Category : The Possibility of a Bailout for the U.S. Auto Industry

Martin Feldstein–The Economy Is Worse Than You Think

Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.

The data for May are beginning to arrive and are even worse than April’s. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers’ reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

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Posted in * Economics, Politics, Consumer/consumer spending, Corporations/Corporate Life, Economy, House of Representatives, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Senate, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The U.S. Government

(WSJ) Government May Lose $14 Billion on Auto Bailout

The White House said Wednesday that taxpayers could lose roughly $14 billion of the money spent on auto industry bailouts, despite the industry’s recent recovery.

The White House cites the potential losses in a report, “The Resurgence of the American Automotive Industry,” released ahead of President Barack Obama’s trip Friday to a Chrysler Group LLC facility in Toledo, Ohio.

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Posted in * Economics, Politics, Budget, Corporations/Corporate Life, Economy, House of Representatives, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Senate, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The U.S. Government

Barry Ritholtz– TARP + GSE: $257 Billion in the Red

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Posted in * Economics, Politics, Budget, Economy, House of Representatives, Housing/Real Estate Market, Office of the President, Politics in General, President Barack Obama, Senate, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, The United States Currency (Dollar etc)

Paul Clemens–The Ghosts of ”˜Old G.M.’

Today’s public offering marks the moment when the Main Street and Wall Street bailouts meet. But the Wall Street firms haven’t been divvied up as G.M. has, in ways so visible to the eye. For General Motors, divided into its “Old” and “New” halves, there’s an inescapable paradox: the only possible route to future profitability is to create, through plant closings, monuments to past unprofitability. Old G.M. may have gone away for the purposes of the stock offering, but it didn’t go away in what might rightfully be called actuality.

Across the nation, as in Detroit, there is an economic disconnect, a split between what the economic numbers say and how things feel on the ground. The economy is growing, but the unemployment rate hasn’t budged. The recession officially ended in June 2009, but more jobs have been lost than have been added since that “ending.”

Handling this disconnect requires political acuity. It brings to mind something Philip Roth once said about those who have little feel for literature and the texture of lived experience it provides and so “theorize” it. Mr. Roth imagined a scene of a father giving his son this advice while attending a baseball game: “Now, what I want you to do is watch the scoreboard. Stop watching the field. Just watch what happens when the numbers change on the scoreboard. Isn’t that great?” Then Mr. Roth asks: “Is that politicizing the baseball game? Is that theorizing the baseball game? No, it’s having not the foggiest idea in the world what baseball is.”

It’ll be fun, for a day or two, to look at the scoreboard, and to see what G.M.’s shares are going for: $26? $29? $33? $35? The numbers on the exchange will change; it’ll be great, and a welcome, temporary relief from the numbers, still difficult to comprehend, of jobs lost and plants closed. Soon enough, though, we’ll have to go back to watching what’s actually happening on the field, where there’s still a blowout in progress, with the home team way behind, and no one, seemingly, with the foggiest idea what to do about it.

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Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, America/U.S.A., Corporations/Corporate Life, Economy, Labor/Labor Unions/Labor Market, Psychology, Stock Market, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Possibility of a Bailout for the U.S. Auto Industry, The U.S. Government

Meredith Whitney Says States May Need Federal Bailout in Next 12 Months

The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

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Posted in * Economics, Politics, Economy, House of Representatives, Office of the President, Politics in General, President Barack Obama, Senate, State Government, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government

The Economist–The President needs to change his reputation for being hostile to business

Winston Churchill once moaned about the long, dishonourable tradition in politics that sees commerce as a cow to be milked or a dangerous tiger to be shot. Businesses are the generators of the wealth on which incomes, taxation and all else depends; “the strong horse that pulls the whole cart”, as Churchill put it. No sane leader of a country would want businesspeople to think that he was against them, especially at a time when confidence is essential for the recovery.

From this perspective, Barack Obama already has a lot to answer for. A president who does so little to counter the idea that he dislikes business is, self-evidently, a worryingly negligent chief executive. No matter that other Western politicians have publicly played with populism more dangerously, from France’s “laissez-faire is dead” president, Nicolas Sarkozy, to Britain’s “capitalism kills competition” business secretary, Vince Cable (see article); no matter that talk on the American right about Mr Obama being a socialist is rot; no matter that Wall Street’s woes are largely of its own making. The evidence that American business thinks the president does not understand Main Street is mounting

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Posted in * Economics, Politics, Corporations/Corporate Life, Economy, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Taxes, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The U.S. Government

Gregg Easterbrook (Reuters)–It’s time for Obama to stop declaring new Economic Recovery Plans

Pundits are restless, an election looms ”“ so this week, President Barack Obama is proposing yet another round of special favors, aimed at improving the economy. Prominent columnist Paul Krugman wants the plans to be “bold” and to involve huge amounts of money. Here’s a contrasting view: government should stop declaring recovery plans, bold or otherwise.

Maybe the constant announcing of new plans ”“ especially plans backed by borrowing or tax cuts ”“ is, itself, an impediment to economic growth.

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Posted in * Economics, Politics, Budget, Consumer/consumer spending, Corporations/Corporate Life, Credit Markets, Economy, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

Thomas Straubhaar (Der Spiegel)–America Has Become Too European

The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government.

There’s no question about it: The 20th century was America’s era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

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Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Consumer/consumer spending, Corporations/Corporate Life, Credit Markets, Economy, Europe, Federal Reserve, Germany, Office of the President, Politics in General, President Barack Obama, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The U.S. Government, Treasury Secretary Timothy Geithner

Barry Ritholtz–Imagining if the Financial Fiasco had been Handled Properly

We don’t have alternative universe laboratories to run control bailout experiments, but we can imagine the alternative outcomes if different actions were taken.

So let’s do just that. Imagine a nation in the midst of an economic crisis, circa September-December 2008. Only this time, there are key differences: 1) A President who understood Capitalism requires insolvent firms to suffer failure (as opposed to a lame duck running out the clock); 2) A Treasury Secretary who was not a former Goldman Sachs CEO, with a misguided sympathy for Wall Street firms at risk of failure (as opposed to overseeing the greatest wealth transfer in human history); 3) A Federal Reserve Chairman who understood the limits of the Federal Reserve (versus a massive expansion of its power and balance sheet).

In my counter factual, the bailouts did not occur. Instead of the Japanese model, the US government went the Swedish route of banking crises: They stepped in with temporary nationalizations, prepackaged bankruptcies, and financial reorganizations; banks write down all of their bad debt, they sell off the paper. Int he end, the goal is to spin out clean, well financed, toxic-asset-free banks into the public markets.

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Posted in * Culture-Watch, * Economics, Politics, Economy, Federal Reserve, History, House of Representatives, Office of the President, Politics in General, President Barack Obama, Senate, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

Gregory Mankiw: Crisis Economics

The administration’s second assumption, meanwhile, is a matter of academic theories about the sizes of the relevant economic multipliers. Textbook Keynesian economics tells us that government-purchases multipliers are larger than tax-cut multipliers. And, as we have seen, the Obama administration’s economic team consulted these standard models in deciding that spending would be significantly more effective than tax cuts.

But a great deal of recent economic evidence calls that conclusion into question. In an ironic twist, one key piece comes from Christina Romer, who is now chair of Obama’s Council of Economic Advisers. About six months before she took the job, Romer teamed up with her husband and fellow Berkeley economist David Romer to write a paper (“The Macroeconomic Effects of Tax Changes”) that sought to measure the influence of tax policy on GDP. Crucial to the Romers’ method was their effort to identify changes in tax policy made during times of relative economic stability, and driven by a desire to influence economic behavior or activity (to encourage growth, say, or reduce a deficit), rather than those changes made in response to a recession or crisis. By studying such “exogenous” tax-policy changes, the Romers could be more confident that they were in fact measuring the effects of taxes and not those of extraneous conditions.

The Romers’ conclusion, which is at odds with most traditional Keynesian analysis, was that the tax multiplier was 3 ”” in other words, that every dollar spent on tax cuts would boost GDP by $3. This would mean that the tax multiplier is roughly three times larger than Obama’s advisors assumed it was during their policy simulations.

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Posted in * Economics, Politics, Consumer/consumer spending, Corporations/Corporate Life, Credit Markets, Economy, House of Representatives, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Senate, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government

Time Magazine Cover Story–The Good and Bad Economy

A new Time poll reveals just how hard the task is: Two-thirds of respondents say they oppose a second government stimulus package. And 53% say the country would have been better off without the first one.

The result is a White House pulled in three directions at once as it tries to repair the economy ”” and ensure that Obama and the Democrats can survive a rising tide of public anger. First, the Obama team is improvising ways to pass piecemeal spending items through a Congress where stimulus has become a toxic word. At the same time, the White House is signaling its concern about that budget deficit that has Tea Partyers raging ”” both through token gestures, like a White House contest that lets the public vote on cost-cutting ideas submitted by federal employees (the winner gets to meet Obama and see his or her idea go in the President’s next budget), and through Obama’s support for the work of a bipartisan deficit commission. And finally, the White House is trying to explain to angry liberals that it’s doing everything possible to keep the economy moving and fight Republican resistance to new spending.

It’s a delicate balancing act, on a par with Obama’s effort to pass health care reform without appearing to get too involved in the details. And just as it did in the health care battle, the future of Obama’s presidency ”” as well as the fate of the American economy ”” may hang on the outcome.

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Posted in * Culture-Watch, * Economics, Politics, Economy, Federal Reserve, History, House of Representatives, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Psychology, State Government, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

Jonathan Weil: Bailout Nation Will Thrive as Long as AIG Lives

To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

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Posted in * Economics, Politics, Corporations/Corporate Life, Economy, Politics in General, Senate, Stock Market, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

Repaying Taxpayers With Their Own Cash

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.

Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Armed with this information, Mr. Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned … that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”

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Posted in * Economics, Politics, Corporations/Corporate Life, Economy, Ethics / Moral Theology, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Possibility of a Bailout for the U.S. Auto Industry, Theology

Economist: Markets are too dependent on unsustainable government stimulus. Something’s got to give

The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.

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Posted in * Culture-Watch, * Economics, Politics, Economy, Federal Reserve, Globalization, Politics in General, Stock Market, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Treasury Secretary Timothy Geithner

Joseph Stiglitz: Harsh Financial lessons we may need to learn again

The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well – and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit – raise taxes or cut expenditures – to “restore confidence.” But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence – most recently when the International Monetary Fund insisted on them in East Asia in the 1990’s.

The fourth lesson is that there is more to monetary policy than just fighting inflation….

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Posted in * Culture-Watch, * Economics, Politics, Economy, Federal Reserve, Globalization, History, The 2009 Obama Administration Bank Bailout Plan, The 2009 Obama Administration Housing Amelioration Plan, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government