The youngest son of North Korean leader Kim Jong-il is awarded two key party posts, in a move seen as part of a gradual transfer of power.
Let me see if I’ve got this right.
Wall Street goes on a drunken binge from 2001 to the crash in 2008. The Street is spurred by the removal of most regulations and by the creation of new financial devices like derivatives and credit default swaps. One hedge fund manager, a derivatives specialist, estimates that about two percent of the Street people who use derivatives really understand them. But no difference. You can use these devices and others like them to roll over deals like sub prime mortgages and sell them to the next customer — and you take a big bonus as soon as the deals are made. The whole Ponzi-like scheme collapses in 2008. Some 8.5 million jobs are lost in 2008 and 2009 alone and several million people lose their homes. But the feds come to the rescue with a $700 billion payout in 2008, no strings attached. Wall Street recovers and in 2009 is again giving billions in bonuses. Now here’s where it gets confusing … President Obama wants some Wall Street reform. Nothing extreme, just a process to avoid having banks default and cause a national recession again. The banks don’t want this because it might slow down their gambling and they might not make as much money. The Republicans don’t want it because the banks don’t want it and John Boehner and Mitch McConnell want the banks to finance their return to power. So the Street and the Republicans create a new story. It goes as follows: You know this massive inequality that has come to America, like 1% of the population in 2009 making 23.5% of the earnings, or the fact that the median family income has gone down 5% from 1999 to 2009, or the fact that Wall Street now feels perfectly safe in gambling as much as they want because they know the government — read tax dollars — will rescue them? Well, none of that is the fault of Wall Street or the Republicans who have been in power and promoted the policies that led to this stuff. It’s all Obama’s fault — you know the guy with the funny name and the Kenyan anti-colonialist world view. Yeah, it’s all Obama’s fault.
Now I’ve finally got it.
Help wanted: one of the leading political administrations in the world seeks to fill senior economic position. Duties include putting an implausible spin on dismal economic conditions. Being skilled at improving actual economic conditions not a requirement. Experience as a corporate CEO preferred.
Sadly, if reports are correct, that seems to be the gist of how the Obama administration is going about filling Larry Summers’ soon-to-be vacated seat as the director of the National Economic Council.
According to the New York Times, “News of Mr. Summers’s departure set off speculation that Mr. Obama would replace him with a corporate executive to counter the impression that he is antibusiness.”
Politico was even more specific: “President Barack Obama’s team already knows the ideal candidate to replace him on the National Economic Council — a woman CEO.”
It’s hard to know where to begin. Have you ever been having a conversation with somebody — a long one in which you’re really getting into things — when, suddenly, your friend says something that tells you he actually hasn’t heard a word you’ve said? That’s what the administration’s reported desire to replace Summers with a CEO is like. After two years of governing a country locked in economic misery, you’d hope that Obama and his economic team would’ve really listened to the country and learned that what matters isn’t the economic team’s resume or what “signals are sent” to Wall Street, but the actual state of the actual economy. But apparently not.
It would be nothing less than shocking to find that the president, at this late date in the recession and with the midterms shaping up as they are, is looking out at the economic landscape and concluding that what most needs repairing is his administration’s relationship with Wall Street. Really? How about hiring someone who would “send a message” to the 26 million unemployed or underemployed Americans — with the message being: Help is on the way!
If the person most likely to provide that help happens to be a CEO, great. But expressly looking for a CEO to counter the Wall Street perception that Obama is anti-business is the wrong way to go about the search.
“What Obama really needs is someone who’ll do a good job,” wrote Matt Yglesias. If the economy is doing well, he adds, “messaging” takes care of itself: “FDR’s economic message was very compelling in 1936 because the economy was growing rapidly.”
Echoing Yglesias is Paul Krugman. “Obama should pick someone who can do a good job,” he writes. “Never mind image, or the message the appointment supposedly sends — there are about 600 people in this country who care about that stuff, and most of them are paid to care.”
TNR‘s Jonathan Bernstein is even more blunt:
…this is a remarkably stupid plan, if true. It will not ‘disarm’ critics who say that Obama is reflexively anti-business, any more than having Bob Gates at Defense ‘disarmed’ critics of Obama’s approach to terror… The condition of the economy two years from now will likely be the single most important factor in whether Obama serves a second term or not. That’s the actual condition of the economy, not the spin version of it.
And as far as hiring a woman — hey, I’m all for women and diversity, but given the fact that the middle class is crumbling under the weight of near double-digit unemployment, I’d first like to start with some diversity of vision and economic perspective. That’s the element that is sorely lacking in this White House. As a former Treasury official put it in Jonathan Alter’s book The Promise, Obama’s economic team “ran the gamut from A to C, though hardly to F, much less Z.”
Of course, A to C hasn’t been working out very well. And I doubt whether that’s because of the lack of an E and O tacked onto the C. After all, Carly Fiorina is a female former CEO. While at HP she sent a message that many CEOs and “the Street” often like: the willingness to destroy the lives of thousands of workers in order to maximize profit. Is that what we need being whispered in the president’s ear?
I have no doubt that there are plenty of CEOs, male and female, who would be worth appointing. But the key thing, the sine qua non of the new director, should be an ability to truly grasp what this economy is doing to average working Americans. In other words: empathy. Researchers into emotional intelligence talk about an emotional coefficient. If given the choice between someone who runs a company with a high ranking on the Fortune 500 or someone who has a high emotional coefficient, I’d take the latter.
The reason why Elizabeth Warren is now a household name, and was pushed passionately by consumer groups to be the head of the Consumer Financial Protection Bureau, isn’t because of her credentials as a professor at Harvard Law School. It’s because they realized that Warren truly understands the plight of American workers and families.
Instead of “sending a message to Wall Street,” how about sending a message to the three quarters of the country who, according to a new CNN/ORC poll, still believe the economy is in a recession — despite what The National Bureau of Economic Research says?
It’s a message that would make it clear that serious attention is — finally — going to be paid to the housing crisis, which shows no signs of ebbing. As the Washington Post writes, it’s not just foreclosures that are increasingly dotting the landscape, but short sales as well. Since 2008 alone, short sales have tripled, with 400,000 expected this year. That’s not a sign of an economy bouncing back to life.
It’s a message that would make it clear that the administration at long last recognizes the growing and shameful level of inequality in our country. As Eric Alterman points out, in the 2000s, median household income fell almost 5 percent. But since 1979, the top 1 percent has raked in 36 percent of household wealth gains. “Approximately 300,000 super-rich Americans gobbled up half as much of the fruits of new wealth produced as 180 million or so American workers,” writes Alterman.
In short, if the president really wants to do something for American businesses, and not just the access-loving CEOs who would, naturally, be thrilled to have a friend with a new office in the White House, he should appoint someone whose mission is to reinvigorate America’s middle class. A thriving, working, spending middle class is much better for a business than having its CEO know somebody who has an office close to the president’s.
Communicating that he understands the hardships being experienced by millions of struggling Americans has, surprisingly, not been one of the many gifts of our gifted president. Changing that, instead of worrying about improving his relationship with Wall Street, will help determine the fate of the middle class — and, incidentally, whether he gets a second term.
That‘s the message his pick to replace Larry Summers needs to send.
Unlike some of the people you see in my HuffPost writings, I am not an economic expert. Like you, I read the financial pages, watch the financial shows, scan some internet sites and try to use my noodle to make sense out of the wildly conflicting and, at times, seemingly insane economic opinions.
That conjures up a great dilemma, though. With more and more economic experts coming out of the woodwork — both on Wall Street and in Washington — who are we supposed to believe?
How about President Obama, who tells us “we are moving in the right direction and the economy is getting stronger by the day?”
Or New York Times columnist Paul Krugman who insists “we’re in early stages of a third depression?”
Or maybe the National Bureau of Economic Research, which recently told the nation the 18-month recession ended in June?
Or should we heed the roar of Wall Street, which is signaling loud and clear that the economy is clearly, but slowly mending by driving up the Dow more than 750 points in the past couple of months?
Then again, maybe Standard & Poor’s thoughtful and perceptive senior economist, David Wyss, has the right idea. “We’re having a half-speed recovery, nothing to get excited about, but it’s better than none,” he tells me.
Or perhaps, Madeline Schnapp, a forward-thinking economist out of West Coast liquidity tracker TrimTabs Research, who says: “We’re still stuck in first gear and haven’t exited the recession yet.”
The answer, judging from these decidedly contrary views, is we seem to be caught in an environment of ‘up in the air economics’. In other words, there’s a thick fog of uncertainty out there, and nobody has the faintest idea when it will evaporate.
It all brings me back to a memorable event that took place on October 26, 1881. That was the infamous day of one of the Old West’s most famous gunfights — a shootout between the Earps — aided by “Doc” Holliday — and the Clantons, at a vacant lot behind the OK Corral in the Tombstone Arizona territory.
Now, nearly 129 years later, a slew of additional gunfights are taking place between the economic bulls and bears at what might appropriately be called the Economics Corral.
One of the more intriguing economic gunmen is a skeptical grizzly of a 34-year-old man named Michael Larson, editor of a monthly newsletter out of Jupiter, Florida, The Safe Money Report
Based on a fair number of highly negative and unpopular, but on-the-money forecasts, Larson has demonstrated he’s lightening fast on the economic trigger, not the kind of guy with whom an economic bull would want to tangle.
Larson’s ability to repeatedly score both financial and economic bulls-eyes is well documented in past interviews I’ve done with him. For example, he was well ahead of the Wall Street herd in forecasting such dreaded events as the credit and housing crises, a major downturn in commercial real estate and a wicked decline in stock prices.
His latest thinking, indicative of much more bloodletting, is spelled out in a brief commentary he just fired off to his newsletter subscribers.
His summation: “The economy is on the ropes, a double-dip recession is all but inevitable, and the rally presents a fantastic selling opportunity.”
Larson contends the latest batch of economic data couldn’t be more clear, pointing in particular to a deceleration in industrial production growth from 0.6% in July to 0.2% in August; likewise, a slump in the New York Fed’s economic index to a 14-month low in September, while the Philadelphia Fed’s index fell below the zero line for the second consecutive month.
Larson also observes that banks repossessed more homes in August than in any month in U.S. history, while companies across the spectrum are either reporting anemic sales and earnings or cutting future targets.
To Larson, it means the handwriting is on the wall, namely a hefty drop in stock prices. For starters, he sees the Dow — currently trading at around 10,812 — wrapping up the year at about 10,000 or possibly in the 9/000s.
It’s worth recalling that in the gunfight at the OK Corral, several people were killed. Financially speaking, Larson is convinced the dragging economy will produce even more fatalities at a similar hot and heavy gunfight now under way at the Economics Corral.
What do you think? E-mail me at Dandordan@aol.com
What agency is systematically destroying American jobs? The mantra this election season is jobs, jobs, jobs, as both parties claim that putting people back to work is their top priority. But what if I told you that in the midst of the worst downturn since the Great Depression, one federal agency is throwing people out of work — and that neither the Democrats nor the Republicans are lifting a finger to prevent it?
Forget “shovel-ready projects,” the Federal Deposit Insurance Corporation under Chairwoman Sheila Bair is literally taking the working shovels out of the hands of hard-working Americans as it hijacks — and then mothballs — construction projects across the country. This is what “recovery” looks like in too many American towns: half-built projects rotting behind chain-link fences as desperate workers sit idle and politicians search for new shovels to fill with pork.
One of those projects is mine. For more than a year, a boutique hotel in my hometown of Charlottesville, VA has sat rusting within sight of Thomas Jefferson’s Monticello. Other projects in places such as Los Angeles, Albuquerque and Milwaukee have met similar fates as Bair’s FDIC refuses even to answer the phone calls of entrepreneurs who had the grave misfortune of being financed by banks that failed and were subsequently taken over by the FDIC.
Turns out, those bank failures were just the beginning of the cataclysm, as I and others learned. Many lost their life savings because of the FDIC’s ineptitude and proclivity for cutting sweetheart deals with vultures like Barry Sternlicht’s Starwood Capital — a guy who notoriously told The York Times that his company is positioned to be “like the Saudis” in some real estate markets. Others, like me, have spent millions of dollars just to force the FDIC to the table in an effort to get our projects finished.
Meantime, Chandrakant Patel, 67, has been ruined. In the 1970s, he fled the anti-business repressive regime of Idi Amin in Uganda and built a thriving business in the United States. He has spent the past several months working as a security guard on the site of the Albuquerque hotel project he started and invested his life savings to build. The project was so close to completion that shipping containers had already arrived with the fixtures and furnishings. But then his bank failed. The federal government then failed Mr. Patel.
Earlier this month, the FDIC foreclosed after months of foot-dragging, misinformation and running Mr. Patel out of money.
Instead of putting ordinary Americans back to work, the FDIC is presiding over one of the greatest wealth transfers in American history. Many of the same unaccountable banks and financiers who wrecked the global economy out of sheer personal greed are now scooping up projects for pennies on the dollar — with the help and blessing of the FDIC.
One in seven American now live in poverty, but the super-rich are fast becoming the mega-rich and the mythical American path to prosperity is being blocked, compliments of an agency whose original mission of safeguarding the deposits of ordinary citizens has mutated into protecting the banks at all costs. The FDIC claims it’s all for the greater good, but as Bloomberg’s Jonathan Weil recently noted: “The banks were saved by the American people. Now who will save the people from the banks?”
To understand how fiercely the FDIC protects the interests of banks over ordinary citizens, consider that it took me over a year and around $500K dollars in lawyer bills to just get the names of the eight syndicate banks that held the loan on my project after my original lender, Specialty Finance Group, collapsed in the largest bank failure in Georgia history. That’s right: the FDIC didn’t believe I had a right to know the names of the banks that stopped funding my project.
It’s all part of an accounting scam. While the banks later claimed I defaulted, they never foreclosed on the project, which should have been the natural and expected course of action.
As a result of fancy accounting, eight banks show my loan as good on their books. But as the people of Charlottesville know all too well, the hotel is just a half-finished skeleton of concrete and steel looming over downtown. If you think Enron was bad, get this: these banks also show interest payments from me as revenue and profits! I assure you, I have not paid these banks one single red cent of interest since they stopped funding. But they continue booking this imaginary interest income and phantom profits and report it to shareholders and customers alike. Mission accomplished: hundreds of jobs destroyed and accounting fictions created, all in one tight package.
If I was a customer of or investor in these banks, I’d want to know what I just told you, particularly since the “value” my loan makes up a significant portion of some of these bank’s so-called “assets.” According to iBanknet.com, the eight syndicate banks have an average of $33 million in equity; my original loan was supposed to be for more than $23 million. (Remember, bank customers, you are own on deposits over $250,000 when it comes to deposit insurance.) The banks, complete with the person in charge, are:
- River Community Bank in Martinsville, VA; Ronald Haley, President
- Pioneer Bank in Stanley, VA; Thomas Rosazza, President & CEO
- Old Dominion National Bank in North Garden, VA; Charles Darnell, President & CEO
- HomeTown Bank in Roanoke, VA; Susan K. Still, President & CEO
- Harrison County Bank in Lost Creek, WV; David Griffith, President
- Guaranty Bank & Trust Co. in Huntington, WV; Marc Sprouse, President
- First United Bank & Trust in Oakland, MD; William B. Grant, Chairman of the Board, President & CEO
- SuffolkFirst Bank in Suffolk, VA; T. Gaylon Layfield III, President & CEO
Most people who fall victim to the FDIC never learn the names of the banks that help do them in, in large part because the FDIC throws the full weight of the federal government behind its efforts to protect the banks. Simply by warning people I am violating a court order. That’s how oppressive the FDIC is in protecting its banks. Few people have the resources or perseverance to fight that kind of obstruction from an army of government lawyers paid with taxpayer money and backed by taxpayer-funded threats.
Chandrakant Patel tried for eight months just to get through to the right person at the FDIC after it took over his lender – coincidentally also part of Silverton Bank, which was being run for the FDIC by a former Ameriquest Mortgage executive named Claire Cotter. Ameriquest, you may recall, was fined $298 million for illegal lending practices before it went belly up. (I was able to get through to Claire Cotter in less than eight months, but she repeatedly hung up on me. Then the FDIC sought an injunction to prevent me from calling Cotter and other public officials at their government offices.)
Mr. Patel and his family were told by Claire Cotter that the agency would help them renegotiate the loan and then backpedaled. The FDIC told Patel one of the syndicate banks holding his note refused to renegotiate the terms so Patel could finish the final 15% of his project. When Patel asked to see the paperwork, he was denied.
The only alternative the FDIC offered Mr. Patel was to find someone else to buy his loan out. Keep in mind that this was during the height of the credit crisis. At a time when government officials from President Obama on down were telling the country that taxpayers were injecting money into the banks to enable lending, the government agency overseeing a big piece of that process was basically telling the Patels they were on their own.
More than 75 people lost their jobs when Mr. Patel’s project stopped — not counting the ongoing jobs the hotel would have created. Now he is facing foreclosure and bankruptcy.
In Los Angeles, developer Sonny Astani was well on his way to completing the first phase of his Concerto high-rise project, planned to include 629 residential units in twin 30-story towers. Then in the fall of 2009, his lender, Corus Bank, failed and was seized by the FDIC, which subsequently sold his loan and 100 others to a consortium of hedge funds led by Starwood Capital. Buoyed by the FDIC’s sweetheart deal of 0% financing, Starwood began squeezing Astani out by turning off the spigot of construction funds needed to complete Concerto, costing hundreds of jobs and millions in tax revenue. Astani is now fighting desperately to keep Starwood from seizing his property and making it part of a portfolio of 50 other high-end properties wrested from other developers.
As for me, I had to put my hotel company into Chapter 11 bankruptcy to defend against what would have been a ridiculously expensive legal fight on multiple fronts. The FDIC wants to fight me in multiple venues in multiple states over the same set of facts; I’m trying to consolidate them in one venue. It’s another absurdity in a case that has collectively cost me and taxpayers like you more than $12 million. For the record, my loan balance was only $10.3 million when the bank stopped funding and threw 100 people out work. Do the math.
There are likely thousands or even tens of thousands of stories like these all across the country, but the FDIC doesn’t want people to hear them or to know what’s being done with taxpayer money in the name of economic recovery. But if no one speaks up, the FDIC will continue to take what entrepreneurs like Mr. Patel, Mr. Astani and myself built and hand it off to for pennies on the dollar to international bankers.
Tomorrow, I am scheduled to begin a mediation hearing with the FDIC. My sole original goal was to end Charlottesville’s nightmare and finish my project. But as I have learned the plight of Mr. Patel and many others, I now know that something more must be done to help entrepreneurial small business people protect themselves from rapacious banks seizing wealth and then killing jobs. We have given hundreds of billions of dollars to banks that don’t lend.
Banks don’t create jobs, the small businesses and entrepreneurs of America do. Yet banks won’t even loan money that they are given expressly for that purpose. They just pay bonuses to themselves for taking no risks. Hard working entrepreneurs and small business people like Mr. Patel created the engine of American commerce and power our world-renowned willingness to invest and take risks. Somehow Washington has been seduced by the banks into thinking it is they who are the key to job growth. How can politicians confuse those who got us into this mess with those who will lead us out?
Don’t get me wrong: banks play a function in economic growth, but only if they lend. In that way, a bank is like gasoline. Entrepreneurs are the engines that power our economy, but they need the gasoline of credit. When banks think they can exist on their own without the engine of small business, they are — like gasoline — nothing more than a highly combustible substance. We saw that when the banking “industry” threw a match on the global economy it now controls.
Entrepreneurs like me, Mr. Astani, Mr. Patel and many others are still waiting for the flames to die, but the FDIC seems intent on stoking the fire as long as it can.
One of President Obama’s top economic advisers said Tuesday that the economy will eventually improve and that “people aren’t going to live with their parents forever.”
Speaking at the National Journal’s Workforce of the Future conference, Larry Summers touted Democratic legislation to spur the economy and Obama’s proposal to reauthorize expiring tax cuts for the middle class. He also said he took comfort in the “inherent cyclicality to economies.”
“On average, the economy forms about 1.5 million family units each year,” Summers said. “Housing starts are running at four or five hundred thousand. That’s a natural economic response to the kind of inventory that exists. That’s a reflection of the fact that family formation slows in more difficult times. But people aren’t going to live with their parents forever. Family formation will come back to normal and indeed will catch up to reflect the delays that have taken place.”
The Census Bureau reported this month that the number of families doubling up rose 11.6 percent from 2008 to 2010. An April study sponsored by the Mortgage Bankers Association found that “normal rates of household formation will not return until unemployment levels return to close to normal rates.”
So how long will people live with their parents? Most forecasts have unemployment stubbornly high for the foreseeable future. Obama adviser Austan Goolsbee, for instance, said this month that unemployment is “going to stay high.”
“It is true the economy is not fulfilling the promise many of us saw in the spring,” Summers said. “I think that is a reflection of three factors. It’s a reflection of the shocked confidence that came out of what was happening in Europe that raised risk premia, depressed markets, created uncertainty, and that proved to be much more virulent than most people expected. It’s a reflection of the end of the inventory cycle, which had been a substantial source of tailwind leading to increased employment, increased hiring as inventories were replenished… And it’s a reflection of the difficulty that firms have had in getting over the threshold and making a decision to expand their hiring, which led to lower levels of income which in turn led to lower levels of hiring.”
Speaking about the looming game of chicken over the expiring Bush era tax cuts in Congress, Summers said, “Look at what middle class families have been through and it’s hard to believe this is the right time to be raising gridlock concerns about whether we’re going to substantially increase middle class families’ taxes in the midst of a recession.”
Speaking about the looming game of chicken over the expiring Bush-era tax cuts in Congress, Summers said, “Look at what middle class families have been through and it’s hard to believe this is the right time to be raising gridlock concerns about whether we’re going to substantially increase middle-class families’ taxes in the midst of a recession.”