Tag Archives: Financial Meltdown

Global Warming and the Anthropogenic Financial Crisis

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When listening to President Obama’s dire predictions of “catastrophe” if a stimulus bill is not passed now now now now now, is anyone else reminded of the global warming debate?

Even most skeptics about what Taranto calls “global warmism” would concede that there are valid reasons to want to reduce the use of fossil fuels and the resultant greenhouse gases. The debate arises over what measures should be taken, and how urgently. (Now now now now now!)

Similarly, there seems to be widespread consensus that the economy is in terrible shape, and that an increase in economic activity would help. The debate arises over how best to stimulate the economy, and how urgently.

In both cases, proponents of “doing something” now now now now now maintain that there is no time to worry about the possible side effects. But I firmly believe that when everyone around you is clamoring for immediate dramatic action, that’s exactly the right time to take a deep breath and think hard about the consequences. A few years from now the specifics of the stimulus package will be a lot more important than whether the bill was passed in February or March.

The one thing that seems clear to me is that if we are going to make a multi-hundred-billion-dollar effort to stimulate the economy, it should be done through a combination of a) tax cuts for lower-income people (pushing stimulus activity down to the individual level, among people who are likely to spend) and b) accelerating government spending that is destined to occur anyway.

That, of course, is not what the Democrats are planning. Here’s Krauthammer, on the “fierce urgency of pork” behind the “legislative abomination” that is the stimulus bill (emphasis added):

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.

Krauthammer was writing about the House version of the bill, but I’ve seen little reason to believe that the Senate compromise reached last night is any better.

Meanwhile, Harvard economist and former Chairman of the Council of Economic Advisors Greg Mankiw describes “My Preferred Fiscal Stimulus“:

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.

Note that by allowing governors (and I think you’d have to include state legislators) to determine whether to substitute spending for tax cuts, Mankiw’s proposal would mean that any decision about whether to build schools in Milwaukee would be made in Milwaukee, or at least in Wisconsin. And by gradually increasing the gasoline tax to offset the immediate payroll tax cut, the proposal would even… wait for it… help counteract global warming.

Curse You, NY Post: I Had "Reign of Thain" First

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In 2007, when John Thain became the first outsider named to lead Merrill Lynch in the firm’s history, I called a bunch of former colleagues there, looking for the insider scoop on the company where I worked for 12 years.

Making conversation, I said to a couple of people, “As a stockholder, I wish him well, but if the new guy doesn’t work out, at least you’d be able to say “the reign of Thain is regarded with disdain.” I should have copyrighted the phrase.

Comes now the news that Thain, who briefly was a genius for selling the company to Bank of America, thereby preventing the stock from going to zero, managed to spend $1.2 million of the shareholders’ money redecorating his office. This prompted the headline above in the New York Post (if you’re reading via RSS, it says “The Reign of Thain Was Mainly Just a Pain.”) I like my version better (imagine that!), although theirs is more true to the original rhyme scheme.

Now, I don’t expect the CEO of Merrill Lynch to get his new office furniture at Ikea. But Thain was hired away from the New York Stock Exchange specifically to rescue Merrill Lynch after predecessor Stan O’Neal golfed while the subprime crisis swirled. Even on Wall Street, you’d expect he would know better than to pay a celebrity interior designer $800,000 to buy knick-knacks like an $88,000 rug. Two words, Mr. Thain: Dennis Kozlowski.

It brings to mind another legendary Wall Street titan, Ace Greenberg, who used to send quirky staff memos urging employees to save money by, for example, reusing paper clips. At least he had the symbolism right. But all those paper clips were not enough to save Bear Stearns, which sold out to JPMorgan Chase in the early days of the Wall Street meltdown.

Grateful to Live in the Shining City on the Hill

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Conservative Peggy Noonan takes a step back from the gloomy economy and focuses on the big picture:

People are angry but don’t have a plan, and they’ll give the incoming president unprecedented latitude and sympathy, cheering him on. I told a friend it feels like a necessary patriotic act to be supportive of him, and she said, “Oh hell, it’s a necessary selfish act—I want him to do well so I survive. We all do!”

This is a good time to remember who we are, or rather just a few small facts of who we are. We are the largest and most technologically powerful economy in the world, the leading industrial power of the world, and the wealthiest nation in the world. “There’s a lot of ruin in a nation,” said Adam Smith. There’s a lot of ruin in a great economy, too. We are the oldest continuing democracy in the world, operating, since March 4, 1789, under a vibrant and enduring constitution that was formed by geniuses and is revered, still, coast to coast. We don’t make refugees, we admit them. When the rich of the world get sick, they come here to be treated, and when their children come of age, they send them here to our universities. We have a supple political system open to reform, and a wildly diverse culture that has moments of stress but plenty of give.

The point is not to say rah-rah, paint our faces blue and bray “We’re No. 1.” The point is that while terrible challenges face us—improving a sick public education system, ending the easy-money culture, rebuilding the economy—we are building from an extraordinary, brilliant and enduring base.

In the second presidential debate, on October 7, it was already becoming clear that my candidate was going to be defeated. The next day I wrote, “I’m starting to get used to the idea of President Obama.” But while McCain was outmatched in that debate, he gave me one moment of inspiration:

I’ve heard a lot of criticism about America, and our national security policy, and all that, and much of that criticism is justified. But the fact is, America is the greatest force for good in the history of the world.

Yes. My preferred formulation has always been, “America is the greatest force for good in the world this side of the Almighty.” But McCain has a bigger soapbox and a far more noble resume — I’ll sign on to his version.

I mean no disrespect for any other country. About 9% of my readers come from outside the United States, according to the flag-bedecked widget in the right column. Just this morning I logged my first visitor (since installing the widget) from Slovenia — DobrodoÅ¡el! (That supposedly means “welcome!” in Slovenian.)

Other cultures are worthy of respect, and great people can emerge from any nation. But some people will always face greater challenges because of where they live. Those of us who have been born as American citizens need to remember from time to time that we hit the citizenship lottery.

Sorry, No Tears Here for Madoff’s Clients

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(After learning more about Madoff’s victims, I recanted in a later post — KP)

Apparently regulators ignored warning signs for more than a decade while Bernie Madoff stole and/or lost as much as $50 billion of his clients’ money. Holman Jenkins explains why we should not waste our sympathy on the clients:

There are costs and benefits to everything, including the cumbersome apparatus of firms that subject themselves to intrusive monitoring and conform to standards of transparency. Mr. Madoff’s clients chose to avoid those costs. For that matter, they chose to forgo lower but safer returns, as many rich people do, by entrusting their fortunes to T-bills.

The herding automatons of the media can never encounter lawbreaking in the financial markets without concluding that it demonstrates the necessity of more laws against lawbreaking. Congress, now in the process of convincing itself it should run the auto industry, no doubt will see in Mr. Madoff proof that Congress is needed to manage rich people’s money and ordinary people’s too. Then we’ll all be in the same position as Mr. Madoff’s clients.

I’ve never been burdened by great wealth. Hedge funds like those that invested with Mr. Madoff typically require $1 million or more to open an account — no danger for me! As a 50-year-old “thousandaire,” I probably don’t have to worry about what I would do with a million dollars in investable assets.

But it’s at least theoretically possible that I could strike it rich — by starting a successful business, say, or writing a bestselling book. If so, I’ll have to have quite a few “safe millions” in investments no riskier than an S&P 500 index fund before I’ll even think of risking a million dollars with a hedge fund.

Most of the investors who lost millions have other millions to fall back on. Somewhere there may be an investor who invested his only millions with a fund victimized by Mr. Madoff. If so… well… bummer. But no tears here.

Autoworkers: “I’m Sticking to the Union… Till the Day I Die”

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(Welcome, Corner readers, and thanks to Cornerite Iain Murray for his continuing support. Thanks also to Mickey Kaus for linking, with a permalink no less — sorry about the crack below about the Kausfiles template!)

In an article on Slate, Mickey Kaus explains why the Detroit automakers are in trouble:

There are some obvious culprits: shortsighted American managers, schlocky designers, an insular corporate culture. Here’s another: the very structure of Wagner Act unionism. The problem isn’t so much wages as work rules–internal strictures that make it hard for unionized competitors to constantly adapt and change production processes the way the Japanese do.Now that everyone is criticizing work rules, it’s easy to forget that they don’t represent a perversion of the collective bargaining process–they are the intended result of that process, and were once celebrated as such.

Kaus doesn’t explicitly advocate or oppose bankruptcy in the article. From what I’ve reviewed of his earlier writing, he doesn’t seem to have taken a position one way or another — rather, he has repeatedly pointed out the problems and the flaws with both bankruptcy and a bailout. (That link is to his blog homepage — his archaic “Kausfiles” template has very few permalinks, so you have to just keep scrolling or searching except when he puts up a major article.)

Legacy of the 1935 Wagner Act

But to me, his current article explains vividly why bankruptcy is the only solution for Detroit. He quotes from another writer’s 1983 article:

Under the Wagner Act, management manages. What the union does is complain, and negotiate for a rule limiting management’s right to do what the union doesn’t like. A worker protests that his job should be classified as “drilling special and heavy” instead of “drilling general.” The parties butt heads, a decision is reached, and a new rule is deposited like another layer of sediment. At some GM plants, distinct job categories evolved for each spot on the assembly line (e.g., “headlining installer”). In Japanese auto plants, where they spend their time building cars instead of creating job categories, there is only one nonsupervisory job classification: “production.”

Note that the above was written 25 years ago — the problem already was clear, and now the “layers of sediment” have had another quarter-century to accumulate. Kaus continues, describing the situation today:

Yes, faced with successful Japanese rivals, Detroit and its union have been trying to reduce the number of work rules–but the process has been slow, like pulling teeth, especially because the UAW defers to its locals.

Confessions of a Union Man

I’ve been professionally aligned with “management” for the past quarter century, but before that I briefly was an unpaid, elected union official. (It was the Newspaper Guild, an anemic junior varsity union in a dying industry, but still. I was the head of a roughly 40-person unit at The Home News, a small New Jersey daily. It’s now Home News Tribune Courier News, and the Guild unit didn’t survive the mergers.)

My point, and I do have one, is that I’ve seen enough of the behavior of highly paid top union officials to understand that their focus is not on the best interests of their members. Their focus is on protecting their lucrative jobs, and the only way they know to do that is to be perceived by the members as being willing to fight to the bitter end to protect existing contracts.

But in bankruptcy court, the contracts (theoretically, at least) can be voided. And that’s the level of change that will be required to put the U.S. auto industry on solid competitive footing with foreign automakers.

A Shout-Out to #TCOT

In the past few days, my humble blog has had a welcome flurry of attention because of a post I wrote describing the interaction between Ford’s head of social media, Scott Monty, and a new virtual organization called Top Conservatives on Twitter (TCOT). (What is Twitter, you ask? Here is a primer.) Having voted for Clinton twice I’m still not used to thinking of myself as a conservative, but I’m currently the 655th top conservative on Twitter, according to the group’s list.

I’ve been moving up the ranks as more people sign on to follow my “Tweets” because of the publicity. [Are YOU following me on Twitter?] The original post got linked to from The Corner, sending hundreds of visitors my way and spawning other threads in the conservative blogosphere. I later did a followup post expressing admiration for Monty’s grace under pressure.

The Ford Story

My BFF Scott Monty is working hard to get the public to understand that the auto bailout defeated last week in Congress was not a “Big 3” bailout. As I said in an earlier post,

Interestingly, Ford is not seeking bailout money at this time, but supports the bailout “to address the near-term liquidity issues of GM and Chrysler, as our industry is highly interdependent and a failure of one of our competitors could affect us all.”

Monty argues, convincingly to my mind, that under CEO Alan Mulally — a former Boeing exec who never worked for a car company before two years ago — Ford has gone much further than GM and Chrysler toward adjusting its business model to the emerging realities. TCOT is racing to try to reinforce that story — dozens of volunteers (including, to some degree, me) have mobilized over the weekend for Operation Ford Motor, an effort to help differentiate Ford from the others, while striking a blow for capitalism and the principles of market discipline.

The proposed purpose of Operation Ford Motor is based on the following concepts:

– To recognize Ford Motor Company’s efforts at avoiding accepting government bailout money.

– To provide input to Ford Motor Company on why it is important to remain free-market focused, and not accept government loans.

– Partner with Ford in making its example of a market-based approach the standard for American business without relying on taxpayer dollars.

– Lay the groundwork for a market-based approach to turning around the auto industry, and the economy at large.

This nascent potential partnership is fragile on both sides. Monty has been unfailingly polite, but has cautioned that he can make no commitment on behalf of Ford. He also pointed out, in comments on a blog I just can’t find right now, that the company cannot become too closely aligned with any particular ideology. And TCOT may well bail out of this project if members come to disapprove of Ford’s actions.

I admire Monty and hope he and his company are successful in telling The Ford Story and differentiating Ford from the Big Other Two. Ford has already won some concessions from the UAW, and has refocused its business and avoided a cash crunch — it’s by far the healthiest of the three. But let’s say Chrysler and GM go bankrupt and shrink dramatically, while Ford avoids bankruptcy. Ford could end up at a competitive disadvantage because the other companies are able to put more pressure on the union.

As I said at the beginning of this adventure, way back on Friday morning: “I don’t know what if anything will come of this, but it’s fascinating.”

Lobbying in Plain Sight: The Auto Bailout on Twitter

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Welcome, Twitterers, Diggers, Cornerites, readers from Social Media Today, Dalton’s Briefs, Northwest Indiana Politics, Kicking Over My Traces and others. If you enjoy this post, I hope you’ll take a look around the site. In addition to the auto bailout, I post a lot about the adventures of a red voter in a blue state, and on Iraq, the financial crisis, capitalism and more. Original post follows, more updates at the bottom.

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I don’t know what if anything will come of this, but it’s fascinating — beginning at about 10:30 a.m. today, Scott Monty, the head of social media for Ford (yes, there is such a function now), began a Twitter conversation with Michael P. Leahy, head of a new Twitter-powered conservative group called Top Conservatives on Twitter (#TCOT).

Even if you don’t have a Twitter account, I believe you should be able to follow this search link, which currently shows the “Tweet” below as the first result:


If you click “Show Conversation” at the bottom of the Tweet, you’ll get a screen that looks in part like this:


Leahy has appointed a #TCOT Project Servant-Leader (defined here) to review what Monty described as Ford’s “well thought-out plan” for the future of Ford in the American auto industry. Since all of this is happening in Internet time, Leahy promises to finish the review today, and report back, “then u and i talk with CEO.” Monty says he can’t promise the CEO will take advice from #TCOT — “We have a board.”

Interestingly, Ford is not seeking bailout money at this time, but supports the bailout “to address the near-term liquidity issues of GM and Chrysler, as our industry is highly interdependent and a failure of one of our competitors could affect us all.”

As I said, I’m not sure anything will come of it, but I’ll report back when I know more. For now it looks like the bailout is dead in Congress, but the Bush administration is looking at repurposing some of the $700 billion financial bailout for the auto industry.

Update: Operation Ford Motor now has its own hash tag, #OFM, if you want to follow the action today.

1:50 pm – The Corner post was the traffic champ until a few minutes ago, sending about five readers per minute. Now all of a sudden Digg has taken control. Scott Monty, good sport that he is, asked his followers to Diggit.

Saturday: Follow-up post is here …

"We simply cannot ask the American taxpayer to subsidize failure"

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You go, Mitch McConnell! Here’s hoping enough GOP Senators stay in line to filibuster the auto industry bailout. From another MM:

The so-called “Wall Street bailout” was different — rather than being focused on particular companies, it actually was a rescue of the entire economy. (Ask somebody from Lehman Brothers if they feel “bailed out.”) Somebody aptly described the financial system as being like a utility — and the government would never allow the electric grid to go down because ConEd or PSE&G ran out of money.

But the problems with the auto industry are tailor-made for a bankruptcy workout. The McConnell speech I linked to above describes why, and is worth reading in full, if you have any interest in the topic. (And hey, a month ago nobody would have suspected that I even cared about the auto industry.)

Eloquent Economic Commentary from Ayaan Hirsi Ali

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Ayaan Hirsi Ali, my hero, sings the praises of open markets in a tightly edited, 6-minute video on the Templeton Foundation site, part of a series of discussions about “big questions” such as “Does the free market corrode moral character?”

English is at least her fourth language — she was born in Saudi Arabia, came of age in Kenya, won election to Parliament in Holland, then fled to the United States in the face of Islamic death threats — and yet the 39-year-old Ali provides one of the most powerful descriptions of the virtues of capitalism that I’ve heard anywhere. A remarkable person.

Holy Cow! We’re in a Recession!?!?

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Let’s drive the Dow down 680 points on this shocking news!

It turns out that the commonly understood definition of a recession — two consecutive quarters of declining gross domestic product — isn’t the definition used by by the recession-calling National Bureau of Economic Research. Those worthies also consider the labor market, real personal income, industrial production, the entrails of a freshly sacrificed goat, and wholesale and retail sales. GDP has been erratic and we have not yet seen two consecutive quarters of contraction.

Here’s my best PR-guy attempt to put a positive spin on this: The NBER has backdated the start of the recession to December 2007, so the recession already has been under way for 11 months. That means it’s already tied for the third-longest recession since World War II — only the recessions in 1973-75 and 1981-82 have been longer, at 16 months each. So unless this recession is going to set a post-war record, it has no more than 5 more months to go.

That seemed like a positive spin when I thought of it, but typing it has bummed me out. I was kidding about the goat.

NBER makes the call. I especially like the cheery yellow “NEW!” logo in the right column.