A Spork in the Drawer

1/3

Our Betters:

Executives and other highly compensated employees now receive more than one-third of all pay in the U.S., according to a Wall Street Journal analysis of Social Security Administration data -- without counting billions of dollars more in pay that remains off federal radar screens that measure wages and salaries. [a growing share]

Highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total U.S. pay in 2007, the latest figures available. The compensation numbers don't include incentive stock options, unexercised stock options, unvested restricted stock units and certain benefits.

[...]

The growing portion of pay that exceeds the maximum amount subject to payroll taxes has contributed to the weakening of the Social Security trust fund. In May, the government said the Social Security fund would be exhausted in 2037, four years earlier than was predicted in 2008.

...the percentage of wages subject to payroll taxes has shrunk, to 83% from 90% in 1982. Compensation that isn't subject to the portion of payroll tax that funds old-age benefits now represents foregone revenue of $115 billion a year.

But wait, there's more!

The $2.1 trillion figure understates executive pay, however, because it includes just salary and vested deferred compensation, including bonuses. It doesn't include unvested employer contributions and unvested interest credited to deferred-pay accounts. Nor does it include unexercised stock options (options aren't subject to payroll tax until exercised), and unvested restricted stock (which isn't subject to payroll tax until vested; the subsequent appreciation is taxed as a capital gain).

Also not included in the total compensation figures is executive pay never subject to payroll tax. This category includes incentive stock options (which are generally taxed as capital gains), "carried interest" income received by hedge-fund and private-equity fund partners (also taxed as capital gains), and compensation characterized as a benefit (benefits generally aren't subject to any taxes).

But remember, kids, we're talking about the most financially overburdened segment of our society. According to Republicans and Blue Dogs, that is.





[Via Kevin Drum.]

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Government Sachs

The Shrill One:

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

[...]

Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

Taibbi:

So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to shit — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!

[...]

...all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

If ever there was a company that simply needs to be put out of business Goldman Sachs is it.

And we haven't even gotten into the revolving door between Goldman and the Executive Branch.

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Weird Story Of The Day

Quite a bit of money:

Italy’s financial police said they asked the U.S. Securities and Exchange Commission to authenticate U.S. government bonds found in the false bottom of a suitcase carried by two Japanese travelers attempting to cross into Switzerland.

The bonds, with a face value of more than $134 billion, are probably forgeries, Colonel Rodolfo Mecarelli of the Guardia di Finanza in Como, Italy, said today. If the notes are genuine, the pair would be the U.S. government’s fourth-biggest creditor, ahead of the U.K. with $128 billion of U.S. debt and just behind Russia, which is owed $138 billion.

I can't imagine why the Italian authorities think the bonds may be forgeries.

[Via Andrew Leonard.]

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What Did We Do To Deserve This?

I need to start planning for a vacation:

Pittsburgh will host the world's major economic powers at a G20 Summit in September.

The White House made the announcement at a press briefing in Washington, D.C. this afternoon. The summit will be held on Sept. 24 and 25.

I bet the security will be double-plus good!

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Saturday Palate Cleanser

Better than CNBC (and no Jim Cramer!):

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Snap

While I'm completing my plans to turn this place into a Gilmour Girls fanfic site watch how an intelligent president deals with an idiot reporter:

Will CNN's Ed Henry learn from his verbal spanking?

[Via watertiger.]

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Essential Reading

While I'm grumpily not blogging be sure to read Matt Taibbi's piece in RS on how we got to where we are economy-wise. It's written in plain-English, which is different.

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The World According To Richard Cohen

It's not CNBC's fault or Jim Cramers fault or AIG's fault or Citigroup's fault it's all the fault of Jon Stewart.

Jameson Foser reminds us that Cohen also attacked Stephen Colbert for his famous mocking of the media at the 2006 White House Correspondent's Dinner.

And let's remember that Cohen explained his support for the invasion and occupation of Iraq thusly:

On the contrary, I thought. We are a good country, attempting to do a good thing. In a post-Sept. 11 world, I thought the prudent use of violence could be therapeutic. The United States had the power to change things for the better, and those who would do the changing -- the fighting -- were, after all, volunteers. This mattered to me.

Cohen concludes today's column with some advice for Stewart: "...he ought to turn his wit inward: Mocker, mock thyself."

Richard Cohen is a disturbed individual.

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The Smell Of Compromise

The planned tariff on Roquefort has been put off for a month.

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May You Live In Interesting Times

So goes the apocryphal Chinese saying. But the Chinese are becoming increasingly nervous about our "interesting times":

Speaking at a news conference at the end of the Chinese parliament’s annual session, [Chinese premier] Wen [Jiabao] said he was “worried” about China’s holdings of Treasury bonds and other debt, and that China was watching United States economic developments closely.

“President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,” Mr. Wen said. “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”

Given that the Chinese hold as much as $1 trillion of US debt this is nothing to sneeze at. The Chinese economy is performing relatively well but should that change:

[S]ome believe that China’s investment in American debt is now so vast that, should it need foreign exchange in some emergency, it would be unable to sell its Treasury securities without flooding the market and driving down their price.

“The only possibility, really, is that China will have to hold these bonds until maturity,” said Shen Minggao, the chief economist at Caijing, a Beijing-based business magazine. “If you start to sell those bonds, the market may collapse.”

Interesting times, indeed.

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Cheese Politics

In ten days a new 300% tariff will go into effect and Roquefort cheese will suddenly cost $60/pound.

It's all because BushCheney threw a hissy fit about the EU banning the importation of US beef that's chock full o' extra added hormones (yum!). I imagine the fact that Roquefort is French ("Old Europe") was a consideration as well.

These people were basically children, remember.

[Via DeLong and Felix Salmon.]

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The War Continues

No, not that one. Or that one. This one:

The Daily Show With Jon StewartM - Th 11p / 10c

Basic Cable Personality Clash Skirmish '09

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Economic Crisis

Memo to General Electric: You're dealing with the guy who brought down CNN's "Crossfire."

Just something to keep in mind.

[Via Oliver Willis.]

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Tick-Tock

Time is running out:

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

Precisely what I've been thinking. Obama has a window of opportunity thanks to public confidence but that window is rapidly closing. And it isn't helping that one of the architect's of the current mess, Tim Geithner, is dithering and the administration leaving key Treasury positions unfilled.

I've been bothered by all the triumphalism coming from Democrats and liberals over the fate of the Republican Party. Yes, the Republicans are increasingly detached from reality and doing themselves no favors but if the public doesn't see an improvement in the economy by midsummer, or September as Krugman suggests, then Obama and Democrats could be looking at a very bad time in the 2010 midterm elections regardless of Republican derangement.

EJ Dionne writes today:

Obama's calm and deliberative style is one of his greatest strengths. He doesn't want precipitous action in the midst of an economic collapse to come back to haunt us all. But sometimes excessive caution can be as dangerous as impetuousness. The president has no choice but to be bold. If there is one thing he should fear, it is fear itself.

Exactly right. As I've been saying all along, Obama's cautiousness could turn out to be fatal weakness. Be bold, Mr. President.

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Worrisome

Dr. Krugman:

[A]mong people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

[...]

...officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

Dr. Roubini:

The global recession may continue until the end of 2010 as the response by governments to rectify it is “too little, too late,” said Nouriel Roubini, the New York University professor who predicted the financial crisis.

Dr. Black:

This is all going to end really badly.

If Obama doesn't twig to the fact that Geithner and Summers are the problem then there will be no choice but to conclude that the President himself is the problem.

(And to make matters worse, for all the talk coming from Obama about the importance of rescuing the economy key positions at Treasury are still vacant.)

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Takedown

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

If only the delusional lackwits who work for/watch CNBC would internalize this. But, given the preceding adjective/noun combination, that's not going to happen.

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Let Them Eat Prayer

So'Carolina governor Mark Sanford, last heard comparing Obama to Stalin, appeared on C-SPAN yesterday taking caller's questions. In the process he offered something concrete to a constituent:

CALLER: I hope you all are not playing politics with this. People in South Carolina are hurting. You know how unemployment rates are high right now and going up higher. We are running out of money in the unemployment bank — we need money for that, the people that need help. And I’m one of them, I can’t get no help. […]

SANFORD: Well I’d say hello to Charleston because its home and I’d say hello to this fellow this morning and say that my prayers are going to be with him and his family because it sounds like he is in an awfully tough spot.

Sanford is one of those Republicans with whom David Broder and the rest of the Village insist Obama "compromise."

Good luck with that.

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Lemon Socialism

Krugman:

The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.

For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.

Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.

Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.

Not to mention that all the uncertainty keeps banks, investors, and the general public from knowing what to do. Bold action is required and we're sure not getting that from the administration. Perhaps firing Geithner and Summers would do the trick.

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How Bad?

This bad:

Alan Greenspan, the former chairman of the Federal Reserve, told The Financial Times on Tuesday that short-term nationalization of some United States banks might be the “least bad solution” for the nation’s banking crisis.

“It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,” he told the newspaper before a speech to the Economic Club of New York. “I understand that once in a hundred years this is what you do.”

For once Mr. Andrea Mitchell is right. Although, in fairness, it's more likely that this is an attempt to salvage a sinking reputation more than a real change of heart.

I also expect he will be receiving visits from a poltergeist in the form of Ayn Rand in the near future.

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Apt Acronym

Krugman:

I was going to dub the new financial plan TANF 2 — temporary assistance to needy financial institutions, without, you know, any of the means-testing or work requirements involved when poor people get help.

But Jamie Galbraith (private communication) has trumped me; he says it’s the Bad Assets Relief Fund.

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Real Life

While Merrill ex-CEO John Thain was engrossed in his office redo whilst drinking tapwater here's how things shaking out in the hinterlands:

But the fallout of the plant’s closure last year by Kennametal, a global conglomerate based in Latrobe, Pa., just a few months into the recession, continues to weigh heavily on the lives of the roughly 100 employees who lost their livelihoods.

“Some of us bounced back,” said Bill Luplow, 66, who worked on the shop floor of the industrial tool-making plant for nearly 45 years. “And some of us haven’t.”

In fact, an examination by The New York Times of the fates of the laid-off workers found that less than 15 percent of the hourly workers had steady jobs almost a year later.

Many of the rest are sliding perilously close to the economic precipice. Some let their health insurance lapse; others are in danger of losing their modest homes. A similar experience — or worse — may lie ahead for the hundreds of thousands of Americans who continue to lose their jobs every month.

But let's remember the real victims: Those poor souls who will only get $1.5 million bonus this year.

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Into The Fire

A bad situation made worse:

The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

It gets worse:

For his part, Mr. Geithner will blame corporate executives for much of the economic crisis, according to officials. He will announce rules that require all banks receiving capital from the government to submit plans that describe how they intend to strengthen their lending programs and generally restrict them from using the money to acquire other banks until the government money is repaid.

But officials said Mr. Geithner worried that the plan would not work — and could become more expensive for taxpayers — if there were too much government involvement in the affairs of the companies.

Mr. Geithner also expressed concern that too many government controls would discourage private investors from participating.

Worse yet:

Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment.

Here's the thing: All my life I've been told that when you purchase shares in a company - fractional ownership - your investment rises and falls with the company's fortunes. If the company fails completely you're left with some pretty paper and nothing more.

So much for that.

Worse again:

And for all of its boldness, the plan largely repeats the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.

Yves Smith:

Geithner Bank Bailout Plan: Fiasco

That one word assessment of the Geithner plan, as previewed in the New York Times tonight, comes from reader Scott, and is good enough to print.

I am so disgusted with this entire proceeding that I am going to dispatch it quickly.

Let's start with the basics. The US banking system is insolvent. Got that? Insolvent. That does not mean every bank in the US is toast, in fact quite a few are probably just fine, and another large group is no doubt hurting and undercapitalized, but a couple of years of not shooting themselves in the foot again would enable therm (via earnings) to rebuild their equity bases sufficiently to proceed more or less as normal.

[...]

In fact, the present course is the worst of all possible worlds. AIG has demonstrated that a player deemed to by systemically important has a blank check. Not only did they get additional dough with few questions asked, they got improved terms on their initial loans. Let me stress, for those not familiar with the ways of deal-land: if you ask investors for money and maintain it is enough to achieve X (get you to break even, get your first product launched) and then come back not having done what you said you promised, the next round is on MUCH more punitive terms. Having a party that badly underestimated its needs come back, get more dough, and get relief on its inital loan is from an alternative reality.

Geithner will begin to fill in the details at 11am EST so there's much fun to follow.

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The State Of Things

20,000:

Nissan Motor on Monday joined Toyota, Mazda and Mitsubishi in forecasting a loss for the current financial year, and announced it was cutting 20,000 workers in one of the most aggressive cutbacks so far by a Japanese company since the start of the global downturn.

“In every planning scenario we built, our worst assumptions on the state of the global economy have been met or exceeded, with the continuing grip on credit and declining consumer confidence being the most damaging factors,” Nissan’s chief executive, Carlos Ghosn, said in a statement. [emphasis added]

I'm sure a more tax cuts will fix this.

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The Flat Earth Society

Of the 41 Republican Senators 36 voted to strip ALL spending from the stimulus bill.

These people aren't fit to be Wal*Mart greeters.

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Speaking Of The Economy (And Who Isn't These Days?)

626,000

All those Lucky Duckies should make the Wall Street Journal editorial board very happy.

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Pushback

The WaPo hands over some of its real estate to the President (pity Amity Shlaes) to make the case for the stimulus bill.

And not a moment too soon (if indeed it's not too late). Newsweek's Michael Hirsh:

Obama's desire to begin a "post-partisan" era may have backfired. In his eagerness to accommodate Republicans and listen to their ideas over the past week, he has allowed the GOP to turn the haggling over the stimulus package into a decidedly stale, Republican-style debate over pork, waste and overspending. This makes very little economic sense when you are in a major recession that only gets worse day by day. Yes, there are still some very legitimate issues with a bill that's supposed to be "temporary" and "targeted"—among them, large increases in permanent entitlement spending, and a paucity of tax cuts that will prompt immediate spending. Even so, Obama has allowed Congress to grow embroiled in nitpicking over efficiency when the central debate should be about whether the package is big enough. When you are dealing with a stimulus of this size, there are going to be wasteful expenditures and boondoggles. There's no way anyone can spend $800 to $900 billion quickly without waste and boondoggles. It comes with the Keynesian territory. This is an emergency; the normal rules do not apply.

But the public isn't hearing about that all-important distinction right now. And by the time Obama signs a bill—if he can get one approved—many Americans may have concluded that the GOP is right and that the Democrats have embarked on another spending spree, as if this were just another wearying Washington debate. Judging from his flurry of TV appearances Tuesday night and his remarks Wednesday, Obama himself seems to have realized belatedly that he needs to stop empathizing and take charge.

Public support for the bill is plummeting but not all of this can be laid at Obama's feet. Where have the Congressional Democrats been? With the exception of Barney Frank they've been rather silent. (I expected that Obama would have more problems with his fellow Democrats than with the Republicans so this isn't a great surprise.)

Obama ran the best electoral campaign in memory so he knows how to do this. But my fear about him all along was that he really believed in the whole "post-partisan" spiel. That, unfortunately, has turned out to be the case. Perhaps the last week has been a healthy dousing with cold water and he's now learned that in order to lead he can't rely on anyone else. Not the Republicans, not the "news" media, and not the Democrats.

The job is yours, Mr. President, so do it.

(That aside, I think the bill was far too timid to begin with; $800bn is perhaps half of what is needed and there is talk that another $200bn is going to be stripped out. And, yes, as Hirsh points out above, when we're talking this sort of money there will be some waste and boondoggles. Deal.)

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The State Of Things (So Far)

Disillusioned:

Speaking as a strong Obama supporter who put my energies and money into it, I am now very disillusioned with him. He spent the last two weeks empowering Republicans -- including negotiating with them to get more into Senate and his administration and giving them virtual veto-power over his agenda -- and also spending time on his personal cool-guy image (as in interview before the Super Bowl). The country is in danger and he ran for president to solve this crisis in a socially inclusionary way. He should be fighting on that front all the time with all his energies -- and he certainly should give a major speech to help educate the public and shape the agenda. That is the least he can and should do. Only that will bypass the media-conserative dynamic that is now in charge.

Hostage:

The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).

We're not talking raving lefties here, either.

Barring a catastrophic terrorist attack, Obama is going to succeed or fail based on his actions concerning the economy. I'm sure that more than a few people will point out that he's only been president for two weeks (give him a chance!) but the economy - specifically, the Stimulus Bill - is likely to be the defining event of his administration and, to be blunt, he's failed. Not only failed but, as Theda points out above, empowered the very people who were decisively rejected by the voters in the last two national elections.

Obama's choice to make Tim Geithner and Larry Summers the point-men on the economy was an unmistakable portent - small, conventional men making small, conventional decisions.

The more things Change the more they remain the same.

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They Might Have To Fly Business Class

The pain...the pain:

The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.

[...]

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.” [Emphasis added]

The punchline:

“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”

Riiiiiight. Where are these Masters of the Universe going to go? Wal*Mart?

And some of them might have to forgo that Manhattan townhouse and Greenwich "bungalow" and live in Brooklyn or...the horror!...New Jersey!

I can think of no greater indignity than this lot being forced to become Bridge and Tunnel.

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Are There No Poorhouses?

Shocking!

Despite soaring unemployment and the worst economic crisis in decades, 18 states cut their welfare rolls last year, and nationally the number of people receiving cash assistance remained at or near the lowest in more than 40 years.

[...]

The deepening recession offers a fresh challenge to the program, which was passed by a Republican Congress and signed by President Bill Clinton in 1996 amid bitter protest and became one of the most closely watched social experiments in modern memory.

You might recall that this was humorously referred to as "Welfare Reform."

But critics argue that years of pressure to cut the welfare rolls has left an obstacle-ridden program that chases off the poor, even when times are difficult.

Even some of the program’s staunchest defenders are alarmed.

“There is ample reason to be concerned here,” said Ron Haskins, a former Republican Congressional aide who helped write the 1996 law overhauling the welfare system. “The overall structure is not working the way it was designed to work.

BZZZZZT! Thanks for playing, Ron. The "system" was designed to eviscerate Welfare. That people who need assistance are no longer able to get it is a feature, not a bug.

Born from Mr. Clinton’s pledge to “end welfare as we know it,” the new program brought furious protests from people who predicted the poor would suffer. Then millions of people quickly left the rolls, employment rates rose and child poverty plunged.

But the economy of the late 1990s was unusually strong, and even then critics warned that officials placed too much stress on caseload reduction. With benefits harder to get, a small but growing share of families was left with neither welfare nor work and fell deeper into destitution.

The nay-sayers were right! Who could have guessed? Oh, yeah...

And then we have the outright delusional:

Among those sanguine about current caseload trends is Robert Rector, an analyst at the Heritage Foundation in Washington who is influential with conservative policy makers. He said the program had “reduced poverty beyond anyone’s expectations” and efforts to dilute its rigor would only harm the poor.

Reduced poverty rates beyond anyone's expectations? What say you, US Census Bureau?

It looks like a booming post-WWII economy and LBJ's "failed" Great Society did much of the heavy lifting, doesn't it? Also, it looks like poverty started to increase again during the Reagan Revolution. Go figure. (And by the way, official poverty statistics are rigged.)

The fun times have just begun.

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She Shlaes Me

Once again, the Washington Post hands over space to the go-to girl of the moment, Amity Shlaes, to explain why FDR and the New Deal sucked. Schlaes opens with a sad, sad story:

One evening in the 1930s, a 13-year-old named William Troeller hanged himself from the transom of his bedroom in Greenpoint, Brooklyn.

William's father was laid up in Kings County Hospital awaiting surgery for an injury he'd suffered on the job at Brooklyn Edison. A federal jobs program was paying William's older brother Harold for temporary work. But the amount wasn't nearly enough to make ends meet. Gas and electricity to the family's apartment had been shut off for half a year. Harold told a New York Times reporter that both hunger and modesty had driven William to act. "He was reluctant about asking for food," read the headline in the paper.

The surprising part of this story is not that it happened; most Americans know that after the 1929 stock-market crash, hard times sometimes led to suicide. The surprising part is that William Troeller killed himself not in 1930, when Herbert Hoover was president, but in 1937, in Franklin D. Roosevelt's second term. The New Deal was almost five years old, but the economy was not back. In fact, the country seemed farther from recovery than before. A new sense of futility was overcoming Americans. The British magazine the Economist sneered that the United States "seemed to have forgotten, for the moment, how to grow."

Shlaes is, shall we say, factually challenged.

Here's a chart Brad DeLong posted some months ago:

Notice anything? First: Notice that upward movement from late 1932 to 1937. Looks like growth to me. Second: Notice that downward movement beginning in 1937. That when FDR decided to listen to more conservative voices and cut taxes and spending. Instant recession-in-a-depression. Just like Keynes said! Indeed, Shlaes makes mention of this but fails to draw the obvious conclusion:

After the 1936 election, Roosevelt found himself appalled at the budgetary deficit he had run up and turned frugal. Infrastructure spending slowed. Monetary authorities feared inflation and doubled reserve requirements at banks. The "Depression within the Depression" of the Troellers' time began.

Amity, you great twit, this happened because FDR listened to people like you.

Now, the graph posted above deals with private investment during the new deal. But plotting other indicators would produce a similar graph. Economist Dean Baker:

While the basic argument has the form of a no evidence counter-factual assertion (e.g. the good fairy of the market would have set things right, if only Roosevelt didn't get in the way), the discussion is contradicted by the known facts of the era. Roosevelt's New Deal Agenda lowered the unemployment rate from 25 percent in 1933 to 10 percent in 1937. None of us would be happy with 10 percent unemployment, but it is difficult to complain about policies that reduced the unemployment rate by an average of almost 4 percentage points a year. The annual growth rate over these four years averaged 13.0 percent. It is always possible that the magic of the market would have done better, but there is no reason that we should believe so.

It's worth noting that while Shlaes is the Senior Fellow for Economic History for the Council on Foreign Relations her degree is actually in English. (That's not to say that someone can't acquire expertise outside of their field just that Shlaes has failed to do so.)

Steve Benen points out that this is the umpteenth time the WaPo has turned to the, shall we say again, factually challenged Amity Shlaes to tell us either the current economy is the bestest ever or that FDR sucked.

Just keep repeating to yourselves, dear hearts, "The Washington Post is liberal...The Washington Post is liberal...."

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A Good Idea...

...that will go nowhere. Sen. Claire McCaskill (D-MO) is angry:

Her proposal would force companies taking federal bailout money to limit compensation for any employee to what the president of the United States currently earns: $400,000 a year.

"Is that so unreasonable?" the Democrat from Missouri asked. "It's eight times the median household income in the United States of America. … I don't think that sounds like a bad deal."

[...]

"They don’t get it," McCaskill said on the Senate floor. "These people are idiots."

The compensation cap would cover salary, bonuses and stock options.

By way of Todd Beeton:

Needless to say, not everybody is happy with this proposal:

"It's a stupid idea," said Woody Cozad, a lobbyist, commentator and Republican from Missouri. "I don't defend anyone who's at those companies now, but if they all need to be replaced, you're not going to replace them with anybody very good for $400,000."

Well, Lobbyist Woody, it would appear that $100,000,000 hasn't produced "anybody very good" either, has it?

And, of course, we must fear the "S" word:

“I think President Obama painted everyone with a broad stroke,” said Brian McCaffrey, 55, a Wall Street lawyer who was on his way to see a client. “The way we pay our taxes is bonuses. The only way that we’ll get any of our bailout money back is from taxes on bonuses. I think bonuses should be looked at on a case by case basis, or you turn into a socialist.”

That, indeed, was a recurring equation: Broad strokes + bonuses = socialist.

“It’s a very slippery slope to go down,” said another insurance broker as he waited to be seated for lunch at Cipriani Downtown. “A blanket statement like that borders on” — you guessed it — “socialism.”

You're goddamned lucky your blood isn't flowing down the gutter, Mr. McCaffey & Mr. Insurance Broker.

Despite his strong words the other day, President Obama seems to be prepared to do nothing:

In finalizing the plan, officials have made a policy decision that could dismay lawmakers. The administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid but instead retain looser requirements initially included in the Treasury's $700 billion rescue program, a source familiar with the deliberations said. Officials are concerned that harsh limits could discourage some firms from asking for aid.

As much as I hate to quote John McCain I will anyway: That's not change we can believe in.

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Playing Us For Suckers

Economic depressions are for little people:

Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.

That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.

Some bankers took home millions last year even as their employers lost billions.

The poor dears might have to settle for a Cessna Citation rather than a Gulfstream G650.

We all have to tighten our belts, don't'cha know.

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Stimulus Bill Passes In The House

244-188

Number of Republican votes = 0 (ZERO)

Bipartisanship!

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Nationalize 'Em...

...and replace the Board of Directors:

Three days after receiving $25 billion in federal bailout funds, Bank of America Corp. hosted a conference call with conservative activists and business officials to organize opposition to the U.S. labor community's top legislative priority.

Participants on the October 17 call -- including at least one representative from another bailout recipient, AIG -- were urged to persuade their clients to send "large contributions" to groups working against the Employee Free Choice Act (EFCA), as well as to vulnerable Senate Republicans, who could help block passage of the bill.

Bernie Marcus, the charismatic co-founder of Home Depot, led the call along with Rick Berman, an aggressive EFCA opponent and founder of the Center for Union Facts. Over the course of an hour, the two framed the legislation as an existential threat to American capitalism, or worse.

"This is the demise of a civilization," said Marcus. "This is how a civilization disappears. I am sitting here as an elder statesman and I'm watching this happen and I don't believe it."

Donations of hundreds of thousands, if not millions, of dollars were needed, it was argued, to prevent America from turning "into France."

"If a retailer has not gotten involved in this, if he has not spent money on this election, if he has not sent money to [former Sen.] Norm Coleman and all these other guys, they should be shot. They should be thrown out their goddamn jobs," Marcus declared.

(Audio of the conference call at link.)

Your tax dollars at work. This is precisely why "no-strings-attached" was such a terrible idea. Any institution that receives federal bailout money must be forbidden from lobbying and making political contributions.

What say you, Treasury Secretary Geithner?

The new Treasury secretary, Timothy F. Geithner, announced on Tuesday that he would crack down on lobbying to influence the $700 billion financial bailout program by companies that are receiving billions in taxpayer money.

Mr. Geithner, who was confirmed on Monday, also said he would set new limits intended to prevent political interference with decisions about which companies received bailout money.

However:

Explicit nationalization of financial companies has little support among key Obama officials, sources said. Treasury Secretary Timothy F. Geithner and top White House economic adviser Lawrence Summers think governments make poor bank managers and cannot efficiently manage a vast number of institutions, according to some of their associates.

As Dr. Black notes, "Has it occurred to no one that bank managers also make poor bank managers?" It's long been a common trope, especially among Republicans, that the government is too incompetent to run anything and the invisible hand of the marketplace is perfection itself.

So much for that.

And don't even get me started on Rick Berman.

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A Headline That Says It All

More than 10,000 job cuts announced Tuesday

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Blago May Be A Criminal...

...and he's certainly nuts but this is just wrong:

SEC. 1112. ADDITIONAL ASSURANCE OF APPROPRIATE USE OF FUNDS.

None of the funds provided by this Act may be made available to the State of Illinois, or any agency of the State, unless (1) the use of such funds by the State is approved in legislation enacted by the State after the date of the enactment of this Act, or (2) Rod R. Blagojevich no longer holds the office of Governor of the State of Illinois.

The preceding sentence shall not apply to any funds provided directly to a unit of local government (1) by a Federal department or agency, or (2) by an established formula from the State.

That's a provision inserted into the proposed stimulus bill by Reps. Bill Foster (D-IL) and Mark Kirk (R-IL). The upshot is if Illinois doesn't impeach and convict Blago the state could lose as much as $50 million in federal aid. While impeachment is almost entirely a political act this is nonetheless the equivalent of threatening a jury in order to get a desired verdict. And as Adam B suggests, this sort of thing could easily be used by Congressional majorities to punish states for electing the wrong parties' politicians just for the hell of it.

I have no problem with impeaching and convicting Blago but it shouldn't be done with a gun held to the head of the Illinois legislature.

Relatedly, I'm no fan of amending the Constitution but I support Sen. Russ Feingold's proposed 28th Amendment stripping states' governors of the power to appoint Senate replacements and instead mandating special elections.

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Mama Mia, That's'a Spicy PT Cruiser!*

Fiat gobbles up 35% of Chrysler like so much pasta.

*Cf.

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Line Of The Day

The Shrill One begins his column thusly:

Old-fashioned voodoo economics — the belief in tax-cut magic — has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.

Krugman proceeds to discuss Gothamgroup, a hypothetical insolvent bank and concludes:

What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value” purchases of toxic assets.

Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

Unfortunately, President-elect Obama seems to have surrounded himself mostly with neo-liberal Wall Street types as economic advisers. But, like FDR (and, yes, the comparison has become a cliché but is nonetheless apt) he's going to have to think big and try out ideas that will likely make to advisers uncomfortable. The situation is such that timidity will only make things worse.

It may also be a cliché but this truly will be his first big test. If he fails then we'll all be in for a world of hurt.

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TARP Trap

Given that we have no idea how the first $350bn was spent why the hell should we dole out another $350bn to the banks?

I have nothing against bank bailouts per se (better than widespread bank failures) but the refusal of the Treasury Department and the banks on the receiving end to actually account for the money suggests that there's some hanky-panky going on. At least, given the last eight years and more, that's the wise assumption until otherwise demonstrated.

Maybe Obama and Geithner (assuming he can make his little tax problem go away) will allow us to see behind the curtain but unless that happens I don't see any point to shoveling more money into the furnace.

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CNN Joins The Neo-Hooverite Camp

Not helpful. digby:

And when I say slick and non-partisan, it really is. The show also featured a panel with none other than the smarmy village saint Bill Bradley and the Clinton era deficit maven Alice Rivlin. Of course, it also included hedge fund king and deficit fetishist Pete Peterson and his little dog ex-CBO chief David Walker. (Walker seems to be halfway aware that he might not be on the right track, but he's committed to this project.) It couldn't be more in keeping with the post-partisan, non-ideological zeitgeist. Except it's ideological to the core.

When it comes to the economy the most destructive myth that has taken hold is that the government should be run like a business and since households are expected to balance their budgets then the government should as well. (Nevermind that households regularly engage in deficit spending - how many people have the cash to purchase a car or a house outright?)

During the recently concluded election season we heard the Republicans repeatedly mock the idea of "spreading the wealth around" - that redistribution of wealth in any way will lead us to Stalinist Gulags lickety-split. This leads me to issue a challenge to the wingnuts: Name for me a single government in all of human history that didn't redistribute wealth. One government. All of history.

That's a pretty large field to play on.

Any takers?

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Bad II

Ouch:

But the agency also reported an unexpectedly large jump in the unemployment rate — 7.2 percent in December compared to November's 6.7 percent. December's rate was the highest since January 1993, and gives new urgency to President-elect Barack Obama's planned stimulus program to quickly create jobs and provide greater aid to the unemployed.

Buried in the report was another dim number. The average hourly workweek for production and non-supervisory jobs shrunk 0.2 percent to 33.3 hours. This marks the lowest this number has ever registered since the government started compiling these statistics in 1964. The workweek gauge is a leading indicator that points to future job losses since employers often cut hours before eventually cutting the job altogether.

Dr. Black points out that the broader U6 measure pegs unemployment at 13.5%.

Fun times!

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Bad

This bodes ill:

“There is only one thing we have got to do in the stimulus, and that is how can we create jobs,” said Senator Tom Harkin, Democrat of Iowa, as he left the meeting. “I am a little concerned by the way that Mr. Summers and others are going at this in that, to me, it still looks like a little more of this trickle-down, if we just put it in at the top, it’s going to trickle down. A number of people in there said, ‘Look, we have got to have programs that actually create jobs and put people to work.’ ”

Sounds like the standard Chicago School/Neoliberal formula.

Whatever the final plan looks like it needs to be big, bold, and fast. Otherwise...

But then we have the Republicans:

“It’s very important as we go ahead that we find the right balance,” said Representative John A. Boehner of Ohio, the House Republican leader. “Yes, our economy needs help. But at the end of the day, how much debt are we going to pile on future generations?”

Gosh, Weepin' Johnny, you haven't been concerned about massive debt over the last eight years so what changed?

At any rate, if Obama does intend to do what it takes to garner significant Republican support then the game is already over and Obama has lost.

Think big, Mr. Obama.

---

ADDED: Krugman and DeLong are disappointed and nervous.

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He's Brit Hume - Economic Historian!

Oy:

Well, then, the New Deal -- everybody agrees, I think, on both sides of the spectrum now, that the New Deal failed.

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Stimulating Stimulus

Why not?

Another major American industry is asking for assistance as the global financial crisis continues: Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis said Wednesday they will request that Congress allocate $5 billion for a bailout of the adult entertainment industry.

A spokesman for Flynt goes on to say, “The porn industry has been hurt by the downturn like everyone else and they are going to ask for the $5 billion. Is it the most serious thing in the world? Is it going to make the lives of Americans better if it happens? It is not for them to determine.”

What's the better bang for the buck: The porn industry or lavish parties and bonuses for the likes of AIG and Goldman Sachs? At least we'd be able to see the results of the bailout...perhaps Flynt could produce "Who's Nailin' Pailin II - Penetrating Wasilla" or something.

(I know Larry Flynt is a bottom-feeding sleazebag but I can't help but like the guy. Sue me.)

[Via Steve Benen.]

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Yep

Krugman:

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

It's the way of the Democratic Party.

Lather, rinse, repeat.

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Of Depressions And Reaching Across The Aisle

Near the beginning of his latest column, Krugman writes:

This looks an awful lot like the beginning of a second Great Depression.

Fun!

Continuing:

News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.

In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.

By way of Josh, writes the WSJ:

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

[...]

Republicans and business leaders hadn't seen specifics of the proposals Sunday night, but welcomed the idea of basing a bigger proportion of the stimulus plan on tax cuts. Their response suggests the legislation could attract relatively broad support, and it highlighted the Obama team's determination to win backing from varied interests.

Krugman again:

Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.

Great Depression II in the name of bipartisanship.

My great worry all along about Obama is his instinct for "reaching across the aisle." The Republicans know how to play that game: They swat away the outstretched hand and, like especially ill-behaved children, throw a tantrum until they get what they want. (This has certainly been true with Harry the Human Jello Salad in charge of the Senate Dems.)

I'll grant that through the long presidential campaign Obama has shown himself to be a clever, maybe brilliant, strategist. But running a campaign and governing are two entirely different animals.

So, Mr. Obama, when the Republicans try to slit your throat how are you going to respond?

This is no time for timidity and weakness.

15 days.

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ADDED: This just in from Prof. Krugman:

OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition.

Great minds, &c.

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It's Always Someone Else's Fault

Clueless to the last:

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

If there's a person on this planet who is less self-aware I'd like to know his name.

Last week, Fox News asked Mr. Bush if he was worried about being the Herbert Hoover of the 21st century.

“No,” Mr. Bush replied. “I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing.”

It's clear that, like Mary Poppins, George is practically perfect in every way. And as for his legacy, well, let the man speak for himself: "History. We don't know. We'll all be dead."

Maybe sooner rather than later, George.

30 days.

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Good Job, Republicans!

Your clever plan to break the labor unions by wrecking the global economy proceeds apace:

“It’s over with,” the Senate majority leader, Harry Reid of Nevada, said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

Mr. Reid added: “This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.”

World markets slump as US car industry bail-out fails

And if you get away with this, Republicans, will only get better:

As a result, the hypotheticals about the domino effect of the companies’ troubles through the vast network of auto supplier firms — which employ more than twice as many workers as the carmakers — are becoming real.

[...]

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States.

“There’s no question it will hit Toyota, Honda and Nissan too,” said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

The Shock Doctrine, indeed.

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DeMinted

The hell?

In an interview following a Dec. 10 press conference where he and four other senators aired their opposition to the proposed bailout deal struck by congressional leaders and the White House (and approved by the U.S. House of Representatives 237-170 that evening), Sen. Jim DeMint, R-S.C., warned that the perception that some industries are being bailed out and some aren’t could lead to violence.

“We’re going to have riots. There are already people rioting because they’re losing their jobs when everybody else is being bailed out. The fairness of it becomes more and more evident as we go along. The auto companies may be hurting,” he said, but “there are very few companies that aren’t hurting and they’re going to hurt. We don’t have enough money to bail everyone out.”

Riots? What riots? Is he thinking of Greece? (There is, after all, an Athens in Georgia!) Is he thinking of the workers at Republic Windows who didn't, for what it's worth, riot? Did he get drunk before watching the news and confuse the two stories?

It's a mystery!

What's not a mystery, though, is that DeMint has admitted that his intention is to bust the unions. And now that Mitch McConnell has sunk the bailout bill DeMint just might get his wish.

What's a few more million out of work, anyway? It's becoming clearer that the Republicans want to see Great Depression II.

Lovely people.

[Via Steve Benen.]

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Dark Things Afoot

America's Cutest Neo-Hooverite™, Amity Shlaes, takes to the pages of the WaPo to deride the idea that public works projects can help the economy. Her argument fails on its own merits but two things are worth pointing out: 1) Quoting some Heritage Foundation monkey to support your argument only demonstrates that your argument is codswallop to begin with and 2) Quoting some Australian professor (Of what? She doesn't say) who maintains that public works projects are something that only the Soviet Union or President Eisenhower (!) would do demonstrates that your argument is, well, codswallop to begin with.

Professor Krugman has had some sport slapping Shlaes around of late.

Smarter think tank monkeys, please.

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ADDED: By way of Dr. Black, more on Shlaes' "qualifications" from Yglesias.

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Ohhh Brilliant

First: Can we stop appending the word "czar" to people appointed to important positions? (Relatedly, let's have no more "War on _____" nonsense as well.)

Second: Fred Barnes, Super Idiot:

BARNES: But the car czar, whether or not they will give the car czar that much power or not, I don’t know. I have a nominee: Phil Gramm!

HUME: One senses the Obama administration might not accept him.

BARNES: They have to.

Yes, Phil "Nation of Whiners" Gramm.

Brilliant, Fred, brilliant.

And they wonder why the people have rejected rightwing "thought."

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