DEC 14— Why is it that I can’t escape the queasy sensation that I’m standing in the middle of a sausage factory every time I watch Congress on TV? Could it be because the stock market drops a thousand points in three days almost every time they’re on?
Barney “Let’s Roll the Dice on Sub-prime” Frank’s committee is a case in point, if only because a fellow who was a major contributor to the current mortgage crisis is now one of those in charge of our salvation, and, not inconsequentially, covering his and others’ bone-headed tracks with new and bigger tracks. Having confidence in the government that led us into this mess to now lead us out would seem to require a leap of faith akin to jumping into a vat of raw, ground-up, blood-sausage fixin’s. Yumm.
This lame duck session of our ongoing Capitol Hill soap opera (“The Dung and the Feckless”) has been obsessed with why the Treasury took the T and A out of the TARP, and why Congress can’t tack a GM onto it instead. In the first instance, our representatives keep asking why Treasury’s 700 billion dollar Relief Program (the RP) didn’t buy banks’ “Troubled Assets” (the TA) as promised. Treasury Secretary Paulson keeps saying (rather cryptically) that it wasn’t a pricing problem, but as things developed, it didn’t look like a good idea. The pols keep rephrasing the question, and Paulson keeps rephrasing the answer.
Guys! Read between the lines! Stop asking the question. Treasury began pricing troubled assets and determined that-- leveraged to the hilt in a collapsing real estate market-- they are essentially WORTHLESS! Moreover, the TA’s are spread all over the world, not just in U.S. banks.
Because global finance is so intertwined, if Treasury were to buy TA’s for more than they’re worth to make a market, as originally planned, they would basically end up repatriating all the problem securities (and risk) we so generously sent abroad all those years-- laying a global expense on the backs of the U.S. taxpayer. Seven hundred billion would be a mere “First Spit” in that ocean!
Obviously, a Treasury Secretary can’t say that in so many words. Acknowledging it could cause a global financial panic, the very thing we’re trying to stave off. Just leave it alone. It doesn’t look like a good idea. (No duh!) Thank your lucky American stars someone caught it in time, and move quickly to the next question, Dumbo.
Ah yes, General Motors. So if cutting T&A is un-American in this day and age, and if TA doesn’t stand for troubled assets any more, why not let it stand for Troubled Autoworkers?
GM, Ford, Chrysler and the UAW show up in Washington to lobby Congress, and I’m immediately transported back to my ninth birthday. We’re at the circus, and I’m wondering how many clowns will come streaming out of that tiny, yellow and pink cardboard car in the center ring. Dozens. Can’t help myself: a half-century may have passed, but I’m still waiting for somebody to water down a congressman with a squirting flower.
Forever young.
Everyone agrees the U.S. automakers are victims of their own stupidity. The autoworkers get to slide because they are merely victims of their own success in exploiting that stupidity. They have priced themselves right out of a global market, and in doing so they have just about killed the golden geese. Companies can only make so many stupid labor concessions and so many inane strategic decisions over the course several decades before it catches up with everyone involved.
So here we are again-- to bail or not to bail? Congress said no this week. The White House said maybe. The rest of the world waited.
The problem with government delving into in the private sector is that the political imperative is short term, whereas the economic imperative is long term. Congress traditionally has a one-year time horizon—the time between this election’s end and the next campaign’s start. Problem is, anything they pass usually has a 12 to 24-month lead time before kicking in and affecting the economy.
So a program doesn’t have to work, it just has to sound good enough to get them re-elected. Then, four to six years later, when what they did turns out to have been dumber than a swamp full of stumps, they can fall back on voters’ short term memory loss, or general ignorance. (A Zogby poll indicated that, despite having a 50-50 shot, 57.4% of Obama voters did not know which party controls the least popular Congress in recent memory.)
Politics, then is the quintessential triumph of style over substance. Unfortunately, the economy is as substantive as it gets, and this time, style can’t save any of them. The politicos could have an immediate impact. A GM bankruptcy is imminent and would surely deepen the current recession. Moreover, the ripple effects could lead to something worse. The Bush White House is now considering whether to use TARP money or not. It is a confusing moment in our political history.
Like most opposition parties, the Democrats have spent eight years trying to destroy the economy so that they could retake the White House. Now that it is destroyed, (with ample help from Republicans) and they have their prize, they’re thinking “What now?”
The Republicans, meanwhile, outmaneuvered on the economy at every turn by the Dems of late, are now about to be in the opposition— trying to destroy the economy themselves in an effort to regain the White House. Some of them have made the transition. Others have not.
The White House has not made the transition. They don’t want to go down as the last administration to procure an American-made fleet of automobiles for its bureaucrats. Somehow, a Camry doesn’t have the panache of a Lincoln Town Car, especially when the Secretary of State is heading out to a diplomatic conference. They want to help Detroit, even if it means helping the unions who have a long history of fighting them in every election. Congressional Republicans disagree. Put ‘em in bread lines. They screwed up (they voted for the other guy) and they deserve it.
Democrats are similarly torn. It is in Obama’s best interest if everything hits the fan before January 20. If GM goes under next week, it’s on Bush’s dime. Ideally, Obama can buy in at the bottom. Congressional Democrats aren’t so sure. They hate the automakers, but owe the unions big time. There is also the prospect of falling into a hole so deep you can’t climb out in four years. Now, all of a sudden, they are the party (about to be) in power and they need the economy to do well.
We finally have bi-partisanship, but only because of transition in which neither leadership is able to whip its members into shape. What are they gonna do, fire me? Either the voters have or they haven’t already. The real deal doesn’t start for a month or so.
The markets reflected all that uncertainty this week, as Republican senators (joined by some Democrats) voted down a $14B bridge loan to the automakers. In the end, there was financial irony to the week. Everything was up—except the Dollar. (Maybe that’s why everything was up.)
U.S. stocks were up (surely autos will be saved); U.S. bonds were up (surely autos are toast); and the Dollar was down (surely those Yanks are one screwed up bunch).
Go figure.
Guess there are already enough Dollars out there to buy stocks and bonds. Nobody needs to buy more greenbacks. (Rumor is the Arabs have changed their traditional garb from jalabas to rubber hip boots to wade through the pile of petro-Dollars they got when crude was $147 a barrel. It is unknown how the men will react to women dressed in rubber.)
The weaker Dollar, of course, helped commodities, including gold and oil. That and the buoyancy of U.S. stocks helped foreign equities as well.
So why, when everything is so positive with two weeks left in 2008, is there still the sense that investors have their covers pulled up to their noses, spooked that the hedge fund boogie man could pop out of the closet again any day now? Cowardice or common sense, take your pick. |
