Too Big To Be
Obama administration is finally using anti-trust as a treatment for “Too big to fail”. That is exactly what this blog asked for: http://poweranddollar.com/2009/03/27/anyone-understands-geithner/
Had Bush used this treatment during his time, systematic risk could have been reduced, although not eliminated nor sufficiently managed.
Did Sherman and Clayton (as in Sherman and Clayton Acts, the anti-trust legislations) have systematic risk in mind? Certainly not. However, they were more in the line of if market entry cost is too high due to market makers, then something bad is bound to happen.
Was that line of thinking new at the time? No. That is why monopolies have to be granted by the governments in England, as in Crown corporations. This practice is still in place, just to highlight how much consideration should be given for monopolies.
Interestingly enough Obama administration is trying to enforce tougher antitrust, Obama administration may be guilty of antitrust as well, if Obama administration is in “restraint of trade” or “price discrimination” on health care costs when the administration is trying to “contain cost”. Unfortunately, critics are only concerned with “quality” or “ration care”.
The problem does not need to get that complicated.
CNN Advertisement: Time To Buy Republican
The author (John Feehery) of this CNN commentary is a political operative, lobbyist, etc. He makes his living by using his access to the Republicans. When Republicans are in disarray, so is his livelihood. In order to drum up more business, he has to encourage his potential customers to spend money in Republicans. This article is very consistent in his message about “bottom out”. He also points out very explicitly that political entrepreneurs will see opportunities.
He is also very good at organizing his advertisement into 5 bullet points. These points are also in order to of investment relevance rather than political ideology relevance.
All his points are very valid. However, the advertisement taste is a little too obvious.
Since when CNN did distributing ad content in place of news content?
Detox Plan: Taxpayers Fund 93%
Geithner announced the Detox plan. Stocks went up for a great deal. Investors probably are hungry for any positive headlines and don’t really want to read the content. AP writes that the taxpayers will actually fund 93% of the purchase. Krugman of course slams it like the first time he read it when it actually is the same plan half a year ago. In a way, why does Krugman write as if it were a surprise to him?
Gergen writes much more succinctly than what I did yesterday (and Eurasia Group): “there is a second question lurking that really only the President and Congress can answer: that is, whether private investors can have confidence that if they do invest, the lynch mob mentality we saw last week in Washington won’t come and plague them in the future. As the managing director of a major hedge fund told me recently, if this plan is good enough, our firm stands to make money. But then why should we invest if Washington is then going to get mad, take 90% of our profits from us retroactively and if I may be hauled up before Congress and vilified?”
AIG The Sacrifice: The Reflection Of America’s Political Risk
I agree quite a few points of this article in regard to the AIG episode.
Of course, nothing is perfect. I would change a word here:
“It will certainly make Mr. Obama’s task much more difficult when he tries to sell the public [my version would be: investors] on his administration’s ability to manage the rest of the bailout, and when he tries to sell private firms on the public-private partnership that will be needed to make the recovery work.”
Obama will have more difficulty to convince investors his future plans work (already stated in the article). Also, Obama will have more difficulty to get troubled entities to take the bailout. Look at AIG. This bailout actually bites!
AIG was politically insensitive. This story alone will make firms in the future to invest more to mitigate political risk or at least reputation risk (branding), which is not a good news.
In addition, a good portion of the reason for these companies to require a bailout is that their valuation (capitalization) fluctuated so greatly they were literally worthless. So, some companies may realize taking themselves off the exchange is not a bad idea, at least they can insulate themselves from the volatility. Is that what we want: fewer choices for mutual fund managers and pension fund managers? If they have fewer options and social security is running out, then what are to do?
Fewer choices on the exchange also means quicker wealth concentration. Gini coefficient will spike up very quickly. Is that what Obama wants?
Navy Or Education?
Naval conflicts are obviously more exciting and therefore more headline deserving. However, Obama’s education announcement may have a greater impact over the US competitiveness. US’ timing of airing out these incidents at this time is interesting. So is the timing of China’s testy behavior.
US has been relying on foreign labor supply for a long time, both the high and low paying jobs, just lower than Canada’s (and thus lower college grad/capita than other western European countries). However, tightening this foreign labor supply since 911 and later due to border control will make the quality of domestic labor supply more critical to the US competitiveness. US can certainly produce high quality labor supply. Given the size of the US economy, does US have sufficient quantity of high quality labor supply to sustain the complexity and sophistication of US economy? Does US suffer from too much variation of more basic labor supply? The answers to these questions may not matter much to the restaurant down the street. However, they matter from call center and assembly line operators to pharmaceutical companies.
Obama’s quest of the week, apparently education this time, is important not for this recession (or depression), but for the sustainability or viability of our Social Security. America needs to find more domestic supply for higher end jobs, if America decides to continue tightening foreign supply. America also will need to have a more consistent quality for lower paying jobs as well. All these mean education system of the US has to pump out products that are more fitting to the buyers of the labor market. That is why Obama is stressing on quality of education, merit pay, etc.
Quality labor supply does not come easy. They require a long investment cycle. And they are difficult to measure. AFT says the devil is in the details. Obama is getting into the habit of not giving details. Will we see something of substance to improve the education? How long will we have to wait for this one?
About the naval conflict, this is similar to what happened to Bush 2 as well. Is China testing Obama’s style or determination? Or, is US military trying to seize the agenda of Obama’s diplomacy? After all, DoD secretary Robert Gates is supposed to just “help out”. In a situation like that, Department of State should be able to assert more influence than Defense. What is the story here? Watch how this evolve and we will get a better clue.
Obama, How Much Per Job?
Obama’s message in the first presidential TV press conference was straight forward. Who was he talking to? Sure we all want get going with the recovery. Where is the problem? If there were not problem, Obama would not have been talking. Can the TV appearance be credited for the Senate passage? Hardly.
Stimulus (by now, it should be stimuli) bill got going because 3 Republicans voted with the Democrats. Nancy Pelosi is having the no-compromise stand. However, the margin in the Senate is 2 Republican votes. Nancy Pelosi may actually get hurt at the end. Republicans have no problem with sinking since they are sinking a Democrat president. The remaining Republicans got fairly safe seats. Even if there is a backlash against Republicans, they felt they got their seats firmly. House Republicans’ attitude is the proof. Senate Democrats understood this fully. That’s why Senate Majority Leader Reid says “the differences are minor”. They are minor only when you want to compromise. Reid is basically telling Pelosi to get it over with.
Was Obama talking to Nancy Pelosi? Or Senate Republicans? Does public opinion carry weights on the Senate Republicans? Hardly. May be to someone like Palin who has national inspiration. For the Senate Republicans, it cannot be appealing, at least not for another one and a half year when the midterm election is up or Republican primary is up. So, could Obama be trying to build public support against Pelosi? That would be an entertaining idea.
$838B to create how many jobs? The up side says 3.8M jobs. Let’s say 4M. So, we will spend $209,500 per job creation. And let’s round it down, say 209K or even 200k per job and take the general rule of thumb that another $20 is needed for payroll tax and benefits. We are looking at $174k per job (round down again). What kind of job are these, actually? And I guess $174k / job is okay because they are not $500k executive pay?
Gary Becker (1992 Nobel and right wing) gives the lowest multiplier so far I have read, below 1. Let’s take that multiplier as half of 1.5 (the consensus he claims). We are looking at 0.7. In that case, the actual $ per job creation is $130k per job creation. Does it make you wonder if you want to drop you current job and take one of these 4M jobs that are to be created by the government?
Yes, this is very cynical. That is very inefficient. That is exactly the point of the Senate Republicans. Here is the however.
However, what is the cost of inaction? How little is “just enough” for recovery? This is not a typical recession. A lot of this recovery is related to confidence: consumer confidence and investor confidence. Any kind of stimulus of this magnitude cannot really afford a staged approach. The stimulus has to be big enough to create a reverse shock effect to ignite activities. The problem with staged approach is each new stimulus actually reinforces the perception that “We are doomed. We have tried so many times and we failed. Give it up. We should not try it again.”
So you may agree to Senate Republican’s message. However, can you afford to err on the “right” side? Or would you rather err on the left side?
More Bailout Drama – Exactly What Obama Needs
Obama has been trying to distance himself from the Blagovich scandal. The questions are now revolving around his staff and how much he knew of the senate seat auction. No matter how clean he is and how hard he tries to move on to his agenda, media (not opponents yet) would be after this news item: since nothing else was news worthy, until the bailout news came. Obama owes Bush for this one.
Senate said no to American auto bailout. Bush said yes to bailout. Both traded their places in regard to bailout. Bush initially said no to Detroit bailout. Senate said yes to Wall Street bailout.
If not for this newest episode of bailout drama, Obama would still be harassed by Blagovich questions.
Obama needs to check the most recent Damage Control For Dummies. There maybe embarrassing information. However, tossing it out up front is better than having someone else digging them out piece by piece – you gain the initiative of how, control of when, manipulation of the stage and the transition to the next agenda item. Since Obama has not even started his administration and there are plenty of work to do, unlike many other administration, this ownership of moving on back to his agenda is important.
Bush now wants the bailout because the incoming President wants it. Bush is simply helping out the other guy. Obama owes one more.
The collapse of the bail by Senate and its resurrection by Bush will give us another roller roaster ride in the stock market on Friday. The only good thing about this drama is that it affects only the Friday stock market. By Monday, 2 or more episodes will be played by then.
