Saturday, January 24, 2009

Obama gives first Sat. video address; financial experts accelerate talk of nationalizing the banks; what about bond holders?


It seems these days that the news only gets worse on the financial crisis – just when it might be good to change the subject, such as the decision by the Fairfax County School Board to give grades on the 10-point scale as everyone else.

The New York Times editorial staff has an online discussion blog this morning “Nationalizing the Banks” (with a placard red-white-blue picture of a Bank of America branch), here. There is a general consensus that we are near the end of the road – as Obama said, we can’t keep kicking the can. Nationalization is a last resort, and we are just about there. It sounds as thought "bad bank" sounds like "bad dog." There is also a constructive discussion of the failure of rating agencies and the need to regulate them.

The biggest downside is that shareholders and bondholders get wiped out. Shares have been largely wiped out already compared to over a year ago, but the bond comment is really scary. Bonds are supposed to be “safe”, especially for retirees, right? What about the bank bonds hidden away in supposedly mainstream mutual funds in so many portfolios?

It sounds like we’re going to see “nationalize” as a method in a java library soon. Are we on our way to full socialism? No, say the experts. It’s hard to make sense of it.

The Washington Post is filled with gloom and doom headlines this morning, about the accelerating of the global crisis, and Obama’s need to decide on how big the stimulus and next bailout will be.

There are numerous media reports that some of the banks receiving bailout money have been doing heavy lobbying (big surprise!).

The Wall Street Journal has a three part video “The End of Wall Street: What Happened” here. Some effort went into this 25 minute short film, as if it were going to be shown in film festivals like AFI's Silverdocs. It compares credit default swaps to the parlor bets on ships returning in Britain back in the 18th Century.

Barack Obama has his Saturday morning video address at the Whitehouse site (on "The White House Blog") here. You have to click on the play arrow to start it (that’s because of a minor security fix that the White House wanted to prevent unwanted cookies). He mentioned a proposed American Recovery and Investment Act before Congress with a website "Recovery" (shell link here) that will make transparent how taxpayer stimulus money is being spent. Obama mentioned the paradox that in a deflationary depression there is job loss even when there is so much work to be done.

CNN has a “Dear Mr. President” column (link)with suggestions ranging from green tax credits and stopping the bailouts, stopping foreclosures, to “give each person $25000”. No, we can’t. But point 14 is alarming: means testing entitlements: phasing people out age 65 and under from entitlements proportionally and make them depend on their families (I presume). “Let's stop taking money from people who are working to pay for these programs we can no longer afford.” Trouble is, those of us who worked paid our FICA and Medicare taxes, too.

Obama will deliver the State of the Union address in February, probably right after the Super Bowl; Fox News story here.

Another idea floated on CNN is "wage loss insurance" (kind of a blowup on unemployment insurance) which is supposed to be related to the offshoring debate, but the first peril that could befuddle that is "online reputation."

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