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2010-02-04, 06:45   #45

"Richard B. Woods"
Aug 2002
Wisconsin USA

170148 Posts

Quote:
 Originally Posted by garo He can't blame Bush for much longer.
Do you and others on this thread actually not realize the lead times needed to make either the federal budget or the U.S. economy do a sharp turn? It takes a lot more than 12 months.

(I've described all this stuff here in Soap Box threads over the past few years [in the presidential election political threads, for instance] ... but -- silly me -- instead of compiling it all in one place as a coherent whole for quick reference at times like this, I've lazily [... or maybe it has to do with depression and associated difficulty concentrating also ...] assumed that everyone would have both read and remembered all my golden advice, or I could just reproduce parts of it when necessary. Not very smart/efficient/economical of me. Yet.)

Point #1: When a president takes office, he has to submit a budget for the next fiscal year within a month of inauguration. It is simply not possible for the new administration to make detailed analyses or changes to make this first budget "his own" in that short time if the preceding administration had a markedly different agenda. A budget mostly has to be worked-on all year in order to be ready for the next fiscal year.

It is true in this particular case that there has been a lot of emergency spending done by the Obama administration since right after it started. This is a bit of an exception to the above rule, due to the unusual circumstances. However, the main outlines of fiscal 2010 (which started Oct.1, 2009) were set by the Bush administration, and in the absence of the extraordinary circumstances fiscal 2010 could have been "blamed" almost entirely on Bush 43.

Indeed, the general rule _did_ hold for the fiscal 2002, 1994, 1982 and previous first-year budgets -- in each case the incoming opposite-party president couldn't make much difference in "his" first fiscal year's budget, which was mostly the work of his predecessor. Now, of course each president tries to make a few noteworthy changes in that first budget, but this should not be mistaken for a thorough responsibility for all details. Note that there is a balancing lag at the tail end of an administration -- an outgoing president has the satisfaction of putting his mostly-not-time-enough-to-change stamp on the first budget his successor will submit! So each president is responsible for 8 (or 4) budgets -- it's just that their span is offset by one year from what many folks casually attribute to him.

Point #2: As I've explained numerous times in the past, in the late 1970s conservative think tanks decided that in order to obtain and hold onto political power, their side needed to abandon traditional Republican fiscal responsibility. Remember Cheney saying that deficits don't matter? If not, here's a reminder:

"What Killed Off The GOP Deficit Hawks?"

Quote:
 Since Ronald Reagan, a majority of Republican politicians have gradually come to conclude, as Vice-President Dick Cheney famously told former Treasury Secretary Paul H. O'Neill, that "deficits don't matter."
I recommend reading the whole article, especially if you've bought into the Republican propaganda line that it's the Democrat "big spenders" who are responsible for large deficits.
Quote:
 What's interesting and alarming, however, is that different Republican factions believe deficits don't matter for opposite and incompatible reasons. Supply-siders believe deficits don't matter because tax cuts so boost investment and productivity that the economy grows its way out of debt. The opposite, "starve the beast" faction, epitomized by tax tactician Grover Norquist, hope tax cuts will indeed create deep deficits that will then force spending cuts. But both things can't be true.
Indeed. Early in the Reagan era, V-P George H.W. Bush called supply-side economic theory "voodoo economics" -- but the GOP told him to stop saying that.

It's the "starve the beast" scheme that I've been describing repeatedly in the past. The GOP keeps pushing tax cuts all the time -- when the economy is good, it's because the nation "can afford it", whereas when the economy is bad, it's because the nation "can't afford not to". They have cynically pushed federal deficits higher and higher for thirty years while blaming Democrats all the time -- and the average American has bought into that propaganda. (Maybe in Ireland, too?)

During Reagan's first year, he repeatedly vetoed budgetary bills passed by the then-Democrat-controlled Congress, giving as his reason that they contained excessive spending. (I watched him look straight into the TV camera as he said that -- his professional acting experience was vital there) As long as there were at least 34 GOP Senators willing to uphold his vetoes, by voting not to override them, he prevailed. Few people bothered to notice that the versions of bills he eventually signed contained more spending and higher deficits than the versions he vetoed. Of course, that was more spending on things conservatives liked, such as the military, and less spending on things conservatives didn't like, such as the "safety net".

The GOP has deliberately made it politically difficult for Democrats to restore fiscal responsibility to the federal budget. I condemn Republicans' cynical disregard for this nation's fiscal future, but must acknowledge that their fiscal strategy has politically succeeded brilliantly.

(to be continued)

Last fiddled with by cheesehead on 2010-02-04 at 06:55

2010-02-04, 06:56   #46

"Richard B. Woods"
Aug 2002
Wisconsin USA

22×3×641 Posts

Quote:
 Originally Posted by garo http://www.nytimes.com/2010/02/02/us...02deficit.html
Gene Lyons at salon.com has it straight:

"The deficit blame game

Millions of voters believe the GOP line about Obama's runaway spending. It's up to him to set the record straight"

http://www.salon.com/news/opinion/fe...gop/index.html

Quote:
 Originally Posted by Gene Lyons . . . So anyway, up jumps freshman Rep. Jeb Hensarling of Texas. "You are soon to submit a new budget, Mr. President. Will that new budget, like your old budget, triple the national debt and continue to take us down the path of increasing the cost of government to almost 25 percent of our economy? That's the question, Mr. President." Hensarling appeared to think he'd posed a real zinger. Obama's runaway spending is an article of faith among the Rush Limbaugh/Glenn Beck crowd. Karl Rove, Bush's cynical political guru, pushes it the way Lenin pushed "the withering away of the state." Obama jumped on it. "With all due respect," he said, "I've just got to take this last question as an example of how it's very hard to have the kind of bipartisan work that we're going to do, because the whole question was structured as a talking point for running a campaign ... "The fact of the matter is, is that when we came into office, the deficit was $1.3 trillion.$1.3 trillion. So when you say that suddenly I've got ... a monthly deficit that's higher than the annual deficit left by Republicans, that's factually just not true, and you know it's not true. "And what is true is that we came in already with a $1.3 trillion deficit before I had passed any law. What is true is, we came in with$8 trillion worth of debt over the next decade. "(That) had nothing to do with anything that we had done. It had to do with the fact that in 2000, when there was a budget surplus of $200 billion, you had a Republican administration and a Republican Congress, and we had two tax cuts that weren't paid for, you had a prescription drug plan -- the biggest entitlement plan, by the way, in several decades -- that was passed, without it being paid for, you had two wars that were done through supplementals [i.e., off-budget appropriations] and then you had$3 trillion projected because of the lost revenue of this recession." Read it and weep, because those are the facts. Two weeks before Obama was inaugurated, the Congressional Budget Office projected the 2009 deficit at $1.2 trillion, adding that due to the economic crisis the new administration also inherited, "collections from corporate income taxes are anticipated to decline by 27 percent and individual income taxes by 8 percent; in normal economic conditions, they would both grow." Mandated spending on unemployment insurance, food stamps, etc., increased. A year later, little had changed. A December 2009 analysis by the Center on Budget and Policy Priorities concluded that the Bush administration's fiscal legacy "explain(s) virtually the entire deficit over the next 10 years." Economic stimulus and all, new spending by the Obama administration amounts to roughly 10 percent of this year's deficit. (Garo, that last sentence is the answer to your "The scale of the deficits far exceeds what I would have thought necessary to undo Bush's mangling." 90 percent of the current deficit is Bush's mangling, and the legacy of his father's mangling, and Reagan's mangling, plus mangling by all other presidents both Democratic and Republican back to Eisenhower or so. Also, Obama's budget is the most honest budget in at least 50 years AFAIK. The price he's going to pay for that honesty is that most folks won't realize without some education just how dishonest past budgets have been for most of my lifetime, so facile comparisons will make his budget look worse than it really is. Note that, as Ernst pointed out above, it (a) puts all war expenditures on budget, unlike Bush's cowardly use of special appropriations to keep war costs off the official budget, and it (b) puts all the, as Ernst said it, "money 'borrowed' from the social security 'trust fund' each year" right on the budget. So, when you compare Obama's budget deficits to past ones, you need to increase each and every past deficit to include that Social Security borrowing and all "special appropriations" for war costs. If you do that, you'd find that Obama's deficits aren't all that much bigger than many total deficits were in the past, unbeknownst to most folks who didn't dig to get the true totals.) Quote:  The GOP response to these incontrovertible facts amounts to boo-hoo-hoo. Republicans who stayed focused on Bill Clinton's zipper from 1998 until Bush's failures made necessary the promulgation of a new rule of Washington etiquette, now whine that decent people simply don't resort to arithmetic. The world began anew last January. Obama promised miracles, they say, and he hasn't delivered. My view is that in pursuit of illusory bipartisanship, he's let congressional Republicans pout like children too long. Fiscally speaking, the GOP keeps promising voters an excursion to Big Rock Candy Mountain: lower taxes, higher revenue, prosperity all around. Except it never happens. Multimillionaires get tax cuts, we get the bill. Virtually the entire national debt was run up by President Reagan and the two Bushes. It was$1 trillion going into Reagan's administration. Reagan added $2T, Bush the Elder added another$1T, Clinton added $2T, and Bush the Younger has added$4-5T.

Quote:
 Meanwhile, job creation under George W. Bush was the lowest since World War II. Then when Democrats take office, they style themselves "deficit hawks," and caterwaul about runaway spending. It's like a carnival sideshow act. Except that it plays. Many readers know these things. Obama's political challenge, however, is that millions of ordinary voters don't have a clue. So he's got to find ways to tell them over and over again until they do.

Last fiddled with by cheesehead on 2010-02-04 at 07:35

2010-02-04, 18:19   #47
ewmayer
2ω=0

Sep 2002
República de California

1175510 Posts

Quote:
 Originally Posted by cheesehead Obama's budget is the most honest budget in at least 50 years AFAIK. The price he's going to pay for that honesty is that most folks won't realize without some education just how dishonest past budgets have been for most of my lifetime, so facile comparisons will make his budget look worse than it really is.
Alas, I must beg to differ ... I take back everything I said about possibly cutting Obama and his budget team some slack for their efforts at "honest accounting". My favorite Bloomberg columnist, Jonathan Weil, explains:

Obama’s $6.3 Trillion Scam Is America’s Shame:Whether on Wall Street or in Washington, the biggest frauds often are the perfectly legal ones hidden in broad daylight. And in terms of dollars, it would be hard to top the accounting scam that Obama’s budget wonks are trying to pull off now. Quote:  The ploy here is simple. They are keeping Fannie Mae and Freddie Mac off the government’s balance sheet and out of the federal budget, along with their$1.6 trillion of corporate debt and $4.7 trillion of mortgage obligations. Never mind that the White House budget director, Peter Orszag, in September 2008 said Fannie and Freddie should be included. That was when he was director of the Congressional Budget Office and the two government-backed mortgage financiers had just been seized by the Treasury Department. The White House is already forecasting a$1.3 trillion budget deficit for 2011, which is about $3 of spending for every$2 of government receipts. By all outward appearances, it seems Obama and his budget wizards decided that including the liabilities at Fannie and Freddie would be too much reality for the world to handle. So they left the companies out, in a trick worthy of Enron’s playbook, except not quite so hidden. New Beginning While the president had nothing to do with the mortgage zombies’ collapse, this was supposed to be the administration that, in his words, would put an end to “the era of irresponsibility in Washington.” Instead, he has provided us a new beginning. Fannie and Freddie aren’t merely wards of the state. Practically speaking, they are the entire U.S. housing market. Their liabilities are the government’s liabilities. As Orszag said at a Sept. 9, 2008, news conference, two days after Fannie and Freddie were seized: “The degree of control exercised by the federal government over these entities is so strong that the best treatment is to incorporate them into the federal budget.” That control is stronger today. Congress and the Treasury have given the companies a blank check to blow through whatever taxpayer money is necessary to keep the U.S. housing market afloat. Anyone buying large quantities of U.S. government bonds knows these liabilities exist. So why pretend they don’t? Making Fudge Obama’s White House didn’t invent this kind of fudging. President George W. Bush, for example, kept most war costs out of the budget. Obama’s proposal shows about $289 billion of war costs for 2010 and 2011, plus a$50 billion placeholder estimate for each year after that. Those dollars are small compared with the numbers at Fannie and Freddie, though. Without federal backing, the mortgage guarantees issued by Fannie and Freddie might not be worth much. In that case, the $973 billion of mortgage-backed securities held by the Federal Reserve would be worth substantially less, rendering its$52 billion capital cushion illusory. Of course, it’s ridiculous to think the government would let this happen. Excluding Fannie and Freddie, the national debt held by the public is about $7.9 trillion. With them, it exceeds last year’s$13.2 trillion gross domestic product. Even the geniuses at Moody’s Investors Service are warning that the country’s AAA rating might not last. No country can owe more than its yearly productive output for long without giving up its accustomed lifestyle and influence. Catching On The nation’s debt has become so immense that it’s corroding the government’s fundamental relationship with its own people. Put yourself in the shoes of a young couple thinking of buying their first home. The government needs folks like them to buy into the market to keep demand for houses up. Yet without all the trillions of dollars of subsidies the government has pumped into housing, home prices would get creamed even worse than they already have, spurring greater loan defaults and saddling the Treasury with ever-higher costs from the guarantees Fannie and Freddie sold. What’s sickening is that the government can’t afford the subsidies. Suddenly, that $8,000 tax credit for first-time homebuyers looks like a nasty teaser aimed at sucking America’s newlyweds into a giant Ponzi scheme. Worst of all is the example the government is setting for its citizenry. There still have been no indictments of senior executives at any of the big financial institutions that cratered in 2008 while sporting pristine balance sheets. No wonder. The government lacks moral standing to prosecute crimes such as accounting fraud when its own books lack integrity. My Comment: Note that while Fannie and Freddie were nationalized during the last months of Bush's term, the "blank check" for them was announced this past December (in sneaky fashion by Tim Geithner after close of markets on Christmas eve) and was surely all the doing of.the current administration. And silly attempts to try to appear deficit-hawkish like the "discretionary spending freeze" announced with great emphasis by Obama last week - in impressive-sounding "$250 billion over the decade" terms - are simply laughable. Realistic estimates indicate that the savings from this kind of cutting around the margins would be at best $10 billion per year, or perhaps 0.2% of the budget, even if one leaves little items like the GSEs out of the calculation. Fecklessness defined. 2010-02-04, 20:54 #48 ewmayer 2ω=0 Sep 2002 República de California 5·2,351 Posts NY AG Cuomo Charges Ex-BofA chief Lewis with fraud Quote:  Originally Posted by ewmayer Alas, I must beg to differ ... I take back everything I said about possibly cutting Obama and his budget team some slack for their efforts at "honest accounting". My favorite Bloomberg columnist, Jonathan Weil, explains: [snip] Another Bloomberg columnist, Caroline Baum, dissects the administrations "honesty" with respect to its feckless, hugely wasteful jobs-creation efforts: Obama’s Pyramid Schemes Would Make Keynes Happy:Jobs, jobs, jobs. Meet the new mantra, same as the old mantra. Quote:  No longer will President Barack Obama be content to cite specious numbers about “jobs saved or created” as a result of last year’s$787 billion fiscal stimulus. Now he’s proposing $100 billion of new spending to “jumpstart job creation,” according to White House Budget Director Peter Orszag. It’s part of a$3.8 trillion budget for fiscal 2011, unveiled Monday, that projects a $1.3 trillion deficit next year, following a$1.6 trillion deficit this year. Spend money to save money. Spending dressed up as a jump- starter is still spending by another name. The only thing missing from the energy-cleansing, rural- community-assisting, climate-change-mitigating, health-food- promoting blueprint is money for pyramid building. In Chapter 10, Section VI of “The General Theory of Employment, Interest, and Money,” John Maynard Keynes advocated building pyramids as a cure for unemployment.
My Comment: "Now, see, when I first heard the nationwide cries of "jobs, jobs, jobs" last year, I thought yall were chanting for *Steve* Jobs ... my bad." --Barack Obama, speaking at a town-hall meeting in the shadow of the Great Pyramid of Cheops.

--------------------------

Today's Gambling Action In The Casino:

Galloping herd of permabullish investor/gamblers spooked today by latest weekly jobless claims data ... just wait 'til the mass state-employee layoffs begin in earnest, it won't be pretty. (But it will be long-overdue). Sovereign default risk party which started with togas and ouzo in Greece has now turned into a fraternity-row progressive, with Portugal and Spain joining in the fun and seeing spiking debt-issuance-and-rollover costs...

Consumers paying credit card over mortgage

Consumers paying credit card over mortgage:When faced with a financial crisis, consumers more often are opting to pay their credit-card bills first before turning to their mortgage payments, according to a report released by Trans Union Wednesday.
Quote:
 In the past, strapped consumers typically would let their credit cards slide and make sure their mortgages were covered, said Sean Reardon, the study's author and a consultant at the Chicago-based credit bureau. But those priorities flipped in the first quarter of 2008, according to the study, and the trend has been picking up steam. In fact, 6.6% of consumers were delinquent on their mortgages, but current on their credit cards in the third quarter of 2009, according to the most recent data available. Meanwhile, just 3.6% were behind on their credit cards and current on their mortgages. Why the change? A "perfect storm" of deteriorating housing prices and rising unemployment is likely the reason, Reardon said. It's much easier for consumers to walk away from mortgage payments when their homes aren't building equity, he said, than to neglect their credit cards when that may be the only way they're covering daily expenses. Just two years earlier, in the third quarter of 2007, the situation was reversed: 3.95% of consumers were delinquent on their mortgages, and current on their credit cards, while 4.6% were behind on their credit cards and current on their mortgages. In California and Florida -- two of the states hit hardest by the burst housing bubble -- consumers were even more likely to pay their credit cards before their mortgages. In California, 10.2% were delinquent on their mortgages but current on their credit cards in the third quarter of 2009, vs. 2.7% in the reverse situation. In Florida, 12.4% were behind on their mortgages and current on their credit cards, compared to 3.9% in the opposite situation.
My Comment: I suspect for many of these folks, this is preparation for a "strategic default" on their underwater mortgage...stay in the house without paying as long as the bank lets you (and many banks are literally letting people "squat" for many months, because avoiding having tp foreclose allows them to avoid having to book the loss, i.e. to continue to "extend and pretend" by carrying the no-longer-performing loan at par value on their books. And now that the stigma of defaulting is rapidly abating ("if businesses and banks do it all the time, why shouldn't I?") this trend is likely to accelerate. Isnt game theory cool?

Ex-BofA chief Lewis charged with fraud

Ex-BofA chief Lewis charged with fraud:New York Attorney General Andrew Cuomo unveiled a major legal action against Bank of America Thursday over its controversial purchase of Merrill Lynch, including bringing charges against its former CEO Ken Lewis.
Quote:
 Cuomo's office, which has been aggressively pursuing an investigation into the merger and subsequent bonuses paid to former Merrill employees, said it was charging Lewis and Bank of America's chief financial officer Joe Price, who was recently appointed to lead the firm's consumer banking business. The lawsuit contends that the bank's management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm's willingness to terminate the merger in order to get $20 billion of additional aid from the federal government. "Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large," Cuomo said in a statement. My Comment: Thats a good first step ... now we just need relates indictments against Bernanke and Hank Paulson, who were complicit in the fraud. And since our own federal government seems completely unwilling to pursue the perpetrators of this and related frauds - perhaps because many of its own top officials were complicit - it is up to the various state attorneys-general to act on behalf of their constituents...and since the tentacles of the frauds committed by these banks are global, in many cases foreign governments are now stepping into the prosecutorial void. For example, just today the Italian financial police announced that [url=http: www.bloomberg.com apps news?pid=20601087&sid=aWJC2mYeMKqg&pos=5]they are seizing 73.3 million euros ($102 million) of assets[ url] from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia. This is the Italian version of the same kind of fraud JP Morgan committed in Jefferson county, Alabama, and which appears to have been quite the going racket amongst many of the TBTFs at the height of the great credit-and-securitization bubble.

2010-02-04, 21:20   #49

"Richard B. Woods"
Aug 2002
Wisconsin USA

1E0C16 Posts

Quote:
 Originally Posted by ewmayer Alas, I must beg to differ ...
... and you may be right! I have a persistent blind spot regarding Fannie and Freddie.

Perhaps it's nevertheless true that this budget is the most honest in 50 years with regard to two of my budgetary pet peeves: Social Security trust-borrowing and special war appropriations. That's what I had in mind (and should have specified), but is sadly incomplete.

Oh, well, perhaps at least he'll have set a precedent with regard to those two categories -- one I hope his successors follow.

Last fiddled with by cheesehead on 2010-02-04 at 21:26

 2010-02-05, 10:42 #50 garo     Aug 2002 Termonfeckin, IE 53208 Posts I did not know about the social security and war spending numbers so yes it is an honest budget and not as bad as the headline numbers make it appear. But I'm surprised why the WHite House hasn't publicized this difference sufficiently. However, while he has brought those numbers onto the ledger he hasn't really done anything to curb all the wasteful spending started by Shrub. Can the US really afford $289 billion on wasteful wars of aggression? 2010-02-05, 21:07 #51 ewmayer 2ω=0 Sep 2002 República de California 5×2,351 Posts Karl Denninger has a looking-at-the-numbers-behind-the-numbers review of todays BLS employment report...the quick way to cut through the usual statistical flummery is to go straight to the last 2 charts in his note, "total employed" and "labor participation rate". NYT Opinionator: Mystery Men of the Financial Crisis: Now that we have pulled back sufficiently far from the near “destruction of the modern financial system” — as the former Treasury Secretary Henry Paulson described the events of 2008 in his new memoir, “On The Brink” — to focus on how to prevent such a calamity from recurring, the time has come to hear from those players in the drama who really know what happened and why. Quote:  Until people such as Warren Spector, the former co-president and head of the fixed-income division at Bear Stearns, and Dan Jester, a mysterious former Goldman Sachs banker turned Treasury official — among many others — come forward and share with us the roles they played before, during and after the crisis, there is little hope that the members of Congress working on financial reform legislation will be able to craft a bill that will succeed in its mission, and the longer they will spend dithering with the ill-conceived ideas being pushed by the former Fed Chairman Paul Volcker. To date, these elusive but important Wall Street executives have kept an exceedingly low profile, hoping against hope that the whole thing just blows over. We can’t let that happen. There is just too much at stake now, and Wall Street has proved repeatedly over the past 40 years — since the firms went from private partnerships (where partners had their entire net worth on the line) to public companies (where bankers and traders were encouraged to take huge risks with other people’s money) — that it is incapable of regulating itself. We need to get beyond the amusing political theater of the recent Financial Crisis Inquiry Commission hearings featuring tight-lipped Wall Street chief executives like Lloyd Blankfein of Goldman, John Mack of Morgan Stanley and Jamie Dimon of JPMorgan Chase — and the artfully crafted statements they compiled with the help of$1,000-an-hour Wall Street lawyers. We need to hear the nitty-gritty of what caused the crisis from the people who know why things happened the way they did but haven’t yet been asked to speak up by someone with subpoena power. For instance, Warren Spector could provide chapter and verse on how Bear Stearns became a powerhouse in securitizing and trading home mortgages, and how the risks the firm took grew as that business became by far the company’s largest and most profitable. He could also shed light on the important role that Goldman Sachs played in the collapse of the two Bear Stearns hedge funds in July 2007 after Goldman’s traders provided Bear’s executives, in April 2007, with new, lower valuations that Goldman had put on the mortgage securities in the hedge funds. One assumes that Spector could tell us what kind of panic ensued inside Bear as a result. These lower marks led the managers to reduce the funds’ Net Asset Value in April 2007, which caused investors to head to the exits. As for Jester, he knows plenty, and isn’t talking. As Representative Marcy Kaptur, an Ohio Democrat, pointed out at the Congressional hearing about American International Group on January 27, between Sept. 14, 2008 and Nov. 26, 2008 — the darkest days of the financial crisis — Tim Geithner, then head of the Federal Reserve Bank of New York and now Treasury Secretary, spoke on the phone with Jester 103 times. Paulson — not Ben Bernanke, the Chairman of the Federal Reserve, or Christopher Cox, the Chairman of the Security and Exchange Commission — was the only person to whom Geithner spoke more often. Who the heck is Dan Jester? In “On the Brink,” Paulson first identifies him only as a “contractor” to the Treasury Department while Paulson was secretary. Paulson then elaborates that Jester had previously worked for him at Goldman, where he had been a financial-institutions banker and a “key member” of the firm’s risk committee. According to Paulson, the “unflappable and brilliant” Jester retired from Goldman in spring 2005 and moved to Austin, Tex. Paulson writes that after he became Treasury secretary, he tried to recruit Jester to Washington as an assistant secretary but Jester declined. When Robert Steel, a former Goldman partner and a Paulson confidante, left Treasury to become chief executive of Wachovia in the summer of 2008, Paulson “impressed” on Jester “the nature of our emergency.” Jester changed his mind and came to Washington “even though it meant leaving his family behind for six months.” During his time at Treasury, Jester seems to have had his finger in every pie: the rescue of Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers, the A.I.G. calamity, the decisions to bailout Citigroup, G.M. and Chrysler, and the creation of the Troubled Asset Relief Program. For Fannie and Freddie, Paulson credits Jester with the “inspired idea” of creating a “keepwell” agreement that allowed the Treasury to continually provide financing to those companies “no matter how much they lost long into the future.” During that fateful weekend of Sept. 13 and 14 of 2008, Jester tried to negotiate deals for Lehman with both Bank of America and Barclays — to no avail — before the 158-year old securities firm collapsed into bankruptcy. Jester quickly turned his attention to A.I.G.. He got a call on that Sunday afternoon, from the billionaire private-equity maven J. Christopher Flowers, who had been the head of the financial-institutions group at Goldman when Jester worked there, who said he’d made a bid to acquire A.I.G. to keep it from failing. Paulson’s book makes no mention beyond that of the role Jester played in the bailout of the insurer — including his being moved from the Treasury to A.I.G.’s offices for a period of time. One former A.I.G. executive told me that Jester was calling many of the shots at the insurer between mid-September, when the New York Fed decided to go ahead with the bailout, and the end of October 2008 ,when Jester was replaced at A.I.G. by another Treasury official because, according to The New York Times, of Jester’s “stockholdings in Goldman Sachs.” Goldman ended up with $14 billion in counterparty payments from A.I.G. “He was Paulson’s man,” the former A.I.G. executive told me. “He was the Treasury’s representative, and he was at every meeting” during that mid-September weekend. At one point, on the following Monday, Sept. 15, as the A.I.G. situation was spiraling out of control, Jester phoned the three major credit-rating agencies and asked them to hold off from downgrading A.I.G. any further, since that additional downgrade would force the insurer to make even more collateral payments on the spot to counterparties, further depleting its dwindling cash. Jester’s efforts weren’t persuasive. “It was pathetic,” the former A.I.G. executive told me. Then, after the Citigroup executive (and former Treasury secretary and Goldman co-senior partner) Robert Rubin called Paulson to say “Citi was not being given clear direction,” Jester was off to help Paulson and Rubin craft the creative solution to “ring-fence”$306 billion of Citigroup’s most-toxic assets before Thanksgiving 2008. This was, of course, just weeks after Jester had helped Paulson design and unroll TARP. These days, Jester is back in Austin, where he is being careful not to return calls from those seeking answers to legitimate questions about what role he played in what happened. Perhaps he would return a call from Geithner asking him to appear on Capitol Hill to answer some questions. After all, he’s answered that call 103 times before.
My Comment: Yup, no conflicts of interest there, in having the former CEO of Goldman hire another recently-retired SquidMan to spearhead the secret negotiations which led to Goldman getting reimbursed 100% on its CDS bets gone bad, and who (like the fellow who replaced Geithner as head of the NYFed) still owned Goldman shares at the time. Then, feeling rather left out of the bailout party, ex Goldman CEO Rubin also calls fellow ex Goldman CEO Paulson to see if insolvent Citi cant al;so get a sweetheart deal courtesy of the U.S. taxpayer, and - whaddya know? - like magic, a $300-billion loan guarantee appears, in addition to the bailouts Citi was set to enjoy courtesy of TARP, TGLP, the various access to-interest-free-money programs of the Fed, and a yearlong government-orchestrated financial-and-equity-market pump job. Ain`t free-market capitalism great? Not sure if I concur with the opening-paragraph dissing of Tall Paul Volcker, though. Volcker's ideas are about reducing systemic risk, whereas the above op-ed is really about flagrant conflicts of interest and outright criminal behavior by top government officials (and their hired "independent contractors") at the height of the 2008 meltdown. I don't see - aside from utter lack of political will in Washington to do so, obviously - why we can't have both re-regulation to avert TBTF-ness and prosecution of high financial crimes, whether by Wall Streeter and bank execs or by top officials in government, i.e. Wall-Streeters-and-bank-execs-until-recently. 2010-02-06, 00:02 #52 cheesehead "Richard B. Woods" Aug 2002 Wisconsin USA 22×3×641 Posts Quote:  Originally Posted by garo But I'm surprised why the WHite House hasn't publicized this difference sufficiently. If it tried (maybe it has?), such intellectual esoterica would be ignored and/or not understood by those who need it most. Maybe if someone were to write a kiddie story or song about it, in metaphor, as used to be done in Olde England I think ... (e.g., "Three Blind Mice" --- maybe! See http://eclipse.rutgers.edu/goose/ but also http://en.wikipedia.org/wiki/Nursery...nursery_rhymes) Last fiddled with by cheesehead on 2010-02-06 at 00:21 Reason: also ... "Second!" (But that's for other fora.) :-) 2010-02-06, 05:25 #53 cheesehead "Richard B. Woods" Aug 2002 Wisconsin USA 22×3×641 Posts Quote:  Originally Posted by cheesehead It's the "starve the beast" scheme that I've been describing repeatedly in the past. WOW! David Stockman, Reagan's budget director, today said, in an interview on PBS Newshour, that the "starve the beast" strategy had been shown not to work by the record of the past 25 years, and it was time for Republicans to abandon it. (My paraphrase -- I'll try to find an exact quote. Oh, here it is: http://www.pbs.org/newshour/bb/busin...nse_02-05.html Quote:  . . . PAUL SOLMAN: And now both men favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan's budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending. Do you still feel that way? DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn't work. You can keep cutting taxes until you reach the point where this year -- or the year just ended, we spent$3.6 trillion, and we only collected $2.2 trillion. So, we are now so far out of kilter that it's irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can't be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially. The Republicans think their mission in life is to cut taxes. Sorry, game -- game over. We're now in the tax-raising business. And we're going to be in the tax-raising business for the next decade. PAUL SOLMAN: David Stockman, thank you very much. Thank you. ... and I'll add my thanks to you, Mr. Stockman, for coming out and saying that so plainly! ) Stockman was one of the champions of "starve the beast" back in the late 1980s. (Indeed, many folks attribute the phrase and strategy to Stockman, but it actually arose earlier and elsewhere. He may have been a key popularizer.) That he is publicly admitting the failure of "starve the beast" is a notable reversal! Republicans may be on the verge of ... well, I shouldn't hope for too much until a lot of other GOPers say it, too. I suppose I won't hear any of the "beast-starvers" apologize for the vast fiscal damage they've done to the U.S. in pursuit of political gain, but if their actions actually become fiscally responsible, I won't hound them too much for that apology. Last fiddled with by cheesehead on 2010-02-06 at 05:36 Reason: added exact quote 2010-02-08, 12:06 #54 garo Aug 2002 Termonfeckin, IE AD016 Posts NYT Editorial on Deficits NYT has a big editorial on deficits. http://www.nytimes.com/2010/02/07/opinion/07sun1.html Quote:  HOW DID WE GET HERE? When President Bush took office in 2001, the federal budget had been in the black for three years, and continued surpluses were projected for a decade to come. By the time Mr. Bush left office in early 2009, the government had run big deficits for seven straight years, and the economy was on the brink of another Great Depression. On Jan. 7, 2009 — two weeks before Mr. Obama was inaugurated — the Congressional Budget Office issued new budget estimates showing a fiscal year 2009 deficit of well over$1 trillion. About half of today’s huge deficits can be chalked up to Bush-era profligacy: mainly cutting taxes deeply while borrowing to wage two wars and to enact the Medicare prescription drug benefit — all of which Republicans supported, virtually in lockstep. The other half of recent deficits is due to the recession and the financial crisis. To avoid a meltdown, the government — under President Bush and President Obama — rightly decided it had no choice but to spend hundreds of billions of dollars to bail out banks and car companies and to stimulate the economy. That prevented a very bad situation from becoming much worse, but as the recession dragged on, hundreds of billions in tax revenues have also dried up.
Hard to argue with that.

2010-02-08, 13:14   #55
R.D. Silverman

"Bob Silverman"
Nov 2003
North of Boston

22×1,877 Posts

Quote:
 Originally Posted by ewmayer Possibly ... I think the worst budget-grabbing public-service offenders are those who work in government proper,along with the police and firefighters. My main beef with the teachers' unions is their consistent blocking of any kind of performance-based compensation ):
Performance based compensation makes sense. But a fundamental
question remains:

How do we measure performance? Is it really fair to penalize a teacher
whose class is populated by cannon fodder for the failure of those students
to learn? How can a teacher overcome absentee parents, disfunctional
families, malnourished students, dope fiends, sex fiends, and other
students who have NO INTEREST in learning?

Motivation that education is important must start at home. The best teacher
in the world can not overcome students who don't give a shit.

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