Citi, USA

There have been reports this week that the government is considering an even bigger stake in Citigroup, a stake possibly as large as 40%. I can't figure out how this is in the taxpayer's interest, but I can imagine a scenario where it is in Citi's.

The larger stake would come from the conversion of the currently held preferred stock (the stuff purchased with TARP money) into common shares.

With the preferred shares, the U.S. government had shares that pay a much higher dividend than common shares. The preferred shares have the additional benefit of being ahead of common shares in any claims on the bank's assets.

Of course, converting to common shares would greatly reduce the value of the shares that are currently held. But at least one report I read indicated that Citi's management has actually asked the government to take the proposed larger stake. Why? First, of course, the dividend on the preferred shares would no longer have to be paid. But could there be another reason that this would be in Citi's interest?

A bankruptcy and liquidation (call it nationalization, receivership, the 21st Century Resolution Trust Corp., whatever) will result in the value of common shares being wiped out. Now imagine that the U.S. government owns 40% of the common shares. Under this scenario would the government ever, regardless of what any stress test shows, declare that Citi is insolvent and should be liquidated? This would require Geithner or Obama to stand at a podium and announce that the money used to buy the preferred shares is gone, wiped out.

They could try to pin the loss on Bush/Paulson, but this is one case where I doubt that line would even make it out of the briefing room. Besides, you know Karl Rove would have an Op-ed in the Wall Street Journal the next day claiming the purchase of preferred shares had the chance of being a moneymaker for the taxpayers of this nation.

The illusion of value with the preferred shares may be just that, an illusion, but I can't believe that the Obama administration would convert the preferred shares to common only to turn around and force Citi to dissolve. If they were too big to fail before, now they will be too valuable. After all, they received taxpayer money under the TARP.

Could Citi see a 40% stake in the form of common shares held by Uncle Sam as an insurance policy against ever being forced to close its doors?

The possibility of government action, both the possible conversion to common shares and the possibility of a goverment imposed liquidation have kept Citi share prices down. If the government does become a large common shareholder I would guess that private money may flow back into Citi shares on the belief that there is no way the Obama administration will force to Citi to liquidate when it holds so many shares. (Hey TARP Results Blog, you still have those Citi calls?)

So, let's see. For the taxpayers, conversion to common shares would mean no dividend and would guarantee that the TARP money would be lost in the event that Citi closes for good. For Citi the conversion means a reduced dividend payment and the tacit backing of the U.S. Government.

Of course, I could be way off on all of this. I mean, I'm no Gordon Gekko. In fact, I didn't even see Wall Sreet. But this sure sounds like more of the same from the last six months: heads they win, tails we lose.

DIY Creed: Pelosi Edition

Speaker of the House Nancy Pelosi's recent trip to the Vatican, and the public rebuke issued in response, reminded many of the infamous appearance she made on Meet The Press last summer.

An appearance where Pelosi said the following:

I would say that as an ardent, practicing Catholic, this is an issue that I have studied for a long time. And what I know is, over the centuries, the doctors of the church have not been able to make that definition. And Senator--St. Augustine said at three months. We don't know. The point is, is that it shouldn't have an impact on the woman's right to choose.

And this:

So again, over the history of the church, this is an issue of controversy. But it is, it is also true that God has given us, each of us, a free will and a responsibility to answer for our actions. And we want abortions to be safe, rare, and reduce the number of abortions. That's why we have this fight in Congress over contraception.

While trying to make a pro-abortion argument from a Catholic perspective by arguing for contraception is, to say the least, bizarre, that is not the most troubling aspect of these comments. Neither is the fact that she is a Catholic who is conflicted about the issue (I would guess that there are many).

The troubling aspect of these comments is that Pelosi appears to believe she is free to alter or even negate the official teachings of the Catholic Church (and at least some of its history) to match her own personal beliefs. The notion that in order to be part of a larger group she should relinquish some of her individual beliefs, at least where they directly contradict the principles adopted and promoted by the group, doesn't seem to hold any sway. As a prominent national figure and a Catholic, Pelosi is an easy target for this critique. However, hers is merely one example of the widespread phenomenon of re-defining belief from the bottom up.

In his book The Big Sort: Why the Clustering of Like-Minded America Is Tearing Us Apart author Bill Bishop quotes Reverend Sid Hall of Trinity United Methodist Church in Austin, Texas:

"We have some Wic¢ans who are part of the congregation, and that works," Hall said. "When I take the Beliefnet.com test, I always come out 'neo-pagan,' so who knows."

While I don't doubt that there are Methodists that would find this union appalling, I am willing to guess there are at least a few Wic¢ans who would feel the same. How can you reconcile two mutually exclusive worldviews without destroying one or the other, or both? At some point, the removal of fundamental tenants renders a belief system unrecognizable. Continuing to refer to the modified system by some recognizable name does not undo the damage.

A Catholicism that supports abortion isn't Catholicism and a Methodism that incorporates witchcraft isn't Methodism. Wit¢hcraft that attempts to incorporate Christianity is an absurdity.

Given the examples of Pelosi and the Austin Methodists, one might be tempted to conclude that this practice of redefining established group beliefs to suit individual taste is uniquely American, but I suspect that it is common throughout the West.

A tradition that celebrates and promotes individual freedom is laudable. In these traditions, a person is free to believe anything he would like. He is also free to be a Catholic, a Methodist, or even a Wi¢can. However, this right does not include the power to redefine the belief systems of established institutions in order to hold on to cherished personal beliefs while still maintaining nominal inclusion in the larger group. If being a Catholic is important, then one should set aside personal beliefs that are at odds with Church teachings. If holding on to those beliefs is more important, then one should leave the Church. One should definitely not claim that the Church's teachings are something they are not for mere personal convenience.

The great thing about a free society is that you are free to have your cake and to eat it too. While you are eating it though, just don't try to tell us that it's broccoli.

I've heard there are 99 strains of the common cold....

.....and we have been suffering from eight of them, so blogging time has given way to nose wiping and medicine dispensing.

And no, I am not live-blogging the President's address to Congress.

But I wanted to note quickly that Yves Smith over at Naked Capitalism has a great post up on exactly what is wrong with the AIG bailout. Here is a taste:

What has been appalling about AIG is that Uncle Sam initially imposed a suitably punitive deal but then for reasons that remain a mystery, relented . Since the federal government is NOT a regulator of AIG, there was no reason to expect the authorities to step in, save Ben Bernanke and Hank Paulson's attentiveness to the needs of the financial sector generally. AIG has globe-spanning operations, and there is no good reason why the US public should be stuck with the consequences of their lousy risk management decisions. But not only did AIG get considerably more in loans in version 2.0 of its deal with the US government, but the terms on its initial loans were improved considerably.

Go read the whole thing.

And just to be clear, even though the blog is called Naked Capitalism, it is totally safe for work. Unless of course you work at AIG corporate headquarters. (But not at one of its still well regarded subsidiaries!)

Left! Right! Left!

Last week, The Crunchy Con had a post up titled New Right: the new New Left? In which he highlighted:

Fascinating observation by Patrick Deneen, on an emerging minority voice on the marginal Right that's taking up the critical stance toward the American narrative espoused half a century ago by the New Left.

When I read those words, I immediately thought of another American Narrative that touched on a similar phenomenon of left/right confusion. Admittedly, it is a narrative that uses the muddled state of affairs to a different end than Dreher & Deneen.

Check out the following passages from Thomas Pynchon's The Crying of Lot 49 (Peter Pinguid is a soldier celebrated as the first casualty of the Cold War by a society named in his honor, Oedipa is the book's heroine, Metzger her companion, and Fallopian is an evangelizing member of the Peter Pinguid Society):

"Peter Pinguid was really our first casualty. Not the fanatic our more left-leaning friends over in the Birch Society chose to martyrize."

"Was the Commodore killed, then?" asked Oedipa.

Much worse, to Fallopian's mind. After the confrontation, appalled at what had to be some military alliance between abolitionist Russia (Nicholas having freed the serfs in 1861) and a Union that paid lipservice to abolition while it kept its own industrial laborers in a kind of wage-slavery, Peter Pinguid stayed in his cabin for weeks, brooding.

"But that sounds," objected Metzger, "like he was against industrial capitalism. Wouldn't that disqualify him as any kind of anti-Communist figure?"

"You think like a Bircher," Fallopian said. "Good guys and bad guys. You never get to any of the underlying truth. Sure he was against industrial capitalism. So are we. Didn't it lead, inevitably, to Marxism? Underneath, both are part of the same creeping horror."

And later in the book, Metzger once again engages Fallopian on his economic philosophy:

Metzger...wanted to argue. "You're so right-wing you're left-wing," he protested. "How can you be against a corporation that wants a worker to waive his patent rights. That sounds like the surplus value theory to me, fella, and you sound like a Marxist."

While I am not sure that Pynchon has anything to offer the Right (or the Left for that matter), I do believe these episodes have a point aside from their comedic value: Some of the most interesting political and philosophical discussions occur within parties or movements, rather than between them.

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Here's the link to Lot 49 over at the Google Book Search in case you want to check it out!

The 17th Amendment & 21st Century Crosses of Gold

Wisconsin's own Senator Feingold wants to amend the constitution to require the election of Senators when a vacancy arises between normal elections.

No doubt the ongoing Blago/Burris saga will at least lend some momentum to his proposal.

Enter the bespectacled pundit, ABC's own George Will.

George, of course, can't simply refute Feingold's proposal as foolhardy in its own right. He goes ol' Russ one better and argues things just haven't been the same since we stopped letting state legislatures elect Senators. Read his column by clicking on this link.

All this 17th ammendment talk makes me wonder: If William Jennings Bryan were alive today where would he stand on the stimulus? TARP? Mortgage modifications?

Instead of a 'Cross of Gold', would he decry a cross of debt? Of toxic assets? Of credit default swaps? (None of these have the rhetorical force of gold, however)

Things are indeed confusing when a Democratic President has to try and beat back what is essentially a populist argument made by a guy in a suit standing on a trading floor.

Shocking the Shockers OR Disaster Keynesianism

A comment to my last post triggered a thought about how I could be more succinct in my critique of the government response to the current economic situation, both at the Federal and State levels. In particular, I was reminded of this quote:

Only a crisis—actual or perceived––produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. . . . Our basic function [is] to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.

This was free-market economist and Nobel Laureate Milton Friedman's insight. But the version of the quote I remembered wasn't Friedman's, it was from Naomi Klein's book The Shock Doctrine: The Rise of Disaster Capitalism.

In the book, Klein delivers a whirlwind tour of the late 20th century economic response to certain crises arising from natural disasters and political upheavals. If you want to read a recent history with an axe (a really big axe) to grind, I can't recommend The Shock Doctrine enough (here's a link to the google books version).

Klein spends the entire book trying to show that Friedman's prescriptions for a return to economic health were, well, disastrous. But she never refutes his assertion that only times of crisis produce change. I can't remember if she even tries.

Oh yeah, the succinct part:

Working from Friedman's insight, recent events can be seen in a whole new light. Democrats took Friedman's words to heart and have continued to keep alive those ideas that are dear to them, that have been dear to them at least since the New Deal. The collapse of the housing market, with the rest of the world economy in tow, did the rest.

If they are simply using the current crisis to enact the same old agenda, what chance does it have of succeeding? Some? Any?

If the current program succeeds, great, we will all be better off. But if it fails, I hope that thirty years from now we have recovered sufficiently for some hip right-winger to write a snappy critique of the early 21st century response to economic crisis and title it: The Stimulus Doctrine: The Rise of Disaster Keynesianism.

Budget Covers Deficit But Still Falls Short

Governor's Doyle's budget proposal is characterized by at least three ideas, none of which rise to meet the challenges of the day: an old one about costs and benefits, a twist on taxation, and the use of a one time payment to offset continuing costs.

The notion of governance through the employment of diffuse costs and concentrated benefits is a well understood phenomenon, and one that is in evidence in Doyle's budget. Thus we get an expansion of subsidized childcare under the Wisconsin Shares program and the expansion of health care benefits to domestic partners of state workers. As reported in the Wisconsin State Journal, the Governor's proposal would:

let state workers, including UW-Madison employees, add their partners to state health insurance coverage at an undisclosed cost Doyle aides described as modest.

While one may certainly disagree with these proposals (and no doubt many will) the fact that they are included should be a surprise to absolutely no one given the Democratic majority in state government.

The idea of taxation itself is not new, but its form under Doyle's proposal turns the diffuse cost/concentrated benefit notion on its head. Here is a description from the JS Online:

Doyle said he had no choice but to ask the Legislature to approve $1.4 billion in tax increases - the largest reworking of the tax codes in decades.

The increases include:...a new 7.75% tax rate for the richest 1% of taxpayers; $290 million in higher taxes on cigarette smokers; ...and more than $85 million paid on capital gains.

Piling taxes on a small group of citizens so that the majority can avoid the pain of taxation is a dangerous way to govern. One that has only a tenuous (if any) legitimacy in a pluralistic nation formed on the basis of representative government and protection of minority rights. The security of private property is absolutely fundamental to a free society. When we treat property rights dismissively, we do so at our own peril.

It is not an unthinkable leap to go from an additional 1% in taxes on the highest earners to 10% or even 50% when there is a political will to do so. While this will has not fully taken hold nationwide, it exists, often not far from the surface. What percent of the nation's wealthiest families would we have to impoverish to pay for the recent stimulus legislation? I suspect it is not a large percentage at all. Those of us who do not fall in that group, though, would be well advised to remember that a ring of thieves is no less one simply because they choose their leaders democratically.

The final piece of Doyle's proposal most starkly reveals the hidden deficit that we are suffering in this state, that of visionary leadership on budgetary matters. Again here is the JS:

To close a budget gap that has grown to $5.7 billion by mid-2011, the Democratic governor said he used $2.1 billion in federal stimulus cash to protect education and health care programs.

Using what is likely to be a one-time payment from the federal government to insulate any area of spending from cuts in a time of economic crisis is short-sighted. Even if the world economy is substantially improved by the next budget cycle, would anyone look back those two short years from now and regret cutting spending? If things have improved, increasing spending has never seemed to be a problem for politicians; and if they have not, we know that we took steps now in order to best cope with an uncertain future. Not adjusting spending now merely puts the problem off for another day. It remains to be seen if Doyle will be leaving the tough decisions to his future self or to a successor.

If current economic conditions really are as dire and unprecedented as so many in Washington and Madison would have us believe, what we need most desperately is a unique and thoroughly forward-thinking approach to the budget. Doyle's proposal is anything but.

Why NASCAR Will Never Replace Football

Since I wholeheartedly embrace all things related to my adopted home state of WI, I am glad that Kenseth won. But really, the future for a so-called sport with this many problems is seriously limited.

1. Their equivalent of the Super Bowl is the first event of the year. Does that make the rest of the season anti-climactic?

2. OK, so you want to have your premier event first? Fine. But finish it. I mean to declare a winner with almost one-quarter of the race remaining?

3. I realize part of the appeal is the wrecks, but when a driver that hasn't done much lately manages to wipe out a good sized percentage of the field, including the car that had been running the best, how does that add to the excitement? (Football was less exciting when Tom Brady went down, not more exciting because he got hurt.)

4. They only turn left, except for the road races, where they also zig-zag, but then they have to drive slow.

5. Oh yeah, and after tomorrow, the companies that make the cars might not be in business any longer.

See, I knew I could relate any blog post to the economic crisis. It's like a new twist on that Kevin Bacon game, Six Degrees of Government Bailout.

A co-worker of mine, who is a NASCAR enthusiast, once disparaged open-wheel racing in my presence because during the pit stops they only had to remove and replace one lug nut. Maybe if we do move to a more European style economy, we can learn to love European style racing too.

Too Much Insolvency, Not Enough Resolve

If it wasn't already, it is now becoming increasingly clear that the stimulus bill will not be the tool for ultimately reviving the troubled economy. While there is an argument to be made for expanding the safety net in a sudden and drastic downturn, it is the near total collapse of functioning credit markets that is at the heart of the matter. Only by restoring the flow of credit will we put ourselves on the road to recovery.

No doubt a large part of our total credit system comes through finance companies that provide money for all types of purchases, but the real center of the broken lending system is the large banks. The notion that these large banks are for all intents and purposes insolvent, is approaching a critical mass, but don't take my word for it: Here is Yves Smith on naked capitalism; CNBC; Historian Niall Ferguson in the LA Times; The Crunchy Con.

Even at this late stage in the crisis though, no one on Wall St. or in Washington seems ready to declare that the emperor has no money and figure out a way to move forward. To that end, I offer the following.

Memo to bank shareholders (and corporate boards): You weren't paying enough attention to the companies that you owned and those companies are now worthless. Therefore, your money is gone. That is what can happen when you invest.

Memo to lawmakers: Stop calling the heads of major banks to Capitol Hill for a ritual flogging that is little more than political theater, resulting in no discernible change in the state of affairs. It doesn't count as calling them on the carpet when they are standing on an $87,000 area rug.

Memo to Geithner: We're twisting in the wind out here while you find your inner Secretary of the Treasury. You want to give the banks a stress test? Great. Here is an instant stress test: Announce that there will be no program under which the US taxpayers will purchase assets for more than market price. Once this is clear, this game of wait and see will be over and we will know which banks can survive and which cannot.

Memo to bank CEO's: We get why you are waiting, as long as Treasury strings you along and keeps you alive, you can wait until taxpayers subsidize all of your terrible decision making. Perfectly logical. I've got news for you though, people in this country are fed up. You had better do a lot better job of making a case as to why we should rescue you, if one even exists. It is not at all hard to imagine your collapse followed by a government takeover that includes restructuring most of your bad loans on terms that have some reasonable chance of being met. Then these scrubbed loans being sold to whatever institutions are left standing after all of this (or possibly some new ones that come into being just to buy up loans that have been through a government restructuring). By the way, just because you don't like the market price of an asset you are holding, that doesn't mean the market is wrong. And if nobody wants to buy the asset you are trying to sell, then it is worth nothing.

Memo to self: Enough already with the memos.............

Paul Krugman Argues to Reduce Stimulus to $80 billion!

At least that is what I got out of his column from Monday.

He starts off strong, calling out the Senators that sought changes to the economic stimulus bill in exchange for their votes. He refers to them as "proud centrists" which he defines as:

someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses[.]

He stopped short of accusing Maine Senators Susan Collins and Olympia Snowe* of clubbing baby seals and causing the hole in the ozone layer (is that even still there?) but you get the impression that he wanted to.

Then he drops the bombshell as it relates to the cuts in spending that the proud centrists managed to force:

All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

This is great news. If Krugman knows exactly which $80 billion will do the most to reduce the depth and pain of this slump, let's just spend that $80 billion. Even if we doubled these items to $160 billion we would still cut the price tag of the bill over 75% from its current incarnation.

Now Krugman may respond that President Bush tried a stimulus of about that size last year and it didn't work. To which I would respond that is because it was all tax rebates, your plan is 100% spending. There is no way Krugman could resist a stimulus that was comprised entirely of spending.

Maybe I misunderstood, but I doubt it. It is clear that our nation's leading Keynesian voice has changed its tune. Let's just hope the conference committee is listening

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I'm only kidding, of course. But just in case Paul Krugman happens to read this blog let me just say first of all, aren't you late for a television appearance? Secondly, could you leave a comment on this post. Even (especially) a negative one which I could proudly display permanently and prominently as some sort of blogger badge of honor the way Robert Stacy McCain does.

*Senator Arlen Specter is the third Republican in the proud centrist group, but I chose not to include him since we all know that he would never club a baby seal. He would, of course, shoot them with a magic bullet.

Destroying the Economy in Five Easy Steps

The President was in Ft. Meyers Florida today seeking to build support for his stimulus plan while his Treasury Secretary was back in Washington doing everything he could to erode whatever confidence the American people have in the administration's ability to handle the current state of affairs.

Most of the reports that I saw, read, or heard described Ft. Meyers as having the highest home foreclosure rate in the nation during 2008. Here is a sample of the coverage:

In 2008, the Coral-Fort Myers area had the highest foreclosure rate in the United States, with 12 percent of home units being hit by a foreclosure related notice, Real Estate groups said.

High rates of home foreclosures are often cited as the spark that ignited the current economic conflagration, but the scope and magnitude of the current crisis seem out of proportion with a foreclosure rate that, in the hardest hit part of the nation, is only 12%. No doubt housing makes up a major part of our total economic activity, but don't we have sufficient other output to offset a foreclosure rate that is barely in the double digits? Obviously, the answer is no (just look around). Based on my (admittedly limited) understanding of events, I have listed below the sequence of events that turned a relatively small foreclosure rate into a global economic meltdown.

1. Mortgages were offered to and accepted by people who had no means to pay them under the terms agreed to. This is idiotic in all cases and in some cases was no doubt illegal.

2. Financial institutions realized that the revenue streams from these mortgages could be securitized. This involves bundling them together and then selling a share of the bundle to investors. The bundled mortgages give the appearance of less risk for the investor because he owns a piece of many mortgages, rather than just one mortgage that could go bad if the borrower, say, loses his job. The bundled mortgages give the appearance of less risk for the financial institutions since they are no longer holding the mortgages. After all, they bundled the mortgages together and sold them to the investors.

3. Rather than just sell securities based on the entire pool of mortgages though, banks sliced the pool up into something called tranches (I'm pretty sure tranche is French for 'not worth the paper its printed on'). The institutions then sold securities based on each tranche.

4. The tranches were often organized by risk. That is to say, the loans most likely to default were in one tranche, then the next likely to default were in another, and so on. Amazingly, the financial institutions often kept the securities based on the most risky tranche themselves! In essence, giving insurance to the folks in the later tranches against the most likely losses. Why would they do this? Some possibilities: 1. They didn't even realize this is what they were doing; 2. They deluded themselves into thinking that home values would always rise and losses could be stopped through refinancing; 3. Keeping the riskiest tranche made it much easier to sell the others and the profit motive was greater than the perceived risk; 4. All of these.

5. Finally, the financial institutions looked around at all the securitized mortgages and realized that they could start buying and selling insurance against loss on these securities to each other. These are the dreaded Credit Default Swaps. But since nobody put away enough money to pay for the losses if loans started to default, nobody could pay the claims on these insurance policies. So the swaps didn't offset anybody's risk and they became a drain on the resources of the companies that acted as the insurers.

There you have it. How to take too much of a good thing and distill it to a highly unstable, and quite possibly lethal, risk cocktail. Financial institutions ended up holding securities based on the riskiest mortgages out there and then writing insurance policies on the risky mortgages that other institutions were holding. Now I've heard that uranium enrichment requires centrifuges and aluminum tubes. Enrichment on Wall St., however, appears to require little more than the dream of home ownership, some motivated salesmen, and a few math majors. In both cases, this enrichment process leaves behind a dangerous residue that can make you very sick and is not very easy to dispose of. If anyone asks you when things will turn around, just ask them if they know the half-life of a toxic asset?

How do you turn a dollar into 66 cents?.........

.............Hide it under a TARP

While the time since President Obama's inauguration has been largely consumed by passage of the stimulus legislation, it appears that this week there may be a return to where we started last fall, the TARP. No doubt there are some among us that are tired of hearing about it, but I suspect that ultimately unraveling the current mess may have more to do with how we handle the financial sector problems that TARP was intended to address than whether we build some new roads, bridges, or schools. So before Secretary Geithner unleashes TARP 2.0 on us, it is worthwhile to see how the first part of TARP fared.

The best source for this is the Congressional Oversight Panel (COP). This panel was set up to monitor the actions of the Treasury and to assess the results of those actions. The Chair of the COP is Elizabeth Warren, which is at least some reason for hope. Professor Warren comes across as smart, but with a down to earth sensibility that one might associate more with successful business owners rather than Harvard professors. My wife and I both highly recommend her book The Two-Income Trap and think it ought to be required reading for all married couples (and everybody else). The COP's latest report discusses the value of the assets that Treasury (that is, the taxpayers) bought with TARP money. The conclusion is that for the deals they examined every dollar spent on purchases returned assets worth about $0.66. Here is Warren discussing the results (it's only 6 minutes to discuss $184 billion worth of expenditures, so the pace is about $30 billion a minute):


In assessing the effectiveness of the TARP thus far, there are two key points that Warren discusses in the clip above.

First, the difference between the Treasury cash infusions and the value of the assets turned over to them are, in fact, a subsidy of the institutions that received this money.

Second, the way that this plan was sold to the American people the first time around did not include a discussion of subsidizing these financial institutions. Warren is careful to point out that there may be very good reasons to subsidize these institutions, but that was not even part of the discussion when this plan was put forth last fall.

It is important to remember that Treasury Secretary Geithner was not an outsider to the original TARP plan. As head of the New York Fed he was involved closely with the plan as it evolved under Bush and Paulson. His firsthand knowledge of the situation and the government response was seen by some as a positive when he was being considered for the job at Treasury. As the Obama administration moves from the stimulus bill back to repairing the banking and credit system, it will be critical to see not only what approach they choose to pursue, but how they describe that approach to the American people. I won't be surprised at all if Secretary Geithner is able to learn from the mistakes of Bush and Paulson, but the more important question is will he be able to learn from the mistakes of his own.

Body-Slamming the Stimulus

If you haven't checked out StimulusWatch.org yet, you don't know what you are missing. It is a searchable database with information on how the stimulus may be spent. The projects are listed by city, dollar amount, and a brief description of how the money will be spent.

In addition to the transparency that a project like this brings to the workings of government, there is the added benefit of the comic relief that can be found in the comments section of the site.

Inevitably, looking at how all of that money may be spent results in a feeling of unease, if not downright digust. When this happens, just scroll down to the comments and you are bound to find a few gems.

My vote for Stimulus Commenter of the Day is Barrie.

Here is Barrie on the construction of a dog park in Chula Vista, CA:

The individual that put this into the questionable "Stimulus" proposal should share a cell with Bernie Madoff

My favorite one though, is Barrie commenting on a plan to spend $99,600 for doorbells in Laurel, MS:

I would like to see this individual in the ring with Hulk Hogan so he ( The Hulk) could ring his bell

Barrie is right on both accounts. And in the space of two sparse comments he manages to skewer the entire enterprise and run the gamut of pop culture references. I don't think this qualifies as a silver lining to the stimulus, but it is good for few laughs. Go check it out.

My Metaphor's on Empty

I just listened to the last Econtalk podcast featuring John Cochrane of the University of Chicago. While he couldn't turn a phrase like the late Johnny Cochran of O.J. Simpson fame, he did offer a useful analogy.

Forget the stimulus bill still working its way through the Senate for a minute and think back to our initial response last fall. Under the TARP we were going to give money to banks so that the seized lending markets would start moving again, something that for the most part hasn't happened. Cochrane compares the institutions that do the lending to refineries that turn crude oil into gas.

He notes that there is still a large supply of money to lend which is like the crude oil for the refineries. The evidence for this is the continued demand for government securities.

Cochrane also argues that there is still a demand for loans to be made, which is like the gasoline from the refineries. He offers the example of a friend who works at Kraft. His friend says they still need to borrow in order to run their operations.

Now imagine, Cochrane dares us, that all of the refineries are wiped out so that we have no mechanism to make gasoline. There is still a demand for the gasoline and a ready supply of the raw material, but we have no way to bridge the gap between the two. This is a terrible state of affairs.

This is where Cochrane leaves his analogy, but I think it still has some mileage left in it.

Not only did the refineries get wiped out, the company that they bought insurance from in case of just such an emergency isn't able to pay their claim due to its own massive losses.

In fact, we find out that the refineries had taken out second and third mortgages to finance all sorts of lavish expenditures. Now that they are wiped out they have no refinery and debt amounting to several times what the original refinery was worth.

So now the government steps in and gives the refiners money (this is the TARP) to build new refineries. But because they are so deep in the hole they use the money to pay off some of their own debts rather than rebuild. Or, if they sense an opportunity, they use the money to buy out what is left of a competitor's refinery hoping to cash in through reduced competition once the gas starts flowing again.

Now gasoline (lending) hasn't completely stopped. Cochrane's friend from Kraft told him they have been able to borrow at good rates since lenders are only willing to lend to the most credit worthy borrowers. This is like the refineries only making enough gas to fuel Rolls Royce automobiles. The problem is that our economy is full of Camry's that also need gas. Now a Camry may not have the luxury features and upscale reputation of a Rolls, but it is a reliable car (that is, a good credit risk). It just can't go anywhere without gas (lending)!

Next we get the stimulus bill. Through which the government is trying to bypass the refineries altogether. Through the magic of debt, they are able to go into some (unspecified) point in the future where gas is plentiful and bring it back and pour it directly into the tanks of all of those Camry's. Multiple problems with this:
1. When you use your mouth to siphon gas out of a tank, you inevitably swallow some. This will make you sick.
2. Undoubtedly the futuristic gas can that they bring back will have a spout way too big for the Camry and as they try to fill the tank, gas will spill all over the ground.
3. That future gas really belongs to our children so I hope they all learn how to ride a bike.

Enough. All of this gasoline talk makes me think of convenience stores. I sure could use some beef jerky.

*****************************
Johnny Cochran's, "if it doesn't fit, you must acquit," didn't advance the cause of Justice, but did become a pop culture phenomenon in its own right. I think Cochran style rhetoric could liven the debate on the stimulus.
For the stimulus:
-Jobs won't grow if you vote no
And Against:
-If it doesn't mend, you must not spend
-If it doesn't stimulate, you must not capitulate

Leave your own Cochran style stimulus slogan (either for or against) in the comments section! The best slogan will be declared the winner, and the winning slogan will appear in this blog where it will be read by at least two or three people to whom I am not related by blood or marriage.

Senate Subcommittee on Irony - Senator Harkin Chair

Came across this item on Senate.gov under the Last Major Action summary for yesterday:

24. S.AMDT.179 to H.R.1 To eliminate unnecessary spending.
Sponsor: Sen Vitter, David [LA] (introduced 2/3/2009) Cosponsors (None)
Latest Major Action: 2/3/2009 Senate amendment proposed (on the floor)

Wouldn't that cover the whole bill? (OK, that was too easy.) Seriously, though, wouldn't it be easier to just pick out the necessary spending rather than try to identify and eliminate all of the unnecessary parts? Of course this is the problem, one Senator's earmark is anothers essential infrastructure spending. What we really need is the legislative equivalent of Maxwell's Demon. Of course, I doubt the one hundred aged sages of that august body have contrived to find a cure for entropy.

I am sure no irony was intended, but directly above Senator Vitter's amendment was this curious entry:

23. S.AMDT.178 to H.R.1 To provide an additional $6,500,000,000 to the National Institutes of Health for biomedical research.
Sponsor: Sen Harkin, Tom [IA] (introduced 2/3/2009) Cosponsors (None)
Latest Major Action: 2/3/2009 Senate amendment agreed to. Status: Amendment SA 178 agreed to in Senate by Voice Vote.

These guys can't seem to make up their minds about just which way they ought to be moving with this.

Vitter's ammendment includes this language:

(2) PROHIBITED USES.--None of the funds appropriated or otherwise made available in this Act may be used for any casino or other gambling establishment, aquarium, zoo, golf course, swimming pool, or Mob Museum.

Note to Sen. Vitter: The conservative blogosphere is never going to rival the left if you go around eliminating the inane funding requests that are injected into these spending bills. They are a blogging goldmine.

At least I got that Mob Museum post up before his ammendment hit the floor.

Rep. Obey: Let the Sun Shine on Spending

As an Arizona native who now resides in Wisconsin, I have to admit to something of an affinity for Frank Lloyd Wright. This is based mostly on his geography, but the architecture was pretty good too. It's not just Wright though, I am drawn to other AZ/WI connections as well. Here is one that caught my eye from TheHill.com (via Real Clear Politics) describing a war of words between Representatives Jeff Flake of Arizona and David Obey of Wisconsin. Here is the crux of the matter:

Flake, an ardent earmark foe, believes a one-line statement in the stimulus bill will help Appropriations Chairman David Obey (D-Wis.) avoid self-imposed earmark transparency requirements intended to give members at least two days to scrutinize and challenge pet projects in all appropriations measures.

The language, included in the rule providing for debate on amendments to the economic stimulus bill, allows Obey to “insert in the Congressional Record not later than Feb. 4, 2009, such material as he may deem explanatory of appropriations measures for the fiscal year 2009.”

Inserting such material in the Congressional Record seems innocuous enough, right? But in a letter sent to Obey, Flake put a much finer point on it. The article continues:

“While providing the explanatory information in the record may meet some loose standard of transparency, its timing will also certainly provide an end run around any effective accountability,” he wrote in his letter to Obey. “It appears there will be little else for members to do except cast a single vote and wait for the media reports on what the bill actually contains, similar to those we’ve seen on the airdropped defense earmarks.”

Regardless of what one may think of Flake and his positions on many other issues, his reputation as a crusader against wasteful spending is well known and by any common sense standard, is laudable.

I am not ready to accuse Mr. Obey of making the "end run around effective accountability" that Flake does. However, when questioned about the matter, Obey had to resort to claiming that public financing of election campaigns would eliminate the danger of undue influence on earmarks. This seems like a strange response. How about eliminating most, if not all, earmarks? How about allowing debate and votes on individual earmarks? I suppose it is too much to ask our legislators to simply resist the temptation of exchanging earmarks for campaign contributions.

While I don't think that Mr. Obey intended to convey that the absence of public financing for campaigns means it is OK to insert sweetheart deals into spending bills, I can certainly see how this added language and his response to Flake's concerns might lead one to believe that this is the case.

Transparency in appropriations is more critical than ever given the fact that we have decided to allow government spending to make up our primary response to current economic conditions. To that end, Mr. Obey ought to make clear the reason for his action and pledge to allow the sun to shine completely on the earmark process. Sunshine may be in short supply during Wisconsin winters, but perhaps Mr. Flake can remind him of just how intense an Arizona summer sun can be.

The Right To Bear............Children?

No doubt that by now many people have heard the story of the California woman who gave birth to octuplets last week. Including the detail that the eighth baby was a surprise to everyone in the room at the time of the delivery. Since then what appeared to be the case of an incredible event has turned rather sordid as additional details about the mother and her background have been reported. Particularly the fact that the woman was already mother to six other children, conceived the octuplets through in vitro fertilization, and is not married.

No doubt fingers are wagging and tongues are clicking all over the country as people absorb the new details. And it is certainly the case that there is a lot to unpack with this particular story. One aspect of it though is no doubt front and center on the minds of many: Why would any doctor offer this woman fertility treatment if she is unmarried and (probably more in the fore of many minds) already has six (gasp!) other children. Here is how Associated Press writer put it in an article from January 31st:

The news that the octuplets' mother already had six children sparked an ethical debate. Some medical experts were disturbed to hear that she was offered fertility treatment, and troubled by the possibility that she was implanted with so many embryos.

That this woman was offered fertility treatment should be among the least surprising aspects of the story. Particularly in light of a California Supreme Court decision from August that ruled fertility doctors cannot refuse to provide their services to gays and lesbians on the basis of a religious impediment to doing so. The San Francisco Chronicle's website described the decision as this:

California doctors who have religious objections to gays and lesbians must nevertheless treat them the same as any other patient or find a colleague in the office who will do so, the state Supreme Court ruled unanimously Monday.

The justices rejected a San Diego County fertility clinic's attempt to use its physicians' religious beliefs as a justification for their refusal to provide artificial insemination for a lesbian couple. The ruling, based on a state law prohibiting businesses from discriminating against customers because of their sexual orientation, comes three months after the court struck down California's ban on same-sex marriage.

Of course, given the timing of the birth just last week, this particular court ruling likely had no impact in the the decision of the fertility doctor in the case of the octuplets. As an indicator of attitudes toward reproduction, though, the court's decision couldn't be more clear. It announces with the certainty that reproduction decisions have been freed from the constraints of religion, tradition, and even biology. That these decisions are now just another civil right and, as such, have to be enforced by the courts. Once you cross over into this territory, there should be no surprise that all sorts of people receive fertility treatment, even those that you feel shouldn't. There is no middle ground with this decision. Once technology overcomes biological hurdles and the courts step in to remove religious/tradition based arguments from the discussion the resultant reproductive free-for-all is utterly predictable.

While there are many that feel fertility treatments should not be offered at all, or if they are, offered only to married heterosexual couples so that any resulting children would be raised in the context of traditional marriage. It is certainly the case that there are a large number of people who would see no problem with providing fertility treatment to gay and lesbian couples even as they find the decision to offer such treatment to a mother of six abhorrent. One need only look a little further to surmise that this attitude may have something to do with money. Here is how a report on ABCnews.com began:

Dr. Charles Sophy, medical director of Los Angeles County Department of Children and Family Services, cautioned that giving birth to octuplets would put eight times as much stress on a single mother and pose a daunting task in terms of rearing.

"It costs money to raise children -- to raise these kids is probably going to cost about 2-and-a-half million dollars, just to give them basics," he said. "That is not baseball lessons or piano lessons. That is food, clothing or getting to school every day -- that is a lot of money."

I suspect that this is grossly overstated and find it insulting both as a father of six and as a former economics student. (Hasn't this guy ever heard of marginal cost? But I digress that is a post for another day.)

Ultimately, if we are going to remove all barriers to reproduction we should not be surprised if it results in a negative outcome, maybe the barriers were there for a reason (an argument that one can make by relying on biology alone, though there are other reasons as well). And if we endeavor to put a monetary value on a human life, we immediately cheapen it.

While some might read the story of the mother in this case and see in her apparent obsession with having children a psychological problem. It might even occur to them that this woman wants to have children to serve her own needs, not as a life-giving act. And they would be right. Children are not therapy, nor does their value (or cost) reside in the sum total of their economic consumption. Finally, children are not the public proof of triumph over anti-gay bigotry. They are human beings. Seeing them as anything less devalues them, and us.