Rolling US Economy Into The Shitbin Thread

In a haymaker that seemed to have been designed to land right between the figurative eyes of year-old commercial bank holding companies Goldman Sachs and Morgan Stanley, who have amped up their risk profiles and continued their investment banking businesses basically in unchanged form since their conversions to more “conservative” commercial bank status, Paul Volcker barked:

“I do not think it reasonable that public money — taxpayer money — be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,” Volcker, 82, said at a financial conference in Los Angeles.

This would be meaningful if the Economic Recovery Board that Volcker runs for Obama were actually a chief policymaking center for the president. But the reality is that the Volcker group is a kind of show-pony the Obama administration kept on as a way to give consolation jobs to the more progressive economic advisers who led them through the campaign season, people like University of Chicago professor Austan Goolsbee.... Will Obama act on Volcker’s recommendations? We should probably wait and see, but I’m not holding my breath.

http://trueslant.com/matttaibbi/2009/09/17/volcker-renews-call-for-limits-on-systemically-important-banks/

I'm not holding my breath, either. Fucking Goldman Sachs should have been put in a sack and tossed down a well last October.

"The big firms... are not going to be allowed to collapse under any circumstances."

http://www.newyorker.com/online/2009/09/21/090921on_audio_politicalscene

no downside to crazypants risk... "[The big firms] are absolutely gleeful."

oh, this is nice...

o paycheck, no health insurance and no job! That's exactly what all InkStop employees are suddenly dealing with. The company has closed all InkStop stores nationwide, which includes 23 stores in Michigan.

InkStop managers called their employees last night at 10 p.m. to notify them that the company was "temporarily closing" while they restructure the company.

All employees have been laid off. To make matters worse, workers did not get their paychecks Friday. On top of that, they also found out that InkStop didn't pay their health insurance premiums for the month of September. Employees just learned that their coverage actually ended August 31.

The Cleveland-based company has 163 stores nationwide.

oops, clipped off the first N there. although "o paycheck" gives it a suitably mournful ring.

and this article oughta be enough to start a pitchfork-and-torch mob, in a country that was paying attention:

Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.

Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.

yeah that latter article is interesting. One thing it doesn't dwell on is that the original sale of Simmons to investors. It says:

"Until the 1970s, Simmons largely prospered. Then the troubles started, and the company was soon buried deep inside two enormous conglomerates, Gulf & Western and the Wickes Corporation, for a number of years."

So the owners of the firm in the 70s decided that it was better to sell out than the alternative (the article just says there were "troubles"). And as a result, the firm stayed in business through 2009. Is almost forty years of extra life worth this outcome? I can see saying: yeah! We (as a firm) got to keep working here for a lot longer than we would have otherwise. Eventually as it turns out the owners who kept grating the firm extra life were unable to grant more extra life. And these owners did very well for themselves. But the firm benefitted too for a long time. And (this is very much what's on my mind): would they have lasted this long without the kind of investors that eventually screwed up the company?

well, the conglomerates that owned it til '86 were a whole different animal than the equity firms that came after. so you're really talking about 23 years. but i think the question isn't so much whether people benefited in the short term -- which, obviously, anyone who had a job there did -- as what that model does to the long-term prospects of any company. i mean, it's possible simmons just wasn't going to be a long-term competitive company, for reasons to do with changes in the mattress industry or who knows what (i have no idea, i don't know anything about mattresses). but the short-term payout that private equity firms want just seems to obviate any kind of long-term thinking at all.

and people keep falling for this -- every time a private equity group buys something, there's always lip service to "we're looking for long-term growth, not short-term profits," and of course they're not ever telling the truth. and i suppose a lot sellers know it, and are just basically choosing to take the cashout themselves.

yeah, I'm with you re. long-term thinking. It's just that my reaction was initially very strongly against the financial firms but then I remembered that at some point the owners sold out, presumably for what they took to be good reason, and so my moralizing needed to be tempered by that. And while the initial sale led to a really shitty outcome eventually, for a company to last 40 years longer than its initial troubles is a pretty good outcome in the medium-term.

who the hell thinks that private equity groups are ever looking for long term growth? only a complete idiot thinks that. Are these the same idiots who think that venture capitalists are in it for the long term?

the only people left on earth who are interested in long term growth are people with 401k plans.

I have a 401k plan but even if I didn't I would be interested in long-term growth; but then again I'm not in the business of maximizing anyone's profit.

but yes I get that private equity groups aren't; what I'm trying to gather is to what extent their effects on business are entirely pernicious. And my tentative judgment is that, if they provide a temporary lifeline to a company in trouble, then it's not clear to me that that's bad.

Dow back to 10,000. Who needs reforms when we're back baby?!

yeah, SUCH a comfort (for the Dems' ba$e)

The Obama Recovery! No wonder he won the Nobel!

If it's good for wall street it's good for main street! Glad i can watch all this good news on the teevee now that I'm laid off!

btw when are the dividends mailed out?

the porkfest haven't even begun yet!

http://www.slate.com/id/2232185/?from=rss

General Motors has not yet gasped its last, foetid breath and shat in its CEO's trousers, therefore the recovery must be in full swing, huh?

At least us proles will have Bob Dylan christmas albums to keep us warm this xmas.

Guy, more good news!

Goldman Earns $3.19 Billion in Quarter
By GRAHAM BOWLEY and MATTHEW SALTMARSH
Published: October 15, 2009

Just a year after surviving the financial crisis with billions in federal aid, the banking giant Goldman Sachs reported results Thursday that topped expectations and promptly went on the defensive about its bonuses.

In part to allay criticism of its profits and bonuses, Goldman announced a $200 million contribution to its foundation, which promotes education.

The bank said that it earned $3.19 billion in the third quarter, powered by mergers and acquisitions fees and equities trading. Revenue was $12.37 billion.

The earnings of $5.25 a share easily exceeded analysts’ estimates of $4.18 a share or $2.34 billion. Earnings in the corresponding quarter a year ago were $845 million on revenue of $6 billion.

“Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors,” the chief executive, Lloyd C. Blankfein, said in a statement.

http://www.nytimes.com/2009/10/16/business/16goldman.html?partner=rss&emc=rss

No fucking shit!

“Fundamentally everything’s fine and is probably going to remain strong into next spring,” Jon Fisher, a fund manager at Fifth Third Asset Management, told Bloomberg. “The risk really is just on the sentiment side: political fallout or just expectations getting too bullish in the short term.”

Taibbi:

No one mentions here that this is a carrot-and-stick story — the stick being that ordinary people have been robbed of the interest they should be getting in CDs and ordinary bank savings accounts by the various bailout programs and lending guarantees, which have brought the cost of capital down to nothing for the big banks, and punished those people who have been doing the right thing all along by saving. The Fed lends its money to Goldman Sachs and BOFA for free, why does anyone have to pay Grandma a high rate for her CD or her bank savings?

And now that those good, savings-oriented people are getting gouged, they’re being encouraged to get back into the stock market, where the returns are better at the moment. They’re being called people on the “sidelines” who have to be encouraged to “get back in.”

What’s so tiresome about all of this is that no one reports this stuff as a political story. This is politics at its most basic. The Dow is going up, sure, but what does that mean, if the rest of the economy still sucks?

http://trueslant.com/matttaibbi/2009/10/15/good-news-on-wall-street-means-what-exactly/

otoh, my 401k from the last job (ie, no new contributions) went up 5% the last quarter!

taibbi otm in re:savings being punished not encouraged. I fucking refuse to dump my money into the stock market so it can be the plaything of the big investors. Consequently, I have been screwed, blued and tattooed on interest rates since at least 1987, thanks largely to Alan Fucking Greenspan and his band of merry banksters.

Im in the same boat. I fucking refuse to get into the rigged carnival known as the stock market. I dont make much by way of returns but I dont lose my ass either.

Well, that is until inflation or deflation rears its ugly head... Im sure either one will be bad for me somehow.

http://graphics8.nytimes.com/images/2009/10/16/business/1016-biz-BONUSweb.gif

WTF

http://www.nytimes.com/2009/10/15/business/15stimulus.html?scp=1&sq=%24250%20seniors&st=cse

it's cheaper than a COLA.

there's no need for COLA this year given that inflation has been negative.

So I guess it's easier to assume that this is a crass political payoff.

Angry seniors be votin' in 2010...

Negative inflation, are you sure? I didn't think that ever happened.

Sonofabitch, it's right there in the 2nd graf. So yes, your analysis is correct.

there's no need for COLA this year given that inflation has been negative.

Uh, yeah, except wages have been frozen or gone down.

No one mentions here that this is a carrot-and-stick story — the stick being that ordinary people have been robbed of the interest they should be getting in CDs and ordinary bank savings accounts by the various bailout programs and lending guarantees

i was talking to my dad the other day, he's running the numbers for when my mom retires in a year or two. (he's already more or less retired.) and one of his working assumptions was that over the next 15-20 years they might be able to average 4 to 5 percent interest a year -- which in "normal" times would be a safe bet, but he admitted he has no idea if that'll actually bear out.

but that also gets to the extra money for seniors. you have a lot people living off their savings and social security checks who are just barely making it under the best of circumstances. (sure, the money will go to people who "don't need it" too, but there are a lot more who do need it.) and yeah there's no inflation right now, but their savings not generating any income at all means they're having to eat more into whatever principal is there, which hurts in the long run.

anyway, a lot of little things like this are what we're going to get instead of a second stimulus bill.

the porkfest haven't even begun yet!

http://www.slate.com/id/2232185/?from=rss

― Where is Stephen Gobie? (Dandy Don Weiner), Wednesday, October 14, 2009 7:44 PM (2 days ago) Bookmark

that's a pretty odd way to frame that particular article -- which as far as i can tell is pretty pro-stimulus. but there's always been a fundamental incoherence in the criticism of the stimulus bill. most of it parses as, "things are worse than they said they would be, so we should have done less about it." i've been in some arguments with republicans about this where it just became clear that they didn't even grasp the very basic concept of "stimulus spending" -- what it is, why and how it works, etc. from the gop standpoint, it seems more like, "obama say his magic heal the economy, but economy not heal yet! his magic baaaaad!"

Uh, yeah, except wages have been frozen or gone down.

Not for seniors collecting Social Security. The $250 payoff is to shore up political support for ObamaCare, where support hasn't been good.

Tipsy, your dad should sit down with a financial advisor to help him run the numbers. It will help him plan for variations in macroeconomic activity.

Yes, that article s pro-stimulus. But it dodges the point that a significant portion of the stimulus bill was flat out pork barrel spending, and to the degree that pet-projects and political buyoffs justify themselves as a net stimulus for the economy is kind of irrelevant. The concept of stimulus spending--Keynesian, say--doesn't validate the manner Congress chose to spend your money.

Meanwhile, with the economy lurching out of steep recession, and barely 20% of the money spent, I think the only assumption left is that the remaining 80% of stimulus will cause massive job growth, create long term GDP growth, and appear without much inflation. Luckily for Obama, the massive influx of funds will mostly occur before 2012.

prognosis positive!!

The concept of stimulus spending--Keynesian, say--doesn't validate the manner Congress chose to spend your money.

it's agnostic on the manner! didn't keynes say you might as well bury a million dollars and then pay people a million dollars to dig it up again?

I favor the idea of sending everyone in the USA a fair-sized dollop of food stamps. For the poor, this would result in less hunger, and for the rich this would stimulate the Maine lobster fishery.

i'm still sorta into the vouchers idea - people can save money but they'd have to spend vouchers

increased food stamp funding was part of the stimulus bill. and don, i hear this "porkbarrel pet project" blah blah a lot on the right, but it's never accompanied by any, like, examples. where are all these unworthy items? and even if they are unworthy in some sense, how is spending on one project vs. another not stimulative? spending is spending. the only actual republican proposal i've heard is that there should have been more tax cuts -- but tax cuts, depending on how they're structured, can be a problematic stimulus mechanism. (you can't guarantee the money will be spent.)

it basically seems to me that republican talking points on the stimulus bill haven't shifted since february and were never particularly moored in reality to begin with. it's now just something to beat obama up over: "hey the economy still sucks! nyah nyah!"

And did anybody really think we'd be back to late 90s bonanza by October?

F Rich states the obvious about Dim Tim, and seems as if he's clearing his throat to call President Gas a fraud:

http://www.nytimes.com/2009/10/18/opinion/18rich.html

In particular, the tone-deaf Treasury secretary, Timothy Geithner, never ceases to amaze. His daily calendars reveal that most of his contacts with the financial sector in the first seven months of 2009 were limited to the trinity of Goldman Sachs, Citigroup and JPMorgan. And last week Bloomberg News reported that his inner circle of “counselors” — key advisers who, conveniently enough, do not require Senate confirmation — are largely drawn from the same club. It’s hard to see how any public official can challenge a culture that he is marinating in, night and day.

Those Obama fans who are disappointed keep looking for explanations. Is he too impressed by the elite he met in Cambridge, too eager to split the difference between left and right, too willing to compromise? As he pursues legislation, why does he keep deferring to others — whether to his party’s Congressional leaders or the Congressional Budget Office or to this month’s acting president, Olympia Snowe? Why doesn’t he ever draw a line in the sand?

well. people who expected the first black president to be anything other than an establishmentarian were deluded. but possibly not more deluded than people who can't see past the establishmentarianism to the significance of the first black president.

An Obama report card:
http://www.nytimes.com/2009/10/18/business/economy/18view.html

My Obama report card (using the metrics from linked article):
STOPPING THE SLIDE: B
ENACTING THE STIMULUS PACKAGE: C
RESCUING THE BANKS: C
REDUCING FORECLOSURES: B+
TRYING FOR REGULATORY REFORM: F
ETC: B-

Overall, I give our Magic president a B thus far.

http://www.nytimes.com/2009/10/20/us/politics/20donate.html?partner=rss&emc=rss

Dr. Daniel E. Fass, another chairman of the event who lives surrounded by financiers in Greenwich, Conn., said: “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.” Dr. Fass added, “How much that will be reflected in their support for the president remains to be seen.”

The article paints a pretty dire picture re: actually regulating the financial sector to prevent the economic collapse of 2019.

There's no interest in regulating by anyone with the power to do it.

But the investment community is invested in Obama! It bought him.