Perhaps you've heard of this video by now. It appeared on YouTube on November 10th. As of the morning of November 18th, as I'm writing this post, it has had just over 1.5MM views.
The creator of the video appeared on CNBC's early afternoon program yesterday. He is a former commodities trader who produced the clip to explain QE & QE2 to his economically-challenged friends. On air, he deferred his specific thoughts about QE2 to the video, but, later, agreed that, in a word, he does not agree with the Fed's policy.
For some clarification before you watch the clip, I noted a few factual errors. Ben Bernanke has prior monetary policy experience. He is generally regarded as a leading expert on the economic history of the Great Depression, and served on the Fed prior to his being named as Chairman.
I also think that the video is a bit unfair in characterizing Goldman Sach's mission as 'ripping off the American people.' Prior posts under that label will reveal that I feel the firm is rapacious and dangerous with which to do business. If you interact with Goldman on a professional basis, even as a so-called client, prepare to be dealt with sharply and without undue concern for your welfare. You are well-advised to look after your own interests, because the firm will certainly look after its own equally with, if not before yours, even if you are their client.
But, that said, it has certain expertise which may be used on its clients' behalf's. And you can, if you wish, always share in their alleged ill-gotten gains through purchase of their publicly-traded stock.
In case the embedded video doesn't play, you can go to the clip here.
Friday, November 19, 2010
More Confusion On Inflation
Kelly Evans writes a typically-interesting daily column, Ahead of the Tape, in the Wall Street Journal's Money & Investing section.
Wednesday's piece focused on inflation, with the declarative title Why an Inflationary Outbreak Isn't Likely.
Arguing from Keynesian demand-based, capacity-oriented bases, Evans wrote,
"U.S. consumers, in other words, are hardly better-equipped today to handle higher prices. That is no small matter. It limits the risk of an inflationary outbreak. If consumers don't have rising incomes or savings to pay for higher food and energy costs, for example, they will have to adjust by pulling back on spending elsewhere. That is a deflationary, not an inflationary, outcome."
That's true, from a purely Keynesian perspective. Evans went on to cite comparisons to the 1970s and quote an economist for further proof of slack labor demand.
The problem is, this approach ignores the Austrian school's definition and conception of inflation as a monetary phenomenon. Milton Friedman, of course, agreed, with his now famous quote,
"Inflation is always and everywhere a monetary phenomenon."
Isn't that why we had stagflation in the 1970s, and may be creating it again now, as I argued in this recent post? Back then, one commodity, oil, drove the US inflation rate up into the teens. Arthur Okun's misery index skyrocketed, as interest rates soared to cover inflation expectations. Yet, curiously, Evan's doesn't touch on those aspects of the late 1970s US stagflation experience.
The reason stagflation can occur is because slow economic growth can be divorced from inflation caused by commodity prices and foreign trade flows which can depreciate the dollar.
Only by focusing on Keynesian production-factor supply and demand as the source of inflation can you ignore the monetary sources of the phenomenon.
I'm frankly a bit surprised that the Journal is printing this sort of nonsense.
Wednesday's piece focused on inflation, with the declarative title Why an Inflationary Outbreak Isn't Likely.
Arguing from Keynesian demand-based, capacity-oriented bases, Evans wrote,
"U.S. consumers, in other words, are hardly better-equipped today to handle higher prices. That is no small matter. It limits the risk of an inflationary outbreak. If consumers don't have rising incomes or savings to pay for higher food and energy costs, for example, they will have to adjust by pulling back on spending elsewhere. That is a deflationary, not an inflationary, outcome."
That's true, from a purely Keynesian perspective. Evans went on to cite comparisons to the 1970s and quote an economist for further proof of slack labor demand.
The problem is, this approach ignores the Austrian school's definition and conception of inflation as a monetary phenomenon. Milton Friedman, of course, agreed, with his now famous quote,
"Inflation is always and everywhere a monetary phenomenon."
Isn't that why we had stagflation in the 1970s, and may be creating it again now, as I argued in this recent post? Back then, one commodity, oil, drove the US inflation rate up into the teens. Arthur Okun's misery index skyrocketed, as interest rates soared to cover inflation expectations. Yet, curiously, Evan's doesn't touch on those aspects of the late 1970s US stagflation experience.
The reason stagflation can occur is because slow economic growth can be divorced from inflation caused by commodity prices and foreign trade flows which can depreciate the dollar.
Only by focusing on Keynesian production-factor supply and demand as the source of inflation can you ignore the monetary sources of the phenomenon.
I'm frankly a bit surprised that the Journal is printing this sort of nonsense.
Thursday, November 18, 2010
GM & It's IPO
We've been bombarded with GM IPOmania this week. Today is the big show.
Predictably, CNBC has been hauling anyone with a word to say about this onto their network to comment. A favorite has been one-time GM, Ford and Chrysler senior executive Bob Lutz. He was recently paired with Paul Ingrassia to debate various aspects of the IPO.
Lutz, of course, is a big cheerleader for the re-emergence of GM as a publicly-held entity, playing down the remaining 25% government stake in the firm. Ingrassia was more balanced.
Whereas Lutz crowed about the great Rattner-led government reorganization of the firm under Chapter 11, Ingrassia noted that it was GM's management that refused to do so when it would still have saved the firm from its ultimate failure.
Elsewhere, on yesterday's noontime program, former hedge fund manager Michael Steinhardt replied with an immediate, unequivocal "no" when asked if he would buy/hold the GM IPO. Steinhardt cited industry and competitive factors which offered more downside than upside potential in the years ahead.
CNBC's resident auto sector reporter, Phil LeBeau, was popping up distressingly frequently, backed by big electronic displays of data and analytics to stump for the GM deal. He ranted incessantly about how all GM needed was for the industry to return to some higher annual vehicle sales rates, and GM was just sure to coin money. In a November 3rd Wall Street Journal article entitled GM Could Be Free of Taxes for Years, the paper reported,
"General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion.
Now it turns out, according to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won't have to pay $45.4 billion in taxes on future profits.
The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy.
Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.
But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.
The government's rationale, said people familiar with the situation, is that the profit-shielding tax credit makes the bailed-out companies more attractive to investors, and that the value of the benefit is greater than the lost tax payments, especially since the tax payments would not exist if the companies fail."
This extra sweetheart deal for the firm is yet another reason it should have gone through conventional bankruptcy. Then some other firm, seeing this special TARP-related benefit, might have paid up handsomely to acquire GM assets and the special tax treatment. As it is, the crony capitalism under which GM was "rescued" insulated the firm from outside pressures, other than the government, and unfairly penalized Ford by essentially rewriting the tax code for a newly-public GM.
Still, just because I don't like that treatment doesn't mean it doesn't have economic value. It does. The question is, how much of GM's attraction rests on special, one-time tricks and deals? Like the five-year union no-strike deal? Or the tax-loss carry-forwards? It's one thing to spin GM out with all these special deals, but it's another for the firm to make consistent progress on cost controls, revenue growth and total returns for shareholders.
The sector in which GM operates is still highly competitive. Many of its more effective competitors produce their US vehicles in Southern right to work states without unions. Any rise in annual US vehicle sales will result in GM's competitors fighting for the added share. It's not like AutoNation's Mike Jackson and CNBC's Lebeau suggest, which is that GM will somehow be assured of a healthy share of US sales growth. We still don't know that the firm can produce a full line of saleable, profitable vehicles for several consecutive years.
Does anyone really think GM's competitors will be standing still, so that the newly-public firm can just walk in and take new share?
Like Lucent when it was spun off from ATT, I prefer to wait a few years for the new firm to demonstrate its ability to perform in a consistently superior manner. And to do so in a sector that offers sustainable strength, thus making the firm attractive among a wide range of other equities one might buy.
Predictably, CNBC has been hauling anyone with a word to say about this onto their network to comment. A favorite has been one-time GM, Ford and Chrysler senior executive Bob Lutz. He was recently paired with Paul Ingrassia to debate various aspects of the IPO.
Lutz, of course, is a big cheerleader for the re-emergence of GM as a publicly-held entity, playing down the remaining 25% government stake in the firm. Ingrassia was more balanced.
Whereas Lutz crowed about the great Rattner-led government reorganization of the firm under Chapter 11, Ingrassia noted that it was GM's management that refused to do so when it would still have saved the firm from its ultimate failure.
Elsewhere, on yesterday's noontime program, former hedge fund manager Michael Steinhardt replied with an immediate, unequivocal "no" when asked if he would buy/hold the GM IPO. Steinhardt cited industry and competitive factors which offered more downside than upside potential in the years ahead.
CNBC's resident auto sector reporter, Phil LeBeau, was popping up distressingly frequently, backed by big electronic displays of data and analytics to stump for the GM deal. He ranted incessantly about how all GM needed was for the industry to return to some higher annual vehicle sales rates, and GM was just sure to coin money. In a November 3rd Wall Street Journal article entitled GM Could Be Free of Taxes for Years, the paper reported,
"General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion.
Now it turns out, according to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won't have to pay $45.4 billion in taxes on future profits.
The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy.
Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.
But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.
The government's rationale, said people familiar with the situation, is that the profit-shielding tax credit makes the bailed-out companies more attractive to investors, and that the value of the benefit is greater than the lost tax payments, especially since the tax payments would not exist if the companies fail."
This extra sweetheart deal for the firm is yet another reason it should have gone through conventional bankruptcy. Then some other firm, seeing this special TARP-related benefit, might have paid up handsomely to acquire GM assets and the special tax treatment. As it is, the crony capitalism under which GM was "rescued" insulated the firm from outside pressures, other than the government, and unfairly penalized Ford by essentially rewriting the tax code for a newly-public GM.
Still, just because I don't like that treatment doesn't mean it doesn't have economic value. It does. The question is, how much of GM's attraction rests on special, one-time tricks and deals? Like the five-year union no-strike deal? Or the tax-loss carry-forwards? It's one thing to spin GM out with all these special deals, but it's another for the firm to make consistent progress on cost controls, revenue growth and total returns for shareholders.
The sector in which GM operates is still highly competitive. Many of its more effective competitors produce their US vehicles in Southern right to work states without unions. Any rise in annual US vehicle sales will result in GM's competitors fighting for the added share. It's not like AutoNation's Mike Jackson and CNBC's Lebeau suggest, which is that GM will somehow be assured of a healthy share of US sales growth. We still don't know that the firm can produce a full line of saleable, profitable vehicles for several consecutive years.
Does anyone really think GM's competitors will be standing still, so that the newly-public firm can just walk in and take new share?
Like Lucent when it was spun off from ATT, I prefer to wait a few years for the new firm to demonstrate its ability to perform in a consistently superior manner. And to do so in a sector that offers sustainable strength, thus making the firm attractive among a wide range of other equities one might buy.
Wednesday, November 17, 2010
Microsoft's Refusal To Consider Splitting Itself Into Separate Units
Imagine my surprise in finding yesterday's Wall Street Journal's Marketplace section's lead headline to be Microsoft Breakup Not in Cards.
Back in August of 2007, I wrote this post, in which I explicitly suggested,
"As I wrote nearly two years ago, what Microsoft needs to do is think and behave like a venture capitalist, and spin out various smaller entities to work on the areas in which it wishes to lead. By retaining a stake in the firms, seats on their boards, Microsoft, the parent, will share in the innovation-based value that these startups will create. In time, these startups could become the next Googles, etc.
But so long as senior Microsoft executives respond to Mundie's efforts with comments like Tom Gibbons, VP for various non-computer software efforts,
"I need to think of this as a completely new effort,"
in response to Mundie's stimuli involving mulicore processors, I think Microsoft is doomed to remain a large, hulking, mediocre giant whose best days of consistently superior total return performance are way, way behind it."
Another posts discussing this may be found here. Suffice to say, others have publicly echoed my thoughts in the last few years.
For Ballmer and Gates to audaciously dismiss shareholder questions about this is really over the top, isn't it?
Last time I looked, neither of those two Microsoft board members and billionaires are valuation experts. Gates didn't even finish college.
That's not to take anything away from how Gates originally built Microsoft. I wouldn't go so far as Julian Robertson did, calling Gates the most important innovator or inventor, or whatever he called him, of last or this century. But I do acknowledge his early success in providing consumers with powerful, inexpensive, fairly useful, if not elegant and bulletproof applications and operating system software.
Ballmer's only stock in trade, of which I am aware, was bullying customers like Dell and HP to pre-load Windows and, at one point, Explorer, on PCs, or else.
Neither earned his spurs as either an investment banker or valuation consultant. So wouldn't it have been a reasonable, even defensible response to the investor's question for Ballmer to agree to have the board consider retaining one or two outside, objective experts to opine on the answer to his question? The Journal article even references a Goldman analyst's public suggestion that spinning off the businesses "could potentially unlock hidden value."
Sure it would. But the wrong way to answer was what Ballmer and Gates did, which was to simply dismiss the question out of hand, citing their own personal beliefs in a preference for a monolithic Microsoft.
I don't care what Gates or Ballmer babble about imagined "synergies." Ballmer's public acknowledgement of the company's dismal share price performance over the past decade, combined with a refusal to think broadly about how to remedy that failing, tells you all you need to know about the firm's closed-minded management.
A few weeks ago, I heard one of those inane pro-con CNBC debates on the occasion of Gates' birthday. In that post, I wrote,
"In the CNBC discussion, two fund managers with opposing views were pitted against one another on the occasion of Bill Gates' birthday.
What amazed me is that, despite the admission of a decade of non-performance, the CNBC anchors refrained from criticism of the company. Instead, they seemed to want to favor the opinions of a fund manager who claims that the firm's cashflow will now rise, and the XBox proves the company is still innovative.
I can't think of many companies with a flat ten-year equity price performance that roughly apes the S&P which would enjoy this sort of media treatment."
For some reason, Microsoft, and Gates, seem to provoke irrational responses by analysts, fund managers and the media. They get a pass for poor performance, where other firms would be flayed for the same failures.
It's probably another example of a corporate failure having too much influence and spending power to warrant being treated honestly in the media, fund management and brokerage communities. Heaven forbid one of them should lose their place at Microsoft's spending or information trough for being candid about the firm's lackluster performance and mistreatment of its non-billionaire or -millionaire outside shareholders.
Back in August of 2007, I wrote this post, in which I explicitly suggested,
"As I wrote nearly two years ago, what Microsoft needs to do is think and behave like a venture capitalist, and spin out various smaller entities to work on the areas in which it wishes to lead. By retaining a stake in the firms, seats on their boards, Microsoft, the parent, will share in the innovation-based value that these startups will create. In time, these startups could become the next Googles, etc.
But so long as senior Microsoft executives respond to Mundie's efforts with comments like Tom Gibbons, VP for various non-computer software efforts,
"I need to think of this as a completely new effort,"
in response to Mundie's stimuli involving mulicore processors, I think Microsoft is doomed to remain a large, hulking, mediocre giant whose best days of consistently superior total return performance are way, way behind it."
Another posts discussing this may be found here. Suffice to say, others have publicly echoed my thoughts in the last few years.
For Ballmer and Gates to audaciously dismiss shareholder questions about this is really over the top, isn't it?
Last time I looked, neither of those two Microsoft board members and billionaires are valuation experts. Gates didn't even finish college.
That's not to take anything away from how Gates originally built Microsoft. I wouldn't go so far as Julian Robertson did, calling Gates the most important innovator or inventor, or whatever he called him, of last or this century. But I do acknowledge his early success in providing consumers with powerful, inexpensive, fairly useful, if not elegant and bulletproof applications and operating system software.
Ballmer's only stock in trade, of which I am aware, was bullying customers like Dell and HP to pre-load Windows and, at one point, Explorer, on PCs, or else.
Neither earned his spurs as either an investment banker or valuation consultant. So wouldn't it have been a reasonable, even defensible response to the investor's question for Ballmer to agree to have the board consider retaining one or two outside, objective experts to opine on the answer to his question? The Journal article even references a Goldman analyst's public suggestion that spinning off the businesses "could potentially unlock hidden value."
Sure it would. But the wrong way to answer was what Ballmer and Gates did, which was to simply dismiss the question out of hand, citing their own personal beliefs in a preference for a monolithic Microsoft.
I don't care what Gates or Ballmer babble about imagined "synergies." Ballmer's public acknowledgement of the company's dismal share price performance over the past decade, combined with a refusal to think broadly about how to remedy that failing, tells you all you need to know about the firm's closed-minded management.
A few weeks ago, I heard one of those inane pro-con CNBC debates on the occasion of Gates' birthday. In that post, I wrote,
"In the CNBC discussion, two fund managers with opposing views were pitted against one another on the occasion of Bill Gates' birthday.
What amazed me is that, despite the admission of a decade of non-performance, the CNBC anchors refrained from criticism of the company. Instead, they seemed to want to favor the opinions of a fund manager who claims that the firm's cashflow will now rise, and the XBox proves the company is still innovative.
I can't think of many companies with a flat ten-year equity price performance that roughly apes the S&P which would enjoy this sort of media treatment."
For some reason, Microsoft, and Gates, seem to provoke irrational responses by analysts, fund managers and the media. They get a pass for poor performance, where other firms would be flayed for the same failures.
It's probably another example of a corporate failure having too much influence and spending power to warrant being treated honestly in the media, fund management and brokerage communities. Heaven forbid one of them should lose their place at Microsoft's spending or information trough for being candid about the firm's lackluster performance and mistreatment of its non-billionaire or -millionaire outside shareholders.
CNBC Showcases Senator Debbie Stabenow's Misleading Untruths Re: GM
On the eve of tomorrow's much-ballyhooed GM IPO, CNBC is trotting out all manner of political and business people who want to bask in the limelight of the topic.
This morning, Michigan Senator Debbie Stabenow got her turn. Trouble is, the bulk of Stabenow's statements were either grossly misinformed, or lies.
This sort of segment is the reason I only watch/listen to CNBC for actual market news and the occasional bona fide pundit. For the most part, the network's morning programming has managed to sink to the level of Pravda before perestroika.
Before I discuss Stabenow's comments, let me quote the relevant lines from her own biography concerning her credibility and aptitude on matters concerning GM, macroeconomics and energy. If you scroll down to the very end of Stabenow's bio page, you will find this extensive description of her pre-government experience,
"She attended Michigan State University, where she received her Bachelor's (1972) and Masters (1975) degrees. She worked with youth in the public schools before running for public office."
That's it. She was either a teacher or counselor in the Michigan public school system. She won her first elected post in 1974, which suggests she did a part-time MSU masters while commencing her real career- politics. Wikipedia lists her graduate degree as an MSW. I don't typically rely on that source, but in this case, it's ostensibly more detailed than the Senator's own bio page.
My point is, Stabenow doesn't appear to have any economics or business background. Like so many in Congress, of either party, she had a brief, post-college career in public education, followed by a quick exit into a 30+ year career in politics. So I think it's safe to say that the bulk of what Stabenow voiced this morning was probably collected and prepared by her staff. She is, in effect, a mouthpiece.
For contrast, recall that Phill Gramm and Dick Armey were PhDs and professors of economics. Newt Gingrich was a history professor and PhD. Even New Jersey's geriatric Democratic Senator, Frank Lautenberg, once, long ago founded and successfully built payroll processing giant ADP.
Stabenow isn't close to being in a league with any of those other past or present Congressional members.
Never the less, Stabenow assured one and all that a failure of the government to bail out GM two years ago would have brought down the economy, wrecked all its suppliers and, with them, our defense sector. Additionally, she contended that the only way we can have a viable American middle class is to preserve GM-like 'manufacturing' jobs.
Stabenow next assured viewers that GM's workers sacrificed so much to keep the failed auto maker alive. Yes, the UAW was a force for good, and never was a factor in the firm's demise.
Then the Senator swung to the 'green jobs' front, alleging that the US must lead the world in this job-creating sector. And, of course, Michigan is going to lead in that. With, did she mention- no- overly-generous helpings of federal subsidies. And state investments. No, the way in which Stabenow couched these subsidies was government-private sector 'partnerships.'
There may have been more whoppers, but I don't recall them. I'm sure you could see them for yourself over on CNBC's website this morning, before the video disappears behind a paid subscription wall.
So much for Stabenow's tall tales. Here are more truthful versions of her contentions.
The alternative to the manner in which the federal government, under both presidents Bush and Obama, assisted GM, was not to do nothing. Thus, the alternative outcome for the economy, GM's UAW members, vendors, and auto- and defense-related competitors was not bankruptcy, dissolution and widespread economic ruin.
As I have written in many posts, found under the labels 'GM,' and 'Government Intervention,' a well-managed, conventional, Constitutionally-provided Chapter 11 filing by GM, without government ownership or coercion of the firm's legitimate bondholders, could have easily avoided all of the catastrophic consequences mentioned by Stabenow and others. I won't go into the same detail here as in prior posts, but merely sketch the alternative scenario.
Rather than pump tens of billions into a failed management structure, the federal government could have, for much less money, sent direct payments to idled workers. A conventional bankruptcy would have allowed GM's operations to continue under court protection, while they were reorganized. Some operations would have been closed, and some may have been sold or spun back out separately. If private sector banks declined to fund the interim operations, the federal government could have provided loan guarantees, rather than direct aid, in order to facilitate those private loans.
Further, by not strong-arming bondholders to rescind their rightful status, in favor of the politically-connected UAW, needless uncertainty for future fixed income investors regarding bankruptcy actions would have been avoided.
By maintaining some operations under bankruptcy, the process would have kept the various suppliers and the competitors which also relied on those suppliers in business.
The US economy need not have collapsed simply because the federal government declined to pump upwards of $50B into a failed GM.
The UAW, far from making noble sacrifices, was bailed out by a Democratic administration, to the detriment of legal bondholders. Stabenow is not telling the truth when she paints the union's GM workers as saints who gave unstintingly in a worthy cause. In fact, they came away far better thanks to the federal bailout of GM than they would have in a conventional bankruptcy, under which their labor agreements could have been suspended and forcibly renegotiated.
On the subject of electric cars and other 'green' business initiatives, one only has to read this week's excellent Wall Street Journal editorial by George Gilder to understand how wrong-headed and false Stabenow's contentions on this topic are. By deliberately reducing energy efficiency and requiring cumbersome new energy networks to move from gasoline to electric vehicular propulsion, we will be lowering US living standards. Even Boone Pickens' vehicular natural gas plans make better economic sense than Stabenow's simple-minded regurgitation of false, ill-conceived and misleading left-wing green energy platitudes.
Further, Stabenow blithely blesses the unholy strategy of extreme reliance on subsidies by the green energy sector. Gilder skewered Silicon Valley venture funds for turning from private sector-financed computer- and information-technology businesses, to favor investments in green energy startups whose major revenue sources are government loans, grants and subsidies. You cannot hide the fact that the green energy push is not market economics at work, but merely old-fashioned government-directed and funded economics using taxpayer money to subsidize politically-popular technologies and pet projects.
Almost nothing Stabenow said this morning was true on its face.
Shame on CNBC for allowing such political grandstanding without serious challenges to any or all of her contentions.
This morning, Michigan Senator Debbie Stabenow got her turn. Trouble is, the bulk of Stabenow's statements were either grossly misinformed, or lies.
This sort of segment is the reason I only watch/listen to CNBC for actual market news and the occasional bona fide pundit. For the most part, the network's morning programming has managed to sink to the level of Pravda before perestroika.
Before I discuss Stabenow's comments, let me quote the relevant lines from her own biography concerning her credibility and aptitude on matters concerning GM, macroeconomics and energy. If you scroll down to the very end of Stabenow's bio page, you will find this extensive description of her pre-government experience,
"She attended Michigan State University, where she received her Bachelor's (1972) and Masters (1975) degrees. She worked with youth in the public schools before running for public office."
That's it. She was either a teacher or counselor in the Michigan public school system. She won her first elected post in 1974, which suggests she did a part-time MSU masters while commencing her real career- politics. Wikipedia lists her graduate degree as an MSW. I don't typically rely on that source, but in this case, it's ostensibly more detailed than the Senator's own bio page.
My point is, Stabenow doesn't appear to have any economics or business background. Like so many in Congress, of either party, she had a brief, post-college career in public education, followed by a quick exit into a 30+ year career in politics. So I think it's safe to say that the bulk of what Stabenow voiced this morning was probably collected and prepared by her staff. She is, in effect, a mouthpiece.
For contrast, recall that Phill Gramm and Dick Armey were PhDs and professors of economics. Newt Gingrich was a history professor and PhD. Even New Jersey's geriatric Democratic Senator, Frank Lautenberg, once, long ago founded and successfully built payroll processing giant ADP.
Stabenow isn't close to being in a league with any of those other past or present Congressional members.
Never the less, Stabenow assured one and all that a failure of the government to bail out GM two years ago would have brought down the economy, wrecked all its suppliers and, with them, our defense sector. Additionally, she contended that the only way we can have a viable American middle class is to preserve GM-like 'manufacturing' jobs.
Stabenow next assured viewers that GM's workers sacrificed so much to keep the failed auto maker alive. Yes, the UAW was a force for good, and never was a factor in the firm's demise.
Then the Senator swung to the 'green jobs' front, alleging that the US must lead the world in this job-creating sector. And, of course, Michigan is going to lead in that. With, did she mention- no- overly-generous helpings of federal subsidies. And state investments. No, the way in which Stabenow couched these subsidies was government-private sector 'partnerships.'
There may have been more whoppers, but I don't recall them. I'm sure you could see them for yourself over on CNBC's website this morning, before the video disappears behind a paid subscription wall.
So much for Stabenow's tall tales. Here are more truthful versions of her contentions.
The alternative to the manner in which the federal government, under both presidents Bush and Obama, assisted GM, was not to do nothing. Thus, the alternative outcome for the economy, GM's UAW members, vendors, and auto- and defense-related competitors was not bankruptcy, dissolution and widespread economic ruin.
As I have written in many posts, found under the labels 'GM,' and 'Government Intervention,' a well-managed, conventional, Constitutionally-provided Chapter 11 filing by GM, without government ownership or coercion of the firm's legitimate bondholders, could have easily avoided all of the catastrophic consequences mentioned by Stabenow and others. I won't go into the same detail here as in prior posts, but merely sketch the alternative scenario.
Rather than pump tens of billions into a failed management structure, the federal government could have, for much less money, sent direct payments to idled workers. A conventional bankruptcy would have allowed GM's operations to continue under court protection, while they were reorganized. Some operations would have been closed, and some may have been sold or spun back out separately. If private sector banks declined to fund the interim operations, the federal government could have provided loan guarantees, rather than direct aid, in order to facilitate those private loans.
Further, by not strong-arming bondholders to rescind their rightful status, in favor of the politically-connected UAW, needless uncertainty for future fixed income investors regarding bankruptcy actions would have been avoided.
By maintaining some operations under bankruptcy, the process would have kept the various suppliers and the competitors which also relied on those suppliers in business.
The US economy need not have collapsed simply because the federal government declined to pump upwards of $50B into a failed GM.
The UAW, far from making noble sacrifices, was bailed out by a Democratic administration, to the detriment of legal bondholders. Stabenow is not telling the truth when she paints the union's GM workers as saints who gave unstintingly in a worthy cause. In fact, they came away far better thanks to the federal bailout of GM than they would have in a conventional bankruptcy, under which their labor agreements could have been suspended and forcibly renegotiated.
On the subject of electric cars and other 'green' business initiatives, one only has to read this week's excellent Wall Street Journal editorial by George Gilder to understand how wrong-headed and false Stabenow's contentions on this topic are. By deliberately reducing energy efficiency and requiring cumbersome new energy networks to move from gasoline to electric vehicular propulsion, we will be lowering US living standards. Even Boone Pickens' vehicular natural gas plans make better economic sense than Stabenow's simple-minded regurgitation of false, ill-conceived and misleading left-wing green energy platitudes.
Further, Stabenow blithely blesses the unholy strategy of extreme reliance on subsidies by the green energy sector. Gilder skewered Silicon Valley venture funds for turning from private sector-financed computer- and information-technology businesses, to favor investments in green energy startups whose major revenue sources are government loans, grants and subsidies. You cannot hide the fact that the green energy push is not market economics at work, but merely old-fashioned government-directed and funded economics using taxpayer money to subsidize politically-popular technologies and pet projects.
Almost nothing Stabenow said this morning was true on its face.
Shame on CNBC for allowing such political grandstanding without serious challenges to any or all of her contentions.
Regarding Alan Blinder's Defense of Bernanke
I do not possess a PhD in economics. Not even a BA in the subject. However, I do hold two business degrees, the completion of which provided me with a substantial amount of both micro and macro economic education, plus a healthy dose of anti-trust law and economics.
Thus, when I read Alan Blinder's In Defense of Ben Bernanke in Monday's Wall Street Journal, my initial reaction was one of potential academic inadequacy to question or critique Blinder's contentions. But, upon rereading his editorial, I realized that many of what I see as his errors are not those of abstruse higher-level economics, so much as those of reasoning and logic. On those bases, I feel quite comfortable discussing his piece.
Blinder begins by claiming "one current catchphrase is "job-killing spending.""
Really? Alan gives no cite on this. So much for PhD-level work, eh? His opening salvo is an unsourced complaint. Even so, it's not government spending that is killing jobs. It's over-regulation, erratic government takeovers of portions of the economy, and vague taxation policies. The spending, by the way, didn't go for infrastructure, as promised, but mostly for transfer payments. Which didn't create jobs, but allegedly saved some. Hardly the same thing.
He then uses an ad hominum argument by calling his friend's detractors "the economic equivalent of the Flat Earth Society." Again, hardly academic-quality reasoning. Or, maybe it is.
Only at the end, by the way, does Blinder tell you what his current position already should. As a Princeton economics professor, he would be well-acquainted with Bernanke. This isn't an objective defense of the Fed chairman. It's somehow personal.
But, back to Blinder's editorial.
Blinder then writes,
"Yet critics are branding QE2 a radical departure from past practices and a dangerous experiment."
He counters that QE2 is really just a big ol' open market operation like the Fed constantly performs. Nothing to be scared of.
But in this recent post, I discussed the Wall Street Journal's lead staff editorial which expressed concerned for QE2's heretofore unheard of effects on the Fed's balance sheet. It is, actually, a dangerous experiment. Blinder's attempt to gloss over type and maturity of assets is misleading.
He continues in his editorial,
"The next charge is that QE2 will be inflationary. Partly true. The Fed actually wants a bit more inflation because, now and for the foreseeable future, inflation is running below its informal 1.5% to 2% target. In fact, there's some concern that inflation will dip below zero—into deflation. The Fed, thank goodness, is determined to stop that. We don't want to be the next Japan now, do we?"
For a counter argument to this, read posts here, here, here and here regarding recent, true inflation rates among commodities and other economic inputs. Virtually every knowledgeable observer realizes that the Fed has switched inflationary measures in order to avoid admitting how commodities in everyday use, e.g., food, energy, metals, are skyrocketing thanks to two phenomena. One is dollar weakness, the other is increased demand by newly-enriched nations. Blinder is just wrong on this argument, following the Fed's lead and choosing convenient measures of inflation which aren't practical, but allow him to claim we're closer to deflation than inflation.
Blinder finishes his item-by-item defense with this passage,
"The final major charge, levied especially by a number of foreign officials, is that the Fed's new policy amounts to currency manipulation: deliberately lowering the international value of the dollar to gain competitive advantage for U.S. exporters. Is there any truth to this? Not if words have any meaning."
Blinder follows with a conventional description of interest-rate effects on capital inflows versus trade-related inflows thanks to a cheaper dollar, claiming nobody knows which will dominate, so Ben is innocent. I don't think that's an adequate or even relevant defense. Just because Ben isn't sure if the trade flows will win out doesn't mean he's not hoping they will.
Then there was Blinder's attempt to clean up various other troubling comments about QE2,
"More important, the U.S. is a sovereign nation with a right to its own monetary policy. So I was stunned when a top aide to the Russian president suggested that the Fed should consult with other countries before making major policy decisions. Come again? An independent central bank doesn't even consult with its own government.
Finally, there's that old hobgoblin: consistency. Critics tell us that QE2 won't give the U.S. economy much of a boost but will lead to rampant inflation. Both? How does that work?
If buying Treasurys is a weak policy tool, a view with which I have some sympathy, then it shouldn't be very inflationary. There is no magic link between growth of the central bank's balance sheet and inflation. People, businesses and banks have to take actions—like spending more, investing more, and lending more—to connect the two. If they don't, we will get neither faster growth nor higher inflation, just more idle bank reserves.
But I don't run the Fed. Maybe Chairman Bernanke's ideas are better than mine and, in any case, the planned QE2 is far better than doing nothing. It is not a shot in the dark, not a radical departure from conventional monetary policy, and certainly not a form of currency manipulation."
Blinder contends QE2 is weak medicine, so, no problem. He then lambastes those who believe that QE2's effectiveness and damage must be proportional. But that's not at all true. QE2 can easily trigger inflation without doing much in the way of boosting US economic activity. I think the more relevant approach is to ask Blinder to explain why the effects should be equal?
Then Blinder switches gears, and claims that if QE2 doesn't work, all we'll have is idle bank reserves. Here, he ignores the effects of all that money creation on the perceptions of the world's investors on dollar valuation.
Finally, is QE2 really "far better than doing nothing?" This is a peculiarly Keynesian view with which Austrian school economists, including Milton Friedman, would never agree. And it is certainly not the first two of Blinder's last three descriptors. And if it's not the third, it's a pretty good facsimile of it.
Thus, when I read Alan Blinder's In Defense of Ben Bernanke in Monday's Wall Street Journal, my initial reaction was one of potential academic inadequacy to question or critique Blinder's contentions. But, upon rereading his editorial, I realized that many of what I see as his errors are not those of abstruse higher-level economics, so much as those of reasoning and logic. On those bases, I feel quite comfortable discussing his piece.
Blinder begins by claiming "one current catchphrase is "job-killing spending.""
Really? Alan gives no cite on this. So much for PhD-level work, eh? His opening salvo is an unsourced complaint. Even so, it's not government spending that is killing jobs. It's over-regulation, erratic government takeovers of portions of the economy, and vague taxation policies. The spending, by the way, didn't go for infrastructure, as promised, but mostly for transfer payments. Which didn't create jobs, but allegedly saved some. Hardly the same thing.
He then uses an ad hominum argument by calling his friend's detractors "the economic equivalent of the Flat Earth Society." Again, hardly academic-quality reasoning. Or, maybe it is.
Only at the end, by the way, does Blinder tell you what his current position already should. As a Princeton economics professor, he would be well-acquainted with Bernanke. This isn't an objective defense of the Fed chairman. It's somehow personal.
But, back to Blinder's editorial.
Blinder then writes,
"Yet critics are branding QE2 a radical departure from past practices and a dangerous experiment."
He counters that QE2 is really just a big ol' open market operation like the Fed constantly performs. Nothing to be scared of.
But in this recent post, I discussed the Wall Street Journal's lead staff editorial which expressed concerned for QE2's heretofore unheard of effects on the Fed's balance sheet. It is, actually, a dangerous experiment. Blinder's attempt to gloss over type and maturity of assets is misleading.
He continues in his editorial,
"The next charge is that QE2 will be inflationary. Partly true. The Fed actually wants a bit more inflation because, now and for the foreseeable future, inflation is running below its informal 1.5% to 2% target. In fact, there's some concern that inflation will dip below zero—into deflation. The Fed, thank goodness, is determined to stop that. We don't want to be the next Japan now, do we?"
For a counter argument to this, read posts here, here, here and here regarding recent, true inflation rates among commodities and other economic inputs. Virtually every knowledgeable observer realizes that the Fed has switched inflationary measures in order to avoid admitting how commodities in everyday use, e.g., food, energy, metals, are skyrocketing thanks to two phenomena. One is dollar weakness, the other is increased demand by newly-enriched nations. Blinder is just wrong on this argument, following the Fed's lead and choosing convenient measures of inflation which aren't practical, but allow him to claim we're closer to deflation than inflation.
Blinder finishes his item-by-item defense with this passage,
"The final major charge, levied especially by a number of foreign officials, is that the Fed's new policy amounts to currency manipulation: deliberately lowering the international value of the dollar to gain competitive advantage for U.S. exporters. Is there any truth to this? Not if words have any meaning."
Blinder follows with a conventional description of interest-rate effects on capital inflows versus trade-related inflows thanks to a cheaper dollar, claiming nobody knows which will dominate, so Ben is innocent. I don't think that's an adequate or even relevant defense. Just because Ben isn't sure if the trade flows will win out doesn't mean he's not hoping they will.
Then there was Blinder's attempt to clean up various other troubling comments about QE2,
"More important, the U.S. is a sovereign nation with a right to its own monetary policy. So I was stunned when a top aide to the Russian president suggested that the Fed should consult with other countries before making major policy decisions. Come again? An independent central bank doesn't even consult with its own government.
Finally, there's that old hobgoblin: consistency. Critics tell us that QE2 won't give the U.S. economy much of a boost but will lead to rampant inflation. Both? How does that work?
If buying Treasurys is a weak policy tool, a view with which I have some sympathy, then it shouldn't be very inflationary. There is no magic link between growth of the central bank's balance sheet and inflation. People, businesses and banks have to take actions—like spending more, investing more, and lending more—to connect the two. If they don't, we will get neither faster growth nor higher inflation, just more idle bank reserves.
But I don't run the Fed. Maybe Chairman Bernanke's ideas are better than mine and, in any case, the planned QE2 is far better than doing nothing. It is not a shot in the dark, not a radical departure from conventional monetary policy, and certainly not a form of currency manipulation."
Blinder contends QE2 is weak medicine, so, no problem. He then lambastes those who believe that QE2's effectiveness and damage must be proportional. But that's not at all true. QE2 can easily trigger inflation without doing much in the way of boosting US economic activity. I think the more relevant approach is to ask Blinder to explain why the effects should be equal?
Then Blinder switches gears, and claims that if QE2 doesn't work, all we'll have is idle bank reserves. Here, he ignores the effects of all that money creation on the perceptions of the world's investors on dollar valuation.
Finally, is QE2 really "far better than doing nothing?" This is a peculiarly Keynesian view with which Austrian school economists, including Milton Friedman, would never agree. And it is certainly not the first two of Blinder's last three descriptors. And if it's not the third, it's a pretty good facsimile of it.
Tuesday, November 16, 2010
A Financial Plumber Speaks In Favor of Managed Trade
At the end of last month, John Cochrane wrote a great editorial in the Wall Street Journal entitled Geithner's Global Central Planning. I wrote about it here. So Geithner & Co.'s nonsensical ideas about global trade central planning, in concert with exchange rate management, is not news.
Never the less, Geithner recently wrote another defense of these bad ideas in the Journal. It was the same basic set of themes, i.e., set balance of trade flow targets, get other countries to appreciate their currencies so the US can depreciate its dollar.
Cochrane exposed them as stupid and unfounded theories then, and nothing has changed about his critique in the past three weeks.
However, there's a deeper issue here, as well. That is the question of Geithner's credibility. As I have written in prior posts, there's nothing in Geithner's background to suggest that he is anything but a financial systems plumber. When he's had a significant policy-level position, such as running the New York Fed, he botched the job. Remember, in that capacity, he let himself be out-maneuvered by Goldman Sachs and a couple of French banks, resulting in his using taxpayer dollars to fully repay those parties for their AIG exposure.
I don't recall Geithner authoring oft-cited, learned papers concerning international trade theory. Or theories of currency policy and management.
In fact, everything about his recent articles attempting to defend his wacky notions of international trade and currency valuations smacks of expediency and, as Cochrane notes, unfounded, un-normed concepts prone to political manipulation.
Frankly, I just don't think Geithner, a guy who couldn't even do his taxes correctly, or manage to hire a competent accountant, has the mental horsepower to comprehend the current dilemma of US monetary and economic officials.
Back some years ago, I believe in the late 1980s, in a Wall Street Journal editorial, a respected economist made the insightful observation that nations had only two policy levers- monetary and fiscal- with which to attempt to affect three phenomena- domestic economic growth, domestic inflation, and international trade balances. The latter former lever, monetary policy, is typically given the double duty of governing inflation and international trade and currency policies.
Stronger currencies, following from low monetary base growth and/or higher interest rates, tend to hurt economic exports and often bring in foreign investment flows. Pro-growth monetary policies, such as our current weakening dollar and zero interest rates, aid exports but cause global investors to seek other instruments. As a reserve currency, these policies do even more damage by causing global holders of dollars, as a store of value and commonly-accepted medium of exchange, to seek more stable exchange media.
This is where, in past times, gold was used as the third lever to automatically affect international trade flows and valuation. Not coincidentally, monetary base growth, being backed by gold, was restricted from over-expansion by the knowledge that a cheaper currency would only hurt a nation when foreign holders of that currency redeemed it for now-cheaper gold.
Geithner's transparent attempts to force global investors and other countries to overlook US devaluation of the dollar and management of trade flows to our benefit haven't fooled anyone. But, then, what do you expect from a guy who, as a financial plumber, is trying to work beyond his capabilities?
Never the less, Geithner recently wrote another defense of these bad ideas in the Journal. It was the same basic set of themes, i.e., set balance of trade flow targets, get other countries to appreciate their currencies so the US can depreciate its dollar.
Cochrane exposed them as stupid and unfounded theories then, and nothing has changed about his critique in the past three weeks.
However, there's a deeper issue here, as well. That is the question of Geithner's credibility. As I have written in prior posts, there's nothing in Geithner's background to suggest that he is anything but a financial systems plumber. When he's had a significant policy-level position, such as running the New York Fed, he botched the job. Remember, in that capacity, he let himself be out-maneuvered by Goldman Sachs and a couple of French banks, resulting in his using taxpayer dollars to fully repay those parties for their AIG exposure.
I don't recall Geithner authoring oft-cited, learned papers concerning international trade theory. Or theories of currency policy and management.
In fact, everything about his recent articles attempting to defend his wacky notions of international trade and currency valuations smacks of expediency and, as Cochrane notes, unfounded, un-normed concepts prone to political manipulation.
Frankly, I just don't think Geithner, a guy who couldn't even do his taxes correctly, or manage to hire a competent accountant, has the mental horsepower to comprehend the current dilemma of US monetary and economic officials.
Back some years ago, I believe in the late 1980s, in a Wall Street Journal editorial, a respected economist made the insightful observation that nations had only two policy levers- monetary and fiscal- with which to attempt to affect three phenomena- domestic economic growth, domestic inflation, and international trade balances. The latter former lever, monetary policy, is typically given the double duty of governing inflation and international trade and currency policies.
Stronger currencies, following from low monetary base growth and/or higher interest rates, tend to hurt economic exports and often bring in foreign investment flows. Pro-growth monetary policies, such as our current weakening dollar and zero interest rates, aid exports but cause global investors to seek other instruments. As a reserve currency, these policies do even more damage by causing global holders of dollars, as a store of value and commonly-accepted medium of exchange, to seek more stable exchange media.
This is where, in past times, gold was used as the third lever to automatically affect international trade flows and valuation. Not coincidentally, monetary base growth, being backed by gold, was restricted from over-expansion by the knowledge that a cheaper currency would only hurt a nation when foreign holders of that currency redeemed it for now-cheaper gold.
Geithner's transparent attempts to force global investors and other countries to overlook US devaluation of the dollar and management of trade flows to our benefit haven't fooled anyone. But, then, what do you expect from a guy who, as a financial plumber, is trying to work beyond his capabilities?
Monday, November 15, 2010
The Easy Way To Defund GSEs
Emil Henry, Jr., a former assistant secretary of the Treasury in the Bush administration, wrote an insightful editorial in last Thursday's Wall Street Journal regarding Fannie and Freddie.
According to Henry, Treasury has always had the power to rein in the GSEs. Here's what he wrote,
"But the Treasury doesn't need Congress or an academic assessment in order to tackle the most important reform goal: eliminating the GSEs and moving their activities to the private sector. Mr. Geithner himself can immediately reshape the mortgage markets—by withholding his approval of new debt issuances by the GSEs. That's the best way to begin curtailing the GSEs, and it can be done unilaterally.
Congress chartered the GSEs and in their charters required that the Treasury secretary approve all of their new debt. For decades, the Treasury exercised this duty, and the GSEs submitted each new debt issuance to the department for prior approval.
But the Clinton administration found this process cumbersome and a strain on Treasury staff. It established a new process that weakened the administrative approval process for GSE securities offerings. This hands-off approach represented an abdication of Treasury's essential oversight powers.
By the mid-2000s, the GSEs' process of debt approval had devolved to a simple notification of the Treasury, without any formal process of approval. The pace of debt issuance was so rapid that such notifications came to the Treasury weekly, typically on one piece of paper that simply listed proposed issuances without supporting data (such as income statements or balance sheets) upon which to make informed judgments.
I found these to be fairly stunning revelations. First, that Treasury has a legal ability to approve GSE debt issues- or not. Second, that this power had been abdicated to the point of the GSEs simply sending non-descriptive advisories of debt issuances.
Henry thus reasons,
If the Obama administration is serious about addressing the GSEs, it should re-establish a rigorous process to review all GSE debt issuance. That process should require the GSEs to provide Treasury with full financial data and justification for issuances, including statistics that show the creditworthiness of the agencies after each offering. In addition, the Treasury secretary should have to approve all new debt issuances personally.
The administration should also announce that in 2012 the Treasury will begin to deny a portion of GSE debt issuances with the goal of reducing their debt 50% by 2015 and 100% by 2018. This eight-year period of adjustment would allow the private markets ample time to provide secondary market liquidity.
There will be a private market ready to absorb the securities currently held by the GSEs. Private companies won't be able to borrow as cheaply as the GSEs could (thanks to their implicit government guarantee), but there will still be plenty of profit left to capture in the market for mortgage securities."
This might not be expected action for the next two years. But a change in administration could bring this about, regardless of who controls Congress from 2012 onward. I think Henry is correct to believe that private conduits would re-emerge if Fannie and Freddie were limited by debt ceilings. And there certainly would be sufficient profit in private label securitization, once the GSEs are hobbled and have begun to shrink.
According to Henry, Treasury has always had the power to rein in the GSEs. Here's what he wrote,
"But the Treasury doesn't need Congress or an academic assessment in order to tackle the most important reform goal: eliminating the GSEs and moving their activities to the private sector. Mr. Geithner himself can immediately reshape the mortgage markets—by withholding his approval of new debt issuances by the GSEs. That's the best way to begin curtailing the GSEs, and it can be done unilaterally.
Congress chartered the GSEs and in their charters required that the Treasury secretary approve all of their new debt. For decades, the Treasury exercised this duty, and the GSEs submitted each new debt issuance to the department for prior approval.
But the Clinton administration found this process cumbersome and a strain on Treasury staff. It established a new process that weakened the administrative approval process for GSE securities offerings. This hands-off approach represented an abdication of Treasury's essential oversight powers.
By the mid-2000s, the GSEs' process of debt approval had devolved to a simple notification of the Treasury, without any formal process of approval. The pace of debt issuance was so rapid that such notifications came to the Treasury weekly, typically on one piece of paper that simply listed proposed issuances without supporting data (such as income statements or balance sheets) upon which to make informed judgments.
I found these to be fairly stunning revelations. First, that Treasury has a legal ability to approve GSE debt issues- or not. Second, that this power had been abdicated to the point of the GSEs simply sending non-descriptive advisories of debt issuances.
Henry thus reasons,
If the Obama administration is serious about addressing the GSEs, it should re-establish a rigorous process to review all GSE debt issuance. That process should require the GSEs to provide Treasury with full financial data and justification for issuances, including statistics that show the creditworthiness of the agencies after each offering. In addition, the Treasury secretary should have to approve all new debt issuances personally.
The administration should also announce that in 2012 the Treasury will begin to deny a portion of GSE debt issuances with the goal of reducing their debt 50% by 2015 and 100% by 2018. This eight-year period of adjustment would allow the private markets ample time to provide secondary market liquidity.
There will be a private market ready to absorb the securities currently held by the GSEs. Private companies won't be able to borrow as cheaply as the GSEs could (thanks to their implicit government guarantee), but there will still be plenty of profit left to capture in the market for mortgage securities."
This might not be expected action for the next two years. But a change in administration could bring this about, regardless of who controls Congress from 2012 onward. I think Henry is correct to believe that private conduits would re-emerge if Fannie and Freddie were limited by debt ceilings. And there certainly would be sufficient profit in private label securitization, once the GSEs are hobbled and have begun to shrink.
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