Posts Tagged 'economy'

I’m back … and the Bear will be joining me shortly

OK, I know I’ve been a bad, bad, bad dagblogger for quite some time, but seeing as I’m getting married in less than four weeks, I’m giving myself a pass. (Today’s key word: ELOPE!!!)

I’ll be back more regularly by the end of the year, but for now, I just wanted to give you a ballsy prediction:

The market is nearing a significant short-term top. Nailing the exact timing is always difficult, but I expect we’ll be significantly lower by the end of the year, and certainly by the end of the first quarter of next year, I expect we will see market averages at least 15-20% lower than we have now.

Way back in March, on the day after the stock market bottomed, I wrote a piece predicting the rally could have legs. Now before I go patting myself on the back too hard, I must admit I’ve been surprised by how long the rally has lasted and how ferocious it’s been. But I suppose that’s the kind of combustible response you get when you combine a recovery from a near-death economic experience with trillions of dollars in government stimulus and bailouts and near-zero interest rates.

So why do I now believe the party is about to end? Well, for several reasons. First, my prediction is obviously influenced by my overall negative view of our economy. Employment is still ugly, consumer debt levels are still too high, the dollar is getting perilously weak while commodities like oil and gold are rising on an almost-daily basis. To stimulate the economy, we’ve pursued short-term measures like foreclosure relief, tax credits, and Cash for Clunkers, which have done little to resolve the structural imbalances in this country. The only thing we’ve really accomplished is burdening future generations of Americans with crushing levels of national debt. We may in fact see decent GDP growth for the next few quarters but that’s only because the comparisons will be so weak.

The overall bullish reaction to this better-than-expected – but still rather grim – drumbeat of news we’re getting is another reason I’m worried the good times are about to end. Take today’s action, for instance, with the market moving higher because of some new economic data. What are these promising green shoots of which I write??

Well, for one, tetail sales rose 0.1 percent for the month of September, according to a survey. This is the first sequential rise in sales in over a year, and apparently a cause for massive celebration according to the chief economist of the group that led the survey. “Let the retail recovery begin,” said Michael P. Niemira of the clearly unbiased International Council of Shopping Centers. “This is the start of a better performance and better fundamentals.”

Hogwash. With unofficial unemployment rates still in the teens and rising, I guarantee you this holiday season – and many holiday seasons to come – will be a big disappointment.

Speaking of unemployment, by the way, the market is also cheering the fact that the Labor Department reported that new claims for jobless benefits fell to 521,000 last week, the lowest level since January and, yes, ‘better-than-expected.’ Meanwhile, this still means that more than a half-million Americans lost their jobs, above the rate where overall unemployment would start falling.

i wouldn’t say the pundits and experts are universally bullish – which would be the ultimate contrarian indicator – as I do still see some skepticism out there, but I believe investor complacency is rising to dangerous levels while most of them try desperately to chase the market.

The final reason for my growing bearishness is more technical, but basically comes down to the fact that many of the stocks I look at are now approaching their 2008 highs. This is a little inside baseball, but basically it’s often the case that old highs for a stock end up being significant resistance points as investors who bought at those levels look to get out close to even. You see these ‘double tops’ often when looking at stock charts.

Since I believe that very little has been done to fix the economy structurally, I feel that 2008 levels will serve as a high watermark for the market for years to come.

Now don’t get me wrong. We’ve done a few good things to justify these higher prices. Inventories have been drastically reduced. Many companies have cut costs and yet kept efficiency and productivity levels high. The emerging markets like China and Brazil have shown a great deal of resiliency. And certainly the prospect for a total economic collapse – which seemed almost inevitable at the height of the panic – now appears very remote, at least for the foreseeable future.

But mostly what we’ve done is comparable to giving a sick, lethargic, malnourished patient a shitload of sugar and then celebrating the fact he seems more energetic. The sugar high crash is coming and it won’t be pretty.

Obama’s Too Big to Fail Rules Too Late to Matter

The AP has posted an article detailing Obama’s new regulatory plan that would if enacted impose serious penalties on financial institutions when they get too large.

Although there aren’t many specifics in the article about what those disincentives would be or exactly how the government would define ‘too big’, this is a much-needed step back on the road to financial sobriety. We should never as an economy or a country be held hostage to the failings of one single entity.

As deeply as I hated all of the bailouts we’ve been throwing around to woefully (borderline criminally, in my opinion) mismanaged institutions like Citigroup and AIG, I do believe their balance sheets may have been so enormous, their footprints and obligations so intertwined in the world economy, that their failure could have crippled the entire foundation of our credit-based system and brought it to its knees.

Yet don’t be fooled – our problems didn’t lie with any one or two entities, but with the entire system. What we had instead was a complete failure by the market as a whole – and even more damning, by the regulators in charge of watching those markets – to recognize the emerging credit/debt/mortgage bubbles whose eventual bursting forced this country to its day of reckoning.

A law breaking up large financial institutions or disincentivizing them from forming in the first place will help make future problems easier to spot and solve, perhaps, but it won’t by itself save us from our own worst behavior.

And it will do very little if anything to impact our current situation and economic crisis.

In fact, the most ironic thing about the Obama plan is that the entity which may now be most accurately considered ‘too big to fail’ is our own U.S. government, which through actions taken by the Fed and the Treasury has taken on much of the bad debt and obligations (and added a bunch of new ones) that will be stifling our economy for years to come.

We can only hope that the Chinese and other foreign governments continue to agree that the U.S. government is indeed too big to fail and allow us the time to work through our issues and restore some amount of fiscal and monetary discipline without cutting off their support in one fell swoop.

The Audacity – and Righteousness – of Citigroup

Citigroup executives have decided in their infinite wisdom to increase base salaries for many of their employees by as much as 50 percent.

The bank says the raises – which will be partially offset by a reduction in bonuses, though overall compensation packages could be higher or lower – are necessary to remain competitive … in an environment where the official unemployment rate will soon be in the double digits no less.

It’s easy and probably fair to accuse Citigroup management of being at a minimum extremely audacious and tone-deaf to the current environment. This is, after all, a financial institution that did everything in its power to run itself into the ground – egregious compensation, dubious loan-making, wanting risk management, overambitious acquisitions, questionable business line expansion.

As a result of its shoddy strategy and the crumbling economy, the company lost a whopping $27 billion in 2008.

The only reason Citigroup even exists today is because the government decided in its infinite wisdom that the company was ‘too big to fail’ and stepped in with capital several times – $40 billion in direct investment and another $300 billion in loan guarantees – to save it from bankruptcy.

Now the government owns a huge chunk of the company, which still apparently doesn’t give it the right to have a say in determining compensation for the rank and file.

The funny thing is, Citigroup executives may be doing the right thing, although they certainly could have done a better job explaining/defending their action.

One of the reasons – though certainly not the primary one – this country and its financial institutions got into the mess it did was because compensation policies were so heavily tilted to short-term performance, encouraging all employees, even those in areas like compliance, to woefully undervalue risk.

The decreased reliance on bonuses as an assumed form of regular compensation should help mitigate that carefree behavior in the future (though it will also likely stifle innovation as employees focus more on keeping their jobs as opposed to generating outsized profits – well, you can’t have everything and if i had my druthers, I’d rather our banking system be more preoccupied with stability than unnatural growth).

And while I want to scoff at Citigroup’s explanation that the salary increases are necessary to “ensure its employee compensation practices are competitive,” as a company spokesman put it in a Bloomberg article, it’s not entirely untrue. The irony is that because the government stepped in to save Citigroup as well as dozens of other troubled banks, the market for financial services employees is not nearly as bad as it would have been. Many of Citi’s competitors have already paid back the TARP money or plan to do so soon and will likely be offering better compensation packages to top employees.

You may think this is all a good thing, because the economic fallout of a collapse in our banking institutions could have been disastrous, certainly much more damaging than the destruction caused by the dislocations in the automotive industry.

I unfortunately believe for all the hundreds of billions of dollars we’ve spent, we’ve changed very little structurally, and only put off our economic day of reckoning a little while longer.

I also think this focus on compensation is mostly noise and beside the point. What the government really needs to do is start breaking up some of these institutions which we deemed necessary to save because they were ‘too big to fail’ and crafting regulation to limit this kind of concentration of power within the financial services industry.

Alas, if anything, mostly I’ve been seeing it go the other way, as stronger players in the industry snap up the weaker ones and get even bigger. Combined with the moral hazard we’ve perpetuated with our reliance on bailouts, that consolidation is likely a recipe for disaster.

But Kate Edmonds Donner, an event planner in New York, said the best plan is to leave children at home or send them home after the ceremony.

“If it’s a formal wedding, children should go home after the cocktail hour,” she said. Practicing what she preaches, Ms. Edmonds Donner and her husband, Alex Donner, the society band leader, did not invite children to their wedding last year in Garrison, N.Y.

Baby Boom Goes the Dynamite: The Lasting Legacy

The Baby Boomers have blown it in spectacular fashion.

For much of the past 20 years, they have been the ones in charge of this country. During that time, they have…

… ignored the looming Social Security crisis, which has been simmering for decades and is now apparently coming to a boiling point much quicker than originally estimated.

… ignored the looming health care crisis, fighting alongside the dangerously powerful AARP lobby for small benefits like cheaper drugs while letting the larger issues of increasing system-wide costs and underfunded Medicare obligations spiral out of control.

… ignored the looming global warming crisis, choosing to go to war to maintain their reliance on cheap foreign oil rather than seriously pursue alternative energy sources.

… ignored the looming credit crisis, living further and further beyond their means, indulging in unbridled consumerism and rampant asset speculation.

So is it any surprise, really, that their solution to our country’s current economic crisis has been to saddle future generations of Americans with even more crippling debt, making it even harder for us to solve the numerous other looming disasters we face because of their neglect??

I had strong hopes that the election of Barack Obama – one of the last of the Baby Boomers – would lead to a change in Washington, to a recognition that there was too much at stake to play the same silly political games and to keep ignoring the spreading cracks in the foundation of the American empire. But mostly, it’s been more of the same.

Instead of trying to repent for their profligate and selfish ways, the Baby Boomers have decided to cement their legacy by throwing one last Hail Mary of Irresponsibility, in the form of trillions of dollars of tax cuts and stimulus plans and bailout packages, in hopes of putting off the ultimate day of reckoning a little bit longer.

Harry Truman had a sign on his desk that said ‘The Buck Stops Here.’ Unfortunately, I think the Baby Boom generation took that to mean it should then pocket the buck.

It wasn’t always that way. For a while, the Baby Boomers bettered our world. They fought for progress, for peace, for women’s rights, for civil rights. In business and in culture, they created and innovated, producing a tremendous amount of national wealth and prosperity. To be honest, the past 40 years have in many ways been an exciting and fruitful period for America. But somewhere along the way, the Baby Boom generation stopped thinking about the future of the country and started looking out only for its own best interests (Was it a cynicism and selfishness borne out of Watergate and other historical events or just out of normal human nature?)

It’s easy to overgeneralize about a generation, of course, and probably somewhat unfair. These are our moms and dads, after all, and individually it’s tough to fault them for the damage they’ve wrought.

It is in fact quite painful to watch as our parents finally reach the tantalizing edge of retirement only to find that their IRAs and 401Ks have been decimated and that idyllic, restful ride off into the sunset postponed, perhaps indefinitely.

Painful and tragic, perhaps, but also in some ways justified. Collectively, the Baby Boom generation is merely reaping what it has sown.

Unfortunately, for the rest of us, the prospects are even dimmer. The field now lies fallow.

Playing God and Taking Shortcuts…

This financial crisis is more than what it appears.

It is symptomatic of a society that sometime over the last 30 years lost its way by seeking not the road less traveled, but instead the quickest route.

It is the culmination of a mindset that increasingly became interested in pursuing immediate gratification at any cost.

Look around you. In every area of modern life, the shortcut has become the rule, not the exception.

In sports, we substituted medicine for athleticism as steroids offered the quickest path to success (And I cheered as Mark McGwire belted homer after homer chasing down Maris’ record).

In entertainment, we substituted notoriety for talent as reality television offered the quickest path to fame (And I lapped it up as Richard Hatch ‘survived’ an island and dozens of out-of-control women wooed Flavor Flav).

In war, we substituted power for strategy as shock and awe offered the quickest path to victory (And I couldn’t pull my eyes away as CNN aired its little war video game, the pinball-like sights and sounds of buildings being destroyed and people getting killed).

In friendship, we substituted technology for intimacy as tweets and status updates offered the quickest path to communication (And I blog away, making facile analogies as dreams of writing the Great American Novel slip away).

It goes on and on and on.

We wanted it big, we wanted it all, we wanted it now.

Cheating, if not encouraged, was at least ignored. Just pay no attention to that man behind the curtain.

So is it really any surprise that in business, too, we fell prey to the same phenomenon? In hindsight, it almost seems inevitable that we indulged in this financial alchemy, pursuing policies and practices to make the quick buck while conveniently ignoring the potential long-term negative consequences of our actions.  The no-doc loans, the credit default swaps, the collateralized debt obligations belong in the same metaphorical bucket as the anabolic steroid, Omarosa and gastric bypass surgery.

The funny thing is, the issue isn’t due to a loss of work ethic. Most of the bankers who concocted these weapons of mass destruction worked insanely hard at their jobs, just as our medically enhanced athletes put in long hours at the gym, just as our most vacuous reality stars went to incredible lengths to promote themselves (and just as I am spending way too much time trying to fine-tune this post).

And I’m not about to suggest that this eagerness to seek the shortcut is an entirely new development. People have of course always found ways to cheat or exploit the system – it’s just that in the past, the tools were more rudimentary and thus less dangerous (e.g. the spitball and the corked bat just can’t wreak the same havoc as the human growth hormone).

We became too smart and too powerful for our own good. We acquired knowledge and technology, but not the wisdom to use them productively, or to realize that sometimes we should refrain from using them at all.

And unfortunately, our primary solutions to this crisis so far – the stimulus plans, the bailouts, the monetary injections – offer more of the same. We are still seeking the quick, easy way out. Wanting it all, and wanting it now. Not willing to deal with the consequences of our actions.

Which of course makes perfect sense. In a world where man ultimately controls so little, including the time and manner in which he will depart it, how can we be surprised when he believes he has figured out a better way of accomplishing a goal and overplays his hand.

We have gotten what we deserved.

We have somehow lost our way.

We better find it back.

Government Debt: The Final Bubble

Could this be the beginning of the end for our markets’ last great bubble?

An auction yesterday of $34 billion in 5-year U.S. government bonds didn’t go over so well, fetching prices well under what analysts were expecting.

Ruh-roh.

Oh I know, it may not seem like that big of a deal. The debt still got sold, unlike an unsuccessful auction for 40-year bonds in the UK. The fact that our auction resulted in yields (which move in the opposite direction of the price of bonds) of 1.849% versus the expected 1.801% seems like rather unimportant, inside-baseball type of stuff.

And if it’s just one bad auction, then it may not be important (Edit: Demand for an auction of $40 billion in two-year U.S. notes Tuesday was quite strong). But if this weak demand is a signal of things to come, then we are in for a world of hurt.

In the past ten years, we have had a dot-com bubble, a housing bubble, a credit bubble and an oil bubble, but I have contended they will all pale in comparison to the government debt bubble we are now experiencing.

Think about it: The U.S. government, despite owing $10 trillion in debt, despite incurring an additional $1.3 trillion deficit in 2008 (a number which will certainly be crushed this year and likely for years to come if the Obama plan even gets partly realized), has been up until now able to sell almost as much of the debt as it wishes to at extremely low interest rates.

The Pollyannas will say that there’s a good reason for the low cost of our debt, and why that situation won’t change anytime soon. The big concern right now is deflation, not inflation. Other countries have at least as many problems as we do, and too much savings to boot. They need to put their money somewhere, and the U.S. markets are still the world’s best, safest place to invest money. They own too much of our debt to start selling now – it would only lead to mutually assured destruction.

“This time it’s different.” To me, there are no four more dangerous words. It defies the laws of economics and of logic to expect that a nation awash in debt with miles and miles of higher and higher deficits on the horizon will be able to lend more money at virtually zero interest for an extended period of time.

The only question is when do the floodgates open? We’ve heard rumblings of complaints – notably, on the record and not anonymous – from Chinese officials about our country’s economic situation and increasingly high levels of debt. We’ve seen budget deficit estimates from the CBO which far exceed the optimistic ones put together by the Obama team. And now we had a disappointing auction.

Of course, to a certain extent, debasing our currency is what the government wants. If we could control the pace of the move, some inflation would be a good thing since we’re so heavily in debt (as the value of the dollar falls, that means debtors owe less in ‘real’ terms). But it is highly likely that the transition would come too fast and too quick for our economy and our policies to adjust without experiencing significant dislocations and subsequent pain.

I can almost guarantee you that if government debt is a bubble and it does pop, you won’t see our foreign lenders gently exiting the market. It will be a stampede.

And what will be the implications of such a scenario? Believe it or not, they are likely far worse than anything we have seen so far. Interest rates will soar, as will inflation. Savers will be crushed. Investment will grind to a halt. An already weak economy on its knees would get weaker. We will be forced to renegotiate our obligations with foreign lenders, most notably the Chinese.

The end result could be no less than the end of U.S. hegemony.

The dagbuzz for 3/23/09: The Geithner Bank Stability Plan

Details of the Geithner bank stability plan came out today, and Wall Street for one loved it. And why not,  for the plan basically allows financial institutions to take the worse of the toxic assets rotting away on their balance sheets and pawn off the vast majority of the risks of nonpayment onto the U.S. government (and ultimately the U.S. taxpayer).

I will give credit to Geithner for creativity in crafting the plan given our limited options. Without the use of private money and leverage, we would never be able to afford absorbing all the problematic assets without jeopardizing the health of the U.S. balance sheet and sending our foreign investors fleeing for the exits. And even if we could afford it, Congress would never step up with the money now that the public’s appetite for these Wall Street bailouts has totally disappeared, so Geithner cleverly bypassed that particular concern by giving extraordinary powers to agencies like the Federal Reserve and the FDIC.

It is quite apparent from reading the fact sheet the U.S. Treasury released today regarding the plan (which I encourage everyone to read since it actually provides a concise, rather easy-to-understand summary) that Geithner’s core assumption is that current market prices for these toxic assets are not reflective of their underlying value.

If Geithner is right, and prices of these assets are artificially low, then his plan could very well work. If he’s wrong and, as many experts believe asset prices fall further, then we are throwing good money after bad, and the leverage we are employing will cause even more damage.

Geithner says new plan is best option

Eliot Spitzer: A thoughtful voice of reason (alas, without any power)

In a recent interview with CNN,  former New York Governor Eliot Spitzer gave detailed, thoughtful, reasoned insights into a whole host of recent topics related to our financial crisis, including AIG bonuses, Obama’s performance, the media’s impact, regulation, etc.

I recommend the 20-minute Fareed Zakaria interview in its entirety, but if you only have limited time, Spitzer offers a concise explanation into the cause of our current economic situation for a few minutes starting at about the 10:45 mark (I have attached that portion of the video below.

No matter what you think of his personality (I always thought he seemed like an arrogant, hypocritical jerk) or the personal indiscretions that caused his ultimate demise (to me, it should have been a matter between him and his family and THAT’S ALL), Spitzer unquestionably took a harder, more probing look at Wall Street and its practices than anybody else who was in a position of power during that time. If we had had more Spitzers running around, then perhaps we would have addressed our problems earlier and avoided some of the pain we are experiencing.

Private-public partnership proposal poses plenty of problems

Oh goody. Looks like we’re about to hear the details of Geithner’s long-awaited financial stability plan, which has as one of its key components a public-private investment pool designed to help rid our system of the toxic assets rotting away on bank balance sheets.

Apparently, the Treasury will hire four or five private investment managers to run a fund that will purchase the assets. The government will then match whatever monies the private firms manage to raise and invest.

Sounds simple enough on the surface, but is it just me, or do bad things generally happen when government and the private sector get into bed together?

What often ends up occurring is one of two things:

1) The private companies – because they get all sorts of government breaks and incentives, including in many cases the assumption of losses should really big disaster strike – end up making decisions that do not properly assess risks vs. rewards, resulting in ultimate failure, whereupon the government must become more fully involved anyway. It’s exactly the kind of privatizing profits, socializing losses phenomenon we’ve seen with the current crisis. And it’s the taxpayer who gets screwed.

2) OR, public policy concerns get in the way of maximizing profits, and the government feels like it must step in to protect the interests of the American populace. In this case, the private enterprises get screwed, and are either forced to alter their investment strategy in inefficient ways or watch as their investments or ‘outsized’ gains get confiscated in one manner or another.

We saw both 1 and 2 when it came to the Fannie Mae and Freddie Mac disasters, and watching the AIG fiasco unravel is like watching the same story over and over again.

Though your ideology may affect the way you ultimately view the AIG situation – either management knows the company is too big too fail so they are not spending the taxpayers resources wisely, or the government is being forced by public outrage to get involved in company decisions that would be better left to management – we should clearly have done one of two things: Let the company fail and allow the private markets to work its destructive magic (and risk systemic collapse as its unpaid obligations filter through) or fully take the company over and end this charade that AIG is still a private entity. Anything would likely be better than this half-assed, want-it-both-ways solution we currently are trying.

In most cases, public-private partnerships are just clever ways to try and remove large obligations off the balance sheet of the American government (but merely postpone the costs), and justified under the guise that private industry can do things cheaper and more effectively.

I’m sure there are instances where public-private partnerships have been successful (if you know of any, please let me know in the comment section), but when the goals of the two entities are ultimately so different – one wants to maximize profit, the other wants to address some sort of nonprofit-based public policy goal – it’s no surprise the end result often ends up being a disaster.

Look, I know I’m doing the very thing I’ve been complaining about: Criticizing the new administration without giving its agenda or policies a chance (hell, in this case, I’m criticizing without even seeing the plan!).

Obama & Co. inherited this giant, sticky, complicated financial mess and are trying to be creative about fixing it without making our government go broke. There are no easy answers, and I frankly don’t know what the alternatives are. But the idea that we’re employing the same basic strategy that helped get us into this crisis strikes me as very unwise, to say the least.

The Congress AIG Bonus Bill: Bravo! (Seriously…)

Great. Now there’s a backlash to the backlash to the AIG bonuses, and everyone is scolding Congress for acting so rashly in crafting a bill designed to recover 90% of the bonuses in taxes.

Conservatives are complaining the bill is unconstitutional and unproductive. In his Obama interview, Jay Leno said he’s frightened about its implications, and dagblog.com’s own Genghis is mocking the effort.

Gimme a break.

Don’t get me wrong. I have plenty of problems with this bill.

I question the constitutionality of the law.

I think targeting bonuses alone is unwise and insufficient. Companies will just get around the law by increasing base salaries, and bonuses in any case are a reasonable compensation incentive, as long as they’re tightly tied to performance at the individual AND corporate level.

I agree that some talented people may be poached by companies not encumbered by the law and that this would put the very institutions we’re trying to rescue even further behind the eight ball.

I worry that banks that aren’t healthy may try to return the TARP money as soon as possible, undermining the main purpose of the program in the first place – keeping the banks well capitalized and the credit flowing.

However, I think all of these potential issues aren’t nearly as concerning as the critics would have you believe.

I’m no lawyer or Constitutional expert, but I do believe the bill of attainder issue has been at least somewhat addressed by broadening the law to include bonuses paid by any bank receiving a certain amount of TARP money. At a minimum, the answer doesn’t appear clear-cut and deciding questions of legislative constitutionality is one of the reasons why we have the court system anyway.

While I’d rather have Congress devise a broader, much more considerate compensation bill, I’m not going to cry that banks which are receiving significant sums of taxpayer money in order to stay solvent are severely limited in their ability to pay out bonuses to people already making a very good living (the bill only targets households with income greater than $250,000). When these banks are healthy and making a profit again, they can return the money and institute whatever compensation policies they want.

In terms of top talent leaving banks targeted by the bill, I think this concern has been wildly exaggerated. The financial industry has been decimated; unemployment in the sector is very high and even some very talented capable individuals are out of work and available should any talent be poached. Besides, you gotta find it laughable that we are worried about these ‘best and the brightest’, since it was in large part these very same folks with their fancy financial alchemy that created the monster which finally broke our system. Perhaps a thorough management cleansing at some of these companies would ultimately be helpful.

I also largely dismiss concerns regarding the unintended consequences of incentivizing banks to return the TARP money too quickly. If banks are healthy, we want them to return the TARP money as soon as possible. If banks are not healthy, and still attempt to return the TARP money, the government can stop them. Government regulation requires a certain amount of capitalization, and the stress tests will hopefully further separate the healthy institutions from the sick ones.

In short, I am glad Congress is moving in haste on this issue, even if in practical terms the AIG bonuses are chicken feed and any legislation addressing them will do very little in terms of getting us out of our current mess.

Would it have been so much better had we used force of law to stop AIG from giving out the bonuses n the first place? Absolutely, and if Geithner or others did not act forcefully enough to make that happen, I hope they are taken to task for that failure.

Do I hope our legislators take the time to craft a meaningful, defensible bill that minimizes any negative unintended consequences? Of course. Now that the first tranche of bonuses have already been paid out, and it will be up to the government to get the money back, it only makes sense to do this right.

But symbolism matters, and if we plan on continuing this practice of doling out hundreds of billions of dollars to companies in need, we have to show that this kind of behavior won’t be tolerated. It’s our money, and we have a right to say how it is used.

If in the process, we begin talking about how our culture of excess and misaligned compensation policies led to an unhealthy focus on short-term profit and an imbalance in dangerous risk-taking, then all the better.

The dagbuzz for 3/17/09: Zombie Banks and Executive Suicides

Iowa Republican Senator Charles Grassley yesterday went on the radio and suggested AIG executives do what their Japanese peers often do when the proverbial shit hits the fan and either “resign or go commit suicide.”

Easy to dismiss the senator’s remark as loony-toony and disturbing, but hell, we’re basically following the Japanese blueprint to dealing ineffectively with economic crises anyway. I obviously don’t think suggesting suicide is a helpful plan, but wouldn’t it be nice for once to see American executives demonstrate a little bit of shame and take some personal responsibility for the destruction they’ve wrought?

Image: Sen. Grassley: AIG Execs Should 'Resign or Go Commit Suicide'

Sen. Grassley: AIG Execs Should ‘Resign or Go Commit Suicide’

AIG Chief on Bonuses: Our ‘Hands are Tied…’ SAY WHAT?!?

Apparently, $175 billion doesn’t buy what it used to.

AIG has decided that it has no choice but to pay out $165 million in bonuses to employees due to contractual obligations. And the government has decided it has no legal recourse to stop the payments.

To make matters even worse, AIG CEO Edward Liddy has the gall to ask the government to reconsider limitations on executive compensation, saying that such limits curtail the company’s ability to “attract and retain the best and brightest talent to lead and staff the AIG businesses.”

Are you kidding me?

First of all, the fact that AIG agreed to contracts where they would have to pay out these kind of bonuses in a year the company lost $99 billion ($61.7 billion in Q4 alone) is absurd and highlights the ridiculousness of the typical executive contract structure. Reform is needed now and responsiblity must start with the board of directors.

Secondly, the idea that AIG had no choice but to pay out these funds is laughable. AIG lawyers said the company would be subject to lawsuit if the bonuses weren’t paid. Now I’m no lawyer, but I say if an executive wants to sue the company because he or she didn’t get a bonus, then bring it on. Even if the legal argument is sound, the public outrage would be enormous. Plus, at least they would be the ones fighting to get their money as opposed to the government fighting to get it back.

Third, the US government should absolutely have the right to stop these bonuses. The government is the one that decided the company was too big to fail. If it wasn’t for the government – and the US taxpayer – AIG would have been gone long ago. We own the vast majority of the company. What’s the point of making that kind of investment if we can’t have a say in how to use the $175 billion in taxpayer money we’ve doled out?

One of the reasons this financial crisis is likely to linger for a very long time is that we are so concerned about honoring contractual obligations, especially to holders of debt and credit default insurance. I understand how important the sanctity of the contract is in a capitalist society, and I understand how not honoring certain contracts could trigger a ripple effect that brings down our entire economic system. But this is a crisis of unprecedented proportions and extraordinary measures clearly are called for. Certainly, we can find a way to have companies in the eye of the storm extricate themselves from ludicrous executive contracts.

AIG is the poster child for the reckless, greedy behavior that played a large part in getting us into this current mess.

We must set an example.

The bonuses are a fucking outrage.

Treasury Secretary Timothy Geithner has a chance to prove that he is not the impotent, incompetent clown I think he is by stopping this debacle from happening.

The dagbuzz for 3/11/09: Grading Obama’s Presidency??

So some jackass reporter decided to ask White House Press Secretary Robert Gibbs to grade President Obama’s performance after a whoppin’ 50 days in office. Seriously? You could pass the question off as harmless, silly journalistic tripe, but I think it’s symptomatic of a rush to judge and criticize anything and everything Obama is trying to accomplish. It’s unhealthy, unproductive and unfair. The time to hand out grades will eventually come, but for now, how about giving the president a break and let him do his job.

Image: Gibbs Grades Obama's First Fifty Days In Office

Could an economic depression make us less depressed?

The world is too much with us; late and soon,
Getting and spending, we lay waste our powers:
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!
This sea, that bares her bosom to the moon;
The winds that will be howling at all hours
And are up-gathered now like sleeping flowers;
For this, for everything, we are out of tune
.

I don’t know many very happy people. I know people who are content enough, I suppose. I know plenty of people who do a decent job at hiding their discontent. (As for myself, I’m probably somewhere in between those two categories, leaning toward the former).

But in terms of truly happy people I see in my life, I’d put the figure at no more than probably 30 percent.

That’s not a shocking fact, really, considering that the government estimates that in any given year, 26.2% of adult Americans have some kind of mood disorder – nearly 60 million people.

It’s very tough to know how that rather large number compares to previous eras, as statistics on depression rates throughout time are very tough to find, mainly because the disease itself has only been recognized as such for the past 50 years or so. The actual clinical term Major depressive disorder – what we normally consider depression – was coined in the 1970s.

Not only was diagnosis of depression rare until fairly recently, but people were also likely less willing to admit to having the illness and get help for feeling low due to the attached social stigma.

But even accounting for these factors, it’s my assumption that more people in this country than ever before are suffering from depression, or at least a general malaise and discontentedness.

At least part of this phenomenon, if it is indeed true, could be attributed to this nation’s economic success as I believe increased wealth beyond a certain point can actually make people less happy.

In 1974, economist Richard Easterlin wrote a paper which showed that even though wealthier people within any given society tend to be happier, nations with higher GDPs weren’t on average ‘happier’ than their poorer counterparts (once a certain baseline level of wealth had been reached). The phenomenon became known as the Easterlin paradox.

The theory has come under some attack of late as more recent studies have shown that the data does show that happiness increases as a nation’s wealth increases – see chart below.

But DF knows how i feel about stats, especially when they’re based on rather subjective, completely self-reported datapoints.

Personally, I just think the Easterlin paradox makes sense. Wealth above and beyond a certain level can be a real drag for a variety of reasons:

1) Wealth increases our options past the point of optimality. And having too many options makes it more likely we hesitate before making a decision, waver when making a decision, and regret after making a decision. We wonder if we’ve made the right choice, and if we’ve taken full advantage of the opportunities given us.

2) Wealth gives us too much time for self-reflection. When people are forced to spend most of their waking hours finding food for their family or making a basic living, they don’t usually concern themselves with larger existential questions – why are we here? what does it all mean? why do people often suck so bad? – that can bring down the mood of any intelligent, thinking person.

3) Wealth makes us want more wealth. It’s the old ‘Keeping up with the Joneses’ phenomenon. Wealth is, after all, relative, and we often get discouraged when we see our friends and colleagues doing better than us. Why are we ‘failing’? I think it’s particularly likely that this country’s increasing income inequality has increased the importance of this particular phenomenon as more and more people feel like they’re falling behind.

So it makes me wonder, could we as a poorer nation feel more blessed for the things we do have, and understand that all of the striving and climbing and hustling isn’t worth it if we can’t enjoy our lives?

Would a prolonged downturn help us prioritize our strained resources, and refocus on goals and issues that matter more than the almighty dollar (on a subtle level, I feel that’s what Obama’s ambitious budget plan is trying to force us to do)?

Could it maybe bring us closer together as a nation?

Could a depression actually help us be happier?

The dagbuzz for 3/2/09: (Abuse, Co-Dependency and Fear of Change)

Today, I discuss codependent, abusive relationships, and our general resistance to change. Deadman understands the deal. He, too, just wants to relive the good old days and focus on things that will always stay the same, like the Middle East conflict.

Image: Chris Brown And Rihanna: Back Together For No Good Reason

Chris Brown And Rihanna: Back Together For No Good Reason

Image: Obama will sign spending bill despite earmarks      (AP)

Obama will sign spending bill despite earmarks (AP)

Image: US takes another crack at AIG rescue

US takes another crack at AIG rescue

Image: Clinton Pledges Gaza Aid

Clinton Pledges Gaza Aid


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