PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-JUNE-7 (FRANCONOMICS.COM)
GM Bankruptcy, Analysis of the US Treasury's 100 Day Progress Report, Taxonomy of "Toxy-Morons" setting National Economic Policy, etc.
Hello, welcome to the weekly economic podcast from Franconomics.com for the week ending June 7, 2009. I am Sam Mishra, your favorite economic podcaster, who likes to say economics like it is. If the projections portray that the number of homeless will swell by 1.5 million more thanks to rising unemployment and accelerating foreclosures, we don’t say like Dr. Ben that the economy is improving. We say rather that people are suffering. If General Motors is allowed to go bankrupt but Goldman Sachs is not, we don’t say like the present administration that they are trying to create jobs. We say rather that the administration is supervising the exporting of manufacturing jobs to China. Yes, for the Hummer brand is going to be ought over by the Chinese from the now bankrupt General Motors.
So, let’s start this podcast with the biggest news for this week, which was the GM bankruptcy. With $91 billion in assets, the bankruptcy came in fourth, behind Lehman Brothers with $691 billion in assets, WM with $327 billion, and WorldComm with $103 billion. How can a company with hundreds of manufacturing plants have assets one seventh the size of an investment bank which owned only big buildings, but with no robots inside, unlike the auto manufacturing plants? Oh, we see, they had all these legacy assets, which totaled up to more than half a trillion. Folks, now you believe in my $14 trillion dollar value drain calculation, don’t you.
Anyways, there are lots of grim statistics associated with this catastrophic bankruptcy. GM’s Michigan employment now stands at 47,330, compared to 482,000 in 1978. That is a demise of 90% of GM Jobs in Michigan in 30 years. GM was an American icon. If it can ever be said that Americans taught the rest of the world how to build cars, GM will have its place in it. But the business strategy of building cars like PCs, which break down within 3 to 4 hours so that we can sell you the next MacBook, I mean the next hummer, has backfired. Somewhere came the Japanese and now the Koreans with cars which keep going and going without any problems for 100,000 miles and beyond. And now with a Chinese company called Tengzhong buying the Hummer brand, it can truly be said that more auto manufacturing jobs are now being exported to China from the United States.
So much for the administration’s promise to stem job loss to India and China. Now, if it were software jobs, we could understand. Because whether it is Bangkok or Bangaluru or Brazil or Boise Idaho, once you code software, you have to upload it to the Internet. So, if the Arbitrage Pricing Theory of Finance, which is based on the law of one price, has any merit, why should I pay 50 dollars per hour to the Indian or Russian software engineer in Silicon Valley, when I can pay only 5 dollars per hour to the Indian Ramulu mild-mannered coder in Bangalururu, because at the end of the day, I just want the code working and uploaded on the Internet. Folks, software jobs are going to India, for the architecture of the Internet allows for that. But manufacturing jobs. Why should they go to China? Don’t they already manufacture everything we use? By some estimates, 10% of everything Wal-Mart sells is coming from China. Well, that may be a low number. It might be 25% actually. Now that we own GM as taxpayers, should we not keep the jobs here? Oh yes we do, Tengzhong, the Chinese company that bought Hummer announced that the upper management jobs at Hummer will be saved. Wow. Kind of sounds like the upper management of Goldman Sachs will pocket the same bonus or more in 2009, as it did in 2008. Now I ask you folks, Goldman mismanaged its business, and without taxpayer help, would be a bankrupt business. So, why should we keep paying our hard-earned money through TARP and pPiP to fund the Goldman bonus. We demand that the 2007 and 2008 Goldman bonus be taxed at 100% and the money returned to the taxpayers. And regulation be put in place to debar the money-hungry Goldman bankers from pocketing any bonus, as long as any bank, we repeat, ANY BANK, and not just Goldman, is dependent on TARP, TALF, and pPiP. Now you might ask, why should we penalize Goldman if Citi falters in the future. The answer: because they are part of the same PONZI SCHEME. They sell derivatives, as in financial derivatives, as in mortgage backed securities, to each other. They also put the Robert Rubins and the Hank Paulsons and the Neil Kashkaries in place at the top of the US Treasury so that the laws can be twisted in Goldman’s favor. And that is why Goldman stands today as a crème de la crème bank and Lehman is gone, gone with the wind of time that is now history. When the Kashkaries and the Geithners are back in action in Wall Street after their influential regimes in US Treasury, you and I will be even more unhappily at this corrupt nexus between Wall Street and Washington --- Madeline Albright has a hedge fund, Rubin was CEO of Goldman and then US Treasury Secretary and is now Chairman of Citibank, Larry Summers was Treasury Secretary and then president of Harvard and then pocketing $5 million plus for working one day a week for a Hedge Fund and is now setting his Friedmenite “TOXY-MORONIC” policy through the National Economic Council. even Chlesea Clinton has gone back to her lucrative hedge fund jobs.
So, now that we are discussing the potential low-hanging fruits that are lucrative Wall Street jobs for US Treasury officials, for history repeats itself, let’s post-mortem, as promised, the 100 day progress report of the US Treasury. You can read the report in in its entirety, all the 8 pages of it, in the OTHER RESOURCES section on FRANCONOMICS.Com. Three things jump out from this report:
First is a sub-title called "Putting Money Back into the Pockets of Hardworking Americans", when everyone knows that the only pockets getting filled are those of rich wall-street bankers. Please read up on the item called “making work pay tax credit.” Which will help me by increasing my net worth by $65 dollars a month. Wow, are you telling me, Mr. Secretary, that now I can afford that cell phone plan, for I currently use a tracphone, and keep the phone down within a minute. And people wonder why someone who went to MIT can’t afford a regular cell phone. Folks, this is draining our money by the bankers. Instead of giving the $8 trillion to banks, as the fed (as in the federal reserve) and the treasury are doing, had they given that money to the Americans, $8 trillion divided by 300 million American taxpayers could be a good 27000 dollars per person. If I am given that, I can buy a car, I can buy new shoes, I can pay rent for an apartment for a year, the consumption can go up, and the economy can recover. Now, that is a good plan for the American consumer. Not the other way round, take $26,000 dollars from me, give me back $65 per month, and giving the rest away as bonus to Goldman, and Bank Of America, and Morgan Stanley. No, no, no, we are not that stupid. but may be we are, for we are the working poor, as opposed to the ultra-powered, non-working rich, remember?
Second is a couple of endorsements from Banks that the treasury is doing a good job. In fact, let’s use the shorter one from JP Morgan, which states:
Media coverage would lead one to believe TALF has been a near flop, but a closer look at ABS market conditions and the eight ABS deals (five of which were auto related) done since TALF was launched suggests the program has, in a measured but very clear way, helped improve ABS market conditions and that it is likely to improve conditions further.” Really, as in going back to selling MBS (mortgage backed securities with impunity and pocketing good cash bonus). Please! LET”S BAN trading of ABS, MBS, it is all BS. It is what got us into this MESS.
As the third and final point, let’s take the point of "Expansion of the First Time Homebuyer Tax Credit" mentioned on page 3. OK, home sales data point to the fact that half of all foreclosures are now for prime mortgages. Foreclosures are accelerating, since the 3 month moratorium on foreclosures is now over. Unemployment is climbing, and people with good credit (i.e., those who took out prime mortgages to buy a home) are not being able to keep their homes. The administration cites the low interest rates when it goads people to refinance, but that is a tactics that has caught havoc in the lives of millions of Americans in the last five years: low interest rates. Whenever people bought homes using the excuse / bait of "low interest rates", they suffered later. Those whose home values have fallen (in fact, nationwide, median house prices are back to 2002 level, so those who bought in 2003, 2004, 2005, 2006, 2007, 2008 are facing negative equity on their homes) since they purchased it have a tough choice: refinance a loan which is for a property with a lower $ value than the loan) or walk out of the loan, filing personal bankruptcy (and thus ruining one's credit history). In this scenario, asking Americans to buy that first home by providing "Expansion of the First Time Homebuyer Tax Credit", which is mentioned on page 3 of this 8 page report, is like bribing people to get into loans (which will be issued by the same or similar banks which created all the sub-prime and mortgage related frauds in the first place) for assets which can plummet further (since employment data gets weaker month after month) is very unfair on the main street. A paltry 8000 dollar tax credit will never go a long way in helping anyone financially if the house price falls even 20,000 dollars, and does not come up for a while! In places like California, where the price declines lag the nation-wide average, average homes might fall another 40,000 dollars in the next year. Just as banks were allowed to take risks and mis-manage their business, and were given doleouts like TARP and TALF and pPiP, should the individual home-buyer not be given the same consideration? If I am a blue-blooded Goldman banker and take risks and mismanage and drive a business to loss, I am given a bonus. But if I am a blue-collared worker and stupidly buy a home for the lure of $8K, and then lose my job, and my house loses $20K in value, what is my bonus? Negative equity of 20K minus 8K or 12K, and add to that the bonus or the commission of the real-estate agent, property taxes, closing costs, NAH. I would not take the 8K now, I would wait until this mess clears.
So, let’s close out this podcast with an inspirational advice for the Washington Policy Makers who like to prop up the banks, and even take the TARP money back from the good ones like Goldman, for that is the latest news, and we will show you next week how that will hurt taxpayers in lost income in our podcast, let’s end this podcast with the latest thought of the day on our homepage. To Dr. Summers & other Friedman disciples In charge of policy: When you say you are a Friedmenite, it smells toxic and oxymoronic, or toxi-moronic..Milton “Mr. Greed” Friedman believed in free markets. If you are a true Friemenite, stop trying to manipulate the markets – the mortgage markets by trying (and failing) to lower mortgage interest rates, the bond markets by trying (and failing) to jack up toxic bond prices through TALF and pPiP and what not, and the stock markets by claiming (falsely) that the economy is improving when unemployment is going up (now at 9.5%), foreclosures are going up (now one in 73 American homes is in foreclosure), and homelessness is going up (as per one estimate, another 1.5 million will become homeless in the next two years thanks to joblessness and foreclosures). Stop taking money from the working poor and giving it to the rich bankers in the name of stabilizing stock and home prices. Stop loading up on toxic waste from banking excesses using our money. Stop being greedy, power-hungry parasites, hypocrites, and toxy-morons.
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