Toxic Assholes in Washington

The Toxic Assets We Elected
By George F. Will, Washington Post
Tuesday, March 24, 2009; A13 

With the braying of 328 yahoos -- members of the House of Representatives who voted for retroactive and punitive use of the tax code to confiscate the legal earnings of a small, unpopular group -- still reverberating, the Obama administration yesterday invited private-sector investors to become business partners with the capricious and increasingly anti-constitutional government. This latest plan to unfreeze the financial system came almost half a year after Congress shoveled $700 billion into the Troubled Assets Relief Program, $325 billion of which has been spent without purchasing any toxic assets. 

TARP funds have, however, semi-purchased, among many other things, two automobile companies (and, last week, some of their parts suppliers), which must amaze Sweden. That unlikely tutor of America regarding capitalist common sense has said, through a Cabinet minister, that the ailing Saab automobile company is on its own: "The Swedish state is not prepared to own car factories." 

Another embarrassing auditor of American misgovernment is China, whose premier has rightly noted the unsustainable trajectory of America's high-consumption, low-savings economy. He has also decorously but clearly expressed sensible fears that his country's $1 trillion-plus of dollar-denominated assets might be devalued by America choosing, as banana republics have done, to use inflation for partial repudiation of improvidently incurred debts. 

From Mexico, America is receiving needed instruction about fundamental rights and the rule of law. A leading Democrat trying to abolish the right of workers to secret ballots in unionization elections is California's Rep. George Miller who, with 15 other Democrats, in 2001 admonished Mexico: "The secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise choose." Last year, Mexico's highest court unanimously affirmed for Mexicans the right that Democrats want to strip from Americans. 

Congress, with the approval of a president who has waxed censorious about his predecessor's imperious unilateralism in dealing with other nations, has shredded the North American Free Trade Agreement. Congress used the omnibus spending bill to abolish a program that was created as part of a protracted U.S. stall regarding compliance with its obligation to allow Mexican long-haul trucks on U.S. roads. The program, testing the safety of Mexican trucking, became an embarrassment because it found Mexican trucking at least as safe as U.S. trucking. Mexico has resorted to protectionism -- tariffs on many U.S. goods -- in retaliation for Democrats' protection of the Teamsters union. 

NAFTA, like all treaties, is the "supreme law of the land." So says the Constitution. It is, however, a cobweb constraint on a Congress that, ignoring the document's unambiguous stipulations that the House shall be composed of members chosen "by the people of the several states," is voting to pretend that the District of Columbia is a state. Hence it supposedly can have a Democratic member of the House and, down the descending road, two Democratic senators. Congress rationalizes this anti-constitutional willfulness by citing the Constitution's language that each house shall be the judge of the "qualifications" of its members and that Congress can "exercise exclusive legislation" over the District. What, then, prevents Congress from giving House and Senate seats to Yellowstone National Park, over which Congress exercises exclusive legislation? Only Congress's capacity for embarrassment. So, not much. 

The Federal Reserve, by long practice rather than law, has been insulated from politics in performing its fundamental function of preserving the currency as a store of value -- preventing inflation. Now, however, by undertaking hitherto uncontemplated functions, it has become an appendage of the executive branch. The coming costs, in political manipulation of the money supply, of this forfeiture of independence could be steep. 

Jefferson warned that "great innovations should not be forced on slender majorities." But Democrats, who trace their party's pedigree to Jefferson, are contemplating using "reconciliation" -- a legislative maneuver abused by both parties to severely truncate debate and limit the minority's right to resist -- to impose vast and controversial changes on the 17 percent of the economy that is health care. When the Congressional Budget Office announced that the president's budget underestimates by $2.3 trillion the likely deficits over the next decade, his budget director, Peter Orszag, said: All long-range budget forecasts are notoriously unreliable -- so rely on ours. 

This is but a partial list of recent lawlessness, situational constitutionalism and institutional derangement. Such political malfeasance is pertinent to the financial meltdown as the administration, desperately seeking confidence, tries to stabilize the economy by vastly enlarging government's role in it.

I Want To Buy Troubled Assets

Why can't individual investors get the sweetheart deal Geithner's plan is offering to hedge funds?

By Daniel Gross, Posted Tuesday, March 24, 2009, at 2:44 PM ET 

Tim Geithner's plan to remove toxic assets from the books of crippled financial institutions is receiving mixed reviews. Nobel Prize-winning economist Joseph Stiglitz said the plan "amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer." (Wouldn't you like to see the cage match between outside Democratic genius economist skeptics such as Stiglitz and Paul Krugman and inside Democratic genius economist promoters such as Larry Summers?) 

The Geithner plan is designed to benefit professional investors: It provides them with lots of easy credit, limits their losses, and allows them to reap a disproportionate chunk of the benefits if the investments pan out. This will be a boon to outfits such as the Blackstone Group and big hedge funds. But it will not be much of a boon to you, and I don't mean that in the sense that taxpayers are assuming too much liability. I mean that you, and I, and other small-account holders have no easy way to participate in the plan, and that's a shame. 

The design of the Geithner plan reinforces the notion that there are two sets of rules in the market, one for the really big players (matching investments, generous loans) and another for small investors and homeowners (expensive bailouts and foreclosure). 

If we taxpayers are going to be financing something close to guaranteed returns for hedge funds and private-equity firms, why can't we get in on the sweet deal that's being offered to Wall Street? Why can't we buy the distressed assets the same way hedge funds will? If we think creatively, we can find a way to enable this.

As Matt Yglesias points out, at least part of the Geithner plan envisions the participation of mom-and-pop investors. The fact sheet says that for the "legacy loan" program, the less-leveraged component aimed at encouraging investors to buy loans from banks, "the participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged." But the "legacy securities" program, the more-leveraged version aimed at encouraging investors to buy mortgage-backed securities and other instruments from banks, does not mention allowing individual investors to participate. 

Given the size of the assets involved and the structure of the investment-management industry, it's likely that only wealthy institutions and institutions that serve only wealthy individuals—hedge funds, private-equity firms, etc.—will be bidding on these distressed assets. Individual investors generally don't have the tools to analyze the securities and assets for sale. Banks such as Citi will be eager to sell off their junky assets in chunks of $50 million, not in chunks of $5,000. Bailouts and the unwinding of bubbles are necessarily wholesale operations, not retail ones.

But it wouldn't be hard to arrange for small-fry investors to participate in the bailout. The government could partner with investment-management firms—especially well-regarded investment-management firms such as Vanguard and TIAA-CREF—to create mutual-fundlike vehicles in which individuals could invest as little as a few hundred dollars in the effort to stabilize the banking system. The feds could even offer such an investment as a check-off on tax returns. Or we could present it as an allocation choice for federal employees' retirement accounts. Legacy loans and legacy assets could be offered as an option for state-sponsored 529 college savings programs, in which investors typically commit to lengthy holding periods. Or they could be made part of the universal savings accounts that Obama supports.

And if the private-equity or hedge-fund industry had an ounce of PR savvy—a really big if—it would help individuals make similar investments while waiving the management and incentive fees.

Yes, there's risk involved. And there is something circular about this arrangement. We'd be lending money to ourselves to buy stuff that the government would probably end up owning anyway if we didn't buy it. But I'd rather lend my tax dollars to help you, dear reader, profit from the financial disaster than lend them to Blackstone Group CEO Stephen Schwartzman to help him profit from it.

Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at moneybox@slate.com. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published as an e-book

Article URL: http://www.slate.com/id/2214509/

Main Street Is Speaking Out. But Will Obama Listen?

By William Greider
Washington Post,  Sunday, March 22, 2009; B01 

The president is getting what he asked for, but perhaps not what he had in mind. During the campaign, Barack Obama beckoned Americans to put aside their cynicism about politics and re-engage as active citizens. They are now doing so with red-hot anger. They are outraged by events and forcing their way into congressional affairs and behind closed doors where policy wonks discuss issues with cerebral civility. The president is now trapped between these two realms -- the governing elites who decide things and the people who are governed. Which side is he on? If he does not choose wisely, the popular anger could devour his presidency. 

The immediate impetus is the latest outrage from the financial sector. AIG, the failed insurance giant on government life support, proceeded to hand out $165 million in employee bonuses. Because Washington has pumped $170 billion into this zombie corporation, people quickly grasped that AIG was redistributing their tax money. On March 13, the White House sent out Larry Summers, the president's economic adviser, to explain things. Government has no choice, Summers said, because this is a government of laws and we must honor contracts. On Monday, the president scrapped that line, hoping to dodge the outrage. 

Something fundamental has been altered in American politics. Encouraged by Obama's message of hope, agitated by darkening economic prospects, many people have thrown off sullen passivity and are trying to reclaim their role as citizens. This disturbs the routines of Washington but has great potential for restoring a functioning democracy. Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and Wall Street. Ideas that could lead to the creation of a corporate state, legitimized by government and financed by everyone else. Once people understand the concept, expect a lot more outrage. 

Public anger is likely to be a recurring episode because the president has budgeted another $750 billion to rescue the financial system from its troubles. If Congress gives him the money, people will be watching where it goes. Obama is vulnerable to the blowback. In his address to Congress last month, he promised, "This is not about helping banks, it's about helping people." The first half of his statement is demonstrably not true, as people see for themselves and as bankers parade their arrogant excess. The second half is merely wishful. 

"Populist anger" is a condescending label pundits use to suggest an irrational, unruly temperament. But what's really going on is deeper and potentially more forceful. It will not be contained with good rhetoric or symbolic gestures. 

Populism was the highly creative, self-made movement formed by desperate farmers in the late 19th century. It is disparaged in elite circles, but it generated vital ideas that ultimately reshaped government and democracy. We are not there yet, not even close. But the impulse for small-d democracy could be very healthy -- if the political system learns to listen and respond. 

At the center of this story is Obama, who inherited the Democratic Party's awkward straddle between monied interests and working people. I voted for him joyfully and sympathize. His message to the nation last week reflected his dilemma. "I don't want to quell anger. People are right to be angry. I'm angry," he told reporters on Wednesday. Then he pivoted: "What I want us to do is channel our anger in a constructive way." 

What's changed the president's situation? During the past nine months, gigantic financial bailouts amid collapsing economic life made visible the crippling divide between governing elites and citizens at large. People everywhere learned a blunt lesson about power, who has it and who doesn't. They watched Washington rush to rescue the very financial interests that caused the catastrophe. They learned that government has plenty of money to spend when the right people want it. "Where's my bailout," became the rueful punch line at lunch counters and construction sites nationwide. Then to deepen the insult, people watched as establishment forces re-launched their campaign for "entitlement reform" -- a euphemism for whacking Social Security benefits, Medicare and Medicaid. 

Of course, popular alienation has been around a long time. But the stakes for the country are now far more grave. My new book -- "Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country" -- asserts that we're at the end of the long and mostly triumphant era that started with victory in World War II. We are going to change as a country, for better or worse, like it or not. 

If people and the president do not stand up for just solutions, politics as usual will prevail. Congressional leaders are once again rushing to enact hasty "reforms" that might get the financial monkey off their back, but will permanently damage our democracy. Elite opinion wants to empower the Federal Reserve to act as the "super-cop" protecting the financial system against systemic risk in the future. This idea is another instance of rewarding failure. The Fed was blind to the systemic risk accumulating during the past two decades and it failed utterly to head off the excesses -- the explosion of debt and Wall Street's fraudulent valuations. The central bank, in fact, with its erratic monetary policy, was a central source of what destabilized the economy. 

Why would politicians make this cloistered and unaccountable institution more powerful, when the Fed has been derelict in its historical obligation to protect the "safety and soundness" of the system? Reforms ought to head the opposite way -- forcing the Fed into daylight and the same regular order required of government agencies. 

Why would politicians make this cloistered and unaccountable institution more powerful, when the Fed was derelict in its formal obligation to protect the "safety and soundness" of the system? Reforms ought to head the opposite way -- forcing the Fed into daylight and the regular order required of government agencies. 

A few weeks ago, a freshman congressman, Rep. Alan Grayson (D-Fla.), became an Internet celebrity with the video of him grilling the Federal Reserve vice chairman at a House hearing. The Fed is in the process of handing out almost $3 trillion. Can you tell us which firms and banks are getting money? Grayson asked. Donald Kohn said that would be inappropriate. It might discourage some banks from taking the public's money. More outrage ensued and last week, after a good pounding from citizens, the Fed folded and named some names. 

A new regulatory regime that puts the secretive central bank in charge of everything would sanctify the policy of "too big to fail" that Fed officials have long followed but never honestly acknowledged. It would also revive the Wall Street club, albeit smaller than before, with which the Fed has been so cozy. If the largest bank holding companies are given privileged proximity to the source of government protection, then everyone in finance and commerce will want to become a bank holding company, too. We are already seeing this happening as former investment houses like Goldman Sachs and non-bank financial firms decide to join the system. Why not General Electric and Microsoft? Where does this end? What does it mean for smaller enterprises that lack the scale and influence? 

Whatever the intentions, this "reform" would effectively legitimize the existence of a corporate state. This concentrated power would be neither socialism nor capitalism, but a grotesque hybrid that combines the worst qualities of both systems. Government and politics would become even more responsive to big money, but also able to tamper intimately with private enterprise, picking winners and losers based on political loyalties, not on performance. Capitalism with its inherent tendency toward monopoly would have the means to monopolize democracy. 

Barack Obama can resist all this, if he chooses, but he seems conflicted. Obama's approach so far is devoted to the restoration of Wall Street's famous names, and his economic advisers tell him this is the "responsible" imperative, no matter that it might offend the unwashed public. Obama evidently agrees. He does not seem to grasp that the tone-deaf technocrats are leading him into a dead-end. 

The president needs to hear a second opinion -- millions of them. 

People are angry, but they want this president to succeed. Mobilized citizens can help him to prevail. If he goes with the other side, they will bring him down.