Tuesday, March 24, 2009

When the Going Gets Tough....

Hard Times

As hard as these times are, I hope everyone can dig deep and contribute to the “Campaign to Keep Andrew Cuomo in New York” fund. Your pennies will go a long way.

Timmy Geithner

The best news for Treasury Secretary Tim Geithner, next to today’s market reaction to the “new” (read “detailed”) toxic mortgage acquisition plan is that some people are calling it the “Geithner Plan.”

Of course, “what makes me strong also makes me weak.” The fact that people already have attached his name to the effort makes its success all the more crucial to his ability to succeed in his job.

For the nation’s sake (and indeed the world’s financial markets), I hope TG is a smash hit with the new inititaive.

The interesting thing here is this was what had been the original Paulson scheme, although after spending about $300 billion pumping up individual financial services institutions, Hank Paulson and President Bush did a turnabout and changed their minds.
That uncertainty has been costly, but is also a reflection of the reality that nobody has a fool proof plan to fix the economy and do so quickly. The policy makers think they finally have it right and the various “cash/credit” infusion plans should bring our markets back moving toward real growth that will lift employments and revenues.

But righteous and some not so righteous opposition was heard immediately. “Dr. No,” Republican Congressman Eric Cantor, already has come out against the Geithner Plan, so there must be something good to it.
Paul A.Volcker

I confess I am not a Treasury Secretary Tim Geithner fan. He just doesn’t have the feel of being ready for prime time, Monday’s performance not withstanding.

I am not a Larry Summers guy either, although I think he moves a little easier in Washington power circles than Geithner. But Summers’ Harvard history and even his work in the Clinton Administration probably suggests he stay behind the scenes, not upfront making policy.

Paul Volcker has the temperament, the experience, the gravitas, the worldwide respect and—I hope—the will to make the tough decisions that this Treasury needs to make. As I closed with last week, I hope that President Obama eventually finds a way to name Paul Volcker his Secretary of the Treasury, assuming the big man is up to the pace of the demanding responsibilities.

He certainly was in 1983, when as Fed Chairman he—alone—led the fight against inflation, all the while managing an angry Congress, which secretly rooted for him to win, but bashed him constantly and viciously.

Working at the Fed for Volcker back then was an insightful education. I remember a visit we made to one Freshman MoC, who was on the House Banking Committee (as it was called then). In some hearing, the Congressman asked Volcker for a meeting. When we arrived at his office, the Member was so overcome with excitement that Volcker could have asked the freshman to polish his shoes, bring him a cigar and coffee and the Congressman, unquestionably, would have agreed.

Instead, Volcker suggested that the Member have a staffer take a picture of the two of them, with the MoC shaking his finger in the Fed Chairman’s face, so the guy could report back home that he was representing his constituents against the Fed’s high prices campaign.

It was a small thing, but the judgment of a wise man, which made an ally for life with his photo suggestion.

Geithner and Summers have strengths, but not as many as Volcker.

Keeping Volcker handy also will be a plus in a few years when the inflation inevitably returns, caused by the massive increase in credit that has been necessary to break out of the years of laisez faire inattention under recent administrations as well as what is shaping up as heavy Obama spending.

Howling Mob and the Bonuses?

It’s not quite at the mob level—and I sense a cooling off and some more level headed thinking--but the reaction to AIG bonuses was scary. It drove near instant legislation last week in the House, while the Senate works this week on its own version.

I read the response of one United States Senator (a Democrat) and it was chilling in its language and vituperation. Another solon, Sen. Chuck Grassley (R-Iowa) suggested ritual suicide for AIG’s bonus keepers.

Frankly, I hope for better answers and behavior from both parties.

When I was working, I never chose to defer compensation. Instead, I took what I made and used it at the time for whatever family needs we had.

Many people I knew, however, used deferred comp as a way to enforce savings and assure themselves that when they retired, those financial sacrifices—to which they contributed while working—would be there for them.

The House bill, approved last week, in response to the AIG bonuses, wrongly threatened deferred compensation payments (employee savings), which Fannie Mae allowed their workers to take in January 2009, rather on whatever date they initially chose when they started in the program.

I hope the Senate can straighten out this confusion. The Senate should make whatever judgment they might on “retention bonuses,” but ‘clawing back” employee savings plans is not what the Congress should be doing.


Rob Levin and Ken Bacon, two friends and former Fannie colleagues, lost their fathers last week.

Bill Maloni 3-24-2009

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