Citigroup Bailout

From Hugo Dixon:

"First, Citi’s terms are too lenient. The 8% dividend on $20bn of capital the government is injecting in the form of preferred shares is more than the 5% it paid for $25bn of government capital last month. But it is far less than the 12% the UK authorities are charging troubled British banks.

Citi is also giving the state a further $7bn of preferred shares in return for guaranteeing the “bad bank” – which will house a stockpile of troubled assets – and $2.7bn of warrants. The strike price on the warrants is generous to current Citi shareholders – nearly three times the Friday closing price. "

The plan was announced by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.

Citigroup (NYSE:C) and the government have targeted a pool of about $306 billion in troubled assets. Citigroup losses from this pool will be capped at $29 billion. The three government agencies would largely take on losses above that from these assets, although Citigroup could still be held responsible for a small portion of them.

The Bulldog's Comments:
It seems to me that the government is basically buying these bad assets. Isn't this what TARP was going to do in the first place instead of putting equity in all of these banks? I know this deal is somewhat a combination of both the old and new TARP, but I think based on the stocks' reaction that the Old TARP plan would have worked better than the new TARP plan. By clearing out the bad assets, it makes the company's balance sheet much healthier. By putting money into the company's, the bad assets do not disappear, they are still there right in front of your eyes. You still have to worry if they go down in value. In this case, even though the assets are staying on Citigroup's balance sheet, investors know that their potential loss is limited to $29B. I am sure the investment community is basically assuming they lost $29B and valuing the company after that loss. The government is on the hook for at least 90% of the loss over $29B.

Bankruptcy or Bust

This past week, Congress delayed a vote until December on whether to give General Motors, Ford, and Chrysler a $25M bailout. However, as much as Speaker Pelosi says the automakers need to be "accountable" and that they need "to submit a viable business plan" to gain government financial assistance, she also says that bankruptcy would be "digging a hole far too deep." Translation: she intends to give the money and the delay is simply political posturing to get the votes.

The U.S. automakers are clearly in big trouble with each company posting losses in the third quarter. GM and Ford each reported losses between $2B and $3B. Yet, somehow Toyota made a profit. Why? Simply put, the Detroit 3 are operating with a business model from the past. Their Union contracts require them to pay their workers an average of $30 more per hour than competitors like Toyota; they have to support 15,710 dealerships across the country compared to 4,000 for their Japanese competitors; they pay enormously for outdated facilities they may never use again; and, they pay billions annually for more than 800,000 retirees' pensions and health care. A bailout will not change any of that.

The only way to assure what Speaker Pelosi calls a "long-term viability of the industry" is not through a Congress oversight committee that reviews the automakers' business plans, but through bankruptcy. That wouldn't mean the end of the world. Rather, it would mean a chance to reorganize the business structure to create a model that is competitive in the global marketplace including against the Japanese competitors. Even though the Union wants the current salary structure, pensions, and retiree health care benefits to remain the same, these companies cannot continue to be viable in that structure and the jobs will continue to go away, and eventually the Union with them. Bankruptcy allows the Union agreement to be ripped up and a new agreement forged as part of a sustainable business model that will then create competitive product offerings and more jobs, and the government can step in to guarantee the pensions and heath care of retirees.

Bankruptcy gives the U.S. automakers a chance to be viable again. Congress and President-elect Obama even have a chance to present a pre-packaged bankruptcy solution, about which there have been rumors. This type of program would provide government financing in the form of a loan if the automakers go into court with a new agreement with and concessions from workers and suppliers that would present a viable and sustainable business model. Such a program is the only way to free the automakers from the poor management decisions, crippling debt and untenable labor contracts and, in its wake, to create a new beginning and a productive, profitable, and sustainable U.S. auto industry that is competitive in the global marketplace and creates jobs for years to come.

Geithner to be Treasury Secretary

Reports from multiple media outlets are that New York Federal Reserve Bank President Timothy Geithner will be nominated to be Obama's Treasury Secretary.

http://online.wsj.com/article/SB122729804822648663.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNjuf7YTw6Ys&refer=home
http://firstread.msnbc.msn.com/archive/2008/11/21/1685124.aspx

Geithner is a a solid pick for the job. He has the experience including his time at Kissinger Associates, earlier assignments at Treasury (in three administrations) and also as head of the New York Fed, and he has personal experience in handling the current crisis as he has been working closely with Hank Paulson.

The first sign that this was a good pick came from the stock market itself, which rallied (+300 points) after the news to cap off a bad week with a positive gain (+494) on the day.

Listen to Geithner in his own words on financial reform and regulation:
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vpktqsmzfunA.asf

Gotta Love the Big 3

If you were heading to Washington to beg for money, would you show up in your $40M private plane that costs over $20,000 to fly from Detroit to DC? I probably wouldn't, and I bet a lot of you wouldn't either. Do the CEOs of the Big 3 have no shame? How can you tell Congress you are going to cut costs, and watch your bank account, when 10 minutes ago you took the most cost inefficient route to the meeting. Just unreal.

Citigroup vs. Big 3

Now Citigroup can layoff 10-20% of its workforce basically overnight, so why can't the Big 3 layoff 20% of their workforce overnight (even though they need to layoff at least 30%). Oh, it's because of the unions. I listened to the UAW president (Ron Gettelfinger) speak the other day and he sounded very much like President Elect Obama. When Obama was asked about pork barrel spending during the primaries he said, "It really isn't as big of an issue as people make it out to be because it is such a small part of the budget." Yes this is true, but if you cut 1% of the budget here and there all of a sudden it is balanced. Perhaps if anyone in congress ever ran a business they would understand this (there are actually a few who have run businesses, but not many).

The UAW president talked about how labor costs only make up about 10% of the cost of a car. Now for GM alone if we assume GM sales are about $170B per year, and if they break even, the labor costs are $17B; if they cut costs to be equal to the foreign automakers operating in the US, labor costs would be $8.5B; and if they right-sized the business and reduced headcount by 30%, they would be at $6B in labor costs. Wow, that is a savings of $11B per year! Now if GM had done this over the years they would not need $25B themselves from Congress. This could have been saved in a little over 2 years, but the UAW president tells me I shouldn't worry about union labor costs because it's not the problem. I know it is not the only problem, but it surely is a big problem. GM could probably cut another $4-5B in corporate overhead and now they would be saving $15-16B per year and they wouldn't need a government bailout.

Hedge Fund Testimony

Well, five of the highest paid hedge fund managers testified in front of Congress today.

As is usually the case with these things, I thought there was only one Congressman who was qualified to ask questions. He was from California, not sure his name, but he had a limited understanding of the business. The rest of the people on the committee had no clue.

The annoying thing is they try to act like they are smart and do not let the panel finish answering questions. It is common for them to try to corner someone without hearing the full answer. After not hearing the full answer they decide to jump to conclusions that they are convinced are correct, but are completely wrong. Can we do something about getting qualified people on these committees? These committees are a waste of time for the panelists.

Here is one example from the meeting. I forget the Congressman that was involved but here is the story.

The question to Kenneth Griffin from Citadel was should the taxation of hedge fund managers change? Not sure if our readers know this but hedge fund managers, private equity mangers, etc. get taxed at the same rate as their investors on the performance based compensation. Typically the manager receives 20% of the profits, and obviously this profit is not guaranteed so it could be 0%. It's not like investment bankers get paid no matter if the deal is good or bad. Comparing investment banking compensation to hedge fund compensation is an apples to oranges comparison, but Congress thinks they are the same.

In answer to the question, Mr. Griffin says he does not think the tax treatment on performance based compensation should change. Currently, short-term capital gains are 35% for these guys (the highest tax bracket) and long-term capital gains are 15%. Mr. Griffin is a trader so 98% of his compensation is taxed at the 35% rate, which means he has nothing to lose from the tax change. The Congressman seems to want to attack Mr. Griffin. He is definitely under the most scrutiny of any of the panelists. Griffin gives an example of a chef and a restaurant and compares it to a hedge fund manager. What he was saying is the chef gets taxed normally on his salary for working at the restaurant and he gets taxes at long-term capital gains tax when he sells the restaurant for a profit (as long as he owned it for over 12 months), which is the same as the hedge fund manager. The hedge fund manager gets taxed at normal rates on the guaranteed management fee and capital gains rates on the carry or incentive fee. The Congressman cuts him off and says, "But the hedge fund manager is making money off of other people’s money." That is correct, but if you put up 100% of the cash for 80% of the equity of the restaurant and the chef gets 20% in sweat equity (meaning he gets 20% of the restaurant for free), then it is no different than the hedge fund manager. The chef didn’t put up any money for his stake in the restaurant, which is the same as the carry on a hedge fund. His sweat equity equals carry. They are not different. The Congressmen are too stupid to understand this example and they wouldn’t let him explain it in more detail because they just want to corner him. Just ridiculous.

Pay attention people.

Increasing taxes in these types of situations will reduce the amount of small businesses that are formed in this country. Many small businesses are formed using other people's money and sweat equity. These type of arrangements bring entrepreneurs and investors together, which in turn creates jobs that would not have been created. You increase the taxes and you reduce the incentive, which reduces the number of jobs. In the case of the hedge fund industry, more of these jobs will potentially go to London where the tax rates are more favorable. Thus, the U.S. will lose 100% of the tax revenue (these are mostly high tax payers by the way). Another genius recommendation by Congress. They try to operate in a static environment and say if we increase the tax rate, the tax revenue will increase. No, not really. If the jobs leave the country, the increased tax rate will actually lead to less revenue.

Give Us the Money and We'll Innovate. Sure...

Why do the Big 3 Detroit automakers need loan guarantees from the government? According to Bob Nardelli, the CEO of Chrysler, it's a way "to enable the car companies to retool for innovation." Tom Friedman is beside himself over this and I couldn't agree more.

http://www.nytimes.com/2008/11/12/opinion/12friedman.html?_r=1&ref=opinion&oref=slogin

Why should taxpayers have to pay these companies to innovate when that was what they were supposed to be doing in the first place? Logic has evaded Detroit.

No innovation + no vision by management + overly generous labor contracts = a situation where the big 3 automakers can only make money by lobbying and manuevering to sell its out-of-date "gas guzzlers." That includes "lobbying to block Congress from raising the miles-per-gallon requirements."

While people like Bob Lutz from GM say innovations like the Toyota Prius "makes no economic sense," foreign companies like Honda are building new plants in Canada (for example) to build fuel efficient four-cylinder Civics "in response to growing North American demand for vehicles that provide excellent fuel economy."

In addition to the execs at the Detroit big three, the Representatives and Senators share blame for voting "however the Detroit automakers and unions instructed them to vote" which shielded the big three from "environmental concerns, mileage concerns, and the full impact of global competition that could have forced Detroit to adapt long ago." Who is running the asylum here anyway?

This has to stop. They didn't innovate before and they won't do it again. Another bailout or loan or whatever they want to call it will only pacify the status quo. As Paul Ingrassia said in Monday's Wall Street Journal, in return for any further government aid "the board and management" of these companies "should go and shareholders should lose their remaining equity." And someone appointed by the government should be authorized to "revamp [these companies] with a viable business plan" including "tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company."

In other words, running the business like it should have been run in the first place. A blank check is not going to deliver different results than what got us in this mess. Any loan should be done in such a way that reforms these companies to be competitive. If not, we are only delaying the inevitable.

Deciding on the Defense Secretary

The Wall Street Journal (http://online.wsj.com/article/SB122636621096215941.html) reported that President-elect Obama is leaning toward keeping Defense Secretary Robert Gates on for at least a year.

Conversely, the anti-war crowd believes doing so would be a "violation of the mandate for change" that Obama represents, as reported in Politico (http://www.politico.com/news/stories/1108/15512.html). Their preference is Sen. Chuck Hagel (R-Neb.), who would likely make a solid bi-partisan choice. Other considerations are former Clinton Navy Secretary Richard Danzig and former Clinton Deputy Secretary of Defense John Hamre.

It would be a mistake not to retain Gates at least for a year to get the Obama administration up and running. It would "provide for continuity of the Pentagon" (WSJ) and solidify any transitional issues related to dealing with potential terror attacks or crises. There is also bi-partisan support to keep Gates as many notable Democrats support the job Gates has done and that he works as a non-partisan. In addition, both the President-elect and Gates support "deploying more troops to Afghanistan." (WSJ) The responsible plan would be to keep Gates on for a year and then transition to an Obama appointment who can hit the ground running.

Reforming Schools

There are some good ideas on how to reform schools in the U.S. Schools definitely need to be reformed. One of the major problems with schools is the teachers union. The teachers union promotes longevity over quality. This is obviously why teachers get paid based mostly on number of years of service.

I agree with Jack Welch when he said last week, "The three most powerful unions in the U.S. are the Airlines, Autos, and Teachers. The worst industries in the country are the Airlines, Autos, and Schools." Coincidence, I think not. For example, he was saying when a school in the U.S. doesn't have a math teacher what do they do? They move an English teacher to Math, instead of doing what a normal business would do, in which it would pay more for Math teachers in order to attract qualified candidates. Schools need to be run more like businesses than the government. Maybe this would make U.S. schools more competitive. The U.S. spends near the top (in the top 3) per student on education, but has some of the worst test scores among developed countries. Students in the U.S. are at the top of the list in 4th grade, but near the bottom of the list in 10th grade. Why? Because the education system in this country is broken. Break the union and reform schools. Pay based on competence, not years of service.

Auto Industry Must Reform

The U.S. auto industry is broken. That is the first point we must accept. But, why? Three primary reasons: mismanagement, lack of innovation and the unions pressure on management. This has made them effectively not competitive in the global market. Because of labor union demands for wage and benefits, the cost of labor to a U.S. automaker is 60% higher than that for a foreign automaker with a plant in the U.S. In a strictly free market environment, this would lead the companies to cease operating. However, for years, the U.S. government has subsidized the U.S. automakers (and effectively the labor unions) to avoid job losses in the nation's largest remaining component of the manufacturing industry.

It has become clear that there is mostly bi-partisan support for another loan to the U.S. auto industry, with minority dissent. The reasons, which are valid, for this are to avoid job losses at the automakers and to avoid systematic short-term business slow down in the supporting markets, principally parts suppliers.

However, status quo and more subsidies do not equate to a long-term solution. Any such loan must include conditions for reform and protections for taxpayers.

According to an article on Politico (http://www.politico.com/news/stories/1108/15511.html), President-elect Obama wants a point person "to oversee reforms in the ailing auto industry" and "who would have the authority" to push for reforms that would help create "an economically viable auto industry." That would be a good first condition for any additional loan. But that cannot be done with most of the Democrats residing in the back pockets of the labor unions. The president-elect has said that he wants to decrease the impact of lobbyists on government policy and legislation. Does that include the auto industry labor unions? Separately, Obama's chief of staff, Rahm Emanuel, has so much as said they won't be making any deal like the one floated to approve the Colombian free trade agreement in exchange for support for the automaker loan. Why is that? Democrats have opposed this free trade agreement simply because it is opposed by unions.

If the President-elect truly intends to create reform in the U.S. auto industry through an additional stimulus package, neither oil lobbyists nor labor unions should be pulling the strings on government policy or legislation like they have in the past. For these companies to succeed in the long run and continue to create jobs, they must respond to the market without government intervention and re-invest profit in innovation (instead of labor representatives' salaries) in order to put a competitive product on the market.

$50B, Are You Kidding Me?

Nancy Pelosi and Harry Reid would like the government to loan the auto industry $50B on top of the $25B they have already been granted. First off, I do not believe they should have been given the first $25B. Their system is broken and they present no systematic risk. I love this statement: "A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector's work force," they wrote. "The economic downturn and the crisis in our financial markets further imperiled our domestic automobile industry and its work force."

Yes the financial markets have impacted the auto industry, but the auto industry caused 80-90% of the damage on its own. They are using the financial crisis as a scapegoat. Yes jobs are at risk, but they should be. Auto sales are down 40% and probably will not come back to previous levels any time soon. I agree that a healthy auto industry is important, but loaning these companies $50B to delay the inevitable will not create a healthy industry. It will just forestall the inevitable.

Another great comment: "We left the meetings convinced that our nation's automobile industry -- the heart of our manufacturing sector -- and the jobs of tens of thousands of American workers are at risk," Pelosi, D-Calif., and Reid, D-Nev., said in their letter to Paulson.

Yes, tens of thousands of jobs should be at risk, if not hundreds of thousands of jobs. This is a bloated industry that needs to be fixed. It needs to be right sized. It is broken and $75B will do nothing but forestall the inevitable. Break the unions and right size the industry, don't let them continue to operate in an environment where they cannot be profitable. The odds of the government getting this money back (if the unions are not broken) are slim to none, and slim is halfway out the door.

In addition, can anyone tell me if Pelosi ever took an economics class? It sure doesn't look that way to me. She continually shows us that she is incompetent, but somehow she keeps getting re-elected.

Hey Nancy, why don't you do what is best for this country for once? Just once.

In Lincoln's Shadow

Michael Cohen of the New America Foundation, a non-partisan think tank, writes about the influence of President Lincoln on President-elect Obama. He believes that Obama, whose favorite president is Lincoln, has loftier aspirations than even the fixing the economy or foreign policy issues, but that his over-arching purpose is to "bring the country together and end the partisan divisions that have defined not just the past eight years, or the past 16 years, but in fact the past four decades of American politics."

http://www.newamerica.net/publications/articles/2008/lincolns_shadow_8334

Issue #1: The Economy

President-elect Obama did not make much news in his first post-election press conference on Friday or his first national radio address on Saturday. But he did establish that his administration's number one priority is fixing the economy. On Friday he said, "Now is a good time for us to set politics aside for awhile and think practically about what will actually work to move the economy forward."

During the transition period, the involvement of President-elect Obama and his administration will be carefully chosen as he noted "there is only one president at a time," but he intends to be prepared "to hit the ground running" upon his inauguration.

There will not be a rush to name a Treasury Secretary or other members of the cabinet. Obama said, "I want to move with all deliberate haste but I want to emphasize 'deliberate' as well as 'haste.' I'm proud of the choice I made of vice president partly because we did it right. I'm proud of the choice of chief of staff because we thought it through."

Obama has been meeting with his Transition Economy Advisory Board (which includes Robert Rubin, Larry Summers and Paul Volcker) to discuss several of the most immediate concerns and, in his radio address, stated his priorities for the economy:

1) To produce a rescue plan for the middle class that "invests in immediate efforts to create jobs and provide relief to families."
2) To address the spread of the financial crisis on other sectors of the economy and "ensure that the rescue plan that passed Congress is working to stabilize financial markets while protecting taxpayers and helping homeowners."
3) To prepare a "set of policies that grow our middle-class and strengthen our economy in the long run." These will include "clean energy, health care, education and tax relief for middle class families."

No, It Can't

I just sat down to read the speech of my President-elect for the first time. One line in particular concerns me:

"For that is the true genius of America -- that America can change. Our union can be perfected. And what we have already achieved gives us hope for what we can and must achieve tomorrow."

Of course, the line echoes the Preamble to the Constitution: "...in order to form a more perfect union." But the claim that "our union can be perfected" puts forth a very different understanding of this nation than that of the Founding Fathers. Notice that their use of the phrase implies that we will never achieve perfection--that the most we can ever hope for is something "more perfect" (emphasis mine). This is in line with their vision of humanity as inherently flawed--a vision no doubt informed by their religious beliefs, if not their life experiences. They viewed the idea of perfection with skepticism, and certainly designed their (and now our) government as one that would not eradicate imperfection so much as minimize or harness it. To undertake "to perfect" this nation, rather than to make it "more perfect" is hubristic, dangerous, and reveals a fundamental misunderstanding of its founding.

State-by-State Exit Poll Analysis Shows Young Voters Not Essential to Obama's Win

AnaMaria Arumi directs the exit poll desk for NBC, MSNBC and Telemundo and asked the question, would Obama have won anyway without young voters? After a state-by-state analysis removing the young voter demographic from the numbers, the only states that would have switched to McCain would have been Indiana and North Carolina. Obama still would have won the electoral vote.

http://www.msnbc.msn.com/id/27582147/

If you removed the Latino demographic from the numbers, New Mexico and Indiana would have switched to McCain and still Obama would have won the electoral vote.

However, if you removed the African-American demographic from the numbers, several states would have swung to McCain: Florida, Indiana, North Carolina, Ohio, Pennsylvania and Virginia and, in that scenario, the electoral college would have favored McCain.

All of these scenarios are hypothetical, of course, as all these groups make up the fabric of the many states. But it is one way to identify which demographic was most critical to Obama's electoral college victory.

More on Exit Polls - Breakdown by Religious Groups

One of the areas where Obama cut into Republican support compared to previous presidential elections was in those who affliate with particular religious groups:

All Protestant voters (54% of the electorate) favored McCain 54% to 45% compared to President Bush carrying this group 59% to 40% in '04. That is a net gain of 10 percentage points for Obama.

Catholic voters (27% of the electorate) favored Obama 54% to 45% compared to President Bush carrying this group 52% to 47% in '04. That's a net gain of 14 percentage points for Obama.

Jewish voters (2% of the electorate) favored Obama 78% to 21% compared to Kerry carrying this group 74% to 25% in '04. That's a net gain of 4 percentage points.

Despite all of the strange accusations about Obama's religious background, his much talked-about association with Rev. Jeremiah Wright and the questions of whether he would be pro-Israel, he over-performed for a Democrat amongst voters affliating with every religious group.

National Exit Polls

According to exit polls, President-elect Obama formed a new coalition among gender, ethnicity and age groups that shows not only young voters paved his way to the White House:

Women (53% of electorate) voted for Obama 56% to 43%, which is the second largest gender gap since 1980. The 13% margin compares to Kerry's 3% advantage in '04.

Voters under 30 (18% of electorate) voted for Obama 66% to 32%. While the young voters' share of the electorate stayed roughly the same as 2004, the margin of 34% was significantly bigger than Kerry's 9% margin in '04.

Hispanic voters (8% of the electorate) voted for Obama 66% to 32%. The margin of 34% is significantly higher than Kerry's margin of 13% in '04.

African-American voters overwhelmingly voted for Obama 96% to 4% and also made up a larger share (13%) of the electorate than they had in any of the past eight presidential elections. However, in comparison, the support for Obama was only 8 percentage points higher than that for Kerry in '04 (11% of the electorate) although Obama's margin was 15 percentage points larger than in '04.

Despite the increase in margins amongst Hispanics and African-Americans, there was movement amongst white voters as well. McCain won white voters by a margin of 12 percentage points compared to Bush's 17 point margin in '04, which is a net gain of 5% for Democrats. In addition, white voters' share of the electorate decreased by 3 percentage points in '08.

Interestingly, men (47% of electorate) voted for Obama 49% to 48%. The margin of 1% is in contrast to President Bush's 11% advantage in '04.

Voters between the ages of 30 and 44 (29% of electorate) voted for Obama 52% to 46% compared to Bush's advantage of 7% in '04. That is a 13% swing.

Voters 60 and older (23% of electorate) favored McCain 51% to 47% compared to an 8% margin for Bush in '04.

Chris Dodd Staying on Senate Banking Committee

Was anyone worried that Chris Dodd might leave the Senate Banking Committee? Yesterday, he said he is inclined to stay. Why not? He has done such a great job over the years. Yep, he heads the banking committee that oversees the institutions that failed and refuses to take any of the blame. I hope Barney Frank doesn't leave the House Financial Services Committee either - he has done a great job, too. Frank also has refused to take any blame and he was in bed (politically) with Fannie Mae, but claims he shouldn't have to take any of the blame. Barney Frank should be investigated along with Franklin Raines who cooked the books at Fannie Mae so he could collect $100M in bonus payments. How is Franklin Raines not being held accountable?

More Names Floated for Treasury Secretary

New York Federal Reserve Chairman Timothy Geithner
Former Clinton Treasury Secretary Lawrence Summers
Former Federal Reserve Chairman Paul Volcker
Former Clinton Deputy Treasury Secretary Roger Altman
Federal Deposit Insurance Corp. Chairwoman Sheila Bair
Chicago venture capitalist David Vitale

Insiders consider Geithner or Summers as the most likely. More news expected following a Friday meeting between President-elect Obama and his transition economic advisory board, but an announcement is not planned for his afternoon press conference.

Geithner is a confidant of current Treasury Secretary Hank Paulson and has been involved in the response to the current financial crisis. Known as a non-partisan, Geithner is on record for criticizing the lack of federal oversight over complex financial products and the associated risks.

Treasury Secretary

There are rumors around that former Treasury Secretary Larry Summers will again take the post in the Obama administration. Many Americans wonder: 1) why would Larry Summers retake a post he already had, and 2) Larry Summers oversaw and pushed for much of the deregulation of the financial markets that took place under Clinton, so it appears his foresight on the deregulation of the banking system and its implications obviously were not good. The last question being: Why would President-elect Obama bring Larry Summers back when he put in place many of the pieces to the current financial crisis? This is similar to when the FBI hires the best perpetrators of fraud to hopefully catch current perpetrators. Very reminiscent of "Catch me if you can." Very interesting indeed.

Rahm Emanuel, Chief of Staff

Rep. Rahm Emanuel (D) of Illinois has been announced as President-elect Obama's Chief of Staff. He is a former top aide to President Clinton and is reputed to bring a tough-minded and pragmatic approach to the White House.

Most recently, Emanuel became the fourth-highest ranking Democrat in the House of Representatives after being elected in 2002. He also worked on Wall Street for an investment banking firm after his time in the Clinton White House.

Emanuel has a direct style that has been known to ruffle a few feathers on Capitol Hill including those of Republicans. Rep. John Boehner (R) of Ohio said, "This is an ironic choice for a president-elect who has promised to change Washington, make politics more civil and govern from the center."

Also, Republican National Committee spokesman Alex Conant said, "Barack Obama's first decision as President-elect undermines his promise to 'heal the divides.' Rahm Emanuel is a partisan insider who played a lead role in breaking Washington." Rep. Tom Cole (R) of Oklahoma called him "absolutely relentless."

However, not all Republicans feel the same way. Sen. Lindsey Graham (R) of South Carolina said, "He is a tough partisan but also understands the need to work together." Graham also said, "I consider Rahm to be a friend and colleague. He's tough but fair. Honest, direct and candid. These qualities will serve President-elect Obama well."

Former Clinton chief of staff, Mack McLarty called Emanuel "a tough minded pragmatist."

It's only two days after the election and perhaps partisan politics are starting back up already.

Concern Over Attack During Transition

White House press secretary Dana Perino said the Bush administration is "very concerned" about the threat of a terror attack during the transition or the early weeks of the Obama administration.

While Perino mentioned that this has been done previously to test new administrations in other countries such as Spain, the question is why are they saying this publically?

Perino said they do not know of any specific threats and will work with the Obama administration to see that they have all the intelligence and capabilities to make a smooth transition in keeping us safe.

President Bush said he expects to meet with President-Elect Obama early next week to begin the transition on a number of issues, stressing cooperation between the two administrations. In a separate report, President-Elect Obama said he will meet with President Bush on Monday.

Pelosi Meeting with Automakers

Speaker Pelosi is meeting with automakers to potentially help them with a bailout. GM, Ford and Chrysler are broken businesses that do not pose systematic risk to the US or the World like the banks did/do. There is absolutely no reason to bail them out and we don't even understand the logic behind the first $25B. We congress will give "the People's" (meaning taxpayers) money to you (the automakers) so you can modernize your plants to build fuel efficient cars. Well isn't this how the market is supposed to work without the intervention of the government? Seems Honda and Toyota made these adjustments without being bailed out by a government. Why should "We the People" bailout inept companies that have no long-term impact on the US/World. The main problem these businesses have outside of their pension obligations is their cost structure. GM pays its average worker $40 per hour vs. Honda's $24 per hour. Until the cost structure gets in line these companies will not compete, why should "We the People" subsidize them for bad business decisions?

The Big 3 should go into bankruptcy, break the unions, bring down pay of the average worker, and then they can compete if they build a good product. It is still questionable if they can build a good product because the unions are killing these workers and the companies. I know this will cause job losses at the outset, but Honda and Toyota have been building plants in the US for years and will continue to do so. Also, unlike the rescue of the banks, I do not see how the government can get its money back from the Big 3, if they do not fail now, they will fail later, and the government will have wasted "We the People's" hard earned money. I know people say that if we let them go into bankruptcy nobody will buy a car from a bankrupt company. That simply isn't true as the market will operate as the market always does, and if people are worried about that then I have no problem with the government guaranteeing the warranties on these cars because my guess is these companies will be around for the foreseeable future and the government will never have to write a check from "We the People's" bank account. Take a stand and let these faulty companies fail. The government wouldn't bail you or me out if we had this problem, nor would I or, hopefully, you expect them to. What we expect from our people. we should expect from these companies.

Issue on the Table

As President-Elect Obama starts receiving his daily intelligence briefings, one issue has been put on the table to address. Russian president Medvedev declared that the Kremlin would station missiles in the town of Kaliningrad, which borders Poland. This is in response to U.S. plans for an anti-missile system in Poland and the Czech Republic. Russia appears to be communicating to the new president that it will continue the tough line it took with the Bush administration. However, the new president, as he indicated in his Election night victory speech, should take an equally hard line with Russia and continue our anti-missile system plans in Eastern Europe even if there is a delicate balance to maintaining favorable relations in the context of European and Middle East policy.

http://www.ft.com/cms/s/0/5e3e7000-ab40-11dd-b9e1-000077b07658,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html?nclick_check=1

How Will Obama Govern?

Jon Meacham in Newsweek explores the question of how President-Elect Obama will govern in the light of his liberal voting record (according to the National Journal) in the U.S. Senate and campaign charges of being a tax-and-spend liberal. Certainly, some are anxious for a new era of liberalism while conservatives are waiting to pounce if he begins one. However, Meacham suggests there may be disappointed liberals and conservatives if he governs to the center as many of his centrist campaign messages said. Similar to Reagan, who is one of Obama's models, they are both seen as ideological purists, but with a tendency towards the pragmatic. If so, that may indicate that Obama would instead seek progressive goals through centrist means.

Pragmatism would serve him well and hopefully the country as well.

http://www.newsweek.com/id/167598

Bi-partisanship Would Help Democrats

As Gerald Seib highlighted in today's Wall Street Journal, it would be wise of Democrats, despite having the majority in Congress as well as the Presidency, to seek a bi-partisan agenda. The mood in the country and history would suggest this to be wise, and any durable change usually needs to have a bi-partisan foundation.

http://online.wsj.com/article/SB122586072442300695.html

President-Elect Obama's Victory Speech [VIDEO LINK]

Evoking such American ideals that all things are possible and faith in the power of our democracy, President-Elect Obama promised to address our challenges ahead in a bi-partisan way. Quoting Lincoln, he said "Though passion may have strained, it must not break our bonds of affection," meaning that we must stay loyal to our shared values of individual liberty and national unity as we work together while remembering that the strength of our nation comes from "the enduring power of our ideals: democracy, liberty, opportunity and unyielding hope." President-elect Obama stayed true to his campaign theme of hope for a better day and that we can address the many challenges ahead while staying true to our American ideals including working together.

That is a noble endeavor for President-Elect Obama to undertake in the heated partisan environment that Washington, D.C. is currently engulfed in. True progress will only be possible not by pursuing a partisan agenda, but by seeking sensible, bi-partisan solutions.

Venture Capital Investments

President-Elect Obama has proposed zero capital gains tax for investments in start-ups/small businesses. Won't most of America see this as another tax break for the rich? As many of you probably know, a majority of the money invested in start-ups is done through Venture Capital firms so it will be the wealthy who receive the tax break. I can't imagine he continues to go with this philosophy. It will create jobs, but reduce the taxes the government will collect. I wouldn't be against him decreasing the rate, but to take it to zero doesn't seem smart or likely. Plus, a majority of the democrats that voted for Obama will not agree with this idea.

Where McCain Lost

It is interesting to see that out of the 4 states in which McCain needed probably 3 to win, he lost all four (OH, PA, VA and FL).

McCain Graciously Concedes [VIDEO LINK]

John McCain calls for moving forward in a bi-partisan way in his concession speech.

The Next President

The President-Elect of the United States of America is Barack Obama, the networks project at 11:oo ET.

It's Over

With Ohio going to Obama this thing is over. Now the question is, how far left does Obama go? The networks are already saying he will be changing his economic policies over the next couple of days. If this happens, stay tuned to Democracy Watchdogs because we will be all over him if he does change his stance from what he ran on. The economy probably will not get any worse than what is already projected, so if he does, we will scrutinize his plan and his reasons why just as we will do with Congress.

First Red State Flips

The key toss-up state of Ohio has been called for Senator Obama, projects NBC.

Speaker Pelosi

Speaker Pelosi talking on CNBC and, as usual, she makes no sense.
She is the same woman that continues to send jobs to Samoa and personally benefit from it. She has helped Starkist move jobs to Samoa, and then was able to get Samoa exempt from the minimum wage. She is supposed to be for the people, but seems to be for herself, just like many politicians. Did I mention that her husband, therefore her, has a $20M interest in Starkist? Plus, she tacked on $30M in tax breaks for Samoa on the rescue package.
Nice work Nancy. Why do people continue to elect her? Does she have America's best interests at heart?

McCain in Trouble

PA goes to Obama.
OH too close to call.
NC too close to call.
FL too close to call.
IN too close to call.
VA too close to call.

All of these states need to fall to McCain for him to win. Doesn't look good, but not impossible.

McCain wins AL and GA. Again, doesn't look good but probably closer than the polls predicted.

Stay tuned.

Congress has Failed

One thing some of us here wonder is: if the approval rating of Congress is 15%, how do 80-90% of congressmen get re-elected? It makes no sense, and yet it likely will happen again this evening.

We the People

To the folks out there who have never heard of the Democracy Watchdogs, the mission of the Democracy Watchdogs is to "Bring America back to the People." We plan to point out and clarify all the BS that politicians spew. This site is non-partisan. We are here to spread the truth, not promote an agenda.

Election Day

This is the day, above all others, to let your voice be heard. Whoever it is that you vote for, participate in your democracy and go vote. The folks in DC can't represent your beliefs and your vision unless you express them with your vote.