Obama Wants A Trillion For Recovery But Many Questions Remain

January 14th, 2009 - by: danny

SOMETHING NEW: INVOCATION AT A CONCERT

BALANCE: Last month, Obama announced that an anti-women’s rights, anti-gay preacher would deliver the invocation for his inaugural, and a firestorm ensued; yesterday, the Obama team announced that an openly gay Episcopal priest will give the invocation at the first inaugural function, a concert at the Lincoln Memorial. Openly gay Bishop V. Gene Robinson to deliver invocation at inaugural concert.

MORE BANKS COULD FAIL SAYS BEN OF THE FED
PACKAGE FOR STIMULUS PACKAGE NOW A TRILLION
ISRAEL TALKS TALKS BUT INTENSIFIES WAR

The big news is about what is not in the news yet. Will Barack Obama’s proposed economic plan–still to be unveiled with all of its details– be up to the task of dealing with the worst financial crisis since the depression? Does it go far enough? Does it go deep enough? Is it global enough? Can it work? Bear in mind, we have yet to hit bottom.

• BERNANKE WARNS: More Banks Will Fail

• Mo Sacirbey: “This Depression Worse than Great Depression”

President George W. Bush held his last news conference in the White House, and perhaps unwittingly, revealed and employed a more severe characterization of the current economic crisis.

• Pat Buchanan: An Unreflective Man

FT: CitiGroup Breaking Up?

Citigroup moves toward break up

Citigroup is to break itself up by separating higher risk US consumer finance and securities businesses from its global commercial banking operations in a dramatic attempt to ensure its survival.

OBAMA SEEKING ONE TRILLION FOR RECOVERY IN FISCAL MINEFIELD

AP: WASHINGTON — A week shy of taking office, President-elect Barack Obama already is putting his persuasion skills to a high-stakes test with Congress as he seeks to put his emerging administration in control of more than $1 trillion in economic stimulus and financial bailout money.

Obama met with Senate Democrats for lunch in the Capitol Tuesday. And his transition team prepared to dispatch top aides to meet with Senate Republicans this week in anticipation of a possible vote Thursday on whether to release $350 billion from the embattled rescue fund for the financial sector.

Financial Times has more:

George W. Bush on Monday agreed to ask Congress to release the remaining $350bn of US bail-out funds, meeting a request from Barack Obama as the president-elect’s team tried to quell opposition to the move among legislators.

Congressional aides said at least one and possibly both chambers of Congress could vote against releasing the funds. The president could veto any disapproval legislation, ensuring the $350bn is disbursed, but such a spectacle would test market nerves and undermine hopes of a strong start under Mr Obama….

Mr Obama told reporters: “It is clear that the financial system, although improved from where it was in September, is still fragile and I felt it would be irresponsible for me — with the first $350bn already spent — to enter into administration without any potential ammunition.”….

In a bid to ward off a vote of disapproval, Lawrence Summers, incoming National Economic Council director, on Monday sent a letter to congressional leaders promising greater transparency and more restrictions on banks receiving bail-out funds — including constraints on dividend payouts and on takeover activity.

Comments FT’s Martin Wolf: “Last week, President-elect Barack Obama duly unveiled his American recovery and reinvestment plan. Its title was aptly chosen, for Mr Obama spoke, astonishingly, as if the policies of the rest of the world had no bearing on the fate of the US. He spoke, too, as if a large fiscal stimulus would be enough to restore prosperity. If that is what he believes, Mr Obama is in for a shock. The difficulties he confronts are much deeper and more global than that.”

THREE PERSPECTIVES

First Perspective

Writer, David Sirota, is not against government spending, but questions what this money will be spent on:

“The question is whether Congress should agree to this request or not, and I am against it for four reasons that I mentioned on CNBC.

REASON 1: Treasury Says It Doesn’t Need the Money

First and foremost, as the New York Times reports, “The first $350 billion in bailout money has been fully allocated and the Treasury says there is no urgent need for more.” On top of this, the first $350 billion has been a complete disaster – as the bailout’s congressional oversight panel reports, there has been almost no transparency or even basic proof that the bailout is working to do anything other than subsidize bank consolidation and executive bonuses.

REASON 2: “New” Conditions Are Filled With Loopholes and Omissions

Second, it’s not clear that the conditions Democrats are talking about placing on the second batch of money are strong enough – or, in some cases, even real.

Rep. Barney Frank (D-MA) has put forward legislation that would impose some strings on the money – and his legislation draws a nice comparison to the auto bailout. Essentially, he wants to impose some of the same restrictions on the money that conservatives demand on the auto bailout. And that’s a damn good thing.The problem is that his proposal still has some gaping loopholes. Ã¢â‚¬Â¦

REASON 3: Congress Still Abdicating Its Oversight Responsibilities

To my knowledge, neither Frank nor Senate Banking Committee chairman Chris Dodd (D-CT) has put forward bills that would legislatively mandate exactly how the new bailout money is used, or even seriously better transparency. Instead, they are telling us we should simply trust Obama to use the money more responsibly and effectively than Bush. Indeed, lawmakers are demanding a letter from Obama describing how he would use the money – but by definition, a letter is non-binding.

Incredibly, we are expected to believe this will better guarantee transparency and effectiveness even though, as the New York Times reports, Dodd “acknowledged that without new legislation there would be nothing to guarantee that those plans would be followed.”Ã¢â‚¬Â¦

REASON 4: Nobody Has Explained Why This Is the Best Way to Spend $350 Billion

Nobody is explaining why spending another $350 billion on a Wall Street bailout is a better way to stabilize and stimulate the economy than, say, devoting that money to universal health care or a full employment program. Shouldn’t that be the very first condition of this amount of money? Shouldn’t someone have to make this argument? And isn’t the fact that this case hasn’t been made a major reason why polls show the American people still strongly oppose this bailout?

Second Perspective:

Naked Capitalism: Why Do They Need it Now?

“Remember the much decried end-of-Clinton- era pardons, the most controversial of which involved tax cheat and storied trader Marc Rich? Well, if I am reading the tea leaves right, those shenanigans pales compared to the nonsense Bush is trying to pull in his last week in office.

Bush is making it sound as if it is imperative that the remaining TARP funds be released, which is justifiable only if there is some disaster in the making that needs to be averted between now and noon on January 20. The only candidate that might fit that description is Citi, and investors obligingly ran the stock down 20% today (it recovered a tad before the close) and took the broader indexes with it.

I am mighty puzzled that the markets are taking badly to the spectacle of Citi hiving off a bit or two of its unwieldy self. We have said repeatedly that propping up the financial services industry in place will impede any economic recovery. It is simply throwing good money after bad. The industry needs price discovery, rationalization, and recapitalization.

A Citi tidying-up, or something bigger, is a very good step for the economy as a whole. It admittedly may not be pretty for financial stock buyers who got in too early. However, it is a mistake to think that what is in the best interest of these firms (as defined by incumbent senior management who are wedded to hanging on to turf) is in the best interest of the economy or the stock market ex financial firms (particularly since CEO pay in financial services is directly correlated with bank assets).

Ã¢â‚¬Â¦. So why would Bush want to grab the rest of the TARP money now? The only plausible explanation is to block the Obama crowd from imposing tougher standards like — hold your breath — accountability! And he could force a confrontation, which most believe would send stocks even lower. What a nice present for an incoming president.

But Obama is acceding to Bush’s brinksmanship, which is truly disappointing, Unless he is shrewdly trying to engage the Bushies while running the clock out. But it certainly doesn’t look that way.

Third Perspective:

Libertarians Say No

WASHINGTON, D.C. — America’s largest third party says that President-elect Barack Obama’s spending plans are based on flawed economics. “If you think Obama’s economic plans don’t make sense, it’s because they don’t,” says Libertarian Party National Chairman William Redpath.

“Americans are taking a look at Obama’s economic plans and scratching their heads,” says Redpath. “And, there is good reason to do so. The theory behind his plan, Keynesian economics, has been unsuccessfully tried by multiple presidential administrations in the past. It didn’t work for President Hoover in the early 1930s. It didn’t work for President Roosevelt in the Great Depression. It didn’t work for President Ford in 1970s. Why does Obama think it will work for him now?”

The Treasury Department Finally Responds to Critics:

WASHINGTON — Under criticism for its oversight of the federal bailout program, the Treasury Department plans to examine more closely whether institutions that receive money use it to boost lending.

Neel Kashkari, assistant Treasury secretary in charge of the bailout program, said Tuesday that the department will compare the level of lending by banks that have received government money with lending levels by similar banks that haven’t gotten assistance.

The Bush administration has been strongly criticized by lawmakers from both parties for not doing more to track the roughly $180 billion invested so far in more than 250 banks in an effort to increase consumer credit and lending to businesses.

FOX: Krauthammer ‘Bush Took A Shoe For The Country‘ – [watch video]

UPDATE TUES NIGHT: Prosecutors Will Try Again To Jail Madoff

Daily Beast: Is Bernie Cutting A Deal?

Could Bernie Madoff be looking to plead out and avoid a trial? That’s what The New York Times thinks is behind Monday’s court order that says Madoff’s attorney is “engaging in discussions concerning a possible disposition of this case.” “He’s trying to cut a deal,” an attorney unconnected with the case tells The Times. “The only other possible ‘disposition’ that could be negotiated would be for the government to drop the whole case – and that’s not going to happen.” A judge Monday declined prosecutors’ request to revoke Madoff’s bail. Meanwhile, The Wall Street Journal reports on efforts to find out how a Spanish bank, Banco Santander, lost $3.1 billion worth of clients’ money in Madoff’s alleged schemes.

BE THEE WARNED

Bloomberg: The Dalai Lama, Tibet’s exiled spiritual leader, blamed a lack of spirituality among people today for the global financial crisis.

The Buddhist monk, speaking during a week long religious seminar in the Indian holy city of Varanasi, told followers that “rampant corruption in the world” is due to a decline in culture and spirituality.

People have become selfish and materialistic, which has led to the economic slowdown,”Ã¢â‚¬Â¦. Pope Benedict XVI, reflecting on the crashing stock markets and financial turmoil, said in October that money “is nothing” and the only solid reality is the word of God.

“He who builds only visible and tangible things like success, career and money, builds the house of his life on sandÃ¢â‚¬Â¦”.

The News Dissector