SEPTEMBER 2008
9/29/08 The Sun Sets, Crains New York. The New York Sun will publish its last paper Tuesday. The clock finally ran out for the conservative-leaning broadsheet, which launched six-and-a-half years ago—a time when newspapers were still growing and investors were willing to fund a money losing enterprise for the sake of having a voice in the media capital. More than 100 employees will lose their jobs. The paper was put on notice several months ago when current backers—who include Roger Hertog, Tom Tisch, Michael Steinhardt and Bruce Kovner—decided they wanted additional financing if they were to continue to invest. Comment: This week was a bad one to pick as the drop-dead date. The Sun didn't pull any punches in its last ten days, with headlines labeling the Paulson-Bernanke bailout nationalization. The rejection by the House of the bailout and the consequent largest drop in the Dow in history did not create a good environment for new investment in a money-losing paper.
9/24/08 Bailout Outrage Races Across the Web, Business Week Online. The Internet is flooded with angst about Treasury Secretary Paulson's proposed $700 billion bailout—and inspiring old-fashioned street protests. Arun Gupta was enraged as he learned the details of Treasury Secretary Henry Paulson's plan to fix the U.S. banking system with $700 billion in taxpayer funds. The 43-year-old copy editor and freelance journalist, who publishes his own alternative newspaper, The Indypendent, needed to channel his angst but couldn't find a live protest to attend. So on Sept. 22, he sent an e-mail to some politically active friends in New York. Within days, they'd planned a protest against the bailout in New York and at 80 other locations in the U.S. on Sept. 25. Comment: Congress felt their pain.
9/24/08 No Alternatives? Here's at Least Four, Jim Pappin, Open Salon. We've been told by the head of the Federal Reserve, the Treasury Secretary, the President, many legislators, and lots of pundits, that there is no real alternative to the government buy-up of bad debt from the banks. In nearly 8 years, this administration has done almost nothing right. It's a mystery to me why, in their dying days, someone would turn over the wealth of our nation to them with no review, no controls, no governance, and no accountability. We're told that there's simply no alternative. But I can think of at least four different approaches:
1. Mortgage stamps. Think of them like foodstamps. Using the same bureaucracy, or the Social Security System, a person who is behind on their mortgage could qualify for public assistance. This would be provided in the form of a number of $100 monthly vouchers, which they would mail in with their mortgage payment. Qualification for, and the number of vouchers a homeowner could receive are TBD, but so is a lot of stuff.
2. Start slow. Authorize, for example, $100 billion, subject to review. Let the treasury go buy up bad debt with that money. If they like the way the system works, and they think that more is a good idea. maybe their experience will allow them to come up with a valuation model and criteria. Then, the next amount to be authorized would at least have some intelligence behind it.
3. Follow Warren Buffet's lead. If a bank thinks it needs additional capital to support it's bad debt holdings, let the Treasury buy permanent preferred stock, the same as Warren got. That provides a way for the banks to raise money, while providing the taxpayers with some hope that they can get their money back. I'd be willing to wager that the bill ends up being a lot less than $750 billion.
4. Just give the $2,300 per capita to the citizens as an economic stimulus. Many people who are behind on their mortgages would be able to get back on their feet with an influx of $7000, $10,000, or more. If not, at least they could go out and blow it all one one big party, which will make some bartenders happy. Comment: ...and there are other ideas.
9/24/08 Subprime Revealed. Comment: I received this PowerPoint today by email from someone as if it were new. It has been posted at the bottom of this page since February.
9/21/08 Three Times Is Enemy Action, Devilstower, Dailykos. "Once is happenstance. Twice is coincidence. Three times is Enemy Action."- Auric Goldfinger James Bond's wealthy nemesis may have had an obsession with gold, but he judged, quite correctly, that if people keep putting your plans awry, that was likely their intent. In 1982, the same year John McCain entered the Senate, a bill was put forward that would substantially deregulate the Savings and Loan industry. The Garn-St. Germain Depository Institutions Act was an initiative of the Reagan administration, and was largely authored by lobbyists for the S&L industry -- including John McCain's warm-up speaker at the convention, Fred Thompson. The official description of the bill was "An act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans." Considering where things stand in 2008, that may sound dubious. It should.Seven years later, the S&L industry was collapsing. What was the cause? Garn-St. Germain handed the S&Ls a greatly expanded range of capabilities, allowing them to go head to head with full service banks, but it didn't give them the bank's regulations. More. Comment: This is the best summary of the deregulatory progression since 1982 that I have found. The only thing missing is more of the lurid details on what happened since 1999.
AUGUST 2008
8/15/08 What Is The Predator State?, TPMCafe Book Club, James K. Galbraith (from his new book, The Predator State). “The judicial coup of December 2000 that installed Bush and Cheney brought back ... tax cuts for the wealthy, big increases in military spending, aggressive deregulation. But it didn't bring back the ideas. Instead, it became clear that Bush and Cheney had no real ideas ... They were willing to have the government spend like a drunken sailor in 2003/4 to boost the economy before the election. They placed lobbyists in charge of the regulators, representing, in every case, the most extreme anti-regulation perspective. ... Under Bush and Cheney, oil and gas, drug companies and defense contractors, insurers and usurers control the government of the United States, and it does what they want. This is the predator state.” Comment: Predator State, yes, in many ways. Jamie Galbraith credits some libertarians with honest belief in the Chicago-School case that government is a deadweight on the economy, though he considers this belief “nutty”. He argues that in fact what began as an anti-regulatory movement has deteriorated into a crude anti-tax crony capitalism. Rising federal debts have replaced balanced budgets. Libertarian deregulators, starting in the 1960s, were yoked improbably with groups seeking to reverse progress in human rights. Is it too much to hope that enough people are appalled at what has been going on in Washington in the name of economic freedom that voters will in 2009 elect a more principled government?
8/5/08 Roubini Pegs Credit-Related Losses at $2 Trillion. We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of 2009. A systemic banking crisis will go on for awhile. The FDIC has $53 billion of funds and has already committed almost 15% of it to bail out depositors of IndyMac. Eight percent of U.S. banks are in big trouble, i.e., about 700 insured banks.The taxpayer's bill is going to be huge. This financial crisis will lead to credit losses of at least $1 trillion and most likely closer to $2 trillion. Comment: The FDIC will have to broker a lot more bank takeovers and will need a bigger warchest to do this. Later Comment: ...or else the Treasury or Fed or both will have to intervene directly.
JULY 2008
7/24/08 State Budget gaps triple for '09, Stateline.org. The drumbeat of bad fiscal news from statehouses is intensifying. States collectively faced deficits of $40.3 billion in writing their current budgets — triple the $13 billion shortfall states weathered the previous year, a new report released July 23 shows. "The overall state fiscal condition changed significantly in the past year, and for the most part deteriorated," Corina Eckl, director of fiscal affairs for the National Conference of State Legislatures, said as she released the report during the organization’s conference in New Orleans. Comment: Back in the 1970s the Feds gave out revenue sharing money to help with state and local government fiscal problems. But with the bailout of Fannie and Freddie, the true level of Federal obligations will exceed, according to some estimates, $100 trillion. It will be hard for the Feds to offer relief to states and localities. However, only the Feds can print money.
7/18/08 California Requiring Greener Buildings, LA Times. California's new building standards this week reduce the energy used in buildings by 15 percent and cut the water used for landscaping by half. Gov. Arnold Schwarzenegger praised them. But environmentalists complained that the standards were heavily influenced by the construction industry and not as stringent as they could be. Comment: Where nonprofits like the US Green Building Council and the Forest Stewardship Council have created standards for private-sector environmental performance, it can be counter-productive for legislators and executive branch regulators to create new standards. It sows confusion in the minds of consumers and - as they are increasingly finding out - businesses, and weakens the work of those who have pioneered in creating standards. Governments may help by creating a floor, i.e., minimum standards. If these standards don't line up with existing standards, it can be unhelpful. Some certifications have such high standards for building materials that that the materials may be in short supply. But the LEED point system starts at a very low level with many options for reaching the minimum number of points. It has higher levels - silver, gold and platinum - for higher points. It doesn't make sense to me that the LEED system was not used in California.
7/15/08 Aid for Mortgage Giants May Boost Housing Bill, LA Times. The Bush administration's emergency move to shore up the mortgage market will ... propel into law a broader housing bill that was threatened by wrangling between House and Senate Democrats. The mortgage initiative unveiled Sunday by the Treasury Department and the Federal Reserve -- which is designed to bolster confidence in home-loan giants Fannie Mae and Freddie Mac -- requires approval by Congress. To expedite the legislative process, it is being attached to the larger housing bill as an amendment. ... The larger measure [will] help some homeowners threatened by foreclosure. Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said he hoped to clear the whole package this week. Comment: Sounds like July 2002 when Congress rushed to pass the Sarbanes-Oxley Act. Something had to be done fast. When a crisis occurs, all hands are on deck and the massive U.S. governmental apparatus achieves something quickly, like the hippo in tennis shoes that Chase used to use in its ads. That's the good news. The bad news is that the fast-tracked legislative process can creates laws that require a lot of subsequent tweaking.
7/10/08 City to Test Peak Rates for Parking Meters, William Neuman, NY Times. In what amounts to congestion pricing for parking spaces, parking meter rates would double during heavy traffic periods in portions of Manhattan and Brooklyn as part of an experimental city program beginning this fall, officials said Wednesday. The program’s goal is to increase turnover in curbside parking spaces in the test areas — a section of Greenwich Village in Manhattan and a stretch of Kings Highway and adjacent streets in the Midwood neighborhood of Brooklyn — so that drivers will spend less time cruising in search of an open space, according to the transportation commissioner, Janette Sadik-Khan. Comment: Good move. Parking was always a high priority of the mastermind behind congestion pricing, the late Nobel-Prizewinning economist, Columbia Professor Bill Vickrey. I have posted his Ten Recommendations for New York City (parking fees are discussed in #7) here and at .
7/10/08 City Will Explore Broad Bike-Sharing Plan, William Neuman, NY Times. The city took a tentative step this week toward fulfilling the dream of a certain kind of urban idealist, saying that it will explore the possibility of creating a bike-sharing program that could make hundreds or even thousands of bicycles available for public use. “This is a really big deal,” said Wiley Norvell, a spokesman for Transportation Alternatives, an advocacy group for cyclists, pedestrians and transit riders. “In the realm of things you can do to boost bicycling in a city, bike-share is at the top of the list.” The city asked companies and organizations interested in running a bike-sharing program to provide assessments of how it could work. A similar program was started last year in Paris, using thousands of bicycles. Comment: Another good move by the Mayor and another good story by Neuman. I have posted my experience with the Paris bike system here and at <http://tinyurl.com/65dlkn>.
| SEPTEMBER 2008
9/22/08 (NY Sun) NYC Pension Funds Lose on Lehman, AIG, Ross Goldberg. New York City's pension system appears to have lost about $230 million since June from the collapse of Lehman Brothers, Merrill Lynch, and American International Group, increasing the strain on taxpayers after a year in which the funds already took a $6 billion hit. The city's five pension funds shrank by 5.4% of their total value in the fiscal year that ended June 30, according to data [from] the comptroller's office. The city will have to make several billion dollars in unexpected contributions to the funds. Irrespective of the poor performance last year, the city's annual contribution to the pension system will have nearly doubled between fiscal years 2005 and 2009, when it will owe about $6.1 billion. John Tepper Marlin, who served as the city's chief economist until 2006, said the losses that have been made public are probably just a preview of trouble to come. The collapse of Lehman, the sale of Merrill Lynch, and the government takeover of AIG last week did not mark the end of panic in the financial markets. Pension funds tend to perform about as well as the economy as a whole, Mr. Marlin said, and the future of the economy is currently unclear, especially as the federal government embarks on an unprecedented intervention into the free market. "The stuff is so sophisticated and complicated, I can't believe there aren't going to be some surprises," Mr. Marlin said, noting he collects a city pension. "I'm worried for myself and for the city." New York City's pension system has earned 9.5% annualized returns over the past five years, compared to 10.2% for its peer funds.
9/21/08 (Newsweek Radio) Newsweek On Air Podcast (click on the start triangle at the left end of the line below 9/21/2008). John Tepper Marlin interviewed: Congress should act to break the credit drought, but the public is going to demand something in return.
9/12/08 (Blogspot) Chris Ward, Port Authority ED, Speaks Out. Ward credits Congressman Jerry Nadler for asking good questions about rail freight in the Congress. Nadler, who is in the audience, in turn praises Ward for the direction he is taking the Port Authority. With a few pointed words, Ward takes issue with the Bush 43 Administration for understaffing the FAA and trying to promote market-based auction systems instead of addressing the capacity problems of airports in the NYC area and elsewhere. "We need a GPS-based system. The market is not going to solve the airport congestion problem."
9/2/08 (NY Post) City Will $trike Out If Yanks Miss Playoffs Damn Yankees! City businesses stand to miss out on making $141 million this fall if the Yankees fail to make the playoffs for the first time in 13 years, according to a study commissioned by The Post. The report conducted by NYU adjunct professor John Tepper Marlin shows that if the Yankees snag at least a wild-card berth, a first-round appearance could fill the coffers of bars, restaurants and other businesses across the city with $26 million. Marlin, a former number-crunching chief economist for three former city comptrollers, said the Bronx Bombers would need to make the playoffs every year if the city hopes to reap any economic benefits, a feat many fans and businesses have taken as a given since 1995. See also NJ Star-Ledger NYC could lose $141 million if Yanks miss playoffs.
AUGUST 2008
8/30/08 (Blogspot) "Happy Days Are Here Again" Again. On April 6, I noted the McLaughlin Group was guilty of anachronism, playing "Happy Days Are Here Again" in relation to the brokered 1924 Democratic convention. Now it's August 30, after the Denver Democratic convention gave us the Obama-Biden ticket. I get this nice note from WS in Colorado. Steven Neal's book, "Happy Days Are Here Again" confirms what WS remembers, that the FDR campaign theme song - now used as a theme song for the Democratic Party - was a substitute for "Anchor's Away", originally selected because FDR had been Assistant Secretary of the Navy but then deemed insufficiently stirring for the Chicago conventioneers.
8/6/08 (Blogspot) Take More Risk to Cover Losses? A NY Times story yesterday reports that the NY State Comptroller is worried about two stresses on the state pension fund - more state workers are retiring as the baby boomer cohort gets to their 60s, and the fund took a 6.4 percent loss on its domestic equity investments. The fund fell by $600 million in nominal dollars but after adjustment for payout to retirees it had an overall 2.6 percent return, which is above the average for other large public funds but is well below the 8 percent return that is built into NY State pension fund projections. The NY State fiscal year ends March 31, so the domestic equity loss was before the steep drop in June.
 >8/5/08 (HuffPost) Green Edge 5: Farm Aid in Islamic China. Not so very far from yesterday's bombing that killed 16 police officers, in a region subject to a recent Chinese crackdown to protect the Olympics, Martin Ma manages a program to improve the workplace conditions of Xinjiang cotton farmers. He is simultaneously seeking to remedy the environmental problems of pesticide and the deep poverty of the farm workers. He works for Social Accountability International (SAI) in New York City under a four-year grant from the Netherlands development agency Solidaridad, which tries out new ways to lift people out of poverty and danger wherever they live or work.
8/2/08 (Blogspot) Budget Cuts to Meet NY's Fiscal Emergency. In connection with the fiscal emergency announcement by NY State Governor David Paterson, who has called for a $600 million cut in State spending, the following article from the NY Sun ten months ago is worth allowing to shine again.
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JULY 2008
7/31/08 (Blogspot) The Obama and McCain Ads Compared. McCain's proposed "drill and nuke" solution to the energy crisis is nuts. Neither is likely to have any effect during the next eight years. I would call McCain a Rip Van Winkle who has been asleep during the past eight years while oilmen Bush and Cheney have resisted efforts to conserve energy. But at least Rip Van Winkle woke up. A real solution to the energy crisis requires changing the incentives and behavior of we the American people, which is Obama’s focus. That's why the Sierra Club has endorsed Obama.
7/17/08 (HuffPost) Misery Index Highest Since Bush 41. Wall Street indexes rise and fall but the economic misery index goes on forever as a guide to what is happening on Main Street. I therefore think it is well worth watching. The index, simply the sum of unemployment and inflation rates, rose in June to 10.5, the highest level in 15 years, i.e., since January 1993. That month President Bill Clinton was inaugurated and President G.H.W. Bush left office. Under Clinton the index improved but it has recently climbed back to what it was when Clinton took over. Misery Index in the Last Month in Office of Recent Presidents:
Carter: 19.3
Reagan: 10.1
Bush 41: 10.6
Clinton: 7.9
Bush 43 (as of June 2008): 10.5
7/11/08 (Blogspot) Down Dows and Cognitive Dissonance 2. On Nov. 8 last year, in Down Dows and Cognitive Dissonance, I noted that Bob Janjuah of the Royal Bank of Scotland had raised the upper end of his estimate of cumulative subprime writedowns to $500 billion (at a time when losses of just $50 billion were acknowledged by institutions). Now Janjuah looks like an optimist.
7/7/08 (HuffPost) Report from the Green Edge 1: The Organic World Congress.
Dr. Alan Greene, Stanford Professor and author of Raising Baby Green, addressing the 2008 Organic World Congress on epidemiological studies relating to bovine hormones: "We have it backwards," he says. "We should find out the adverse effects of additives before we introduce them into the food chain." I am privileged to attend the triennial Organic World Congress in Modena, Italy in late June. This is the world's largest gathering of organic agriculture's standard-setters, strategists and thinkers, with 1,500 participants sharing hundreds of presentations and research papers.
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