Ward on Words

In recent months, there has emerged a terrible mythology around Henry Paulson's audacious plan to save our financial sector. The whispers have grown into kind of a roar: TARP will turn a profit for the government. To understand this mythology, we need to go back to those dark days of the fall of 2008, when our economy went into a free-fall of its own weight and it looked like nothing would save us from a Depression as terrible as the one that we call the Great Depression. Henry Paulson, then Bush's Treasury Secretary, cobbled together his rescue plan we all know as the Troubled Asset Relief Program, or TARP. In September 2008, Paulson did his best to explain his new plan . Here's some of what he said back then: As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods, with 5 million...

Truly, it's one of the most interesting business dilemmas of the new millennium. Goldman Sachs is raking in money, hand over fist, maximizing opportunities to profit despite an enduring and severe recession that is crippling the rest of the country. If you look at their website, they tell you right up front what they believe in: progress . Because it's everyone's business. And Goldman Sachs is bringing "people, capital and ideas together to help our clients and the communities we serve." They've also launched a new PR campaign that helps educate the masses on the benefits Goldman offers to the nation. And yet, they get no respect. Why is that, one wonders? Because their PR campaign about their impact on progress is a lot of hogwash. It's PR mumbo jumbo. If we've learned ANYTHING about Goldman Sachs during this recession, it's that they'll do ANYTHING for a buck. And the only client they serve faithfully, with dedication and respect...

The hero's name was Jefferson Thomas . He was 68 when he died of pancreatic cancer on Sunday. He was a true American hero. He was a hero because as a teenager, he was one of the Little Rock 9. One of the very brave teenagers who stood up to segregation. Stood up to racism. Stood up to hatred. In 1957, he and eight other students required the National Guard to protect them as they did what so many students take for granted today: they showed up for high school. In those days, schools were segregated. "Separate but equal." Blacks legally barred from attending school with whites. Mr. Thomas worked to change that. It could not have been easy to have been on the front lines of the war to integrate schools. But Mr. Thomas and eight other high school students took a risk to take a stand for equality. He was the almost namesake of another advocate of freedom, Thomas Jefferson, who wrote the Declaration of Independence and who was also a slaveholder in Virginia. Fran...

Nice to know that Chicagoans are really helping out Morgan Stanley improve their bottom line this year. Here's the lead in a recent Bloomberg story : "Chicago drivers will pay a Morgan Stanley-led partnership at least $11.6 billion to park at city meters over the next 75 years, 10 times what Mayor Richard Daley got when he leased the system to investors in 2008." Privatizing the parking meters in Chicago's been great for Morgan Stanley. But what about for Chicago? Well - we signed over a lucrative franchise for BILLIONS less than it appears to be worth. Morgan Stanley and its partners seem poised to reap phenomenal profits from this deal. Again, from the Bloomberg story: "Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners may earn a profit of $9.58 billion before interest, taxes and depreciation, according to documents for a $500 million private note sale by their Chicago Parking Meters LLC venture. That is equivalent to 80 cents...

Wall Street Journal has a fabulous story today about the success of one particular government entitlement program - the bailout of the banks. While unemployment remains high in America, while those on Social Security are likely to see cuts in their entitlement program in the near future, while our federal, state and local governments are seriously in debt, our financial sector gleams brightly as a vision of success. According to the WSJ story , the average monthly salary in 2009 in finance and insurance is nearly $12,000. A month. Up 23% from a year earlier. More than double the average in NYC. And that's just the wages paid to the new hires. Imagine the possibilities for growth in this sector!!! Especially when you can sell an instrument to one party and sell insurance (or take out insurance for yourself) that allows one to profit when the instrument you created blows up after you sell it off. (As long as you disclose the names of the people who purchase the insur...

I am slowly realizing that what we talk about when we talk about unemployment in this economy is largely fictional. A couple of months ago, we celebrated a decline in unemployment. We're no longer looking at 10% unemployment; the number is now hovering at 9.5%. But when you look closer, that decline is not the result of improved employment and expanding economy. It's the result of not counting people who've despaired of finding a job in this market. If you stop looking for a job, you're no longer considered "unemployed." That's a pathetic way to look at unemployment - that we're not going to count people who've given up hope of getting a job. Because for us to truly recognize the enormity of the problem, we need to fully count ALL the millions of people who are not employed, not just the ones who remain hopeful of getting a job once again someday. Here's a link to Mark Thoma's post on the August unemployment report. Two years ago, we...

Was startled by the photo that appeared on the front page of today's WSJ. It seems strangely plopped into the general news of the day: showdown on fund taxes; incumbents in danger of losing; poor South Africans protest against government neglect. And in the middle of the page, a striking photograph of two men in a moment of intimacy. Click on that link and you'll see the image of one soldier comforting a seriously wounded comrade. This is a picture of man at his most vulnerable. A soldier wounded in Afghanistan. A man far from home. Surrounded by enemies in a foreign land. Sent there to protect his country. A friend holds a Bible and offers a cigarette to comfort the wounded man. He is reading the wounded soldier's favorite Psalm, Psalm 91. It appears as if someone else not in the picture is holding the wounded man's hand. In a moment of horror, a wounded soldier finds solace from God and men. This picture haunts me. It reminds me that in our time of need, ...

Peggy Noonan wrote a terrible column in last weekend's Wall Street Journal. "He was supposed to be competent" is the headline, and it's about how Obama's incompetence is the reason the Gulf Coast is soaked in oil right now. Come again? Peggy Noonan was Reagan's songbird. Her speechwriting for the man who named a revolution was elegant, eloquent and inspirational. Does she forget that her boss considered government the problem? That businesses were dying under the yoke of regulation? That for America to succeed, a bloodless revolution needed to take place that severed the government from the responsibility of regulating much of American business? Because untethered, according to the Reagan Revolution, businesses could fly high and soar. And their profits would trickle down into the pockets of all of us on Main Street. Which would have been great, since salaries have remained stagnant since Reagan was in office. That trickle down money could have meant ...

Innovation in the financial sector is once again turning Wall Street into the biggest roller coaster in America. It was a "glitch," apparently, that sent the markets down a very steep trajectory yesterday. According to the NY Times article on the crash, at least half of all trading is done via these "high frequency" trades. A computer is programed to do the buying and selling that once were the sole domain of the trader. "'We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,' said James Angel, a professor of finance at the McDonough School of Business at Georgetown University"(as quoted in the NY Times .) I love computers as much as anyone. But innovation coming out of the financial sector is a little scary these days. From the Times story: "The near-instantaneous swings left brokers dumbfounded." Traders weren...

Anyone remember the big Soviet demonstrations of military might on May Day? It used to be that every year on May 1st, the Soviets would unveil the power of all their many weapons by parading samples of them down some expansive street in Moscow. Grim soldiers would walk in precise steps past the aged members of the Politburo. It was indeed an impressive display of strength, impressive enough to foster "the arms race." Moscow's May Day is, of course, ancient history, taking place back when our only enemy, it seemed, was communism. Today, we face various dangerous enemies on many fronts. And in a story with a May 1st dateline, the Wall Street Journal gives us a glimpse into a mighty enemy that today threatens the United States. You can find the description of this enemy in the story they call "Number of the Week." This is one of the enemies we face today: "$132 billion." That's the dollar amount of the total losses generated by synthetic mezz...

Things I'd blog about if I had the time to blog these days: – Paulson's book – The game that got us to this point ( Liar's Poker ) – A review of Atlas Shrugged – Musings on the fate of Ken Lewis, and how the Merrill deal has destroyed his legacy, even with Paulson's stamp of approval There is more. But there is less time than usual these days. Work/life balance out of whack these days... (at least I'm working, right?!)

Brad Delong, economics professor, blogger , expert on money stuff, has a sidebar on his blog noting that he's signed up for a speaker's bureau because "the Eighteen-Year-Old is going to college next year, which means that I need to think about making more money." Which makes it a bit odd that he's got a guest post on the Berkely Blog called Is It Fair for Education to Be Cheap ? A man now on the hustings to raise money for college is well aware that "cheap" and "college" are not a likely pair. What he's referring to is the subsidized higher education one can acquire at a public university. In my state, the in-state tuition is about $22,000 a year, which makes the cost of a four-year degree close to six figures when it's all said and done. That's not "cheap" education. Or if it is, I'd like to know how a family that makes today's average income of $50K can afford to send multiple children off to school an...

It will take a while, but you'll find him if you look hard. Page past the metal-clad Gucci model... Past the the starved-looking girl in the Juicy Couture ad (note to Juicy Couture marketing execs: nothing juicy about anorexia!)... Past Kate Moss wearing little more than a purse in a cab... Past the spread on "the Warrior Way" (which has nothing to do with warriors and everything to do with "tattered minis strapped with shoulder armor and breastplates")... Past the story on Tina Fey (but before the pic-heavy story on Robert Pattison)... And there you'll find him. Tim Geithner going Vogue , "on the money," spilling his guts about the bailout, all in the March issue of Vogue magazine. Who needs the New Yorker and Atlantic profiles when Vogue is there to chat with the US Treasury Secretary about TARP and bonuses and all the other topics so dear to the hearts of Vogue readers? The article opens with this: "If last year'...

A video by OK GO 'This too shall pass." (And if this innovative production doesn't leave you with a smile, don't despair. Spring is coming...) Having spent a portion of my career in production, I know this one-shot video was no easy task!

The Chi-rish are about to let loose. It's St. Patty's weekend in Chicago. Which means the Metra today let us know that there would be no glass objects or alcohol allowed on the trains this weekend. Yes, we love our St. Patty's day in Chicago - it's our way to let loose during Lent. Unlike New Orleans, we still feel compelled to party hard during the time of abstinence. We dye the river a bright, unnatural green. And we all add an O' or a Mac after our name, no matter where our ancestors came from. Everyone is Irish on St. Patty's Day! At least in Chicago. Not sure what it's like elsewhere. I've heard that until recently, St. Patty's day was a day to go to church in Ireland. That was until the Americans flooded the place wondering where the parade was. I had no idea that booze was allowed on trains on other days! Just thought the people surreptitiously drinking beer out of gigantic cans during non-festive days was their surreptitious way of ...

Bank of America has posted its third consecutive quarterly loss. Apparently, the double whammy of paying back TARP and defaults on consumer loans has packed quite a punch to the firm's bottom line. From Bloomberg : "'Economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth,' [Bank CEO Brian] Moynihan said in a statement. 'We are encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer business.'" Specks of sun are breaking through, perhaps, but clouds of high unemployment and sluggish consumer spending remain heavy and dark everywhere you look. Given the gloom surrounding the current economic outlook for consumers outside of Wall Street, why would BoA consider taking the hit now to repay TARP? Wasn't TARP designed to help struggling, massive banks recapitalize? More from Bloomberg: ...

The man reluctant to cut his vacation short to help Katrina victims is working with Bill Clinton to help Haitian earthquake victims? Is this a dream or the transformation of George W. Bush into a philanthropist? From a story in the Washington Post : "Bush said that his heart, and that of former first lady Laura Bush, 'are broken when we see the scenes of little children struggling without a mom or a dad or the bodies in the streets.' He pledged to work alongside Clinton to encourage Americans to dig into their pockets. In the near term, he urged people to avoid donating blankets or other items but to just 'give your cash' to aid organizations that can spend it wisely. (Just had a flashback to those pallets filled with $12 billion in cash that vanished in Iraq in 2003 - 2004. Is Halliburton involved in anyway with the relief effort?) Strange that a man who failed to mobilize the FEMA forces during the worst natural disaster to hit America has found himse...

GM predicts a profitable year in 2010. Now that IS bold! The company, clawing its way out of bankruptcy. The economy, still shedding jobs by the tens of thousands each month (down from the hundreds of thousands shed in a few months ago - leading many to predict the beginning of the jobless recovery.) And a prediction unprecedented in optimism. The Wall Street Journal characterized GM's statement as a "bold and surprising forecast," and noted the company has not seen a profitable year since 2004. The WSJ also noted that "significant hurdles remain to repairing GM's bottom line, namely winning back tens of thousands of customers and improving the profitability of vehicles sold." And the newspaper gives us another curious statement: "When GM started piling up billions of dollars in losses in 2005, Rick Wagoner, its CEO at the time, stopped offering financial guidance." Does this mean the CEO shut down from stress? Failed to steer the shi...

The Edge of the American West blog has a wonderful post on Teddy Roosevelt. It's a lovely post with a lovely conclusion: "It is always easier to explain why Washington, Jefferson, and Lincoln belong on Mount Rushmore. Lincoln is America’s Christ. And Washington plays God the Father to Lincoln’s martyred savior. Which leaves to Jefferson the role of Holy Spirit: just so, as the author of the Declaration of Independence, the deeply flawed Jefferson nevertheless carried enough divine fire to channel into words the nation’s enlivening ideal of equality and natural right. With such an established trinity, what need for a fourth figure? If we can see elements of the godly in each of Washington, Jefferson, and Lincoln, what can we do with the rather thoroughly earthly Roosevelt? But perhaps that is the point. Alongside gods humanity also has a place, and a man who did so much to make daily life in America a little better, and to create the expectation that daily life in Ameri...

I will be the first to admit that I am a CDO ignoramus. After a year of research, I still can't figure out how collateralized debt obligations work or why we need them. What I find mystifying is the opacity of the offering. And from what I understand, we have not only CDOs that we can buy, but synthetic CDOs, which, as far as I can tell, function as a sellable mirage of the original CDO, which is itself a bunch of debt lumped into various tranches of different risk classes. But apparently we need this kind of innovation - regulations for the financial sector would squash this kind of innovation, so we're told, and then the market for Ferraris would drop significantly. (JUST KIDDING about those Ferraris!) In my search for knowledge, I find myself exploring all sorts of econ blogs - enjoying the journey while remaining mystified by the CDO conundrum. So I read with interest the latest post on the Economics of Contempt blog - " On Goldman and synthetic CDOs." ...

Mark Thoma shares an article written by David Cay Johnston of Tax Analysts that compares 1961 income taxes with what we have now. Johnston's goal is to analyze if our tax system is helping us create wealth. What do you think the data shows? That the vast majority of Americans have seen only a modest rise in income in the last 45 years. In a span of years that stretches longer than a traditional career, the average income of the bottom 90% of wage earners has risen almost $9300, from an average of $22,366 in 1961 to $31,642 in 2006. In the last 45 years, GDP has grown - up 227 percent. Average income for the top 400 taxpayers has also grown from $13.7 million to $263.3 million. That's nearly 20 percent growth in 45 years. If you've felt a financial squeeze over the years, there's a big reason why. David Cay Johnston explains: But wages and fringe benefits did not grow with the economy. For most workers, they fell. Wages peaked way back in 1972-1973, were...