![]() Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. The Wealth Gap Gets WiderFrom Meizhu Lui, former executive director of United for a Fair Economy (our next-door neighbors and partners in various projects, including publishing The Wealth Inequality Reader), in Monday's Washington Post:The chips are in.Read the rest here. Labels: Meizhu Lui, race, racial wealth divide, racism, Survey of Consumer Finances, Washington Post, wealth inequality Yves Smith on Post Piece on Bad BanksFrom her outstanding blog, Naked Capitalism:Wednesday, February 4, 2009 The Bad Bank Assets Proposal: Even Worse Than You Imagined Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall. The Obama Administration, if the Washington Post's latest report is accurate, is about to embark on a hugely expensive "save the banking industry at all costs" experiment that: 1. Has nothing substantive in common with any of the "deemed as successful" financial crisis programs 2. Has key elements that studies of financial crises have recommended against 3. Consumes considerable resources, thus competing with other, in many cases better, uses of fiscal firepower. The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting). Read the rest of the post Labels: bad banks proposal, bailout, Barack Obama, financial crisis, Washington Post, Yves Smith Stock Market's Loss Means Higher Wages?Dean Baker has put forth a provocative claim on his blog:The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us. Labels: Dean Baker, deflation, Inflation, stock market, wages, Washington Post Congressman worries that taxpayers are chumpsGreat video of Rep Elija Cummings (D-MD) grilling Neil Kashkari (the guy Paulson has put in charge of handing out the $700 billion bailout). He asks why taxpayers shouldn't feel like "chumps" for handing over endless billions to AIG. HT to Michelle Singletary.Kucinich has a nice line at 8:04 -- "I don't think anyone questions, Mr. Kashkari, that you're working hard. Our question is who you're working for." Labels: AIG, Dennis Kucinich, Elija Cummings, Henry Paulson, Neil Kashkari, Washington Post Lame-Duck Administration Still Has PrioritiesFrom the Washington Post:A Quiet Windfall For U.S. Banks With Attention on Bailout Debate, Treasury Made Change to Tax Policy By Amit R. Paley Washington Post Staff Writer Monday, November 10, 2008; A01 The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention. But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion. The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin. "Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers. The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists. Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said. The Treasury itself did not estimate how much the tax change would cost, DeSouza said. Read the rest of the article Labels: banking regulation, financial crisis bailout, Henry Paulson, Tax law, Treasury Department, Washington Post General Motors In a DitchGM shares plunged to their lowest price since 1949 before recovering slightly, reports the Washington Post. Analysts are concerned that the global auto industry is on the verge of "outright collapse." Standard & Poor said on Thursday that it is considering cutting the rating of both GM and Ford to "junk" status, which would sharply increase their cost of borrowing.Both domestic and imported car sales have been plummeting in the wake of the financial market meltdown. According to a company statement "Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets," GM said in a statement on Friday. Somehow this doesn't inspire a lot of confidence. Labels: auto industry, financial crisis, financial crisis bailout, General Motors, GM, Washington Post It feels good to be an insurance exec too!Executives at insurance behemoth AIG must have been really stressed after getting an $85 billion bailout from the government. That seems to be the logical explanation for why executives at the failed company held a week-long retreat at the luxury St. Regis Resort in Monarch Beach, CA right after the Treasury agreed to stop the company from imploding.Congress's chief curmudgeon, Henry Waxman (D-CA), chided the executives for running up a tab including $200,000 for rooms, $150,000 for meals, and $23,000 for the spa. News reports did not indicate whether anyone took advantage of the resort's "Pamper Your Pooch" package. The package consists of an overnight stay in a Resort view guestroom, a personalized welcome letter to the pet, the exclusive St. Regis doggy bed, pet amenities including “Sniffany & Co.”, “Bark Jacobs”, “Dog Perignon”, or “Jimmy Chew” toys, personalized silver food and water bowls, an array of treats, biscuits, and bones, along with an issue of Hollywood Dog! Pricing for this package begins at $545 per night. (two-night minimum required) As they did yesterday with ex-Lehman Brothers CEO Richard S. Fuld Jr., Waxman and others (seemingly in need of some R&R themselves) taking a careful look at thousands of documents from the failed insurer and raising concerns about what appear to be hastily-crafted golden parachutes for top company executives while the company was in freefall: According to the Washington Post:
But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million, Waxman said. Joseph Cassano, the executive in charge of the company's troubled financial products division, received more than $280 million over the last eight years, Waxman said. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month, Waxman said. Labels: AIG, bailout, financial crisis bailout, Golden Parachutes, Henry Waxman, Lehman Brothers, Richard Fuld Jr, St. Regis Resort, Washington Post Auto Industry Hit HardThe NYTimes reports today that the crisis in the credit market is hitting the auto industry particularly hard.The virtual lockdown on credit is hurting Detroit’s Big Three and other automakers at every level. More consumers cannot get auto loans. Dealers are hard-pressed to secure financing for new inventories. The auto companies themselves are running short of cash and can hardly afford to borrow more at interest rates as high as 20 percent. U.S. car sales are hitting double digit declines this year, with no bottom in sight. Potential car buyers (an already dwindling group) are having a harder time than ever getting a loan. This year only 63% of car loan applications are being approved, compared to 83% in 2007. For subprime borrowers, the situation is even worse: only 22% are getting loans approved this year, versus 67% last year. Those that are getting loans are paying much higher rates. Auto dealers are already choking on bloated inventories of gas-guzzling SUVs and can't get financing to stock up on more popular models. This year 600 out of the country's 20,770 car dealerships have gone bankrupt, including Bill Heard Enterprises, formerly the top-selling GM dealership in the country. Japanese car-makers aren't faring much better. After two years of non-stop growth in US sales, sales are quickly heading downward. According to the Washington Post, the decline of US sales are leading the entire Japanese economy into a recession. Labels: auto industry, credit crisis, New York Times, recession, subprime lending, Washington Post |