Bailouts will always be needed to fix capitalism's flaws

Romney is wrong to oppose auto bailout

Really? Steven Rattner, Obama's "car czar" administered the auto firm bailouts. Rattner is telling the truth.

See the comments! Holy cow!

This is one of the most appaling (sic) pieces I've ever read.

America • Business

Bail-outs will always be needed to fix capitalism’s flaws

Lest we needed another reminder, Thursday’s announcement that the Italian automaker Fiat had achieved the final performance target in its alliance with Chrysler underscored once more the remarkable success of the rescue of the American automobile industry.

No capitalist (and I consider myself to be a full-throated one) likes the notion of government intervening in the private sector. But we must recognise the rare moments when deviations from this principle are not only to be tolerated, but welcomed.

As the events of the past three years demonstrate, General Motors and Chrysler were such an undeniable exception. At the end of 2008, the entire auto sector was on the brink of total collapse, a near casualty of the financial crisis, oscillating oil prices, uneconomic labour agreements and poor management. General Motors alone lost $30bn in that single year.

Due to courageous decisions by both former President George W. Bush and President Barack Obama, the industry is now thriving. US sales of autos and light trucks rose last year by 10.3 per cent to 12.8m, compared to 10.4m in 2009.

Read the original entire article here: 
Romney is wrong to oppose auto bailout

Bush tax cuts and the decline of U.S. as a serious world power

Important in 2005, chickens came home to roost in 2008...maybe someone will take note now in 2011...


Commentary: Bush tax cuts and the decline of U.S. as a serious world power

By Dennis Jett | McClatchy Newspapers

The lame ducks had not even flown the coop before the assessments of the 111th Congress started to pour in. After months of partisan bickering and foot dragging, the achievements in the final days of the legislative session were truly impressive.

There are two feats that have been generally unrecognized by the Washington’s chattering class however. Both deserve acknowledgment because they will affect the country’s future more than anything else this session of Congress accomplished.

The legislators affected the course of history by ensuring two future events will occur — the reelection of President Obama and the decline of the United States as a serious world power. That may seem counter-intuitive given that the leader of the Republicans in the Senate, Mitch McConnell, said not too many weeks ago that ensuring the President did not get a second term was his highest priority.

McConnell only needed to glance at the potential Republican candidates for 2012 to discover why he had to forego that dream. While all the party’s presidential aspirants use their platforms on Fox News to ignite the Republican base, they repel pretty much everyone else. More ominous is the fact there will be little chance to oust the incumbent if the economy continues to improve. There is one statistic that will determine that &mash; the unemployment rate. If it is significantly lower than it is now, he will win. If it is not, he won’t.

McConnell could have refused to do anything to help the economy and prayed for a double dip recession severe enough to sweep his party into the White House. Republicans are about to take ownership of the other House, however, and can’t avoid some responsibility for prolonged economic stagnation without there being negative implications for the Republicans in Congress. “Just say no” would therefore be no more effective a strategy than it was in the war on drugs. So McConnell and company signed off on tax cuts that will probably stimulate the economy enough to determine the outcome of the election in the President’s favor.

The tax cuts will also ensure the decline of the United States. Republicans insisted that all those poor starving people with seven figure annual incomes and above could not possibly be asked to pay more. Given the generous provisions of the estate tax, apparently not even dead multimillionaires can be expected to ante up. To ensure tax cuts for such people, the Republicans held hostage the long-term unemployed and their favorite props for photo ops — 9/11 first responders.

The cuts that resulted will not only balloon the deficit, but will also require dismantling a good bit of government at the state and federal level. Education will be hollowed out and infrastructure left to decay as the United States becomes increasingly indebted to other countries and unable to compete in the global marketplace. Future debates on public policy will be forced to focus on how much to gut Social Security and Medicare.

Are the cuts justified by the weight of the tax burden? Studies done by the Organization for Economic Cooperation and Development demonstrate otherwise. The 34 countries in the OECD comprise the developed democracies of what used to be called the First World and a few successful developing countries from those in the Third World.

These studies show taxes as a percentage of Gross Domestic Product in the U.S. are at their lowest level since at least 1965 and are the lowest in the OECD except for Mexico and Chile. At the same time, income inequality and poverty are higher in the U.S. than any other country in the OECD except Mexico and Turkey. As for the accusations that socialism is sweeping the land, only in Korea does the redistribution of income by government have a smaller effect.

The griping about taxes will continue nonetheless. The ability of Americans to have a rational discussion on the subject was long ago put to death by Ronald Reagan’s sound bites. Government became evil and greed became a virtue.

No country can be great if its citizens are unwilling to pay for it. No country will remain great if it neglects the health and education of those citizens who lack lobbyists. The tax cuts may have assured the President’s reelection, but they also ensure America will grow more separate and unequal, not unlike the proverbial banana republics. As a result the U.S. will slowly slip from the leader of the First World to an honorary member of the Third, unless Americans stop believing their exceptionalism stems only from their virtue and requires no sacrifice.

ABOUT THE WRITER

Dennis Jett, a former U.S. ambassador to Mozambique and Peru, is a professor of international affairs at Penn State's School of International Affairs.

McClatchy Newspapers did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of McClatchy Newspapers or its editors.



Read more: http://www.mcclatchydc.com/2010/12/30/105931/commentary-bush-tax-cuts-and-the.html#ixzz1AQ8r4dgG

Friends With Benefits: Goldman Sachs private deal with Facebook

http://opinionator.blogs.nytimes.com/2011/01/04/friends-with-benefits/

Deborah Lagutaris

Some say that this deal will allow Facebook to avoid government regulation. In fact, there is little government regulation to worry about nowadays. Thirty years of constant and deliberate weakening of regulatory agencies, including the all-important Securities and Exchange Commission, has taken care of that.

So, how can anyone claim with a straight face that Goldman's unfair advantage represents anything like a free market operated by the Invisible Hand?


"To understand why, we have to go to the heart of the many problems in the way the Wall Street cartel does business, despite the promised reforms of the Dodd-Frank law. With Goldman’s investment in Facebook, we have a front-row seat to the process by which Wall Street creates and inflates financial bubbles.

"This bout of hysteria involves not only Facebook but other Internet companies including Twitter, the gaming site Zynga, the social buying site Groupon and LinkedIn, another social networking site. The valuation of these companies has soared in the past two years, leading some to worry that the American people bailed out Wall Street so that we could relive the Internet Bubble of 1999.

"Despite the high price of its investment, Goldman sees in Facebook a business bonanza, a nearly perfect nugget of investment-banking opportunities. First, Goldman’s cost of capital is close to zero — as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates — so any capital gain it makes on its venture in Facebook will be sheer profit. Second, Goldman has almost certainly locked up the role of lead manager of the inevitable Facebook initial public offering."

The entire article follows:

ANUARY 4, 2011, 9:00 PM
Goldman’s Mutual Friend

By WILLIAM D. COHAN
William D. Cohan on Wall Street and Main Street.

Tags:

facebook, goldman sachs

Can Goldman Sachs, the profit-seeking missile of high finance, really make money by investing $450 million in Facebook, at a vertigo-inducing price that values the social-networking company at $50 billion?

On first blush, the answer would appear to be no. After all, in May 2009, the company was valued at $10 billion. Last August, Facebook was valued at $27 billion and now it’s $50 billion — for a company with a reported $2 billion in revenue and negligible profits. If General Electric, with 2010 revenue of around $150 billion, traded at a similar multiple of revenue, it would be worth $3.75 trillion instead of $200 billion. Facebook is now considered to be worth more than Time Warner, DuPont and Goldman’s rival Morgan Stanley.

Just last week, Facebook’s shares were said to be trading on a private-market exchange at a valuation of $42.4 billion. Thanks to Goldman’s imprimatur, Facebook’s value increased 20 percent virtually overnight. Can Goldman really expect to squeeze more water from this stone?

Sadly, yes.

To understand why, we have to go to the heart of the many problems in the way the Wall Street cartel does business, despite the promised reforms of the Dodd-Frank law. With Goldman’s investment in Facebook, we have a front-row seat to the process by which Wall Street creates and inflates financial bubbles.

This bout of hysteria involves not only Facebook but other Internet companies including Twitter, the gaming site Zynga, the social buying site Groupon and LinkedIn, another social networking site. The valuation of these companies has soared in the past two years, leading some to worry that the American people bailed out Wall Street so that we could relive the Internet Bubble of 1999.

Despite the high price of its investment, Goldman sees in Facebook a business bonanza, a nearly perfect nugget of investment-banking opportunities. First, Goldman’s cost of capital is close to zero — as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates — so any capital gain it makes on its venture in Facebook will be sheer profit. Second, Goldman has almost certainly locked up the role of lead manager of the inevitable Facebook initial public offering.

Fees for underwriting public offerings are generally about 7 percent of the value of the stock sold. Facebook could easily sell $2 billion of stock or more, generating fees to Goldman and the other underwriters of at least $140 million. The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested.

Goldman has also won from Facebook the right to offer an additional $1.5 billion of the company’s stock to its private-wealth clients. According to The Times, Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits. While on paper it seems that these high rollers would be foolish to invest in Facebook at such a lofty valuation, they will still most certainly feel increased loyalty to Goldman for making such an exclusive opportunity available to them. On top of it all, there is the increased likelihood that Goldman will get to manage a good portion of the $12 billion fortune belonging to
Mark Zuckerberg, Facebook’s founder, for yet more fees.

If Goldman does take all these roles at once — investor, salesman, money manager, I.P.O. underwriter — it would certainly raise the ugly specter of conflicts of interest. But probably not to Goldman executives, who have always prided themselves on being able to “manage” through such situations. (In fairness, there’s likely no investment-banking firm on the planet that would not eagerly take Goldman’s place in this scheme, if offered the chance.)

Even though Facebook is reported to have little need for Goldman’s money, having Goldman validate Facebook’s exponential increase in value gives Mr. Zuckerberg the ultimate Silicon Valley street cred, far more than he got from having Hollywood make a movie about him or from becoming the youngest billionaire on the planet.

With all these winners, who will the losers be? The average investor, of course, who will get left holding the bag when, someday, Wall Street realizes the firm’s financial performance doesn’t live up to its hyped valuation.

This Op-Ed column appeared in print on January 5, 2011.

More Claptrap about the Mortgage Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/22/AR2010122205557_Comments.html


The article says: "But this argument seems especially inopportune now, since whatever happened in the past, there is broad agreement about what should happen in the future: The old "government-sponsored enterprise" model is a proven failure. Fannie and Freddie should be gradually dismantled and replaced with a new system of mortgage finance that does not permit ostensibly private companies to profit from an implicit federal government guarantee. To be sure, there is no consensus between, or within, the two parties as to how much - or how little - government involvement to retain, and how precisely to structure a federal role. But all serious proposals emphasize a greater role for private capital than it currently has."

DeborahPhoenix wrote:
A brief history lesson will be of help here, and it will NOT make the anyone happy who thinks that a. the free market would have corrected this or b. that the mission of Fannie Mae and Freddie Mac was inherently flawed. Both agencies were directly controlled by the government until the mid-1970's. Then, the process of their privatization began. They were sold off to help pay for the debt accumulated during the Vietnam War. Had they been left alone, we probably wouldn't have this situation now. Since privatization is primarily a Republican "solution" I am more inclined to fix blame on that side. It is clear that both parties were whooping it up during the bubble and were too afraid to look at the dark underbelly. Because I am a former mortgage loan officer, I soon realized that the mortgage companies had abandoned tried and true underwriting principles. I could see it coming, and I am a nobody. Why couldn't all this high-priced help stop it?

Take Action to Extend Tax Cuts for Working People

http://www.peaceteam.net/action/pnum1062.php

Extend Only Middle Class Tax Cuts
With the top 1% of the country now in possession of 30% of the wealth of our economy, and with the federal deficit completely out of control, it is time to let the misguided tax cuts for the wealthy expire.

In the first place, they did not work. We were told that they would stimulate the economy and create jobs. They did not. All the rich did was hoard more and more of their money.

Secondly, what really stimulates the economy is when people who are NOT rich have money to spend on the things they need. Yet the most heartless members of Congress propose balancing the budget on the backs of people who cannot make ends meet as it is.

Worse yet, the Republicans are threatening to shut down the business of Congress until their most greedy constituents, the only ones they represent at all, get to keep their reserved seat at the pig trough. And it is the road to utter economic collapse and disaster. The last time distribution of wealth was so unequal was just before the Great Depression, and we all know how that turned out.

So let the overgenerous tax cuts for the wealthy expire. Enough is more than enough.

Read The FAX Petition

The one click form below will send your personal message to all your government representatives selected below, with the subject "Extend Only Middle Class Tax Cuts." At the same time you can send your personal comments only as a letter to the editor of your nearest local daily newspaper if you like.

Windfall for the Dimwitted?

by Deborah Lake

George Will likes to position himself as a libertarian. In order to be a CONSISTENT libertarian, it would behoove him to take the view that monopoly control of strategic assets like oil would be a bad thing.

In Windfall for the Dimwitted, Will takes Byron Dorgan to task for asking that oil companies cough up some of their exhorbitant profit over the last quarter. The implication that Dorgan should be strangled for proposing laws that Will disagrees with is disturbing, but a daily horror that we have become accustomed to, and the topic of another article for sure.

Will calls the profits "unimpressive" without stating the dollar amount. Taking issue with his characterization, I see that news reports state third quarter profits at $32 billion. That impresses the heck out of me.

Will, fond of making bad analogies, compares oil company margins to that of Coca Cola, with the claim that oil companies don't make nearly as much money as Coke does per dollar. Somehow, that is supposed to evoke sympathy in the reader?

The fact is that oil rights should have never been turned over to private corporations. Oil is a gift from the planet and should be controlled by the people who sit on the planet rather than a few cowboys who depend on our military support to keep their rigs operating. When they need taxpayer support via military bases and legislation, they claim to be a vital American interest. But when it comes time to be a good patriotic American corporate citizen, they hold up their paws and whimper about how their profits aren't really all that much in the grand scheme of things. In the same edition of the Washington Post, we see that auto companies are lining up for government bailouts. Now, where is their taking control of their own lives, their sense of personal responsibility supposed to come in, like it does for everyone else?

Some assets should never have been turned over to private control. The most frightening of those is water. Water operations have been increasingly privatized over the last 25 years. I can wait for the day when my obedience is commanded or my water supply will be cut off. Think I'm being a conspiracy theorist? Ask the people of many nations who have been structurally adjusted by the IMF just how well its working. Do people have to die for the right to drinking water? Yes, they do.

Ask the people of Cochabamba, Bolivia, how it played out for them.