Dodd's Discriminatory Bailout: "Regime Change" for Main Street, But Not for Wall Street?

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What the media are not saying about the Chicago workers' sit-in:

* MADE IN IOWA: Did Company in Chicago Sit-In Illegally Discard Its Workers and Quietly Relocate While Liberals Forced BOA to Pay for the Shady Scheme?

* Republic Windows and Doors Received a Bailout from Chicago Before It Bailed Out of Chicago

* Laid-Off Republic Windows and Doors Workers: Pawns in Political Football]
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Regime Change in Detroit?

Senator Christopher Dodd, who chairs the Senate Banking Committee, has argued that Richard Wagoner, the CEO of General Motors, should resign before the troubled automobile manufacturer receives federal financial assistance. And this morning, he has broadened those comments to implicate all automakers: "'[I]t's not my job to hire and fire, but what I suggest is, you need to have new teams in place here . . . if you're going to convince the American public' that the financial relief plan is necessary and justified" (italics added). Dodd also believes that Chrysler and GM will probably have to merge so that both companies can survive. My question for Dodd: Why did you fail to demand "regime change" among Wall Street recipients of federal aid?

President-Elect Barack Obama was less direct when he addressed the issue. During an appearance on Meet the Press, Obama said that the issue of mandatory changes in leadership "may not be the same for all companies." At press conference following the show, however, Obama offered an additional perspective on the issue:

If the management team "that’s currently in place doesn’t understand the urgency
of the situation and is not willing to make the tough choices and adapt to these
new circumstances, then they should go. . .If, on the other hand, they are
willing, able and show themselves committed to making those important changes,
then that raises a different situation . . . .”

Although Obama refused to define what "changes" he envisions or to take a position regarding a specific company or executive, his statements together with Dodd's comments show a new toughness among Democrats towards potential recipients of federal "bailout" assistance. During the general election campaign, members of Congress engaged in bipartisan rhetorical grandstanding and promised to place numerous conditions in the bailout package. The final statute, however, gives very broad discretion to the Secretary of the Treasury (see my analysis here). Now, Democrats have indicated that they might require company executives to step aside as a condition of receiving federal money. That's very tough talk.

Why No Regime Change on Wall Street?

But I am trying to understand why replacing corporate management has only recently become a possible prerequisite to the receipt of federal assistance. The various financial institutions that have received federal assistance face poor economic conditions because they recklessly decided to engage in risky -- but lucrative -- mortgage lending, bundle those mortgages and sell them as securities, or invest in securitized mortgage assets. Citigroup, the recent recipient of the largest financial bailout to date, engaged in all of these practices through its various divisions. Flawed managerial decisions led to these bad investments and to the present erosion of available credit. If Congress wants "heads to roll" before assisting companies, this same logic should apply evenly to all economic sectors.

In many ways, however, the auto industry could be less culpable for its financial woes than the banks were for their own problems. Auto companies lend money to purchasers and probably made poor choices during the recent "easy credit" run. They can also invest in risky mortgage-backed securities. But most of their trouble today results from not having sufficient money to conduct prospective business, rather than from the unraveling of prior investments. They do not have access to credit precisely because the bank crisis has caused credit to tighten. Prospective car purchasers also face difficulty securing loans, which exacerbates the situation (see this article in Forbes on the subject and on a potential remedy). Irrational exuberance in the housing market caused most of this problem. The greatest blame lies with financial institutions, mortgage brokers, realtors, home builders, state and federal regulators, and home buyers. The auto industry does not deserve tougher restrictions than Wall Street.

Then Why Treat Wall Street and Main Street Differently?

The Election is Over
Perhaps the Democrats feel safe taking a tougher position with companies seeking federal assistance now that the election has taken place. Even though most voters disagreed with the banking bailout, they also felt that not supporting the legislation could harm the economy. The House Republicans received a fair amount of criticism for blocking the initial plan. Democrats probably wanted to avoid similar complaints.

Financial Institutions Give Much More Money to Political Candidates Than Automakers
Another, more ominous explanation for the disparate treatment of automakers relative to banks could involve campaign financing. According to research completed by the Center for Responsive Politics, Dodd, who chairs the Senate Banking Committee, tops the donor recipient list of several banking institutions. Furthermore, members of Congress who supported the bailout received far more money in campaign donations from financial institutions than legislators who voted against the bill. In the House, legislators who supported the bailout received 51% more in campaign contributions from banks, and in the Senate they received twice as much (see here and here).

Automakers also contribute to candidates, but they do not donate nearly the same amount as banks. According to data compiled by the Center for Responsive Politics, automakers split their donations among the two major parties during the recent election cycle, but they contributed only a fraction of the money that financial institutions gave (The Center for Responsive Politics website has a tool that permits readers to research campaign donations by industry.). Keep in mind that donations come from individual employees and their political action committees. Auto workers will have less money to donate on average than Wall Street bankers. Car dealers donated more money than automakers, but most of it to Republicans. Furthermore, their donations do not compete with those of financial institutions. Given the role of money in politics, it is difficult to deny some degree of industry capture with respect to regulated entities and regulators.

Update: I have not found any major media coverage of this particular dimension of Dodd's comments, but I did find this entry by Deb Cupples on the Buck Naked Politics blog. Blogs can provide a wonderful alternative to popular news sources.

12 Incredibly Lame News Stories That the Media Reported, Instead of the Impending Doom in Financial Markets

Several years ago, economists like Robert Shiller (Yale University) and Nouriel Roubini (New York University) began predicting the demise of the housing bubble and the current credit crisis. Despite the fact that for years noted economists have anticipated the current liquidity crisis, many Americans only recently have discovered terminology such as "subprime loans" and "mortgage-backed securities." I partially blame the media for failing to do their job.

Most major media outlets decided to "dumb down" their reporting over the last decade, to the extent that today, their "analysis" is about as valuable a share of AIG stock. Rather than using their vast corporate resources to scrutinize the reckless activities that would later cause this crisis, most media instead chose to obsess over absolute nonsense. Below, I have listed several news stories that received extensive media focus over the last few years, crowding out vital analysis of the risky economic behavior that created today's perilous economic conditions. I wanted to do it as one of those cheesy "top 10" lists, but I could not decide which items to eliminate!

1. Ashlee Simpson lip syncing. So she cannot sing. Why did that make headline news? That's analogous to reporting that we need oxygen in order to live.

2. Nicole Ritchie and Paris Hilton. They are spoiled, anorexic, addicted, extremely wealthy, and socially useless. Next.

3. Scott and Drew Peterson. They share more than a last name and alleged penchant for domestic violence: Both of them have probably paid over a year of Nancy Grace's salary.

4. Obama Girl. I am still bewildered that a bouncy, t-shirt clad young woman could receive so much attention during a presidential campaign -- except from frat boys. This ranks as one of the most shameful popular news items of 2008.

5. Hillary Clinton's so-called "tear" in New Hampshire. I cried too -- longing for Walter Cronkite.

6. Ben and Jen. Who cares?

7. Jen and Brad. Ditto.

8. Brad and Angelino. You get the picture.

9. David Hyde Pierce, Rosie O'Donnell, and Clay Aiken "gay rumors"/"coming out stories." Breaking News: 1+1=2!

10. Britney Spears and Anna Nicole Smith. Blond hair, drugs, money, weight loss, weight gain, endangered offspring, and randomly bizarre behavior. How does this affect me?

11. Reality Show Results. This includes Survivor, American Idol, The Apprentice and all of the others. Who decided that game show results warrant news coverage? Please fire that person! I don't recall seeing The Price Is Right or The Newlywed Show contestants on the news when I was growing up, but maybe I missed something.

12. Janet Jackson's not-even-uncovered nipple. If you can only view "partial-nudity" by capturing a still-shot from a video performance, then it's not worth mentioning, certainly not 1,000,000,000 times. Jackson received more web hits than "9/11" or the "World Trade Center," making "Nipplegate" the most overrated flesh scandal of all time.

What did I leave off the list?

McCain's Implosion: 7 Reasons Why His Campaign Is in Crisis

As the presidential election day approaches, the race continues to shift to Democrat Barack Obama. Although Obama has almost always led McCain, following the Republican National Convention, the polls shifted significantly to McCain. But the electoral landscape has abruptly changed in recent weeks. There are several factors that explain this transition, some of which McCain can control, others that he cannot. But overall, his campaign seems unable to create traction. Here's why things have gone bad for McCain.

1. Economy
Clearly the economy has had a tremendous -- if not the most -- impact upon his campaign. McCain was leading in the polls until several large financial institutions imploded. After that time, things began to favor Obama. Historically, voters blame incumbents for poor economic conditions, rightfully or wrongfully. And they are clearly blaming McCain and the Republicans for the current state of affairs. I think both parties share the blame for the credit crisis; FactCheck.Org agrees. McCain has not effectively communicated this.

2. Sarah Palin
Sarah Palin has also caused problems for McCain. Although her addition to the ticket initially invigorated McCain's campaign, subsequent poor performances during media interviews and also (probably overdone) negative scrutiny by the media turned her into a liability. Several conservative commentators demanded that McCain remove her from the ticket. Palin, however, was able to alleviate many concerns voters had with her candidacy with a good performance at the Vice Presidential debate. Her favorable numbers improved dramatically. Despite this, concerns linger.

3. Republican Exhaustion
Republican exhaustion can also account for McCain's bad luck. Party dominance is cyclical at the national level. The Republicans have dominated the White House since 1964 -- which started at 44-year stretch with only 16 years in which a Democrat occupied the White House. Obama's change theme works very well with party exhaustion, and McCain has been unable to revitalize interest in Republicans.

4. Forgoing "Experience" Argument
McCain's campaign has also failed to take advantage of a few opportunities to shift the electorate. First, by picking Palin he essentially removed the "experience" theme from his campaign, which gave his campaign a coherent narrative.

5. Failure to Distinguish Himself from Bush
McCain has also failed to show that he is not Bush III and that he is a "maverick." While many members of my party would say that's because he is Bush III, like most things in politics, it's all about a narrative. For example, McCain recently proposed a mortgage plan, which Obama and the media have bashed. But he could have at least used that moment to say that he, unlike Bush and many others in his party, knows that government has a role in helping society. He could have also said that he, unlike Bush, is not afraid to reconsider his opinions about the role of government in society. Instead, his plan lacks a marketing narrative at all. Obama's plans, on the other hand, always do. Aided by the media in large part, he announces a "major policy speech" on any given subject and grabs headlines. I do not agree with Obama that McCain is erratic, but I do believe that without a narrative, voters cannot connect his proposals.

McCain and the Republican leadership could have agreed that he would go after Bush on a few important policy areas on which he has disagreed with Bush (e.g., environmental policy, corporate ethical reform, campaign finance, etc.). Instead, he has been stunningly silent on the details of his "maverickness," which makes the whole them ineffective.

6. Failure to Question Obama, via Biden, on Iraq
Although the economy has for a long time overshadowed the Iraq War in importance to voters, Obama continues to say that McCain exercised bad judgment voting for the war. McCain has responded primarily by arguing that his support of the surge and continued funding of the troops demonstrates that he can win a war (unlike Obama or Bush). But McCain has not emphasized Joe Biden's vote on the war at all, which seems to call into question Obama's war critique. Although Palin accused Biden of waffling on the war during the Vice Presidential debate, when Obama said McCain's war vote reflected poor judgment during the second presidential debate, McCain failed to mention Biden's vote at all, squandering an opportunity to question the sincerity of Obama's war critique.

7. Embedded Media
Finally, the media have made it more difficult for McCain and easier for Obama. I am not saying that the media have thrown the election to Obama. But I am acknowledging that for the most part, coverage favors Obama more. This began during the primaries, and Tina Fey brought the issue to national attention. Keith Olbermann's blood-faced rants, Chris Matthews's "tingly thighs," and the legion of opinion writers in the major papers (e.g., E.J. Dionne, Frank Rich, Dana Milbank, Maureen Dowd, and Eugene Robinson) who churned out weekly pro-Obama essays most likely helped shape public opinion regarding Obama. I am not saying that he does not deserve a great reputation, but that free publicity from authoritative media goes a long way towards constructing a positive image. By contrast, a litany of negative press (from these same influential media sources) can damage a candidate's reputation among voters.

The recent scuffle over McCain's mortgage plan provides a good example of likely media bias. The media have intensely scrutinized the plan -- as they should -- but they have primarily just reported Obama's objections to the plan. More importantly, they have not asked Obama what he would do to fix the problem. During the bailout discussions, the media questioned whether McCain had a plan or a role in the negotiations. The bailout actually authorizes the Secretary of the Treasury to purchase individual mortgages, but leaves it to the Secretary to devise a method for valuing the mortgages and assisting homeowners. McCain has at least given us a window into what he would do -- whether this is purely political or otherwise. Obama has not, and the media have not demanded that he do so. I also don't recall the media inquiring about Obama's role in the bailout negotiations.

This is not the first election in which the media have shown a candidate preference. They turned Gore into a laughingstock -- ridiculing him for "gaffes" that upon further examination, weren't gaffes at all. During my youth, they loved Reagan (the "Great Communicator") and bashed Carter on the economy and Iran, although much of the economic peril in the country resulted from factors outside of the control of the president, like the very dramatic (and almost overnight) increase in the price of oil. They never challenged voters on the relevance of Dukakis looking goofy in an Army tank and his ability to govern the nation. And beyond election campaigns, the media were literally "in the tank" with the White House during the Iraq War. If the media can embed themselves with the Bush administration to clamor for access, why wouldn't they do the same during a political campaign?

Can He Do It?
The odds are stacked against McCain at the moment, but some commentators say that he could still pull off a comeback. I am not convinced. I do not see an effective strategy by McCain, and I am not sure what he could do to neutralize the media. Calling them out as biased seems to have made them worse.

FactCheck.Org Confirms What Neither Party Will Admit: Bipartisan Blame for Wall Street Woes

When venerable Wall Street institutions like Lehman Brothers started imploding, liberal blogs and newspapers were quick to blame Republicans. Republicans on the other, said that Democrats caused the crisis. Turns out both are wrong. The nonpartisan website FactCheck.Org has concluded, as I did in a previous post on the financial crisis, that neither party can claim innocence with respect to the financial crisis (nor can the public, for that matter).

Democrats typically point vaguely to "deregulation" as causing the banking crisis. When pressed for specifics, they most commonly blame the Gramm-Leach-Bliley Act of 1999, which allowed traditional banks, insurance companies, and investment banks to consolidate. Republicans often accuse Democrats of resisting tighter regulation of Fannie Mae and Freddie Mac. Neither explanation really works.

Let's start with the Democrats narrative. FactCheck nails it by locating the cause of the crisis in the housing and securities markets. Very low interest rates, the risky mortgage, greed among homebuyers who overextended themselves in order to reap the benefits of soaring home appreciation, and the securitization of bad debt caused most of this mess. The Gramm-Leach-Bliley Act did not effectuate this, and even if it did, many Democrats supported the legislation (including Bill Clinton and Robert Rubin).

With respect to the Republican argument, tighter regulation of Fannie Mae and Freddie Mac might have prevented their troubles, but that certainly cannot explain the poor state of US and world markets. They are just one piece of a very large puzzle. Also some of the proposals that Republicans made on this issue came very late in the game, perhaps too late to prevent the crisis .

Because we are in an election year, public officials cannot resist the temptation to distort this important issue with partisanship rhetoric. But that does not change the fact that blame is everywhere.

Update: The RSS feed for FactCheck.Org now appears in the media section on the left side of the blog. FactCheck is truly a vital resource.