Bankers Break It, Taxpayers Buy It

NATIONALIZATION NOT IMMINENT; YET GROUNDWORK IS BEING LAID
The Citibank web site has a curious marketing slogan atop its home page, "we never sleep." Presumably, the motto means customer's can do their banking anytime, but with nationalization of banks becoming more likely by the day, it could be an admission of many sleepless night to come.

The past week has seen more than a whisper campaign from some Democrats and few leading economists that the short-term remedy for the banking system is nationalization. Sen. Chris Dodd has said it may "unavoidable", which is nearly equivalent to saying, "Folks, get ready. It's happening." It's no wonder the stock market, although briefly rallied today, is beginning to see the reckoning a collapse of Citibank, Bank of America and Wells Fargo could mean to the economy and the administration is slowly setting the stage for nationalization. For the time being, though, President Obama and Fed Chairman Ben Bernanke say nationalization is not on the radar. Bernanke's comments today stoked Wall Street and that was his intent.

The Washington Post reports today the Obama administration tweaked the terms of government assistance by demanding common stock in lieu of cash. "The change paves a road toward nationalization for the most troubled large banks," according to the Post. A piece on Bloomberg.com goes further in calling nationalization inevitable.

Nationalizing the nation's top banks has its drawbacks. With taxpayers already shouldering a large burden of risk that is likely to increase in the future, backing the financial sector may be too much. Some economists even believe another stimulus bill of nearly the same sticker price will be needed within two years. On the other hand, taxpayers saw little in return in the form of consumer lending after the initial $350 billion bailout money passed late last year and news reports of lavish executive spending and multi-million dollar bonuses left a lingering distrust of banks to apply the aid judiciously.

How poor is the health of the nation's biggest financial institutions? The grand sage of the credit mess, New York University Professor Nouriel Roubini laid it out in this week's issue of Time, saying Citibank is "on the way to ICU," Bank of America should "prepare the transfusion" and surprisingly, Wells Fargo needs a "Defibrillator. Stat!"

The poor health of these once mighty institution is a reminder of how their bottom line's were nothing more than a house of cards. Just 16 months ago, Bank of America and Citigroup were quarterly flipping top positions for the title of world's largest bank. Today, they may be on the verge of being owned by the biggest economy in the world.

GOP Plays CSI With Economy

IF ECONOMY CONTINUE TO TANK IN '10; GOP IS 'INNOCENT'
The politics over the stimulus plan and its near-unanimous rejection by congressional Republicans is already taking center stage for the drama that will be the 2010 mid-term elections. Robert Reich wrote an interesting blog posting this week exploring the reasons why Republicans will not have a thing to do with the proposal.

Republicans don't want their fingerprints on the stimulus bill or the next bank bailout because they plan to make the midterm election of 2010 a national referendum on Barack Obama's handling of the economy. They know that by then the economy will still appear sufficiently weak that they can dub the entire Obama effort a failure -- even if the economy would have been far worse without it, even if the economy is beginning to turn around.

During two votes in the U.S. House of Representatives, no Republican backed either version of the stimulus. It took a few centrist-leaning Northeastern Republicans to win passage by a single vote in the Senate. A Reuters story yesterday implied that President Obama's rival Sen. John McCain was portraying the nascent administration as adverse to bipartisanship and characterized the plan by saying, "I think that the majority of people understand that this was generational theft." Democrats, conversely, begin to complain that the bill was too bipartisan -- even without GOP cooperation. In an interview with conservative newsweekly NewsMax, the leader of 1994's "Contract with America" Newt Gingrich said he "absolutely" sees a connection between when Republicans took over the House and 2010.

Irwin M. Stelzer imparts these talking points while writing in The Weekly Standard and illustrates this point by saying that Obama "now owns the recession." By pegging the troubled economy solely on Obama, these critics may believe that the president cannot possibly make in-roads in quite enough time for congressional elections next year.

He has asked to be judged by whether this bill and other measures he will propose create or "save" 3.5-to-4 million jobs, the number lost so far since unemployment turned up. Forget "save" -- if unemployment keeps rising, voters are not likely to rally around the slogan "It would be still worse if I hadn't spent your trillions." What the President has done is to promise what he certainly can't deliver in time for the congressional elections next year -- a reversal of job destruction, and millions of new jobs, said Stelzer.

When it's all said and done, it's still all about the economy, stupid, as Bill Clinton's campaign declared in 1992. How President Obama, congressional Democrats and the Republican opposition react to that in 2009 will be a tale we're likely to hear a lot about in 2010.

Stim Bill Isn't Sufficiently Super-Sized

DEALING WITH THE GOP DEFLATED THE PLAN'S OOOMMPH
President Obama will likely sign a stimulus bill this week roughly the same size he initially offered, but wholly different in composition. Some like Robert Reich and New York Times columnist Paul Krugman never thought it was large enough in the first place, and the watered down bill is furthering their anxiety. Krugman wrote last week:

And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.

During a speech last month at The Commonwealth Club of California, former Labor Secretary Robert Reich reiterated his belief that the stimulus bill should be over $900 billion or more over the next two years. On his blog he wrote this week:

But what if the stimulus isn't big enough? (I fear it won't be, given the large and growing gap between what the economy can produce at near full-employment and the meager demand coming from consumers and businesses.) And what if the bailout doesn't quite work? (It may not, given that the banking system is collapsing and many banks are actually insolvent.) The economy in November of 2010 may be worse than it is now, with no turnaround in sight.

Reich also predicted during his Commonwealth Club address that President Obama might bargain with Republicans to win votes in a bipartisan fashion. This indeed occurred, and the nearly across-the-board rejection by Republicans of the plan has rankled many Democrats. Joan Walsh at Salon wrote today about President Obama, "He better have learned that Washington bipartisanship is dead." Even the president's chief of staff, Rahm Emanuel, admitted that working with congressional Republicans who were dead set against the bill was a mistake. Not surprisingly, the editors at the conservative National Review declared President Obama's economic plan already has a ring of "no-confidence" surrounding it.

This article and others can be read at the Commonwealth Club of California's blog, commonwealthclub.blogspot.com.

GOP Still Doesn't Get It Or Give It

WHO NEEDS TAX CUTS FOR A CAR WHEN YOU'RE BROKE?
Patriotism and necessity aside, forging a bipartisan bill with Republicans this early in the Obama presidency was always going to be a tall order. It's a quite normal for the minority party in Washington to show its mettle, if puny in relation to Democrats, but the political gamesmanship on the part of the GOP only further displays their disconnect to the plight of Americans.

I have a friend who depends on a 40-hour work week and medical insurance to pay the rent and stay healthy. Last week, her employer slashed her hours and nixed her health coverage. Another was recently laid off to sit at home with her three children and wonder what the next few months has to offer. State workers in California received what amounts to a 10 percent pay cut to stay home from their jobs two days a month. That times are tough is no longer a throwaway catch phrase nowadays but reality. Things are getting worse. The numbers even show it and we feel it.

Democrats could have probably been pushed into a worse compromise than the one made yesterday with Senate Republicans, but the existence of more tax cuts is only a reminder that the GOP doesn't get it.

Why would Americans need $30 billion tax cuts to encourage the purchase of new homes and automobiles. Shockingly, new digs and a fully-loaded Buick is not high on the wish list when you are wondering about your next paycheck. Besides, would the tax credits offset the inability of regular Americans to receive a fair interest rate on a loan? It's not likely.

I think this point of c0ntinued economic inequity and political blindness on the part of the GOP is becoming more pervasive since the day President Obama announced an executive salary cap on firms who accept bailout funds. By shaming CEOs into accepting only $500k, he made the beleaguered Titans of finance look petty and greedy. How ridiculous did countless talking heads and lobbyists of executives seem when they pleaded across the board that such a low salary would make it difficult to attract "good talent". To which the country screamed, "Where was the good talent before we got into this mess?" I've never found the stuffed suits traipsing along every Financial District as nothing more than falsely stoked bubbles of testosterone and mythologized machismo. Really? Are these "banksters" nothing more than football coaches in fine tailored suits fitted with bluetooths instead of head phones?

At the very least, we must continue to veer away from principles and characters previously associated with this downturn in America's economy and morally specific predilection towards greed. This means straying away from Obama's main guys at the Treasury--Tim Geithner and Larry Summers--and economic recipes like tax cuts and laissez-faire government. Recovery is about stimulus. As the President said this week the stimulus is about spending and it needs to reach the state and local level for the mood of disheartened unemployed Americans rise hopeful again. In the meantime, the GOP continue to be nothing but an opposition party to Democrats and to the American people.

College Students Not Keen On Saving Rebate Checks

BILL'S EFFECTIVENESS BASED ON WILLINGNESS TO SPEND

HAYWARD, Calif. - The success of the $150 billion stimulus plan that President Bush and Congress agreed to last week depends on one thing: that people will spend the potential $1,800 rebate checks quickly, but many Cal State-East Bay students are not buying the premise.

“I would spend some and save some,” said Joe Pecoraro, a senior majoring in accounting, “I tell my friends to save, too, but they usually don’t.”

In interviews across campus, he and others expressed various preferences for the use of the possible funds, which the Bush administration hopes may jumpstart an ailing economy.

Freshman Aurelio Padilla travels from Oakland to school using BART and buses and might put a rebate check from Uncle Sam towards some new wheels somewhere down the line.

“I would probably save it and put it towards buying a car,” said Padilla.

Others like Angelica Gonzalez, freshman majoring in nursing, are inclined to save the money to use later in the year.
“I would probably save it for books in the fall,” said Gonzalez.

But, she also admitted that she might spend it during her yearly summer vacation in Mexico, which would benefit that country’s economy more than the U.S.

The problem is that saving the money or paying off a delinquent credit card bill is not what the stimulus bill is intended to do.
The Federal Reserve, which oversees the nation’s treasure chest, would rather have people spend, not save the checks, which could run anywhere from $300 to nearly $1,800 for taxpayers who have the maximum four dependents.

Most economists agree that the economy needs a quick injection of money to lessen the burden of a shaky housing market and a precipitous rise in foreclosure due to iffy sub-prime loans.

If the stimulus bill is passed by Congress, the rebate checks, which could arrive in the mailboxes of many households in May, will carry no conditions on how they are spent, but, instead, present a policy gamble by Washington that they will wiggle the economy out of the grasp of a possible recession.

CSUEB economics professor, Lynn Paringer, believes the best way to help the economy is to get the money into the hands of people with lower incomes.

“It’s fair to say that lower income people are more inclined to spend it more quickly,” said Paringer.

Depositing the checks in your savings account will help the economy in the long run, but not as quickly as the government wants.

“If it goes to a bank you won’t see it helping until after a cycle,” but Paringer added, “If you put it under your mattress, nothing happens.”

Paying your debts with the money will help your personal finances, but also won’t do much for the economy in the short term.

Graduate student, Moises De Loera, who is closing in on his teaching credential, might apply the check towards his school loans.

“I need to pay some bills and I have school debts,” said De Loera, “and it’s almost time to pay those bills.”

Paringer says if that paying off your bills will help the economy, but not until that money is able to be invested down the line.

She believes that the key to helping the economy is through targeting the stimulus towards businesses, but details of the stimulus bill will have to limit what areas they invest.

“What if your business is working at capacity? Will you invest? And what’s to say they don’t invest in the U.S.? Will this create incentive for businesses to build new factories or hire more workers,” said Paringer.

The agreement that President Bush; Speaker Nancy Pelosi and Minority Leader John Boehner arrived at last week did not include demands from Democrats that the stimulus include extending unemployment insurance and bolstering food stamp programs, but did include tax incentives for small businesses that Republicans favored.

Senate Democrats said Monday that they will seek to include benefits for unemployment insurance and food stamps in their plan, both areas that economists believe people will quickly spend their checks on rent or staples food and clothing.

During his State of the Union speech, President Bush said any attempt to deviate from his agreement with Congress will “delay or derail” the stimulus bill.

He also reiterated that the bill must be passed quickly to have any effect on the economy.

Stark Pitches Stimulus Bill To Help Failing Economy

CHECK COULD BE IN THE MAIL FOR MILLIONS OF AMERICANS

SAN LEANDRO, Calif. - Rep. Pete Stark advocated a stimulus bill for the ailing U.S. economy Saturday in San Leandro that would put more money into the hands of people willing to immediately spend it.

A stimulus package that it “timely, targeted and temporary” will pushed through Congress within the next two months, according to Stark..

Last week, President Bush unveiled a $145 billion that illustrated his desire to avoid a prolonged recession during an election year that could further erode the Republican’s power in the legislative and executive branches come November.

Bush’s plan differs from previous ones that sought to make tax cuts for the richest Americans permanent, by focusing on one-time rebates for individuals and allowing businesses to quickly write-off certain expenses.

The bill that Stark is supporting includes extending unemployment insurance, bolstering programs for food stamps and possibly sending a check similar to what Bush attempted in 2001 to quickly inject money into the economy.

Stark, who is chairman of the Ways and Means Health subcommittee, admits his plan is one of many in Congress.

“There’s 535 members and 535 plans,” said Stark, “We hope we can narrow it down to one plan in the next month or so and proceed.”

Stark cited the opinion of many economists who believe the path out of this recession, whether the economy is in the midst of one or whether it’s impending, is through an immediate infusion of consumer spending.

To do that, he says one way is extend unemployment insurance to an extra 26 week and increase the amount of food stamps low-income families receive.

“They will spend that money. They will spend it for rent. They will spend it on clothes for their kids. They will spend it for food and that gets into the economy quicker,” said Stark.

The other idea would be simply sending a check directly to the people in the range of $200-$500 through the tax code, but Stark disagrees with that method.

“The problem I see with that is a lot of low-income people don’t file taxes, so they won’t get a refund,” said Stark.

Instead, by sending checks to those on the lowest end of Social Security payouts the benefits will be available to more people who need it most, according to Stark.

Any plan that is debated before Congress will likely need bipartisan support.

The combination of lame duck president already willing to reignite the economy and vulnerable Republicans in an election year means they may be in the mood to deal with Democrats.

One compromise could be allowing small business owners who invest in equipment to increase the amount of the tax dollars that are deferred over five years, said Stark.

The quickly expanding subprime mortgage problem, that in some ways, triggered the current recession fears, continues to grow as institutions like Citigroup, Merrill Lynch and other overseas banks report record losses and increases the fears of many Bay Area borrowers who received the shaky loans.

A former banker, himself, Stark says that “much depends on banks doing the right thing.”

Banks will save money by not foreclosing and letting borrowers maintain their own homes, instead of allowing a bad asset hurt their bottom line, said Stark.

“If you’re looking for work and you’re paying your taxes and insurance; stay in the house and we’ll add the missed payments to your mortgage. When you get a job, we’ll reset it,” said Stark.