New York Times Leader

The lead story in today’s New York Times is titled, “Fed Chief Wins a Second Term Despite Critics.” The vote was the weakest in history for the Chairman of the Federal Reserve, 70-30.

Ben Bernanke is simultaneously viewed as the architect and savior of today’s economy. His lax policy positions caused it, and many view his rapid bailouts as saving it.  According to the article, Senator Jeff Merkley of Oregon made one of the most strident remarks, accusing Bernanke of helping to “set the fire that destroyed our economy.”

The attacks on Bernanke, in my opinion, represent a desparate attempt to find a scapegoat. It’s easier to blame the Fed than your own institution. In reality, virtually noone anticipated the bursting of the housing or credit card market bubbles.

The attacks by Senators at the confirmation hearings were mainly meant for the general public who are outraged at the enormous bonuses still being awarded at major banks. This is an election year, and after the upset by Scott Brown, no incumbent feels very much at ease about their own chances.

The alliance of nay voters included some very unusual coalitions including, for example, the only Socialist, Vermont Senator, Barry Sanders, and the Republican conservative, Jeff Sessions of Alabama.

One can only hope the renomination will become less and less important as Happy Days Come Here Again.

The lead article in today’s New York Times is titled, “Bernanke’s Bid for a 2nd Term Hits Resistance.” It describes opposition in the Senate to re-appointing Ben Bernanke as head of the Federal Reserve.

Mr. Bernanke helped to shape the highly unpopular bailout of Wall Street and has also been accused of allowing the housing bubble, that helped to cause all our difficulties in the first place. There appears to be opposition to him from both the left and the right, and a vote on his renomination had to be delayed.

Eventually Harry Reid provided a tepid endorsement, but the final result remains to be seem. It appears that nothing is the same after the shocking election in Massachusetts, and the politicians are finally considering the view of Main Street, a good idea if they want to keep their jobs.

Our economic system is so complex that it probably doesn’t make sense to start looking for people to blame. It just upsets the stock market and investors (the Dow is down almost five percent over the past three days), and that really doesn’t help anyone.

The difficult renomination, however, might make Mr. Bernanke think twice when he is adopting new policies, especially with 10 percent of our population out of work, and a good chunk of them, homeless to boot.

Today’s lead story in The New York Times is titled, “U.S. is Finding Role in Business Hard to Unwind.” It lists many statistics about the involvement of the U.S. govenment in the national economy since the financial crisis last year and suggests difficulties that will be faced in any return to free market enterprise.

The statistics listed in the article are indeed startling:

– Government spending accounts for 26 percent of the national economy, the largest percentage since World War II.

– 8 out of 10 new mortgages are financed by the United States.

– A car bought from General Motors technically is 60 percent owned by the government.

– Life insurance from AIG is 80 percent owned by the government.

– There are more than 200 civil servants administering the takeover programs with taxpayer money.

However, the article notes $70 billion in loans to many banks have been repayed with a substantial profit for the government, and the possibility of additional paybacks remains.

In my opinion, there is still light at the end of the tunnel, and many enterprises now dependent on U.S. aid will be eager to be rid of federal involvement, if only to regain control over their own paychecks. Money and profits will serve as just as useful an incentive to getting rid of the government as it was in pleading for their assistance.

Yes, power, especially financial power, abhors a vacuum. But the culture of this country is such that the private sector will fill that vacuum more and more as the recession recedes and the country grows stronger.

The lead article in today’s New York Times is titled, “As Banks Repay Bailout Money, U.S. Sees Profit.” The article describes the government’s profits from TARP, the Troubled Asset Relief Program, after some banks have begun to repay loans from the government. The repayment amount so far, $4 billion, represents the equivalent of a 15 percent return annually.

The article comes with some caveats. It does not include bailouts from AIG, Fannie Mae and Freddie Mac, or the automakers General Motors and Chrysler. Nor does it include potentially large losses from toxic assets from Citigroup or Bank of America.

But, in my opinion, the article provides some rare good news. Republicans, who have been quick to criticize TARP as a waste of taxpayers money, even though it was started under President George W. Bush, are sure to be left flatfooted, hemming and hawing about the news. The details represent a vindication for President Obama in his continuing and successful struggle to get the economy to rebound.

According to the article, the main profits come from “warrants,” because they consist of the low fixed price the government paid for shares of the companies, at the time depressed to just a few dollars. But the banks now want to become totally independent of the government and are rushing to pay back the loans. The reason why? In my opinion,  it’s the fact that the government has used the dependency to try and regulate the enormous salaries and bonuses of chief executives, particularly from those banks on the government’s dole.

It’s amazing how much money can serve as a driving force, especially when the shoe is on the other foot!

Today’s lead article in The New York Times is titled, “Treasury Plans Wider Oversight of Compensation.” It describes new plans to be announced by the Obama administration regarding limits on the exorbitant bonuses and salaries typically paid to top executives in the financial industry.

More specifically, the plans include especially tight restrictions on companies who have received two (or more) bailouts from the government under the TARP program. These companies, including Citigroup, Bank of America, General Motors and AIG, will have to submit any compensation changes to a specially appointed Czar, Kenneth R. Feinberg. Congress had already restricted TARP recipients to bonuses no greater than one-third of their salaries for their top 25 executives.

The plans are sure to bring controversy by the right wing who oppose nearly any intervention in the financial system. But we should remember it was this very deregulation that almost caused the entire worldwide system to collapse. It seems prudent to increase regulation, if only to protect the public and the taxpayers, who are now supporting these companies.

Of course, the financial industry and major banks are already geared up with intensive efforts to lobby Congress. They are asking that traders and other salespeople be exempted from the “top 25″ list. So far Congress is holding firm, but the final result is far from certain.

Today’s lead story in The New York Times is titled, “U.S. is Planning to Reveal Health of Top 19 Banks.” It describes a plan by the Obama administration to disclose the results of government stress tests or to encourage participating banks to do so.

Apparently, things have been thrown out of skew by disclosures of certain banks, especially Wells Fargo and Goldman Sachs, of their plans to return money from government bailous due to predictions of a healthy first quarter. The rush to return taxpayer money has also been driven by restrictions on executive compensation from banks accepting TARP funds.

This chain of events clearly shows the law of unintended consequences. The actions of the government to restrain clearly excessive bonuses and executive pay has led to a pushback from banks determined to avoid the restrictions. The pushback from the banks separates the healthy ones from the unhealthy ones, at least on a comparative scale, because the unhealthy ones are unable to return any money.

As a result, investors can see what banks are healthy and what ones aren’t, and the resulting revelations will lead to a rush of funds away from the relatively unhealthy banks.

By revealing the results of the stress tests, the Obama administration is trying to avoid this flight of funds. The hope is that a positive stress test will maintain a bank’s support even if it is not quite 100 percent healthy.

It is reassuring that President Obama and his team are applying their programs in such a nuanced manner. We can only hope and pray for their continued success.

Today’s lead story in The New York Times is titled, “Showdown Seen Between Banks and Regulators.” It describes the increasing tension between banks and regulators regarding the terms bank had agreed upon when they accepted bailout money from the government.

The story looks at three areas of tension. One, banks who want to pay back the loaned money are refusing to include the premium required when they accepted it.

Two, banks are refusing to clear “toxic assets,” e.g., mortgage derivatives, off their books because it will solidify their loss. They want to value these toxic assets at 91 cents on the dollar when no investor is willing to pay anywhere near that amount, even with support from the U.S. government.

And three, banks are resisting “stress tests” because they fear that failure will cause the government to insist on management changes or merger with stronger institutions.

This is just the kind of publicity that banks don’t need. Already vilified by the American people, they are now compounding (no pun intended) their difficulties by refusing to comply with agreements they made when they accepted taxpayer funds. And a refusal to admit real losses on mortgage-backed securities shows their selfishness at a time when sacrifice has been demanded by everyone else due to the poor economy.

Banks may know a lot about money, but they need to learn a lot more about honesty and public relations.

Sunday’s lead article in The New York Times was titled, “Obama Seeks to Increase Oversight of Executive Pay.” The article described President Obama’s plan to regulate financial institutions in light of the AIG scandal.

President Obama’s proposal was also aimed at the G-20 summit due to begin on April 2 in London. This meeting of the top 20 industrialized nations will address many issues related to the global financial crisis, and European nations are known to favor more financial regulation in lieu of the stimulus approach being applied in the United States.

The new rules on executive compensation will apply to all companies, not just those accepting bailots from the Federal government.  And it will give a large oversight role to the Federal Reserve.

Two elements of the plan seem particularly fair to me. One, that hedge funds should be under some kind of regulation. These funds typically provided annual returns up to 30 percent of the amount invested and currently operate in a no-mans land where they play fast and loose to generate a lot of money for very wealthy clients. It seems they should come under the same type of regulations as those imposed on other organizations.

The second element ties executive bonuses to performance and prohibits executives from receiving bonuses greater than a third of their annual pay. This also seems fair since it will shift compensation from large unregulated bonanzas to salaries agreed upon by a company board.

Much of this plan can be enacted without Congress through federal regulation, and I think President Obama should move rapidly to do so. This may be the only way to put AIG behind us and proceed to other economic support so essential to our recovery.

Today’s lead story in The New York Times is titled, “Toxic Asset Plan Foresees Big Subsidies for Investors.” It describes the new plan by the Treasury Department to address the initial cause of our current recession, the troubled mortgages held by banks.

The plan involves a “public-private partnership” to encourage investors to take a risk and buy some of the bad loans on bank balance sheets. The assets will be auctioned to the highest bidder to hold down costs.

The central problem, as I understand it from the article, is that currently investors are willing to pay 30 cents on the dollar to purchase these assets, mostly commercial and residential mortgages, but banks don’t want to let them go for less than 60 cents because otherwise, they would have to accept huge permanent losses.

There are three components to Obama’s plan: 1) The FDIC will create investment partnerships and loan about 85 percent of the money needed to purchase the assets from banks, 2) The Treasury will create five investment management firms to match private money used, 3) The Treasury will expand lending through the Term Asset-Backed Secure Lending Facility.

Confused? The article gets more complicated in the continuation. For any one who sweats it out and reads the story to the end, there is an ominous note in the last paragraph. The economy is continuing to decline, and financial institutions are continuing to fail. Federal regulators had to take over two of the largest wholesale credit unions on Friday: the U.S. Central Federal Credit Union and the Western Corporate Federal Credit Union.

Today’s lead article in The New York Times was titled, “House Approves 90% Tax on Bonuses After Bailouts.” The tax was in response to the exorbitant bonuses given to executives at AIG while their company was imploding.

The big issue about the new legislation concerned its constitutional muster. Opponents declared it a bill of attainder, an act prohibited by the Constitution.

The strict definition of a bill of attainder is “an act of legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a trial.” I don’t think this strictly matches that. First of all, it’s not strictly aimed at AIG. It encompasses several other firms because it includes any executives earning more than $250,000 per year receiving a federal bailout.

Companies affected include Citigroup, Bank of America, AIG, Wells Fargo, JP Morgan Chase, General Motors, Morgan Stanley, Goldman Sachs, PNC Financial, U.S. Bancorp and G.M.A.C. 

However, the article notes that constitutional experts believed the legislation was legal  because previous court rulings have approved retroactive taxes, especially if they cover a short period of time.

So let’s get this legislation through Congress, signed by the President, and enforced so we can move past this scandal and attack the problems that really matter: healthcare, education and energy.