No Runny Eggs

You’ve probably heard the adage, “When the US gets a cold, the rest of the world gets pneumonia.”   The adage comes from the fact that world economies intertwined and the US, being the largest, influences a lot of what happens in the rest of the world.   Early in this economic downturn several financial experts attempted to argue that there had been a significant decoupling of world economies.   They argued that while issues were deteriorating in the US, other countries, especially China, wouldn’t see the downturn because their economy was much more stand alone.   While the evidence is obvious that these folks were wrong, Marc Faber does a good job of reconstructing events and deconstructing the decoupling myth, in yesterday’s WSJ.

Admittedly, Faber is known as Dr. Doom.   He has had a perspective on US financial management that is less than complimentary.   That said, Faber’s analysis is still spot on.

Faber’s key descriptive paragraph of the events of this downturn is here:

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

As important as the tear down of the decoupling theory is Faber’s take on what caused this bubble to burst and what is to be learned from our experience.   As to what was the cause, Faber says:

Sadly, government policy responses — not only in the U.S. — are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

Faber rightly identifies the Fed’s easy credit monetary policies following the Dotcom bust as the fuel for the next bust.   By keeping rates artificially low for too long, Faber argues:

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages.

Read the whole article.   Faber is correct in his analysis and he is correct on what he sees from the folks who are attempting to “do something” to resolve this problem:

So what now? Unfortunately, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner were, as Fed officials, among the chief architects of easy money and are therefore largely responsible for the credit bubble that got us here. Worse, their commitment to meddling in markets has only intensified with the adoption of near-zero interest rates and massive bank bailouts.

Faber’s suggestion for what should be done?

The best policy response would be to do nothing and let the free market correct the excesses brought about by unforgivable policy errors. Further interventions through ill-conceived bailouts and bulging fiscal deficits are bound to prolong the agony and lead to another slump — possibly an inflationary depression with dire social consequences.

All the Fed, Treasury and Congress have done in this downturn is to cause more fear and uncertainty.   They have done nothing to change the arc of the events that they all were a part of creating.   By implementing programs like today’s housing bailout, US financial institutions and businesses will be even less likely to put themselves out to take risk.   After all, who’s to say that tomorrow Congress won’t decide that their business needs to have contracts revoked, rewritten or renegotiated by force.   Until the Fed, Treasury, Congress and President Obama quit making “the rules of the day” don’t expect the US economy to improve or recurrent, wasteful spending to slow down.

During his press conference Monday evening, Barack Obama was asked a couple of questions that involved the twice delayed announcement of how Treasury was going to work with the second half of the TARP funds.   Obama’s answer was that he didn’t want to steal Geithner’s thunder.   He should have.

Dow futures were down about 40 points at the beginning of Obama’s press conference.   By the end of his conference the Dow futures had dropped about 80 points.   The decline in the futures came immediately following Obama’s refusal to steal the thunder.

Tuesday  Geithner “let loose the thunder.”   Remember, this was a plan that was twice delayed because the Obama administration wanted to “get it right the first time.”   What Geithner layed out was little more than what could be generously called an outline.   There were no details, no time frame, no identification of cost.

Geithner’s “plan” was met with a resounding thud by Wallstreet.   What had started as a nervous day turned into a 400 point rout of the Dow.  

Politicians were equally nonplussed by Geithner’s testimony.   Senator John Kerry’ response:

"We need more details from Treasury on how exactly it plans to remove bad assets while protecting the taxpayer."

and Senator Bob Corker’s response:

“We’ve been here for three hours and 23 minutes and have no discernible idea as to how we’re gonna solve this problem.”

showed that there was disappointment with Geithner’s testimony across the political spectrum.

Corker went on to school Geithner on the   problem of over promising and under delivering:

“I would think that the White House and you all communicate and last night the president said you would be very clear and there would be specific plans.

And today we lost probably a trillion dollars in the market as people looked for those very clear and specific plans and instead heard guidelines and some platitudes. I mean, I haven’t heard today what your commitment is to solving the problem.”

Wednesday, Geithner was back providing more testimony about his plan.   Unfortunately, his testimony provided no more detail than the previous day:

"I completely understand the desire for details and commitments," Geithner told lawmakers today at the Senate Budget Committee in Washington.

In between the two Geithner appearances, President Obama realized he had a problem.   He had either over promised Geithner, didn’t know what Geithner was going to say or thought that his aura would extend to Geithner’s testimony and protect him from serious questions.   I suspect it was a combination of the three.   In any event, during an interview with ABC’s Nightline Obama attempted to paint this as the chattering class not being smart enough to understand what he sees:

Well, you know, Wall Street, I think, is hoping for an easy out on this thing and there is no easy out. Essentially, what you’ve got are a set a banks that have not been as transparent as we need to be in terms of what their books look like.

And we’re going to have to hold out the Band-Aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we’re not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: You can prolong the agony and shareholders will be happy until they’re not happy, and that could be a year from now or two years from now, or, in the case of Japan, eight years later.

Or you can just go ahead and acknowledge that, yeah, there’s a lot of work that has to be done to put these banks back on a firmer footing.

Yeah, that’s right.   After personally setting expectations for a detailed explanation, Obama is telling America that they shouldn’t have such high expectations, even if “The One” sets them.  

After his appearance on Nightline, it was reported that Obama called Geithner and told him:

Uh, Timmy, uh, I know, uh, I’ve made a uh, political career, uh of being a constant um, campaign speech, uh providing uh, no specifics and um, accomplishing nothing measurable.  

You’re uh, doin’ a heckuva job there, uh Timmy.   But, there’s uh only room uh, for one uh, President at a time.   Therefore uh, you’ll be uh, required to uh, provide details and specifics, uh, from here on out.

At least, that’s what I had heard.

Bloomberg chronicles how the US government has put itself on the hook now for $9.7 trillion!   That’s enough to pay off 90% of all mortgages in the US!

$9.7 trillion spent or guaranteed, most of it controlled by the Federal reserve.   Besides being an unelected body, there’s one other little bitty issue with all of this…the Fed doesn’t want to tell us where they’ve used all the money.

In December, Bloomberg sued under the Fed under the Freedom of Information Act.   At the time, the Fed had lent $2 trillion that they were unwilling to tell anyone who it was lent to.

Well, that was under BUUUUUUUUUUUUSSSSSHH, who we know was responsible for bringing down the twin towers, lying about intelligence to get a war going and spying on Americans.   We wouldn’t expect any better from that administration!

Now we have President Obama, the man who campaigned on and signed with his very own hand, a requirement that government would be fully transparent, all above board, nothing hidden!

Not so much.

Bloomberg is still in the courts, waiting for the information.   In the meantime we continue to shovel money out the door.

Hey, Mr. Transparency, how about putting all the documents out BEFORE you  put another $1 trillion  on the “to be paid later” pile!

Let me take you back in time……

Imagine clouds, swirling optics.   You know, the kind that TV uses to indicate a dream sequence…..

It’s September, 2008.   The Barack Obama and John McCain are going toe to toe attempting to be the next President of the United States.   The US stock market has just seen a drop to approximately DOW 11,100 and the markets are nervous.   Report after report is out from banks and investment institutions that are writing down assets due to the loss in the value of highly leveraged debt instruments.   Bear Stearns was the first institution that got coined “too big to fail,” and other followed suit.   However, Lehman Brothers had somehow fallen below the threshold and was the first highly visible investment firm allowed to fail as a result of its poor choices.   What no one knew is that the markets were more than just a little nervous and within the next few weeks the DOW would drop from the 11.100 level to approximately 7,000.

In the middle of the above scenario, Hank Paulson, with President Bush’s blessing, went to Congress with  the detail of a  whole  three page outline and demanded that  Congress provide him $700 billion without which, the banking  system would collapse.   In spite of the dire predictions of the collapse of the banking system, the Paulson bail out plan received mixed reviews in Congress.    

In the House, the debate went back and forth on whether the plan should be passed.   It looked like the plan would pass the House up until the last minute.   Immediately before the vote, Nancy Pelosi decided to deride Republicans over their lack of bipartisanship.   It’s hard to say whether Pelosi had the votes to pass the bill initially.   However, after her insults, any Republican who was on the fence had been given fair license to vote against her, and they did.   The bill failed in the House.

Over the next few days, there were a number of accusations back and forth on why the House vote failed.   Amongst Conservatives there was a desire to at the very least to  strip the pork that Pelosi had put into the bill.   They complained that Pelosi had shut them out of the process entirely.   In any event, the bill was going no where in the House, the Senate didn’t appear to be fairing any better.

Because he was “The Maverick” and had the reputation of “reaching across the aisle,” John McCain determined this was an opportunity that he could use to his advantage.   He announced that he would suspend his campaign and immediately head back to Washington.   His stated purpose was to focus on the bail out bill and provide leadership on the issue.   He added that he was considering not participating in a debate with Obama that was scheduled to occur within a few days.

When Barack Obama heard that McCain had suspended his campaign and considering opting out of the debate, he took the opportunity to ridicule McCain.   He made a note of how he, Obama,  was able to multi-task, not stopping one thing to focus on another:

"Part of the president’s job is to deal with more than one thing at once. In my mind it’s more important than ever."

Of course, the MSM and the left blog picked up on the multi-task meme.

This event stuck in many voters minds and while the polls had McCain within strking distance up until now, Obama regained momentum that would carry him through the election.

Mist and swirling optics again, we’re coming out of the dream, back to the present.

Yet today, the left blogs continue to extol the legend of Obama’s ability  to multi-task.

Sunday it was announced that for at least the  second time, the Treasury department would delay the promised release of plan to handle the toxic debt still in the banking system:

“We’re focused on working with Congress to pass an economic recovery bill so we can create the jobs and make the investments necessary to get our economy moving again,” Treasury Department spokesman Isaac Baker said.

What?

During the campaign, it was cool, young and even “Presidential” to be able to multi-task especially on issues that were of extreme importance to the US’ future and economy.   Now, we need to “focus!”

Since the inauguration, Obama’s administration seems unable to vet cabinet members, has emboldened potential enemies and failed to effect leadership in the largest single piece of non budget legislation ever.

Multi-tasking generally means the ability to do accomplish more than one thing at a time.   The only multi-tasking ability I’ve seen from the President Obama, is his ability to talk out of both sides of his mouth.

First, it was 2.5 million jobs:

Obama outlines job-creation plan

Followed by,  3.0 million jobs:

Obama ups jobs goal to 3 million on bad economic news

Next, 3.5 million jobs:

Obama: Stimulus will create 3.5 million jobs

Followed by:

Obama: Plan would create 4.1 million jobs

Earlier last week, President Obama claimed that without his plan 5 million jobs would dissapear:

“each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

By Saturday, he had reversed that claim.   In fact, he had reversed out of nearly all the claims he had made and was back to merely:

save or create 3 million jobs over the next two years.

One of the first things that detectives look for when interviewing a witness is consistency in their answers.   When a witness provides inconsistent answers to the same, repeated question, it typically indicates one of two things.   Either,  the witness never saw the event and thus, doesn’t know what they are talking about or, they are lying.

I’ll let you decide why President Obama can’t find the same answer twice.

Tonight, President Obama has warned the nation of dire economic consequences if the pile of garbage called a stimulus package isn’t passed immediately.

One of Obama’s key arguments for the stimulus package is jobs. In his oped piece today he warned:

Our economy will lose 5 million more jobs. Unemployment will approach double digits.

Just three weeks ago President Obama’s team released a white paper that argued for the stimulus package.   I covered the inconsistency of positions that one of it’s authors, Christina Romer has between the white paper and her previously published postions here.

In the white paper, there is a chart that shows what will happen to unemployment with and without the stimulus package.   With the latest report of new unemployment filings it is expected that the unemployment rate will rise to 7.5%, right in line with the white paper’s expectations.

From here, the white paper projects that with a stimulus package, unemployment will continue to rise and peak at approximately 8% in the third quarter of this year.   Without the stimulus package, the paper projects that unemployment will rise, peaking at 9% in the middle of next year.

There are approximately 155 million individuals in the US workforce.   If I do my math correctly and giving Obama the benefit of the doubt, the difference between 7.5% and 9% is 1.5%.   1.5% of 155 million is about 2.3 million.  

When discussing unemployment figures economists always talk about the net number of unemployed.   The reason for this is pretty straight forward.   Even in the best economic times there are people who lose their jobs.   Contrary to other economic systems, a capitalistic one does not provide cradle to grave employment.   Nor does an employee have to work at the same job and same employer for their entire life.   People move.   If Obama was talking in the same terms that labor economists use than he is grossly exaggerating the increased unemployment that his own team says will come if their own predictions come to pass.   However, even if Obama was talking gross he’s exaggerating.  

In a typical year, an average of about 3 million people quit or change jobs in any given year.   If Obama is suggesting that this year we will now have a total of 5 million people lose their jobs, that’s an increase of 2 million.   I’m not suggesting that 2 million is nothing.   Certainly to every person impacted, and their family, it is very significant.   However, to suggest that spending $900 billion will keep 2 million people from going through the process of changing jobs…that’s a cost of $450,000 per job! We could just pay them in place for a cost that is a fraction of the $900 billion!

Obama has staked a significant portion of his political capital on this stimulus bill. It contains his first installments on all the Left believes they are owed for supporting his candidacy. Unfortunately, he took his eye off the ball and let Pelosi make a mockery of what was not a correct, but at least an honest effort by him. After the Republicans did an about face in the House and with the rapidly falling public support of the bill, Obama has resorted to an increasing scare hyperbole in an attempt to move the bill along.

Obama needs to be careful. While I don’t think the bill won’t pass, he only needs to pick off two of the weak Rinos, he will likely not get more than just that couple. After using the “give it to me or it will get waaaaaaay worse,” if the bill passes, he’d better hope that things improve and fairly soon. If not, no amount of “things were worse than we thought” explanations, will restore credibility with the public and allow him to use the scare card in the future.

Those of us who live in the north know the benefits that cold and lack of sunlight have on garbage storage.   During the winter you never have to worry about garbage stinking or maggots growing in your garbage cans.   No, it’s not until heat and sunlight are applied that garbage begins to stink and you get nasty little things like really like garbage showing up to gorge on it.   A similar thing can be said about alleged, stimulus bills.

When kept in the dark and not allowed to be viewed because all around it are yelling that it will be an economic “catastrophe” if the bill isn’t passed NOW, stimulus bills don’t stink.   In fact, when kept in the dark, you can hardly tell that it’s garbage at all.   However, as light is allowed in and heat in the way of questions gets applied, even the prettiest packaged garbage begins to stink. The longer it’s in the light and heat, the more the stink increases.

Doubt me?

I wrote here  how Rasmussen had found a decline in approval rating of the stimulus bill of 8% in just one week! That change in approval was during the week in which the House passed their version of the stimulus with no Republican support. With an additional week of scrutiny and the beginning of debate on the Senate version, Rasmussen reports that support has dropped another 9% and now has more Americans against the bill than for it.

The longer the bill is exposed, the less the public supports it.   The less the public supports it, the more Senate Republicans seem to be getting the message that this is one battle worth fighting and finding a better solution for.   Even John McCain, the Senator voted “most likely to try and get a long with President Obama,” has decided that the stimulus as proposed, is unacceptable:

"’No bill’ is better than this bill," McCain told CNSNews.com just outside the Senate chamber.

It’s time to put this bill out to the curb for pickup.   McCain claims that he will reveal a new proposal on Thursday.   I don’t know if it will be any better but there’s no doubt it won’t be any worse than the current stinker.

Ashamedly, I’ve been writing consistently against the stimulus package.   I’ve believed that it was focused incorrectly and spent money that we don’t have on issues that were really political paybacks and future government budget busters.

I was wrong!

Nancy Pelosi has finally provided  the explanation that proves we need to pass the stimulus package, STAT!

Folks, we’re a country of losers! With “500 million people losing their jobs each month,” every last one of us have lost our job every month! In fact, with 500 million losing their jobs, some of you have actually lost MULTIPLE JOBS A MONTH! Good Gosh, we’ve become a country of irresponsible teenagers, not caring about showing up to work on time because we know that mom and dad will just give us a bigger allowance next month!

Huh? What? You say Nancy misspoke and really doesn’t know the difference between 500 million and 500 thousand? Oh, OK.

No wonder Nancy doesn’t understand the Republican’s rejection of her stimulus bill. Nancy can’t tell the difference between 500 million and 500 thousand, do you think she understands the difference between $1 billion and $1 trillion?

Commenting on the stimulus bill that was passed in the House and a variation of it that is being debated in the Senate, President Obama said there were:

“very modest differences”

between the bills being debated and what Republicans want in a stimulus bill.

I find that hard to believe.

By any measure, the bill that came out of the House and the bill being debated in the Senate are not “modestly different” from even Obama’s outline for the bill!  

You may remember that President Obama’s original outline for the bill was for a $750 billion bill with 40% of the bill targeted on tax cuts.   What has been approved thus far is an $819 billion package with only 22% of “tax cuts.”   Meanwhile, the Senate bill being debated, is $900 billion with 29% attributed to “tax cuts.”  

The “tax cuts” in both the House and Senate bill are sleight of hand at best.   The bulk of the “tax cuts” in the house bill are really one time tax credits and not tax cuts in any classical sense.   It’s easy to see the difference.   Where as true tax cuts change the amount of money a taxpayer has to spend on an ongoing basis, a tax credit is a one time event.   The problem with credits is that they do not change spending habits on an ongoing basis.   In fact, what was seen in last year’s rebate, is that a significant portion of the refund went to paying down loans or into savings and not into direct “stimulation” of the economy.   The increase in “tax cuts” in the Senate version is mostly due to a one year patch to the AMT so that it doesn’t drag more taxpayers into it….a “patch” that has been routinely done so it’s really not a true reduction of any kind.

Modest does not describe anything about either of the bills being discussed.   Not the size, the impact on the growth of government nor the differences between them or what Republicans ought to want.   The only thing “modest” in this entire scenario is the logic of those who complained about the spending by Republicans but suddenly believe that spending is AOK now.

Nancy Pelosi and the House Democrats, sans 11, passed the stimulus bill in perhaps one of the most partisan votes of the recent past.

Today, Nancy tried to put a happy face on her inability to convince Republicans to see things her way:

Throughout the stimulus “discussion,” reports varied on whether and how many Republicans might support it.   It wasn’t until the final couple of days that it became apparent that while unable to defeat the bill, they would show a united, principled stand and vote no.

Why, when many of these same house Republicans supported TARP and have been just as guilty of irrationally exuberant spending the past few years, did they now decide to get solid on spending?   I don’t have the full answer but I suspect some of it could be due to this:

Public Support for Economic Recovery Plan Slips to 42%

 According to Rasmussen, net positive support for the stimulus plan has slipped from +11% last week to only +3% this week.   Worse for Democrats, unaffiliated voters shifted from a +1% last week to a -23% this week.  

It appears that as more time goes by and more information comes out, as people who are not blinded by latent BDS or worship of “The One,” understand more of what really is and isn’t in the bill, they understand that the bill will stimulate nothing but the size of government.

The Dems may have won the battle in the House.   However, the House Republicans have done a good job of shining light on this pile of stink.   The question now will be whether the Senate Republicans can organize themselves to accomplish the same level of principled opposition,  perform more public education and see what the public sentiment is in a week or two.

I do believe that if people understand this bill they will find it seriously lacking.   While I’m not hopeful, if enough people burn the Senate phones the Dems could find themselves winning the battle but losing an embarrassing PR war.

This evening the House passed their Piggy Bank of Pet Projects.   The vote will be reported by the MSM, in a derisive way, as mostly party line.   As we’ve become accustomed to Republicans being the ones to cross the line I have to admit surprise to see that all House Republicans, along with 11 Democrats,  voted against laying nearly $1 trillion of additional debt on our children for the actual purpose of increasing the size, scope and run rate of the Federal beuracracy and budget!

This was a principled stance and one the Rs should have been following the past few years.   Who knows, if they had, the public may not have become enamored with what in only 8 short days, has proven to be anything but hopeful or change!

Hats off and thanks to all 188 who voted against this porker!

Now, off to the Senate.   What’s the over/under on the number of spines that will be displayed in that chamber?

When he was running for the election and again shortly after, President Obama made clear that he was going to be the person to bring fiscal responsibility back to Washington:

“That is why I will ask my new team to think anew and act anew to meet our new challenges…. We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way.”

Other than adding numerous zeros to the size of the numbers being used, can someone show me anything new or cost-effective about the ever growing, special interest laden stimulus bill?

Long before he was officially inaugurated, while he was still known simply as PEBO, President Obama was telling the country all the horrors of the current economic challenges.   Phrases like “never before” and “Great Depression” seemed to be spoken by PEBO in every media opportunity he had.   Of course he wasn’t just there to tell us how bad things were, and how much worse they were yet going to be, he also had the prescription for what ails us: stimulus.

Obama along with Democrats across the nation, have been planning and preparing  a stimulus package since before the election.   While Obama was initially focused on infrastructure that was “shovel ready,” the plan has taken a look of “anything goes”.   Expansion of abortion funding and perpetual expansions of medicaid and education spending are all now included in  the plan and I don’t see a shovel needed for any of those.

As the price tag grows, Obama and others continue to sound the sirens saying that only with this stimulus will we see a signs of a recovery anytime soon.

Um, no.

In a report  by the non partisan Congressional Budget Office (remember, these were the same folks that he Dems used to  think were geniuses  when they published reports about “Bush’s deficit” or spending in Iraq), less than 2/3rdsof the stimulus package will actually impact the economy before 2011.   In fact, if you back out the $208 billion of “tax cuts,” only about 1/2 of the “investment” stimulus will get to the economy in time to help.   As we run downhill with sharp knives towards the embrace of socialism,  don’t you believe the  government has the capability and wisdom to know when to “stimulate?”

Well, there’s always the jobs that the stimulus will be creating right?

Again, um, no.

In a paper  coauthored by President Obama’s  chair of the Council of Economic Advisors, Christina Romer, it was found that government attempts at using stimulus to “correct” recessions are ineffective.   The abstract of the paper “What Ends Recessions,” sums up her findings succinctly:

This paper analyzes the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. Simulations using multipliers from both simple regressions and a large macroeconomic model show that the interest rate falls account for nearly all of the above-average growth that occurs early in recoveries. Our estimates also indicate that on several occasions expansionary policies have contributed substantially to above-normal growth outside of recoveries. Finally, the results suggest that the persistence of aggregate output movements is largely the result of the extreme persistence of the contribution of policy changes.   (emphasis mine)

One can only assume that his ignoring of this issue shows that he doesn’t listen to his personally selected advisors anymore than he does a Republican Congress person.

So let’s recap:

1. The “Stimulus” is not “Shovel Ready”
2. The number of jobs created is suspect
3. The “Stimulus” won’t be stimulating enough to put a tremor in Chris Matthews leg
4. Any stimulus that does come will likely come after a recovery has already started.

So why do the stimulus?   The answer is fairly simple and came from Rahm Emanuel:

"Never let a serious crisis go to waste"

President Obama and his BFFs Nancy and Harry are taking advantage of the economically gullible to increase their control and influence.   I don’t like what they’re doing but that’s a part of winning elections.   That said let’s be honest enough to quit calling this a stimulus and call it what it is:   a piggy bank of pet projects

News out today that Fiat has obtained a 35% interest in Chrysler.   They have an option to increase their stake to 55% although those terms weren’t disclosed.

Anyone buying a 35% in a rapidly failing company in a flailing industry is news.   Obtaining a 35% interest in a company while providing no cash remarkable.   Why would Chrysler give up 35% of what admittedly is a company that has nearly zero worth, for an agreement that brought no cash?

According to the published reports, the marriage makes sense for both companies.   Fiat has wanted to reenter the US market.   Via Chrysler, they have access to a dealer network and a lot of unused production capacity.   Chrysler is supposed to get access to Fiats design work which is supposed to be particularly good in mid and compact cars.   While the arguments for the combination make some sense, I saw a nearly throw away comment in the article that caught my eye:

“However,” he warned, “the deal does not provide Chrysler with any new liquidity commitments from Fiat, which could reflect a desire by Fiat to protect its investment under future downside scenarios for Chrysler.”

This is another lesson in the unintended consequences of government activity.

I have no doubt that both parties see benefits in their arrangement.       However, it’s clear from the statement in the article that the only real reason this relationship exists is because the government has provided $4 billion with the promise of much more to come.     That last bit is why Chrysler is willing to give away 35% of itself for little more than nothing.

Chrysler must present a plan to the Auto Czar by May 1st.   This plan needs to show how they will satisfy the shrill calls for greater fuel efficiency and make a profit.    How credible the plan is will weigh on the Czar’s decision not only to advance more funds, but  whether the already advanced $4 billion should be yanked backed.     Chrysler has ranked near the bottom of fleet fuel efficiency and have no magic beans to quickly grow something saleable in the efficiency market.   Additionally, Chrysler is sitting on a ton of excess capacity.   Capacity/overhead costs, that  will be a substantial drain on their ability to show profitability in any reasonable time.   Fiat provides answer to both of those questions.  

It’s pretty clear that Fiat has no interest in supporting Chrysler if they get no additional government funding.   If the government cuts Chrysler off, Fiat will just rip up their otherwise worthless contracts and look for another alternative, maybe even pick up some of the bankrupted assets on the cheap.

While you’ll hear lots of reports in the papers and even during follow up hearings, as the automakers beg for more money, about how much Fiat ♥ Chrysler, don’t be fooled.   There wouldn’t and won’t be any marriage if the government is holding a shotgun paid for by taxpayers money!

Update 1/21 – Dad29 pointed out that reports out this morning are saying that Fiat only   ♥ Chrysler if Chrysler brings an additiona $3 billion dowery.   Being right so often is a burden I gladly bear for NRE’s readers :)

As reported by the Agency who shall not be named and others, Hamas supporters spent the day celebrating the fact that even though they suffered numerous casualties and destruction, they weren’t wiped off the face of the earth.

I’m wondering if we should be taking notes.

The Hill.com is reporting today that a “stimulus bill” of $1 trillion is not even enough for some Democrats:

"Some of us are saying we need a stimulus of 1.2 or 1.3 or 1.4 trillion to prevent a depression, rather than just slow our descent into a depression," said Rep. Jerrold Nadler (D-N.Y.).

Hamas is partying after losing and suffering economic damage of a paltry $2 billion.   Think of how big our party will be after Congress flushes $4 trillion ($2 trillion Treasury won’t tell what they spent it on, $700 Billion TARP and the stimulus plan), and have nothing more to show for it than “We aren’t dead yet!”  

Now that I think of it, wouldn’t we all have a lot more fun and probably stimulate the economy just as much,  if instead of waiting until the $4 trillion is spent, we take it and put it all towards a party now?

The New York Times is reporting that President elect Barack Obama may have found a way to get   the remaining $350 billion of TARP money…he’s going to promise to use it properly.   Already Republicans are starting to cave:

South Dakota Republican Sen. John Thune  said a public statement might be helpful in easing the concerns of some Republicans and South Carolina Republican Sen. Jim DeMint said he believed such a statement would be made by Obama’s team.

As of this point, no one can tell us how the first $350 billion was used.   No one can tell us what benefit it provided.   Further, Treasury is still fighting lawsuits to release information on  how they used $2 trillion.   Finally, we’ve got Obama continuing to negotiate an increasing stimulus package, now reported to be $850 billion, with no real detail but cries of “it’s not big enough.”

With what we’ve seen on how all of the various “bailouts” have been handled to date, we’re now supposed to believe that an “assurance” from Obama will  cause transparency and integrity to shoot forth from this next tranche?

It’s  more and more obvious  that some of the Senate Republicans are out of touch with the world outside of the beltway.   If they were paying attention they would know that all of Obama’s commitments have all been determined to have an expiration date  on them.   It seems that the day from statement to expiration is decreasing along with the days to Obama’s inauguration.

While the Senate Republicans may get bamboozled by:

reassurances the money would be focused on trying to fix the financial industry crisis that has also left millions of families experiencing home foreclosures,

you’ll pardon me if I don’t hold my breath to see it happen, even if it’s only for just five more days!

President elect Barck Obama and team have put out what passes for “detail” in the Obama administration, about Obama’s planned stimulus plan.   You can read the plan here.

I have to give Obama and his team credit.   When Paulson came screaming that the world was coming to and end unless he got $750 billion, he only had 3 pages to outline his plan.   Obama and team, screaming that the world will come to an end unless they get $775 billion,  have managed to use an entire 14 pages to outline their plan.   Well, unless you take out the title page, table of contents and extra white space…then you’re probably down to just 9 or 10 pages.   Even so, Obama has managed to double the number of pages explaining his $775 billion plan.   I guess the extra $25 billion does buy something!

Christina Romer, Obama’s nominee for chair of the Council of Economic Advisors is one of the authors of the plan/document.  

In a paper that Romer published in 2007, she concluded that tax cuts stimulate the economy 3x the amount of the tax cut.   In other words, for ever dollar of tax cut the economy grows by $3.   In Obama’s plan however, Romer and her coauthor argue that “tax cuts” will generate less than $1 of economic stimulus for each $1 of “tax cut.”   How can those be reconciled?

The reconciliation is pretty simple; Obama’s plan has no tax cuts.   Tax cuts are permanent tax reductions.   Rather, what the plan offers is a rebate similar to what was done last year.   They are being called “tax cuts” only because the mechanism proposed to effect them is tied to taxes so as give Republicans and some fiscal conservative Democrats, cover to agree to mortgage our children’s future.

Romer  is a well known and respected economist.   That last fact she allows permanent tax cuts and one time credits to be conflated in this plan is at best, disingenuous and at worse political dishonesty.   In either event, obvious manipulation and misuse of accepted terms as these, calls wholly into question the integrity and accuracy of a plan that even according to its authors is fraught with:

uncertainty (that) is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.

Republicans in Congress ought to be smarter than to fall for a one time credit that is called a “tax cut.”   They ought to be, we’ll have to see if they are.

2.5, 2.5 million jobs:

Obama outlines job-creation plan

 3.0, 3.0 million jobs:

 
Obama ups jobs goal to 3 million on bad economic news

3.5, 3.5 million jobs:

Obama: Stimulus will create 3.5 million jobs

And the latest:

Obama: Plan would create 4.1 million jobs

Clearly, President elect Barack Obama is “The One.”   There is no further discussion, the debate is over.   There must now be a consensus amongst the masses.    Not since the miracle of the loaves and fishes, have we seen an earthly being create any outcome desired simply with the imposition of an individual’s will.

Is Obama really that tone deaf or naive to not understand the credibility hit his already questionable plan takes, each time he announces a new  “outcome of the day?”