The Buck Stop

Citigroup next?

2008-11-21T17:13:00.000-05:00

John Carney and Felix Simon expect Citigroup to be nationalized this weekend.

"My Nine Years Spinning Wheels at GM"

2008-11-21T10:03:00.000-05:00

From auto industry economist Walter McManus:

There used to be an inside joke at General Motors, a twist on biologist E.O. Wilson’s finding that ants are individually stupid but collectively brilliant. GM—whose CEO, Rick Wagoner, went before the Senate Banking Committee yesterday to plead for a financial aid package—managed to create a system that produces the opposite: individually brilliant people who are collectively stupid. [...]

Chrysler’s smart execs are about to be paid retention bonuses under Daimler’s “getten outten der Detroitmistaken und schnell” plan that convinced the smart people who run a private fund named after the dog standing guard at the gates of Hades to invest $6.1 billion in Chrysler and pay Daimler $1.4 billion for 80 percent of what Daimler now says is worth “nil, zero, NOSINK!” Not to be outdone in collective dumbness, the smart people at Daimler had paid $36 billion for Chrysler in 1998.

If it weren’t so tragic, it would be hard to keep from laughing out loud. And it gets harder. A few months ago my brilliant former colleagues at GM took a look at their cross-town rival and decided (collectively, no doubt) that it was the perfect time to “absorb” Chrysler. I can’t decide which is a worse fate for Chrysler: to be the blind seeing-eye dog doomed to eternally lead the blind former guard dog around and around inside the circles of Hades or to be absorbed into GM’s individually brilliant but collectively dumb Borg. [...]

Job losses would not be close to being as large as is claimed by the industry’s hired guns at the Center for Automotive Research (CAR). Among job losers if Detroit actually has to restructure and become profitable and productive, they’re counting the wait staff at the Waffle House in Gainesville, Florida under the assumptions that Americans will stop driving, stop vacationing in Fort Myers, and stop stopping for waffles in Gainesville on the way.

And some jobs should be lost: the so-called JOBS Bank required under collective bargaining agreements mean that Detroit has to keep paying workers displaced by technology. They report to “work” and spend the day doing nothing: no card games, no chess games, no reading. The detainees in Guantanamo are more productive.

Obama's haul

2008-11-21T09:50:00.000-05:00

Obama raised half a billion dollars in the campaign.

3 million donors made a total of 6.5 million donations online adding up to more than $500 million. Of those 6.5 million donations, 6 million were in increments of $100 or less. The average online donation was $80, and the average Obama donor gave more than once. [...]

Obama also raised millions from traditional campaign bundlers -- rich, well-connected fundraisers -- but the bulk of the more than $600 million that Obama raised throughout the campaign was through the Internet, aides said. (Some of those bundlers, of course, also arranged for donations to be made online, so there is some overlap.)

In September, his single biggest month of fundraising, Obama amassed more than 65 percent of his record-shattering haul -- $100 million of the $150 million -- from online donations, aides said. After Alaska Gov. Sarah Palin dismissed the value of community organizing in her acceptance speech at the Republican National Convention on Sept. 3 -- "I guess a small-town mayor is sort of like a community organizer, except that you have actual responsibilities," she said to applause -- Obama raised $10 million within 24 hours.

"Stunning Break"

2008-11-20T21:17:00.000-05:00

From an email joke going around:

In the first two weeks since the election, President-elect Barack Obama has broken with a tradition established over the past eight years through his controversial use of complete sentences, political observers say. Millions of Americans who watched Mr. Obama's appearance on CBS' "Sixty Minutes" on Sunday witnessed the president-elect's unorthodox verbal tick, which had Mr. Obama employing grammatically correct sentences virtually every time he opened his mouth.

Cheney and Gonzales indicted...!?

2008-11-19T01:12:00.000-05:00

The details are sketchy, but why was this story buried on the web equivalent of page 12?

Vice President Dick Cheney and former Attorney General Alberto Gonzales have been indicted on state charges involving federal prisons in a South Texas county that has been a source of bizarre legal and political battles under the outgoing prosecutor. [...]

Cheney is charged with engaging in an organized criminal activity related to the vice president's investment in the Vanguard Group, which holds financial interests in the private prison companies running the federal detention centers. It accuses Cheney of a conflict of interest and "at least misdemeanor assaults" on detainees because of his link to the prison companies.

Megan Mitchell, a spokeswoman for Cheney, declined to comment on Tuesday, saying that the vice president had not yet received a copy of the indictment.

The indictment accuses Gonzales of using his position while in office to stop an investigation in 2006 into abuses at one of the privately run prisons.

Gonzales' attorney, George Terwilliger III, said in a written statement, "This is obviously a bogus charge on its face, as any good prosecutor can recognize." He said he hoped Texas authorities would take steps to stop "this abuse of the criminal justice system."

Another indictment released Tuesday accuses Lucio of profiting from his public office by accepting honoraria from prison management companies. Guerra announced his intention to investigate Lucio's prison consulting early last year.

All else aside: by what ethical or legal standard is the Vice President allowed to hold a personal financial stake in a company that profits from the federal prison system? They're damn right it's a conflict of interest. What about his stakes (past as CEO, present (?), or future as options) in Halliburton, which profited massively from the Iraq War?
No administration has the guts to prosecute its predecessors, so we'll never see any Bush administration officials indicted on federal charges. But state prosecutors might not be so encumbered... anyway this indictment has yet to be signed. God knows the judge is probably coming under all kinds of "pressure" right now.

Technology Brick Wall #2

2008-11-16T20:15:00.003-05:00

The NYT says Obama will have to give up using email (and his Blackberry) in the White House. This seems unnecessary to me. I understand if classified information is best kept away from any hackable network. But email can be encrypted securely enough for most day to day communication. There's also no reason why email has to cause disclosure issues: it can go through government servers that keep permanent records. Millions of private sector executives use off-the-shelf technology for secure communication. Anyway, phones can be hacked, bugs can be planted, moles can be recruited - I don't see why email has to be a special case. The federal government should be managed as efficiently as any private sector corporation. (Or: are we to believe no one with any important job in the U.S. government uses email? No wonder we think the government is such an inefficient bureaucracy!)

Shutting out modern technology because of security fears doesn't make sense to me. Better security and smart-use policies should suffice. I hope Obama vetoes this one.

(Part of my new Brick Walls thread.)

SOFA

2008-11-16T19:48:00.003-05:00

It looks like the Status of Forces Agreement accepted by the Iraqi cabinet today (and expected to be ratified soon by the parliament) is a tremendous breakthrough. Details include:

placing US forces in Iraq under the authority of the Iraqi government
US forces to leave the streets of Iraq's towns and villages by the middle of 2009
US forces to hand over their bases to Iraq during the course of 2009
US forces to lose the authority to raid Iraqi homes without an order from an Iraqi judge and permission of the government.

It couldn't have happened without an incoming administration that wanted this kind of timetable. Obama hasn't set official policy for a single day yet, but his platform is already affecting the status quo.

Needing to bail out the bailout

2008-11-16T19:38:00.003-05:00

WP:

"The fundamental problem," says a report by Brian A. Johnson, an analyst at Barclays Capital, is that a bailout big enough to cover GM's cash needs in 2009 and 2010, whether in the form of new debt or preferred stock, would leave the company with more debt than GM earnings would be able to support even after an economic recovery.
...
These [new product lines] are more important than the still nonexistent though widely advertised Volt, which, even if successful, is projected to account for a small portion of GM and overall U.S. auto sales -- and lose money -- for years. GM argues that a new "global architecture" approach is paying off with better cars that have common parts and lower costs. Also, revisions to the UAW contract are bringing wage costs in line with foreign-owned competitors like Toyota, and in a couple of years GM will pay off health-care obligations for hundreds of thousands of retired workers.

Maybe GM should enter Chapter 11 bankruptcy and be broken up. The Volt line has long-term promise and would be a waste if wiped out; maybe a private equity group or foreign automaker could buy that. The SUV and truck lines would be profitable now if not for the financial crisis, but with gas prices expected to rise again over the next few years, the plants would have to be retooled for newer lines. There must be some value in all the supply chains, economies of scale, human capital, and manufacturing plants the auto industry relies on - maybe what they need is a new market structure with new or more players.

My criteria for an auto bailout

2008-11-16T15:13:00.000-05:00

Commenting on the proposed auto bailout:

Former GOP House Speaker Newt Gingrich said young voters, who overwhelmingly supported Obama over Republican John McCain in the presidential election, could get turned off by expensive corporate bailouts that they will eventually have to pay for.

Not if the fuel efficiency benchmark in 2 years is 45 MPG; not if the GM lineup includes a globally competitive, true to promise Chevy Volt; not if every Ford sedan comes in gas-hybrid and plugin-hybrid models. But yes if they continue marketing monster trucks to families and pretending 35 MPG is innovative.
This is my criterion for a bailout. Create a viable plan to overhaul the U.S. auto industry for the 21st century, and in ten years we'll be happy we bailed them out. (Like the Reagan-era Harley Davidson bailout.) Fail to do so, and it'll be money down the toilet.

Another Colbert victim

2008-11-16T12:33:00.003-05:00

Stephen Colbert made the Club For Growth's Stephen Moore look like an absolute fool the other day. Rush Limbaugh is a unifying figure and the most important conservative today, the New Deal was awful, and all we need is a big corporate tax cut. Uh huh.

Bush Pardon Countdown

2008-11-16T12:10:00.000-05:00

Chris Matthews is counting the days until Bush pardons Scooter Libby, (and Dick Cheney, and himself).

Hillary for SecState

2008-11-16T09:39:00.002-05:00

Andrew on Hillary Clinton for State:

But this idea just resonates with me as classic Obama. I don't think Clinton as secretary of state would be mere symbolism. And I think it's a brilliant way to coopt her without in any way demeaning her. More to the point: Dick Morris is furious and Drudge is trying to wish the story away. That tells you what smart politics this would be. The more I think about it, the more I support it. She did her duty this fall. And she is the kind of toughie who could be a real Iron Lady type with the Russians and Iranians. That global presence would be a better prep for a future presidential run (yes, I'll jump off that bridge when we get to it) and help separate her from her hubby. And if she turns Obama down, her leverage against him is weakened anyway. He did his best. Due diligence, and all that.
But I don't think it's a head-fake. And I think she may say yes.

Against an auto bailout

2008-11-15T18:10:00.003-05:00

(Continuing this train of thought...) David Brooks makes a very good argument:

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?

It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state.
If ever the market has rendered a just verdict, it is the one rendered on G.M. and Chrysler. These companies are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. Some experts mention the management blunders, some the union contracts and the legacy costs, some the years of poor car design and some the entrenched corporate cultures.
There seems to be no one who believes the companies are viable without radical change. A federal cash infusion will not infuse wisdom into management. It will not reduce labor costs. It will not attract talented new employees. As Megan McArdle of The Atlantic wittily put it, “Working for the Big Three magically combines vast corporate bureaucracy and job insecurity in one completely unattractive package.” [...]
This is an excruciatingly hard call. A case could be made for keeping the Big Three afloat as a jobs program until the economy gets better and then letting them go bankrupt. But the most persuasive experts argue that bankruptcy is the least horrible option. Airline, steel and retail companies have gone through bankruptcy proceedings and adjusted. It would be a less politically tainted process. Government could use that $50 billion — and more — to help the workers who are going to be displaced no matter what.

But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.

I'm moving to the view that if Chapter 11 bankruptcy is possible, it is preferable to a bailout. If it's not, though (as some economist was saying today on CNN), and it'll cost $200 billion to deal with the mess of Big Auto's collapse - on top of the $700bn financial bailout and $600 billion of fiscal stimulus, well... that's a hell of a call.

There's a missing element here, though. Brooks argues that giving in to another bailout reinforces "progressive corporatism." Does refusing a bailout roll back that corporatism in any way? Or is the fallback simply Bush-style conservative corporatism - fewer bailouts, maybe, but more deference to corporate interests, little regard for workers, zero concern for the environment, etc? Where's the third way here? Where's the dynamic economy, smart government intervention (e.g. to help workers), and reduction of corrupt government-corporate ties? This is what we need. Obama promised it in the campaign. I'm eager to see him take office so he can try and figure it out.

Opportunity Costs

2008-11-15T17:58:00.001-05:00

Via Bloomberg: a GM collapse could cost the government up to $200 billion, 8 times larger than the proposed bailout of $25 billion.

10 Tips for dealing with Iran

2008-11-15T17:44:00.001-05:00

A View From [Outside] Iran offers the Obama administration ten tips for dealing with Iran, and argues that with President Obama, the Iranian regime "has no choice now but to negotiate in good faith."

From Krugman

2008-11-15T17:26:00.003-05:00

Paul Krugman optimistic about health care reform in the next year, thrilled about an Obama-appointed member of the bailout oversight board, and very worried about the liquidity trap and "scary figures" on the fiscal horizon.
He also proposes $600 billion as a starting point for additional fiscal stimulus, and warns:

Remember, if the stimulus is too big, it does much less harm than if it’s too small. [...] you really, really don’t want to lowball this.

SecState Drama

2008-11-15T16:23:00.004-05:00

Hillary Clinton, Bill Richardson, and John Kerry are apparently all in the running for the Secretary of State job. Two people and all their fans are going to be disappointed. Is this the transition team badly handling its process, or the three candidates making power plays?

Copycat

2008-11-15T16:20:00.001-05:00

Former Israeli Prime Minister and current prime ministerial candidate Binyamin (Bibi) Netanyahu's website is identical to Barack Obama's.

Human worth

2008-11-15T13:02:00.000-05:00

Weekly Youtube Address from the President [-elect]

2008-11-15T12:49:00.001-05:00

Alas!

Saving Big Auto from itself

2008-11-15T12:22:00.005-05:00

The NYT editorial today sensibly argues that any government bailout of Detroit's automakers needs to require a total restructuring of the companies and a goal of 50 MPG cars by 2020 (not the pathetic 35 they finally agreed to recently, after years of trying to kill any CAFE standard increase). The Obama administration looks set to bail out the industry, and tying the bailout to energy reforms (and in the long run, health care reforms) would fit into its agenda. Where Does The Money Come From? is the billion dollar question in all these proposals, of course. Pouring non-existent money down a drainpipe is obviously stupid, but is it really copacetic to let domestic manufacturing die?

The Republicans are being wrecklessly ideological in telling the industry to "drop dead." What's left for the U.S. economy if they do - the financial sector? Maybe they missed the memo that they're not doing so well now either. Maybe they just want Toyota and Honda to take over all the domestic auto plants. (Do they? I haven't heard them say it like that. I haven't heard of any effort to invite foreign capital/buyouts, in fact.) It was a Republican congress, supported by the Bush administration's absurd hand-over-ears/"I can't hear you!" approach to global warming, that gave in to Big Auto's obstinance on CAFE for most of the last decade.

It seems like we're missing a necessary part of the discussion here. Why do we want domestic manufacturing? (Or if we don't, what replaces it?) Can we afford to let such an important economic sector fail? Should we try to sell all domestic manufacturing to foreign companies? (If so, how do we regain a trade balance, and what are the U.S. comparative advantages?)

Once again, the GOP seems to put ideology before any coherent plan. What is their vision of the U.S. economy in 10 or 20 years? What will we be good at in America? It seems that their aversion to any "central planning" of the economy makes them dismiss these questions as irrelevant: just trade and be free and all will work. Except it doesn't. Japanese and Korean car companies have significant government supports. Government sometimes needs to force innovation in the form of CAFE standards. The market gods won't save us if we don't save ourselves.

We need massive economic restructuring in this country, and Big Auto is a good place to start. It ties together the issues of energy, health care, labor, and economic growth neatly into a single mess. How the Obama administration and the Democrats handle the process will be a test, and I hope they pass.

Update: There's a discussion about this on CNN right now. A Heritage economist is arguing that [chapter 11] bankruptcy is just the medicine the industry needs to restructure. Another panelist argues that only chapter 7 bankruptcy would be viable for them, meaning they cease operating. The Heritage economist agrees that this is possible. I wonder: if bankruptcy is better for the companies, why aren't their managements seeking that? Also: why are all 3 U.S. automakers in trouble, but none of the foreign companies have it so bad? I mean, I could understand if GM's management screwed up badly but Chrysler's didn't; why is the failure so systemic?

Update 2: The con arguments and further thought here.

The end of wrap rage

2008-11-15T12:14:00.001-05:00

A welcome innovation: the NYT reports on efforts by Amazon, Sony, Microsoft, and others to sell their products in "frustration-free," non-clamshell, humanly openable packaging.

Ruthless magnanimity: Forgive Lieberman

2008-11-13T23:19:00.000-05:00

Word is Obama wants to totally forgive Joe Lieberman. As a cold political maneuver, I see it as a win-win:

Magnanimity is a virtue. (See Aristotle.)
Send a strong signal that the Obama administration doesn't seek pointless partisan feuds. Shame the Republicans into following suit.
The moral high ground is a stronger position: Lieberman isn't the magic 60th vote, so he's not needed; instead, he looks like the fool surviving on others' charity.
I don't see a lot of Democrats lining up to join the GOP, so the risk of encouraging future turncoats is limited.
The magnanimity would only be Obama's, and maybe only for now - so no lasting party precedent would be set.
The possibility of suddenly stripping Lieberman of all significant power and pouring the party's infinite war chest into a CT primary challenger will always be available... why waste such a trump card now?
Heed the wisdom of Machiavelli / Sun Tzu / The Godfather (source unclear and irrelevant): keep your friends close, but your enemies closer.
Lieberman as the neocon poster boy neutralizes and marginalizes some of the more extreme neocon pressure from the GOP. (With all views expressed in the Dems' big tent, who needs Republicans?)
If Lieberman wants to be a thorn in Obama's side on national security issues, he'll be a thorn in the caucus or out, as Homeland Security Committee chairman or not. Better to keep him in his chairman's seat, for reasons 6, 7, and 8.
Being simultaneously ruthless and virtuous is beautiful.

Nebraska "Safe Haven"

2008-11-13T22:26:00.000-05:00

What is wrong with parents in Nebraska?

Stephen Colbert and Dan Savage on Prop 8

2008-11-12T20:37:00.001-05:00