Friday, July 24, 2009 11:08 AM

By: Dan Weil

Some experts are calling for the Obama administration to adopt a second fiscal stimulus package. Magazine publisher Forbes isn’t one of them.

“This is nuts,” he writes in his magazine.“Hyped-up government spending is useless, if not damaging, for providing sustained economic growth. Our own experiences, as well as those of other countries, particularly Japan in the 1990s and the early part of this decade, have demonstrated that repeatedly."  The administration and Federal Reserve should instead focus on strengthening the dollar, Forbes says.

“Treasury Secretary Tim Geithner and Fed head Ben Bernanke should both publicly vow that the Fed will not monetize future government debts and that they will restore the integrity of the U.S. dollar by measuring how it's doing against other currencies and commodities, particularly gold.”

While some complain that the Fed is loosening monetary policy too much, Forbes writes: “Incredibly, the Fed, contrary to its reputation, has been tightening since December. Its balance sheets have shrunk by several hundred billion dollars since its year-end highs.” He points out that “this is deflationary.” He says “The Fed refuses to take rifle-shot steps to help revive the credit markets for mortgages and for small business and consumer loans.” Investment legend Warren Buffett disagrees with Forbes about the need for more stimulus. “I think a second one (fiscal stimulus package) may well be called for" to lift the economy out of recession, Buffett told ABC.

© 2009 Newsmax. All rights reserved.

Major Banks Negotiate, Spin, Chafe at Stress-Test Results

By David Cho, Tomoeh Murakami Tse and Brady Dennis

Washington Post Staff Writers

Friday, May 8, 2009

Some major banks managed to wrest concessions from the government in closed-door negotiations over their “stress tests” that helped them put the best face on their results, financial analysts, industry officials and sources said.

The banks were intent on sending a message that they were strong enough to weather the economic storm and didn’t need additional capital infusions from the government that could all but nationalize their franchises.

Citigroup successfully pushed to lower the amount of common equity it needs to raise to $5.5 billion by applying $52.5 billion from capital it has not yet reworked. It also was able to get a credit for the sale of a unit that has not been completed.

The stress tests showed that despite a deepening recession, the government will require only two of the nation’s 19 major banks to raise new capital totaling $9.5 billion, far less than what many analysts had projected. The government also is requiring 10 of the largest banks to increase their capital reserves by raising $74.6 billion in common equity, which can be generated by the sale of common stock.

Investors initially were relieved by the generally benign results. But executives were still chafing in conference calls yesterday that their banks didn’t end up looking better. Some acknowledged intense negotiations that began after they had learned of their preliminary results about two weeks ago. Several banks were displeased with the amount of capital the government concluded they must raise and lodged their complaints with Fed leaders.

When asked in a call with reporters about its seeming success in the negotiations, Citigroup Chief Financial Officer Edward Kelly said the firm still had issues with the tests. He said the principal difference of opinion centered on revenue the bank would generate if the economy worsened. He declined to discuss the specifics, saying talks with regulators were confidential.

“I can’t really tell you how they came up with [their] number. I couldn’t tell you even if I knew, which I don’t,” Kelly said to laughter.

Several banks used the spotlight on the stress tests yesterday to announce plans to sell stock to raise money from private investors. Among them were Wells Fargo, the largest bank in the Washington region by market share, which said it would offer $6 billion in new stock, and Morgan Stanley, which intends to sell $2 billion.

Banks can also increase their common equity levels by converting the government’s preferred shares to common shares, but that would dilute existing shareholders and make the Treasury the largest owner in their firms. The department, using bailout funds, has already injected $209 billion into the capital reserves of the stress-tested banks, excluding MetLife.

Officials at Wells Fargo said the company’s conclusions were at odds with those of the Fed. They called the government’s findings that the firm needs to raise $13.7 billion “excessively conservative.”

Wells Fargo chief executive John Stumpf said the company does “not want to be in a position” of seeking to convert the government’s preferred shares to common shares, which would give the government a hefty ownership stake. “There’s plenty of capital in this company,” Stumpf said.

As for the $25 billion from the Troubled Assets Relief Program that Wells Fargo received last year, he said, “We will pay back TARP as soon as it’s practical for us to do so.”

Richard Bove, an analyst with Rochdale Securities, said Wells Fargo got an especially rough deal, considering that it stepped in to take a struggling Wachovia off the government’s hands last year. Wells Fargo raised more than $11 billion so that it could buy Wachovia. “They did the government a massive favor,” Bove said. “And the government returned it by saying: ‘Screw you. Go out and raise more capital.’ “

The firm identified as having the biggest capital needs, Bank of America, said it would seek to avoid government aid at all costs.

In a conference call with analysts last night, Bank of America officials said they would sell businesses to help raise about $10 billion and swap preferred shares held by private investors for common shares to raise an additional $17 billion.

The firm’s performance in the next few months will provide an additional $7 billion, said Joe Price, Bank of America’s finance chief.

Capital One, which has the most bank branches in the Washington area, said it won’t need to raise more capital. The firm said it is working toward repaying the $3.6 billion in taxpayer money it received last fall.

Chief executive Richard D. Fairbank said in a statement that he was content with the stress-test results. They “confirm the strength and resilience of our capital,” he said. The firm would not make company officials available to comment.

Officials at Regions Bank did not return calls for comment. It and GMAC were the only two firms that do not have enough funds to meet the capital needs cited by the Fed.

Regions Bank said in a statement that it remains “strong and stable,” and that while it “disagrees with the assessment” of the Fed on the need for an additional $2.5 billion in common equity, it is committed to meeting the requirement.

Staff writers Renae Merle and Zachary A. Goldfarb contributed to this report

 I heard a man on the radio the other day. He said some very scary things. I am truly frightened for my country. Dr. Ravi Batra is a professor of economics at Southern Methodist University and best-selling author. If you want to have nightmares, read some of his stuff. I'll try to make a brief summary of his ideas.

Basic Econ: Economies run on supply and demand. Supply is driven by production and demand is driven by wages. During normal cycles, as productivity goes up, so do wages, thus keeping up demand for the increased production. It wobbles a bit, but it's simple and it works. It worked up through the late '70's.

Then, real wages stagnated while production kept going up. This was because Reagan's deregulation and union busting had a depressing effect on wages (That's a whole other rant). Since someone “needed” to buy the excess production to keep things running, rules on credit were relaxed. The advice of our grandparents to pay cash for everything was ignored and Americans gorged themselves on debt financed lifestyles. Many households needed a second income in order to maintain the standard of living they had become used to. When the credit cards got maxed out, the bankers started giving out what used to be called second mortgages, now known as home-equity lines of credit, and making loans to anyone with a pulse. The borrowing wasn't limited to individuals, businesses and governments borrowed heavily as well (35-1 leverage positions in derivative markets, anyone?).

The American economy has been using debt to fuel its expansion for thirty years while good jobs went offshore in search of cheap labor and were replaced by lower paying service-sector jobs. Here is what made outsourcing a smart move for corporations: it used to be that if it cost $1.00 to make something here and it only cost $0.20 to make it somewhere else, there was an appropriate tariff to bring the price up so the domestic company stood a chance of keeping the market share and staying in business. Tariffs and other restrictive trade policies helped keep the playing field level so that a guy who made $15.00 an hour to run a machine tool in Detroit could fairly compete with another guy running the same machine tool in Juarez who gets paid $1.50 an hour (a big part of wage disparity can be linked to associated infrastructure costs: it simply costs more to live in Detroit than in Juarez). So-called “free trade” agreements simply made tariffs disappear and tilted the playing field hard toward lower cost, offshore workers, causing a vicious circle of lowering wages and shipping jobs overseas.

I believe the American Dream is dead. We used to be proud of our ability to increase productivity and rewarded our workers accordingly. Someone with a high school diploma could get a decent job, support a family and maybe send their kids to college. We had the most leisure time of any country in the industrialized world. Now, Americans work more hours than anyone. Now, if production rises, instead of a raise, you might just get to keep your job.

The reasons behind this might be seen as greed gone mad, but that's not (entirely) the case. If you look at some of the writings of the early “neo-cons,” there is a theme that a comfortable middle-class is a danger to good social order. If people aren't afraid of losing their job for taking a day off to go to a protest, they will. If people aren't afraid of losing their homes, cars and a chance to send their kids to college they might pay closer attention to what's going on at the macro scale. The American worker is so distracted and baffled at why it's so damned hard to pay the bills, they have no energy to spare to give particaptory democracy the time and attention it needs to florish.

The combined effects of these policies are now coming home to roost. When the housing bubble popped, the breeze was more like a hurricane through the economy. It's still blowing and as the storm told the palm tree 'hold on to your nuts, this is gonna be one hell of a blowjob.'

I've seen a lot post-apocalyptic fiction. There are myriad ways for a society to collapse: climate change, bio-hazard – man made or natural, asteroid impact, or even the old chestnuts atomic warfare and alien invasion. I'm more afraid of what the results of a failed America would do to the world.

Author's note: This is one of my first posts for Failurisms and I will occasionally come back and link to newer columns dealing with topics discussed here.

We are a throughly distracted people. While the conditions that led up to our latest economic shitstorm were obvious to anyone who took the time look around, we were distracted by any number of things; what celeb-u-tard is going into rehab or getting a boot camp haircut, how our fantasy football picks did on Sunday, the latest Twitter (notice the root word is twit?) from some one who is famous for being famous,  over 500 teevee channels, the boundless pages of the Internet, specialty magazines for just about any hobby you can think to name, et cetera- ad nauseum.

We are distracted from our seeming inability to pay our bills, afford an education, see a doctor or even get a real two week vacation by all sorts of fluff. Most Americans are more interested in who Lindsay Lohan is dating than in what corporation has which elected official in their pocket. When the people bother to look at politics, they are distracted by idiocy like the abortion fight or gay marriage. Any attempt to improve the commons gets stalled out until the politicians figure out how their constituents (not the people who voted for them, but the people who funded the campaign) will benefit.

Even those we entrust to be our watchdogs are falling down on the job. The Founders of our Republic though a free press was so important that they made it part of the First Amendment to our Constitution. Today, some poor j-school grad gets to do a stand-up in front of an Apple store about the latest edition of the iPod or a heart warming story of how a dog was rescued from a storm drain and they call it news, while ignoring the collapse of the middle class and the massive upward shift in wealth that has gone on for the past thirty years.

It's not surprising given that five companies own most of America's media outlets. Teevee news departments are no longer viewed as a required cost to uphold the broadcasters' end of their FCC license agreements (a leftover from the days when teevee came over the “public” airwaves, not a coaxial cable), but as a division that needs to produce revenue. It is also in these companies own best interests to uphold the status quo. Political discourse is reduced to 5 or 10 second sound bites that can be picked up by the echo chambers of talk radio and the blogosphere and lead to more distraction. It then gets all extreme and screamy in order to attract more viewers and raise ad prices, but does nothing to actually inform anyone about why and how these things have come to pass.

The problems our world faces today require multi-faceted solutions, not just “Well, We are not Them and Their ideas suck.” We need bold action to truly level the playing field for workers around the world. We need to examine the American lifestyle and figure out how to get and keep it sustainable – economically and environmentally. We need to realize that freedom is not free and that blood is sometimes a necessary fertilizer for the Tree of Liberty, although it can also be a feeding frenzy for the greed of unscrupulous corporations.

There is a reason we are so distracted. It keeps us from taking to the streets in outrage over what has been done in our name. It keeps us from going apeshit and climbing a clock tower, high powered sniper rifle in hand. It keeps us from waking up, realizing what the fuck is going on and just pulling the covers back over our heads.

Peeking one eye out from under the pillow,

OneEyeChuck