U.S. economy 2009

NYT  Financial crisis one year later ;  Joseph Cassano, former head of A.I.G.’s Financial Products unit: The Man Who Crashed the World ; Reuters special coverage Wall Street pay

US Economy Likely to Determine Obama’s 2010 Agenda
President Obama spent much of 2009 trying to heal a sick economy and promoting his administration’s economic recovery plan. And with many seats in Congress up for election in November 2010, Nathan Gonzales, the political editor of the Rothenberg Political Report, believes the president will spend much of the coming year the same way.
7 December
Economic Collapse: U.S. Economy Broken by a Corrupt Political System
(Economy Watch) The economic collapse of the United States has its roots in a political failure in which politicians serve the interests of their sponsors on K Street and Wall Street, rather than the American people. This process was started by Reagan/ism, pushed to new heights by Bush and Cheney, and obediently continued by Obama, the supposed candidate of ‘change’ who has delivered anything but. Unless real change is enacted, the US is rushing headlong into an economic and political Nietzschean abyss.
14 December
Obama Tells Bankers That Lending Can Spur Economy which is what Wednesday Night has been saying for months.
Mr. Obama sent a clear message that the industry had a responsibility to help nurse the economy back to health and do more to create jobs in return for the bailout last year that kept Wall Street and the banking system afloat. As the major banks scurry to repay the government and escape direct and indirect government influence over their operations, they have been fighting against elements of legislation to regulate the industry more tightly, restoring executive pay to high levels and asserting that the government’s demands that they hold bigger financial buffers against possible losses make it hard for them to issue more loans.
13 December
Frank Rich: Last week Goldman Sachs announced it would grant some of this year’s bonuses in stock, not cash, to try to stanch the public backlash to the record profits it piled up thanks to government largess. But Washington remains strangely oblivious to the mood out there. Financial reform has been embattled on Capitol Hill, where the financial industry has spent $344 million on lobbying in the first three quarters of 2009. The big ratings agencies that gave triple-A stamps of approval to Wall Street’s junk are back to business as usual. Bank of America and Citi are racing to return TARP money to Washington not because they have necessarily recovered but because they want to shower rewards on their executives with impunity.
The rage engendered by this status quo is across the political map. … The Fed is hardly the root of all evil, but you can see why it is a handy scapegoat. Like the institutions it failed to police during the boom, it wields its power from on high with little transparency to those below. More
12 December
Colleges Turn the Economic Crisis Into a Lesson Plan
The financial crisis has brought upheaval to many corners of American life, but on college campuses around the country the turmoil is being embraced as a valuable teaching tool. Academics say they cannot recall a time when so much of the curriculum has had to be revised so quickly to reflect the sweeping developments in the economy.
9 December
‘Wake up, gentlemen’, world’s top bankers warned by former Fed chairman Volcker
(Times online) One of the most senior figures in the financial world surprised a conference of high-level bankers yesterday when he criticised them for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.
As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).
Another chilling contribution came from Sir Deryck Maughan, a partner in Kohlberg Kravis Roberts, the private equity firm, who in the 1990s was head of Salomon Brothers, the investment bank.
He warned delegates that many of the flawed mathematical techniques that underpinned banks’ risk management approaches were still being used, saying that the industry had not “faced up to the intellectual failure of risk management systems, which are still hardwired into many banks and many trading floors”.
Meanwhile, George Soros argued that CDS should be banned. The billionaire investor likened the widely traded securities to buying life assurance and then giving someone a licence to shoot the insured person.
4 December
U.S. Economy Lost Only 11,000 Jobs in November
Floyd Norris: The Job Drought May Be Over
The report on Friday looks very good, with a decline in the unemployment rate to 10 percent, and only 11,000 jobs lost. With October’s job number revised upward, it was a report that surprised the bears.
Obama Turns to Job Creation, but Warns of Limited Funds
At a White House forum Mr. Obama sought new ideas from business executives, labor leaders, economists and others. The president said he would announce some new ideas of his own next week. One of those, he indicated when he participated in a discussion group on clean energy, would be a program of weatherization incentives for homeowners and small businesses modeled on the popular “cash for clunkers” program.
30 November
Paul Krugman: Things to come
… what I see is years of terrible job markets, combined with political paralysis. I hope I’m wrong about all this. But my sense is that to have any hope of breaking out of this trap, Obama and company have to take risks — they have to propose new initiatives that might not pass, and be prepared to run against the do-nothing Republicans if the initiatives fail. That’s not happening now; as best as I can tell, the administration strategy is to insist that only a few minor course corrections are needed, and to wait for the jobs to start coming in.
Henry Mintzberg:  No More Executive Bonuses!
The problem isn’t that they are poorly designed. The problem is that they exist.
(WSJ) These days, it seems, there is no shortage of recommendations for fixing the way bonuses are paid to executives at big public companies. … Scrap the whole thing. Don’t pay any bonuses. Nothing. This may sound extreme. But when you look at the way the compensation game is played—and the assumptions that are made by those who want to reform it—you can come to no other conclusion. The system simply can’t be fixed. Executive bonuses—especially in the form of stock and option grants—represent the most prominent form of legal corruption that has been undermining our large corporations and bringing down the global economy.
29 November
Across U.S., Food Stamp Use Soars and Stigma Fades
A program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children.
(NYT) More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.
27 November
Conrad Black: A sick economy
(National Post) With Social Security, Medicare, the FDIC and the Federal Reserve itself now confronting appalling debt scenarios (the Fed’s loans and other advances, some of them vulnerable, are backed by hard assets of only about half of 1% of the quantum of the obligations), the administration projects trillion-dollar annual deficits a decade out. Obviously, the Chinese and Japanese are not going to go on buying this debt, and have already moved much of what they hold to short-term Treasuries, to translate into U.S. assets at knockdown prices. To sell on any real market any serious amount of this debt in the next decade would require torqued-up interest rates, which would be steroids for bulging debt and inflation rates, while strangling economic growth.
16 November
Alan Blinder: How Washington Can Create Jobs
(WSJ) Two big ideas for job creation are under active discussion: a tax credit for new jobs, and direct public-service employment. Were the unemployment rate at 5%, I would oppose both. The tax credit invites gaming, e.g., creating phantom jobs to grab the tax benefit; and we do not particularly want more people on the public payroll. But the unemployment rate is 10%. In deep recessions, sensible governments do things they would never do at full employment.
Direct public-service employment is straightforward. As long as the new government jobs do not compete with the private sector, the net job creation should be one-for-one. So hire people to repair parks, not shopping malls. And if we restrict ourselves to low-wage jobs, the cost will not do grievous harm to the budget. For example, at an average all-in cost of $30,000 a year, one million new jobs would cost $30 billion. …But as the jobless recovery drags on, two things have become clear: First, neither the tax credit nor public-service employment is a panacea. And second, with employment still declining and another massive stimulus package out of the question for budget and political reasons, we will probably have to choose one of these options soon.
12 November
Neil Macdonald: Shamelessness on Wall Street, who knew?
(CBC) Shamelessness pays, to use the words of a public relations professional I know and admire.
And in this country, it can pay off big. Just look at the performances of Lloyd Blankfein and his cohort at Goldman Sachs, [which] posted a profit of $3.18 billion in the third quarter of this year. In this awful, miserable, depressed year, at a time when at least one in 10 Americans are jobless, the average pay for Goldman’s 30,000 employees is expected to clock in at $700,000. … Blankfein is not only proud of all this, he thinks Americans should be grateful. Goldman Sachs, he says, is doing “God’s work.”
11 November
Senate Plan Would Expand Regulation of Risky Lending
The chairman of the Senate banking committee proposed on Tuesday to drastically overhaul the regulatory system by consolidating bank agencies, creating a consumer financial protection agency and imposing new restraints on exotic financial instruments and credit rating agencies.
Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank, survivors of the worst financial crisis since the Great Depression, are set to pay record bonuses this year. The firms — the three biggest banks to exit the Troubled Asset Relief Program — will hand out $29.7 billion in bonuses, according to analysts’ estimates. (Bloomberg) ; Dodd Pay Plan Called Toothless as Bonuses Set Record ; Maureen Dowd: Virtuous Bankers? Really!?!
9 November
Bank Lending Down Despite Massive Bailouts And Increasing Regulations
While financial institutions including Citigroup Inc. and Bank of America Corp. have received more than $200 billion in capital from the government, they are limiting loans at a time of mounting unemployment, rising company bankruptcies and increasing regulatory oversight. Commercial and industrial lending has dropped 17 percent since October 2008, according to Federal Reserve data. (Bloomberg) Geithner Saying Be Like Buffett Can’t Make Banks Lend
5 November
America’s most famous investor buys a railway company
WARREN BUFFETT describes his latest deal as “an all-in wager on the economic future of the United States”. On November 3rd his investment firm, Berkshire Hathaway, agreed to buy the 78% it did not already own of Burlington Northern Santa Fe, America’s second-biggest railway operator, in a deal valued at $44 billion. Saluting the flag has become an integral part of Mr Buffett’s carefully cultivated folksy image, but the deal also looks like a bet on many less stirring ideas, including ever-higher imports from China, heavier traffic through the Panama Canal, higher oil prices and the preservation of coal’s big role in power generation in America.
26 October
Fred Langan: Taking stock of the Great Crash
Myths, memories surrounding the October 1929 market disaster
Much like today, there was a rush to find people to blame. In New York, Richard Whitney, president of the New York Stock Exchange, went to prison. In Toronto, several mining promoters went to jail for stock fraud.
The crash of 1929 came after a long rise in markets that fuelled the delightful decadence of the 1920s. Like the Credit Default Swaps that take part of the blame for the crash of October 2008, there were newfangled financial instruments in the 1920s. There was also a speculative bubble fuelled in part by ordinary people buying stocks and mutual funds on margin or credit.
David Brooks: The Fatal Conceit
The effort to cap executives’ compensation is a good example of overconfidence in government to solve everything.
Over the past year, the bonfire of overconfidence has shifted to Washington. Since the masters of finance have been exposed as idiots, the masters of government have concluded (somewhat illogically) that they must be really smart.
21 October
Robert L. Borosage: Where Will the Jobs Come From?
Wall Street can produce another bubble, but that won’t put the 15 million without jobs to work, one third of which have been out of work for at least six months. Recovery requires fundamental reform of America’s economic strategy. The old shibboleths of the conservative era – small government, cut top end taxes, free multinationals to move jobs abroad, deregulate finance, war on labor unions, trade deficits don’t matter – have failed ignominiously. They must be discarded, like yesterday’s rotted fruit. This analysis reflects many, if not all, the concerns expressed on Wednesday Night #1441
18 October
Paul Krugman: The Banks Are Not All Right
While the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.
Mort Zuckerman: The free market is not up to the job of creating work”
(FT) …Only massive programmes are equal to the challenge of restoring stable growth to our economy. One such programme would be to establish a National Infrastructure Bank, advocated by prominent Democrat Felix Rohatyn, to which the government would assign the $65bn (£40bn, €45bn) annually allocated to support infrastructure construction nationally. The bank would have the capacity to borrow, with federal guarantees, an additional $200bn. This programme would ensure a rational rather than a political investment in infrastructure, and provide long-term infrastructure development on a major scale with a maximum multiplier effect on the economy.
A second programme would be a 100 per cent tax credit for increases in research and development by American businesses. In this way we could stimulate and incentivise the capacity for innovation and technical creativity and thus produce another Schumpeterian period of growth for America. There is no time to lose.
But there is some good news – In Dollar’s Fall, Upside for U.S. Exports
… last week the dollar neared $1.50 against the euro, compared with $1.25 in March. The weakness of the dollar, if sustained, could force American consumers to get used to paying more for many imported goods as well as trips to their favorite vacation spots. But there is also an upside: a weak dollar could prove beneficial to the American economy by aiding long-suffering manufacturers, rebuilding a stronger industrial base and lifting exports even if it makes life harder for trading partners around the world, especially in Europe.
17 October
Deficit Hits $1.4 Trillion, Complicating Stimulus Plans
15 October
The Economy Is Still in a Funk
By David Brooks AND Bob Herbert
As bad as the official jobless statistics are, the reality in most places is worse, and sometimes much worse. And some of the cutbacks are undoubtedly undermining the social and economic health of the nation. According to the Center for Economic and Policy Research, 40,000 teachers have lost their jobs over the past year. That’s a horrifying statistic. No good can come of it. Great universities like Berkeley are letting people go and cutting salaries. What does that say for the future?
Poverty and homelessness are on the rise across the country. State and local budgets, starved of tax revenues and burdened by increased social service demands, are in deep trouble. The hardest-hit rural areas and inner cities are locked in economic nightmares that aren’t being addressed at all.
The people vs Wall Street
(The Independent) Amidst the economic wreckage, after 7 million job losses and approaching 2 million home foreclosures in the US alone, with businesses and consumers around the world still struggling to get finance after the long credit crunch, Wall Street is finally on trial. A little piece of Wall Street, at least. In the first major case against bankers at the heart of the financial meltdown, a jury of 12 mainly working-class New Yorkers will decide the fate of the two Bear Stearns managers whose hedge funds imploded in 2007, signalling the start of the crisis. (NYT) Key House Panel Votes to Regulate Derivatives ; (Reuters) Obama wins first financial reform victory in months
11 October
Steep Losses Pose Crisis for Pensions – Two Bad Choices for Funds: Cut Benefits Or Take Greater Risks to Rebuild Assets
(Washington Post) The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees. The upheaval on Wall Street has deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both. Within 15 years, public systems on average will have less half the money they need to pay pension benefits, according to an analysis by Pricewaterhouse Coopers. Other analysts say funding levels could hit that low within a decade.
8 October
Obama under fire over falling dollar
The sharp fall in the US dollar is giving ammunition to the critics of the Obama administration and fuelling broader concerns about the erosion of America’s reserve currency status.
Leaner Times at Harvard: No Cookies [for the faculty]
6 October
Obama’s permanent depression
(Asia Times) President Barack Obama may be remembered for permanent depression, the way that Leon Trotsky’s name is linked with permanent revolution. Fiscal stimulus combined with near-zero interest rates have proven to be a toxic cocktail for the United States, the macroeconomic equivalent of barbiturates and alcohol.
Keynesian spending creates a deficit that sucks all the available capital out of the grassroots economy and transfers it to the Treasury market. Easy funding terms from the Federal Reserve allow financial institutions to make money in government bonds while shutting off credit to the rest of the economy. It’s classic crowding out, in which the government’s misguided effort to spend its way out of recession pushes the productive economy deeper into the hole.
Dollar falls on oil plan report
The dollar has fallen following a report that Gulf states are in secret talks to replace the greenback as the main currency for the trading of oil. …  However, Saudi Arabia subsequently said the report was “absolutely inaccurate”.
3 October
Alwaleed backs Citi as break-up debate rages
(Emerging Markets – free subscription) Citigroup’s largest individual investor, Prince Alwaleed bin Talal, has launched a vigorous defense of the firm and other institutions that are “too big to fail”, amid calls for systemically risky banks to be split up. Alwaleed, chairman of Saudi Arabia-based Kingdom Holding Company, said he was confident that the US administration and lawmakers would not seek to break up the nation’s biggest lenders. He said the problem of systemic risk could be eased “by having strong regulation, not to have this laissez-faire approach whereby the market will fine-tune itself. This has been proved wrong. The market can not and will not regulate itself.” Former Federal Reserve chairman Alan Greenspan said that a way should be found “to make no institutions too big to fail”. He told a conference in Washington DC on Friday: “‘Too big to fail’ is a major problem.” The Saudi billionaire also called on the US government to sell its stake in Citigroup as early as this year.
2 October
Paul Krugman: Mission Not Accomplished
… the complacency now setting in over the state of the economy is both foolish and dangerous.
Yes, the Federal Reserve and the Obama administration have pulled us “back from the brink” … But while not having another depression is a good thing, all indications are that unless the government does much more than is currently planned to help the economy recover, the job market — a market in which there are currently six times as many people seeking work as there are jobs on offer — will remain terrible for years to come.
Tom Wolfe: The Rich Have Feelings, Too
(Vanity Fair September 2009) Losing billions is stressful, and the brave financiers who risk other people’s money need a way to cool out—hopping on the GV, say, for a bimbo-boffing weekend in the Bahamas. Thanks to the bailout, that’s history. The author imagines one fictional highflier’s shock as he rejoins the commercial-aviation herd.
18 September
Fed Considers Sweeping Rules on Bank Pay
(NYT) The rules depart from the hands-off approach that dominated bank regulation for the last three decades, but are not as strict as proposals from some European leaders and suggestions from some members of Congress angered by the financial troubles of the last year. Fed officials would give banks wide leeway in how they structure their rewards. They would not prohibit million-dollar pay packages or address issues of fairness. Rather, the rules are intended to restrict pay plans that encourage reckless behavior by rewarding only short-term gains.
15 September
Bernanke says US recession likely over
(FT) The US recession “is very likely over”, Ben Bernanke, Federal Reserve chairman, said on Tuesday as Barack Obama, US President, heralded the end of the economic “freefall.” Downturn in depth
(WSJ) Deals of the Day: At AIG, Monsters Still Lurk in the Closet
13 September
Marking a year of financial turmoil, on the anniversary of the collapse of Lehman Brothers
(The Economist) THE first anniversary of the demise of Lehman Brothers falls on Tuesday September 15th. The bankruptcy of the Wall Street institution made it clear that the world’s financial system had more serious problems than merely frozen credit markets. After two decades of expansion and deregulation, many of the world’s banks were dangerously undercapitalised. In the resulting tumult firms such as Merrill Lynch were taken over and others saw their reputations badly tarnished. Many bankers have lost their jobs but a widespread sense of outrage at the excesses of the financial industry remains. Governments are still busy trying to tackle the outsize bonuses that persuaded bankers to load the system with the toxic securities that crippled the world’s banks.
11 September
Lehman Had to Die So Global Finance Could Live
Almost everyone I’ve ever spoken to in Hank Paulson’s old Treasury Department agrees that without the immediate panic caused by the Lehman default, the government would never have agreed to make the loans needed to save A.I.G., a company it knew very little about. In effect, the Lehman bankruptcy caused the government to panic, which in turn caused it to save the firm it really had to save to prevent catastrophe. In retrospect, if you had to choose one firm to throw under the bus to save everyone else, you would choose Lehman.
30 March
U.S. Lays Down Terms for Auto Bailout
President Obama is scheduled to announce details of the auto package at the White House on Monday, but two senior officials, offering a preview on condition of anonymity, made clear that some form of bankruptcy — a quick, court-supervised restructuring, as they described it — could still be an option for one or both companies.
19 March
Too big to fail, but not too big for a smackdown: The AIG saga
U.S. legislators are so furious with the retention bonuses AIG paid some of its top executives that they’re about to claw it back.
The House of Representatives passed a bill on March 19, 2009, to place a 90 per cent tax on bonuses paid to employees with family incomes above $250,000 US at companies that have received at least $5 billion in government bailout money.
10/7 AIG spent $500K @ resort AFTER BAILOUT! WTF
24 February
Alan S. Binder: From the New Deal, a Way Out of a Mess
… we may be losing sight of an even greater danger: the possibility that powerful headwinds may prevent a strong recovery from any slowdown. Most of the potential headwinds stem from the housing slump and related financial crises that began — but, unfortunately, did not end — with the subprime mortgage debacle. Wounded financial markets are supposed to cure themselves: asset prices fall, bargain hunters rush in and markets return to normal. But so far, that doesn’t seem to be happening much. Instead, house prices keep dropping, the mortgage-foreclosure problem grows and new strains in the financial system keep popping up like a not-very-funny version of Whack-a-Mole.
The morning after: What did Obama and Jindal really tell us?
(LA Times) … certainly no recipe provided for how in this known world one country’s government can pay for tax cuts for 95% of Americans, completely reform the entire healthcare system to cover everyone, develop an entire new energy system and technology, save the U.S. automobile industry, rebuild the country’s crumbling transportation infrastructure as well as the entire educational system, stop high school dropouts, conquer cancer, save one-million-plus homeowners from foreclosure while bolstering the entire banking industry, protect national security by paying the military more, create “or save” 3.5 million new jobs, cut the trillion-dollar deficit in half in 46 months and one week, plus fight (and, who knows, maybe even not lose) a guerrilla war in a desolate mountainous region where no foreigners have “won” since Alexander.
Full text of Obama’s speech to Congress and the nation ; Full text of Gov. Bobby Jindal’s Republican response
17 February
President Obama signed the American Recovery and Reinvestment Act of 2009 (Recovery Act). The Recovery Act seeks in part to spur technological advances in science and health and to invest in environmental protection and other infrastructure that will provide long-term economic benefits. EPA manages over $7 billion in projects and programs that will help achieve these goals, offers resources to help other agencies “green” a much larger set of Recovery investments, and administers environmental laws that will govern Recovery activities.
29 January
‘Buy American’ rule in U.S. stimulus bill could cost Canada jobs
As passed by the House, Section 1110 of the American Recovery and Reinvestment Act of 2009 says, “None of the funds appropriated or otherwise made available by this act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.”