2008 - %3, December

Senators Target Fat Cat Abuse of Financial Bailout Money

| Tue Dec. 23, 2008 2:15 PM EST

As we've seen from numerous contracting scandals in Iraq, the federal government can be great a handing out money (sometimes literally shrink-wrapped piles of it), but less skilled in tracking where it goes. So it's without much surprise that we now see it throwing hundreds of billions of relatively unaccounted for dollars at financial companies as part of the Troubled Asset Recovery Program (TARP). But if senators Diane Feinstein (D-Calif.) and Olympia Snowe (R-Maine) get their way, the free-for-all may soon be reined in. According to a statement released today, they plan to reintroduce their Accountability for Economic Assistance Act (.pdf) to the Senate when it reconvenes in January. "At present, we don't know whether these companies are using these funds to fly on private jets, attend lavish conferences or lobby Congress," says Feinstein. "This bill puts clear restrictions on how funds can be used and mandates public reporting requirements to allow taxpayers to find out how their money is being spent."

The bill's provisions, according to the press release:


  • Prohibit firms receiving economic assistance from Treasury or emergency loans from the Federal Reserve from using such funds for lobbying expenditures or political contributions;
  • Require that firms receiving assistance provide detailed, publically available quarterly reports to Treasury outlining how federal funds have been used;
  • Establish corporate governance standards to ensure that firms receiving federal assistance do not waste money on unnecessary expenditures; and,
  • Create penalties of at least $100,000 per violation for firms that fail to meet the corporate governance standards established in the bill.
  • Advertise on MotherJones.com

    Twitter Followup

    | Tue Dec. 23, 2008 1:44 PM EST

    TWITTER FOLLOWUP....Via James Joyner, Michael Arrington writes on his blog that he thinks Twitter has ruined uber-twitterer Robert Scoble's life:

    I asked Robert how much time he actually spends on those services. He monitors them all day, he said, hitting refresh over and over on both (he doesn't use desktop clients to manage the services, and he says he doesn't like real-time streaming feature on Friendfeed). In addition to watching all day, he says he spends at least seven hours a day, seven days a week, actually reading and responding directly on those services.

    That's 2,555 hours over the last year....It is an addiction.

    What is the cost of this addiction? Well, I'll put his family life aside, that's his business. But his blog has clearly suffered. He now posts only a few times a week, sometimes sporadically writing multiple posts in a day but often skipping 3-4 days in between. A year ago, Robert wrote multiple posts, every day. I used to read his blog daily, now I visit once a week.

    As an aside, I'll note how amusing it is that in the same way that people once complained that blogging crowded out "serious" long form work like books and magazine pieces, people are now starting to complain about Twitter crowding out "serious" blog posts. The worm, she does turn.

    Anyway. I created a Twitter account a couple of days ago after I posted about it, since I figured that was the only way to get a better sense of what it was all about. So far, I've tweeted twice, so obviously I haven't exactly embraced the form. But in a way, I think Arrington's post captures one of the problems with Twitter: like Facebook, it doesn't really make too much sense unless you spend a lot of time with it. It doesn't have to be 2,555 hours a year, mind you, but both Facebook and Twitter strike me as things that are perhaps moderately useful if you use them occasionally, but potentially highly useful if you're logged into them constantly and use them as primary tools for keeping in touch with people. That's unlike the blogosphere, where most people pick three or four blogs to follow and read them once a day for 20 minutes or so, and it's one of the things that makes these services hard to "get" unless you're totally committed to them.

    Of course, I could be full of hooey here. But that's my take so far.

    Sand in the Gears

    | Tue Dec. 23, 2008 1:11 PM EST

    SAND IN THE GEARS....Dean Baker explains to Ezra Klein why so few economists predicted that the economy was headed for disaster: there's not much risk in agreeing with the conventional wisdom and being wrong, and there's not much reward in bucking the conventional wisdom and being right:

    [W]hat would an economist expect to happen in a situation in which option one carries no risks and reasonable expected rewards and option two carries enormous risks and only moderately higher expected rewards? In short, the incentives in the economics profession, just as in finance, strongly encourage a lack of original thinking.

    Actually, I think this is too simplistic. There are some exceptions, of course, but even the economists who saw the housing bubble for what it was mostly didn't predict that its bursting was going to cause a massive global credit crunch and the biggest slowdown since the Great Depression. In fact, to a large extent, we still don't quite know why the reaction to the housing bust has been so severe. So there's a genuine question here that's worth diving into in more detail.

    Still, I think Baker is basically right, and it's worth keeping in mind how the incentives work in the finance industry. Suppose, for example, that everyone on Wall Street knows there's an investment strategy that will pay off big 19 years out of 20, but implode in that one remaining year. What's the right thing to do?

    Obviously, the answer is: follow the flawed strategy. If you don't, and everyone else does, then within a couple of years you'll either get with the program or you'll be out of a job. Even in the absence of any kind of fraud or collusion or mass insanity, following a strategy that you know will be disastrous 5% of the time is simply too profitable to pass up.

    Given that, what should be the role of the government in trying to prevent systemic meltdown? Regulations that target fraud are useful, but remember: even if everyone is purer than Caesar's wife, they'll still be forced to follow the flawed strategy. They can't afford not to, and unless they're smart enough to predict precisely when the 5% of disasters will take place (and few are), the collective result is some kind of periodic meltdown.

    My own guess is that the answer is a set of regulations that slow things down. Something that throws just a little bit of sand in the gears of the global finance machine and prevents bubbles from growing quite as quickly as they otherwise might. Baker has proposed a small fee on financial transactions, for example, and that seems like the right kind of idea. I've long thought that very modest capital controls might also be a good idea, even for advanced economies. In the mortgage market, requiring even a small down payment plays the same role.

    I think one misconception that's become awfully popular recently is that the current meltdown is a "black swan" event, a perfect storm that happens only once a century or so. But I think Paul Krugman has made a persuasive case (in both the original edition of The Return of Depression Economics and the new one) that the kind of bubble related disaster we're seeing now is simply a common feature of the modern, global, hyper-fast, hyper-unconstrained financial market. The only difference is that it's mostly affected only small countries in the past couple of decades, and now it's worked its way all the way up the food chain — and if we don't introduce a little bit of institutional deliberation and constraint into the system, this won't be the last time we see it. Given the limitations of human wetware, after all, there may be such a thing as a financial system that's too efficient.

    Can You Name the Greediest Corporate Titans of 2008?

    | Tue Dec. 23, 2008 12:59 PM EST

    You know who Bernie Madoff is. But what about Dwight Schar, Patrick Soon-Shiong, or Richard Baker? These three men have the dubious distinction of winning spots on the America's Greediest 2008 Top Ten compiled by the Too Much online newsletter.

    Madoff didn't make the list. (He doesn't need the publicity--or exposing--these days.) But what's interesting is that most of the honorees are not household names. Schar is head of NVR, a giant homebuilding firm. In the past six years, he has collected $625 million in compensation, and his company's stock has plummeted. Soon-Shiong sold a pharmaceutical company to a German company for $3.7 billion; the company, the only source of much-in-demand blood thinner, was attractive because in 2007 it had made $253 million on merely $647 million in sales. (Talk about mark-up!) Baker is a Louisiana congressman who gave up his House seat to become CEO of the trade association for the hedge fund industry. In Congress--no coincidence--he had chaired a subcommittee that had overseen the hedgers. And, by the way, jumping from watchdog to pitchman, Baker boosted his annual compensation from $163,000 to $1 million.

    As one reads the list, a natural reaction would be: who are these people? (Steve Jobs does make the cut.) And the larger point is this: our economy is controlled--and we are held hostage--by a host of CEOs, money-managers, and assorted masters-of-the-universe who are not so masterful. They screw up--and they still get to keep the mansions and the yachts. But many of the rest of us pay. GM's top execs have to fly commercial--boo-hoo-hoo; their workers lose their livelihoods. And because the high-fliers on Wall Street thought they could spin debt and swaps into gold (for themselves) by creating all sorts of new financial products that would be free of pesky regulations, American taxpayers have to bail out Big Finance institutions deemed too big to fail.

    Saving the Lada

    | Tue Dec. 23, 2008 12:10 PM EST

    SAVING THE LADA....The government plans to bail out the country's big automakers and the public is unhappy over the deal. Old news? Sure, except it's happening in Russia too:

    The dozens of demonstrations that have cropped up across Russia in recent weeks haven't been particularly big. However, they have been significant as the first notable show of widespread dissent in the near-decade since Prime Minister Vladimir Putin cemented his hold on power.

    Organizers say they will keep up the pressure unless the government reverses its decision to raise taxes on imported automobiles.

    ....The tax hike, which will be determined for each vehicle based on a complicated formula, will drastically increase the cost of foreign cars and trucks. Vehicles older than 5 years will be slapped with a duty of at least 70%, making their importation unprofitable.

    This dynamic is playing out everywhere: governments all want to bail out their auto companies, but not every auto company can survive. There's just too much vehicle manufacturing capacity in the world, and there has been for a while.

    However, this story also suggests that, against all odds, it may be the consumers of the world who prevent a mass outbreak of new beggar-thy-neighbor tariff rules. National governments understandably feel a lot of pressure to protect their local industries, but it might turn out that their publics don't really agree. Americans don't like American car companies all that much, it turns out, and Russians don't like Russian car companies either. Siberians would rather buy a Toyota than a Lada.

    This might not turn out to be case for every industry, of course, but I wouldn't be surprised if it restrains central governments from going too far down the protectionist path. Imports are just too popular with the unwashed masses.

    Shoeing the Prez

    | Tue Dec. 23, 2008 11:35 AM EST

    SHOEING THE PREZ....I agree with Daniel Davies that tossing shoes at George Bush and tossing pies at Tom Friedman are both basically funny things, not worth getting a stick up your butt about. Just have a laugh, don't let it get out of hand, and relax.

    Following up on that, however, he admits: "Although seeing Bush get shoed was a laugh, it's a nervous sort of laugh for anyone who is worried about the possibility of President Obama being assassinated, which I know that a lot of people are. And statistically, they're right to be worried. Roughly 10% of all US Presidents ever elected have been assassinated (4 out of 43), which is roughly as high a death rate as street drug dealers." Then, with a few heroic assumptions and the help of some geeky friends, he quantifies the job-related mortality rates of being president compared to, say, being a member of Hezbollah or the King of France. Turns out that being president is more dangerous. Read the whole thing if you want to know how much more dangerous.

    Advertise on MotherJones.com

    China Latest to Join Somali Pirate Hunt

    | Tue Dec. 23, 2008 10:06 AM EST

    A few days ago, Iran sent a warship to the Gulf Aden to keep marauding Somali pirates from attacking its merchant ships, joining a growing fleet of international ships patrolling the Somali coastline. I've speculated here before that this might inadvertently open the door to US engagement with Tehran. The news this morning is that China has dispatched three ships to the region. It's an increasingly interesting cast of characters—American and Western European ships cruising in close proximity to those from Russia, China, and Iran, among others. The enemy of your enemy is your friend, right?

    Meanwhile, the International Crisis Group points out that piracy is a symptom of the larger problem. In a report it released today (.pdf), the group warns that Somalia is much worse for wear thanks to the US-backed Ethiopian occupation, but says that things could improve after the Ethiopians withdraw (planned by the end of this year). "There is reason to believe that despite radical posturing, a significant majority in the Islamist insurgency would engage in a political process that does not seek to criminalise it and offers them a role in future governance," the report asserts. "There is no other practical course than to reach out to it in an effort to stabilise the security situation with a ceasefire and then move on with a process that addresses the root causes of the conflict. In the course of that effort, the insurgents will need to provide assurances about the kind of Islamic state they envisage as well as clarify their rejection of foreign groups like al-Qaeda."

    Guantanamo Update

    | Tue Dec. 23, 2008 2:08 AM EST

    GUANTANAMO UPDATE....In the Washington Post today, Peter Finn reports that European countries, which have had an obviously fraught relationship with the Bush administration over Guantanamo and the legal treatment of terrorist suspects in general, is looking forward to working more closely with Barack Obama on these issues. In particular, they may be willing to accept the resettlement of Guantanamo detainees into their countries:

    The Europeans want a clear commitment to close Guantanamo Bay and an acceptance of common legal principles in the fight against terrorism, including those regarding the treatment of suspects, European officials said. A series of meetings between the United States and the European Union on a legal framework for combating terrorism has considerably narrowed differences on the application of human rights law, refugee law and humanitarian law, said Amado and John B. Bellinger III, a legal adviser at the State Department.

    The Europeans also want Obama to agree to transfer a small number of detainees to the United States before they attempt to sell a resettlement program to their own citizens.

    ....Guantanamo Bay currently has about 250 prisoners, according to the Pentagon. And some European officials said a number of governments are considering the logistics of resettling a majority of the 60 prisoners already cleared for release by U.S. authorities.

    The Pentagon has not identified the 60, but a study released by the Brookings Institution last week found that as well as the Chinese Uighurs, the group includes detainees from Yemen, Tunisia, Algeria, Uzbekistan, Iraq, Saudi Arabia, Egypt, Libya and the Palestinian territories. The Brookings study found that these prisoners "concentrate at the less dangerous end of the spectrum."

    The whole story is a little hard to follow, which is probably because nothing even close to definitive has been settled yet. Mostly it's just a feeling that EU countries are looking forward to a more constructive relationship with Obama than with Bush, and may be willing to make some compromises on their end to start things off on the right foot.

    It's all very mushy at this point, but obviously good news regardless. The question of what to do with Guantanamo detainees that nobody wants is a genuinely difficult one. If the EU helps out here, it makes it a lot more likely that Guantanamo will be shut down sooner rather than later.

    Department of Labor

    | Mon Dec. 22, 2008 8:58 PM EST

    DEPARTMENT OF LABOR....Victor Davis Hanson is unhappy with Barack Obama's choice to head the Department of Labor:

    I'm sure that the labor secretary nominee Hilda Solis is a bright and savvy politican. But a labor secretary is supposed to reflect some balance between labor and management, one that seeks to hammer out compromises in the best interests of the nation. Her record, however, is exclusively pro-union without exception or doubt.

    Maybe my memory is just getting fuzzy as I get old, but I sure don't remember very much conservative concern with "balance between labor and management" when George Bush chose Mitch McConnell's wife to be Secretary of Labor eight years ago. Do you?

    Let's see. Before her appointment, Elaine Chao spent four years as a fellow at the Heritage Foundation. She campaigned tirelessly with McConnell against the Employee Free Choice Act. Her choice to head up OSHA was a partner at one of the best known union-busting lawfirms in the country. Under her watch the NLRB reclassified 8 million workers as "supervisors," primarily in an attempt to throw a wrench in unionizing efforts. New overtime rules wiped out time-and-a-half for 6 million workers. The probability of union organizers being fired went up by more than half.

    Now, that's about what I'd expect from an administration that's exclusively pro-business without exception or doubt. But after eight years of that, it's a little rich to complain when a liberal president nominates a Secretary of Labor who's actually pro-labor. Less whining, please.

    The Best Chocolate You've Never Heard Of

    | Mon Dec. 22, 2008 8:00 PM EST

    kallari.gif
    Kallari, released at Whole Foods in October, is the world's first widely-available chocolate bar made and marketed by actual cacao farmers. It also might be the best chocolate I've tasted, and I'm a big chocolate fan. It's produced with a rare, highly-celebrated bean grown in the Ecuadorian Amazon by 850 enterprising Quichua families who receive 100 percent of the profits. It probably doesn't hurt that they got a little bit of help from Robert Steinberg, the founder of Berkeley's renowned Scharffen Berger chocolate. If you're looking for a holiday gift, Kallari's 75% cacao bar might be a good bet. In these depressing times, you'll get to talk about how it was made by farmers who until recently couldn't even afford to ship their beans from the jungle to Quito but who now run the show--true role models for us children of the recession. And then you can suggest opening it right away so you can snap off a big chocolatey chunk for yourself.