When Canada’s Parliament is reconvened on January 26th and gets down to any meaningful business, it will have met for a total of 13 days over the past half year. By that time, a new President and Congress will be in place in the United States along with the most comprehensive program to restart the economy since the 1930s.
Canada and the United States share a number of common attributes, which include family members, extensive trade, a similar culture -even David Frum- (more…)
It was a week that illustrated how not to be a leader.
The CEOs of the big three auto makers appeared before the United States Congress, and showed a level of ill preparedness on even rudimentary questions about their bailout pleas that would have incurred the ire of a fifth grade teacher. Their separate arrivals in three luxury private jets reminded us of when Robert Nardelli, then head of Home Depot, cut off shareholder questions at the company’s annual meeting after 60 seconds. (more…)
There is a reason why the bank’s board appears little more than a bystander to the destruction of shareholder wealth. A good part of it has to do with its discredited governance structure.
Watching Citigroup’s shares crash through the 10 dollar level, then nine, then eight, seven, six -like some kind of inexorable countdown leading to the inevitable disaster- investors might be excused for asking, Where is the board? The answer is that it is stuck somewhere back in the 1940s, when it was considered bad form for directors to actually direct. (more…)
In a time when the restoration of confidence, perhaps more than even financial liquidity, is paramount in calming markets and providing stability, neither the Treasury secretary nor the chairman of the Fed acquitted themselves well this week.
As the war in Iraq unfolded, and then morphed into disaster in its first several years, the world discovered the consequences when what is given with absolute assurance as the urgent reason for taking action turns out not to be the case.
As the current economic crisis unraveled, the Bush administration claimed that it had spotted the greatest danger to the economy and the credit markets in generations. Toxic mortgage based assets held by financial institutions were cited as the threat and a $700 billion government intervention was needed to buy them up.
As President George W. Bush said in September:
Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.
It had to be done immediately, he said, or a grave and gathering peril in the financial system would make its pain felt soon on Main Street. The President painted a bleak picture of what the world would look like without the bailout.
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.
We expressed some skepticism on these pages as the President’s words were being digested. Portraying financial Armageddon if American taxpayers did not come up with the largest government expenditure in history struck us as not a very faint replay of the approach taken in Iraq, where the administration not only claimed that weapons of mass destruction posed an immediate threat but that it knew where they were.
So we posed the question nobody else it seemed was even considering:
Is America stumbling into a financial Iraq? … Are we dealing here with the financial equivalent of threatened mushroom clouds and weapons of mass destruction?
As it turned out, toxic assets, like weapons of mass destruction, were not the real problem. In the case of Iraq, they were never found. In the situation involving the credit crisis, none were ever bought under the government’s rescue plan. And a new solution was pursued instead: taking equity positions in financial institutions.
This week,Treasury secretary Henry M. Paulson Jr. announced that the original plan, the one upon which the $700 billion bailout was approved and which so many officials and commentators said was absolutely essential to financial stability, would be abandoned.
Even before the Bush-Paulson plan was approved by Congress, we had some doubts about its principal focus:
How the Bush bailout plan will be managed, what assets it will buy, how it will value and how long it will hold them are all undisclosed. It is hard not to be doubtful that the compromise proposal now being discussed will offer much more information. There is considerable dispute that the plan even addresses the fundamental problems in the banking sector.
And the astronomical $700 billion that Mr. Paulson initially insisted was needed in one fell swoop? Congress gave Mr. Paulson $350 billion and required reauthorization for the remaining amount. Mr. Paulson said he had no plans to ask for it now.
Elsewhere last week, the Fed refused requests by Bloomberg News and others to account for the more than two trillion dollars it has pushed out its lending window. It apparently believes the country is not entitled to know how much the Fed is lending, whom it is lending to, or details about the collateral that is being offered.
Both Fed chairman Ben S. Bernanke and Mr. Paulson have said that an absence of openness and transparency were factors that helped to create the current financial crisis in the first place. But transparency is something the Fed talks; it does not walk.
Last spring, we suggested what the Fed had said about the Bear Stearns collateral did not fully compute.
Actually, the Fed did not make a traditional $29 billion loan to JPMorgan Chase, as its official statements would have us believe. It was more of a wink-and-a-nudge deal to take on the poorer assets without going through the formality (and the barrage of questions that would follow) of actually purchasing them.
In a time when the restoration of confidence, perhaps more than even financial liquidity, is paramount in calming markets and providing stability, neither the Treasury secretary nor the chairman of the Fed acquitted themselves well this week. Mr. Paulson only added to the impression that what he and the administration say cannot be trusted or taken at face value. Mr. Bernanke showed his commitment to transparency is a one-way street. What the world needs from its leaders is candor, clarity and competency. It did not find these virtues in either man, which is why the actions of the secretary and the chairman are the Outrage of the Week.
Even in the face of their debacles of historic proportion, many of these institutions persist in acting in a manner more resembling an economic sociopath than a responsible steward of the public interest, whose salvation has essentially been made possible and underwritten by the American taxpayer.
Reminiscent of another major Bush administration blunder where what was advertised did not exactly work out that way in reality, there are signs that the great bank bailout that is the centerpiece of the $700 billion Treasury infusion is taking on a life of its own. Instead of loaning out their injection of public capital to small businesses and consumers, banks are either hoarding the money or using it to buy up other institutions. One sure example of this is PNC’s announcement on Friday of its purchase of National City, a smaller regional bank. The purchase price comes in at $5.8 billion. The amount PNC got from Treasury’s recent redistribution of taxpayer wealth to Wall Street and the financial sector (not in his wildest dreams could Karl Marx ever have thought that his theory would find such unlikely adopters) was $7.7 billion. Do you suppose the two are related?
The New York Times’s Joe Nocera thinks so. In an impressive bit of reporting, he recounts in his Saturday column how a JPMorgan executive set out the Bank’s view of the government’s injection in a recent employee conference call:
What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.
Lending money does not appear to be high on JPMorgan’s To Do list. And it is probably not on many other banks’ either.
The third bit of evidence that the public has been blindsided big-time by how the banks are handling their windfall came courtesy of Citigroup. They set aside $25 billion for bonuses this year, even after their record losses and write-downs, which were substantially beyond $25 billion. How much do you suppose they got under the first round of the bailout plan? Twenty-five billion, exactly.
The reality is swiftly emerging that the United States government has become a gigantic hedge fund. It is providing the money and guarantees that are permitting the banks to use their own capital in ways that will inure to greater advantage for top employees and insiders.
Mr. Nocera, whom I think has the normally impressive street-smart intuition of a native New Yorker, had a more optimistic view of why the $700 billion bailout had to be passed on an urgent and virtually unquestioned basis:
I don’t think they are going to wait much past the weekend. No deal, no credit markets. It’s as basic as that.
And if that happens, the consequences will be far more pressing than the failure of a Morgan Stanley or a Goldman Sachs. You won’t be able to get a mortgage. Credit card rates will skyrocket. Businesses will be unable to expand and grow. Unemployment will rise.
We were a tougher sell on the bailout and remain so today for obvious reasons. Here’s part of what we predicted.
Let’s be clear: the central purpose of the bill was to help Wall Street restore the glitter, glitz and gravy train to Wall Street. It is designed to help banks and bankers go back to the future and pretend that the mess they made never really happened. Nearly a trillion dollars can help rewrite a lot of history. It has much less to do with easing credit for Main Street….
Confidence has been the missing partner in the economic voyage of recent months. The consequences have been devastating. Prominent in accounting for its absence have been colossal misjudgments and self-indulgence on the part of Wall Street and its major banks. The entire economy has been turned upside down to repair the damage they have caused, at a cost no one ever could have conceived possible. Yet in the face of these debacles of historic proportion, many of these institutions persist in acting in a manner more resembling an economic sociopath than a responsible steward of the public interest, whose salvation has essentially been made possible and underwritten by the American taxpayer. Too many insist upon hoarding their rescue proceeds or using the money to expand or to reward themselves with huge bonuses. Last week we had the AIG junkets and the propsect of tens of millions being paid out to failed CEOs. Soon it will be the auto companies looking for a handout, with Cerberus Capital bigwigs doing all kinds of contortions to justify why the private equity firm that claimed Chrysler was better without the investing public should now have the full backing of the American taxpayers to save it. Somebody should add an index to the stock market which would measure hypocrisy, like the VIX gauges volatility. It might give investors a better clue as to a company’s real future.
Wall Street’s leaders have offered few words to quell the raging public opprobrium that is mounting against their actions. They have expressed virtually no criticism of the practices of their industry that led to the credit calamity. And they have had little to say to the shareholders and taxpayers who are carrying the can for their failures. They seem to think that their self-absorbed ways will continue into the future, this time with ordinary Americans footing the bill. They are wrong on so many levels.
Neither our economic system nor the millions of stakeholders who place their trust in it can afford captains of capitalism who demonstrate, time after time, such titanic misapprehension of both business reality and the role of public confidence that is essential to success, which is why the bank CEOs and boards that continue to remain tone deaf to the historic new dimension of their responsibilities resulting from the bailout they made necessary is our choice for the Outrage of the Week.
Canada, too, needs to turn the political page. That process is not assisted when citizens slumber while their political leaders tap dance silently across the stage in the dark, hoping that no one will notice how mediocre they really are.
Half-a-world away, in a country where hostile fire is heard on a regular basis, Canadians lined up to perform the sacred duty of every citizen: to vote. In one advance poll, more than 75 percent of eligible citizens serving in the Canadian combat mission in Kandahar exercised their franchise. Like their grandparents and great-grandparents, who, as members of the greatest generation fought to preserve democracy and defy madmen, they take voting seriously. Many of their comrades in arms have died for that privilege even in this bleak far off land of discord.
In towns and cities across Canada, democracy had a less familiar and imploring face. The line-ups to vote were shorter this year than in previous elections –shorter by 10 million voters. Unlike the United States, which appears to be on the way to producing a record voter turnout, Canada set its own record: its lowest voter participation in history. Only 59.1 percent of eligible voters went to the polls in the federal general election which elected 301 members of the House of Commons and, by extension, the country’s prime minister.
Nothing about this election really clicked with the Canadian citizenry. That seems odd in itself, given that the nation is at war abroad and battling a mounting economic firestorm at home. Canada’s currency was plunging during the course of the campaign. If a dollar falls in a forest of other currencies, will anyone hear it?
I suspect the more likely reason for this bout of apathy had to do with the perceived lameness of Canada’s national leaders. They are essentially dull and unaccomplished individuals of rather unheroic character whose life stories, curricula vitae and inspirational oratory seemed to fall short on the old impress-o-meter.
In the United States today, a phenomenon involving what we termed “the improbably presidential name of Barack Obama” is taking the American political landscape by storm. Voters in record numbers have been registered. Young people in historic waves are set to cast their ballots with an enthusiasm most doubted was possible.
There has been a yearning among Americans for a different kind of leadership that is capable of rising above pettiness and straightjacket-type stereotypes. The country has discovered that elections do have consequences. As both the folly in Iraq and the recent crisis in capitalism confirm, when leaders and policies become disjoined from the interests and values of ordinary people, when the privilege of elites becomes paramount over the primacy of stakeholders, society can find itself navigating a very perilous minefield.
America, once more, is preparing itself to write a new chapter in its historic experiment with democracy, and to pass the torch to a new generation of leader. It is a necessary task in restoring confidence in American leadership abroad as well as the confidence of Americans in themselves and their institutions at home. The journey along this road is both inspiring and riveting, and rarely uneventful. America, it appears, loves times when it is about to make history. No such prospect seems in the offing for Canada.
These facts may well account for what happened in that country last week. So dramatic was the contrast between the two national election campaigns that the excitement emanating from the United States made the Canadian political scene look even more like the embalmed creation of the local undertaker than it normally does. I’ve spent a lot of time over the course of 30 years working for and advising some who have held or aspired to the highest offices in Canada. My experience compels me to make this personal assessment.
Canada had a history of electing grey haired elder statesmen as its head of government for generations. Then John F. Kennedy was elected the 35th president of the United States. Eight years later, Canada discovered a man who was viewed as its own JFK, in the smart, youthful and sometimes irreverent, world-travelled Pierre Elliott Trudeau. He animated elections in a way that had never been seen before. Voter turnout set a record. He became Canada’s 15th prime minister and the rest of the world took note.
Someday the Canadian landscape will change again and find a new figure to excite weary generations, raising the country to new heights of self-confidence and global accomplishment, as Trudeau did. It may be a leader who is not even on the horizon right now. It might even be Trudeau’s son, Justin, who was just elected for the fist time to the House of Commons. But someone will appear on the scene to reinvigorate this somewhat somnolent democracy that has taught many nations important virtues about governance and has stood tall when the cause of freedom was in peril.
None of this excuses the millions who could not be bothered to show up last week, however. At a time when the nation has asked its young people to put their lives on the line, every Canadian had an obligation to at least support their troops by exercising the right to vote. This is how citizens remind the governors that they are accountable to the governed.
Canada, too, needs to turn the page. That process is not assisted when citizens slumber while their political leaders tap dance silently across the stage in the dark, hoping that no one will notice how mediocre they really are. Such political types are not terribly bothered by the lack of turnout; they thrive in a climate of uninvolved citizens who are loath to ask hard questions or demand higher standards from the people seeking office. Growth in an already over abundant class of untalented and self-serving politicians is never to be lightly tolerated. So it is the shortsighted actions of those 10 million Canadians who never showed up that are our choice for the Outrage of the Week.
