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Monday, June 8, 2009 03:12 PM
It's deep breath time
You'd think perhaps the astronomically-esaclating deficit figures would leave federal politicians speechless.
Conservatives must - one hopes - feel chagrined (kinder word than ashamed) to find themselves presiding over this single-year skyrocket from surpluses to the biggest deficit in Canadian history. Record-setting deficits in record-setting time, hardly what you'd expect from a fiscally-responsible government, no matter how grim the economy and how spendthrift the parliamentary pressure. Getting back on track is job one.
Over on the fiscally-loony left, Liberals and their erstwhile fellow travellers in the NDP and the Bloc must also - one hopes - be likewise thinking hard about what they have been pushing for since this recession began, namely evermore spending, ever faster, and ever deeper deficits.
It's deep breath time. A $50-billion deficit - surely this is plenty more than "enough" no?
"First, do no harm" - this is good guidance for both physicians and for our guardians of the public purse.
Time to shift gears, ditch the silly EI game, exit the bailout casino, and start getting back to the all-party consensus in favour of prudential husbandry of taxpayers' resources.
Sadly, we may not get the welcome respite of sober second throught and parliamentary silence we deserve. Rather, the tiresome nature of competitive partisanship will doubtless produce retuned versions of the usual chorus of "I told you so" and "you should have known" and "you made us do this."
Those who believe that the economy is in a terrible ditch from which it will not emerge for a "lost decade" (or whatever doomsday scenario they are marketing today) are welcome, I guess, to make the case that things are so bad we will not make them worse by spending and borrowing yet more.
The rest of us, most of us, who know that recessions come and go, and that the going of this one is already within sight, also know that governments can (and unfortunatley often do) make these things worse by impairing recovery with a fresh onset of out-of-control government spending and debt and the higher taxes needed to service them
Better they all take a moment and reflect on this... and on how to start the long trek back to balanced budgets. As we experienced so damagingly back in the bad old fiscal days of the 1970s and 1980s - and unfortunately seem to be again in 2008-2009 - it is so seductively easy to lose control of the fiscal reins... and so much more difficult to marshal the tough political will and difficult choices to regain control.
Was it really only a year ago that ALL of these parties said they were opposed to deficits...
Get a grip, folks.
Link to this postFriday, May 15, 2009 01:53 PM
Change not everyone believes in
I was one of those who had - has? - great hopes for the post-partisan/bipartisan promise held out b Barack Obama.
Alas, Obama is paying quite a price for going along with the hyper-interventionist agenda being pushed upon him by the long-suppressed ideologues in his party's left wing. Electing Barack Obama was one thing. Getting Nancy Pelosi, Harry Reid and Barney Frank running banks auto companies and insurers is quite another.
"For all of his hopes about bipartisanship, Barack Obama has the most polarized early job approval ratings of any president in the past four decades," reports respected Pew Research.
Obama now has a 61-point partisan gap in opinions about his job performance - the most partisan gap since before Richard Nixon.
Rasmussen Reports show similar findings about Obama. "The American people are coming to express increasingly significant doubts about his initiatives, and most likely support a different agenda and different policies from those that the Obama administration has advanced. Polling data show that Mr. Obama's approval rating is dropping and is below where George W. Bush was in an analogous period in 2001. Rasmussen Reports data shows that Mr. Obama's net presidential approval rating -- which is calculated by subtracting the number who strongly disapprove from the number who strongly approve -- is just six, his lowest rating to date.
"This is a substantial degree of polarization so early in the administration. Mr. Obama has lost virtually all of his Republican support and a good part of his Independent support, and the trend is decidedly negative.
"Eighty-two percent say they are worried about the amount of money being added to the deficit. Seventy-eight percent are worried about inflation growing, and 69% say they are worried about the increasing role of the government in the U.S. economy."
The Wall Street Journal reports Gallup asking "whether we should be spending more or less in the economic stimulus, by close to 3-to-1 margin voters said it is better to have spent less than to have spent more. When asked whether we are adding too much to the deficit or spending too little to improve the economy, by close to a 3-to-2 margin voters said that we are adding too much to the deficit"
"Support for the stimulus package is dropping from narrow majority support to below that," says the Journal. "According to a recent Wall Street Journal/NBC poll, close to 60% said it would make only a marginal difference in the next two to four years. Rasmussen data shows that people now actually oppose Mr. Obama's budget, 46% to 41%. Three-quarters take this position because it will lead to too much spending
"And by 2-to-1, voters reject House Speaker Nancy Pelosi's call for a second stimulus package."
Many people in the United States, Canada and internationally continue to have high hopes for Obama. He needs to stop catering to the ultraleft of his party, and get back to two things he appears really good at: listening, and addressing himself to a post-partisan political audience.
Sunday, April 26, 2009 02:30 PM
Good point by Prime Minister Harper
"First of all, Mr. Ignatieff and the Liberal party - when this matter first broke - were practically demanding that I throw Mr. Mulroney in prison without a trial. Now they are out there pretending that somehow they are his best friends and they don't agree with any of this."
Sunday, April 26, 2009 09:23 AM
Obama gets it right on GM
Good for President Obama is all I can say.
Here's hoping these companies are given a solid chance to work this out with their employees, unions, retirees and creditors within the proper Chapter 11 process, not in a political three-ring circus.
Sunday, April 26, 2009 09:23 AM
Do what I say, not what I do
Perhaps I have been living in the West too long (after all, it has been six months already) but when I read this morning of Nik Nanos's latest poll (PDF) I had to chuckle.
Irony is such a delightful thing. And it crops up so often in politics.
Nik reports residents of Quebec (my birthplace) as being "comparatively much more likely to believe oil sands development was hurting Canada's international reputation."
Cool. I wonder, though.
Would this be federalist Quebeckers who are fretting that having one of the world's most promising reserves of precious oil (the only major reserve not in OPEC, Venezuelan or Russian hands) could somehow be bad news for Canada?
Or, would these be the same separatist electors who are able to convince themselves that electing separatist provincial governments, sending separatist MPs to Ottawa, and promising referendums-till-we-win does something positive for Canada's reputation abroad?
Just curious.
Sunday, April 26, 2009 09:23 AM
Geithner's toxic-assets plan: Krugman's not happy, but the markets love it
Two Nobel economists took directly opposing views of U.S. Treasury Secretary Tim Geithner's new "toxic assets" plan released yesterday.
Bloomberg reported: "Treasury Secretary Timothy Geithner has a good chance of succeeding with his plan to cleanse banks of toxic assets, says A. Michael Spence, co-winner of the 2001 Nobel Prize in economics."
Meanwhile, Paul Krugman is so sure Geithner will fail that he's full of "despair."
"The Geithner plan has now been leaked in detail. It's exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago," Krugman says in his widely-followed New York Times blog. "The zombie ideas have won."
Financial market participants, however, were neither despairing, nor torn.
In fact, they went on a tear: for a change, the markets gave Obama and Geithner a huge thumbs-up, posting the fifth-largest Dow Jones jump in history.
The Dow closed up 18 per cent from the 12-year closing low of 6,547 that it hit March 9.
Likewise, the broader S&P stock measure is up 21 per cent from its 12½ year closing low hit on March 9, "meeting the technical definition of a bull market."
Well, let's not get ahead of ourselves; there's probably a little bumpy ride in this beast yet. But it sure is good to see the U.S. Treasury and financial markets starting to get better aligned in how to address and resolve the credit crunch.
Who knows, maybe the Obama Administration will even learn to start discounting the Krugmans of the world in favour of economists more closely attuned to markets.
Sunday, April 26, 2009 09:23 AM
Beyond bailouts and bonuses: Getting to the root of the financial crisis
Today's firefight about "taxpayer-funded" bonuses to AIG executives (and Merrill Lynch, and others) is a frustratingly sad reflection of how directionlessly our political leaders (at least in D.C.) are still swirling around dealing with the financial crises at the symptomatic level.
Sure, bonuses paid out to folks who have wrecked their companies make no sense. Ditto for so-called "retention bonuses" paid to people who have already left, or retired. Huh?
But these are bad by-products of last autumn's hurry-up approach to dealing with the crisis at the level of symptoms. Taxpayers should probably not have come to be owner-operators of AIG et al in the first place.
We need governments to stop symptom-chasing, and instead to start identifying, addressing and correcting root causes of the financial crisis.
As a Street friend of mine says: "President Obama is sending the complete wrong signals to the market, [Treasury Secretary] Geithner can't get off his thumb and now every politician is rather ironically screaming that you can spend $180-billion so that a company can make good on its bets with Goldman and Morgan Stanley, but not a red cent on the people that need to be there to run it for the future. If you want it to fail, don't spend the $180-billion on day one. The government is retroactively breaking contracts... and the President is saying nothing. Get those employees to take their bonuses and invest it back in the stock of AIG. Seems like a simple compromise."
Sounds smart. The kind of thing which might happen if we'd let these firms go into Chapter 11 to reorganize and had experienced businesspeople operating that process, instead of politicians.
Smart, too, is a recent bipartisan call by Senators Byron Dorgan (D-North Dakota) and John McCain (R-Arizona) to establish a special Senate Committee to investigate causes of the financial crisis.
Dorgan, you will likely not recall, was only of only eight U.S. Senators who fought to the end against the Gramm-Leach-Billey Act. That 1999 bill undid the Depression-era Glass-Steagall Act of 1933, which had legislated prohibitions on retail banks (where you and I make deposits) from dealing in investments and insurance.
Glass-Steagall's repeal started out as an initiative of the financial industry and Republican allies on Capitol Hill. By the end, its repeal was passed with strong support in both parties. "Eliminating barriers to financial services competition will allow American companies to better compete in the global economy," said then-President Bill Clinton, in backing Glass-Steagall's repeal.
Senator Dorgan and a small handful of others fought Glass-Steagall's undoing right through to the final vote. Dorgan warned his fellow Senators, as they were undoing Glass-Steagall: "I think in 10 years time we will look back and say, 'We should not have done that,' because we forgot the lessons of the past."
That was 1999. A decade later, we have retail banks such as Citigroup on taxpayer life support, because (a) their investment banking losses overwhelmed their deposit-taking liquidity, and (b) they have become (allegedly) "too big to fail."
"I wasn't so prescient," says Dorgan now. "I just felt that allowing the banks to create big holding companies with so-called firewalls, which turn out to be tissue-paper firewalls, and then to take on massive risk from real estate and securities, was just fundamentally wrong."
Dorgan doesn't just think the U.S. was wrong to let banks co-mingle deposit-taking, investment and insurance. He thinks the current government response is wrong, too: "Many of the largest banks got involved in very risky enterprises, and I don't think they necessarily have a divine right to be saved."
Mervyn King, governor of the Bank of England, gives support to the idea of reinventing a firewall between retail and investment banking: "There are good arguments in favor - to separate the utility functions of a retail bank taking household deposits and running the payments system from the casino trading of an investment bank, and good arguments against - the difficulty of maintaining a credible boundary between those institutions that are eligible to receive government support and those that are not," says King.
"If this country made bad decisions, let's understand what those bad decisions were, who was pushing them, and what we can learn from them, says Dorgan. "One of the important discussions no one is having at the moment, even as trillions of dollars in taxpayer money are being pushed out the door, is the future. Is the future to go back and reconnect some portion of Glass-Steagall? Some say that can't be done; others say it must be done. But that decision has to be made…."
I don't know whether some new version of Glass-Steagall is the right idea, or even possible. But I do know that somewhere in that policy arena are the kinds of questions which need to be asked, and the kind of thinking which needs to be done. We need our best brains from the financial and regulatory sectors working together, not yelling at each other while citizens wonder if they're getting hosed.
As my investment pal says, the main issue before us is not the red-hot bonus question. That's secondary, a billion-dollar question which does matter because it is clearly important that taxpayers' money be properly handled (and be seen to be properly handled).
But still getting scant attention are the primary questions - the trillion dollar questions:
(a) what public and private decisions provoked this crisis, these massive taxpayer-funded bailouts and loss of global wealth?
(b) how can governments best resolve today's financial industry crisis?
(c) how do we all prevent this from recurring?
A pair of calm voices looking further down the road while most everyone else firefights the day's hot-button story, these are the questions Senators Dorgan and McCain are proposing to examine.
Sunday, April 26, 2009 09:23 AM
Harper and Dodge - more on the same page than not
As a broad generalization - to which I will proactively admit there are many exceptions - I do not think the Canadian media, by and large, are
(a) terribly even-handed in reporting on Stephen Harper, nor
(b) doing a particularly terrific job informing Canadians about the underlying issues surrounding the economy and the recession.
There, I've said it. Friends in the media, please do not be too angry at me for too long. I will still go to Politics and the Pen and to the Gallery Dinner where you can shun me (and Jeffrey can present me a conservative curmudgeon award).
The last few days have featured another outbreak of both these traits, with the mountains-out-of-molehills coverage of disparities between the Prime Minister's views on the economy and those of former Bank of Canada governor David Dodge.
Both of these gentlemen are people who know what they are doing when it comes to economic issues. And, as I read it, both of them are more on the same page than not.
The opposition of course is actively fanning the flames of this story, to a gallery generally a bit over-hungry for "Harper is wrong" storylines.
Result: Canadians are treated to another experience in more-heat-than-light and more-politics-than-economics reporting.
And Canadians seeking more profound information about economic issues and debate continue to be driven deeper afield to American and international news sites.
The truth is Harper doesn't know precisely which quarter this recession will end. David Dodge does not know. Barack Obama does not know. The IMF does not know. You do not know. I do not know.
And this is not the point.
There are dozens of credible forecasts out there. You can find respectable economists supporting almost any perspective you choose, for believing that the recession will be sharp and short, or long and deep. That it might repeat Japan's L-curve and Lost Decade. Or that the first signs of recovery are already sprouting.
Most sensible people will recognize that part of the role of political leaders in trying times is to offer hope and confidence. This is all the more important in times of fear-bordering-on-panic. Harper is doing this. Obama is doing this. Brown, Merkel and Sarkozy are doing this. In much worse times and circumstances, FDR and Churchill did it heroically. It is called leadership. It is called rallying folks, calming the waters, pointing towards a brighter tomorrow.
None of us want these folks running around adding to gloom and panic. One of the things we do have to fear is fear itself. As a former central banker, no doubt Mr. Dodge understands this.
Anyway, the issue is not when this ends but what to do about it. The important issue for policymakers and politicians is not their entry in the forecasters' office betting pool about whether it shall be this quarter or that when this eases - but whether the policy choices that are being taken and implemented are the correct ones.
On that score - whether the right policy choices are being taken and implemented - I'm looking pretty hard and I am finding it difficult to see what David Dodge is suggesting Stephen Harper should be doing differently.
I suppose it is in Mr. Dodge's point, as reported in Wednesday's Globe, that "rather than obsess on designing short-term programs that will expire in a couple of years ... Ottawa should be spending in areas where there will be a payback to the Canadian economy later in the next decade."
Dodge said: "We're thinking of it as stimulus, somehow, as a bridging exercise, instead of recognizing that it will be a somewhat longer period of recovery and that we really need to do some of these things to augment our productivity down the line."
Eminently sensible. But in terms of this being presented as a political grenade targeted at Harper, wouldn't it properly be as much - or more correctly - interpreted as also being critical of the Liberal/NDP hurry-up approach to spending, pressing Harper daily for ever more, ever faster? Or for that matter, of the Obama-Pelosi-Reid Democrats with their awesome approach to throwing money around indiscriminately in the name of "stimulus"?
In the face of this recession, Harper and other world leaders may have joined the Choir of the Holy Stimulus. But his is hardly the loudest voice in that ensemble; if anything he tends a bit more toward the restrained side of it. He sings bass, while Ignatieff and McCallum sound the shrill notes.
The bulk of the contemporary economic prognoses that, in my humble opinion, carry the most weight tend to have three things in common:
(a) they are premised on understanding that the core of this recession is the meltdown of major U.S. financial institutions caused by the rapid proliferation of certain kinds of unsound investments;
(b) the underlying problems regarding the soundness and supervision of some of these financial institutions and financial instruments remains unrepaired;
(c) the secondary knock-on effects (consumption, employment, weaker companies, public sector balance sheets, etc.) are dramatic and somewhat important, but they are not the main event - they are symptoms to be managed intelligently rather than root causes to be addressed.
Is there any evidence that Harper and Dodge are on different wavelengths on these three core ideas?
What Harper said in Brampton last week:
"The immediate source of this global recession is the ongoing crisis of the financial sector in the United States and other advanced Western countries. And let me be clear to you as my fellow citizens: We will not turn the corner on this global recession until the American financial sector is fixed."
Is this sentiment not well-aligned with that expressed by Dodge, who The Globe reported as thinking the "fast-and-loose ways of investment bankers that juiced up growth in the last decade will no longer be acceptable."
Dodge has just been appointed by the Institute for International Finance to co-chair a new global group that will work to mitigate risks in the global financial system. "The crisis has revealed the serious need for the financial services industry itself to have a process in place that looks ahead at potential systemic risks and can, as appropriate, issue clear messages and suggest measures to reduce the identified risks," the IIF said when appointing Dodge.
It remains to be seen what bodies such as the G20 and the IIF will eventually recommend regarding changes to the financial sector and regulation thereof. It may well be that down the road the Dodges and the Harpers end up advocating different policy changes in this arena.
But, to my eye, for now at least, Harper and Dodge are well-aligned in regarding restoration of the financial sector as the central issue, the one from which this crisis emerged and the one that must be addressed in order for stability and prosperity to be re-established.
There is much good journalism in Canada, and a great many tremendous Canadian journalists. (Many of them, as mentioned are friends who I hope will forgive me for this.) But not enough of either is in consistent evidence regarding either Harper or this recession.
How about we set aside at least some of the rhetoric and political report-card marking, and help Canadians better understand and grapple with the more fundamental issues and analyses?
Sunday, April 26, 2009 09:23 AM
'A crisis of management'
Monday's Globe carried a thought-provoking piece by Henry Mintzberg, Cleghorn professor of management studies at McGill University, entitled "America's monumental failure of management"
It's worth a read. Some excerpts:
"'If you always do as you always did, you will always get what you always got.' So goes an old saying. And so goes the American economy.
"The problem has become the solution. Americans are now getting from their government what they got from their corporations. The automobile companies are collapsing because of their short-term perspectives and so the government has provided one bailout projected to last a few weeks, and here comes another.
"We call this a financial crisis or an economic one, but, at the core, it is a crisis of management.
"How could these mortgages have come to exist in the first place and, worse, how could they have spread to so many of the bluest of blue-chip financial institutions? The answers seem readily apparent. Those who promoted these mortgages were intent on driving up sales as quickly as possible for the benefit of their own bonuses, the ultimate consequences be damned.
"... And the new U.S. administration? It rushes in with dramatic actions, paying out "cash for trash," deeming the movement of massive amounts of money around the economy, much of it to prop up dying businesses in the short run. More quick fixes for an economy brought down by quick fixes.
"... The problem has been evident for a long time. Executive compensation, the most evident manifestation of this legal corruption of management, was labelled scandalous by Fortune magazine more than 20 years ago, and repeatedly ever since, to no avail.
"... What we have is a government that palliates: It provides geriatric medicine to its oldest, sickest enterprises in a country that requires pediatric and obstetric medicine for its young and vibrant enterprises, the ones that create the jobs, not eliminate them.
"We hear now about 'too big to fail.' 'Too big to succeed' is more like it. General Motors has been going slowly and painfully bankrupt for decades, managerially as well as financially. The new money will only put off its demise. Americans will have to face this reality sooner or later."
Sunday, April 26, 2009 09:23 AM
Attention Ben Bernanke: An ounce of prevention is better than a pound of remorse
Federal Reserve Chairman Ben Bernanke hit the airwaves with an extremely rare TV interview, broadcast tonight on CBS's 60 Minutes.
He repeated a theme also being reinforced these days by Canadian Prime Minister Stephen Harper and leaders from Germany and France: "While the U.S. should be able to emerge from recession later this year, it depends critically on the financial sector finding its footing".
In other words, it's not all about stimulus. It's about fixing the problems of financial institutions.
Bernanke was frank about his frustration at seeing taxpayers being placed in the position of bailing out major institutions such as American International Group Inc.
"I slammed the phone more than a few times on discussing AIG," Mr. Bernanke told 60 Minutes. "I understand why the American people are angry. It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets."
His advice to bankers whose firms are relying on government bailout money: "they should get back to making good loans with a 'reasonable sense of humility based on, you know, what's happened in the last 18 months.'"
For sure, Ben, that would be good. But maybe one lesson of the last 18 months is not to take that entirely for granted.
Indeed, there are some signs of repeat performances shaping up, some involving none other than the good old, government-operated Federal Housing Administration (again!).
According to The Washington Post:
"In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans.
"Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck."
Hmm. Lax scrutiny. Foul play. Unscrupulous lenders. Fast bucks. Where have we heard that?
"If a loan 'is going into default immediately, it clearly suggests impropriety and fraudulent activity,'" says the inspector-general of the department that oversees the FHA.
"The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid. Once again, thousands of borrowers are getting loans they do not stand a chance of repaying."
And, thanks to the way the U.S. Administration and Congress have chosen to politically manage the emergency, U.S. taxpayers are now standing 100 per cent behind these FHA loans.
This points, once again, to one of the main shortcomings of the U.S. Administration's role in the market meltdown since day one. So much time (and money) is devoted to chasing symptoms and managing pain that root causes are still not getting the attention they demand.
It may be diplomatic of Bernanke to suggest that good lenders get back to make better loans with greater "humility".
But is it also naïve?
There are ample indications that human characteristics of a sort considerably more larcenous than a simple lack of humility were propelling the bus over this cliff.
And may well be still at work.
A lot of people acted improperly to get things where they got. Mortgage brokers, lenders, credit raters, insurers, etc.
So far, the list of those held criminally or civilly responsible in any way for the subprime lending misbehaviour of the last few years stands at... precisely zero.
And some of them may still be at work.
Like you said, Ben, it's absolutely unfair that taxpayer dollars are propping up those who make these terrible bets.
Rick Anderson Contributors
Rick Anderson
Rick Anderson is a Calgary business executive who spent much of the 1980s and 1990s involved in federal politics, including two elections as national campaign director for Reform Party leader Preston Manning and an active role in the emergence of today's Conservative Party.