ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Friday, January 02, 2009

The Aristocracy of Pull Is Here To Stay

This article in the Times points to the coming Aristrocracy of Pull. (H/T to Tyler Cowen @ Marginal Revolution)

December 29, 2008
Veterans of ’90s Bailout Hope for Profit in New One
By ERIC LIPTON and DAVID D. KIRKPATRICK

WASHINGTON — A tight-knit group of former senior government officials who were central players in the savings and loan bailout of the 1990s are seeking to capitalize on the latest economic meltdown, enjoying a surge in new business in their work now as private lawyers, investors and lobbyists.

With $700 billion in bailout money up for grabs, and billions of dollars worth of bad debt or failed bank assets most likely headed for sale or auction, these former officials are helping their clients get a piece of the bailout money or the chance to buy, at fire-sale prices, some of the bank assets taken over by the federal government.

“It is a good time to be me,” said John L. Douglas, a partner in Atlanta at the law firm Paul Hastings and a former lawyer for bank regulators who helped create the agency that administered the last federal bailout, the Resolution Trust Corporation.

Some of these former federal officials, like L. William Seidman, the first chairman of the R.T.C., are serving as advisers — sharing ideas with Treasury Secretary Henry M. Paulson Jr. and the transition team for President-elect Barack Obama — even while they are separately directing investors or banks on how to best profit from this advice.

“It is an enormous market,” said Mr. Seidman, who has already joined two such potential money-making efforts and is evaluating proposals to participate in a third. “I am enjoying this.”
[...]
What is obvious to former R.T.C. officials is that, like the last go around, a great deal of money will be made by a select group of investors and business operators, particularly those with government contacts. The former government officials said in interviews that much of what is motivating them is a desire to help the nation recover from this latest stumble. But they acknowledge they intend to be among the winners who emerge.

“Fortunes will be made here, no doubt about it,” said Gary J. Silversmith, one of more than a dozen former R.T.C. officials interviewed who now are involved in enterprises seeking to profit from bank bailouts.

The busiest money-making arena so far for these R.T.C. alumni is in helping distressed banks line up cash infusions from the Treasury, as they seek a piece of the bailout.

Robert L. Clarke, controller of the currency under the first President Bush and a former Resolution Trust board member, has been advising banks throughout the South on how to get their share of the bailout money.

“I have been absolutely inundated,” said Mr. Clarke, who now works at Bracewell & Giuliani, the law firm based in Houston affiliated with the former New York mayor and presidential candidate Rudolph W. Giuliani.

Mr. Clarke’s labor on behalf of his clients has included calling federal regulators to urge them to reconsider plans to reject applications for federal bailout money. He would not identify the banks, saying it might undermine public confidence in them.

But Mr. Clarke said his intervention, in at least some cases, has been successful.

Eugene Ludwig, the comptroller of the currency under President Bill Clinton during the final stages of the savings-and-loan cleanup, runs Promontory Financial Group, a banking consultant group whose clients include struggling banks.

“I must get an e-mail a day from people who I worked with back then about what to do about the current mess,” Mr. Ludwig said. “It is not so much capitalizing on it as really just, how do we contain the flames?”

Many of the former federal officials like Mr. Ludwig have stayed in the field, working as lawyers or contractors who buy up and resell seized bank properties. What is remarkable now is just how busy they are.

“It is a great time to be a banking lawyer,” said Thomas P. Vartanian, a partner in the Washington office of Fried Frank, who is the former general counsel to the Federal Savings and Loan Insurance Corporation, which led a bank bailout effort in the 1980s.
[...]
Although the financial meltdown is a disaster for the country, Mr. Oros said, “the opportunity going forward is unprecedented. It is fantastic. It is as if I had been training for this for the last 40 years of my career.”

The biggest profits will most likely be made, the former federal bank officials agreed, by those who figure out a way to benefit from what could turn into one of the greatest fire sales of bad debt and bank assets in American history.
[...]
The question right now is just how this unloading of bad debt will take place.

So far, the federal government is relying on financial institutions to find a way on their own to sell off bad debts or assets they end up with as a result of foreclosures. But some financial industry players are arguing that a modern-day R.T.C. should be established, to help set prices for this bad debt, and speed the move toward a recovery.

The R.T.C. alumni are prepared to profit through either route.

If only the human capital and effort that is now being focused on getting their piece of federal tax dollars would be directed into productive efforts...

I know, it's utopian to even think of such a thing, but when your attorneys, lobbyists, and political connections become more of a strategic asset to your enterprise than the actual productive assets, we have lost our way.

We truly are in the Age of Pull and all I want to know is where is Galt's Gulch.

Looking back, Bush failed to stem the tide on this effect and with his actions on the Credit Crunch, he has only exacerbated the problem.

I have little confidence that Obama, product of the Chicago political machine, will be any improvement.

Your Co-Conspirator,
ARC: St Wendeler

Wednesday, December 31, 2008

The Presidential Bubble

I read this post on how Obama is starting to dislike the bubble that is being established around him and found this paragraph to be very funny:

All presidents suffer culture shock when the office's lack of person freedom hits home. There's a reason that Bill Clinton whined that the White House was "the jewel of the federal prison system." Not being able to sneeze, jog, or choke on a pretzel without its being documented for historical purposes takes a toll on a body.

Yes, that's why Clinton wasn't fond of all the secret service guys around him - he didn't have enough privacy to sneeze, jog, or choke on a pretzel.

I think there were other activities that Clinton had on his mind when he complained about the lack of "alone" time.

Your Co-Conspirator,
ARC: St Wendeler

Tuesday, December 30, 2008

Home prices

Glenn at Instapundit had the following yesterday:

HOUSE PRICES: Still too high? I think so, and I’m surprised at how unrealistic sellers still seem to be. I’m seeing people put houses on the market for 10-15% more than they paid two years ago, when those houses are probably worth 10-15% less. Or worse.

UPDATE: Reader Bob Molyneux writes:

Amen.

My wife and I are in the market for a house in the Duluth, Georgia area and we have seen a ton. So many are junked up–don’t you folks know what a garbage bag is? Are banks really that uninterested in selling foreclosed houses that they make it almost impossible? I don’t know about a buyers’ market but our credit rating is great and our current locked in interest rate is 4.97%, we have money in the bank, and this will be an oldie but goody: a “conventional” loan. Maybe we are picky but I would guess that you are right that the better houses are 10-20% high. The bad houses are 90% high.

Yeah, I think people are still in denial. Don’t know why the bankers aren’t better about prepping these houses for sale.

I don't have any personal knowledge of the business decisions that go on inside banks on these foreclosed properties, but from my experience with other businesses (especially "big" businesses), it seems to me that there's just no process at the bank to do the prep work.

The only person at the bank that actually looked at the house is most definitely someone with no authority at the bank (how many bank CEO's are doing property tours of their run-down assets?) So whoever actually looks at the dilapidated properties would have to convince someone at the bank to fork over money to sell an asset for which they have already lost money. That money would have to be accounted for at some point, and it would be entirely subjective. So there's no reward for the individuals in the bank to clean up the property.

There used to be a market for this sort of thing - speculators would buy up foreclosed properties, "flip them" and sell for a profit. But with the housing downturn, nobody wants to buy anything, and in addition, speculators can't get loans to do it.

So the buyer in Glenn's post is going to see a lot of really crappy, overvalued homes while looking. If he can get past the garbage and look at the house from a non-cosmetic standpoint, he might stand to make a heck of a deal in this market.

I agree with his consensus that prices are too high. People are in denial right now. Soon they will be moving to the anger side. That's when the federal government will be pressured to "step in". My only worry is that someone is going to make the case that vast swaths of housing will need to be bulldozed to drive down prices, in line with the fallacious "broken window" theory of economics.

Your Co-Conspirator,
ARC: Brian

Cohen - Bursting Bush's Bubble from Inside His Own

Richard Cohen has this column today on Bush's reading list:

Reading Into Bush's Book List
By Richard Cohen
Tuesday, December 30, 2008; Page A15

In what without a doubt is the most astounding op-ed piece of the year, Karl Rove reveals that his friend and former boss, George W. Bush, has read probably hundreds of books over the course of his presidency. One of them was Albert Camus' "The Stranger," with its unforgettable opening lines: "Mother died today. Or perhaps it was yesterday, I don't know." After reading Rove's Wall Street Journal column, it's clear there's much we all don't know.
[...]
In his column, Rove says that Bush read 95 books in 2006 alone. In 2007, he read 51 books and as of last week, he had read 40 in 2008. The numbers are precise because Bush challenged Rove to a contest: who could read the most books. Rove always won, but Bush had the ready excuse that he was, as he put it, busy being "Leader of the Free World." This, though, is not an excuse. As Dwight Eisenhower once told me (I'm not making this up), he had more time as president to dabble in painting than he did in retirement. Such is the virtue of The Bubble.
[...]
Still, the fact remains that Bush is a prodigious, industrial reader, and this does not conform at all to his critics' idea of who he is. They [ed. meaning Richard Cohen] would prefer seeing him as a dolt, since that, as opposed to policy or ideological differences, is a briefer, more bloggish explanation of what went wrong. Still, in fairness to these critics (see Rove above), Bush himself has encouraged this approach. Aw shucks is an infuriating defense of a policy.
[...]
It is awfully late in the day for Rove -- and, presumably, Bush -- to assert the president's intellectual bona fides. Now feeling the hot breath of history, they are dropping the good ol' boy persona and picking up the ol' bifocals one. But the books themselves reveal -- actually, confirm -- something about Bush that maybe Rove did not intend. They are not the reading of a widely read man, but instead the books of a man who seeks -- and sees -- vindication in every page. Bush has always been the captive of fixed ideas. His books just support that.

The list Rove provides is long, but it is narrow. It lacks whole shelves of books on how and why the Iraq war was a mistake, one that metastasized into a debacle. Absent is Rajiv Chandrasekaran's "Imperial Life in the Emerald City," Tom Ricks's "Fiasco," George Packer's "The Assassins' Gate" or, on a related topic, Jane Mayer's "The Dark Side" about "extraordinary rendition" and other riffs on the Constitution. Absent too is Barton Gellman's "Angler," about Dick Cheney, the waterboarder in chief.
[...]
My hat is off to Bush for the sheer volume and, often, high quality of his reading. But his books reflect a man who is seeking to learn what he already knows. The caricature of Bush as unread died today -- or was it yesterday? But the reality of the intellectually insulated man endures.

Prof Matthew Franck has an excellent retort at NRO and I sent the following email to Richard Cohen myself.
Hi, Richard - Enjoyed your column ("Reading Into Bush's Book List," Tuesday, December 30, 2008; Page A15), although I think it's ridiculous for you to suggest that the arguments put forth in any of the books you recommended weren't considered by Bush, either through his own analysis or through the analysis of those in his administration.

One question: Can you share your reading list for 2008? I suspect that it would consist of fewer books than the President and at the same time be just as "narrow." I have no doubt that most of the books on your reading list for 2008 only reinforce your worldview and that you are just as captive to your fixed ideas.

I am not a cheerleader for George W. Bush, but anyone can see the bubble you're trapped inside by simply reading each of your columns.

Regards & Happy New Year!
The fact that Richard Cohen is surprised that Bush reads - books and everything!!! - is just amazing.

The oft-cited ridicule about the President being incurious because he does not read the New York Times every day is similarly amazing.

If the President is reading the New York Times to inform himself about the events in the world, than we have some serious problems.

If the left thinks that not reading the predictable opinions and columns in the New York Times and opting instead for the multitude of information sources available to him (both inside and outside of his administration) makes Bush incurious and unintellectual, I would counter that it is they who are insulated and unintellectual.

*** UPDATE ***
It would seem that others in the blogosphere had a similar reaction to Cohen's column.

Your Co-Conspirator,
ARC: St Wendeler