If you haven’t already left and followed the link above, the B.S. is that now the federal government is shoveling TARP funds to life insurers.  As Glenn Hall over at the Street.com points out:

People pay insurers monthly premiums to transfer the risk of fire, car crashes and in some cases even investment losses. So when those things happen, the insurance pays. …

… I reluctantly acknowledged the need to shore up AIG because that is a special type of behemoth insurer whose activities underpin the entire financial world. But these other insurers are just lapping up the dole, and the government seems entirely too willing to keep giving out corporate welfare checks.

When do the princes and princesses of capitalism get to see some of the market’s ultimate accountability?  That’s called failure.  It’s real simple.  If you mismanage your company, you fail.

What the Bush and now Obama Administrations are saying to us is that if you’re a well-heeled bank, insurer or brokerage you’re too big to fail.

I don’t buy the “Socialist” argument from the right.  I don’t doubt that the Barack Obamas and Timothy Geithners of the world would rather not be running or propping up the private sector.  But I also believe that these big companies – who finance political campaigns – are getting treated differently than the average Joe.

Here’s what the next bailout should be.  In order to level the playing field the feds should cut a check to every taxpayer for, say, a hundred thousand bucks.

Perhaps others would do with their bailout as I would do with mine:

• $12,000 would go to Chase Bank to pay off my car loan
• $25,000 would go into some sort of savings
• $25,000 would go into home improvements
• $10,000 would go to investments
• $5,000 into a vacay
• The rest would be for general pump priming

Krugman’s column today further adds to the case he’s been making all along during this financial crisis – Wall Street’s emperors have no clothes and taxpayers are footing the bill to rebuild their wardrobe.

So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes.

Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which he tried to defend financial innovation. His examples of “good” financial innovations were (1) credit cards — not exactly a new idea; (2) overdraft protection; and (3) subprime mortgages. (I am not making this up.) These were the things for which bankers got paid the big bucks?

Here’s what I think is most disturbing about recent financial history and the Bush and Obama Administrations’ policies:

GDP, which I believe is due for an announcement this week, has generally grown but over the last two or three decades that growth has been in areas like financial services and based upon “paper value.”  In other words, where we used to count more tangible goods as product, and those goods were made in the U.S. and that economic activity supported a middle class.  The financial services’ contribution to the overall economy has become huge, but their numbers benefit very few – the investment class.  Both the Bush and Obama Administrations have so far let financial services off Scot-free and pushed trillions of dollars that industry’s way.  On the other hand, the nation’s Big Three automakers are being treated as one would expect failing companies to be treated – with healthy skepticism.

• New – or “re” – regulation in the financial services sector needs to be undertaken now.  Treasury Secretary Timothy Geithner and others in the Obama Administration have talked the regulation game, but there’s been no action.  The argument was for a time that we need to stabilize things then move on to resetting the rules.  Apparently, Wall Streeters are shifting comfortably back into business as usual.  The TARP and PPIP have not had the effect both administrations hoped for.  All of the other legislative priorities of the Obama Administration, from health care to energy policy will be derailed by a second wave of the financial crisis.  Regulate now.
• I’m begging on this one … Not One More Bailout.  As currently configured, nearly all the risk of saving the financial system is on the taxpayer.  Future bailouts or federal actions to prop up the system should be approached like the auto industry.  No more carrots without sticks.  It’s past time for accountability from bankers and brokers.
• Finally, for today, it’s astounding to me that revelations last week by New York Attorney General Andrew Cuomo that former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke held a gun to Bank of America’s head to complete the Merrill-Lynch deal.  Furthermore, Paulson and Bernanke allegedly told BofA CEO Ken Lewis to not disclose his and management’s misgivings about the Merrill deal.  Why isn’t the media or Congress all over this?  When Wall Streeters like Geithner, Paulson and Summers are in charge only Wall Street benefits.  Were there SEC rules broken by Paulson and Summers?  Can the government intervene to stop the flow of information to corporate boards and shareholders?

Click for Full Geithner Letter & Charts

The New York Times is reporting tonight that the Obama Administration is trying to figure out how to securitize for the masses the steaming pile of poo known as Wall Street’s toxic assets.  In other words, can the government get you to invest in a mutual fund-like vehicle which would buy the subprime mortgage bundles you’re already subsidizing with your tax dollars?

Huh?

The Times, in it’s wonderfully-at-times understated way says the plan is fraught with risks, but might work like this:

The new funds, the thinking goes, would buy troubled mortgage securities from banks, enabling the lenders to make the new loans that are needed to rekindle the economy. Many of the loans that back these securities were made during the subprime era. If all goes well, the funds will eventually sell the investments at a profit.

But, as with any investment, there are risks. If, as some analysts suspect, the banks’ assets are worth even less than believed, the funds’ investors could suffer significant losses.

Does it seem to anyone else that we’re so stuck in a bad behavior pattern that our collective ingenuity has just taken a day off during this whole mess?  The bastards that brought all of this upon the world need to be nationalized for a period of time sufficient to unwind their ridiculous schemes and taken public once again under an old-fashioned regulatory regime where bankers bank, insurers write insurance policies, and brokers provide market services.  Instead, we’re trying so hard to bend over backwards to preserve big business and the investment class that first Bush and now Obama are looking ludicrous.

This could also be taken as a signal that there’s a reason these assets are called toxic: they’re not worth anyone owning at the end of the day.

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF’s new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.

Welcome to MEET THE PRESS.

MR. FRITZ HENDERSON: Good morning, David.

MR. GREGORY: The administration’s auto task force tasked General Motors with the idea of coming up with a viability plan. The company did that and the White House rejected it flatly. There were some stinging rebukes embedded in that report. Here’s just a sampling: “General Motors’ plan is not viable at is, at is–as it is currently structured. The assumptions in GM’s business plan are too optimistic. Progress has been far too slow.” Pretty harsh reaction from the Obama White House. How did the company get it wrong?

MR. HENDERSON: Well, as, as we looked at the situation–first, we’re very appreciative of the support, David, of the White House and the automotive task force. They got up to speed very fast, in a very short period of time. They, they basically took a very hard look at, at both the assumptions as well as the actions in our plan. They talked about the progress that has been made. But the, the conclusion was not far enough, not fast enough. And candidly, that’s where, that’s where our charge is going forward, how we go deeper, faster.

MR. GREGORY: All right. But you were there, you were there as this report was put together, you’ve been there for 25 years. Where do you think the company misjudged its own reality and the way forward?

MR. HENDERSON: David, I have been with the company 25 years. Through my career I’ve made a lot of mistakes, as we all do, but I–my, my job is to learn from them and then look forward to make sure we get the job done.

MR. GREGORY: Do you–your predecessor, Rick Wagoner, was pushed out by the White House. That, of course, is well known. Under his tenure GM has lost $82 billion in just the last four years. The value of the stock has plunged 95 percent. It was $43 a share a year and a half ago, it’s $2.10 as it closed on Friday. Do you think the firing of Rick Wagoner was the right decision?

MR. HENDERSON: David, Rick was my–is my friend, mentor. I worked for him for the better part of my career. But with Rick it was always about the company, not about him. And he was asked to step aside and he did, and we need to look forward.

MR. GREGORY: Well, but part of looking forward is trying to take account for what’s gone on up till now, and mistakes that have been made, decisions that have been made that the White House says were not reflective of the idea of really taking account for mistakes that had been made. Can you point to some areas where you think the company has really faltered?

MR. HENDERSON: Well, it has been a difficult–you, you, you mentioned it, it has been a certainly challenging last several years. We’ve had, we’ve had challenges in a number of places around the globe, whether it’s here in our home market in the United States or in Europe, and in many ways we’re not the only ones that have had those problems. But I don’t–I really don’t focus on that. We just need to take the mistakes we’ve made, learn from them, not get overly invested in them, and go forward and, and learn from them.

MR. GREGORY: As a prominent member of the business community, I wonder if you agree with the governor of Michigan, who thinks there’s a double standard when it comes to this financial crisis; that the government will go in and fire Rick Wagoner, but they don’t deal with some of the CEOs in the banking industry at the top banks where there have been such mistakes made. Do you think it’s a double standard?

MR. HENDERSON: David, I don’t really think about what happens in other industries. It’s not for me to say, it’s not a worry of mine. Our worry is how do we get General Motors going forward? And that’s where we’re going to spend 100 percent of our time.

MR. GREGORY: The government role in effectively running GM has been criticized here in Washington, real questions about whether the government ought to be doing this. Republican from Tennessee, Senator Bob Corker spoke out about it this week. This is what he said, I’d like to have you react to it: “They have opened Pandora’s box–the U.S. government has decided they know better than the private company. There’s no question that this country is moving down a very different and foreign path. We have crossed this threshold: We own this company and we are telling it what to do.” Here’s an image from BusinessWeek in its current magazine. There you are in the front seat and a visual backseat driver, President Obama, telling you exactly which way to go. The president said that the administration doesn’t want to run GM, but is that right? Doesn’t, in fact, the government run GM?

MR. HENDERSON: No, David. I, I think the administration and the task force has been very clear, they don’t wish to run General Motors. They expect us to get our job done. But the day we took money from the taxpayer was one of the, one of the most difficult days of certainly my career and of the history of General Motors. We need to respect the fact that we need to look after the taxpayer, we need to justify to the consumer and the taxpayer that we’re going to succeed going forward. And one of the, one of the happiest days of my future career is going to be the day we pay the loans back.

MR. GREGORY: But the reality is that the administration has said who should run the company and who shouldn’t, the administration is reconstituting the board of directors. You report to the Obama White House, do you not?

MR. HENDERSON: David, I report to Kent Kresa, the interim chairman of the board, the board of directors. But I also have direct line into the president’s task force. In fact, I have several masters. But in the end it’s about getting the company in the right direction, and that’s what I’m planning to do.

MR. GREGORY: You would agree that General Motors needs to be reinvented and badly needs change.

MR. HENDERSON: I would agree, yes.

MR. GREGORY: Now, you’ve been at the company for 25 years. You are an insider. Critics of the industry and of General Motors in particular say the culture at GM is simply too inbred. How can an insider like yourself be relied upon to make transformational change?

MR. HENDERSON: Well, I do come to the job with 25 years of experience in the company. And having run our businesses just about everywhere around the globe, I’ve seen a lot of things happen in the automotive industry. I’ve seen good times, I’ve seen bad times, and we’ve adjusted. I think in the end we have to prove it. And you just watch us, we’ll get this job done.

MR. GREGORY: But you can be relied upon to bring change?

MR. HENDERSON: I will spend 100 percent of my time doing exactly that.

MR. GREGORY: Let me bring in the issue of bankruptcy. And everybody should understand that bankruptcy is used in businesses to help a company like General Motors that has negative cash flow, it has a lot of debt to creditors, legacy costs, etc. to sort of get out from underneath that debt. You did some interviews this week; you said about bankruptcy that it’s now “more probable.” Do you think bankruptcy at this point is inevitable?

MR. HENDERSON: No. I think what–when, when you look back at the, the findings of the president’s task force, they basically said we need to go deeper and we need to go faster in our restructuring. And we can’t compromise those critical goals, and they outlined them in their report. And so what was provided was a period–now we’re 55 days, not 60 days away–and we either accomplish this job outside of bankruptcy in the short term; or alternatively, if it’s necessary, we’ll go into bankruptcy in order to get this job done.

MR. GREGORY: But in your own mind are you planning in a way where you’re preparing yourself for bankruptcy?

MR. HENDERSON: We are planning to get the job done. Our preference is to do it outside of a bankruptcy process, but it would only be prudent to make sure that we’re planning for if we need to resort to that, that we can move and we can move fast.

MR. GREGORY: The USA Today in an editorial this week talked about some of the upsides, saying Chapter 11 may be the best cure for what ails the automakers. Here’s the rationale: “Shareholders come away with little if anything. Creditors get only a portion of what they are owed. Contractual obligation to unions, suppliers and distributors and others are reworked. Unless an endangered automaker can come up with a plan that accomplishes most of the same results with greater speed and certainty, a controlled or managed bankruptcy might be the best alternative.” Do you agree?

MR. HENDERSON: Well, the administration basically said the same thing, it may very well be the best alternative. As I look at the situation, we need to accomplish a set of goals, and accomplishing those is–can’t be compromised. So if it can’t be done outside of a bankruptcy process, it will be done within it.

MR. GREGORY: The reality, bankruptcy or no bankruptcy, is a fundamental question, which is: Who is going to buy a car from GM given the question mark that surrounds your financial future?

MR. HENDERSON: David, I’d say a couple things. One, I started out, one of the points I made earlier was we’re immensely appreciative of the support we’ve received from the president task force and from the president himself. He basically went on, went on television and said General Motors will be part of the future, A. B, you can, you can count on your warranties, your service, you can be confident in your ability to buy a General Motors car or truck. C, we have the very finest cars and trucks in our history coming into the market today. And then we, we basically have launched recently, for example, our Total Confidence program, which is to basically say you can judge whether or not you buy a GM car or truck solely on its merits, and we’re going to make sure we’re there for you.

MR. GREGORY: Do you expect and would you like to see President Obama encourage the country to buy American cars?

MR. HENDERSON: No, actually. I, I, I think the consumer should buy exactly what kind of car they think meets their needs and that excites them. And as I look at it, it’s our job to make sure we provide that, not necessarily have it mandated or otherwise encouraged. I think we have fantastic cars and trucks. We’re going to win in the marketplace and not necessarily because–just because we’re a U.S. company.

MR. GREGORY: I want to talk about restructuring. You have less than 60 days and there are some real challenges to restructuring. One has to do with the number of brands that GM currently has. In the government’s report it made the conclusion that there are simply too many brands. If we put them up on the screen, we can see them. There has already been a determination made that you would cut Saab, Saturn and Hummer. But what else, as you look at restructuring and coming up with a revised viability plan, are you willing to cut, shut down or sell?

MR. HENDERSON: Well, the report did point out that we had already taken those actions. And in this particular area, David, it was about how do we go faster, particularly in the area of I’ll call it dealer network restructuring. So we need to do that. We need to pull forward a plan that went out to 2013, 2014. How do we get it pulled forward into ’09 and ’10? That’s the–that was the finding, and we’re going to get that done.

And with respect to the other plan–other brands, we’re really building a plan around four core brands. And we think that not only is that the right thing to do in the marketplace, but it gives us the best chance to earning, earning a high return on capital.

MR. GREGORY: Legacy costs, meaning all of the costs associated with union employees, part of the United Auto Workers, is just a huge issue for General Motors. The government report indicates that in order to pay those retired autoworkers GM has to produce an extra 900,000 cars every year. What is the message to the union now? Doesn’t it have to be, “Those days are over”?

MR. HENDERSON: I, I think the message to all the constituencies that, that play a part in our future is we need to pull together. We need to, we need, we need to sacrifice as a group. Whether it’s our people, our unions, our salaried employees, our dealers, our suppliers, we need to pull together to make sure we do what’s necessary in order to make General Motors viable going forward. So we’re going, we’re going to be–we have been doing that. We’ve gotten enormous support for that up to this point, but we need to do more.

MR. GREGORY: Well, let’s talk about how you can do more. How many union jobs are there in a typical factory for General Motors that have nothing to do with producing automobiles?

MR. HENDERSON: Well, actually every job we have in a factory has something to do with producing an automobile, in–whether it’s obviously putting the actual car together, or supplying materials to the line, or maintaining the, the equipment that’s in the plant. So I, I mean, we have, we have worked very hard, and if you look at external surveys–for example, like The Harbour Report–we’ve really closed the gap in terms of competitiveness, in terms of the manpower we have within our operations. We need to do more. But every person in the plant has something to do with putting together a car or truck.

MR. GREGORY: But in some factories you have a, a, a shop steward who’s responsible for appointing–whether it’s a civil rights chief or an education person, these are all union jobs that don’t have anything to do with producing the car.

MR. HENDERSON: Well, we have–the union has, has key, has key, key, key jobs, as you identified. But I’ll take an example, let’s take health and safety. We work together with the union on the health and safety in our plants. We have the safest plants in, in, in the United States–in fact, around the globe. And I think providing, for example, a safe workplace is very much in the best interest of the company as well as the union.

MR. GREGORY: You have told health care managers and executives over 65 that they no longer get health care benefits, they have to revert at that point to Medicare. Is it time for union workers to accept that same limit?

MR. HENDERSON: David, the provision of health care to our hourly employees will, will basically vest to the responsibility of a VEBA trust effective January 1, 2010. The VEBA trust will, will be responsible for determining the level of benefits. And I can’t really, can’t really forecast, if you will, what decisions they’re going to make.

MR. GREGORY: But do you think that’s the kind of cut that the union should have to accept?

MR. HENDERSON: It’s not for me to say, David. I think in the end the, the trustees of the VEBA are going to have to make those sorts of decisions.

MR. GREGORY: Do you really expect this president, given how strongly supported he is by the unions, do you really expect him to take a step that would hurt he unions?

MR. HENDERSON: I think President Obama–let me put it in the positive. He basically said we want to work together to make sure this company’s viable and successful and part of the automotive industry in the next 100 years. And basically he asked all the parties to come back together to make sure we do exactly that. So I don’t think it’s about hurting some constituency or another, it’s about what do we have to do to win in the future.

MR. GREGORY: The issue of the quality of GM cars is what’s at the center of getting the consumer to come back and buy those cars. Again, in the government report it came to this conclusion: “Fundamentally, the lingering consumer perception is that GM makes lower-quality cars.” Do you agree with that?

MR. HENDERSON: We have perception issues, without a doubt. I, I, I think if you look at the actual quality of our cars, we continue every day to not only improve, win awards–whether it’s Cars of the Year, whether it’s awards with JD Power; continuing progress, for example, in Consumer Reports. With respect to perception, David, it’s really about step by step. You don’t change perception in, in massive amounts overnight, you change it every day, every single consumer. We sell cars one at a time. And with every launch, with every product, every time we touch a consumer it’s about changing those perceptions. There’s no magic, there’s no magic to this, you’ve just got to get the job done every day.

MR. GREGORY: Your predecessor, Rick Wagoner, agreed to work for a dollar, given the taxpayers were putting so much money into General Motors. You didn’t make that agreement. You’re going to be working for considerably more than that. Why?

MR. HENDERSON: David, at the beginning of this year, as part of the series of sacrifices, my salary was cut 30 percent, and basically it stayed where it is. My, my salary today is the same it was two weeks ago. We’ve asked all of the parties of General Motors, including myself and others, to make sacrifices, and it’s going to stay that way.

MR. GREGORY: But how much will you make?

MR. HENDERSON: My salary is $1.3 million.

MR. GREGORY: It was said years ago that what’s good for GM is good for America and vice versa. Is that still the case today, and what is the GM of the future?

MR. HENDERSON: GM of the future is a couple things. One, it’s a, it’s a globally competitive company. It’s a company that wins in the major markets. It’s a company that grows in emerging markets. It’s a company focused around products, fantastic products and consumers. In terms of what we have to do to be successful, David, we need to take the tough actions to restructure our business. But it’s all about capturing the imagination of consumers with great cars and trucks, fantastic styling, winning the consumer back. Because in the end, the consumer is going to pay the bills so that we can pay the government back.

MR. GREGORY: If GM lives to fight another day here, restructures in a way that the government deems viable and gets additional loans, in that new company, in that new GM, do you think you’re the person to run it?

MR. HENDERSON: I do. In the end, the determination of who runs it is a function of the board of directors. But I certainly feel that I have the experience and the knowledge of the industry and the knowledge of the company to get the job done, and that’s exactly what I’m going to be spending my time doing.

MR. GREGORY: Mr. Henderson, good luck with your very important work.

MR. HENDERSON: Thank you very much, David.

MR. GREGORY: Thank you.

Joseph Stiglitz writes a wonderful op-ed in today’s NYT, Obama’s Ersatz Capitalism.  From the piece:

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.

The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!