WSJ, New Fears as Credit Markets Tighten Up (sub.req.)
NYT: AIG, Where Taxpayers’ Dollars Go to Die
Both go to the key question how long and at what cost the federal government will continue to protect the interest of bondholders.
This was the graf that most caught my eye, which comes from the WSJ piece …
In a report over the weekend, analysts from J.P. Morgan Chase & Co. said they had expected government intervention to help protect the interests of bondholders at financial institutions. However, they noted that “in the extreme, losses can be so large that the political willpower to continue bailing out banks and insurance companies evaporates, forcing senior creditors to share in losses or producing other unorthodox outcomes.”
I’d love to see that report.
I do not think this issue has been raised anywhere in our news coverage or here at my blog. But I wanted to briefly enter into this debate about President Obama’s decision to make Chas
Freeman chair of the National Intelligence Council, a somewhat out of the way Intelligence Community panel which has the key role of overseeing the production of National Intelligence Estimates.
Indulge me for a moment for a bit of background for those not familiar with this controversy; because it’s important. Freeman is firmly in the Realist school of foreign policy. He was a former Ambassador to Saudi Arabia and is close to the Saudis. The real rub, the basis of the whole controversy, however, is that he has been far more critical of Israeli policy than is generally allowed within acceptable debate in Washington. That is the crux of it. And because of that he’s become the target of a spirited campaign to get his appointment rescinded.
I have no particular brief for Freeman. I’ve never met the man. And for what it’s worth — and it ain’t worth much — on a totally different topic he once referred to an article I wrote as “disgusting” and to me as a purveyor of “slime journalism.” Basically I’d written an extremely critical article about a friend of his. So, whatever.
But the whole effort strikes me as little more than a thuggish effort to keep the already too-constricted terms of debate over the Middle East and Israel/Palestine locked down and largely one-sided. James Fallows argues here for the need for contrarian thinkers in general, of which Freeman is certainly one. Joe Klein reviews the issue here, arguing that it’s not the time to be enforcing groupthink on Israel or other critical policy issues. And Andrew Sullivan has been doing great blogging on this topic in general and in this timeline in particular, which shows the whole storm being whipped up by neoconservatives upset over Freeman’s positions on Israel. Finally, 17 former Ambassadors — including Thomas Pickering — have now come forward to support the appointment and defend Freeman’s worthiness for the position if not agree with all his views.
These other posts are each worth reading because they’re good and go into more detail than I am. And I could go into a deeper discussion of foreign policy questions involved. But the gist is that campaigns like this are ugly and should be resisted. Not just on general principles, but because the country needs more diversity of viewpoints on this issue right now.
Rush Limbaugh is a ready-made villain in the latest national cable TV ad from the labor group, Americans United For Change. That and the day’s other political news in the TPMDC Morning Roundup.
Republicans are coming around to the idea that federal regulators might have to step in and shut down bad banks – even big ones – but whatever you do, do not call that “nationalization.” All that and more in today’s Sunday Show Roundup …
Full-size video at TPMtv.com.
Last night I mentioned the J.P. Morgan report referenced by the Journal, which gamed out how much longer the government would be willing and able to protect the interest of bondholders or “senior creditors” from the losses associated with failing institutions like the big banks, AIG, etc.
TPM Reader BC was kind enough to send in a copy of the report. And here’s the key passage about how long the federal government will be willing to protect ‘senior creditors’.
Given these developments, we turn more cautious on senior bank credit given that we see no near-term catalyst (buyer) to cause spreads to tighten. Banks are the most widely held names in the corporate bond market, given the sector’s heavy issuance: nine out of the top 10 largest bond issuers are banks (see Corporates). With that in mind, despite limited non-guaranteed supply, the technicals for investors adding further exposure here are not that supportive. Furthermore, we believe the systemic risk is pervasive enough that senior bank credit spreads can widen further as worse potential outcomes are considered. In the extreme, losses can be so large that the political willpower to continue bailing out banks and insurance companies evaporates, forcing senior creditors to share in losses or producing other unorthodox outcomes.
We are still a long way from that scenario, and it is not our baseline. However, we think that in the context of massive systemic risk, the risk-reward profile in owning the senior credit is not attractive.
The takeaway is that for now and for the foreseeable future they believe that the government will continue to keep the bondholders whole and insulate them from losses associated with the financial crisis. But things could get so bad that the ‘willpower’ is no longer there to keep making up for the losses with taxpayer money.
Do we really have to hear lectures on deficit spending from Karl Rove?
See more at Foxnews.com.
Late Update: Rove also addressed his upcoming testimony on the politicization of the Bush Justice Department. You can watch that here.
Cheney consigliere David Addington having tough time finding work after the White House.
I mentioned a few days ago that congressional Republicans were simply not part of the conversation on saving the American economy. The policies they’re pushing don’t even amount to conservative. In most cases they’re pushing stuff that’s just transparently ridiculous. Like a federal spending freeze in the face of massive economic downturn and possible deflationary spiral.
And now Greg Sargent has dug up a quote where a leading Republican admits that this is in fact their strategy. It’s not about coming up with policies to save the country; it’s all about pulling down Nancy Pelosi’s and her caucus’s favorability ratings.
“We will lose on legislation. But we will win the message war every day, and every week, until November 2010,” said Rep. Patrick McHenry, R-N.C., an outspoken conservative who has participated on the GOP message teams. “Our goal is to bring down approval numbers for [Speaker Nancy] Pelosi and for House Democrats. That will take repetition. This is a marathon, not a sprint.”
That’s not really surprising. But it’s a bit stunning, though perhaps also refreshing, to see them say it out loud.
Feast your eyes on our new exclusive slideshow of all the key players in the never-ending Franken/Coleman recount trial.