How Matt Millen Might Save the World

Gotta love Mitch Albom.  His folksy, leftist populism has always been a big hit with sports fans in Detroit.  Mitch is crafty enough to be overtly non-partisan, but if you read his columns long enough, you get the impression that he’s a closet D.

Reading Mitch’s piece yesterday on the firing of Matt Millen, I’m buoyed by new hope for Obama.

… Millen was hired with no experience. What exactly did people expect? He was a former player turned broadcaster who had a smart and sometimes snarky way of handling his on-air analysis, and many people said, “Hey, he’d make a good GM.”

This is a little like telling a photogenic teenager, “You’d make a good news anchor.” It may be true, one day, after years of training. But you don’t give her Katie Couric’s seat tomorrow.

Which should inform the [Lions] as to their next hire. Whoever it is, please, dear Lord, do not make it a former big-name coach who wants to get his feet wet running a team. This job cannot be a proving ground. It cannot be a place where you make your first mistakes.

[emphasis added]

Mitch, in his understated way, has just drawn a connection between the ineptitude that is the Detroit Lions, and the ineptitude that would undoubtedly be a McCain-Palin administration. It was just yesterday, you see, that Sarah Palin appeared on Katie Couric’s Evening News. By connecting Millen’s enthusiastic inexperience to Palin’s enthusiastic inexperience, Mitch Albom just gave voters in the critical state of Michigan a new metaphor by which to express their discontent with the GOP ticket.

Thanks, Mitch.  And thanks, Matt Millen.  America — and the world — may yet owe you one.

Maybe You Forgot About The 2003 Dividend Tax Cut?

Ron Suskind’s “telling lessons” illustrate the genesis of the 2003 Dividend Tax Cut and Sarbanes-Oxley, which is to say, the Administration acted quickly to address structural flaws in the financial system:

The Federal Reserve chairman and senior economic officials of the Bush administration solemnly filed into the large conference room of the Treasury Department. There was a sense of urgency, an understanding that drastic action — restructuring the financial landscape of corporate America — was desperately needed.

. . .

The crisis of that moment was the implosion of Enron, Global Crossing and other companies. Along with conflicts of interest and criminally creative bookkeeping, the culprit was often a combination of financial complexity and insanely expensive compensation packages.

Enron is long gone, but this episode — as much a warning for our financial security as the 1993 World Trade Center bombing was to the threat of wider terrorism — carries some telling lessons as our best minds struggle now to save the economy.

The meeting, recounted to me by Paul O’Neill, Mr. Bush’s first Treasury secretary, and several other participants, was something of a showdown. Everyone came armed for battle, none more than Mr. Greenspan and Mr. O’Neill, who railed that day like a pair of blue-suited Jeremiahs. Their colloquy on economic policy and corporate practice, which began when they were senior officials in the Ford administration, had evolved over three decades.

To the surprise of many younger men in the room, the duo opened by reminiscing about a bygone era when the value of a company’s stock was assessed by how strong a dividend was paid. It was a standard that demanded tough, tangible choices. Everything, of course, came out of the same pot of cash, from executive compensation and capital improvements to the dividend — which could be spent by a shareholder or reinvested in more company stock as a show of support.

In contrast to dividends, Mr. Greenspan intoned, “Earnings are a very dubious measure” of corporate health. “Asset values are, after all, just based on a forecast,” he said, and a chief executive can “craft” an earnings statement in misleading ways.

Speaking with a hard-edged frankness rarely heard in public — and seeing that those assembled were not sharing his outrage — Mr. Greenspan slapped the table. “There’s been too much gaming of the system,” he thundered. “Capitalism is not working! There’s been a corrupting of the system of capitalism.”

Mr. O’Neill, for his part, pushed to alter the threshold for action against chief executives from “recklessness” — where a difficult finding of willful malfeasance would be necessary for action against a corporate chief — to negligence. That is, if a company went south, the boss could face a hard-eyed appraisal from government auditors and be subject to heavy fines and other penalties. By matching upside rewards with downside consequences — a bracing idea for the corner office — Messrs. O’Neill and Greenspan hoped fear would compel the titans of business to enforce financial discipline, full public disclosure and probity down the corporate ranks.

But they were in the minority. . . .

Aw. You mean we have to WAIT to find out if the world ends?

And here I was hoping America’s problems might be solved by the entire planet getting sucked into a black hole:

The world’s newest and largest particle accelerator, the Large Hadron Collider, will not begin operations again until April, officials at the European Center for Nuclear Research said Tuesday.

Ah, well.  At least if the world ends in April, Michiganders can slide into the vortex with hope for the Detroit Lions.

Goldman Sachs and Warren Buffett — Heros

Goldman Sachs chooses capitalism:

Warren E. Buffett, the country’s most famous investor and one of the world’s richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan, in a move that could bolster confidence in the financial markets.

It’s strange to think that an investment bank ([ahem]) a “bank holding company” and one of the world’s richest men will come off being scions of virtue in this mess.  But that’s exactly what they are.

The rationale for the mooted bailout is that the American financial system needs to be recapitalized.

There’s a lot that’s fishy about this.  Among them is the fact that there are many, many ways for this to happen without government intervention.  Goldman Sachs and Warren Buffett have come to one of them: allow private investors to buy new shares in companies desperate for capital.

Here’s the thing: either the Fed is going to pay a market price (or, its best, honest guess at market price) for assets that are currently booked above their market value.  Or — as seems more likely — the Fed is going to overpay for these assets in order to subsidize the American financial industry.

The truth is that, eventually, the most distressed firms will find ways to assign a fair market value to their mortgage-backed assets.  In that case, some firm will buy those assets — on the open market.  American capitalism survives intact.  The banks get punished by having to take the loss on bad investments.  And the financial system gets recapitalized.

Paulson’s approach essentially means that American tax payers are going to send a donation to banks, and then bear the costs when those assets are inevitably written down.  Meanwhile, the expanded debt means that there won’t be any money for the types of public investments that are going to get the American economy moving again.  Things like roads, bridges, and rail that not only create solid investment opportunities for the newly recapitalized banks, but also provide jobs for lower-middle income workers.

If the bailout goes through according to Paulson’s plan, we’ll likely end up in a liquidity trap anyway.  Sure, the banks will be recapitalized, but there will be precious little worthwhile investment to make as U.S. consumers tighten their belts and the U.S. government focuses all revenues on debt servicing.

Goldman’s and Buffett have it right — let the markets work for the purpose they were intended.  There’s going to be pain one way or another.  Let’s not pile on the hurt, and embeggar our country for generations to come.  Let’s hope the rest of the financial industry follows the lead of Goldman Sachs and Warren Buffett.

P.S. I also want to add that I think Goldman’s is betting that the federal government is going to be both inept and an unwelcome guest.  By using the markets to solve their problems Goldman Sachs ensures a much greater degree of regulatory independence in the future, which should enable them to be more competitive than other institutions that take the Fed’s handout.  Think welfare moms vs “up by the bootstraps” entrepreneurs.  It’s also interesting to note that Paulson is a former leader of Goldman Sachs, which makes you wonder “what do they know that everybody else doesn’t?”