Ungrateful Wall Street Disses Obama Fundraiser

The Wall Street recipients of the Obama administration’s largesse are paying him back by withdrawing their fundraising presence.

The firms which received the most bailout money, including Goldman Sachs, Citigroup and J.P. Morgan Chase, will be sending less than a dozen representatives to a major Democratic fundraising event headed by President Obama in NYC. These are the same firms that raised millions of dollars for him during his presidential campaign, during which he spent a record amount estimated at $750 million. They are projected to donate less than a combined $92,000 to this affair.

Ostensibly this is because they are worried about the appearance that their donations will be seen as quid pro quo for their no-strings-attached lines of credit and direct loans. It is also an attempt to tamp down populist anger at the billion-dollar bonuses to be paid out in January 2010 for their 2009 performance, the profits from which were largely due to the backing of the full faith and credit of the United States Treasury.

But they also feel resentful and put upon by the regulatory zeal and tough talk coming out of Washington. As reported in the NY Times:

There is some failure in the finance industry to appreciate the level of public antagonism toward whatever Wall Street symbolizes,” said Orin Kramer, a partner in an investment firm who is a Democratic fund-raiser and one of the event’s chairmen. “But in order to save the capitalist system, the administration has to be responsive to the public mood, and that is a nuance which can get lost on Wall Street."

Dr. Daniel E. Fass, another chairman of the event who lives surrounded by financiers in Greenwich, Conn., said: “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.” Dr. Fass added, “How much that will be reflected in their support for the president remains to be seen.”

To expect a quid pro quo was understandable. The enormity of the assistance provided to the financial sector is estimated at $12.9 trillion and counting.

Now that the firms have gotten what they sought (explicit government backing for any future losses, loud proclamations that the worst is over, loss of urgency for meaningful change), Obama no longer is useful. Because the strength of the sector lies in the bets it makes for its own benefit, Wall Street has probably placed its bets elsewhere, perhaps even further to the right, awaiting the inevitable change of guard in the face of continuing American human misery.

Did the U.S. Give Up On The American Worker?

Red China is doing a better job with Keynesian economics than the U.S. They goosed their deep recessionary economy with a boatload of money; voila! they're coming out of it. Not only that, the Chinese government demanded that the banks receiving bailout money lend to businesses and consumers. Ostensibly, that was one theory behind TARP (the act to reward plutocrats). But lending is declining. Banks are holding onto the money and raising fees on strapped businesses and consumers. Credit is still hard to come by, except, of course, for the "too big to fail" institutions sucking at the taxpayers' teat.

The N.Y. Times does a great job of describing the difference between U.S. plutocracy and Chinese communist capitalism in Recovery Picks Up In China As U.S. Still Ails

[When Chinese]...authorities urged bank executives to lend, the total value of loans outstanding shot up more in the first seven months of this year than in the previous 24 months.

By contrast, total loans and leases outstanding at financial institutions insured by the Federal Deposit Insurance Corporation actually fell $249 billion, or 3.2 percent, in the first half of this year.

Though Washington has used taxpayer money to bail out American banks, it does not have Beijing’s power to force banks to lend that money to businesses and consumers.

(By the way, aren't we major shareholders in all these financial institutions? Obama is a socialist all right...a corporate socialist.)

Meanwhile, here in the good ole U.S. of A., Ben Bernarke our intrepid Fed Chairman and little Timmy (bank baby) Geithner our Treasury Secretary declare that "we're officially out of the recession." That's because all our guys count are the banks. In the White House letter released to the G20 in advance of the conference in Pittsburgh this week (tip jar to Greg Palast of Huffington Post) it's clear that the only thing the administration cares about is that equity markets have increased 35% and other indicators favorable to the financial sector. Unemployment is only mentioned as dampening consumer spending.

Meanwhile, U.S. unemployment keeps rising. China actually cares if its citizens are employed. Why is that? Well, they riot when they're not working (and even burn down factories and kidnap a few executives). The U.S. worker doesn't.

The plan for cash-rich U.S. companies seems to be, ignore the U.S. consumer because after all he/she has no money and turn their eyes overseas to healthier markets, like China.

The Coming Right Wing Deluge

Checking the 8/30/09 NYT Book Review Section, I noticed that 3 out of the top 5 bestselling hardcovers were from right wing fanatics (or "wingnuts", in the left of the left parlance). #1 was Michelle Malkin's Culture of Corruption, from Regnery, the publisher of all illiberal screeds. As the gentle NYT plot writer for the Non-fiction Best Seller list described its contents: "President Obama and his team as tax cheats, petty crooks, influence peddlers and Wall Street cronies." #3 was Mark B. Levin's Liberty and Tyranny, "[a] conservative manifesto from a talk-show host and the president of Landmark Legal Foundation. Rounding up the top 5 was Dick Morris and Eileen McGann's Catastrophe, which exhorts all to "[s]top President Obama before he transforms America into a socialist state.

This is a fearsome development. Aside from the astonishing fact that there are enough wingnuts to shell out around $27 and possibly even read a hardcover book, the trajectory of political discourse looks distinctly right of the horizon. I'm afraid of the rise of a populist demagogue who truly wishes to take over the reins of power. Right now I'm reading Senator Joe McCarthy by Richard H. Rovere, written in 1959, merely 5 years after McCarthy was brought down and two years after his sodden death. Sodden, not sudden. He was a drunk. But never mistake his ability to influence policy through his fabricated accusations. Everyone in the political arena, including Presidents Truman and Eisenhower, was afraid of him. Luckily (according to Rovere) he didn't seek political power; he merely wanted glory. Once he'd achieve his objective (say, getting a minor clerk in the State Department dismissed because he was noted in the bibliography of a red-tinged person), he'd drop the entire matter.

But what if a populist demagogue actually wanted to seize the reins of power on a national and international scale? A leader doesn't have to be an elected official. Father Coughlin? Rush Limbaugh? As the common man trudges through the Great Recession with nary an unfilled job in sight, people are disgruntled, frustrated, and filled with loathing and hatred. And packing heat. It doesn't matter how imbecilic the accusations against Obama and his administration are: that he's an illegitimate president, a socialist (if he's a socialist, then Lloyd Blankfein, head of Goldman Sachs and flash trading, is a dyed-in-the-wool Communist) and is planning to convene "death panels" to force the disabled, unwanted and elderly into euthanasia. The hysteria of Sarah Palin's original rallies have degenerated into Town Hall hate-a-thons. And Congress says nothing.

Recession Is Over. Or It Isn't.

Fed Chairman Ben Bernarke et al are hailing the end of the longest recession since the Great Depression. The Great Recession began in December 2007. Now, according to them, it's over. Many companies have reported better than expected earnings 2 Q '09. To be exact, 73% of the 427 companies in the S&P 500 that have reported earnings have beaten expectations.

Economists love history and statistics. In past recessions, when productivity reached a certain level, prosperity was just around the corner. But what if a recession is ahistorical, like this one? What if it has no precedent?

Don't accept statistics on faith. In the face of rising unemployment and foreclosure rates, what accounts for these profits?

If you weren't sure of the utter falsehood that what's good for Wall Street is good for Main Street, all you need to do is look at the worker productivity numbers for 2 Q '09. Productivity is the measure of what the economy produces per worker hour. And productivity at the end of June was the highest it's been since 3 Q '03, an annualized pace of 5.5%.

The profits didn't come from producing more stuff that more people wanted to buy. It came from merciless cost-cutting. Instead of 3 people doing the work of 3, 1 person does the work of 3. Easy math. Productivity zooms upward by 300%.

As reported in the WSJ:

The net result: rising unemployment, stagnant wages, sagging consumer confidence--and better than expected corporate profits.

Higher earnings and stock prices are supposed to induce companies to invest their capital and hire more. At least that's how it worked in the past.

But this Recession is the Mother of Them All. Achieving profits on the backs of their workers in a country where consumer spending accounts for 70% of GDP won't help Main Street and the economy beyond Wall Street at all. Certainly it won't increase consumer demand. The question is, will business invest? Will the private sector make up for lower consumer demand and a smaller-than-necessary government stimulus?

The jury is out on those questions:

In a classic economic recovery...rising profits and stock prices help make the recovery self-sustaining by encouraging companies to hire more workers.

What is still in doubt, though, is whether this is a classic recovery.

Timmy Gets Mad

In today's WSJ, someone inside the room leaked. Before a group that included Fed Chairman Ben Bernarke, SEC commission chairman Mary Schapiro and FDIC Chairman Sheila Bair, Treasury Secretary Timothy Geithner cursed like a sailor as he yelled at the assembled financial regulators for not getting on board with the plan to have the Federal Reserve grab total oversight power over all financial entities.

What the hell does "jobless recovery" mean?

What exactly does a jobless recovery mean? Isn’t that an oxymoron like “military intelligence”?

The article by Louis Uchitelle in the Sunday NYT 7/19/09 Week in Review section with the exclamation capital letter headline, “When, Oh When, Will HELP Be WANTED”, asserts that we are entering a time of economic expansion; the worst is over; but where are the jobs? No expert economists this time are weighing in. Some mumble, no sooner than next summer, “a guess, verging on wishful thinking.” Seems that because jobs are shed monthly at ½ million of so (or as numbers crunchers would say, less bad than before) and people are in debt, the GDP which depends on 70% consumer consumption, will not revive very soon. Until it does, the manufacturing and construction sector will continue to lose employees. What’s supposed to happen and what has happened in the past is that after a recession ends pent-up demand is unleashed and the engines start roaring again.

However, history is no guide in this recession. It is the Mother of them all, at least since 1929.

The pent-up demand is not present—not with 6.46 million jobs gone in just 18 months and hundreds of billions of dollars in wages extinguished.
Credit is harder than ever to get for those who might want to spend again and there are fewer and fewer spenders.

Of course, since the last 10 years represented a fake expansion based on leverage (especially leverage enhanced by creative structure financial vehicles) and fee-based bullshit (credit rating agencies, bond issuers, mortgage originators all profited handsomely during the housing bubble), there is no pent-up demand. The only signs on the dim horizon are adding hours to the employees who’ve had their hours cut.

The estimates of job creation for the stimulus package (Mark Zandi, chief economist at Moody’s Economy.com) is 2.5 million jobs, not much considering we’ve already lost nearly 2 million jobs since the package was announced in February . Don’t forget that new people try to enter the workforce on a continuous basis (recent college graduates, new citizens, etc.), so the need for new jobs is greater than just making up the losses.

So what the hell are we going to do? Don’t depend on the politicians. Both Democrats and Republicans look upon a new stimulus as though it were radioactive, even if that may be the only thing to put ordinary people back on the rolls:

Such numbers suggest that if the goal is a job surge coming out of the current recession, then another stimulus package is needed, and a big one, perhaps as much as $1 trillion packed into a single year of spending, some economists say. Consumer spending and business investment provided such a kick coming out of steep recessions in the past.

But that’s not in the cards. No way. America worships money and ideology in whatever order. The politicians want to get re-elected and the powerful lobbyists in the FIRE (Finance/Insurance/Real Estate) sector want to write the laws for them, so we the common man/woman can only expect a trickle of jobs and a whole lot of belt-tightening, death by health insurance and untold misery. But do not fear: economists have found faith, not unlike my childhood faith in Tinkerbell’s resurrection:

There might even be a surprise, adds Robert Barbera, chief economist for the Investment Technology Group. “Some new and exciting area of job growth may emerge,” he said, “although I can’t guess where that may be.”

Derivatives: The Devil's Handiwork

Floyd Norris' article, "Derivatives Tug of War Takes Shape" is a discouraging look at how hard the derivatives industry is fighting any kind of regulation, particularly having to be traded on an exchange where prices are transparent and companies will actually have to put up some collateral for the risks they take then fob off on some unsuspecting mark. It's all gambling on a massive scale.

“Simply put,” said Richard Bookstaber, one of the pioneers of financial engineering on Wall Street, “derivatives are the weapon of choice for gaming the system."

Mr. Bookstaber wrote one of the best books about the causes of the financial crisis, “A Demon of Our Own Design,” and did so before the crisis erupted. This month, his testimony to a Senate subcommittee provided a stark lesson in the uses to which derivatives have been put.

“Derivatives,” he testified, “provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored.” They let institutions dodge taxes and accounting rules.

“Viewed in an uncharitable light,” he added, “derivatives and swaps can be thought of as vehicles for gambling; they are, after all, side bets on the market.”

And they were side bets that could destabilize the markets. Had American International Group been gambling in regulated markets, it would have been required to put up collateral when prices began to go against it. Instead, it was able to ignore the problem until its own collapse — and perhaps that of the financial system — was imminent.

As he put it, and as I saw in CNBC's show "House of Cards", the pirates use derivatives to transfer their risk to those who don't understand it. I was appalled listening to Alan Greenspan talking to the CNBC guy. He was basically saying there was nothing the Fed could do to stop the madness. You can't put the brakes on a bubble because that would destroy the economy and profitmaking. He's saying all this, that damned Ayn Rand suckup, while sitting in the midst of the wreckage. The profits were all phantom, except for those piled up by financial wizards who got paid upfront and left before everything crashed.

But the destruction spread far beyond the Wall Street borders and subprime mortgages. Right now we're looking at at least 11% unemployment by the end of 2009 (and it's gotta be more than that; I think it's already gone up 1.5% since April). And this is the official unemployment rate, which doesn't include the underemployed or those who have given up looking.

The sadness is that it will all be blamed on Obama and we'll get some horrible Republican in the White House in 2012.

Such a transfer of wealth from the not-rich to the rich.