Is Geithner Planning on a Public-Private Partnership with the Sovereign Wealth Funds?

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The big gimmick to Tim Geithner’s new plan to avoid nationalizing the banks save the big banks is a public-private partnership.

Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide greater means for financial institutions to cleanse their balance sheets of what are often referred to as “legacy” assets. Many proposals designed to achieve this are complicated both by their sole reliance on public purchasing and the difficulties in pricing assets. Working together in partnership with the FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment Fund that takes a new approach.

  • Public-Private Capital: This new program will be designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion.
  • Private Sector Pricing of Assets: Because the new program is designed to bring private sector equity contributions to make large-scale asset purchases, it not only minimizes public capital and maximizes private capital: it allows private sector buyers to determine the price for current troubled and previously illiquid assets

There are a couple of sources of private money available on the scale that is necessary to help out: billionaires like Warren Buffett (net worth, $62 billion), pension funds (total assets as of last September, before the crash, $28.1 trillion), mutual funds (total assets before the crash, $26.2 trillion). While Buffett has shown some willingness to bail out these banks for the right price, I can’t see pension and mutual funds wanting to take on the risk.

And then there’s a source of funding that the big banks have already turned to in an effort to stave off this crash–a source which has a lot invested in forestalling nationalization: sovereign wealth funds (total assets before the crash, $2.7 to $3.2 trillion, and expected to grow to between $5 and $13 trillion).  SWFs, of course, are the investment arms of oil producers like Saudi Arabia, Kuwait, and the UAE, and exporters like China, Singapore, and South Korea.

I’m particularly interested in whether or not Geither is expecting sovereign wealth funds to be involved in this public-private partnership because of the role they had in "saving" a few big banks between November 2007 to January 2008. Read more →

Comings and Goings and Dealings at the SEC

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Last Wednesday, Linda Thomsen was one of a handful of contemptuous SEC officials who appeared before Congress–and pretty much refused to answer any questions. That same day, new SEC head Mary Schapiro sent a very contrite letter to Paul Kajorski, admitting, "Today’s hearing before your Subcommittee cannot have been satisfactory for you." Schapiro offered to meet at Kanjorski’s earliest convenience so, "we can determine a course forward." On Friday, Schapiro got rid of rules that GOP hack Chris Cox and his predecessor had put into place that made it hard to impose financial penalties on companies.

Securities and Exchange Commission chairman Mary Schapiro announced Friday she would make it easier for SEC staff to launch formal investigations of corporations, and she overturned her predecessor’s policy of requiring commission approval for levying financial penalties against public companies.

The latter move, in particular, represents a rebuke to her predecessor, Christopher Cox, and to former SEC commissioner Paul Atkins.

[snip]

Schapiro said the enforcement staff had told her the pilot program had "introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed." 

Schapiro also said it was too difficult for enforcement staff to launch a formal investigation, which currently also requires permission from the SEC.

In undoubtedly related news, Linda Thomsen will announce her resignation today.

The U.S. Securities and Exchange Commission’s top enforcement official, Linda Thomsen, is expected to resign on Monday, CNBC television said.

[snip]

The enforcement division has been heavily criticized for how it handled the Bernard Madoff case, in which the former financier is accused of defrauding investors of $50 billion.

And in other, probably related news, the SEC has decided that Madoff will be held civilly, as well as criminally, liable for his deeds.

The Securities and Exchange Commission says it has agreed with Bernard Madoff on a deal that could eventually force the disgraced money manager to pay a civil fine and return money raised from investors.

The agency said Monday the agreement states that Madoff cannot contest allegations of civil fraud and that possible penalties will be decided "at a later time."

I look forward to seeing whether this civil fraud deal reflects the earlier contemptuous approach of Linda Thomsen, or whether it reflects the new responsive era of Mary Schapiro.

The Grassley-Isakson-Coburn-Collins-Bad Nelson Bill

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Johnny Isakson

Johnny Isakson

I explained yesterday how the people who crafted the crappy Senate compromise bill were, to a significant degree, Republicans. Republicans who won’t even vote for the bill.

But I forgot to credit the guy who really put the stupid in this bill: Johnny Isakson. Isakson is the former realtor who threw a huge sop to his realtor buddies into the bill, one that does little to actually stimulate the economy (aside from realtors, who after all got us into this mess), and which costs more than promised. The amendment, a $15,000 credit for those buying new or existing homes, will basically encourage more people to move houses–but will not necessarily incent new home building (because it applies to existing homes) nor will it encourage new buyers who would otherwise not have bought (because it’s for all buyers, not just first-time buyers).

Here’s Calculated Risk on how stupid this amendment is:

The sponsors and supporters of this tax credit believe this will support house prices – a mistake because this will mostly just shuffle homeowners between homes, and not reduce the excess supply.

If the incentive was for new homes only, the credit would probably help create some construction jobs. However, the job creation would be limited because of the competing oversupply of existing homes.

The tax credit for existing homes does almost nothing to help the economy. Some might argue that this is more work for agents and home inspectors, and might help with furniture sales, but the impact will be minor. Remember existing home sales are already at a normal level compared to the stock of owner occupied units, so agents are doing fine already (just not compared to the bubble years).

[snip]

The key problem for housing is prices are too high. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?

Dean Baker, more succinctly, simply calls it the House Flipping Subsidy. And oh, by the way, it costs $30 billion more than Isakson originally claimed it would cost. The amendment is still in the "compromise bill" (the cowardly Senate voted it through on a voice vote), and Isakson is not about to vote for the final bill.

So to recap, here’s how this crappy bill came about.

Read more →

“Bipartisan”

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I avoided today’s debate on the simulus package (I shouldn’t have, because real Dems actually spoke, unlike last night, but I had to make an apple pie for mr. ew). But both in last night’s "debate" and the media today, it’s clear Republicans are pushing one meme above all others.

In spite of the fact that this bill was heavily crafted by Susan Collins, has the support of Arlen "Scottish Haggis" Specter, and probably Olympia Snowe, Republicans claim, it’s not a bipartisan bill. Whereas having Sanctimonious Joe vote with Republicans two years ago qualified as a bipartisan bill, this one doesn’t because, they say, they were locked out of the room where this was crafted. (In reality, a bunch of "moderates" left on their own accord, but truth is not a Republican strong point.)

But that’s not the most offensive part of their claim that this is not a bipartisan bill. AFAIK, Tom Coburn’s amendment remains a part of this bill, which basically prohibits these funds from going to support things like museums and parks.

Tom Fricking Coburn, one of the most conservative members of the Senate, has contributed to this bill. But that doesn’t qualify it as a bipartisan bill, for these fuckers.

And that’s not all. As Lithium Cola points out, using the work of Haley Edwards, the reason the Senate had to cut education and funds for states and Head Start is because Chuck Grassley insisted on putting the annual patch for the Alternative Minimum Tax in this stimulus package.

Haley Edwards at the Columbia Journalism Review points out a big part of why the Senate version of stimulus bill was more expensive than the House version and so "needed" to be cut back by scrapping projects to build schools and so on. The House version didn’t include the standard annual modification of the Alternative Minimum Tax, and the Senate version does.

But why, you might ask, is the Senate package so much more expensive than the House bill?

It’s got much to do with a single $64 billion tax cut benefitting the wealthiest 20 percent of Americans—a fact that was largely buried in reporting about the squabbling over which spending programs to cut.

Haley adds, "that’s one of the reasons why the House’s stimulus measure seemed to be $80 billion dollars cheaper than the Senate’s. It was really only about $30 billion cheaper—after you subtract the $64 billion revenue loss that happens every year when lawmakers curtail the scope of the AMT."

This raises an interesting question. Read more →

Haggis Logic

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I just watched Arlen "Scottish Haggis" Specter explain how they didn’t really cut $600 million in child care.

He explained very helpfully that if you don’t get 60 votes, then there would be no money for child care.

Of course, he and Susan Collins (and, apparently, one more Republican) are the only ones standing between a bill and 60 votes. In other words, every single change made to the bill is Haggis’ responsible, along with Collins and almost no one else. (Sanctimonious Joe is doing the same.)

So basically, Haggis, Collins, the Bad Nelson, and Sanctimonious Joe just cut $600 million in child care. By themselves.

But acording to Haggis Logic, that doesn’t mean he and his buddies just stole money from children. Really it doesn’t.

How to Get the Bush Dead-Enders to Do What You Want

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In addition to signing SCHIP yesterday, Obama sent this memo to the current Acting Secretary of Health and Human Services, ordering him to withdraw two Bush-era letters imposing limits on states’ SCHIP programs, particularly with regards to income eligibility standards.

On August 17, 2007, the Centers for Medicare & Medicaid Services (CMS) issued a letter to State health officials limiting the flexibility of States to set income eligibility standards for their SCHIP programs. On May 7, 2008, CMS issued a subsequent letter restating the policy set forth in the August 17, 2007, letter.

The August 17, 2007, letter imposes additional requirements that States must meet in order to cover children under SCHIP plans, including plans that CMS had previously approved. These requirements have limited coverage under several State plans that otherwise would have covered additional, uninsured children. As a result, tens of thousands of children have been denied health care coverage. Unless the August 17, 2007, letter is withdrawn, many more children will be denied coverage.

By this memorandum, I request that you immediately withdraw the August 17, 2007, and May 7, 2008, letters to State health officials and implement SCHIP without the requirements imposed by those letters. 

I raise this not just to point to Obama’s efforts to make sure as many kids can be covered as possible. I do so to point to how Obama would get the Bush dead-enders to implement his policies at a time when Obama’s appointees are not yet in place.

We’ve been discussing Obama’s inaction on several key issues–notably warrantless wiretapping and, yesterday, on torture. While Obama can’t blame inaction in the Binyam Mohammed case on delays on his nominee getting approved, since Hillary is in place, we had a lengthy discussion about what Obama would have to do to implement his policy in a department–like DOJ at the time when the al-Haramain filings were submitted–where he did not yet have his nominee in place.

This memo gives us an idea of what Obama would have to do, I guess: send a damn letter to the Acting Secretary of the department, and order him to do what you want.

Which of course raises the question: if all it takes are one-page memoranda, then where are they on other key policy issues?

Kansas' Lobbying Helps France Fly Citi to Its Tax Shelters

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Update: Apparently, Obama has explained to these Citi leeches the wisdom of giving up their new jet, and they have acceded to his demand wisdom. Well, so far, new-and-improved TARP is better than the old version.

It’s not that I’m bitter that Congress took away GM’s and Chrysler’s (but not Cerberus’) jets (in fact, I’ll let you in on a little secret. Without the jets it’ll make it hard to do business with suppliers in locations–like northern Mexico–that aren’t really well served by commercial airlines).

It’s that this makes the US look like world class chumps.

You see, earlier this month, Barney Frank tried to take the corporate jets away from those on Wall Street who–like GM and Chrysler–are sucking on the government teat to survive. Only, Kansas Congressman Dennis Moore hassled Barney until he took that provision out of the new-and-improved TARP.

To make sure corporate America got the message, Mr. Frank dropped a provision into the latest bailout bill, H.R. 384, the TARP Reform and Accountability Act, requiring would-be recipients of taxpayer funds to dump their corporate fleets. The message: If you want taxpayer money, sell your jet and fly commercial.

That sure sounded tough. And it sure sent a message to the automakers. When they came back to Washington, they drove.

But last week, Rep. Frank quietly stripped the no-jet provision from the bill. Why?

In a word: Kansas.

Kansas is a hub of aircraft manufacturing, particularly the making of corporate jets. One of Frank’s fellow Democrat[ic–sic] congressmen, Rep. Dennis Moore of Kansas, sent the powerful chairman a note that delicately suggested he re-think the tough talk.

"We have to be careful about Congress overreacting," Moore wrote in a statement.

What he told CNN he wrote to Chairman Frank was more diplomatic.

"It is clear that the auto executives were insensitive to American taxpayers when they flew in their private jets to request billions of dollars," wrote Moore. "But I have concerns that applying this well-intended provision may have unintended consequences of hurting the general aviation industry and its workers."

The congressman pointed out pointed out that 44,000 workers in Kansas work directly for the airplane manufacturing industry, and a lot of families depend on those paychecks. Last Tuesday, the "no-fly" language was dropped, and yet another get-tough message from Congress got a soft landing.

Late today, Chairman Frank sent a statement to CNN explaining his decision. Read more →

Citi, Morgan Stanley, Not Paying Their Taxes

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Add one more thing to the "no one could have imagined" file: The GAO reports that Citigroup and Morgan Stanley have been sneaking their money off shore so as to avoid paying taxes.

The new Government Accountability Office (GAO) report, released today by Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D-Mich.), lists Citigroup and Morgan Stanley as having set up hundreds of tax haven subsidiaries, along with American International Group and Bank of America. Also in the tax-haven list are well-known companies and such federal contractors as American Express, Pepsi and Caterpillar.

[snip]

"This report shows that some of our country’s largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And, some of those companies have even received emergency economic funds from the government," Dorgan said. "I think we should take action to shut down these tax dodgers, and we will be introducing legislation to do just that."

To illustrate the problem, Levin said the report found that Citigroup has set up 427 tax haven subsidiaries to conduct its business, including 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands. He said other havens include Switzerland, Hong Kong, Panama and Mauritius.

What Levin didn’t say, of course, is that these tax havens allow them to avoid financial oversight, too.

But I’m sure that won’t stop anyone from dumping billions of money into these firms–no questions asked–so they can continue to sneak the money off to the Caymans while the US goes broke. 

TARP, the Consumer-Driven Version?

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Larry Summers just wrote a letter to Congress explaining Obama’s rationale for asking for the remaining $350 billion in TARP funds. One of the things he says Obama will do differently is get credit to consumers and businesses more quickly.

We must also do everything in our power to ensure our efforts are more directly reaching Main Street. It is neither right nor sound economic policy to allow the small businesses that are responsible for more than two-thirds of job creation and entrepreneurs who have worked hard and played by the rules to be victims of the credit crisis that they were not responsible for creating. We will work in close cooperation with Congress, the Federal Reserve and other agencies to strengthen financial institutions and restart lending for small businesses, auto purchases, and municipalities.

Undoubtedly, Congress will complain about this second request, particularly given the way Hank Paulson completely mismanaged it. But there is already fairly good proof that getting credit to consumers and small businesses will have an immediate impact on the economy.

As I noted in my review of December auto sales, the GMAC-as-bank deal that BushCo negotiated in the last days of December had an immediate and significant impact on GM’s sales.

GM said its December sales were helped by a zero-interest financing offer that its GMAC finance unit was able to make during the last few days of the month after GMAC was granted status as a bank holding company by the Federal Reserve.

This allowed GMAC to access money from the federal government aimed at helping banks and Wall Street firms. GMAC had essentially run out of cash to make auto loans earlier in the fall.

Within days of negotiating this deal (which also undoubtedly freed up GMAC to make floor plan loans to dealers), it invigorated GM’s sales.

And I wonder whether the same move isn’t also having an impact on sales across the industry.

Early industry sales results for January indicate that industry conditions might be improving slightly, Ford Motor Co.’s group vice president for marketing and communications, Jim Farley, said during an interview at the Detroit auto show.

Farley described the increase as the first positive sales “blip” he has observed in months. However, he was hesitant to predict that the trend would even last through the end of the month. Read more →

Oh Noes! Lobbyists Standing in Line with Labor Leaders!!

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standing-in-line.jpgThe really amusing part of this story–describing how a number of business interests who ran were warmly welcomed in the Bush White House are aghast that they have to stand in line in the same waiting room with labor interests–is behind a firewall (thanks to egregious for liberating it).

The extent of substantive interaction varies. Some lobbyists, particularly those representing industries Obama wants to promote, report numerous contacts and substantive meetings.

But other K Street veterans report a shocking new reality.

Top business officials accustomed to red-carpet treatment in the Bush White House say they must stand in line in the cold outside transition headquarters along with people they don’t recognize, waiting to be cleared to meet with Obama staffers they don’t know and who don’t always appear to understand their issues. One veteran business official lamented that the only Obama official he has recognized so far is former Environmental Protection Agency Director Carol Browner — along with lobbying foes for labor and environmental organizations he has seen milling around or standing in the queue.

"We were part of the team" during the Bush transition, reminisced another top K Street player. "The business lobby was not pro-Obama," he acknowledged. "And for good reason, if you look at the campaign rhetoric."

Several business representatives wondered whether they were involved in a "check the box" scam designed to show inclusiveness rather than practice it.

"You get your five-minute elevator presentation," said one top industry lobbyist who said his meetings have been devoid of meaty discussion. "They say nothing. It’s a pure note-taking exercise. Will they be able to say they reached out? Sure." [my emphasis]

And these poor lobbyists are also worried that the white papers they give the Obama Administration, which under the Jack Abramoff style system employed by the Bush White House would be printed out on White House letterhead and presented as Administration policy, will be released in original form on the net.

Obama appears so far to be sticking to his promise to shed daylight on the process, reversing Bush White House practices most famously exemplified by Vice President Dick Cheney’s secret meetings with energy lobbyists. Instead, business types huddling with Obama officials are immediately told that the position papers and other documents they are pushing across the table are going directly onto the Web. 

To be fair, the story describes the industries which Obama has welcomed warmly: Read more →