.

In hindsight, I don't think the TARP was needed to stabilize the system. I am not an expert, but I know that financial institutes are judged by different standards for bankruptcy than are other businesses. Emergency action may have been needed, but it might have been a holiday on financial institution bankruptcy filings or some other fix that didn't commit the taxpayers to unlimited liability. I know for a fact that the TARP was a bad policy.

The voters went on to make a rational choice. Polls at the time showed the TARP plan to be unpopular, but given that both candidates ultimately supported a continuation of Bush policies, they voted for the one who appeared to have handled the crisis calmly, not the one who grandstanded like Michael Scott, but couldn't back up his play.

Poll history here, if you want to check my time line.

My initial thoughts at the time here and here.

Pay Go? Pay Gone!

Today's Drudge Headline:

WHITE HOUSE MASTER TO SLASH EXEC PAY

For the second time this week, I find myself agreeing with the Obama administration, but I will impugn their motives anyway. First, why do I agree? This headline reminds me of what the very prescient George Will said in an April 2008 commentary about what was going on at the Fed, which was bailing out Bear Sterns at the time:

Congress could pass a law saying: No company benefiting from a substantial federal subvention (which would now include Morgan) may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

Amen, brother. (Small error, the top pay is more like $196,700 but that's still chump change to these bankers.) These guys loaded up on risk like there was no tomorrow and expected the Fed and the Congress to bail them out, which institutions promptly obliged. Where are the consequences that will change future behavior? Further, I hope this accelerates the pay back of the TARP/porkulus money, and stops further bleeding from the Treasury on this front. This is predatory government, when big special interests capture the government institutions that supposedly regulate them. This is the kind of thing that animates the left, and you can understand why. (I am thinking about a post to help you lib/cons understand the left.)

On to impugning motives. The administration's action comes not out of any sense of preventing future calamity, but out of the leftist emotion of rage at those making more money than themselves. It's all just populism to compete with Glenn Beck, who has been kicking their tails of late. Fortunately, for the American tax paying public, Team Barry has not thought this through and will probably be outraged when these firms find ways to return the filthy lucre that got their execs pay cut in the first place.

Kenneth Feinberg, Treasury Official in charge of Executive Compensation:
"We're cutting your pay, even if it increases the deficit."

Puttin' a Damper on Those Bailout Requests

President Obama, in a move that I fully applaud, and was anticipated by George Will last year (see last paragraph of link), capped executive pay at firms receiving bail out money at a paltry half million per year. Why do I applaud such a blatantly anti-capitalist piece of symbolism and political theater? Well, I think the government is going to have a hard time giving away all that TARP jack if it hurts executive's personal bottom line. (Click here to apply yourself, if you think you can stand limiting your salary.)

Dean also saw the writing on this particular wall, commenting on how the mere threat of losing the corporate jet was already dissuading executives from porking out on federal largesse. How are they going to react to the loss of 7 or 8 figures off their personal paychecks. Some of these guys personal mortgages probably top the half million number.

As an aside, I had the good fortune to listen to Marshal Goldsmith yesterday, a great speaker. He discussed the motivating power of money and how he uses it in his executive coaching practice. He remarked that his client base consisted primarily of rich old men. "You would think they wouldn't mind losing small amounts of money, right? Well, you would be WRONG." He uses small fines in the $5 to $20 dollar per incident to get these executives to change bad behavior. If $5 bucks a crack can motivate investment bankers and Fortune 500 CEOs, what you think Obama's plan is going to do?

So good luck to the Prez and the new tax collector-in-chief in disbursing the rest of the bailout money. If you'll excuse me now, I've got an application to submit; I think I can squeak by on the $500K and the line seems a lot shorter now.