No Runny Eggs

Treasury’s Top Candidate to Run TARP Drops Out .

Damn, is there anyone who wants a Treasury job?

WASHINGTON — The leading candidate to run the Treasury Department’s $700 billion bailout program has withdrawn his name from consideration, according to people familiar with the matter.

Frank Brosens, a hedge-fund manager and big Democratic donor, was considered the top contender to run the Treasury’s Troubled Asset Relief Program. Treasury Secretary Timothy Geithner is now considering several other candidates, including Herb Allison, who currently heads mortgage titan Fannie Mae.

Oh yeah, let’s get the Fannie Mae folks, they’ll do anything!

Mr. Brosens, who campaigned for Mr. Obama, said he withdrew his name for personal reasons, including wanting to remain at his hedge fund, Taconic Capital Advisors. “I very much wanted to find a way to serve,” he said. Among the reasons he cited for withdrawing was the need to commute between Washington and New York, where his son is in school.

Uh huh.  Did he just find out that his son is in school?

Just so you know, if nominated, I will not run.  If elected, I will not serve….just if you were wondering.

What would this article be without the obligatory and obvious video?

During his press conference last evening, when question about the dramatic increases in debt and deficit that his budget shows, President Obama again lashed out with, “I inherited this mess.”

The Washington Post has put together a graph showing deficits under Bush and the proposed deficits under Obama.  As they say, a picture is worth a thousand words:

I think it’s fair to cut Obama some slack on ’09. The deficit in this year was started by President Bush. That said, there was not one decision on the extraordinary monies spend that Obama was not involved with either through direct consultation or via his vote as a Senator. That said, there’s no question that every dollar past ’09 is all Obama, all the time. There is also not doubt that every year of Obama’s projected budget has a higher deficit than ANYTHING President Bush had.

Before you get into “this is a true comparison” or “Bush didn’t show Iraq”, go read the Heritage.org piece. As they say in the commercial, “Prego, it’s all in there!”

This morning, Treasury Secretary Timothy Geithner released his plan for Toxic assets.  Geithner’s latest attempt to solve this problem is called the , Public Private Partnership Investment Program. 

In its simplest form, Geithner’s plan would have the FDIC front a program where investment companies could place their “toxic assets” up for sale in an auction process.  Private entities would be able to bid on the toxic assets and via FDIC guarantees, be able to leverage their money 6:1.  The equity investment required to purchase the assets would be shared equally between the government and the private entity purchasing the toxic asset.  Perhaps this example from Geithner’s document will help clarify how this will work:

Sample Investment Under the Legacy Loans Program

Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest bid from the private sector – in this example, $84 – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6.
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

Before I dissect the plan can I ask one question?  Is this it?  Is this what we waited two months for?  Is this the plan that Geithner was “uniquely qualified” for to put together?  How could this answer have taken more than about a partial weekend to come up with?

What’s not to like?  Plenty!

First, the FDIC and TARP are carrying nearly 93% of the risk of the asset program.  Obviously, if the assets are purchased at the “right” price, there is upside for these “investments.  However, with the private equity folks having to only pony up 7% and having significant return possibilities with minimal downside, isn’t it more likely that the assets get over priced in the auction rather than under priced?  Isn’t this the same kind of a scenario that lead to the toxic assets in the first place?

Second, I question how much of the debt will be placed up for auction.  Yes, the folks holding them would like to clear their books of them.  However, an auction can get you both less than you have the asset marked at as well as more than the asset is marked at.  This market is still very very thin.  Couple that with the uncertain economic environment and it would seem that there will be few players able and willing to bid on these assets.  Auctions work best when there are lots of bidders and the items being bid on have great transparency as to what’s being bid on.  I don’t see either of those situations occurring with these auctions.

Third, and perhaps most important, as it title states, this program is based on private participation.  OK, admittedly, the private participation is not much more than a way for Geithner to attempt to legitimize the government guaranteeing/buying these assets, but private companies are still required.  If the AIG kerfuffle showed nothing else, it showed that the Democrats have nothing but disdain and contempt for anyone who has made out better than whatever they think is “fair.”  The Democrats have also put private enterprise on notice that whoever uses government money is subject to retroactive “adjustments” if the Democrats think you did better than you ought to have done. 

Geithner’s new program would have private investors leveraging government funds to purchase these assets.  Isn’t that what AIG is/was doing?  If the private investors are able to drive significant returns on the toxic asset program what guarantee is there that Congress, specifically the Democrats, won’t come back afterwords and say “we want more!”  With this as the backdrop, how many private investors do you think will be willing to put their money at risk in another government supported effort?

I’ll say right now that I may be completely wrong about this program.  As I write this, the DOW is up 260+ points on the anticipation of this program.  I suspect however, that this may look a lot like last week’s announcement by the Fed to expand it’s balance sheet by over a trillion dollars, the DOW ran up on the anticipation but sold off the following two days as investors digested the implications and reality of what the Fed had done.

My take?  This is another “swing and a miss” by Geithner.  That makes a strike out on my stat sheet.

Update 3/23 10:44 AM – and if you think the disincentive of working with the government is limited only to AIG because Congress so “carefully crafted” the legislation not to have any unintended consequences, think again!  Read this about what is happening at another “failing bank.”  You can bet most of the other “failing banks” are impacted by the unintended consequences of the AIG bill as well!

That’s the stuff that President Obama’s budget appears to have been made of.

The Congressional Budget Office took a “preliminary analysis” of Obama’s budget and found some, let’s just say, “challenges.”

Largely as a result of the enactment of recent legislation and the continuing turmoil in financial markets, CBO’s baseline projections of the deficit have risen by more than $400 billion in both 2009 and 2010 and by smaller amounts thereafter. Those projections assume that current laws and policies remain in place. Under that assumption, CBO now estimates that the deficit will total almost $1.7 trillion (12 percent of GDP) this year and $1.1 trillion (8 percent of GDP) next year—the largest deficits as a share of GDP since 1945. Deficits would shrink to about 2 percent of GDP by 2012 and remain in that vicinity through 2019.

But that’s just the tip of the iceberg:

As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period.

The cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion, compared with a cumulative deficit of $4.4 trillion projected under the current-law assumptions embodied in CBO’s baseline. Debt held by the public would rise, from 41 percent of GDP in 2008 to 57 percent in 2009 and then to 82 percent of GDP by 2019 (compared with 56 percent of GDP in that year under baseline assumptions).

Oh, if you’re buying the “we’ll raise the tax rate and it will bring in more revenue” canard:

Proposed changes in tax policy would reduce revenues by an estimated $2.1 trillion over the next 10 years.

Every time Obama asks for confirmation of another appointee we hear that his administration hires the “best and brightest.”  If that’s so, they must be coming from the public school systems because the CBO says they aren’t able to do some simple math:

Our estimates of deficits under the President’s budget exceed those anticipated by the Administration by $2.3 trillion over the 2010-2019 period.

Oops!

And that whole “inflation capping at 8.1%” because of the stimulus pixie dust; um, nope!

In this forecast, the unemployment rate peaks at 9.4 percent in late 2009 and early 2010 and remains above 7.0 percent through the end of 2011.

For those of you who learn visually, here is the graph that says it all.  According to the CBO, if we would leave the horrible, awful policies of George Bush in place, we would see the deficit run at about 1/4 to 1/3 the rate compared to enacting the policies of the oh so enlightened Barack Obama:

Yes, President Obama and staff appear to have as much understanding of what it takes to manage long term economics as Lesley Gore did about maintaining long term relationships.

OK, admittedly, this is more like talking to 10 year olds than 4 year olds but the issue is the same.

The Shoelets, Thing 1 and Thing 2, are good students.  They like school and are good natured about taking on new challenges such as multiplication, division or sentence structure.  Part of the reason they are good students is that Mrs. Shoe and I take their education seriously.  We make sure that it is a priority for them.

When the Shoelets come home, after greeting them, reminding them to take their shoes off and to hang up their jackets, the next thing they get hit with is “Do you have any homework?”  Homework is a priority in our house.  Homework gets done before they get to play with their friends, play video games or do anything else that is on their “fun list.”  In our house we try to instill an attitude where we take care of what we have to do before we get to do what we want to do.  Interestingly, we hear constantly from Thing 1 and Thing 2’s teachers how well prepared they are for class and how much of a challenge that issue is with many of the other kids in their classes.

In the past week, President Obama has had time to fill out his March Madness brackets and make appearances about it .  Obama has also had time to campaign in California and appear on the Tonight show.  It’s an amazing recovery for Obama.  Just 10 days ago, Obama was too tired to provide a proper reception for the British Prime Minister!

While President Obama was out doing the thing he wanted to do, the things he needed to dowere ignored.  The Treasury still has 17 lead positions unfilled.  This is the department whose head, Timothy Geithner, is still unable to deliver a promised toxic asset plan.  It is also the understaffed Treasury that not only approved of the original AIG compensation agreements, but is now unable to concoct a comprehensive string of lies that would allow them to cry “Buuuuuuuuush!”  President Obama has no plan or timeline for dealing with the Treasury vacancies.  No plan for the department that is arguably the most important given the challenges of the current economy.

In a related note, President Obama announced on the Tonight Show yesterday, that he does have a date when the First Family will be getting the First Dog.  Yup, he’ll have that task taken care of by early April!  That is, he’ll have a first dog by early April if he can get one to pass the background check and agree to have its name forever sullied by being a part of the sinking ship called the Obama administration!

Remember this from Barack Obama’s infamous “Speech on Race?”

Given my background, my politics, and my professed values and ideals, there will no doubt be those for whom my statements of condemnation are not enough. Why associate myself with Rev. Wright in the first place, they may ask? Why not join another church?
…
But the truth is, that isn’t all that I know of the man. The man I met more than 20 years ago is a man who helped introduce me to my Christian faith, a man who spoke to me about our obligations to love one another; to care for the sick and lift up the poor.
…
I can no more disown him than I can disown the black community. I can no more disown him than I can my white grandmother — a woman who helped raise me, a woman who sacrificed again and again for me, a woman who loves me as much as she loves anything in this world, but a woman who once confessed her fear of black men who passed by her on the street, and who on more than one occasion has uttered racial or ethnic stereotypes that made me cringe.

These words were spoken by Barack Obama as he tried to explain his continuing loyalty to Reverend Wright after Wright’s hate filled and bigoted sermons finally received coverage by the MSM.  While the issue had been brewing for several months, Obama finally felt that he needed to address the issue directly and deflect the distaste for Wright back onto the folks who were calling him out by attempting to make them appear racist.

Of course, we all remember how Obama’s “family reunion” ended.  On April 29th, less than 6 weeks later, Obama threw Wright under the bus saying he is “outraged” by Wright’s “divisive and destructive” comments and their relationship has been permanently damaged.

Today, Barack Obama took up the defense of Secretary of Treasury, Timothy Geithner:

“He is making all the right moves in terms of playing a bad hand,” Obama told reporters at the White House before leaving on a two-day trip to Southern California. “I have complete confidence in Tim Geithner and my entire economic team.”

Like his comments on Wright, Obama feels compelled to publicly support Geithner because he has become an albatross for Obama’s plans.  Geithner’sinability to complete a toxic asset plan, even though promised repeatedly for the past six weeks, along with his involvementwith AIG, leaves him looking like the weak member, soon to be left behind, so that the rest of the herd may go on to survive.

In perhaps the greatest irony of Obama’s support for Geithner is that his comments come on the one year anniversary of his comments supporting Wright.  It looks like history is lining up to repeat itself.  The only question left is whether Obama will wait six weeks to finish Geithner.  My bet?  Timmy ought to be polishing his resume, soon!

Come and hop in the “Wayback Machine” with me.  We’re going to set the dial for less than a week ago, March 12, 2009 to be exact.  Remember, all the events are exactly as they happened except “You are there!”

We’re in Washington D.C..  We’re witnessing President Barack Obama give his public address about the $410 billion omnibus spending bill.  We hear President Obama tell us that “nearly 99 percent of this legislation,” is not earmarks.

We hop back in the “Wayback Machine” and set the date for a few days earlier, March 2, 2009.  Here we’re at Robert Gibbs press briefing.  At this briefing, Gibbs tells us that Obama is not responsible for anything that started before he became President.  If it was in the works, he is obligated to allow the action to proceed to its logical conclusion:

Q . A quick follow on the omnibus. Last week it was pointed out that a couple of Cabinet secretaries, LaHood and Mrs. Solis, have earmarks in this omnibus from last year, leftover funding. Now it’s also been learned that Vice President Biden has — I think it’s $750,000 for the University of Delaware satellite station, and Rahm Emanuel $900,000 for the Chicago Planetarium.

Since the President talked so much about earmarks in the campaign, and as President, about keeping them out of the stimulus — I know this is leftover business from last year — but as something that he is either going to sign or veto, why not have earmarks that come from his administration essentially at least taken out to set — send a signal, number one? And number two, is he — is there any chance he’ll veto this bill and send it back and say, get these earmarks out; there’s over 9,000 of them?

MR. GIBBS: Well, I think you saw remarks this weekend by the chief of staff and the budget director about the legislation. Obviously the President is concerned, despite the progress that has been made in this town, about the size and the scope of earmarks that we’ve seen over the past few years. I think even the most cynical among us would have to at least acknowledge that the number of overall earmarks has been cut.

I think it’s important to recognize that a piece of legislation probably twice the size of the piece of legislation that you’re asking me about was passed through Congress at the President’s direction without earmarks. This is the finishing up of last year’s appropriations legislation.

And I think what’s most important and what the President would tell you is important here is that though he doesn’t control everything that happened before he became President of the United States, that dozens and dozens and dozens of appropriations bills will go through Congress and come to his desk over the course of the next four years. (emphasis mine)

We hop back into the “Wayback Machine” and return to the present.

Over the weekend it was announced that AIG would be paying out $165 million in “bonuses:

Troubled insurer American International Group (AIG: 0.7801, 0.2986, 62.01%), which is 79.9%-owned by the federal government, will pay $165 million in retention bonuses on Sunday to those at the division that has drawn most of the heat for the company’s near-collapse.

President Obama responded to this news by saying:

“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165-million in extra pay,” Mr. Obama complained at the White House. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Outrage to taxpayers?

Just last week, President Obama said that $8 billion was no big deal for taxpayers to bear.  Just last week, President Obama said that 2% is below the threshold for concern for taxpayers.  If I do my math correctly, $165 million is a fraction of $8 billion and it is less than one tenth of a percent of the $170 Billion dollars that AIG has been given to stay afloat.

A little more than a week ago, Robert Gibbs told the world that President Obama could not be responsible for things that began during the Bush administration.  This week Obama is indignant about bonuses, the contracts of which were crafted last May, even before Obama was PEBO.

It sends a thrill up my leg to see President Obama looking out for the plight of the American taxpayer.  Too bad he doesn’t carry that same indignation when he’s making payments to his political homies!

In early January, then-PEBO had his staff deliver a white paper to provide economic justification for the stimulus bill.   As you might remember, one of the key issues for putting the stimulus in place was that it was going to dramatically reduce job loss.   In fact, the argument was that the stimulus would not only reduce job loss but quickly put us into the position of lowering the unemployment rate.   PEBO’s staff put together the following chart to show how unemployment with the stimulus would compare to unemployment if we just left things alone:

What you can see here is that in early January, PEBO believed that without the stimulus package, unemployment would peak at a bit over 9% and then recede.   However, with the humungous, pork laden, we’ll pay for it forever stimulus package, unemployment would peak around 8% and make a rapid descent.

Today, American Pravda notes that 4 states have hit double digit unemployment rates.   That’s not good.   However, that’s not the important part of the article.   Here’s the money line from the article:

Some economists now predict the U.S. unemployment rate will hit 10 percent by year-end, and peak at 11 percent or higher by the middle of 2010.

Barely two months ago, Obama and his ilk saw unemployment capping at 9% if they did nothing.   Now that they’ve done a major something, they’ve pushed unemployment to a potential of 11%!  

Obama had better hope that these economists are wrong.   If not, the growing skepticism from all sides of the political spectrum, will quickly turn into a full scale rout!