All the sins of Larry Summers that justified his comeuppance

Since yesterday, when Larry Summers announced that he is taking his name out of consideration for the Chairman of the Federal Reserve, I have received two emails from old friends.  Hey, Judy, what do you think of that?  (As if they didn't know!)
Let us not cry for Larry and his lost dream.  He will have to satisfy himself in his comfy office at Harvard, and at whatever hedge fund he's hanging out at these days.  The man will not starve, though a little bit of fasting might not hurt him.
Still, it is time for me to lay out ALL of his sins, and to wonder why President Obama would ever have thought he would be acceptable to his (Obama's) base.  Most of these you will know about.  One, however, was embedded deep in one of Summers' op-ed pieces in the Washington Post over the past year.  It's the most cardinal sin of all.

Recap:  The frequently mentioned sins:  

1.  Responsible for the Financial Crisis:  He and his mentor (Bob Rubin) disparaged Brooksley Born, of CPSC, back in the 1990's, when she tried to get the Clinton Administration to do something about  the danger of unregulated derivative markets.  Those two, along with Alan Greenspan, snickered at little Brooksley who, as female, could not possibly understand the workings of big finance.  Eventually, to ensure their point of view, the four horsemen (Rubin, Greenspan, Summers and Gramm)  shepherded the Commodities Futures Modernization Act of 2000 through Congress near Christmas 2000.  Did Clinton even know what he had signed?  Well, not his greatest hour, but he listened to his advisors.  His advisor, our boy Summers, was not only wrong on the issue, he was arrogant about opposing views.   Unlike Alan Greenspan, he has never apologized for his role in the fiasco.

2.  Harvard Remarks on Women:  After alienating the faculty (let's forgive that), he made some remarks about women and math, which were probably inadvertent but which reflected an unscientific mindset and a clear bias against women.  He was pointing out the achievement gap in higher math between men and women. That's simple fact.  He argued for more research on the causes of same.  That's good.  But, then, he couldn't stop.  He said his "hunch" was that the cause of the gender gap is genetic and not environmental.  Ah, Larry. There it is.  No evidence, but your null hypothesis (needing to be disproven) was genetic male superiority!  Done as President of Harvard.  Yea!

3.  Performance in the White House during the Obama years.  Divisive, dithering, turf-conscious.  Ron Susskind's book, "Confidence Men" laid it all out.  I needn't say more.  Here is the New York Times article that describes Summers and what everyone (except the President, apparently) thought about him.  I will say no more as this item makes me wonder about my own crush on President Obama.  I don't want to go there.

The Mortal Sin:  (not mentioned in any of the news articles)

1.   The man supports the building of the Keystone Pipeline.  Why, he's such a genius that he knows about energy policy and global warming even better than the vast majority of climate scientists,   When I read his Washington Post Column (on economic growth) in which he put forth his argument, I felt obliged to write an angry letter to the Post editor asking why they print this man's drivel after his performance in numbers 1, 2, and 3 above. (I thought I was being clever, but my screed was not published.)  I have just spent a half hour looking for that opinion piece in the Post and could not find it.  But here it is, reprinted in a Reuters-India paper.

RIP, Public Servant Summers!  Enjoy retirement advising the hedge fund managers.

US Bankruptcy Code Downloadable

Just in case, you never know, when you need to be a friend's lawyer-equivalent, and have lots of time to interpret more arcane laws, here is a link to the US Bankruptcy Code, available in readable format, made available through US Credit Slips web site.

The best summary of the causes of the financial crisis

The Washington Post's Sunday business section had a wonderful piece by Barry Ritholtz on the causes of the meltdown:  The Big Lie.
He could have made more of the long-running idiocy of the SEC that anointed the three ratings agencies (S&P, Moodys and Fitch) as the only "nationally recognized" sources of bond ratings, thereby requiring pension funds and insurance companies to rely on those ratings for SEC compliance, and at the same time taking the pension fund managers off the hook for failure -- "What else could I do?  I had to rely on the ratings agencies.  Besides, if I had to do more work, I wouldn't have been able to go home to my beautiful family and our house in the Hamptons (or Martha's Vineyard, take your pick) on the weekends."

Here's some charts he put up on his web site as of 11-20-2011. Ritholtz Charts

The state of the global economy, by Joseph Stiglitz

Much has been made of his nobel prize in Economics, but let's face it...there are now a lot of those running around.  Nevertheless, I always find his papers and remarks understandable, which is a big thing in my view.
Here he has a sort of radical idea for saving the world economy, and he also puts the "state of" in an excellent perspective.
Here it is:  Stiglitz World Bank Talk

How bad is your State's credit risk?

Barron's  has a great article this month on the state of our States' credit ratings. Whether you're an investor or not, it's worth a look to see how your own State fares in the "best" list and the "worst" list. After all, in the end the taxpayer will pick up the tab, and that's all of us one way or another.
Little Delware (the Blue Hen State) turns out to have the strongest credit position among all states. How do they do it, considering that they must spent gadzillions rebuilding the beaches every spring to keep the ocean from washing it away?
I very much like the layout of criteria for assessing a State's credit health. Hope this link to the article works. Good, Bad and Ugly. If not, go directly to Barron's and search for the article.

More on GE and its quality control

Friend Lupi enthusiastically supported my conclusion about GE in a previous blog.  Here's what she had to say about her own experiences:

Loved your comments on GE appliances. We will never buy another GE appliance again. We wouldn’t take one as a gift. Here are my 2 favorite stories. A year after we got our (installed in cabinet) GE microwave, the interior light went. We were also having trouble with our GE oven, so I asked the repair person to replace the light (John having been unable to figure out how.) He told me that it would be good if I could do without the light because there was no way to replace it without removing the entire unit from the wall and that would involve a service call with 2 workers. I was so steamed I wrote GE suggesting that the engineer who had designed this model be fired. No response, of course. Next the GE dishwasher. The cup dispenser wouldn’t open. Apparently, there was no fix for this other than getting a new dispenser (at a cost of about $140). No one apparently can repair anything anymore; they can just “replace components.” We replaced it twice. The next time it went, we bought a Kitchen Aid, then decided it was so ugly we installed it at work and got a Bosch. The interior of our model was designed by a moron, but it’s only had one problem, so we will keep it until it dies. It’s blessedly quiet.

GE is the GM of the future!

Back in 1978, I had the misfortune to buy an Olds Cutlass, a classy looking car with the classic GM pre-planned burnout at 50K miles.  After that, I swore I would never buy another GM car (or American car, for that matter).  Hondas became my mainstay and they didn't disappoint with price points and reliability that surpassed my Oldsmobile.  In the mid-90's I relented, bought a Chrysler Grand Jeep Cherokee .. Just 50K miles later,  when the drive train faultered, I was back to Japan, and my Lexus rx300 is now on it's 115K th mile. 

So...now comes GE, the big mother of American major appliances.  Our 22 year old GE ovens are still going strong, but our 2-year old GE Profile microwave blew out (magnetron) and GE would not honor the 5-year warranty, because a lead wire had also blown. (Convenient, huh?).  This morning, our 8-year old GE Profile refrigerator blew out.  We'll pay for repair or replacement, of course, but 8 years is NOT a reasonable length of life for a major appliance!  I have resolved NEVER AGAIN to buy a GE appliance.   This despite the fact that I own some GE stock.  I'm also gradually selling the stock and realizing the substantial loss on the investment.  Nothing made by GE is made in the USA anyway... The microwave comes from Malaysia;  the refrigerator was made in Mexico. 
What's still working in our kitchen?  The VERY OLD GE oven;  the Kitchen-aid dishwasher (5 years old); the kitchen-aid garbage compactor (22 years old);  and the GE profile cooktop (1 year old).  Which one would you predict will fail first?

Closing the Wall Street Tax Loophole: Citizen action needed now

You may have heard something about how private equity managers are able to shield most of their income from ordinary income taxes, instead paying the 15% capital gains tax. The original bill in the House eliminated that windfall and required them to declare income from investments in which they have no financial stake as ordinary income. Now, the financial reform bill is in Congress, and ALREADY compromises have been made. This morning's Washington Post editorial (strangely and stupidly not available on their web site right now) lays out the latest deal -- only 65% of the income will be taxed as ordinary income, leaving the remaining 35% to capital gains.

These guys (yes, they're mostly guys) make gazillions, and their lobbying efforts are paying off, with stupid arguments about how this will hurt their incentives to take risks. The only risks they take are with their human capital by choosing to work as private equity artists, and I betcha they couldn't make as much money -- even fully taxed -- had they invested their human capital for 15 years to become a brain surgeon!

Now is the time for those of you in swing states (alas, Maryland is full of democrats who will vote for whatever the leadership agrees to) to contact your congressman or senator and demand that these private equity firm managers pay their fair share of taxes. Click here for directions on how to find out who your congressman or senator is, and how to contact her or him.

How will the coming US debt crisis unfold?

Here is an interesting report from the Committee for a Responsible Federal Budget outlining several scenarios for how a debt crisis will occur if we don't do something to manage our fiscal deficits in the near future. It's worth reading to try to figure out what kinds of personal wealth management strategies would give you the best chance of riding out the crisis without losing everything (or almost everything.)

Back to the Summers Blame Game

Frontline had a great program on our gal Brooksley Born, sometime head of the CFTC who tried to regulate the credit default swap market and was blown down by chief bloviator Larry Summers et al. and Sen. Phil Gramm (he of the late night Christmas 2000 law to "modernize" the CDS market by rendering it beyond the purview of regulation). It's on-line at PBS: The Warning. (Read about Brooksley at links provided in my May 26 post about her.)
It got me back in touch with my inner raging populist once again to ask the question: What the heck are Congress/White House doing to reform the financial markets? Brooksley answered this question in her Frontline interview: NADA!
What needs to be reformed? Two things, in my view:

1. The laws that require insurers, pension funds and mutual funds to rely on those heinous ratings agencies (Moody's, S&P, Fitch) for directing their investments. SEC anointed those three as the chosen few, even though they (ratings agencies) were paid by the issuers of the securities for the ratings that would determine how much interest the issuers would have to pay investors. (COI!) Even the FED got into the game, telling the banks it regulated that it could treat AAA securities as good as cash.
2. The easy money policy that led to the big pot of cash for investments in these doggy instruments.

Have you heard anything lately about either of these problems being fixed by Congress? by the FED? By Larry Summers? No? How shocking!

Cash for Clunkers cost us (taxpayers) $2000/car

Here's a great AND READABLE article in an electronic economics journal--The Economist's Voice--about the net costs to our society of the cash-for-clunkers program. By two University of Delaware economists. Net, it cost us about $1 billion extra...small change? One quote from this article is worth the whole thing: "Concentrated benefits create vocal advocates while diffused costs produce silent apathetic opponents."

Save, Save Save!....er, no...Spend, Spend, Spend!

Am I the only one tired of the mixed (confused?) signals our economic "leaders" (Larry and Tim and Ben) are sending about what we should do with our money? We Americans have spent ourselves into a debt hole in the past 20 years, courtesy of China, mainly, which has bankrolled us. Just a few months back, we were hearing about the crisis in credit card debt due to our profligate spending on cheap Asian goods over the past 20 years.
Now we consumers are being blamed for the failure of the economy to respond to the gadzillions being poured into it by the government. If we just save it, they whine, then all that spending won't do what they want it to do. Make the economy look better and therefore make THEM look better.
So, what should I do? Here's how I'm thinking about the save vs. spend dilemma. Part of me wants to save save save for the rainy day that I absolutely KNOW in my gut is on the way. That day will bring torrents of inflation, mainly through collapse of the dollar, but also because oil prices will gradually sneak upwards. But, if I save, I must put my money in something that's inflation-proof, and those investments are hard to find. Especially since the big guys like Goldman Sachs chew up idiots like me who might try to invest in commodities. I really do not know how to invest in commodities.
On the other hand, I've wanted a lot of gadgets that look like fun. HDTV, smartphones, laptops, kindles, fitness monitors, new big computer screen, new desktop, Wii, etc. etc. And, new furniture, too. And new PJ's. All of these are made in China now. So, once China makes good on its hints that it will switch its currency away from the dollar, all those goodies will get much too expensive for me. So, I'm on a China spending spree right now.
I'll save later-- my savings will be in the form of higher taxes paid to the government when the bill comes due. Since I can't keep everyone else from spending their stimulus-gotten dollars on cheap China, and since I'll have to share in the forced saving known as paying back government debt through taxes, I might as well have a few gizmos to show for it.

Goldman Sachs' Perfidy????

Love that word -- perfidy? I'm not sure I'm using it correctly, but out it jumped, keeping me out of the nursing home for another week. But, that's another story.
Sister Janet alerted me to an article by Matt Taibbi in Rolling Stone Magazine (of all places) on Goldman's role in every major bubble-meltdown since the Great Depression (ours today is only the Great Recession). Today in the Washington Post, Alan Sloan tells how Goldman is arguing with the Feds, which saved its hide in the past year, over how much our (i.e., US taxpayers') stock warrants are worth. Sloan thinks Goldman is tacky and greedy. We should contact the White House with a simple E-mail -- "Make Goldman Pay!" It's easy to do that...Click Here!
My friend G., who volunteers at the White House's phone bank, says the White House actually DOES methodically monitor the content and views of its incoming calls, except for total cranks whose expletives deleted are hard to categorize. So, I'm sure they're doing the same with their E-mails.


Then, somehow, we should keep track of what Treasury does. I'll try, but if you happen to see it in the next few weeks, leave a comment at the end of this post, and I'll pick up on it.

White House Whitewash of Ratings Agencies

Way back in one of my earliest blogs, Nov 5 to be exact, I issued a guide to good radio programs on the web that explained the sources of the meltdown in a way that I could understand. A long list of programs, but here's what I said about those rating agencies:

• Are the real culprits the Ratings Agencies (S&P, Moody's, Fitch)? -- I think so, and here's the best explanation! C-Span -House Hearing on Credit Rating Agencies - Henry Waxman (D), Chr. This is a 4-hour hearing, boooring... but if you can navigate to the statement of Sean Egan, Managing Director, Egan-Jones Credit Rating Agency– minute 31:13-39:10 - and again in answer period 44:00-46:05, you will want to start knitting quietly in true Madame DuFarge style! See Hearing.

So, I've been anxiously awaiting the Administration's proposal for regulatory reform to see what they're going to do about these rogue agencies that gave AAA ratings to junky credit default swaps. Last week's Treasury Report outlining the proposals made me think there is no hope, because those ratings guys & their regulators were almost completely let off the hook, except for an Obama-style sermon about how they should go forth and sin no more.

Before I could write a scathing blog piece, however, the Wall Street Journal did it in an editorial that lays out the perfidy of our financial leaders in both the private and public sectors. (WSJ-The Triple-A Punt) Here's a couple of choicest comments from that editorial, which you can read on the web free.

• "Without the ratings agency seal of approval -- required by SEC, Federal Reserve and state regulation for many instituitonal investors -- it would have been nearly impossible to market the structured financial products at the heart of the crisis."
• The Fed's standards for banks "...allowed Wall Street firms to claim that highly-rated mortgage-backed securities on their books were almost as good as cash as a capital standard."
• The treasury's report "..blame[s] the victim. 'Market discipline broke down as investors relied excessively on credit rating agencies'."
• "..the Fed, which until recently would accept as collateral [from banks] only securities that had been rated by S&P, Moody's or Fitch, has lately acknowledged the flaws in this approach."

WSJ wants the government to embrace full reform of the entire ratings system. So do I. It's ironic that the Federal regulators that played the biggest role in causing the ratings debacle -- the Federal Reserve and the SEC -- come out as winners in the reshuffling of regulatory powers under the plan. Only hope now is Congress -- Do you live in Connecticut? Threaten Senator Dodd with further exposure as a patsy (or collaborator) in his role as Banking Chair as he fights for re-election. Live in Mass? Write Barney Frank telling him to find his inner populist! Live in California? Tell Henry Waxman you expect him to walk and chew gum at the same time -- he can reform the agencies while he reforms health care. Here's how to email any member of Congress.

The "brilliant" Larry Summers

Yes, it's Larry Summers time again. This time it's a piece in the New York Times on the workings of Obama's West Wing economics team. Here are the main descriptions of our Bad Boy in that article :

• the brilliant but sometimes supercilious Mr. Summers
• Mr. Summers, given his prickly personality,
• His argumentative style
• under Mr. Summers, meetings became “endless debating sessions,”
• “Larry Summers is one of the world’s most brilliant economists,” said Mr. Orszag,
• He enriches any discussion he participates in,
• "....pretty good at making the case against anything.’
• The arguments became so heated that Mr. Summers stormed from one meeting,
• “incredibly inclusive” and “listens to the economic arguments"

So, there, amidst the questionable traits, and some good traits, is the ubiquitous "brilliant" description. Why do economists and the press that covers them continue to describe this man as "brilliant?" I'm sick of it. The man was instrumental in fostering public policies that led directly to the immensity of our current "Great Recession" (as we're now calling it). And, he has never owned up in public to his role in it.

So, can we now start referring to him as " the inclusive and argumentative, but mentally challenged, Mr. Summers?"

I'd feel so much better if the press would stop lipsticking the pig.

Robert Reich on GM, bailouts, productivity and US.

My prolific reader friend Lupi sent me link to three pieces by Robert Reich(Labor Sec'y under Clinton) on the future of our economy, as seen through the prism of the GM bailouts. (ReichPartI; ReichPartII; ReichPartIII). She knew I would like them. Reich always makes sense to me, but his sensible ideas never seem to make it into policy.
We really DO need a new political party in this country -- the Common Sense Party? -- the Centrist Party? My advisors tell me I'm a dreamer to imagine that the grass-roots power of the internet could bring about such a thing. I'd follow Reich if he announced such a move.
Turns out Reich has a blog where he posts wonderful stuff on all manner of public policy issues. Check it out here: Reich Blog. I'll put a link to it in the list of blogs here (scroll down to bottom in left column), so you can always find it. Or, just add it to your own Favorites list.

Do workers need a week of guaranteed sick leave?

Now that we're through taking ownership of the company that makes the cars that we refuse to own, time to turn to improving working conditions for those of us who still have jobs. The Dems (101 of them) in the House have introduced legislation (HR 2460) to require every employer with more than 15 employees to offer 1 hour of paid sick leavefor every 30 hours worked, up to a total of 7 days per year. Read all about it in an informative About.com article. Sen Kennedy says that 89% of low-wage workers (low-wage undefined in article) are without any paid sick leave.
On the face of it, this sounds like a good idea. (Who wants coughing/hacking co-workers at the MacDonalds?) But Lupi R, who has close-up experience with small businesses that compete with low-cost producers in other countries, points out that it will put further strain on those firms struggling to make it in this economy. She believes that workers will be inclined to "use up" their sick leave every year, whether sick or not. Businesses that need to keep running will have to pay other workers time and a half to make up the difference. (As a retired Fed who hoarded sick leave, but only up to the point that I couldn't carry it over into the new year, I'm afraid she may be right. When it's use-or-lose, let's face it, we're gonna use!)
If you accept the labor economists' argument that total compensation is what employers pay (TC= wages + benefits), then greater benefits means higher TC. That makes us even less competitive than we already are. Or, more likely, employers will adjust wages downward to keep TC about the same as before. Of course, not every employer will do this right away, but the more competitive the sector, the more necessary such downward adjustment will be. Some employers will hire fewer workers and squeeze more work out of 'em. (How can that be? Aren't we a bunch of cellphone slaves as it is?) Some might demand higher cost-sharing for health coverage (oh, joy). Things have a way of working through the system. And, if they don't squeeze wages down, that's just more unemployment due to our even more evolved inability to compete globally.
Bottom line for me is that it's better to keep things as they are. If we want to subsidize workers without such benefits, we can do it through the myriad programs we already have to augment their incomes (earned income tax credits; subsidy programs; unemployment benefits, etc.) Mandates on employers, especially small businesses, are not the way to go right now, and perhaps right ever.
Do I sound like a Republican? Jeez! Either way you come out on this, you can weigh in with your congressman in minutes. Here's how.

A Heroine for Our Time -- Brooksley Born

When I started blogging back in October 08 with screeds against Rubin, Summers, Greenspan, and Phil Gramm (The 4 horsemen -- Hear No Evil, See No Evil, Speak No Evil, and Evil) I did mention "our gal Brooksley Born" as the voice in the wilderness back in the late 90's.
Today, the Washington Post has a wonderful profile of Born, and it's a MUST READ for 2 reasons.
First, it should make us email the White House, demanding that Larry Summers actually apologise for his role in the meltdown as a condition for keeping his job. Alan Greenspan did it, and I've forgiven him. Phil Gramm is a jerk, and he's now out of Congress, so we won't worry about him. Rubin...well, he's only in the background today, and he made a half-apology, which is good for neanderthal man. But Summers has apologised only for not having predicted an 8-year Republican administration that would 'ruin' all his great work. (Heard that one on Boston's WBUR On Point, April 3, 2008.) Is an apology enough? For that man, it's a necessary first step to humility, the economist's equivalent of sobriety.
Just as important, though, is the profile of Brooksley Born's life in the Post article, which should be read by every post-feminist woman (i.e., 20-somethings) who hasn't lived in a time when a truly extraordinary woman would face barriers at every turn. I was shaking after reading the story. She was a pioneer at a time when professions weren't open to women, and she was active in the women's movement to help open up opportunities. Sandra Day O'Connor's and Ruth Bader Ginsburg's stories we know. Brooksley Born's I didn't. I love her!

Mortgage Bankruptcy Cram-down bill coming up for Senate Vote

Making primary residence mortgages subject to Chapter 13 bankruptcy is a proposal that's been hanging around since 2007, so says Credit Slips, an interesting blogger page on credits and bankruptcies. It's called "Cram-down" cause bankruptcy judges can force the lenders to take lower payments while the homeowner stays in the house. I believe this is on balance a good proposal -- mainly because it will scare lenders in the future from writing ridiculous mortgages for people who obviously couldn't afford them. It might also allow some (perhaps undeserving, but otherwise homeless) borrowers to stay in their houses and avoid foreclosure. So, I say go for it. They'll still be bankrupt and that's not pretty. But they won't be trashing the neighborhood on the way out.
Credit Slips says that the Congress House of Reps passed a bill in March, and now the Senate is poised to vote on it. Read the Credit Slips article, "Mortgage Modification Vote in the Senate" , which urges us to contact our senators about the vote. As a resident of the Socialist state of Maryland, I don't have to do that.. my Senators are on the leftist side of everything, even when I'm not. But, your voice might matter. If you vote in Nebraska (Ben Nelson, Dem), or Montana (John Tester, Dem), or if you give money to democratic senatorial committees (I don't...just mentioning it), or if you live in a state with a Republican senator, you should let them know what you're thinking.
To contact your Senator, go to the US Senate Home Page, and plug in your state's name in the upper right hand corner. Then let your senator know what you think about the mortgage cram-down provision. Most important, ask your senator to explain to you just what his/her position is on this issue. Even if he/she's against it, it would be good to ask him/her to tell you why. And, it's fun. Watch them squirm.

What we taxpayers now own -- Our Bailout dollars at work

ProPublica, the new web-based investigative journalism site, has posted a list of bailout recipients. It's fun to know how well diversified we are within the financial sector. Will it help when we call up Citimortgage, or SunTrust to refinance our mortgage to mention, ahem, that we are, you know, a major shareholder?