Saturday, April 04, 2009


Appearance of Impropriety

Summers Received Hundreds of Thousands in Speaking Fees from Tarp Recipients.

Sam Stein at HuffPo

Barack Obama's chief economic adviser, Larry Summers, received hundreds of thousands of dollars in speaking fees last year from firms that have direct financial interests before the government or are intimately involved in the White House's bank relief programs.

The White House released late Friday the personal financial disclosure forms of many high-ranking administration officials. The document provided for Summers, who serves as one of the president's closest confidants, underscores just how close some of these officials are to the industry over which they now have oversight.

Among the firms that paid Summers large amounts in speaking fees include J.P. Morgan Chase. That bank offered the former Harvard president and Treasury Secretary $67,500 for a February 1, 2008 engagement. It has received $25 billion in government bailout funds.

Citigroup, which has received $50 billion in taxpayer help, paid Summers $45,000 for a speech in March 2008 and another $54,000 for a speech that May.

Goldman Sachs, which has received $10 million in bailout funds, paid Summers $135,000 for a speech on April 16, 2008 and another $67,500 for a speech on June 18, 2008.

Summers also received about $5.2 million over the past year in salary from the major hedge fund D.E. Shaw.

The speech payments will undoubtedly raise questions as to the impartiality of the economic advice Summers is providing to the president. Already viewed as too favorably disposed to Wall Street interests, the lavish payments for speeches will provide further fodder for those who think the administration has been forgiving in their approach to the banking industry.

In a prepared statement, spokesman Ben LaBolt said that, "From the first days of the administration, we have bolstered accountability over banks and reformed the TARP process so that taxpayers can see how their money is being spent, the influence of lobbyists is curbed, executive compensation is reined in, and firms are required to show how they will preserve or expand lending using government funds. Dr. Summers has been at the forefront of this administration's work to shore up our nation's financial system and to put in place a regulatory framework that will strengthen the financial system and its oversight - all in an effort to help the families across America who have paid a very steep price for risky decisions made by Wall Street executives."


E.J. Dionne's Excellent Analysis of the Conflict Between Geithner/Obama and Krugman/Stiglitz

Posted on Apr 2, 2009
The Nobelist vs. Obama and Geithner

By E.J. Dionne

The great mystery of the Obama administration’s economic agenda is whether its signature marriage of boldness and caution will prove to be a Goldilocks recipe that gets things just right, or a Rube Goldberg approach of unimaginable complexity and uncertain purpose.

Without question, President Obama’s tax and budget proposals are daring, and his unwavering commitment to passing health care reform this year is both honorable and gutsy.

But his plan to bail out the banks reveals a deference to the existing financial system, deep worry about further unsettling an already troubled market, and a devout hope that the economic situation is not as bad as some economists, notably Nobel Prize winners Paul Krugman and Joseph Stiglitz, fear.

As for the auto industry, Obama has stepped in aggressively to take effective control of General Motors by forcing out CEO Rick Wagoner. He told Chrysler it must merge with Fiat or die.

But all these moves are in a context of caution about the ultimate purpose of the government’s actions. Obama placed strict limits on how long the federal government’s funds will be available to prop up the companies, and made clear that his only goal was to rebuild them to compete in the marketplace.

Some administration officials feared that this dual-track approach might win it support from absolutely no one, since it gave the domestic industry less help than its supporters hoped for but involved far more intervention than most free-market advocates could stomach. The better-than-expected initial reviews suggested that in the short term, the administration’s tightrope act had worked.

Describing what Obama is up to leads quickly to sentences freighted with contradictions. He wants to regulate the market more tightly in order to save it. He thinks big government is required now if we are to return to a less-restricted economic system later. You might say that he is using collectivist means to capitalist ends.

“We can’t fall back on the stale debates and old divides,” Obama said at his Wednesday news conference in London with British Prime Minister Gordon Brown. Obama’s alternative is a novel blend of opposing ideas.

Nowhere are the challenges facing this method more dramatic than in the bank rescue. The debate over the plan is rooted in three disagreements.

The most important is over whether some of the major banks are solvent or insolvent. Treasury Secretary Tim Geithner believes that the toxic assets in their portfolios are temporarily undervalued in a bad economy. This means they will be worth more when the economy improves, which in turn means that the banks aren’t really broke. Krugman, the New York Times columnist who has emerged as Geithner’s most prominent critic, thinks the banks are insolvent. He believes that the economy will improve more slowly than Geithner does and sees many of the toxic assets as “trash.”

Therefore, Krugman thinks a temporary government takeover of some of the banks is inevitable and will ultimately get the economy moving more quickly. Geithner thinks a takeover would be more difficult than its supporters allow and might slow economic recovery. He prefers the more cautious approach of having government and private investors buy up the toxic assets before considering more radical steps.

The other two disagreements follow from the first. Critics of the administration plan (notably Stiglitz) believe it involves government subsidies for private investors that are much too large and will leave taxpayers far too exposed. And there is a difference in sensibility: Geithner simply has more trust in the working of the financial system than does Krugman, who recently criticized the administration as being “in the grip of the market mystique” and as overrating “the prowess of the wizards” who perform the market’s “magic.”

Stiglitz is right to worry about the subsidies in the administration plan and Krugman has good reason to fear that the administration is too close to Wall Street’s view of reality. But the core question of whether the banks are insolvent is maddeningly difficult to resolve. If Geithner is correct, he will move us to recovery with less disruption. If he’s wrong, he will waste a lot of taxpayer money before eventually reaching the Krugman solution. My heart is with the Nobel critics, but my head hopes that Geithner is making the right bet.

That’s the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.

E.J. Dionne’s e-mail address is postchat(at)


Tim Geithner's Cozy Relationship With Wall Street Prevented Him From Doing His Job at New York Federal Reserve. And Now He's Gonna Save Us? Bullshit

As Crisis Loomed, Geithner Pressed But Fell Short
Before Timothy Geithner became Treasury chief, he regulated major U.S. banks. Now he says: "We're having a major financial crisis in part because of failures of supervision."

By Robert O'Harrow Jr. and Jeff Gerth
Washington Post Staff Writer
Friday, April 3, 2009; A01

In September 2005, Timothy Geithner made one of his most visible moves as a supervisor of the U.S. banking system. He summoned the nation's top financial firms and their regulators to streamline an antiquated system that threatened Wall Street's boom.

Billions of dollars worth of financial instruments known as credit derivatives were being traded daily, as banks and investors worldwide tried to protect against losses on increasingly complex and risky financial bets. But the buying and selling of these exotic instruments was stuck in a pencil-and-paper era. Geithner, then head of the Federal Reserve Bank of New York, pressed 14 major financial firms to build an electronic network that would cut backlogs and make the market easier to monitor.

Geithner's summit, held at the New York Fed's fortress-like headquarters near Wall Street, was a success. By fall 2006, the new system had all but eliminated the logjam, helping derivatives trade more efficiently. One financial industry newsletter honored Geithner as part of a "Dream Team" for his leadership of the effort.

Yet as Geithner and the New York Fed worked to solve narrow mechanical issues in the derivatives market, they missed clear signs of a catastrophe in the making. When the housing market collapsed, derivatives stoked the fires that ignited inside some of the biggest banking companies. The firms' failure to assess an array of risks they were taking has emerged as a key element in the multitrillion-dollar meltdown of the global financial system.

Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued. That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound, according to interviews and a review of documents by The Washington Post and the nonprofit journalism organization ProPublica.

A confidential review ordered by Geithner in 2006 found that banking companies could not properly assess their exposure to a severe economic downturn and were relying on the "intuition" of banking executives rather than hard quantitative analysis, according to interviews with Fed officials and a little-noticed audit by the Government Accountability Office. The Fed did not use key enforcement tools until later, after the credit crisis erupted, according to its records and interviews.

Geithner defended his tenure as New York Fed president in an interview last week. He said he had been "deeply concerned about risk in the system" and worked assiduously behind the scenes to cajole banking institutions to do more to identify weaknesses and protect the financial system. But he also took some responsibility for falling short.

"These efforts to improve risk management did change behavior, but they did not achieve enough traction," Geithner said. "We're having a major financial crisis in part because of failures of supervision."

Even as critics have questioned how he used existing power before the crisis, Geithner, as Treasury secretary, now leads the push for the biggest expansion of financial regulation since the Great Depression. His sweeping plan to overhaul the U.S. financial system would empower regulators to broadly analyze risk and would grant more authority to the Fed and its 12 reserve banks.

Geithner says he is applying lessons from his five years at the most important of the Fed's reserve banks. This week, he assumed an even more prominent platform, joining President Obama in London at a meeting with the Group of 20 industrialized nations to discuss global financial regulatory reform.

Looking back at his time at the New York Fed, Geithner said: "I wish I had worked to change the framework, rather than to work within that framework."

Geithner, 47, adopted the diplomatic approach to supervision that had long held sway at the New York Fed, a hybrid institution that is owned by the banks but implements monetary policy for the Federal Reserve. Like the other regional Feds, it also shares supervisory authority with the central bank. Six of its nine board members are chosen by the commercial banking companies it supervises. The board plays a role in the selection of the New York Fed president.

Although the Federal Reserve system, and the New York Fed in particular, was responsible for watching for systemwide risks, Geithner said that the Fed was limited by a lack of explicit authority over financial institutions outside the banking system. One key example was insurance giant American International Group, whose derivative transactions helped fuel the financial collapse last fall.

As part of Geithner's confirmation process for Treasury secretary, Democratic and Republican senators questioned why he and the New York Fed did not take a tougher approach with the troubled institutions it did regulate, such as Citigroup, then the largest under its supervision and the one hardest hit by the financial crisis.

Geithner, who maintained ties to senior bank executives and others in the financial world, had a particularly close relationship with former Treasury secretary Robert E. Rubin, a mentor then serving as a senior executive at Citigroup. In 2007 and 2008, Geithner held discussions with Citigroup officials dozens of times, more than with any other firm, according to interviews and documents, including Geithner's daily calendar.

Some lawmakers in both parties are asking whether bank regulators in general were too close to the institutions they oversaw. Geithner says meetings with executives from Citigroup and other firms were a routine part of his job. He said checks and balances built into the Federal Reserve system preserve the independence of Fed officials.

Gerald Corrigan, a managing director of Goldman Sachs who once held Geithner's job, said every New York Fed president faces the same challenge -- supervising the very banks they rely on for information.

"The effectiveness of the New York Fed clearly does depend on frequent and open dialogue between the Fed and the leaders of the major financial institutions," Corrigan said.

"Striking that balance is never easy," he said. "On the whole, Tim did a reasonably good job."

'Biggest Casino'

Geithner is trim, boyish-looking and thoughtful, parsing his ideas with academic care. Unlike some of his predecessors at the Fed, he did not bring a banker's résumé to the job. A protege of former secretary of state Henry Kissinger at his consulting firm, he joined the Treasury and rose through the ranks with support from two Clinton-era secretaries, Rubin and Lawrence H. Summers. Geithner eventually served as undersecretary for international affairs, where he oversaw the department's response to the Asian financial crisis in the late 1990s.

When he arrived at the New York Fed in fall 2003, the derivatives market had begun to soar. One type of derivative known as a credit-default swap is a contract that operates much like insurance for complex financial transactions. They greatly enhanced Wall Street's ability to package mortgages into exotic securities that could be resold to investors. That, in turn, fueled the housing bubble by expanding the supply of money for home loans.

But by 2005 the paperwork for derivatives contracts was swamping the back offices of big financial firms. Stacks of documents sat unattended. The archaic system was not only bad for business, it impeded the market from properly pricing deals. "They didn't know what their positions were," Geithner said in the interview. "This was a huge collective-action problem."

Under Geithner's direction, the banks formally agreed after months of meetings in early 2006 to fix the problem together.

At the time, many bankers and regulators were convinced that credit derivatives had in just a few years strengthened the world's financial system. Alan Greenspan, then chairman of the Federal Reserve, set the rhetorical tone for the Fed's advocacy of such deals.

"The development of credit derivatives," Greenspan said in a May 2005 speech, "has contributed to the stability of the banking system by allowing banks, especially the largest, systemically important banks, to measure and manage their credit risks more effectively."

Geithner often cited the merits of credit derivatives as well, saying in a May 2006 speech at New York University that they "probably improve the overall efficiency and resiliency of financial markets."

By then, some financial institutions already were worried about the subprime mortgages underlying exotic securities. AIG's Financial Products unit, one of the largest issuers of credit-default swaps, stopped offering that insurance. Even so, few understood the magnitude of the looming disaster.

"What nobody knew was that credit derivatives had moved from a risk diversification and risk management vehicle to the world's biggest gambling casino," said H. Rodgin Cohen, a New York attorney for large financial companies such as J.P. Morgan Chase and Wachovia.

Although he later said he didn't see the larger danger, Geithner at the time expressed concern about whether the large banks he supervised fully understood their vulnerabilities. In the NYU speech, he said they would need to take a "cold, hard look" at the interlocking effects of such deals across the financial system.

That same year he initiated a Fed-wide review of how well the financial giants were able to measure their ability to survive the stresses of a market downturn. William Rutledge, the New York Fed's executive vice president for bank supervision, said the reviews turned up several weaknesses. They found that banking companies were pretty good at measuring the risks to specific parts of their businesses but had little understanding of the dangers to the institution as a whole. The firms also failed to account for the kind of worst-case scenarios that would later cripple several banking giants.

The New York Fed followed up the study of the stress tests by holding private discussions with bank managers. The Fed officials sought among other things to "encourage" firms to improve their "credit risk-management practices" and to engage in "careful reflection" of their assessment of the global economy's health, Rutledge said in a written response to questions. Cohen, the banking lawyer, said that Geithner privately "was pushing the system to reform." But because of limited resources, Geithner was reliant on the big banks for information about their activities, Cohen said.

GAO auditors who recently reviewed the confidential Fed study said the banks pushed back against the idea of expanding their stress tests. Executives "questioned the need for additional stress testing, particularly for worst-case scenarios that they thought were implausible," Orice Williams, the director of financial markets at the GAO, told the Senate subcommittee on securities, insurance and investments last month.

Williams said that regulators "did not take forceful action" to correct the risk-management deficiencies "until the crisis occurred."

Records and interviews show that Geithner and his colleagues did not employ some of the harsher tools at their disposal to bring the banks into line. From 2006 through the start of the credit crisis in the summer of 2007, they brought no formal enforcement actions against any large institution for substandard risk-management practices. The Fed also did not use its confidential process during that period to downgrade any large bank company's risk rating, according to two people familiar with the process, a step that could have triggered costly consequences for the firms.

A spokesman for the New York Fed said it does not comment on private supervisory actions.

The New York Fed led a broader review of the large banks' risk management in early 2007, just months before the credit crisis began. Unlike the 2006 study, the review, titled "Large Financial Institutions' Perspectives on Risk," gave an upbeat assessment of their ability to handle potential vulnerabilities. Relying on bank assurances that the quality of their loans and investments remained "strong," the Fed concluded that there were "no substantial issues of supervisory concern."

When Congress learned of the Fed reports during last month's hearing, some lawmakers questioned the close relationships between the regulators and banks. They suggested that the Fed's practice of keeping its findings confidential may have contributed to the crisis.

"There might have been earlier, prompter and more effective action to deal with some of these issues that are bedeviling us at the moment," said Sen. Jack Reed (D-R.I.). "In many respects you are captives of the information of the organization you're regulating."

Dates with Citi

The recent criticism of the New York Fed raises questions about its dual mandate to be both a supervisor and the government's eyes and ears on the nation's financial markets.

Like his predecessors, Geithner relied on extensive contact with senior banking officials to collect information and influence their practices. "He had a remarkable ability to gain information without giving up information or without giving up his independence," said Cohen, the banking lawyer.

Cohen, who was in the running earlier this year to be Geithner's deputy at the Treasury, is among hundreds of people listed in Geithner's 2007 and 2008 appointment calendars, which were made available by the New York Fed. Geithner's outside contacts include senior banking managers, Treasury officials, regulators from other nations and journalists. The appointments range from breakfasts and lunches with bankers to tennis with Alan Greenspan and "Dinner w/Dr. and Mrs. Kissinger, et. al."

No institution shows up as frequently as Citigroup, the biggest bank company under the New York Fed's supervision. Among the numerous senior Citigroup officials recorded were Geithner's mentor Rubin, chief executive Charles Prince and his successor, Vikram Pandit.

Citigroup officials declined to comment for this report.

The calendar entries offer few details on the meetings, but the New York Fed had no shortage of topics to discuss with the bank holding company about its far-flung operations and its increasing exposure to subprime mortgages.

In 2005, as regulators abroad investigated Citigroup for imprudent trading practices, the Fed banned it from making new acquisitions. The ban was lifted in April 2006 after Citigroup assured the New York Fed it had tightened its compliance. At the end of that year, without public explanation, the Fed also terminated a three-year-old public-enforcement agreement that required Citigroup to beef up its risk management and file regular reports with the Fed.

At the time, Citigroup was taking on more risk. It was reporting record profits while also doubling its exposure to the subprime market. In 2006 Citigroup originated nearly twice as many subprime mortgages as the year before. It also issued twice as many exotic securities known as collateralized debt obligations -- including many composed of subprime loans.

By fall 2007, Citigroup began to recognize huge losses from these and other bets. At the urging of Geithner and the Fed, Citigroup began raising more capital to fill the growing holes in its balance sheets and reassure the markets of its solvency.

Citigroup's level of capital exceeded regulatory minimums. But the Fed did not require the banking company to raise the level to that of its peers. At the end of 2007, the capital level also fell below Citigroup's internal target.

A few months later, banking analysts raised questions about Citigroup's capital reserves. During the company's annual conference in early May, Pandit was asked whether there was tension between the banks, the auditors and the regulators over that issue. Pandit said that Citigroup was in "perfect agreement" with regulators and auditors. When an analyst expressed skepticism, another Citigroup executive backed up Pandit, saying there was "kind of an unusual symmetry."

In June 2008, Geithner told the Economic Club of New York that the guidelines for bank capital needed to be reworked -- but not yet. "After we get through this crisis, and the process of stabilization and financial repair is complete, we will put in place more exacting expectations on capital, liquidity and risk management for the largest institutions," he said.

By the fall, the only place beleaguered Citigroup could find capital was the Treasury. The government initially injected $25 billion to keep the company afloat. That wasn't enough. A few weeks later it came up with another $20 billion in cash and guarantees that would cover nearly $250 billion in losses on its toxic assets. No banking firm has received a larger federal bailout.

Geithner was working on the second Citigroup rescue, when, on Nov. 21, word leaked that President-elect Barack Obama wanted to name him Treasury secretary. Geithner had two meetings that day with top Citigroup executives, according to his calendar. Then he quickly stepped aside from further involvement in the rescue of financial institutions.

Before his confirmation hearing Geithner paid courtesy calls in the Senate. He mostly got a warm reception. When he went to see Sen. Ron Wyden, the Oregon Democrat quizzed him about his supervision of Citigroup.

"I quoted to him from the U.S. code," Wyden said, "about the clear responsibilities of the New York Fed." Wyden wanted to know why the "alarm bells" about Citigroup hadn't prompted the Fed to "enforce existing laws."

A few days later Geithner appeared before the Senate Finance Committee. Wyden once again asked why Geithner missed the boat with Citigroup.

Geithner acknowledged that "supervision could have been more effective." Before he could continue, Wyden pressed him: "Should your supervision have been more effective?"

"Absolutely," Geithner said.

As the Fed prepares to take on even more responsibility in a new financial regulatory architecture, it also is engaged in what Fed vice chairman Donald Kohn describes as a "comprehensive 'lessons-learned' review" of the credit crisis. In an interview, Kohn, who is leading the review, declined to discuss the findings so far.

Roger T. Cole, the central bank's head of banking supervision, told Congress two weeks ago that one lesson among many is that regulators must no longer be lulled by good times or put off by industry arguments.

"When bankers are particularly confident, when the industry and others are especially vocal about the costs of regulatory burden and international competitiveness, and when supervisors cannot yet cite recognized losses or write-downs," Cole said, "we must have even firmer resolve to hold firms accountable for prudent risk management."



Wait... Isn't A Bailout a LAST RESORT? Why then must Firms Be "Persuaded" to Participate? This Whole Thing Stinks.

Administration Seeks an Out On Bailout Rules for Firms
Officials Worry Constraints Set by Congress Deter Participation

By Amit R. Paley and David Cho
Washington Post Staff Writers
Saturday, April 4, 2009; A01

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.

The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.

This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.

Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, said the congressional conditions should apply to any firm benefiting from bailout funds. He said he planned to review the administration's decisions and might seek to undo them. "We have to make certain that if they are using government money in any sort of way, there should be restrictions," he said.

A Treasury spokesman defended the approach. "These programs are designed to both comply with the law and ensure taxpayers' funds are used most effectively to bring about economic recovery," spokesman Andrew Williams said.

In one program, designed to restart small-business lending, President Obama's officials are planning to set up a middleman called a special-purpose vehicle -- a term made notorious during the Enron scandal -- or another type of entity to evade the congressional mandates, sources familiar with the matter said.

In another program, which seeks to restart consumer lending, a special entity was created largely for the separate purpose of getting around legal limits on the Federal Reserve, which is helping fund this initiative. The Fed does not ordinarily provide support for the markets that finance credit cards, auto loans and student loans but could channel the funds through a middleman.

At first, when the initiative was being developed last year, the Bush administration decided to apply executive-pay limits to firms participating in this program. But Obama officials reversed that decision days before it was unveiled on March 3 and lifted the curbs, according to sources who spoke on condition of anonymity because the discussions were private.

Obama's team is also planning to exempt financial firms that participate in a program designed to find private investors to buy the distressed assets on the books of banks. But Treasury officials are still examining the legal basis for doing so. Congress has exempted the Treasury from applying the restrictions in a fourth program, which aids lenders who modify mortgages for struggling homeowners.

Congress drafted the restrictions amid its highly contentious consideration of the $700 billion rescue legislation last fall. At the time, lawmakers were aiming to reform the lavish pay practices on Wall Street. Congress also wanted the government to gain the right to buy stock in companies so that taxpayers would benefit if the firms recovered.

The requirements were honored in an initial program injecting public money directly into banks. That effort was developed by the Bush administration and continued by Obama's team. The initiative is on track to account for the bulk of the money spent from the rescue package. All the major banks already submit to executive-compensation provisions and have surrendered ownership stakes as part of this program.

Yet as the Treasury has readied other programs, it has increasingly turned to creating the special entities. Legal experts said the Treasury's plan to bypass the restrictions may be unlawful.

"They are basically trying to launder the money to avoid complying with the plain language of the law," said David Zaring, a former Justice Department attorney who defended the government from lawsuits involving related legal issues. "They are trying to create a loophole to ignore Congress, and I think the courts will think that it's ridiculous."

The federal watchdog agency overseeing the bailout is looking into the matter, trying to determine whether the Treasury's actions are legal.

Of the two major restrictions imposed by Congress in the bailout legislation, the limit on executive pay has been the most politically explosive issue.

Obama himself has called for these limits. "We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," he said earlier this year.

But officials at the Treasury and the Fed said they worry harsh pay limits will undermine critical bailout programs by discouraging financial firms from participating. Although many of these companies could survive without government help, they might lack money to ramp up lending, which officials consider critical to turning the economy around.

In private meetings with officials in both the Bush and Obama administrations, firms' leaders have pushed back against pay limits.

A major test of whether the Treasury would apply the congressional restrictions was a $1 trillion program developed last fall to revive consumer lending. The initiative, known as the Term Asset-Backed Securities Loan Facility, or TALF, will be seeded with up to $100 billion from the financial rescue package, with the rest coming from the Fed.

The program set up a special entity providing low-cost loans to hedge funds and other private investors so they can buy securities that finance consumer debt from banks and other lenders. This would free these companies to make more loans.

When the Bush administration announced the program in November, officials directed the Fed to apply the pay limits to the lenders because they stood to benefit the most from the program. "There was a public hunger for executive-compensation restrictions, and we knew we couldn't be tone-deaf to the politics there," a former Bush administration official said.

In February, Obama administration officials at the White House and the Treasury began reviewing that decision. Treasury officials consulted with Department of Justice attorneys, who said they could legally avoid the pay restrictions, according to a government official. The requirements were removed just before the initiative was launched.

The concerns persisted as the administration crafted other initiatives. Some private investors said, for instance, that they would not help the government buy toxic assets from banks if the congressional restrictions were applied to them. And every major provider of small-business loans has said that it will not participate in the government's program if it has to surrender ownership stakes to the government or submit to executive-pay limits.


Thursday, April 02, 2009


American Brain Dead Media Continues To Focus on the Trivial, while ignoring real issues.

Beware Media Bearing Gift-gates

posted by Leslie Savan on 04/02/2009 @ 1:10pm

The real question about how Barack and Michelle Obama are being received on their Rolling-G-20-Summit/Euro-Tour '09 has nothing to do with how the Europeans treat them, but all about the American mainstream media itself: What infinitesimal nit will they find to pick about the new president's conduct abroad that can be blown up into a two- to three-day pseudo-international incident?

You know the sort of story I mean. We're not talking about serious systemic issues, such as the different perspective a country like Germany (with universal health care, generous unemployment benefits, and a highly unionized work force) might have on the need for a global stimulus when compared to the U.S., where the party Obama just turned out of office has proposed effectively privatizing Medicare. That would be too much like journalism, and way too MEGO.

We're looking here for a truly small-bore, utterly irrelevant, content-free distraction, like the ones the MSM entertained us with during March Meme Madness. Stories like Obama laughs too much, teleprompters too much, or simply does too much.

You know the media nitwit-pickers have struck when, at some point, they've made the exact opposite charge--that Obama's too serious, too off the cuff, or does too little, all well-worn themes from the campaign. On Tuesday, for example, a Fox News promo tried to scorch the president with the tagline "Rock star no more," suggesting he's lost his touch. Of course, that's the B-side of McCain's complaint last summer (megaphoned all over Fox) that Obama drew too big a crowd in Berlin, proving he was the "world's biggest celebrity"--and if the Eurotrash love him, how could straight-talkin' 'muricans ever accept him as president?

But let's face it: However unpopular American and British financiers may be in Europe, even Fox is having a hard time insisting that the populist firehose over there is aimed at Obama himself. The press spent two weeks in this country trying to hang Obama with the AIG bonuses, and his popularity went up.

A more likely candidate for MSM trumpetition is the line going around rightwing blogs, that the Obamas are narcissitic and stingy gifters. The English press made a big deal last month about how Prime Minister Gordon Brown gave Obama a pen mount made from the wood of a 19th century British anti-slaving warship when he visited Washington, and all he got in return was a lousy stack of American DVDs. So when it was learned that the president gave Queen Elizabeth II an iPod, the blogs went into dubbed the Obamas "the Clampetts," asking, "Were they born in a barn?"

Turns out the Queen requested the video iPod the president gave her, and he filled it with footage of her American visits and 40 showtunes; he also presented her with a rare songbook signed by Richard Rodgers, the Broadway composer who wrote one of the Queen's fave musicals, "Oklahoma!" But that won't stop the piss-ant dramas. When Gift-gate turned out to be just another murder of Vince Foster, some of the same folks started getting the vapors over Michelle patting the Queen's shoulders during their meet'n'greet. Nobody "touches" the Queen, for chrissakes, they mooned--at least, until Buckingham Palace put out word that there was no violation of protocol, and the Queen thought Michelle was expressing a very natural "affection," which she shares.

Just because both these shots at the Obamas' legitimacy went foul so quickly doesn't mean the desperate will give up, unfortunately. After all, after weeks on the case, conventional-wisdom dispensing machine Mark Halperin was on Monday's Morning Joe still kvetching about how something or other was an example of Obama "doing too much." These people are as incapable of embarrassment as Inspector Clouseau.

And while the "does too much" line might seem exhausted by now, it's hot stuff in the digital basement over at Politico, where they're keeping it on life support by transferring it laterally, to Michelle. In a weekend piece that asked in the homepage subhead, "is [Michelle] doing too much?" Nia-Malika Henderson brooded that "it isn't yet clear whether her self-described core messages--about military families, volunteerism, and helping working women balance work and family life--are truly breaking through. Some wonder if she's spreading herself too thin to emerge in the public mind as a leading voice on those topics."

Using the time-dishonored "some say" device to suggest throngs of critics, Henderson produced only one, Mindy Sabella, a marketing director, who griped about Michelle's "branding": "She's in the kitchen at the White House, she's building houses, she's digging in the garden. It's all very nice, but I thought to myself, `Why is she planting herbs?'"

I thought to myself, "Why is Ms. Sabella planting her bs?" Some contend, however, that it is Politico's Henderson who's doing the planting, i.e., getting an "expert" to provide quotes that fill Politico's buzz quota. (An internal memo advises writers to "reframe your reporting and analysis so people will say, 'POLITICO is reporting...' or 'The way POLITICO put it is...'") Wait, this just in: It was Henderson who got an "etiquette expert" from the Emily Post Institute to complain about Obama's iPod gift, too.

Anyway, these pseudostories--naked memes, you might call them--are more than just Republican talking points taken up by the media. What is fascinating about them is that their fakiness is so Emperor-wears-no-clothes-obvious. They're sprinkled around not so much to rile the masses up over a particular make-believe item, but to help keep the GOP base in a chronic, make-believe-ready state, one where they're unlikely to question any of the larger political lies. Like, that this is "the Obama recession."

But this time it's not working. Polls indicate that by huge margins people blame the banks and Bush for the collapsed economy, not Obama. Why do techniques that bedeviled the Clintons seem to slide off Obama so easily?

Well, for one thing, Obama won his election by the widest margin any new president has garnered since LBJ, and the country really wants a change.

Ultimately, though, it was the way the Clintonites governed, as a kind of Republican Lite, that opened them up to charges of hypocrisy and often split the Democratic coalition. The GOP may have lost the war to remove Bill from office, but they were definitely onto something about the Clintons, the way their immediate tactical advantage determined whatever they did--from cutting welfare to deregulating the banks. There were just enough flanges sticking up on Clintonism to catch the force of that populist firehose.

That's just not so clear about Obama. So, no matter what happens, for the foreseeable future we will have the corporate-media Clouseaus saying, "Do you have a leesance for that minkey?" And most of us won't be able to understand a word.


Local Law Enforcement Should Not Be Attempting To Enforce Immigration Laws.

House Hearing Will Examine Illegal Profiling and Police Misconduct By Local Law Enforcement Acting As Federal Immigration Agents (4/1/2009)

U.S. Department Of Homeland Security Should Suspend Agreements With Local And State Law Enforcement, Says ACLU

CONTACT: (202) 675-2312;

WASHINGTON – Two House Judiciary Committee Subcommittees will hold a joint hearing tomorrow to examine civil rights abuses committed by state and local police functioning as federal immigration agents. As part of the hearing entitled, “The Public Safety and Civil Rights Implications of State and Local Enforcement of Federal Immigration Laws,” the American Civil Liberties Union in written testimony will urge Congress to suspend all local immigration enforcement agreements that have resulted in illegal profiling of Latinos and unlawful detention and deportation of U.S. citizens and permanent residents.

“Too many sheriffs, after being deputized as immigration agents, have treated their new authority as a license to profile and discriminate,” said Joanne Lin, ACLU Legislative Counsel. “The ACLU has received complaints across the country of U.S. citizens of Latino appearance being illegally stopped, detained, arrested, and even deported by local law enforcement functioning as immigration agents. Immigration law, like tax law, is very complex and constantly evolving. Since immigration law is exclusively federal, immigration enforcement belongs in the hands of the federal government only, not in the hands of county sheriff’s deputies and police officers.”

Since 2002, the federal government has actively shifted enforcement of civil immigration law to localities. State, county and local law enforcement agencies enter into agreements under Section 287(g) of the Immigration and Nationality Act, in which the Department of Homeland Security (DHS) authorizes local law enforcement officers to perform immigration duties under the training and supervision of the Bureau of Immigration and Customs Enforcement (ICE). Unfortunately, the federal government has completely abandoned its responsibilities to monitor and provide meaningful oversight of the 287(g) program. Consequently, sheriffs and police officers who, for example, are not adequately trained or supervised by ICE often rely on race or ethnicity as reason to suspect that an individual is undocumented. Any person who looks or sounds “foreign” is more likely to be stopped by police and more likely to be arrested, rather than given a warning or let go, when stopped.

One such individual is Julio Mora, a U.S. citizen who was stopped and arrested by Maricopa County Sheriff’s Office (“MCSO”) deputies in February. Despite being a U.S. citizen, Mr. Mora was arrested and detained for several hours without reasonable suspicion or probable cause until MCSO could confirm his citizenship. While in MCSO custody, Mr. Mora was humiliated by deputies who forced him to urinate with his hands cuffed and then mocked him for not being able to do so. Mr. Mora will be testifying at the hearing about his experiences at the hands of MCSO deputies.

The ACLU, along with Steptoe & Johnson LLP and the Mexican American Legal Defense and Educational Fund, has sued MCSO for illegal profiling of Latino motorists in Maricopa County. In February, a federal court ruled that the class action lawsuit against MCSO will proceed.

“Discriminatory practices and policies in local enforcement of immigration law have no place in this country and must be stopped,” said ACLU staff attorney Mónica Ramírez, who is co-counsel in the case and co-authored the ACLU’s written testimony. “We urge Congress to take steps to make it unnecessary to bring further litigation on behalf of Latinos who have been illegally profiled and harassed by local law enforcement for the purpose of enforcing the immigration laws.”

In February, the ACLU of North Carolina co-authored a report entitled, “The Policies and Politics of Local Immigration Enforcement Laws: 287(g) Program in North Carolina.” Katy Parker, Legal Director of the ACLU of North Carolina, added, “All across the state, Latinos live in fear of being detained as they go to work, worship or run any other routine errand. Local law enforcement agencies have clearly targeted Latinos with immigration checkpoints near certain trailer parks, churches and flea markets.” Deborah Weissman, law professor at the University of North Carolina, co-authored the report and will be testifying at tomorrow’s hearing.

The ACLU urges Congress to eliminate the 287(g) program and other DHS programs that permit state and local police to enforce immigration laws. The ACLU recommends the following initiatives:

For the ACLU testimony, go to:

For more information about the 287(g) report by the ACLU of North Carolina, go to:

For more details about the Ortega v. Arpaio case, go to:

Tuesday, March 31, 2009


“The men and women of Afghanistan are building a nation that is free, and proud, and fighting terror - and America is honored to be their friend.” - W

March 31, 2009
Afghan leader accused of bid to 'legalise rape'
By Jerome Starkey in Kabul
UN and women MPs say Karzai bowed to Islamic fundamentalists before poll

Afghanistan's President, Hamid Karzai, has signed a law which "legalises" rape, women's groups and the United Nations warn. Critics claim the president helped rush the bill through parliament in a bid to appease Islamic fundamentalists ahead of elections in August.

In a massive blow for women's rights, the new Shia Family Law negates the need for sexual consent between married couples, tacitly approves child marriage and restricts a woman's right to leave the home, according to UN papers seen by The Independent.

"It is one of the worst bills passed by the parliament this century," fumed Shinkai Karokhail, a woman MP who campaigned against the legislation. "It is totally against women's rights. This law makes women more vulnerable."

The law regulates personal matters like marriage, divorce, inheritance and sexual relations among Afghanistan's minority Shia community. "It's about votes," Ms Karokhail added. "Karzai is in a hurry to appease the Shia because the elections are on the way."

The provisions are reminiscent of the hardline Taliban regime, which banned women from leaving their homes without a male relative. But in a sign of Afghanistan's faltering steps towards gender equality, politicians who opposed it have been threatened.

"There are moderate views among the Shia, but unfortunately our MPs, the people who draft the laws, rely on extremists," Ms Karokhail said.

The bill lay dormant for more than a year, but in February it was rushed through parliament as President Karzai sought allies in a constitutional row over the upcoming election. Senator Humeira Namati claimed it wasn't even read out in the Upper House, let alone debated, before it was passed to the Supreme Court. "They accused me of being an unbeliever," she said.

Details of the law emerged after Mr Karzai was endorsed by Afghanistan's Supreme Court to stay in power until elections scheduled in August. Some MPs claimed President Karzai was under pressure from Iran, which maintains a close relationship with Afghanistan's Shias. The most controversial parts of the law deal explicitly with sexual relations. Article 132 requires women to obey their husband's sexual demands and stipulates that a man can expect to have sex with his wife at least "once every four nights" when travelling, unless they are ill. The law also gives men preferential inheritance rights, easier access to divorce, and priority in court.

A report by the United Nations Development Fund for Women, Unifem, warned: "Article 132 legalises the rape of a wife by her husband".

Most of Afghanistan's Shias are ethnic Hazaras, descended from Genghis Khan's Mongol army which swept through the entire region around 700 years ago. They are Afghanistan's third largest ethnic group, and potential kingmakers, because their leaders will likely back a mainstream candidate.

Even the law's sponsors admit Mr Karzai rushed it through to win their votes. Ustad Mohammad Akbari, a prominent Shia political leader, said: "It's electioneering. Most of the Hazara people are unhappy with Mr Karzai."

A British Embassy spokesman said diplomats had raised concerns "at a senior level".

Monday, March 30, 2009


While President Obama Plays Tough With The Auto Industry... Tim Geithner and Larry Summers allow Wall Street to Develop Plans to Save Themselves.

Obama's Banking Rescue: O for Opaque

Robert Kuttner at HuffPo

I fear that these columns have been too polite. They have directed criticisms at Treasury Secretary Tim Geithner and national economic policy chief Larry Summers. Lord knows, they richly deserve the criticism. But let's not kid ourselves. The man they work for is named Barack Obama.

President Obama has promised to run an administration of unprecedented openness. And in some respects, such as the ground rules for spending stimulus funds, he has. But in the most important area of all, the financial rescue, the administration is making trillion dollar decisions relying on the Federal Reserve and a small Wall Street club of advisors, with no transparency or public accountability.

In normal policy-making, an administration comes before Congress to request a law; one or more Congressional committees hold hearings; a broad range of witnesses are called; and then the legislation is drafted, enacted, and funds are appropriated. Criteria for spending the public's money are explicitly legislated; and Congress gets to conduct oversight hearings after the fact to see whether the money has been well spent.

But compare that process with the bank rescue, a policy with all the transparency of J.P. Morgan. The current approach to the bailout began last October when a panicky Hank Paulson, then George W. Bush's Treasury Secretary, met with Congressional leaders and told them if they didn't cough up a blank check of $700 billion in a matter of days, the economy would collapse. It took Congress three weeks, but Paulson got his blank check. There were no hearings, no expert witnesses, and no serious discussion of alternative approaches. But at least Congress legislated the funds, and added as a condition the creation of both a Congressional Oversight panel and an independent inspector general.

However, Paulson's decisions on which firms to bail out, and on what terms, were entirely ad hoc. Treasury has not cooperated well with the oversight panel, as the panel's several reports attest.

Then in January, Obama succeeded Bush--and if anything the closed-door operation became even more secretive. In devising their horribly convoluted and risky approach to the next phase of the banking bailout, chief economic strategist Summers and Treasury Secretary Geithner did not consult closely with Congress. The new rescue package was not legislated. There were no hearings. Rather, they met extensively with key Wall Street banking barons, to design government guarantees so lucrative that speculative hedge funds and private equity companies would bid for toxic securities clogging bank balance sheets. They would make a financial killing, but maybe banks would be recapitalized and start lending again.

This is described as a "public-private partnership," but the new private investors put up just three percent of the money. The rest comes from the Federal Reserve, the FDIC, and what's left of Paulson's original pot, now down to less than $100 billion. But if nearly all the risk and all the money is coming from the Fed, who needs the middlemen?

The plan is also advertised as a system for "price discovery" in which free market auctions allow market forces to discern the "correct" market price of financial assets that nobody has wanted to buy or sell. But, obviously, nothing that is 97 percent government-financed and government-guaranteed is a free-market price. See economist Jeff Sachs on this.

In the days before the plan was finally announced last Monday, Geithner and Summers had several meetings with key private equity and hedge funds, so that there could be well-orchestrated announcements that private capital liked the government's plan and would come to the table. Summers and Geithner effectively gave away one of the most important imperatives for solving the financial crisis--making sure that these unsupervised and highly speculative parts of the system are belatedly regulated.

Recently, in response to tough questions from Senator Carl Levin, Gary Gensler, Obama's new chair of the Commodity Futures Trading Commission, made several explicit commitments about more stringent regulation of hedge funds and private equity.

But Gensler is singing one song, while Geithner sings a very different tune. It's awfully hard to crack down on these people when you are fairly begging them to come to your new government-guaranteed casino.

Even more alarmingly, the administration is now using the Federal Reserve as an unlegislated, all-purpose slush fund. Because the Fed's operations are largely beyond the reach of Congressional appropriations or scrutiny, the Fed can do whatever it wishes with its money. The Geithner plan was negotiated behind closed doors, the main players being the Fed, the FDIC, the Treasury, and power-brokers on Wall Street.

What we have is something perilously close to a dictatorship of the Fed and the Treasury, acting in the interests of Wall Street. The contrasts with the first hundred days of the Roosevelt administration are striking. Like Roosevelt, Obama faces an economic emergency. Like Roosevelt, he faces an angry public, which has been bilked by excesses on Wall Street. And like Roosevelt, Obama has a supportive Democratic Congress that is willing to substantially defer to the White House on an emergency recovery plan.

But unlike Roosevelt, who used the public's indignation and Congress's support to constrain the barons of private finance, Obama's economic team is using government funds to put the most abusive players on Wall Street back in the saddle. And Geithner and Summers, working with the Fed, are assembling their plan with no public scrutiny.

In the course of a week, the administration's own rhetoric on the A.I.G. bonuses has shifted from "We were bound by contracts" to "This is an outrage" to "Never mind." Wall Street was out for favor for just days. Meanwhile, Geithner is out with a new proposal to give the Federal Reserve even more sweeping powers to be a "systemic risk regulator."

All of this invites a couple of hard questions.

First, was this the only way to proceed? I have addressed this in a previous column arguing that a superior approach would be a new Reconstruction Finance Corporation.

For details of a well articulated rationale for a new RFC, see the recent speech by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, whose jurisdiction covers eleven Midwestern states. (PDF)

Second, where is Congress? Basically, the key Democratic Committee chairman, whatever their private reservations, have been persuaded that they need to support their president and that the Geithner plan is worth a try. But at the very least, they should be asking harder questions and demanding more transparency. For instance, the Treasury needs to define tactics to game the bailout that will be be prohibited. Congress needs to know which Wall Street moguls the Treasury team met with, and exactly what they were promised. And the whole plan needs to be legislated, rather than made up on the fly by Summers, Geithner, and Bernanke.

At the very least, Congress should act now to cap the kind of windfall profits that hedge funds and private equity companies are likely to make with government bearing nearly all of the risk. There is a good precedent for this. During and after World War II, ending only in the early 1970s, there was a government agency called the Renegotiation Board. Defense Contractors had to agree to a contractual provision allowing a post-audit, after the contract was finished. If their profit exceed the stipulated amount, the government got a refund. By the same token, hedge fund and private equity bets made with government guarantees should have limits on their upside.

And before the Fed is turned into an even more potent all-purpose regulator, Congress should turn it into a true public institution--a reform project that has been deferred since Roosevelt's day.

At a recent conference of the New America Foundation, economist and Obama adviser Laura Tyson, an in exchange with me, defended the administration's approach on the premise that there was no way that Congress would legislate the one to two trillion dollars in public funds that will be needed to make this rescue work. So, in Tyson's view, there was no alternative other than having Treasury contrive its own plan, using the Fed as an all purpose source of unlegislated financing.

I think this is exactly backwards. The administration has, in fact, put $750 billion into its current budget for bank-bailout funds to be tapped later. And if the White House had proposed a more progressive approach to the whole financial rescue--taking failed banks into receivership, involving Congress in the program design, doing comprehensive government audits of bank balance sheets before rather than after the fact, and forcing bank shareholders and bondholders rather than taxpayers to take more of the hit--Congress might well have provided at least some of the funds, leaving the Fed to provide the rest.

Under the present arrangement, the Fed provides nearly all of the funds, an approach that carries no transparency and huge risks of its own. Until last September, the Fed bought and sold mainly Treasury bonds, the safest securities there are. And it did so for one purpose only--to conduct monetary policy. Now, the Fed is buying trillions of dollars of junk assets, and it will be under tremendous pressure to keep these on its own books, compromising its capacity to run the nation's monetary policy.

It's possible that the Geithner plan will "work" in the sense of re-starting the Wall Street bubble machine, this time with a limitless line of direct credit from the Federal Reserve. If that happens, it will defer an even more serious day of reckoning, as the cost of the Fed's immense credit creation comes due. But the greater likelihood is that the plan will merely enrich some speculators, but neither bring zombie banks back to life, nor get a normal banking and credit system operating again. And then the administration will need to come back to Congress, this time with less credibility, with the economy in even worse shape, having burned through more than a trillion dollars.

We were promised unprecedented openness. In the most momentous area of policy for getting the economy functioning again for ordinary Americans, we have instead unprecedented secrecy, designed by and for Wall Street. We expected better of Obama.

Robert Kuttner is co-editor of The American Prospect and senior fellow at Demos. His recent book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."


President Obama Takes Hard Line Position On Auto Industry Bailouts. Why isn't the Line as Hard on Wall Street? What's the Difference?

Obama's Remarks On Auto Industry Restructuring, March 30, 2009 · President Obama is giving General Motors and Chrysler weeks to restructure or face bankruptcy. Read his prepared remarks. Source: The White House

One of the challenges we have confronted from the beginning of this administration is what to do about the state of our struggling auto industry. In recent months, my Auto Task Force has been reviewing requests by General Motors and Chrysler for additional government assistance as well as plans developed by each of these companies to restructure, modernize, and make themselves more competitive. Our evaluation is now complete. But before I lay out what needs to be done going forward, I want to say a few words about where we are, and what led us to this point.

It will come as a surprise to no one that some of the Americans who have suffered most during this recession have been those in the auto industry and those working for companies that support it. Over the past year, our auto industry has shed over 400,000 jobs, not only at the plants that produce cars but at the businesses that produce the parts that go into them, and the dealers that sell and repair them. More than one in ten Michigan residents is out of work — the most of any state. And towns and cities across the great Midwest have watched unemployment climb higher than it's been in decades.

The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed. And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership — from Washington to Detroit — that led our auto companies to this point.

Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them.

We cannot, we must not, and we will not let our auto industry simply vanish. This industry is, like no other, an emblem of the American spirit; a once and future symbol of America's success. It is what helped build the middle class and sustained it throughout the 20th century. It is a source of deep pride for the generations of American workers whose hard work and imagination led to some of the finest cars the world has ever known. It is a pillar of our economy that has held up the dreams of millions of our people. But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies — and this industry — must ultimately stand on their own, not as wards of the state.

That is why the federal government provided General Motors and Chrysler with emergency loans to prevent their sudden collapse at the end of last year — only on the condition that they would develop plans to restructure. In keeping with that agreement, each company has submitted a plan to restructure. But after careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting. And so today, I am announcing that my administration will offer GM and Chrysler a limited period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success.

What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts. Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry. But I am confident that if we are each willing to do our part, then this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry; an auto industry that is once more out-competing the world; a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future. I am absolutely committed to working with Congress and the auto companies to meet one goal: the United States of America will lead the world in building the next generation of clean cars.

No one can deny that our auto industry has made meaningful progress in recent years. Some of the cars made by American workers are now outperforming the best cars made abroad. In 2008, the North American Car of the Year was a GM. This year, Buick tied for first place as the most reliable car in the world. And our companies are investing in breakthrough technologies that hold the promise of new vehicles that will help America end its addiction to foreign oil.

But our auto industry is not moving in the right direction fast enough to succeed. So let me discuss what measures need to be taken by each of the auto companies requesting taxpayer assistance, starting with General Motors. While GM has made a good faith effort to restructure over the past several months, the plan they have put forward is, in its current form, not strong enough. However, after broad consultations with a range of industry experts and financial advisors, I'm confident that GM can rise again, provided that it undergoes a fundamental restructuring. As an initial step, GM is announcing today that Rick Wagoner is stepping aside as Chairman and CEO. This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company; rather, it's a recognition that it will take a new vision and new direction to create the GM of the future.

In this context, my administration will offer General Motors adequate working capital over the next 60 days. During this time, my team will be working closely with GM to produce a better business plan. They must ask themselves: have they consolidated enough unprofitable brands? Have they cleaned up their balance sheets or are they still saddled with so much debt that they can't make future investments? And above all, have they created a credible model for how to not only survive, but succeed in this competitive global market? Let me be clear: the United States government has no interest or intention of running GM. What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company.

The situation at Chrysler is more challenging. It is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable. Recently, Chrysler reached out and found what could be a potential partner — the international car company Fiat, where the current management team has executed an impressive turnaround. Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to building new fuel-efficient cars and engines here in America. We have also secured an agreement that will ensure that Chrysler repays taxpayers for any new investments that are made before Fiat is allowed to take a majority ownership stake in Chrysler.

Still, such a deal would require an additional investment of tax dollars, and there are a number of hurdles that must be overcome to make it work. I am committed to doing all I can to see if a deal can be struck in a way that upholds the interests of American taxpayers. That is why we will give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement — and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business.

While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. Now, I know that when people even hear the word "bankruptcy" it can be a bit unsettling, so let me explain what I mean. What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold. What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out.

It is my hope that the steps I am announcing today will go a long way toward answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can — if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warrantee will be safe. In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warrantee.

But we must also recognize that the difficulties facing this industry are due in no small part to the weakness in our economy. Therefore, to support demand for auto sales during this period, I'm directing my team to take several steps. First, we will ensure that Recovery Act funds to purchase government cars go out as quickly as possible and work through the budget process to accelerate other federal fleet purchases as well. Second, we will accelerate our efforts through the Treasury Department's Consumer and Business Lending Initiative. And we are working intensively with the auto finance companies to increase the flow of credit to both consumers and dealers. Third, the IRS is today launching a campaign to alert consumers of a new tax benefit for auto purchases made between February 16th and the end of this year — if you buy a car anytime this year, you may be able to deduct the cost of any sales and excise taxes. This provision could save families hundreds of dollars and lead to as many as 100,000 new car sales.

Finally, several members of Congress have proposed an even more ambitious incentive program to increase car sales while modernizing our auto fleet. Such fleet modernization programs, which provide a generous credit to consumers who turn in old, less fuel efficient cars and purchase cleaner cars have been successful in boosting auto sales in a number of European countries. I want to work with Congress to identify parts of the Recovery Act that could be trimmed to fund such a program, and make it retroactive starting today.

Let there be no doubt, it will take an unprecedented effort on all our parts — from the halls of Congress to the boardroom, from the union hall to the factory floor — to see the auto industry through these difficult times. But I want every American to know that the path I am laying out today is our best chance to make sure the cars of the future are built where they've always been built — in Detroit and across the Midwest; to make America's auto industry in the 21st century what it was in the 20th century — unsurpassed around the world. This path has been chosen after consulting with other governments that are facing this crisis. We have worked closely with the Government of Canada on GM and Chrysler, as both companies have extensive operations there. The Canadian Government has indicated its support for our approach and will be announcing their specific commitments later today.

While the steps I am talking about will have an impact on all Americans, some of our fellow citizens will be affected more than any others. And so I'd like to speak directly to all those men and women who work in the auto industry or live in the countless communities that depend on it. Many of you have been going through tough times for longer than you'd care to remember. And I will not pretend the tough times are over. I cannot promise you there isn't more pain to come. But what I can promise you is this — I will fight for you. You are the reason I am here today. I got my start fighting for working families in the shadows of a shuttered steel plant and I wake up every single day asking myself what I can do to give you and working people all across this country a fair shot at the American dream.

When a community is struck by a natural disaster, the nation responds to put it back on its feet. While the storm that's hit our auto towns is not a tornado or a hurricane, the damage is clear, and we must respond. That is why today, I am designating a new Director of Recovery for Auto Communities and Workers to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry. Edward Montgomery, a former Deputy Labor Secretary, has agreed to serve in this role. Together with Labor Secretary Solis and my Auto Task Force, Ed will help provide support to auto workers and their families, and open up opportunity in manufacturing communities. Michigan, Ohio, Indiana, and every other state that relies on the auto industry will have a strong advocate in Ed. He will direct a comprehensive effort that will help lift up the hardest hit areas by using the unprecedented levels of funding available in our Recovery Act and throughout our government to create new manufacturing jobs and new businesses where they are needed most — in your communities. And he will also lead an effort to identify new initiatives we may need to help support your communities going forward.

These efforts, as essential as they are, will not make everything better overnight. There are jobs that cannot be saved. There are plants that will not reopen. And there is little I can say that can subdue the anger or ease the frustration of all whose livelihoods hang in the balance because of failures that weren't theirs.

But there is something I want everyone to remember. Remember that it is precisely in times like these — in moments of trial, and moments of hardship — that Americans rediscover the ingenuity and resilience that makes us who we are. That made the auto industry what it once was. That sent those first mass-produced cars rolling off assembly lines. That built an arsenal of democracy that propelled America to victory in the Second World War. And that powered our economic prowess in the first American century.

Because I know that if we can tap into that same ingenuity and resilience right now; if we can carry one another through this difficult time and do what must be done; then we will look back and say that this was the moment when America's auto industry shed its old ways, marched into the future, and remade itself, once more, into an engine of opportunity and prosperity, not only in Detroit, and not only in our Midwest, but all across America.

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