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Monday, March 30, 2009
By process of elimination, political symbolism is the only reason the White House is forcing GM CEO Rick Wagoner to resign.
Let's go through the legitimate business reasons for replacing a CEO: Violation of the law or company policy, such as stealing company assets, harassment of subordinates or colleagues, taking bribes or offering kickbacks in order to win business or falsifying company records. Such violations, no matter how good the manager otherwise is at his job, justifies termination. Absent one of the above, replacing a CEO is justified when ownership (acting through the board of directors) concludes (1) the company is not performing at a desired level AND (2) the current CEO is seen as a hindrance to improving performance AND (3) someone else if viewed as having the skill set to meet expectations. The first point ought to be self-explanatory; there's no reason to replace a CEO if the company is meeting performance expectations. As to the second point, note that I did not write that the current CEO is responsible for the poor performance, as what has happened in the past is less important than how the company is going to recover. This is why even AIG employees who are viewed as responsible for AIG's problems could be asked to stay; yes, they made mistakes but, to steal a phrase from the radical left, it is more important to move on, to fix what is broken and counter-intuitively, the people who made the mess are often the best ones to stick around and fix things. It is only when someone else is seen as better that it becomes justifiable to get rid of the current players (if no one else is seen as better, then you're just hurting yourself by replacing current employees). As for GM, Wagoner isn't responsible for the mess GM is in, as their problems long predate his employment, but he is responsible for not having fixed things... but while he hasn't done so, he is not an obstacle to making things better. Wagoner knows what needs to be done, he hasn't had the ability to do so. He knows he has too many dealers, he knows GM's labor costs are too high, he knows that environmental laws force GM to make more (money-losing) small cars than is optimal, he knows GM has too many models which leaves GM unable to revamp their product line often enough to satisfy fickle consumers, he knows GM has a huge albatross in the form of retiree pension and medical benefits hanging around GM's neck, he knows GM has an incredible amount of debt and he knows that GM is putting billions of dollars into so-called green car technology that GM can't afford and will never recover in the form of car sales. And here is the argument that should disappoint anyone hoping that a new CEO is just the thing that GM needs: just as Wagoner has been unable to extricate GM from its problems, so too will any replacement CEO be unable to make things any better. A new CEO isn't going to be any better at Wagoner at getting states to modify the franchise laws that effectively preclude GM from terminating surplus dealers, he isn't going to be any better at getting the UAW to agree to the wage and benefit cuts that are needed, and he isn't going to be any better at convincing GM's creditors to convert their debt into equity. The ONLY thing a new CEO could do that Wagoner wouldn't is to put GM into bankruptcy (and note that Wagoner should NOT have done so, as Wagoner works for the shareholders whose equity would be wiped out in bankruptcy; that GM might emerge from bankruptcy a stronger company doesn't affect the fact that the CEO doesn't work for the workers, the customer or the dealers, he works for the shareholders and thus should NEVER look to take the company into bankruptcy). But if the Obama Administration wanted GM to go into bankruptcy, they didn't need to force out Wagoner to make that happen, all they had to do was withhold any additional bailout dollars and GM would have had no choice but to declare bankruptcy. Thus I infer that Obama isn't looking for GM to go bankrupt, and since they aren't looking to push through the legislative changes necessary for GM to restructure itself outside of bankruptcy, any CEO they hire will be no better able to fix GM than Wagoner was. And if the new guy ain't going to be any better, it's a violation of rule #3 and thus definitive proof that there is NO business justification for replacing Wagoner... which leaves only one option, that the Obama Administration is looking for a cheap P/R stunt to fool the public into thinking that Obama is taking the hard steps to fix GM. He isn't, but unfortunately, the public isn't going to figure that out for some time. Friday, March 27, 2009
What a novel idea, Obama urging bank executives to deal with the bad assets on their balance sheets...
I'm sure that thought never would have occurred to them without Obama saying something. Executives are never concerned with the quality of their balance sheets and the impact a suspect balance sheet have on the company stock price. They never concern themselves with whether those assets are fairly valued and liquid and the problems that arise if the market concludes those assets are overvalued or otherwise not as they're being reported. And they never think how nice it would be to get someone else to take those bad assets off their hands. And what does it say about Obama that he thinks his comments are insightful or even helpful? Could he truly be so naive that he can't imagine these bank executives are thinking to themselves (and among each other, just as soon as Obama leaves the meeting) "God, that guy is dumb! Articulate and clean, yes, but what a dummy". And of course the same can be said of Obama's followers who, as they have done so often in the past, think that Obama, and not Joey Logano, is the greatest thing since sliced bread. It's just so much like Stone Soup, Obama has got nothing but rocks yet his fan club swears they're being fed the greatest meal of all time. Wednesday, March 25, 2009
While Fedex's announcement that they will hold off buying more jets if the Democrats pass 'card check' legislation is a clear signal that this legislation is a jobs killer, Fedex ought to know that backers of the bill could care less... and neither will Fedex's current workforce.
Fedex's current workforce, the unions who are trying to unionize them and Democratic politicians don't care about employees who have yet to be hired, as in the case of the pilots and other workers Fedex would hire to fly and service these additional planes. Employees want more money and higher benefits for themselves; they aren't going to give up money they could otherwise have for themselves in order for the company to go hire more employees. Fedex's employees don't care if Fedex becomes twice as big as it now is, they care about the amount of money they take home every two weeks. And unions represent current employees (in some cases, they represent retired workers). While union leaders might like to see their union grow in membership, they know that their ability to keep pulling down the nice paycheck they get depends not on the number of employees in the union but rather on how happy the current members are with the last contract negotiated on their behalf. They know employees who have yet to be hired don't get to vote in union elections, so quite logically, their efforts are devoted to extorting as much money as they can from management. And Democratic lawmakers know where their campaign contributions come from. The money they so desperately need doesn't come from 'workers' as an abstract, they come from unions and union members... and as sunset follow sunrise, Democrats aren't going to do anything to jeopardize this flow of campaign contributions. Put another way, a Democrat would rather see 1,000 workers in their district become union members than see their district's employment grow by 10,000.
On Monday, Geithner announced details of his plan to let banks shed their so-called toxic assets, which, together with reports that Obama was backing off the threat to go after the bonuses of anybody and everybody in any way connected with Wall Street and some good news regarding housing prices, led traders and investors to send the market up close to 500 points.
Yesterday, Obama let it be known that he wants the power to take over financial firms (and pretty much on his say-so alone), a move that couldn't be taken as anything other than a big kick in the groin to investors and, accordingly, the market dropped over 100 points and took the wind out of the sails of the thought that we were I can't help but feel a bit sorry for Geithner. His personal tax issues aside, he seems like he's a nice and competent guy caught between the rock of having a clue and the hard place of having to publicly support his has-no-clue President. He has to know that restoring confidence to Wall Street is a vital first step in restoring overall confidence in the economy... and he has to know that publicly castigating Wall Street workers (even those who don't work on Wall Street) and threatening to seize control of so-called troubled firms is not the type of thing that makes investors confident... but when he has a boss who has no friggin idea as to what really works in the world, he's forced into a position where he has to bite his tongue. I don't know how he sleeps at night, maybe he thinks he is keeping Obama from doing even more damage to the system... but he wanted the job, he got the job and now he gets to deal with it. Tuesday, March 24, 2009
Me thinks Jonah Goldberg knows this, but liberals weren't calling for Americans to 'sacrifice' during the early stages of the Iraq War for any reason other than the hope that calling for Americans to sacrifice (higher taxes, whatever) would lessen American popular support for the war.
And that's why Obama isn't calling for Americans to sacrifice now, he doesn't want them to become any more resistant to his plans than they already are. He knows it would be fatal, for example, for his health care plans to tell Americans they need to sacrifice by paying more in taxes or in higher premiums, or by having to wait twice as long for medical care, just as he knows his environmental plans would be DOA if he lets slip that the cost of just about everything we buy is going to go up.
Democratic Senator Ben Cardin from Maryland just introduced a bill to save the newspaper industry... by letting newspapers convert to non-profit status.
Maybe.... someone ought to explain to the good (said sarcastically) Senator that non-profit doesn't mean non-profitable. Even non-profit organizations need to bring in more cash than they spend or they will go out of (non-profit) business. The problem for newspapers is not that they are taxed on the income they make, their problem is that they have no income on which to be taxed. In effect, the newspapers are already non-profit. And while official non-profit status does allow an organization to accept tax deductible donations, given the rate at which newspapers are now losing money (due to their refusal to trim operations to the level that can be supported by the advertising and circulation dollars they bring in), does anyone expect that enough of these deductible donations can be found to offset the rather large cash deficits newspapers are now running? And before newspapers get all excited about raking in piles and piles of donations, perhaps they might want to rethink their almost universal support for Obama's budget which reduces the tax benefit of charitable contributions.... It's real easy to support tax hikes which only affect other people but it isn't as much fun when those taxes are coming out of your pocket, right? Thursday, March 19, 2009
Sad to see that Frank Wolf, my Congressman, voted along with the other clowns in seeking to impose a 90% tax rate on the bonuses paid to some AIG workers...
Is it because Wolf supports bringing the vast power of the federal government to go after a handful of employees, that he sees nothing wrong with targeting individuals who have done nothing other than work hard at minimizing the cost of the AIG bailout to the American taxpayer? or maybe Wolf thinks that Liddy, who was brought in to run AIG and for the sole purpose of helping minimize the cost of the bailout to the American taxpayer, is an incompetent, stupid or corrupt fool who needs to have his decision making second guessed by a people who can't balance their own budget, who don't know how to read a financial report and have never run anything in which their business savvy was necessary to keep the business afloat? or that Liddy is wrong when he states that he feels AIG (and thus the American taxpayer) comes out ahead by paying these bonuses, that looking to rescind the bonuses was going to cost AIG (and, I repeat, the American taxpayer) far more than whatever amount of the bonuses that could have been withheld? or maybe Wolf believes people who honor their end of a contract (whether employment or any other contract) shouldn't honor the terms of their contract and don't deserve to be paid what the contract clearly states they are due? or maybe Wolf believes that Congress not only has the right but the duty to interfere with the contract negotiations between employer and employee, and even when there are no allegations of employee intimidation, cronyism or anything but an employer and employee reaching a mutual decision as to an agreement that benefits them both? or maybe Wolf believes he has some special insight into what forms and amounts of compensation an employer should and can be allowed to pay an employee? or maybe Wolf doesn't care if these AIG employees, having had their compensation arbitrarily and capriciously taken away, leave AIG worse off by quitting and going to work for one of AIG's competitors where they use their knowledge of AIG's product book to make profits for their new employers, thus increasing the costs to the American people? or maybe Wolf doesn't believe any of the above but is merely a coward in refusing to stand up against the Democratic demagogues in Congress and the loudmouths (of both parties) on talk radio who are screaming for the heads of the employees in question? or maybe Wolf doesn't believe any of the above and isn't a coward but sold his vote for a few extra dollars thrown his way from House appropriators, perhaps for extending the DC Metro system to Dulles Airport? No matter what his explanation is, his voting yes on this matter is disappointing. It is a shame that he either doesn't know better or he knows better and did it anyway. I expect the Democrats to pull stunts like this; it's extremely disappointing when guys with (R)s next to their name seem to not be any better.
My being able to vote on the basis of the issues that matter most to me means that I need to accept that other people get to vote on the basis of the issues that matter most to them. If I want the right to vote primarily on the basis of a candidate's views on taxation and national security and don't care so much about a candidate's views on earmarks or abortion, I have to be willing to grant someone else the right to vote on the basis of what might be the exact opposite set of concerns than I have.
And just as I have the right to form my opinions on the basis of whatever information, beliefs and values i want to take into account, others have the right to form their opinions on the basis of whatever information, beliefs and values they want to take into account. While I might feel it important to base my views on proven facts, sound economic and social theory and my sense of right and wrong, I know that other people have the right to base their views on other considerations entirely. But while I know they have the right, they're not immune from my criticizing them for basing their views on faulty information, an eagerness to jump on the bandwagon and class envy. And such an example is found in today's Washington Post, where in a letter to the editor, a Herbert Weinblatt offers up what must be to him a wonderfully humorous justification for criticizing the bonuses paid to employees at AIG-FP, claiming that "on the basis of the value of their past financial transactions, the executives at AIG Financial Products have earned a bonus of minus $165 million..." (bold mine). A wonderful thought, holding people responsible for their actions. Too bad for Mr. Weinblatt that he didn't have the chance to read the rest of today's Washington Post where he would have learned that the employees responsible for the mess at AIG-FP have left AIG. The employees being paid bonuses are NOT the ones responsible for the losses. So much for Mr. Weinblatt's argument. But why let a few facts get in the way of a good vent? Wednesday, March 18, 2009
Regarding the kerfuffle over the $165 million in bonuses AIG just paid out...
Doesn't Geithner's plan to "deduct from the $30 billion in (future) assistance an amount equal to the amount of those payments" strongly suggest that AIG is getting more bailout money than the absolute minimum it needs to fund operations and honor its counter-party commitments? And doesn't that suggest that neither Geithner nor anyone else on the disbursing end of these billions and billions of dollars has a clue as to what shape AIG is in, what their exposure is or what amount (if any) of operational cash flow AIG is generating? Is there any way to avoid concluding that Geithner (and the taxpayers) are but mushrooms (in the dark and being fed s**t by AIG management), just taking AIG management's word as to how much money is needed and when? And doesn't that suggest that neither Geithner nor anyone else on the disbursing end of the hundreds of billions of dollars that has gone and will go to other banks and financial institutions has a clue as to the real status of those firms? A real confidence booster.... Monday, March 16, 2009
Confirming what I wrote previously, the AP is today confirming that the bailout funds that went to AIG only went to AIG as a conduit to other banks. It wasn't so much that the US taxpayer was saving AIG as we were (and are) saving other banks, some foreign, and some which have already received billions in bailout money of their own.
These funds allowed the other financial institutions to avoid recognizing the paper losses they would have had to record had AIG not had the funds to send these firms the 'collateral' AIG was obligated to pay on what was basically 'debt insurance' that AIG had sold these firms. And as I have said before, I can think of no good reason why we needed to keep AIG open, and especially not as a conduit. Money could have been sent directly to the financial firms that faced problems, and without all of the cost and public relations problems that have accompanied keeping AIG open. But Paulson (and I say Paulson as I doubt that Bush had either the interest or capability of following what was going on) thought it very important to hide this from the public. Perhaps... it was because his buddies on Wall Street would have been in even more trouble with shareholders and the public had they had to recognize billions more in losses.... and helping them disguise this was Paulson's last favor to them. Friday, March 13, 2009
As evidence of (1) the extent to which Obama will go go pass his agenda and (2) the utter ineptness of the GOP to even try to mount an effective counter to Obama and the Democrats, I introduce:
Recent comments from Obama and at least one of his advisers that the "economic crisis is not as bad as we think" and that there is an "excess of fear" among Americans about the economy --- AND --- Not-too-long ago comments from Obama that our economy was on the verge of catastrophe. It should be obvious to anyone with a pulse that Obama painted an overly negative portrait in order to get Congress to pass his non-stimulus stimulus bill. And it should also be obvous to anyone with a pulse that Obama, having gotten his non-stimulus stimulus bill passed, is now trying to rally people in order to keep the economy from truly going down the drain and taking with it any chance Obama has of being re-elected. So where is the GOP? Where is ANYONE with an (R) next to their name who is calling Obama out on this? The American people do not appreciate being taken advantage of, we reserve a special hatred for those who we believe isn't playing fair with us (i.e., Japanese: Pearl Harbor, Al Qaeda: 9/11. Bernie Madoff: now, Roger Clemens, Mark McGwire and Barry Bonds: steroid use). The GOP could score MAJOR POINTS by simply showing the American people that Obama played them for fools. And this is the 'gift' that would keep on giving. Obama would never again be able to face the American people and ask for their support for X or Y without a significant chunk (and not just hard-core conservatives) of the public being a bit more skeptical of Obama and his statements than they otherwise would be. But nobody is stepping up to the microphone to do that, it's just another wasted opportunity for the GOP. Instead of moving ahead on an issue that resonates with voters of all stripes, the GOP has wasted its breath complaining about pork and earmarks, an issue that appeals to relatively few voters and only as an abstract matter (as pork is defined as what some other district is getting). Sure, the GOP faithful got all excited, but the GOP faithful and $4 will buy a latte at Starbucks... and not much more. And... since Obama pushed through Geithner's nomination as Treasury Secretary - despite Geithner not having paid taxes that would otherwise have disqualified him from the position - on the basis of the economy being in such terrible shape that we needed Geithner - and no one else - for the job, since the economy isn't in such bad shape, shouldn't Obama do the right thing and ask Geithner to step aside? It's not as if Geithner has gotten a whole lot accomplished so far, has he? Thursday, March 12, 2009
FINALLY, an article that points out that the "true amount lost by investors may be between $10 billion and $17 billion and the larger estimates by Madoff include the false profits prosecutors say he generated with tens of thousands of bogus account statements cataloguing steady profits.
As I've said before, if you invest $1,000 in a stock, that is the most you can lose. It doesn't matter if the stock goes up to $100,000 before crashing to zero, the most you can lose is the amount you've actually ponied up. Yes, you have also lost the opportunity to have made $99,000 by selling your stock before it crashed, but the loss of an opportunity is NOT the same as a real loss. By not buying Microsoft and Google and Intel and Apple when they first went public, I lost the opportunity to make millions and millions, but I didn't lose any money, my bank account had just as much money in it as before. The ONLY exception is for entities that report earnings; to the extent they previously reported (and quite possible, paid taxes on those earnings) profits, they now have to recognize a loss equal to the amount of the investment they were carrying on their books. But this is still just a paper loss, even these investors are out no more than the amount of the checks they wrote to Madoff. It's nice to see at least two reporters show that they get it. Kudos to Larry Neumeister and Tom Hay of the Associated Press for showing that not everybody in that organization is an idiot when it comes to understanding and reporting business news. Wednesday, March 11, 2009
Like James Taranto, I don't care if Muslim home buyers are jumping through hoops pretending they're not paying interest when they buy houses... but I do have some questions about the Minnesota program:
* Why is the state of Minnesota doing this at all? Why is a state agency buying and selling houses to anyone? Why does a state agency need to be buying and selling houses? * Given that the Muslim home buyer is paying an above market price for the house (since the purchase price is the sum of the current value of the property plus the sum of the would-be-paid interest, to what extent are these transactions adding to the number of 'underwater' homes, where the homeowner owes more on the house than the house is worth? Note: the reason this could matter is that the number of so-called underwater homes is used in part to justify Obama's mortgage plan. * How does the home buyer sell the house? They're 'buying' the house for over twice the value (factoring in interest payments as principal), and if they sold it in, for example, five years, I doubt the value of the house would have appreciated enough for the house to be worth more than what the homeowner owes on this special mortgage... so how does the homeowner sell the house without getting into all kinds of problems with the lender? * To the extent the state agency is selling the house for more than it is worth and, presumably, for more than the state paid to acquire the house, is the paper 'profit' being used in any way to balance the state budget? * If the Muslim homeowner does somehow sell the house before the end of the mortgage period, at which point they presumably are selling for a loss (relative to their 'purchase' price) do they get to take a tax loss of any kind on the sale? * Who is financing the mortgage and how do they deal with the situation where a borrower owes over twice as much on the mortgage as the house is worth? Is there a special section of the banking regulations that allows lenders leeway, some special box to check on some form, to make these kinds of loans? Saturday, March 07, 2009
In a Washington Post article that raises the fear that "Job Losses Could Drown Stimulus", let me look at what the article doesn't address:
* Nary a word that Obama's stimulus plan (along with other anti-business actions) might have led to more job losses in January and February than would otherwise have been the case.... nor any mention that the GOP-preferred stimulus would have done a better job of reassuring the market and employers. While employers do lay off workers in response to past and existing conditions, they also factor the future into account when deciding whether to lay off workers at all and if they do, how many to lay off. Employers who see better times just ahead are going to be much more hesitant to lay off (supposedly) qualified and trained staff if they anticipate they're going to need those employees as conditions improve in the not-too-distant future. That layoffs in January and February continued at pretty much the pre-stimulus pace makes me pretty confident that employers saw nothing in Obama's stimulus that made them think twice about continuing with their plans to reduce staffing. And while this is definitely speculation on my part, I am also pretty confident that there is no way that had the GOP-preferred stimulus passed that employers would have laid off even more workers than they did in response to the Obama stimulus plan. * While the article acknowledges that much of the (alleged) benefit of Obama's stimulus plan isn't going to kick in for a number of months and years, there is nothing about how critics of Obama's stimulus argued that very point in pushing alternatives, that helping workers who do not now have jobs requires a stimulus plan that kicks in a whole lot faster than sometime in the next 6-18 months. And of course, there is nothing from proponents of alternative stimulus plans that their versions would have done more to get people back to work faster than Obama's plan. Had the GOP-preferred version passed, with its immediate roll backs of taxes, a whole lot more money would have been pumped into the economy by now, money that whether it was spent or saved would have yielded benefits far greater than whatever it is that Obama's stimulus plan is supposed to accomplish when it kicks in. All in all, just another example of either liberal bias at the Washington Post masquerading as neutral factual reporting and analysis or evidence that the Post reporters and editors just don't understand business or businesses. Me thinks the former although I am open to the possibility that both are true. And true to form, rather than highlight how Obama's stimulus plan and other actions are making the recession worse, the GOP leadership spends its time squabbling about Rush Limbaugh and making an issue of what is essence a ridiculously immaterial amount of earmark spending. Let me ask the supposedly tactical experts who are advising GOP leaders: which of these issues do you think will resonate more with the people whose votes you NEED to avoid wandering in the desert for the next generation? Thursday, March 05, 2009
I know it is all the rage to blame the recession, and in particular the job losses, for the number of homeowners falling behind on their mortgage payments... but color me confused:
According to the Mortgage Banker's Association, 5.4 million homeowners were delinquent on their mortgage payments and/or in foreclosure at the end of last year. But job losses through the end of the year only added up to 3.1 million (a total of 3.6 million lost jobs through the end of January minus the 600,000 who lost jobs in January = 3.1 million job losses through the end of the year)... ... which leaves a gap of 2.3 million homeowners who didn't lose their jobs and 'somehow' still managed to fall behind on their mortgage. And the gap gets even bigger making some common sense adjustments. For example, the 577,000 people who lost their jobs in December ought not to have been delinquent by the end of the year. Mortgage payments are typically due at the beginning of the month, ahead of when those people would have lost their jobs. Even if half of these people, anticipating losing their job, held back from making their mortgage payment, the gap increases by close to another 300,000. And not everybody who lost a job remained out of work and thus wouldn't be expected to have fallen behind on their mortgage... and not everybody who lost a job would have necessarily fallen behind on their mortgage as some number of households that lost a job could have been expected to have kept making the payments... and some number of people who lost their jobs were renters and thus had no mortgage to fall behind on. I don't know how to quantify these groups but there ought to be no argument that the gap goes up even more. All told, the gap increases to somewhat north of 2.7 million - over half of the number of homeowners delinquent on their mortgages... which means the 'crisis' is being blamed on a cause - job losses - that just didn't do the damage it is alleged to have done. And what accounts for this gap? I figure it is a combination of people who bought more house and took on more debt than they could afford and those who simply stopped making their mortgage payments once their home values dropped enough to leave them owing more than their houses were worth. And this group of mortgage delinquents just isn't as sympathetic as people who are in danger of losing their homes as a direct result of their having lost their jobs... which is why the mortgage trade group and lenders, desperately seeking a bailout of their own that would have taxpayers assume some of their losses, is very enthusiastic about Obama's mortgage rescue plan... and why Obama, in pushing his mortgage relief plan, isn't publicizing the number of people who will be helped who frankly don't deserve it.
Maybe House Minority Leader John Boehner recognizes that the Washington Post has little audience outside the beltway so he structured his op-ed around issues that are all the rage among Washington insiders.
At least I hope that is the case as otherwise it was a colossal waste of an opportunity for Boehner to write about how the Democrats are trying to divert attention away from their programs... and on three levels. First, as I have written before, the people whose votes the GOP needs - and can get - in order to win just don't care about inside Washington issues... and the Democrats supposed attempts to paint Rush Limbaugh as some sort of de facto leader of the GOP is nothing but inside Washington static. Most people outside the Beltway don't know - or care - who 'leads' the Republican party. Most people outside the Beltway don't know - or care - about whether the Democrats are trying to divert attention away from their programs. Second, when you have - as I believe the GOP has in this case - a winning argument on the substance, repeat after me, YOU DO NOT ALLOW YOURSELF TO SPEND ANY TIME DISCUSSING TANGENTIAL ISSUES. You spend ALL of your time arguing the substance. You spend ALL of your time decrying the tax hikes, the bailing out of people who brought trouble on themselves, the billions of dollars that are being spent not on stimulating the economy but advancing pet Democratic issues. And third, the whole issue of Limbaugh is nonsense, and even in Washington. The Democrats really have no interest in focusing their attention on Limbaugh. They know they need to sell the public on their programs (what with approval numbers for Obama's policies lagging his personal popularity). And they know that the people aren't going to decide they like tax hikes and restrictions on their health care and so on just because someone they may not like also doesn't like those proposals. Wednesday, March 04, 2009
Rich Lowry is off in writing that as Barack Obama and the Democrats have the initiative, "until such time as their policies are perceived to have failed, it doesn't matter too much what Republicans do".
No, Republicans can do two things that will very much matter. First, they can help hasten the day when America perceives the Obama policies to have failed. Just as the Democrats started laying the groundwork for declaring Bush a failed president long before the public at large was tuned in, so too can the GOP start to hit Obama. And second, the GOP needs to have their alternatives fully developed and vetted so when the American people go looking for an alternative to Obama, the GOP isn't caught unprepared. Granted, when the public does get fed up, the opposition party can benefit just by not being in charge and without having to have a carefully drawn up set of policy proposals (again evidenced by the Democratic gains in 2006 and 2008), it helps if the opposition party is actually on the record with their ideas to reverse the slide. Tuesday, March 03, 2009
Let's count the ways Obama is wrong with his comments today on the stock market...
First, 'fits and starts', at least the way the expression is commonly used, doesn't describe what is happening on Wall Street (and don't bother looking for anyone to mock Obama for his mangling of expressions the way people were so quick to do so to Bush). Nor is Wall Street, as he later put it, "bobbing up and down day-to-day" as that implies a lot of motion but no real change in one's position (imagine bobbing up and down in the ocean). Wall Street is dropping and a 50 point rise one day does not come close to offsetting a 300 point drop the day before. One day of gains does not offset a week of losses. Next, let us look at his dismissal of day to day market results, analogizing them to political tracking polls that he implies ought to be dismissed. Notwithstanding the fact that he didn't ignore the tracking polls during the campaign, while one could argue that day to day fluctuations need to be looked at somewhat skeptically, one NEVER ignores the long term direction... and the direction of the stock markets ever since it became clear that he was going to win have been DOWN, DOWN, DOWN. And we can look at his comment that "What you're now seeing is a profit and earnings ratios get to the point that buying stocks is a good thing if you have a long-term perspective on it". Is he really trumpeting the fact that hundreds of billions of dollars in market value have vaporized? Is he trying to take credit for markets having fallen so fall that they might now become somewhat of a buying opportunity? He also suggests that the stock market ought to be ignored in favor of such barometers as whether "lending is flowing more freely, businesses are investing and the unemployed are going back to work". What does Obama think the stock market takes into account if not such things as the flow of capital, business investment and employment levels? And finally, he says "There are a lot of losses that are working their way through the system and it's not surprising the market is hurting as a consequence" which betrays a lack of understanding that the market is a forward looking indicator. The market is hurting not because of what happened last year, last quarter and last month but rather because of what investors see as happening in the next months, next quarters and next years. Markets go down when investors figure the future is going to be worse than today, they go up when investors think the future is going to be rosier than it is today. Given that the market has gone down ever since it was clear that Obama was going to win, it is illogical to interpret that as anything other than a full-throated raspberry towards Obama and his policies. And perhaps to no surprise, the markets did not respond positively to Obama's comments that "buying stocks is a potentially good deal" with the market dropping another 37 points today. I guess the good news is that it didn't drop 337 points.
Perhaps it is a sign of the reporter's thinking, as writing that stocks dropped to their lowest levels since 1987 "...amid deepening questions about whether governments around the world are being forceful enough in combating the economic crisis" completely ignores the possibility that governments are being quite forceful... but in a way the markets very much disapprove of.
A neutral observer might be inclined to wonder just what else the government is supposed to do: the United States government has thrown hundreds of billions of dollars into troubled financial firms... they've committed hundreds upon hundreds of billions of dollars to a stimulus that, according to its backers, is supposed to get the economy rolling again. And while perhaps not to the same degree, governments around the world have taken similar steps rescuing ailing companies and injecting dollars into their economies. I don't think the markets are crashing because investors like the steps that are being taken but want more of what Obama is doing; adding $50 billion here or $50 billion there to this or that bailout or aspect of Obama's stimulus plan is NOT going to make a difference to investors. It's not the dollar amounts that bother investors, it is the substance of what Obama is doing that has freaked people out. They don't like the contents of Obama's stimulus plan. They don't like his plan to raise taxes on productive Americans. They don't like his plans to start moving towards socialized medicine. They don't like his plan to have government inject itself even further into business. They don't like his spending. They just don't like what he is doing. And they've expressed this concern since it was clear he was going to win in November as the market has been on a dive since well before he took office. Investors have looked beyond the glib talk and do not like what they see... and their actions in selling off their holdings and refusing to put the tons of cash they're holding back into the market speaks volumes about their concerns. It isn't that they think Obama needs to do more, they wish he would do less, a whole lot less. Monday, March 02, 2009
Advice for the Republicans (which I'm sure they won't take)...
(A WORK IN PROCESS, MORE TO COME...) First, an assessment of the obstacles for the GOP: * GOP credibility is extremely low, a combination of Bush being perceived (and justifiably so) as a total screw up, the Democrats' success in avoiding any responsibility for the credit collapse, and the GOP having ceded the moral high ground on government spending and fiscal responsibility (to the point where they sound hypocritical complaining about the level of federal spending). * There isn't anybody on the GOP side who has the stature and presence and willingness to take on Obama. Furthermore, the GOP is gun-shy of strongly opposing Obama and the Democrats for fear of being labeled racist, sexist, whatever. As a result, criticism gets watered down, if it gets offered at all. * The public, while not sold on the idea of a bigger government, is not real enthusiastic for what passes for the free market these days (and per the point I make below, the public isn't going to sit for the GOP trying to sell the idea that the problem was too much regulation as opposed to not enough regulation). * The GOP itself is extremely fragmented, with the result that on any given issue a not-insignificant bloc of GOP representatives may break and support the Democratic positions. For example, there's a bloc that could be expected to back the Democrats on relaxing immigration restrictions and so-called 'deficit hawks' could support the Democrats' attempt to raise taxes. * The MSM is can be counted on to ignore Democratic excesses and mistakes while highlighting every GOP transgression, whether real or simply made up, both of which combine to make it even harder for the GOP to get any traction with their ideas and arguments. * The GOP fails to realize that the number of people who care about 'process' can be counted on one hand. Thus, and for example, complaining about the Democrats changing the rules or ignoring the Republicans or gaming the system for personal benefit is going to fall on deaf ears. The American people care about the end result and, in particular, how they are going to be affected by a given piece of legislation. And a few other observations: * There are no 'heroes' in Congress, no one commits political suicide (defined as taking a stand that costs them re-election). Thus, the Democrats' majority in Congress can be ignored to a degree, at least to the extent that enough Democrats become scared of a voter backlash if they back their party's extreme liberal positions. * As an issue, 'fairness' matters both a lot and very little. It matters a lot if people feel they are being mistreated or taken advantage of. And it matters very little to the extent people view a particular issue as affecting other people. Even when they do care about 'other' people, they only do so if they feel secure enough about their own situation that they feel they can afford to care about someone else and then only to the extent they feel they can afford the price they're being asked to pay to benefit someone else. Nervous people don't care about being fair to other people. * Political battles are won not on the basis of clear defined and extensive policy positions but on sound bites and the aura surrounding the personality attached to a given issue. Political insiders like to think that the public follows the issues to the same degree as they do, but people outside the Beltway actually do other things with their time than follow the world of talk shows, press conferences and so on. As a result of spending less time, their opinions are formed by the images that they do see. Put another way, Bill Bennett would do more good spending his time coming up with a catchy phrase to use on TV than by trying to explain the intricacies of the federal budget. * As a corollary to the above point, it is not necessary for the GOP to get the public to accept the GOP kool-aid, the GOP simply needs to get the public to sour on what the Democrats are trying to do, they need to make the Democrats appear as the worst of two choices. This is what Bush did to Kerry in 2004, what Congressional Democrats did in 2006 and what Obama did in 2008. They won more because of public dissatisfaction with their opponents than with public adoration of what they were promising to do (and misinterpreting the results hurt Bush after his re-election and, I believe, will hurt Obama). And based on the above, let's look at what won't work: * Complaining about Democrats practicing 'class warfare' won't work. People are too worried about themselves to care about what is happening to people who make more money than they do. * Complaining about lots and lots and lots of government spending. As I said above, the GOP has no credibility on this matter, and even if they did, 'spending' is a 'process' argument and thus not something the public is going to care about. 'Spending' by itself doesn't affect someone; people only care about the 'effects' of spending. * Complaining about 'high taxes' as an issue in of itself. People don't care about tax levels - whether as a percentage of income or as a percentage of GDP - they only care about taxes in a dollar sense and then only to the extent that they feel either their taxes are too high or that their taxes are going to something they don't want to pay for. Thus, the public is not going to respond to the GOP complaining about Obama going after the so-called rich. * Complaining about the government injecting itself into more and more of our lives also won't fly. This too is a 'process' argument, it appeals to doctrinaire libertarians and conservatives and nobody else. Examples of such wrong-headed thinking (not the principle, but thinking that it resonate with the public at large) are here So what will work? * Framing Obama's proposals as being harmful to the 90+ percent of people who are mostly doing okay. And that is it, the only argument that the GOP has that has the faintest possibility of gaining any traction. NOTHING ELSE MATTERS. Any other argument is dead on arrival, it will not appeal to the public, it will not motivate the public to oppose it in such numbers that the vulnerable Democrats will dare to buck their own party. As the Democrats have long been known as the party of the have-nots (which is belied by their winning a majority among the well-off, but facts don't matter), the GOP needs to establish itself as the party that looks to protect the 90% majority of Americans from being victimized by assaults on their finances, their safety, their freedom (here's a picture that captures the sentiment pretty well). The GOP is the party that will protect the 90+% of people who are paying their mortgage from having their home values destroyed by those who aren't playing by the rules (illustration). The GOP is the party that will protect the 90+% of people who are relatively satisfied with their health care from the demands of those who haven't taken care of themselves and haven't taken the steps to obtain health insurance. The GOP is the party that will protect the 90+% of people who are satisfied with their school systems from the crazy ideas of those who would screw things up. The GOP will protect the 90+% of people who aren't pulling down $80 an hour working for a domestic automaker from the demands of the few who do. The GOP is the party that will protect the 90+% of the people who obey the law from those who don't follow the law, the party that will protect the 90+% of people who have jobs from having their livelihoods threatened by those who don't and so on. The foundation for this lies in the common perception that there simply isn't enough to give everybody everything they want. What the government gives to one, by definition, has to come from somebody else. 'Helping' someone in trouble necessitates putting someone else at risk. Yes, it's a negative play, one that doesn't portray American life as that of limitless bounty, and a country where not everybody is above average... but it reflects both reality and, more importantly, the perception that people have about the way the world works. There simply isn't enough money in the country to do what Obama is trying to do. There is no way that going after just the 'rich' will generate enough money to pay for his plans. And there is no way that the American public is thrilled with the idea of handing off decision making - on health care, investments - to government bureaucrats. In order to muster public support for his proposals, Obama has done two things: he is making things seem much worse than they are, making people more receptive to his crazy ideas than they would otherwise be, and he is presenting his proposals as being beneficial to all but a select few who he then demonizes to negate any public sympathy for them. And of course, he has his oratorical skills. But the fact remains that Obama can't help the people he wants to help without hurting people a lot more than he's willing to admit... and the more the GOP can get people to consider themselves as those being hurt as opposed to help, the better it will be for the GOP.
Yes, as the headline says, the Dow fell today to its lowest level since 1997, but that little nugget neglects to point out that in 1997 the Dow was in the middle of quite a nice run and well on its way to over 10,000.
Today, it is in free fall with hundreds and hundreds of billions of dollars lost from 401(k) and pension funds and brokerage accounts, money that people were saving to pay for their retirement, a car, a down payment on a house, a vacation, their kid's college or their parent's elder care. Gone, gone, gone. And while the markets will (probably) recover some day, there are millions of people who will never be as good again as they once were. Obama couldn't have screwed these people more if he had wanted. Note I'm not saying he didn't set out to do just that, only that I am not sure that any President could have done worse by us. Put another way, as bad and as clueless as Bush was, he never hurt our wallets in the way Obama has. Heck, I'm not even sure that if terrorists managed to set off a nuke in America that the markets would go down as much as they have in response first to Obama being elected and then his policies.
I have long criticized (primarily liberals, as it must be something in the water they drink) those who place so much faith in 'talking' to people, and in particular, to our enemies.
Another illustration is Hillary Clinton's determination to "push intensively to find a way for Israelis and Palestinians to exist peacefully in separate states. The best way to illustrate the lunacy of this is to ask a simple question: if Israel and the Palestinians really wanted to exist peacefully in separate states, don't you think after all these years they would have reached an agreement on just how to do that? It's not as if they speak different languages (yes they do, but you know my point) that keeps them from reaching an agreement. The fact is they DON'T want to live together in peace (with 'peace' being defined by both sides in the same way)... and no matter how hard she huffs and no matter how hard she puffs there is NOTHING Hillary Clinton can do to change that. But Hillary can't accept that. She believes that she (and probably she alone) can take the Israelis and the Palestinians and make them agree to live together in peace. It doesn't matter that the Israelis don't believe (and won't, at least for a couple of generations) anything the Palestinians tell them. It doesn't matter that the Palestinians haven't given up (and won't, at least for for a couple of generations) their dream, their raison d'etre, of eliminating Israel. Hillary believes she can persuade the Israelis that the Palestinians are looking for peace and she believes that she can get the Palestinians to give up their dream of eliminating Israel and pushing the Jews into the sea. That is arrogance at its picture-perfect definition. She won't accomplish her goal, and unlike youth sports, where you congratulate the kids for making the gallant effort, taking on the impossible doesn't win you brownie points, it only exposes you as stupid and ripe for being taken advantage of.
Maybe it's the reporter, maybe the headline writer, but the headline "Despite bailout. AIG reports massive loss illustrates that someone at CNN doesn't understand what is happening (no surprise, the competence of business journalists is usually no better than their political colleagues).
The bailout (then and now) is a consequence of the losses AIG has incurred as the value of their holdings have and continued to drop. The bailout was intended to restore in part AIG's capital in order to allow it to continue meeting its obligations thus avoiding (hopefully) an even broader collapse in the credit markets. Simply put, the government gave AIG $100 billion to replace the $100 billion or so that AIG had lost and paid out as collateral to buyers of its debt securities. The previous bailout did nothing was really wasn't intended to do anything to increase or even stabilize the value of AIG's holdings... which is what needs to happen for AIG to stop reporting losses.
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