Welcome to Katalusis for progressive views on politics, religion, environmental issues,
and popular culture. (Photo of the Mississippi River
from the University Club in St. Paul, MN.)
Secretary Clinton was ahead of the game today as she worked the phones in advance of an emergency Security Council Meeting on North Korea’s missile launch.
WASHINGTON — Secretary of State Hillary Rodham Clintonis working to build international consensus on condemning North Korea's missile launch. Her effort comes ahead of an emergency U.N. Security Council session Sunday afternoon.
Clinton is now traveling in Europe with President Barack Obama. She spoke by phone on Sunday with the foreign ministers of China, Japan and Russia _ three key countries in talks aimed at getting North Korea to abandon nuclear weapons.
China and Russia are also permanent, veto-wielding members of the Security Council.
The U.S. says the North's launch of what it claimed to be a satellite violates an existing U.N. bar on ballistic missile activity by the communist state. The launch appears to have failed to reach orbit.
It’s hard to believe. Only yesterday Americans were revolting against the AIG bonuses – the millions paid to managers who had contributed to the company’s failure. Today, the Washington Post reports:
The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.
Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.
The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.
Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.
The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.
This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.
Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, said the congressional conditions should apply to any firm benefiting from bailout funds. He said he planned to review the administration's decisions and might seek to undo them. "We have to make certain that if they are using government money in any sort of way, there should be restrictions," he said.
A Treasury spokesman defended the approach. "These programs are designed to both comply with the law and ensure taxpayers' funds are used most effectively to bring about economic recovery," spokesman Andrew Williams said.
In one program, designed to restart small-business lending, President Obama's officials are planning to set up a middleman called a special-purpose vehicle -- a term made notorious during the Enron scandal -- or another type of entity to evade the congressional mandates, sources familiar with the matter said.
In another program, which seeks to restart consumer lending, a special entity was created largely for the separate purpose of getting around legal limits on the Federal Reserve, which is helping fund this initiative. The Fed does not ordinarily provide support for the markets that finance credit cards, auto loans and student loans but could channel the funds through a middleman.
At first, when the initiative was being developed last year, the Bush administration decided to apply executive-pay limits to firms participating in this program. But Obama officials reversed that decision days before it was unveiled on March 3 and lifted the curbs, according to sources who spoke on condition of anonymity because the discussions were private.
Obama's team is also planning to exempt financial firms that participate in a program designed to find private investors to buy the distressed assets on the books of banks. But Treasury officials are still examining the legal basis for doing so. Congress has exempted the Treasury from applying the restrictions in a fourth program, which aids lenders who modify mortgages for struggling homeowners.
You had to figure that Harvard University fired its ex-president Larry Summers for a reason. Now it’s time for the Obama Administration to wise up about its chief economic advisor.
Here’s the breaking news from the Huffington Post’s Sam Stein:
Barack Obama's chief economic adviser, Larry Summers, received hundreds of thousands of dollars in speaking fees last year from firms that have direct financial interests before the government or are intimately involved in the White House's bank relief programs.
The White House released late Friday the personal financial disclosure forms of many high-ranking administration officials. The document provided for Summers, who serves as one of the president's closest confidants, underscores just how close some of these officials are to the industry over which they now have oversight.
Among the firms that paid Summers large amounts in speaking fees include J.P. Morgan Chase. That bank offered the former Harvard president and Treasury Secretary $67,500 for a February 1, 2008 engagement. It has received $25 billion in government bailout funds.
Citigroup, which has received $50 billion in taxpayer help, paid Summers $45,00 for a speech in March 2008 and another $54,000 for a speech that May.
Goldman Sachs, which has received $10 million in bailout funds, paid Summers $135,000 for a speech on April 16, 2008 and another $67,500 for a speech on June 18, 2008.
Summers also received about $5.2 million over the past year in salary from the major hedge fund D.E. Shaw
The speech payments will undoubtedly raise questions as to the impartiality of the economic advice Summers is providing to the president. Already viewed as too favorably disposed to Wall Street, the lavish payments for speeches will provide fodder for those who think the administration has been forgiving in their approach to the banking industry.
Sister blogger Stray Yellar Dog points out that Secretary of State Hillary Clinton appears to be the only woman present at this meeting of G-20 leaders from U.S. and China shown above.
As mentioned in an earlier post, our messianic president has not yet succeeded in uniting the red states and the blue states as evidenced by the passage of the original stimulus package in the House with zero Republican votes; the final version passed in the Senate with only three Republican votes.
And just yesterday, Congress passed 2010 budget resolutions of about $3.5 trillion without a single Republican vote.
Nevertheless, Mr. Obama issued a congratulatory statement from Europe after the Thursday votes: “Tonight, the Senate has joined the House of Representatives in taking an important step toward rebuilding our struggling economy.”
Speaking of Europe, an editorial in the LA Times leads off:
This week, President Obama found out how much harder it is to sell economic stimulus packages in Europe than it is in Washington.
The editorial continues:
Obama went to the Group of 20 summit in London hoping to persuade leaders of the world's biggest economies to boost government spending to counteract the global downturn. Backed by Japan and Britain, the administration argued that restoring growth around the world required a stronger fiscal push from other developed nations. Besides, getting more money into the hands of foreign consumers would help them buy goods from the United States, just as the $787-billion stimulus package Congress passed in February should help buttress the demand for imported products here.
Echoing Obama's Republican critics, though, some European leaders said their governments couldn't afford to go more deeply into debt. The borrowing binge could prove counterproductive too, making it harder for businesses to obtain the capital they need to operate and expand. The G-20 settled on vaguely worded promises to keep trying to restore growth and to keep interest rates low. The most tangible commitment was a pledge to provide $1.1 trillion more in financial support, mainly for developing nations. Still, that funding -- a portion of which will come from the U.S. -- could help this country's economy by enabling poorer nations to buy more goods.
The other main point of contention in London was how much regulation to impose on the financial system. Leaders of France and Germany were particularly eager to clamp down on hedge funds, which have come to symbolize dangerous excess -- even though they had little to do with the housing bubble that caused the economy to collapse. The G-20, though, stuck largely to the plan for more comprehensive regulation that finance ministers had already outlined, including a new focus on systemic risks (including those posed by hedge funds), bigger capital buffers and more cooperation among the various countries' regulators. If Europe was hoping for the power to rein in Wall Street, it didn't appear to get it.
For all the discussion about regulation, the G-20's agreement does not address some of the fundamental problems in the financial system, such as the incentives for firms to become too big and intertwined, and the failure to measure and adequately price risk. It will be up to lawmakers and regulators around the globe to address those issues individually, and that's as it should be. Coordinating rules across borders makes sense, given the global nature of the financial industry, but a one-size-fits-all approach to regulating the vastly different financial systems in each country does not.
Guess what? Just as Obama has been unable to unite his own country solely by virtue of his astonishing personality, word from the G-20 has it that all the nations of the world are not yet ready to put aside their differences and kneel at the One’s feet, especially not France and Germany.
For all the smiles at the waterfront Excel conference center, and despite calls for unity from Mr. Obama and Mr. Brown on Wednesday, a rift intensified over Anglo-American calls for greater fiscal stimulus spending and French and German demands for more intrusive global regulation of financial institutions. While President Nicolas Sarkozy of France did not repeat an earlier threat to walk out of the conference — “I just got here,” he joked — he made it clear he would reject an agreement that puts off stringent new regulations on banks, tax havens, and hedge funds.
Sanger and Sandler predict other divisions:
By the time Mr. Obama ended his evening at Buckingham Palace and a working dinner for the leaders assembling here — representing a group as diverse as the established European powers and Japan to Indonesia, India, Saudi Arabia and the Netherlands — it appeared likely that countries would divide into two or three camps.
The United States, Britain and Japan will push for more immediate stimulus and “systemic risk” regulators that mostly operate within national borders; Germany and France will push the opposite position, probably with some support from the Czech Republic.
I just signed a petition from WomenCount urging Congress to support legislation creating a presidential commission on women that will bring together the best thinkers from all backgrounds, sectors, and political parties to impact the future of women in our nation.
In the petition’s comment box, I wrote:
The election of Barack Obama as president in 2008 demonstrated that America has come a long way in overcoming racism. However, the shadow side of the 2008 election was this: through the abuse that Hillary Clinton endured during the Democratic primary, America told the rest of the world that the oppression of women is acceptable. It will take years for our nation to live down the shamefulness of the sexism and misogyny that surfaced in our media and among our political leaders. And who knows what horrific treatment women will continue to experience in other countries due to our example.
If you’d like to learn more about the petition and sign it yourself, go here.
NY Times foreign affairs correspondent Tom Friedman is the first columnist I’ve seen link the financial meltdown to global warming.
At the onset of the G-20 meeting, Friedman begins his op-ed:
I don’t expect much from the G-20 meeting this week, but if I had my wish, the leaders of the world’s 20 top economies would commit themselves to a new standard of accounting — call it “Market to Mother Nature” accounting. Why? Because it’s now obvious that the reason we’re experiencing a simultaneous meltdown in the financial system and the climate system is because we have been mispricing risk in both arenas — producing a huge excess of both toxic assets and toxic air that now threatens the stability of the whole planet.
Friedman argues:
Whenever products are mispriced and do not reflect the real costs and risks associated with their usage, people go to excess. And that is exactly what happened in the financial marketplace and in the energy/environmental marketplace during the credit bubble.
Naming the sins of our financial services companies and energy companies:
Our biggest financial-services companies, some of which came to be seen as too big to fail, engaged in complex financial trading schemes that did not adequately price in the costs and risks of a market reversal. A.I.G., for instance, was selling insurance for all kinds of financial instruments and did not have anywhere near adequate reserves to cover claims if things went badly wrong, as they did. And our biggest energy companies, utilities and auto companies became dependent on cheap hydrocarbons that spin off climate-changing greenhouse gases, and we clearly have not forced them, through a carbon tax, to price in the true risks and costs to society from these climate-changing fuels.
The premise of a new accounting system:
That’s what “Market to Mother Nature” accounting is all about. It begins with the premise that the distinction between the G-20 and the Copenhagen climate change negotiations is totally artificial. They are just flip sides of the same global problem — how we as a world keep raising standards of living for more and more people in ways that will not, as a byproduct, have both the Market and Mother Nature producing huge amounts of toxic assets.
The old system, which has reached its financial and environmental limits, worked like this: We built more and more stores in America to sell more and more stuff, which was made in more and more Chinese factories powered by more and more coal that earned more and more dollars to buy more and more U.S. T-bills that got recycled back to America in the form of cheap credit to build more and more stores and more and more houses that gave rise to more and more Chinese factories. ...
