Category Archives: Economics

Buffett move is best argument yet against bailout

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Buffettwarren

Suddenly, it becomes harder for Henry Paulson to sell his $700 billion taxpayer bailout. With Warren Buffett willing to invest $5 billion of his money — rather than the taxpayers’ — in a Wall Street institution that made the right calls, don’t we have a powerful argument that the market is working, and correcting itself?

Buffett Deal at Goldman Is Seen as a Sign of Confidence

Warren E. Buffett, the country’s most famous investor and one of the world’s richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan, in a move that could bolster confidence in the financial markets.

Until now, Mr. Buffett, who has navigated the stock market with legendary prowess, has largely refrained from investing in the stricken financial industry, saying repeatedly that things could get worse.

Thousands of people on and off Wall Street follow Mr. Buffett’s moves, so his decision to invest in Goldman immediately heartened investors….

I’m no expert on capitalism, but how do you argue that it’s breaking down and needs a government takeover if firms that made bad decisions are failing, and those that made good decisions are attracting capital?

Yes, I know it’s more complicated than that. But I’ll be watching to see what effect this has on the debate.

Here’s a libertarian nut for you (or is he?)

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My first impression of this story in The Wall Street Journal was to think, Wow, talk about your ideological nut jobs…

Trader Makes a Quick $1.25 Million on Rescue, Then Slams It
William O. Perkins III says he turned a $1.25 million profit trading Goldman Sachs Group Inc. stock last week.

You would think that would count as a pretty good paycheck for the Houston energy trader. Instead, the experience left him so angry about the demise of capitalism that he says he has decided to spend his profits on advertisements attacking President George W. Bush’s planned $700 billion Wall Street bailout.

The president has run into a wall of skepticism over his plan…. But the 39-year-old Mr. Perkins is putting cash behind his anger. He commissioned an African-American arts collective to draw a cartoon depicting Mr. Bush, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke trampling on the graves of private enterprise and capitalism. Then he paid $139,104 to run the drawing as a full-page ad in the Tuesday editions of the New York Times. And he promises to spend a million more on ads before he is done….

Shades of Howie Rich, huh? I have long been fascinated — an appalled by people who hate government SO much that they’re seemingly willing to pay more to FIGHT the "growth of government" than they would have to pay in additional taxes to support it. It’s not rational. On some level, it violates the very notion of rational selfishness that your purest libertarians avow. It’s letting emotion overcome reason.

Mind you, there are plenty of things to dislike in the Paulson bailout plan — or in the lesser ones that have already occurred. But we are fools if we reject a proposal on ideological grounds, because it does or does not "grow government" or some other quasi-religious incantation. The question should always be, should the government (and that’s ALL we can decide through public debate, what the government should do) should do THIS particular thing in THIS particular way under THESE particular circumstances? Sometimes the answer should be yes, and sometimes no, but we’ve got to consider it dispasionately and without resort to intellectual prejudices. I think that in the case of the Paulson plan, a case can be made that this government action is NOT necessary, especially when you consider that Warren Buffet just put $5 billion of his own money into Goldman Sachs — isn’t that the Wall Street supposed to work, the players who make the right calls attracting investment, while the ones who screw up fail? And if that’s happening, is this crisis really as bad as it’s being painted?

But don’t reject something on the basis that it "smacks of socialism" or some such. I don’t care if it smacks of antidisestablishmentarianism, if it’s the wise thing to do under the circumstances — and that’s what we have to decide.

All of that said, once I read further in the tale of Mr. Perkins, I decided that there was something going on here that went beyond offended ideological sensibilities. He actually felt that there was something wrong, something unfair, about his having made that $1.25 million, on account of the government having changed the rules in the middle of the game. Call it a quirky sense of honor or sportsmanship or whatever. But if a trader on Wall Street can actually realize that he didn’t earn such a payday, and feel like "I’ve gotta give that money back," as he put it, that’s probably a GOOD thing. And all too rare.

Of course, there are a lot more constructive things he could do with that money, and that’s where the notion of throwing it away on ideology comes into play. But he seems to be doing what he thinks is right by his own stunted lights, and that’s something.

Pundits pan panicky Paulson plan

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The consensus over the last couple of days from syndicated columnists (and remember, since Mike’s been gone, I have to look at all of them every day, and choose the one that we have room for in the paper) is that Henry Paulson’s proposal for saving the credit markets has a lot of problems.

Unfortunately, I’m not seeing a lot of alternatives offered. This puts us as a nation in the extremely uncomfortable position of believing SOMETHING should be done, just not this.

A sampling:

  • The Krugman column we ran this morning, "Cash for Trash."
  • William Kristol’s "A Fine Mess." Excerpt: I’m not convinced. It’s not that I don’t believe the situation is dire. It’s not that I want to insist on some sort of ideological purity or free-market fastidiousness. I will stipulate that this is an emergency, and is a time for pragmatic problem-solving, perhaps even for violating some cherished economic or political principles. (What are cherished principles for but to be violated in emergencies?)… But is the administration’s proposal the right way to do this?
  • David Brooks says "The Establishment Lives!" Excerpt: What Paulson, et al. have tried to do is reassert authority — the sort that used to be wielded by the Mellons and Rockefellers and other rich men in private clubs. Inspired in part by Paul Volcker, Nicholas Brady and Eugene Ludwig, and announced last week, the Paulson plan is a pure establishment play. It would assign nearly unlimited authority to a small coterie of policy makers. It does not rely on any system of checks and balances, but on the wisdom and public spiritedness of those in charge. It offers succor to the investment banks that contributed to this mess and will burn through large piles of taxpayer money. But in exchange, it promises to restore confidence. Somebody, amid all the turmoil, will occupy the commanding heights.
  • That phrase, "commanding heights," appears twice in George Will’s column for tomorrow’s paper (embargoed for Wednesday) — in a quote from Lenin and on from the platform of the postwar British Labour government. Needless to say, Mr. Will is not pleased.
  • In another column for publication tomorrow, Robert Samuelson urges caution, and lists defects with the plan. The headline: "Paulson’s Panic."
  • Bob Herbert, in "A Second Opinion?," writes: Does anyone think it’s just a little weird to be stampeded into a $700 billion solution to the worst financial crisis since the Great Depression by the very people who brought us the worst financial crisis since the Great Depression?

It’s easy to dismiss such rhetoric from Mr. Herbert as more of the usual — he doesn’t like these guys, so he never, ever likes what they propose. But Paul Krugman’s piece rose above that (a rare achievement for Mr. Krugman), and you certainly can’t fit Kristol, Brooks, Will or Samuelson into that box.

The United States of France

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A thoughtful reader shared this with me, from TIME magazine:

How We Became the United States of France

By Bill Saporito Sunday, Sep. 21, 2008
This is the state of our great republic: We’ve nationalized the financial system, taking control from Wall Street bankers we no longer trust. We’re about to quasi-nationalize the Detroit auto companies via massive loans because they’re a source of American pride, and too many jobs — and votes — are at stake. Our Social Security system is going broke as we head for a future in which too many retirees will be supported by too few workers. How long before we have national health care? Put it all together, and the America that emerges is a cartoonish version of the country most despised by red-meat red-state patriots: France. Only with worse food.

Note the piece that the phrase "We’ve nationalized the financial system" links to. That one photo of Henry Paulson is rapidly becoming ubiquitous. I used it for the Daddy Warbucks thing, and I also put it on tomorrow’s op-ed page with a column by Robert Samuelson headlined "Paulson’s panic."

Hey, that’s the United States of Freedom to you, mon ami.

WHAT election?

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As anyone who was paying attention knows, the crisis on Wall Street pushed aside the presidential election in news coverage last week — for only the second time this year, according to the Pew Research Center’s Project for Excellence in Journalism, which reports:

The Wall Street
meltdown captured more media attention than the presidential campaign last week,
and the crisis re-directed the campaign narrative toward a focus on economic
issues, according to a new report from the Pew Research Center’s Project for Excellence in Journalism.

For only the second
time this year, another event eclipsed the campaign as the top story. Market
woes led the press agenda for the week of Sept. 15-21, filling 37% of the
newshole. Additionally, the state of the economy became the leading campaign
narrative last week, accounting for 43% of the campaign newshole. The previous
week (Sept. 8-14), the economy only accounted for 4% of campaign
coverage.

The sudden burst of
coverage of the economy marks only the second time since early June that the
issue has been a top weekly campaign theme. Indeed, last week was only the
fourth time that a policy issue has been the No. 1 storyline in general election
coverage…

Why even I, in spite of my extreme reluctance, have been writing about it, which probably accounts for a slight dropoff in blog traffic the last few days. Mind you, it hasn’t dropped to anywhere near pre-Sarahmania levels, but it’s tapered slightly — 15,010 page views last week, compared to 15,128 the week before, and 15,981 the week before that. Before the day that the Palin choice was announced, 11,000 a week was about our speed here. The drop I speak of seems hardly worth mentioning, except that it matches my intuitive belief that we’re on the cusp of a significant drop, unless something more arresting to the attention of normal people occurs in the next few days. One can take only so much of intense back and forth between Bernanke and Paulson and Chris Dodd et al.

The Granny within us all

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By BRAD WARTHEN
Editorial Page Editor
KILLING TIME during my too-short stay at the beach over the summer, I flipped on the tube and vegged out briefly over an episode of “The Beverly Hillbillies:”
    Granny became suspicious of banker Milburn Drysdale. To reassure her, Jed accompanied her to the bank and asked that Mr. Drysdale show Granny her money. Mr. Drysdale sputtered that he didn’t have it, that it had been invested, that it would take weeks to gather that much cash. Jed, deeply disappointed, soberly told him he’d best do so right quick; Granny felt bitterly vindicated in her lack of trust.
    Oh, those silly, unsophisticated Clampetts! What a laugh! They thought those millions were in actual notes and coins in the vault! What rubes.
    Too lowbrow for you? Consider Shakespeare’s Polonius, who advises Laertes:

    Neither a borrower, nor a lender be;
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry….

    Oh, that silly, pompous old windbag and his cliches! If he’d minded his own business, “Hamlet” wouldn’t have turned out as a tragedy.
    Of course one cannot have a modern economy without a whole heap of borrowing and lending — only the richest of us could own homes, or go to college, or drive cars; businesses couldn’t grow; factories would shut down for the lack of raw materials. No one could trade in stocks or commodities.
    And all wealth is based on the sort of trust that Granny was so reluctant to extend to Mr. Drysdale. Most who have achieved middle-class status seldom hold in their wallets an amount equal to even a single paycheck. If you do direct deposit, your compensation consists of 1s and Os transferred from one financial institution to another, and the only reason your debit card works at the grocery store is that everyone involved, from your employer to your bank to the store, plus various middlemen, trusts that those blips of data represent something of real and quantifiable value.
    And yet, it seems that on some level, the crisis on Wall Street that so threatens our entire economy is the result of major financial institutions not having sufficient assets to balance their debts — no cash to show Granny, even given time to gather it, in terms I can understand — leading the normally trusting Jeds of the world to say “Hold on!” to such an extent that Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke saw all borrowing and lending about to come to a screeching halt. In the prosaic wording of The Wall Street Journal over the weekend, what those officials saw was “the circulatory system of the U.S. economy — credit markets — starting to fail.”
    So it was that Messrs. Paulson and Bernanke went to Congress late last week to ask for a $700 billion bailout of our financial infrastructure.
    Congress was at first deeply impressed. Speaking of a presentation by Mr. Paulson, Sen. Charles Schumer, D-N.Y., said, “When you listened to him describe it, you gulped.” Over the weekend, though, the usual sorts of reflexes kicked in, questions were raised, and more than one voice said, “Hold on.”
    As one who would have trouble coming up with $700 on such short notice, I find myself wondering whom I trust in all this. And I wonder that even as I remain convinced that I must trust someone. In fact, the restoration of a healthy state of affairs seems to my mean understanding dependent on a multilateral restoration of trust throughout the system.
    On Monday morning, I read everything I could get my hands on trying to decide what I think Congress should do. Unfortunately, everything I read caused me to question whether I trusted the source.
If Mr. Paulson and Mr. Bernanke know what they’re doing, how did things get this bad? Congressional Democrats make sense when they say the bad behavior of executives at these failed financial firms should not be rewarded by the taxpayers, but how much of that is populist demagoguery? And conservatives are right to say that there are limits to the extent that government can shield us from risk and consequences, but at what point do their objections become mere ideological pedantry in the face of a crisis of this proportion?
    Consider the piece on the opposite page by Paul Krugman. I chose it because it broke down the situation into elements even I could understand. But given his oft-demonstrated animus toward the Bush administration, am I at all surprised that he concludes that he doesn’t like its plan?
    The really awful thing is that it was trusting the experts — from the Masters of the Universe on Wall Street to an administration headed by, as Gail Collins of The New York Times wrote over the weekend, “the-first-president-with-an-MBA-and-a-lot-of-good-it-did-us” — that got us here.
    The even awfuler thing is that our only way out of this mess is to trust. We have to rely upon the “experts” in the administration, and members of Congress and their staffs, to draft the right plan and make it work. And then we have to trust our bankers and brokers and each other going forward, or nothing the government can do can get our economy back on its feet.
    That means we’re going to have to hush up the Granny within us, and given present circumstances, that’s not going to be easy.

Go to thestate.com/bradsblog/.

What would happen if Ben Bernanke shaved?

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Bernankeben

We are often unmindful of the pictures that other people carry around in their heads of us. For instance, I’m always running into people who say, "You shaved your beard!" when I haven’t worn one in a year or more. A lot of Republicans, for instance, think of me that way because they saw me lot at the GOP convention in New York four years ago, and I had a beard that week (as in the shot of Jeff Miller and me on this post).

Separate from that, two people have said it in the last couple of weeks. One of them was Kathleen Parker (at this event), and the other one I forget.

The fact that people will, however belatedly, notice something like that about ME got me to thinking over the weekend…. We all know how skittish markets are. Whatever you think about what Phil Gramm said, the fact is that the health of our economy is largely a phenomenon of mass psychology (which is why I posted the FDR picture). If we believe stocks have value, they have value. If enough of us believe the economy is healthy, it will generally be healthy. (This is why I don’t like dealing with the economy; so much of everything, right down to the value of money and gold themselves, are a smoke-and-mirrors thing that only works if you close your eyes and BELIEVE. Except of course for the land, Katy Scarlett…)

And you know how the merest word or smallest gesture on the part of a chairman of the Federal Reserve can have, even in good times: The chairman said "irrational exuberance"! We’re exuberant, but is it irrational? Could he be right? Next thing you know, the dot.com bubble bursts. Sure, those stocks were overvalued, but the bubble lasted as long as we were able to fool ourselves otherwise.

So it occurs to me that, with everything so precarious on the Street, and Paulson and Bernanke speaking to Congress in such hushed whisper of awe and fear and the pending collapse of our credit markets…

What if Ben Bernanke shaved off his beard?

Why, Wall Street would go berserk! But would it be good berserk, or bad berserk? Could this be the bold stroke that is needed to jolt the economy back to where it should be? Or would we find ourselves living in the Stone Age before he could get a Don Johnson stubble going again?

It’s probably not worth the risk. If I see Ben Bernanke even LOOKING at the Schick Xtreme 3s in a checkout line, I’m going home and stuff all my baseball cards into a mattress.

I’ve probably made enough trouble even suggesting the possibility. For that reason, I won’t even go into the fact that…

Henry Paulson looks disturbingly like Daddy Warbucks!

Paulsonhenry

What we need

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Fdr

You’ll note that in my Sunday column, I said I found it somewhat reassuring that both John McCain and Barack Obama seemed humbled by the scope of the looming national crisis on Wall Street. It was sort of the point of the column (hence my headline, "Beware excessive certainty about Wall Street crisis").

But I also said, at the end:

    At some point we’re going to need some FDR-like self-assurance
mixed with pragmatic solutions. And in this election that is suddenly
about the economy, it’s unclear which candidate will pass that part of
the audition.

That remains unclear. I mean, the only person on either ticket who has a cocky grin anywhere approaching that one is maybe Joe Biden.

And we need that kind of optimistic confidence in a leader at this time.

Beware excessive certainty about Wall Street crisis

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By BRAD WARTHEN
EDITORIAL PAGE EDITOR
We all have our ways of escaping when the world is too much with us. Some find that “reality” TV serves. Others have football. I’ve been rereading the seafaring novels of Patrick O’Brian.
    In the one I’m on now, there is an enduring image that has stuck with me this week: a frail wooden ship, its sails reefed to the minimum, riding an enormous swell in the chilly latitudes far south of the Cape of Good Hope. Each wave is higher than the masts, and the crew scrambles from moment to moment to keep from being overwhelmed by wind and water.
    Following the crisis on Wall Street has been like that, except that the ship’s crew could do something. Watching the unbelievably high waves of financial news breaking, I felt more like a passenger who doesn’t know port from starboard. I suspect I’m not alone in this.
    In fact, I know I’m not. What I’ve read in recent days has caused me to beware anyone who sounds too glibly sure about how we got where we are, and what we should do next.
    Early in the week, I was glib myself, on my blog. I complained mightily that my worst fears (first voiced in January) were being realized, that this would end up being an election about the economy. My whole career, I had considered a newspaper front page that led with economic news a dead giveaway that nothing interesting was happening in the world. But by the end of the week, the sheer scale of what was happening shut me up on that score.
    The Wall Street Journal played the turmoil on its turf across six columns at the top of the front page, five days in a row. Rupert Murdoch or no Rupert Murdoch, that just doesn’t happen. And a smaller headline on one of those same pages proclaimed the “Worst Crisis Since ’30s, With No End Yet in Sight.” A terrorist attack on the U.S. embassy in Yemen got pushed to an inside page, and not even I scoffed at the editors’ judgment.
    The Washington Post’s Robert Samuelson, usually a mortal enemy of hyperbole, wrote that “Wall Street as we know it is kaput.” I did not doubt him.
    The fall of giants of high finance, from Lehman Brothers to Merrill Lynch to AIG, seemed less significant than the fundamental, systemic changes that happened in reaction — reinforcing the metaphor of a deep ocean swell as opposed to mere whitecaps. The Federal Reserve teamed up with other nations’ central banks to “improve the liquidity conditions in global financial markets.” The U.S. Treasury secretary and chief of the Fed huddled repeatedly with other major players — in not only New York, but London, other foreign capitals and right up the road in Charlotte — to reshape the U.S. financial system.
    The phrase “on the fly” would appear in report after report, giving the impression of erstwhile Masters of the Universe scrambling like common sailors between the waves washing over the deck, desperately trying different combinations of sail and rudder.
    Amid all this, some pundits would air their erudition regarding such affairs, but what certainty they were able to muster seemed to arise from their own political prejudices. On the facing page you see that Paul Krugman notes with satisfaction that “much of Washington appears to have decided that government isn’t the problem, it’s the solution.” Mr. Krugman is a professor of economics at Princeton. But other smart people wrote the opposite. George Will grumbled about the rapid increase of “government entanglement with our less-and-less-private enterprise system,” and a member of the Journal’s editorial board flatly said, “Government largely created this mess.”
    Ignorant as I am, I strongly suspect that the best way through this storm will thoroughly please neither supply-siders nor the acolytes of John Maynard Keynes.
    So it is that, perhaps paradoxically, I was reassured to see just how uncertain the two candidates for president were in the face of this unexpected challenge.
    They, too, started the week glib. As late as Tuesday, John McCain was blithely expressing his opposition to the AIG buyout, and Barack Obama was responding with the usual comfort that Democrats feel with pocketbook issues, pontificating that “John McCain cannot be trusted to re-establish proper oversight of our financial markets for one simple reason: He has shown time and again that he does not believe in it.”
    But the next day, Sen. McCain more humbly acquiesced to the necessity of the bailout, saying “there are literally millions of people whose retirement, whose investment, whose insurance were at risk here.” On Friday, he tried to put his views in a coherent context with a speech to a Chamber of Commerce in Wisconsin, while Sen. Obama said his own more extended proposals would be forthcoming once he had met with his advisers later that day.
    In this kind of environment, with each news cycle bearing down on us like a wave that seemingly could, in Bob Dylan’s words, drown the whole world, I find greater comfort in such humble confusion than in the positive tones of those who are too sure of their analyses.
    As The New York Times noted, “The actions of both men captured how they were being forced to make policy proposals and pronouncements on the fly, from one campaign rally to another, as each day’s developments in the financial markets and in Washington were overtaken by new ones the following day.” The campaign had become an “audition for who could best handle a national economic emergency.”
    At some point we’re going to need some FDR-like self-assurance mixed with pragmatic solutions. And in this election that is suddenly about the economy, it’s unclear which candidate will pass that part of the audition.

Go to thestate.com/bradsblog/.

Our fiscal 9/11?

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Remember when Democrats and Republicans stood on the Capitol steps and sang "God Bless America?" For a moment there, the Washington crowd was stunned by the attacks of 9/11 into forgetting their stupid partisan differences and remembering they were Americans. I made a passing reference to that in a column last week.

This NYT story describes a moment last night when the shock and awe of the scope of this mounting financial crisis had a similar effect on members of Congress. It happened in a briefing Ben Bernanke and Henry Paulson gave to congressional leaders:

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd,
Democrat of Connecticut and chairman of the Banking, Housing and Urban
Affairs Committee, put it Friday morning on the ABC program “Good
Morning America,” the congressional leaders were told “that we’re
literally maybe days away from a complete meltdown of our financial
system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in.
“Somber doesn’t begin to justify the words,” he said. “We have never
heard language like this.”

“What you heard last evening,” he
added, “is one of those rare moments, certainly rare in my experience
here, is Democrats and Republicans deciding we need to work together
quickly.”

What an amazing time for a spirit of bipartisan cooperation to emerge — if that indeed happens (and if it doesn’t, we’re sunk). Now, on the eve of this too-close-to-call presidential election, the one I worried so much about in another column.

I certainly hope that happens. But you know what? As weird as you may think the fact that 9/11 made me (however briefly) optimistic about the future, here’s something you might find harder to fathom: I don’t feel that way this time. With the terror attacks of 9/11, I had very clear ideas of what I thought should happen next (short version: fully engage the world), and it was my belief that those things would happen that prompted my optimism.

Now, I’m at a loss. I don’t know what it is I want the government to coalesce around. Maybe Bush and Paulson are taking the right steps, but I don’t know. To me, a financial mess of this magnitude is more perplexing than terrorist attacks. Not as immediately horrible, but less understandable. And that leaves me uneasy.

Also, the promise of bipartisanship seems shakier here. There is a history of partisans setting aside differences in response to an external threat. But many politicians cut their teeth demagoging economic issues, and happily drawing sharp ideological distinctions about them.

But I hope the potential described above is realized. As uncertain as I am about the way forward, I would feel much better if we’d drop the party games and face it together. That would help a great deal.

Half a trillion? Whoa! That’s more than I make in a YEAR

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OK, I realize that’s an old joke, but I just basically wanted to give y’all a post on which to react to the Bush administration’s proposal for dealing with the crisis on Wall Street:

WASHINGTON — Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jaw-dropping price tag — a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions.

Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.

A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."

Here are several versions of the story:

I’m still scrambling here to get the weekend editorial and op-ed pages out, but in the meantime, what do y’all think? The market seems to like it, but those folks are easily excited…

ANOTHER ‘stimulus?’ That’s a bad joke, right?

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Not being sure I’d read the story in the WSJ right, I went to the WashPost and found that yes, Nancy Pelosi apparently wants to send us another stupid economic stimulus check. (And if you read this some other way, I’d love to hear it.)

Madame Speaker, do us a favor: You want to spend money, whip us up a National Health Plan. Maybe then we can afford to spend the cash we have stimulating the economy.

If that’s what we need, and I’m unconvinced of it. First, I haven’t read that the current crisis has anything to do with short-term consumer spending. Maybe I’ve missed it. And if you’ll pardon the gross oversimplification, it seems to me that Wall Street needs a sedative more than it needs stimulus…

How Kristof arrived at the $17,000-an-hour figure

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Just to show you I don’t just shovel this stuff into the paper…

You know the Nicholas Kristof column I bragged on, which calculated that Richard Fuld was making $17,000 an hour to run Lehman Brothers into the ground? Something started bugging me about the math when I was reading my proof, so I went to Mr. Kristof’s blog and posted the following:

URGENT QUESTION:

I’m the editorial page editor of The State, the newspaper in Columbia, SC. I’m using your column on tomorrow’s op-ed page.

But I have a problem: How did you arrive at $17,000 an hour from compensation of $45 million? That would work if it were $35 million (assuming a 40-hour week, 52 weeks a year, and how else would you do it?), but at 45, you’d have to assume he was working 51 hours a week, which is an odd assumption to choose.

I need a quick answer. I’ve got to let this page go….

— Brad Warthen, Columbia, SC

That was at 4:34 p.m. At 5:12, I got this reply:

brad, thanks for your note, which was forwarded to me.
    I used 50 hours a week and then rounded. Failing to round seemed to me to suggest a false precision when the whole effort is so rough….
    allbest, nick

So he was being generous and assuming Mr. Fuld was working better-than-banker’s hours (which is a pretty safe assumption, whatever else you say about the overpaid so-and-so). Ol’ Dick’s got no room to complain, then…

Makes sense to me. I pass this on in case you read the piece and wondered the same thing. 

So everything’s OK on Wall St. now? No?

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Tradergrin

So this morning, for the fourth day in a row, The Wall Street Journal spreads the collapse of major financial institutions across six columns — which, to a guy who used to be a front-page editor, is more alarming than any numbers you might throw at me.

And as if that weren’t enough, a one-column headline below and on the right-hand-side of the page, said "Worst Loss Since ’30s, With No End Yet in Sight." What a way to start the day, huh?

But now I go to the WSJ site and see a grinning trader (one Theodore Weisberg, above), and the headline "Stocks Soar; Banks Lead the Way."

OK, that’s nice. I don’t know why this is happening, and I don’t think it reverses all the bad news, but it’s nice. I’ll resist trying to analyze it. I see it had something to do with an action by the Fed and other central banks, which tempts me react like a history major and say something some thing like, "Nothing like a strong central bank — take that, you Jeffersonians!" But I won’t. I’m aware of how little I actually understand….

So THAT’S who that arrogant-looking so-and-so was…

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For months now, I’ve been seeing this one photograph of this one guy, over and over, in The Wall Street Journal — almost always with stories I was uninterested in reading, so the picture just sort of registered in the background.

It was the sort of picture that no sane company publicist would ever have distributed, unless it wantedFuldrichard2_2
its CEO to be hated. And you knew this was a CEO; the picture just radiated, "I’m the kind of guy who thinks he’s really hot stuff because I’m so absurdly overcompensated." And you know, I seldom think that when I look at people. I like to give people the benefit of the doubt (something that drives some of y’all crazy, because you’re always wanting me to join you in despising somebody, and I just don’t feel like it — not necessarily because I’m a nice guy; I just don’t feel like it). But this picture INSISTED that you not like the guy. If a psychologist included this photo in a Thematic Apperception Test, I suspect there would be a surprising uniformity in the stories the subjects would tell.

Well, we’ve all been paying more attention than usual to Lehman Brothers the last few days. For tomorrow’s op-ed page, I happened to choose this Nicholas Kristof column, which in a nutshell is about a guy named Richard Fuld who got paid the equivalent of $17,000 an hour while he was running that company into the ground.

Needing art for the page, I searched AP photos for "Richard Fuld." And lo and behold, what should pop up but that very same picture that’s been half-registering on my mind the last few months. That’s it above and to the right. It was taken by Kevin Wolf at a news conference at the National Press Club in Washington on Jan. 22, 2007. I especially like the way Mr. Wolf thought to include the satellite image of the Earth in the frame, just in case we missed the whole "master of the universe" thing going on.

And apparently, to the extent that this guy Fuld will be publicly remembered, he’ll be remembered looking like this.

Well, I feel so much smarter for knowing that now. But not nearly as smart as he apparently thought HE was.

So now I’m bailing out something called AIG?

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A little while ago I got a release from Jim DeMint that said in part:

Americans should be very concerned by the size and frequency of these government
bailouts…

Well, I am, Jim — I am. And I’d really like to see someone give me an intelligible explanation of why it was important for me, as a taxpayer who’d rather see his money spent on Iraq or universal healthcare, am bailing out yet another private company.

First Bear Stearns. Now AIG. Presumably, this was another company "too big too fail," which evokes the obvious response, "evidently not." Let’s see — we had to bail out Bear Stearns (and I still don’t know why). We didn’t have to bail out Lehman; we let that go into bankruptcy (another form of relief our government offers). We let the marketplace deal with Merrill Lynch — specifically, another private company bought it. And now, ta-da!, another private company is buying Lehman. The market at work, one would think.

So why AIG? I get Fannie and Freddie; as little as I understand about High Finance, I always understood them to have a special relationship to the government. If nothing else, you couldn’t let them go under for the same reason a Mob boss can’t let a made guy get whacked without doing something about it. You lose respect, both on your own turf and abroad. You gotta do something; you got no choice.

But why AIG? I don’t get it.

Curses: An election about the economy

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Well, my worst nightmare for this election year has been realized. I had thought that this was a no-lose year for me. I liked McCain and I liked Obama, so what could happen to mess things up?

But if you’ll recall, back in January I said that this was shaping up as a very good year, except for one thing — the possibility that we’d be talking about the economy.

I freaking HATE talking about the economy. My entire career, a newspaper front page that leads with an economic story has always been, to me, a signal that nothing interesting is happening in the world.

It’s not the economy per se. It’s money. It bores me to moaning, retching tears. Talking about it, or being forced to hear other people talking about it, is torture, torture of a sort I’d hope even W. would disapprove of. (I suspect some of y’all feel the same way — the post I reluctantly put up about it has drawn only seven comments so far — even though I tried to dress it up in Looney Tunes language.)

And now, this mess on Wall Street, whatever it’s all about, has BOTH candidates for president — guys I used to like — talking about it. So it looks like McCain HAS flip-flopped on torture…

How did this happen?

Wall Street reaches its Wile E. Coyote moment

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Responding to a recent post, Grandmaster Bud said:

I keep waiting for Brad to post something about the financial market meltdown….

Of course, bud wanted to the subject to come up so he could make some broad statement about the election, which he went ahead and made:

… Apparently the Phil Gramm approach to regulation isn’t so great after all. And to think, if Bush/McCain had their way our Social Security funds would be in grave jeopardy now.

My response was to say that I already tried to give y’all a place to talk about that — you know, the George Bailey thing — but as I’ve made abundantly clear in the past, I generally don’t comment on things having to do with Wall Street, because I don’t understand it. That is, I sort of understand it, and what I do understand makes such little sense that I prefer not to go out on a limb offering opinions on such things.

But here goes anyway: I think markets are all a bunch of smoke and mirrors. Value is totally relative, so to me Phil Gramm and John Maynard Keynes make equal amounts of sense in this context. The value of something like Lehman is to me based on B.S. So the assets were overvalued — big, freaking surprise. Samuel T. tried to explain it to me this morning this way: If your assets are valued at $40 million, but they’re only worth $20 million, you’re overvalued. I get it. And I also think it’s a bunch of hooey. To me, the only value of a place like Lehman, shuffling its ones and zeroes around, is the buildings and office furniture and carpets and such that it owns, plus B.S. If people will pay you $40 million for your stock, it’s "worth" $40 million. If they’ll only pay you $20 million, it’s "worth" $20 million. If they suddenly realize it’s based on nothing — like Wile E. Coyote suddenly looking down and realizing nothing’s holding him up — it’s over.

One can say this about anything — the monetary worth of anything is what people are willing to pay for it. It’s true of comic books. And although I believe (as I have said) that comic books have an absolute value, I realize value is relative.

But when you’ve paid too much for your comic book and you’re off the cliff and you look down, at least you’ve still got your comic book. With Lehman and Merrill and the rest, I’m not sure that you have anything at all.

By the way — you know that Krugman column I wanted to run on the subject, but it got outdated? Well, I’m happy to say that I have a very solid Robert Samuelson piece on the subject for Wednesday’s paper. In it, he explains why "Wall Street as we know it is kaput." My favorite part is when he says that after a crash like this, some good thing may happen in reaction. For instance, "Talented and ambitious people may move from finance, where they were attracted by exorbitant pay, into more productive industries."

That could only be good for the country.

If we DO have a run on the banks, can I be George Bailey?

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After posting my last post, I went to find this scene from "It’s a Wonderful Life" — one of my All-Time, All-Category, Top Five Movies (in fact, I listed it on the blog as my No. 1, but I go back and forth on that). Interesting thing, when I went to YouTube and typed in the title, the bank run scene came up second — which makes me think others have that scene on their minds.

Surely things aren’t that bad, are they?

Well, if it does come to that, can I be George Bailey? I want to be the reassuring guy who says, "Just remember that this thing isn’t as black as it appears," just before the sirens go by. Then I can say,

No, but you’re… you’re, you’re-you’re thinkin’ of this place all wrong, as if I had the money back in a safe. Th-th-The money’s not here… why, your money’s in Joe’s house, that’s right next to yours, and in the Kennedy house, and Mrs. Maitland’s house, and, and a hundred others. … Why, you’re lending them the money to build, and then they’re gonna pay it back to you as best they can, now what’re you gonna do, foreclose on them?

I’ve always enjoyed that, a nice communitarian lesson in how a healthy community operates economically.

Of course, if you’d rather get 50 cents on the dollar from that free-market monster Mr. Potter, wull-wull-wull go right ahead, but don’t then don’t come crying to ol’ George Bailey… No, wait: I guess George wouldn’t say that, would he?

The run on gas stations: Will banks be next?

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Thursday evening one of my daughters called me; she was over at USC studying, and wanted to know if she should run out and get some gas for her aged car (which doesn’t get the best mileage). She had been told that it would go up to $5 a gallon by midnight.

I told her not to worry about it (she had half a tank). We were all just going to have to get used to higher gas prices, because they’re only going to keep ratcheting up. Getting a few gallons at a lower price this once wasn’t going to make a noticeable difference in the long run.

On the way home that night, I saw the queues of cars out into the streets. Of course, those twits — the hoarders — are the reason some stations are out today. Looks like some of us will be carpooling for the next week or so, which is not a bad thing (from an Energy Party perspective), just irritating.

But a run on the gas stations is one thing. Will the banks be next, in this pessimistic environment? I saw this in the WSJ this morning:

The crisis gripping the nation’s financial system deepened, with Lehman Brothers Holdings Inc. racing to sell itself over the weekend and other major U.S. institutions scrambling to show they have the financial wherewithal to ride out the crisis.

Potential buyers of Lehman were heading toward a standoff with federal officials Friday. Firms weighing offers for the battered investment bank sought financial assistance, while Treasury Secretary Henry Paulson has been unwilling to support a government-led bailout, people familiar with the situation say. The weekend’s negotiations over Lehman’s fate could define the next chapter of the government’s handling of the crisis.

Friday’s unease spread beyond Lehman. Shares of American International Group Inc., the giant insurer, fell more than 30%. Standard & Poor’s said it might lower its credit ratings on AIG because of its tumbling share price and the increasing yield on its debt instruments compared with safe government Treasurys. (See related article.)

Now I don’t care much about Lehman; I don’t know what it is any more than I understand the Bear Stearns thing. But that "spreading crisis" talk seems to me a cause for concern.