In a recent interview for the Dartmouth Alumni Magazine, Hank Paulson ‘68, the former Treasury Secretary, claims in reference to the Lehman Brothers collapse:

We tried very hard, but we didn’t have the authority to put capital into Lehman Brothers until we got TARP. Even if the Fed could have found a legal way to make a loan, it would have been foolhardy because it would have been lending into a run – Lehman Brothers had a big capital hole and a liquidity problem, and we didn’t have a buyer for them as we did with Bear Stearns…

[So there's nothing that could have been done?]

Yeah. We couldn’t find anything

That was for the weekend of September 13-14, 2008. The result? A complete freeze-up of the lending market and a massive tumble in U.S. and global stocks. Two days later on September 16, the U.S. government took over AIG with a $85 billion bailout.

Who Cares About Lehman?

Of course, there are many excuses to be made for allowing the Lehman collapse (free market!) and saving AIG (too big!), but how did the U.S. government suddenly acquire the authority to bailout an insurance company 2 days after it couldn’t save an important investment bank?

Arguably, the Lehman collapse was the spark that caused the fire. Once you save one company as insignificant as Bear Stearns, you can’t allow another as big as Lehman to collapse in the midst of a jittery economy.

Paulson and C0. are responsible for the horrible TARP program – not because it was put in place but because of the way it was implemented – and the initial Wall Street collapse. Paulson did try his best to prevent another Lehman, but it was too late already.

Tim Geither, along with other spendthrifts in Washington, think that Democrats can continue spending like there’s no tomorrow. In a recent interview, he claims:

Absolutely not … That will never happen to this country…

…referring to the possibility of a ratings downgrade given a projected deficit of 1.6 trillion dollars next year. This is in response to:

Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

The downgrade won’t happen because of any internal factor but as Stanley Fischer puts it:

I don’t know who else would be the gold standard at this stage

As soon as a replacement is found for the Treasuries, down go their ratings.

Happy

John Thain saved Merrill Lynch from collapse in 2008 through his adept maneuvers. He sold off the company to Bank of America in a Treasury-sponsored deal right before a run on its shares would have destroyed the firm.

He has now been appointed as the new CEO of CIT, the business lender that emerged from bankruptcy only recently. Thain might be the perfect choice to turn around the company.

I wonder where Bob Nardelli, Chrysler’s former boss, is going to end up.

Pandit: Happy To Be Out of Obama's Clutches

Eager to rid itself of the government’s onerous restrictions on compensation, management and risk taking, Citi has finally decided to repay some $20 billion in aid by replacing it with private investments.

Pandit said about the decision:

We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need

Wells Fargo is also in the process of repaying its own loan. The company’s CEO pointed out the financial benefits of the arrangement for the government:

TARP stabilized our country’s financial system when confidence in financial markets around the world was being tested unlike any other period in our history…

Its success also generated financial returns for taxpayers, including 1.4 billion dollars in dividends paid to the US Treasury

So the government has making a decent buck from its investments in the banks – where has it all disappeared? Taxpayers should be given tax breaks, if nothing else.

Charles Lane writes in the WaPo today:

Reduce the federal minimum wage. In 2007, Congress enacted a three-step increase in the minimum wage, which was then $5.15 per hour. The final installment took effect in July, raising the rate to $7.25 per hour. In the meantime, unemployment climbed from 4.7 percent to 9.5 percent.

….It was unwise to keep raising the cost of hiring them in a recession.

The minimum wage is a socialist concept designed to reduce poverty in sweatshops. But, we don’t have such conditions in the US anymore. You couldn’t hire an illegal for $5/hour these days – you don’t need minimum wage to ensure a certain minimum pay.

What is preventing willing employers from being matched with willing employees is the anachronistic minimum wage legislation. If we get rid of minimum wage, perhaps, we could get back some of those jobs lost to countries with cheaper labor markets.

President Barack H. Obama’s latest brainwave is to conduct a “jobs summit” to discuss what needs to be done to lower the unemployment rate.

A couple of the ideas kicked around seem to be:

Give employers incentives to hire. A targeted tax credit, available to businesses that expand their payroll, is one possibility the White House and Congress may support. Ensuring that businesses can get tax credits for research and development is another.

…

Boost credit availability for small firms. “We’ve heard that loud and clear” as a top concern of business, White House economist Christina Romer said on CNBC. Large firms generally see credit markets working, Obama said in the meeting. The administration is already trying to provide new capital to small and mid-size banks, which support many small employers. Administration efforts to stabilize the housing market also tie in, because home equity is often the collateral for a small business loan.

The White House and Congress may support the most obvious method to stem job losses?

It’s already working in Germany and other parts of Europe…

In Germany … the sharp contraction in industrial output has led to – so far at least – a rise of only three-quarters of a point in the jobless rate.

…because of incentives and subsidies for businesses to cut the work-week, reduce costs and hold on to their employees. Even the IMF has grudgingly acknowledged that Germany has indeed done a good job of reducing job losses.

Another idea is that of India that is directly providing jobs to large swaths of the rural population. The good part about it is that unemployed people are getting paid to work, unlike the Unemployment Insurance system in the U.S. where folks are getting paid to sit at home. India hasn’t been hit as hard by the recession in part because of the continued increase in rural consumption.

Now, for the second point, does it take 8 months and 10.2% unemployment to realize that small businesses are starving for cash? Here in Bellevue, dozens of small businesses are shutting down every week (just drive around the Crossroads area to see all the empty stores) because they are not getting the loans that can get them through the economic crisis.

A real jobs summit would involve announcing such policies rather than another talk show.

I had posted in June that The End of Saab Cometh and it seems now that I might be right after all. Koenigsegg has backed out of buying the carmaker from GM and the only real option left is to shut it down.

Saab has been a loss making proposition ever since GM purchased it in 1989. Manufacturing cars in Sweden is expensive, and thus a bad idea, and making unreliable cars such as Saab is even worst.

Time indeed to shutter Saab.

Even if a company is a bail-out recipient, it still needs to retain talent and compete with other companies to hire the best workers. With onerous pay restrictions, no firm can be expected to hold its own with competition that is not functioning under the same conditions. Why would I want to work for 200k a year with Bank of America when I can get 400k with Goldman Sachs for the same job?

Fed and Treasury are coming around to this painful truth:

In recent weeks, officials from the New York Fed and the Treasury Department have urged Mr. Feinberg, to avoid making 2010 pay similarly restrictive for some top AIG executives and employees, according to people familiar with the discussions.

Fed and Treasury officials told Mr. Feinberg that tough restrictions could ultimately jeopardize the government’s ability to recoup its roughly $90 billion in loans because key employees would leave. Unlike other firms subject to Mr. Feinberg’s review, AIG isn’t expected to pay back the government’s investment for several years, making it subject to the pay czar’s rulings for the foreseeable future.

U.S. officials made a similar argument to Mr. Feinberg ahead of his 2009 decision, these people said.

But will Kenneth Feinberg and his White House overlords realize that socialism isn’t gonna help AIG and Bank of America return to profitability and independence?

Barack Obama shall now turn his hallowed attention to comprehensive immigration reform, according to Janet Napolitano. We’ve already heard the word on healthcare, Iraq, Afghanistan, energy, the environment, Portuguese water dogs, Gitmo, military tribunals, terrorism, and many more issues.

The only thing remaining was immigration and, lo and behold, it shall be dealt with. Don’t get me wrong, I do agree with the administration’s thinking on the issue, especially on the last point:

Laying out the administration’s bottom line, Ms. Napolitano said officials would argue for a “three-legged stool” that includes tougher enforcement laws against illegal immigrants and employers who hire them and a streamlined system for legal immigration, as well as a “tough and fair pathway to earned legal status.”

The problem that I have right now is that unemployment has crossed 10%, companies are shedding employees every single month, private spending is frozen just as it was a year ago, government waste is distorting the real state of the economy, and Obama is focusing on what are, really, peripheral issues.

What does an unemployed guy care more about? Health insurance, immigration, or saving his mortgage, his car, his whole life?

Furthermore, the Congress just passed an extension to UI, but what they should really be thinking about is giving the private sector incentives to hold on to their employees – for instance, targeted tax cuts – rather than extending the unemployment insurance tax to pay for a program which doesn’t save or create jobs.

Alan Mulally, erstwhile of Boeing, is doing a swell job for Ford. The company posted a profit of almost a billion dollars this part quarter, including:

The company’s earnings of $357 million in North America broke a streak of 17 consecutive quarterly losses there.

Mulally had earlier established a $10 billion credit line for the company, which allowed Ford to avoid bankruptcy and government intervention. In addition Mulally also successfully negotiated with the UAW earlier this year, with pay cuts for senior management.

Boeing, on the other hand, has posted $1.6 billion in losses. It seems that passing over Mulally for the CEO position in 2005 was quite possibly the worst decision that the company has made over the past few years, in addition to its more obvious issues with airplane production.

GM is expected to borrow an additional $2.5 billion (!) from the government to “help” Adelphi, its parts supplier.

Americans should boycott GM in favor of Ford and the Japs. Toyota, Honda and others have been building cars right here in the United States for decades and doing so profitably. Why can’t their American counterparts do the same?

Sept . 15, 2009 – Ben Bernanke: “From a technical perspective, the recession is very likely over at this point.”

Oct. 2, 2009 – Unemployment rises to 9.8% after 263,000 job cuts last month

The recession is over. 9.8% is still 0.2 less than 10! Yay!

This year’s deficit will be a mere 1.6 trillion, thrice as much as Bush’s 2008 deficit. Over the next 10 yrs, Obama wants to spend another 9 trillion dollars of money we don’t have.

Under Obama, we may be moving towards energy independence, but deeper into Chinese servitude.

Retail sales fell 0.6% in July, excluding cars and auto parts. We are speeding down the recovery highway.

Yeah, those corporate awards handed out in big companies amount to just about so much.

The Cash for Clunkers program is apparently helping Ford the most. Among the top 6 carmakers, Ford had the largest year-over-year increase in sales at 2.3%.

Other US carmakers did not fare quite as well with sales drops for both GM and Chrysler. Hyundai and VW, however, posted increases of 12% and 1% respectively. Others reported drops.

It seems that buyers are purchasing mid-size and compact vehicles but not necessarily hybrids, as evidenced by rise in sales of the Ford Focus. Hyundai and VW also mostly manufacture smaller vehicles.

Numbers for hybrid sales are not available, but any significant increase would have helped Toyota. But, Toyota is reporting a decrease in sales.

Ford’s increase cannot be explained merely by the quality of its offerings or its advertising programs. It seems that Americans are rewarding the company for not taking bail-out money.

Ford continues to function as an independent, American-owned, privately-owned company that is not yet under union control. Alan Mulally should be rewarded for his smart management practices.

The total number of bank closures in 2009 is now up to 69, with an additional 5 shut down over the past few days:

The Federal Deposit Insurance Corp. was named the receiver of the five banks, the regulator said yesterday in e-mailed statements. The seized banks, with total assets of $2.69 billion and deposits of $2.56 billion, will cost the FDIC’s insurance fund about $911.7 million.

Mutual Bank of Harvey, Illinois, was the biggest of yesterday’s failures, with $1.6 billion in assets and the same amount in deposits. Peoples Community Bank in West Chester, Ohio, was second, with $705.8 million in assets and $598.2 million in deposits. Also shuttered were New Jersey’s First BankAmericano, Integrity Bank in Florida and First State Bank of Altus, Oklahoma.

Apparently:

Regulators are closing lenders at the fastest pace in 17 years, depleting the FDIC’s deposit insurance fund by more than $14.4 billion since January. The FDIC is offering to share losses with buyers of assets from failed banks, reviving a practice followed during the collapse of the savings-and-loan industry in the late 1980s.

Alan Greenspan’s extended period of artificially low interest rates during our last recession is continuing to cause more pain for local economies and the national economy in general. And the man is still defiant about his policies.

According to Rasmussen:

A new Rasmussen Reports national telephone survey finds that only 25% of U.S. voters now say the stimulus plan has helped the economy. That’s a six-point drop from a month ago.

Thirty-one percent (31%) say the stimulus actually hurt the economy, little changed from a month ago. However, this is the first poll showing that more voters believe the plan hurt rather than helped.

While Rasmussen’s numbers are generally critical of Democrats, the stimulus isn’t really having any effect on the economy. Where are the new jobs and the saved jobs?

Wants Freebies

Anne Milgram, NJ’s Attorney General, plans to introduce a program for unemployed attorneys to volunteer for her department…

This is a great opportunity for qualified candidates to learn how state government works, to gain experience in areas of the law that may be unfamiliar to them, and to make a genuine difference by working on legal matters that impact on New Jersey citizens Read on »