Tag: debt

It’s Friday — What Bad News Will Be Released Late Tonight?

President Obama promised to change the way things are done in Washington, but his administration has mastered one old Washington trick: releasing bad news late on Friday, or even on Saturday night of a long weekend, in the hope that journalists won’t have much chance to ask questions or get into the next day’s papers. Consider:

  • The nation would be forced to borrow more than $9 trillion over the next decade under President Obama’s policies, the White House acknowledged late Friday.
    Washington Post, Saturday, August 22
  • White House environmental adviser Van Jones resigned late Saturday after weeks of pressure from the right over his past activism. “On the eve of historic fights for health care and clean energy, opponents of reform have mounted a vicious smear campaign against me,” Jones, special adviser for green jobs at the White House Council on Environmental Quality, said in a statement announcing his resignation just after midnight Saturday.
    Washington Post, Sunday, September 6, 2009
  • The White House late Friday announced it would impose high tariffs on imports of Chinese tires in a case seen as the first test of trade policy under President Barack Obama… The announcement was made in a release sent out by the White House press office at about 9:30 p.m. Friday night, a time when news is sometimes “dumped” in the hope it will attract less attention.
    TheHill.com, 10:56 p.m., Friday, September 11, 2009

So what will it be tonight? A late-night tax increase? The resignation of another administration appointee who didn’t pay his own taxes? More troops for Iraq?

Why Wall Street Loves Obama

wall streetWas it just me, or did there seem to be a whole lot of applause during Obama’s Wall Street speech?  Remember this was a room full of Wall Street executives.  The President even started by thanking the Wall Street execs for their “warm welcome.”

While of course, there was the obligatory slap on the wrist, that “we will not go back to the days of reckless behavior and unchecked excess,” but there was no mention that the bailouts were a thing of the past.  Indeed, there is nothing in Obama’s financial plan that would prevent future bailouts, which is why I believe there was such applause.  The message to the Goldman’s of the world, was, you better behave, but even if you don’t, you, and your debtholders will be bailed out.

The president also repeatedly called for “clear rules” and “transparency” - but where exactly in his plan is the clear line dividing who will or will not be bailed out?  That’s the part Wall Street loves the most; they can all say we’ve “learned the lesson of Lehman:  Wall Street firms cannot be allowed to fail.”  At least that’s the lesson that Obama, Geithner and Bernanke have taken away.  The truth is we’ve been down this road before with Fannie and Freddie.  Politicians always called for them to do their part, and that their misdeeds would not be tolerated.  Remember all the tough talk after the 2003 and 2004 accounting scandals at Freddie and Fannie?  But still they got bailed out, and what new regulations were imposed were weak and ineffective.

As if the applause wasn’t enough, as Charles Gaspario points out, financial stocks rallied after the president’s speech.  Clearly the markets don’t see his plan as bad for the financial industry.

It would seem the best investment Goldman has made in recent years was in its employees deciding to become the largest single corporate contributor to the Obama Presidential campaign.  That’s an investment that continues to yield massive dividends.

Out of the TARP, But Still on the Dole

While banks such as Goldman and J.P. Morgan have managed to find a way to re-pay the capital injections made under the TARP bailout, their reliance on public subsidies is far from over. The federal government, via a debt guarantee program run by the FDIC, is still putting considerable taxpayer funds at risk on behalf of the banking industry.  The Wall Street Journal estimates that banks participating in the FDIC debt guarantee program will save about $24 billion in reduced borrowing costs of the next three years. The Journal estimates that Goldman alone will save over $2 billion on its borrowing costs due to the FDIC’s guarantees.

One of the conditions imposed by the Treasury department for allowing banks to leave the TARP was that such banks be able to issue debt not guaranteed by the government.  Apparently this requirement did not apply to all of a firm’s debt issues.  These banks should be expected to issue all their debt without a government guarantee and be required to pay back any currently outstanding government guaranteed debt.

To add insult to injury, not only are banks reaping huge subsidies from the FDIC debt guarantee program, but the program itself is likely illegal.  The FDIC’s authority to take special actions on behalf of a failing ”systemically” important bank is limited to a bank-by-bank review.  The FDIC’s actions over the last several months to declare the entire banking system as systemically important is at best a fanciful reading of the law. 

The FDIC should immediately terminate this illegal program and end the continuing string of subsidies going to Wall Street banks, many of which are reporting enormous profits.