By William Patalon III
Executive Editor
Money Morning/The Money Map Report
After a week of spiraling impatience and stinging rebukes – including allegations of incompetence – the Obama administration is going on the offensive in an attempt to rebuild confidence in its ability to lead the country out of its seemingly depending financial morass.
Just a few short months after he rode to victory on groundswell of good feeling and optimism, U.S. President Barack Obama appears to have already had his “honeymoon period” and is now fighting a rear-guard action. He’s being hammered for overspending, and for failing to halt bonus payments to the executives of bailed-out firms.
The voters who elected Obama want proof that he’s in control, that he really understands what’s happening, and that he has a plan for getting the country out of this ongoing mess. But their confidence was shaken last week – and with good reason, critics say. For instance:
- It failed to halt $165 million in bonuses doled out by failed insurer American International Group Inc. (AIG).
- It underestimated the budget deficit it would be facing – by $2.3 trillion – and that’s a “best-case” scenario.
- And there are major questions about the Obama administration’s plan to expand a new U.S. Treasury Department/U.S. Federal Reserve program designed to boost consumer lending – by paying several investment management firms to match private-sector money and buy troubled assets.
This still-new administration is still hoping to achieve a tenuous balance – somehow branding itself as a guardian of the U.S. middle class, but without alienating Corporate America, Forbes reported.
Last night (Sunday), with an appearance on CBS TV’s “60 Minutes,” President Obama granted his longest interview since taking office.
Tomorrow night (Tuesday), President Obama will go directly to the people in an attempt to blunt this growing discontent, hosting a nationally televised press conference that will start at 8 p.m. EDT. Forbes reported that Obama will also use that opportunity to make his case for the Treasury’s “risky gambit” to partner with the private sector to get bad assets from bank balance sheets.
Given his track record, President Obama is virtually certain to have administration officials make multiple media appearances to bolster his message.
Despite the incongruous nature of the plan, and its risk, it actually might work out well. According to The New York Times, the plan will have three key parts:
- The Federal Deposit Insurance Corp. (FDIC) will lend investors about 85% of the money needed to the buy toxic securities from banks that want those assets taken off their balance sheets.
- The government will pay the chosen asset-management firms to match the private-sector money to expand the existing Treasury/Fed program.
- And the troubled assets will be priced via some sort of auction.
If he succeeds, President Obama will show that he’s about more than just more government spending – the private sector will have to play a major role, as well.
Market Matters
Last week, after the American public displayed a collective outrage over the $165 million in bonuses paid to AIG execs – many who played a major role in the global financial conflagration – the U.S. House of Representatives passed a grandstanding bill that would impose a 90% tax on these ill-gotten gains (as the U.S. Senate worked on its own version). AIG Chief Executive Officer Edward M. Liddy felt the wrath of Congress and promised to ask his employees to return half of their bonuses.
New York Attorney General Andrew M. Cuomo received a list of the bonus recipients, but resisted posting their names because of threats made on their lives (though one Senator merely suggested suicide). President Obama took the opportunity to chat it up with the American people on NBC’s “The Tonight Show With Jay Leno,” mixing in his personal outrage with a few tips on the NCAA tournament.
While the bonuses raised quite the stir, the bigger – and less-talked-about – issue was the $90 billion that AIG paid to domestic and international banks after receiving a federal bailout, an amount that was the equivalent of half the taxpayer money it received.
In reality, Goldman Sachs Group Inc. (GS) and others were bailout beneficiaries themselves, though their identities were hidden through the AIG hardships.
While AIG dominated the headlines, life went on in other corporate boardrooms:
- Alcoa Inc. (AA) cut its dividend to accommodate the reduced demand for aluminum.
- And earthmoving-equipment giant Caterpillar Inc. (CAT) announced plans to lay off more than 2,000 employees.
| Market/ Index |
Year Close (2008) |
Qtr Close (12/31/08) |
Previous Week |
Current Week |
YTD Change |
|
Dow Jones Industrial |
8,776.39 |
8,776.39 |
7,223.98 |
7,278.38 |
-17.07% |
|
NASDAQ |
1,577.03 |
1,577.03 |
1,431.50 |
1,457.27 |
-7.59% |
|
S&P 500 |
903.25 |
903.25 |
756.55 |
768.54 |
-14.91% |
|
Russell 2000 |
499.45 |
499.45 |
393.09 |
400.11 |
-19.89% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
2.24% |
2.24% |
2.89% |
2.63% |
+39 bps |
Economically Speaking
At last week’s policymaking meeting, the Fed’s Federal Open Market Committee announced its intent to purchase as much as $300 billion in Treasury securities and also detailed a $750 billion plan to stabilize the mortgage-backed securities market. In the post-meeting statement, the policymakers warned about near-term sluggishness and higher unemployment, but offered some confident comments that the enhanced consumer activity would help in the months to come. Fed Chairman Ben S. Bernanke even took this somewhat “optimistic” message directly to the people by appearing on “60 Minutes,” where he again projected an end to the recession within 2009.
Last week’s data did more to confirm the economy’s near-term sluggishness than it did to bolster any optimism about a recovery.
Industrial production, a measure of manufacturing activity, dropped in February for the fourth straight month and stands at the worst level in 50 years. While housing starts increased after seven consecutive months of declines, the eternal pessimists point out that construction activity remains almost 50% below last year’s levels. Still, all regions of the country (outside of California and other Western states) reported stronger activity, as construction of new homes and apartments surged more than 20% in February.
Total claims for jobless benefits climbed to the highest level on record, as workers continued to move in droves to the unemployment lines and, unfortunately, they are staying there for longer-than-normal periods of times.
On the inflation front, the producer price index (PPI) rose for the second straight month as energy prices climbed in February and as early fears of deflation continued to subside. The consumer price index (CPI), the retail inflation gauge, also rose as drivers have begun spending a bit more at the pumps (just in time for those spring break travels).
Weekly Economic Calendar
| Date |
Release |
Comments |
|
March 16 |
Industrial Production (02/09) |
Worst showing for manufacturing on record |
|
March 17 |
Housing Starts (02/09) |
Surprisingly high jump in activity across the country |
|
|
PPI (02/09) |
2nd consecutive monthly increase eased deflation worries |
|
March 18 |
CPI (02/09) |
Largest jump n consumer prices in 7 months |
|
|
Fed Policy Meeting Statement |
Buying up to $300 billion in treasuries |
|
March 19 |
Initial Jobless Claims (03/14/09) |
Surprising drop in claims, though still at high levels |
|
|
Leading Eco. Indicators (02/09) |
Decline in index not as bad as expected |
|
The Week Ahead |
|
|
|
March 23 |
Existing Home Sales (02/09) |
|
|
March 25 |
Durable Goods Orders (02/09) |
|
|
|
New Home Sales (02/09) |
|
|
March 26 |
Initial Jobless Claims (03/21/09) |
|
|
|
GDP – 4th qtr (final) |
|
|
March 27 |
Personal income/Spending (02/09) |
|
News and Related Story Links:
- Forbes:
Obama’s Big Week. - New York Daily News:
More than a bad day: Worries grow that Barack Obama & Co. have a competence problem. - Forbes.com:
The Next Bubble: Obama’s Budget Deficit.
- CBS TV’s “60 Minutes:”
Obama on Public’s Anger at Wall Street.
RSS
thing are getting better he has only been on the job for three months the president is doing fine get off his back. Marvelous Marvin a new stock buyer and investor
Dear Mr. Patlon:
You write in an organized and interesting style. It is hard to comprehand all the facts, information and stats you put forth.
Keep up the Great Work!
Why isn’t anyone discussing the nature of the Federal Reserve, a private institution, as a recipient of billions of dollars in interest (paid for with taxpayer money) for purchasing more Treasuries, to then further the money supply through fractional reserve lending and the banking system? In fact, why is the Fed issuing money at all? Couldn’t the US Govt directly create its own money WITHOUT the extra step of the Fed creating it? Sure would save a lot of interest – back into the Treasury instead of the Fed. If Treasury can create bonds, why can’t Treasury create money (directly from the Govt?) without the use of the Fed – a private corp? Something is truly fishy here.
Obama is a dangerous man. He is not up the the job of President and neither are his henchmen in the Congress and the Senate. God help our country. He has spent double the amount of money that the Bush administration did in 8 years and Obama has not even been there a full 3 months. Get ready. We are bankrupt as a nation. His social agendas have trumped sound economic policies. I fear for this country.
Why isn’t anyone talking about the purchase of the Fed, of $1 trillion in Treasuries? Doesn’t anyone care about monetizing the debt? Doesn’t anyone care that this caused the dollar to slide in value against six major currencies? Doesn’t anyone care that this could cause a hyperinflation?
Did you watch Dateline NBC last night? It detailed the culprits and the victims of this financial collapse. If you really want to blame somebody, look at your mentors in the financial industry who helped create the “toxic assets” to begin with. The President is doing what he can, and contrary to your stated beliefs, he’s way ahead in the polls. Where were you when Mr. Madoff, Bear Stearns, et al., were ripping off the system? Why didn’t you speak up then?
For goodness sake please change this really awful green color you have for comments. It is very hard for people to read! Don’t you like us?
No one ever mentions the real problem of the Dept Money System behind the “Dept Crisis” behind the “Credit Crisis”. The only way for money to get into circulation is for it to be borrowed into circulation at interest. The interest is never created so if one deptor is able to repay his loan and interest someone else must lose some principle. One must lose for another to pay interest. Failure is designed into the system. Does anyone ever question how money is created. You might think the government prints it, which it does but it is not spent into circulation but loaned into circulation. Even the money the government spends above what it collects in taxes is bowwered with interest due. When money is created out of nothing and loaned with interest, this is usury!!!
Don’t forget the $100K plus campaign contributions that Obama and Dodd received from AIG before the bailout. Are they going to return the money? Obviously, AIG could not afford it.
sorry folks but the market loved the toxic debt relief plan. It’s the result of Brilliant diagnosis of what went wrong in Japan We may come out of the taxcut caused mess much earlier than expected. Never forget the mess was created by the previous Admin. President Obama is cleaning up the mess – and then some. Germany has had a National Healtthcare and Retirement Act since 1883. It works very well indeed.
IT DEEPLY TROUBLES ME THAT NOBODY IN THE MSM OR THE OBAMA ADMINISTRATION IS QUESTIONING WHERE $228 BILLION DOLLARS OF THE INITIAL TARP MONEY WENT. WE THE PEOPLE, THE US TAX PAYER, GOT ABSOLUTELY “ZERO VALUE” RETURNED IN ASSETS OR LOANS FOR THAT MONEY!
EVERYONE GOES CRAZY OVER $165 MILLION IN BONUSES GOING TO EMPOYEES OF AIG, BUT NOBODY IS OUTRAGED THAT THE BANKS RECEIVED $228 BILLION DOLLARS FOR ABSOLUTELY NOTHING! WE WILL NEVER SEE THAT MONEY AGAIN, BUT WE WILL HAVE TO REPAY IT BECAUSE LIKE EVERYTHING ELSE IT WAS BORROWED MONEY. BORROWED BY OUR GOVERNMENT, GIVEN TO THE FRICKEN BANKS, ON OUR DIME! (FOR NOTHING IN RETURN)
WHEN YOU GET YOUR HEADS STRAIGHT AND DECIDE TO GET PISSED ABOUT REALLY GETTING SCREWED, GET PISSED ABOUT THIS $228 BILLION DOLLARS!
1.) SEPTEMBER 15, 2008 LEHMAN BROTHERS FILED BANKRUPTCY. THAT MOST EVERYBODY KNOWS, BUT WHAT YOU DON’T KNOW LATER THAT DAY JP MORGAN SLIPPED LEHMAN BROTHERS (VERY QUIETLY) $139 BILLION DOLLARS! HAD LEHMAN NOT FILED BK THAT MORNING WE PROBABLY WOULD NEVER HAVE KNOWN, BUT BECAUSE THEY DID THE TRANSACTION HAD TO BE REPORTED TO THE BK COURT. ANYWAY THAT $139 BILLION DOLLARS WAS USED BY LEHMAN TO SETTLE SOME OUTSTANDING DERIVATIVES & CDO CONTRACTS IT HAD. (LIKE AIGs PASSED THROUGH BILLIONS THIS MONEY LEHMAN GOT, GOT PASSED THROUGH TOO) WOULDN’T IT BE GREAT TO FIND OUT WHO THE “COUNTER PARTIES’ WHERE FOR THAT $139 BILLION DOLLARS?
OH, YOU THINK IT’S NONE OF OUR BUSINESS BECAUSE THAT’S BETWEEN JP MORGAN AND LEHMAN? I DON’T THNK SO BECAUSE A FEW DAYS LATER THE NY FED (TIMMY) “AGAIN VERY QUIETLY” REPAID JP MORGAN THE $139 BILLION ON BEHALF OF LEHMAN BROTHERS. (US TAX PAYER REPAID JP MORGAN ON BEHALF OF LEHMAN, BUT WE HAVE NO LOAN AGREEMENT WITH BK LEHMAN) TRANSACTION = $139 BILLION DOLLAR LOSS FOR TAX PAYERS!
2.) HANK PAULSON WENT SHOPPING WITH OUR TARP MONEY AND HE CAME BACK WITH AN $89 BILLION DOLLAR SHORT FALL AS VERIFIED BY THE TARP OVERSIGHT COMMITEE! THAT’S RIGHT HE WENT OUT AND SPENT $324 BILLION DOLLARS AND CAME BACK WITH $235 BILLION WORTH OF STOCK AND OTHER EQUITIES. “CAUGHT RED HANDED” YOU WOULD THINK! EVEN THE MSM REPORTED THE SHORTFALL, AND I’M SURE EVERYONE EXPECTED HENRY “CAUGHT RED HANDED AND ALL” WOULD GO BACK AND RECTIFY THE SHORTFALL. (NO WAY JOSE, THE JACKASS DIDN’T EVEN BOTHER TO EXPLAIN) IT WAS LIKE (WHO IN THE F-CK ARE YOU RO QUESTION HENRY) AND EVERYBODY SHUT UP AND LET HIM GET AWAY WITH IT.
SILLY ME, I WAS SCREAMING FOR SOMEONE TO GO BACK TO THE OVER PAID BANKS AND GET SOME MORE STOCK OR AT LEAST PROMISARY NOTES FOR THE MONEY, BUT NO! HENRY FOR SOME REASON WAS ALLOWED TO GIVE AWAY $89 BOLLION DOLLARS OF OUR MONEY AND NOT EVEN TELL US WHO HE GAVE IT TOO.
WHERE IS THE OUTRAGE I WONDER? BUT LETS GET A ROPE AND HANG EVERYONE AT AIG FOR $165 million, BECAUSE THAT MAKES SO MUCH MORE SENSE THEN GETTING PISSED OF ABOUT GETTING F-CKED OUT OF $228 BILLION!
[...] newfound investor confidence follows a week in which the Obama administration endured harsh rebukes for overspending, and for fai… awarded to employees by embattled insurer American International Group Inc. (AIG) – which has [...]
Dear Jim T:
You made some excellent points in your well-thought-out missive, and I wanted to take a moment to point out that several of the key topics you said needed to be looked at are, in fact, problem areas that we’ve looked at very closely — especially when it comes to the questionable use of TARP money.
Among the stories we’ve written:
· Money Morning Investigative Report on the Bank Bailouts (Part VI): Congressional Watchdog Criticizes Treasury for Failing to Track $350 Billion in Bank Bailout Money.
http://www.moneymorning.com/2009/01/12/700-billion-bank-bailout-funds/
· Money Morning Investigative Report on the Bank Bailouts (Part V): U.S. Banks Refuse to Detail How They’re Spending Federal Bailout Money.
http://www.moneymorning.com/2009/01/06/us-banks-federal-bailout/
(as well as) Money Morning Investigative Report on the Bank Bailouts (Part III): Billions in U.S. Bank Rescue Funds are Fueling Buyouts Worldwide – Instead of Lending at Home.
http://www.moneymorning.com/2008/12/05/banking-buyouts/
Again, thanks for taking the time to comment. And thanks for reading Money Morning.
Sincerely;
William Patalon III
Executive Editor
Money Morning
I have watched over the years how our U. S. government has little by little stripped the states and individuals of their God given rights and responsiblities. The creation of the federal reserve, social security and federal tax systems have turned into a nightmare. What happened to the local banking systems that were chartered within each of the respective states!? Wall Street has turned into….nothing but a bunch of greedy, self serving individuals. We can now see that America is in deep trouble… and who is responsible for this !!?? We The People…( preamble of the U. S. Constitution)
Superdog says Obama isn’t up to the job. Let’s remember it took George and Son 16 years to create the the mess. Do you suppose we can give Barrack a little more time to fix it.
Ed.