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McCain, Obama Nominate Buffett?

by Cat Wed Oct 8th, 2008 at 11:00:58 PM EST

In the wee hours of Wednesday morning Warren Buffett briefly headlined a report on the town hall interrogation of Mssrs Obama and McCain. Then it disappeared. Early in the program, moderator Tom Brokaw asked, Who do you have in mind to appoint the most powerful officer in the cabinet now, secretary of the US Treasury?

That was a interesting question, a timely one. Much of the candidates' policy debates hash modest differences in implementation but stark differences in style between them on how to commercialize government functions. Callers-in to radio talk shows are reluctant to abandon the notion, the US is the richest nation on earth. Pat and Pat Homeowner's worries are wrapped in "negative equity" captured by their real estate and retirement portfolios. Which man or woman would best personifiy full faith in and credit of the US capital markets could tip a voter's preference for president. Brokaw's question yoked th Bailout prospectus to the dubious leadership in either candidate's known panel of money managers.

I wonder how the audience responded to the candidates' answer. I'm not entirely convinced their agreement was meant as a joke. Or Warren Buffet's nomination was a shrewd and cynical gambit to ratchet the financiers' new power of the purse. Buffett's legendary status not only prime middle-class profit motive in support bitterly contested legislation. It recollects the absolute authority with which Jesse Jones once governed the portfolios of the Reconstruction Finance Corporation (RFC) and Department of Commerce.


Neither the main stream media nor business press has enthusiastically linked either candidate to business expertise comparable to Mr Buffett's bona fides. Mr McCain's taste in economic advisors certainly has not been without critics, even ridicule. McCain is a high-profile member of the Keating Five. "People like" Kemp, Peterson, and Rudman haunt the spectrum of supply-side wonks and libertarian academics. A few months ago he returned de-regulator Phil Gramm of Gramm-Leach-Bliley Act of 1999 ("GLB Act")  and the Commodity Futures Modernization Act of 2000 to the closet where Carly Fiorina lurks, when Gramm derided American whiners. In other words, McCain being first to catapult Buffett into the campaign was no less surprising than his choice of running-mate, Sarah Palin.

McCain: You know, that's a tough question and there's a lot of qualified Americans. But I think the first criteria, Tom, would have to be somebody who immediately Americans identify with, immediately say, we can trust that individual.

A supporter of Sen. Obama's is Warren Buffett. He has already weighed in and helped stabilize some of the difficulties in the markets and with companies and corporations, institutions today.

I like Meg Whitman, she knows what it's like to be out there in the marketplace. She knows how to create jobs. Meg Whitman was CEO of a company that started with 12 people and is now 1.3 million people in America make their living off eBay. Maybe somebody here has done a little business with them. But the point is it's going to have to be somebody who inspires trust and confidence. CNN transcript

Whitman is a figure that McCain has identified previously as one of the three "wisest people" on whom he would rely for advice in his administration.  At the Saddleback Civil Forum on the Presidency which both candidates attended 16 August Whitman premiered with General David Patraeus and Representative John Lewis (D-GA) as a "great American success" story. Indeed, Ebay pursued huge international expansion during Whitman's ten-year tenure as CEO. She profited handsomely by Goldman Sachs' IPO underwriting between 1996 and 2002. And, though dogged in her final year by vendor attrition and poorly gauged acquisitions, she retired with a fortune estimated $1.3B with interest, in a run for governor of California in 2010.

She left John Donahoe who replaced her in March with an unpleasant task. On Monday, he announced that the firm would cut 1,600 jobs, or 10% of its workforce, over this quarter. But management offset this loss by adding lender Bill Me Later to its PayPal operation for about $945M in cash and stock options and online classified ad aggregators, dba.dk and bibasen.dk for another $390M in cash.

Of course, Mr Buffett may yet decline McCain's invitation specifically. No wonder then that Mr Obama readily approved of the Oracle of Omaha and did not promote any of his economic advisors to replace Paulson or Bernanke for that matter. With the exception of Paul Volker, these experts either evoke the Clinton administration's credibility  --Rubin, Summers, Blinder, Reich, Levitt-- or no confidence at all in competencies.

His campaign Director of Economic Policy Jason Furman reacted hastily to criticism of Obama's tax relief for 95% of  households and home offices. He  praised the campaign's "overall business agenda".

While columnist Charles Babington, called "McCain's proposal" to obligate nearly half of the $700B Bailout tab to "rescue" distressed mortgages a highlight of Tuesday's presidential debate, Furman today criticized the one provision of the Bailout Bill aimed at loss mitigation for lenders and foreclosure prevention-- the HOPE for Homeowners Act. In a press release, he predicted that "McCain's proposal" would force Treasury to "massively overpay for mortgages [and] guarantee taxpayers lose money, and values don't recover."

But Democrats Sen. Dodd and Rep. Frank  packaged the act last March (1, 2, 3, 4), co-opted by Sen. Shelby in May, the finally enacted in H.R. 3221. The relevant Bailout Bill mark-up language is H.R. 3997, §124 HOPE for Homeowners amendment.

Volker is 81-years-old and unlikely to see a full term TARP, five years. The avuncular Buffett isn't much younger. But half the population will associate Volker with painful and prolonged target fed funds rates to reverse inflation during the Carter and Reagan administrations. Ironically, the FRB this morning lowered its official target rate 50bps, seeming to coordinate long-term currency inflation measures of G7 counterparts and assure risk-free participation rates in short-term capital gains. The decision shifts gearing from depository banks' capital requirements to the transaction costs of brokerage intermediaries in financing, or "recapitalizing," corporate "troubled assets."

In fact, the FRB has announced the Commercial Paper Funding Facility (CPFF) to provide liquidity to US issuers other than reserve banks and primary dealers. The first act of the Fed and Treasury's joint authority establishes a special purpose vehicle (SPV) to purchase three-month unsecured and asset-backed bonds directly from selected companies.

Buffett, not unlike Spif in the EU or Clorox in the US, is a label for preternatural benefits that is familiar to middle-class households. Less charitably, the business press understands his risk threshhold to benchmark the penultimate market value of any one firm's price to earnings. A Buffett investment is an exercise in a bottom feeding arbitrage. His operating principle is said to be intuitive: "You should get greedy when others are fearful and fearful when others are greedy."

For example, in March 2008 one of Buffett's trusts purchased a majority stake in Marmon Holdings Inc from Chicago's Pritzker family. Pritzker, Penny is the uncelebrated National Finance Chair of Barack Obama for President. Incidentally, her family was the uncelebrated beneficiary of the FDIC's seizure of Superior Bank, an S&L whose mortgage portfolio is still managed by the FDIC. Earlier last month, he purchased an international utility holding company, Constellation Energy Group Inc, for $4.7B. Constellation, in a move counter-intuitive to this week's Wachovia best  practices to preserve shareholder value, had rejected a higher offer led by Electricite de France SA. And in advance of Congress enacting the $700B Bailout Bill, Mr Buffet purchased  $5B in perpetual preferred stock, carrying 10% dividend earnings, and a warrant to buy 43M common shares of the newly organized Goldman Sachs bank holding company. Few would gainsay Buffett's lastest bottom call. Goldman is unlikely to repeat the performance of Salomon Bros. Inc  in 1991. Goldman alumni are well-placed in current and future administrations.

Last night Mr Obama narrowly added emphasis to his Buffett endorsement and the job description of Treasury secretary in his administration. That is what has been a little noticed feature of the FRB's mission, promoting employment stability.

Obama: Well, Warren would be a pretty good choice -- Warren Buffett, and I'm pleased to have his support. But there are other folks out there. The key is making sure that the next treasury secretary understands that it's not enough just to help those at the top. Prosperity is not just going to trickle down. We've got to help the middle class.

And we've -- you know, Sen. McCain and I have some fundamental disagreements on the economy, starting with Sen. McCain's statement earlier that he thought the fundamentals of the economy were sound. Part of the problem here is that for many of you, wages and incomes have flat-lined. For many of you, it is getting harder and harder to save, harder and harder to retire.

And that's why, for example, on tax policy, what I want to do is provide a middle class tax cut to 95 percent of working Americans, those who are working two jobs, people who are not spending enough time with their kids, because they are struggling to make ends meet.

Sen. McCain is right that we've got to stabilize housing prices. But underlying that is loss of jobs and loss of income. That's something that the next treasury secretary is going to have to work on. op cit.

It is not clear how Mr Buffett would apply his deep investment knowledge to volatility in the US labor market that federal agencies face in months to come. Mr Buffett is said to have saved Mr Gutfreund's job in 1987 by investing $700M in Salomon preferred stock. But Ms Chao recently primed members of the US Chamber of Commerce, a formidable industrial lobby,  for resistance to "the Europeanization of the American workforce." She warned that it "would have dire consequences for our country's ability to compete abroad and would disrupt the traditional labor relationships here at home." Federal policy she insisted must embrace the idea that workforce development is not a social welfare program.

Europe's labor policy revolves around a number of concepts that directly contradict the ideals that have made America the envy of the world. These policies include state mandated limits on the work week, limits on working hours, and mandated leave policies subsidized by the government and paid for with extremely high tax rates on everyone.

Mr Obama has frequently advocated for employers' cooperation with the US Fair Pay Restoration Act, an Increase of minimum wage to $9.50 by 2011, a "Making Work Pay" tax credit to offset the first $500 of FICA, and an amendment to the Family and Medical Leave Act and extending flexible work arrangements. In the "Blueprint for Working Women and Families" (pdf), distributed by a political action committee Women for Obama, he proposes to amend the act by re-setting eligibility to firms sized twenty-five employees or more and coverage under the act to paid elder care, PTA, crime victim protection, and adoption leave assistance -- provided by a $1.5B fund administered by the Department of Labor. Ms Chao is offended however by these needs and increasing US  federal incentives for telecommuting like those in the UK. She continued.

In America, employers and workers come together to make these types of decisions, either individually or through collective bargaining. In Europe, instead of allowing workers and their employers to negotiate the best package of benefits for themselves, the government decides for them. And the results have been disappointing -- slower growth, lower per capita income, higher unemployment and longer durations of unemployment. [...]

Rather than embrace a regulatory and labor-management regime from the Old World, our country should pursue standards in keeping with the values of the New World-- the unique American way forward. We need to work to protect the principles and ideas that have made our economy the envy of the world. That means keeping taxes low, and being wary of regulations that stifle job creation. That means advancing free and fair trade. That means lowering trade barriers to goods and services manufactured in America, which promotes export growth and job creation at home. Public policy should focus on advancing a new model of labor-management relations in which both sides work together, recognizing that the true competition isn't sitting across the bargaining table. Our regulatory system must focus on producing benefits, not simply needless costs, and actually solving problems, not creating more of them. And we can develop tax policies that reward risk-taking and keep our country competitive globally. [emphasis added]

The political stage is being set for the entry of Democrats' magical "Mortgage Czar".

Display:
If elected, McCain probably wouldn't force Paulson to obligate $300B to FHA or FHFA qualified mortgage re-fi. But still. What is Furman's problem with Sec. 124 besides sour grapes?

Here is the ludicrous, misappropriated American Homeownership Resurgence Plan. See notes above to Dodd links.

Diversity is the key to economic and political evolution.

by Cat on Thu Oct 9th, 2008 at 12:20:30 AM EST
Getting Warren "there's a class war and my side, the wrong side, is winning" Buffet seems like a brilliant idea to me.

He would not let anyone, not even the President, screw around with him. And if he were screwed around with he would immediatly quit, cauing massive PR damage to the Administration.

The hardest thing would be to convince Buffet to take the job.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Oct 9th, 2008 at 10:38:19 AM EST
I don't know why being a shrewd stock-picker qualifies one to be treasury secretary.

I'd be happier with Joe Stiglitz.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Oct 9th, 2008 at 10:41:42 AM EST
[ Parent ]
Well, he has the right mindset.

And something tells me it's pretty hard for someone like Buffet not to pick up a few things along the way.

He has this saintly aura Stiglitz lacks which would calm people down a lot. And aggresive plans could be carried through just by the prestige Buffet has and the awe he inspires.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Oct 9th, 2008 at 11:35:27 AM EST
[ Parent ]
I'm sick of how we're in awe of investors.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Oct 9th, 2008 at 11:39:11 AM EST
[ Parent ]
"Awe"???
by Colman (colman at eurotrib.com) on Thu Oct 9th, 2008 at 11:41:41 AM EST
[ Parent ]
Are you shocked?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Oct 9th, 2008 at 12:03:57 PM EST
[ Parent ]
Well, I didn't necessarily mean awed by a forum full of socialists. ;)

More like by the financial markets, people and general and Serious People(TM).

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Oct 9th, 2008 at 01:22:41 PM EST
[ Parent ]
"people in general"

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Oct 9th, 2008 at 01:25:02 PM EST
[ Parent ]
But a big part of the problem is that a lot of "serious people" will have to go down hard if Obama is going to have any chance of doing anything that'll matter more than a snowflake in the fires of Hell.

Rather more Shock and much less Awe for the "serious people," please.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 11th, 2008 at 01:26:22 PM EST
[ Parent ]
I don't know why being a shrewd stock-picker qualifies one to be treasury secretary.

A reputation as an experienced arbitrageur is valuable in  rent-seeking markets and in a social environment where profit optimizing is normative. You imply, somewhat, that the function and objectives of a treasury secretary per se preclude satisfaction of either "benefit." That assumption would be moot --fiduciary behavior constrained by cost avoidance-- if the treasury's clients were one and the same. In the US, they are not.

To Stiglitz's credit, he is a capable bean counter and talented forecaster. He knows his cash flows. The  problem remains, how to enforce government solvency.


Diversity is the key to economic and political evolution.

by Cat on Thu Oct 9th, 2008 at 12:21:13 PM EST
[ Parent ]
A reputation as an experienced arbitrageur is valuable in  rent-seeking markets and in a social environment where profit optimizing is normative. You imply, somewhat, that the function and objectives of a treasury secretary per se preclude satisfaction of either "benefit."

US Treasury: Duties and Functions of the Trasury Secretary

The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the government.  The Secretary is responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt. The Secretary oversees the activities of the Department in carrying out its major law enforcement responsibilities; in serving as the financial agent for the United States Government; and in manufacturing coins and currency.

The Chief Financial Officer of the government, the Secretary serves as Chairman Pro Tempore of the President's Economic Policy Council, Chairman of the Boards and Managing Trustee of the Social Security and Medicare Trust Funds, and as U.S. Governor of the International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development.

(my emphasis)

My suggestion of Stiglitz is somewhat perverse in that in Globalization and its Discontents he lays the criticism thick on Rubin's Treasury Department. If he thinks he knows better he should be given the oportunity to prove it. I think he does know better.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Oct 9th, 2008 at 12:59:07 PM EST
[ Parent ]
Thanks for bringing us the link. LOL. Notice, there's no instruction on cost avoidance, e.g. taxpayer "savings".

It is a concise description of the National Banking Act of 1863/1864 et seq. Let us ponder (briefly) the case law since that assures reliable, orderly issuance of "taxpayer" debt.

I take your points on Stiglitz's nomination. Let's raise the ante: is it time now to remove appointment of "the most powerful officer in the cabinet" to the plenary field? Put the candidate to a vote!

Diversity is the key to economic and political evolution.

by Cat on Thu Oct 9th, 2008 at 02:00:23 PM EST
[ Parent ]
Putting individual cabinet members up for election might provide some difficulties under our current system, but you have a point on his importance.  Perhaps a mechanism that required presidential candidates to name their candidates for the "big four" cabinet positions of State, Treasury, Justice and Defense would be in order.  Require that their pre-election nominees be the ones they submit to Congress for approval after inauguration.  That might reduce the "pig in a poke" aspect we currently face in evaluating candidates.  Of course, probably less than 10% of the electorate would know enough for it to make much difference.  Yet, the information so provided could be used to raise issues that could further educate the electorate, to the extent that they are educable.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 10th, 2008 at 12:57:58 AM EST
[ Parent ]
Of course, probably less than 10% of the electorate would know enough for it to make much difference.

But 1) they would be dissected to death by the media; 2) they could have one debate per secretary - that would have more content than a vice-presidential debate.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 04:35:20 AM EST
[ Parent ]
Exactly.  A larger portion of the electorate would unavoidably be exposed to discussion of matters actually significant to the future of the country.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 10th, 2008 at 10:18:51 AM EST
[ Parent ]
Wait a minute: Mr Brokaw's observation ("the most powerful officer in the cabinet now") leads to one additional presidential "running mate." Let's not get ahead of that question by arguing how one might evaluate the competencies of every cabinet officer. I should hope that every voter already understand that the president-elect's nominees are subject to senate confirmation. The conflict of interests with popular policy sentiment among members of that body is well documented by the results of the confirmation procedure.

Rather, let's consider the benefits to as well as, shall we say, the inconveniences of "taxpayers" electing a treasurer. What have the people left to lose? "Savings" losses, an economic depression has arrived.

I happen to agree with Browkaw's observation --and I doubt I'm alone on principle-- to the extent, and within the new legal framework, Congress has abrogated significant, distretionary Article 1 powers to the secretary of treasury apart from instructions and rule-making by the president. Poll-smokers will be interested to monitor public opinion of the  treasurer's distribution of +$700B as well as its expectations, heretofore unexamined, for the next treasurer. The public will have an opinion, and demand for pertinent information will increase.

I for example am also politically sensitive to the fact that the presidential ticket is absolutely controlled by the Democratic and Republican committees; the vice-president is not subject to democratic franchise.

So furnish these conditions for election that may or may not ultimately create friction, generally, in resolution of federal appropriations and executive allocations.

1. The treasury candidate is selected by party committee and joined to presidential ticket.

-- OR--

2. The treasury candidate is party-affiliated and off-ticket ballot.

For the sake of simplicity, assume treasury candidate(s) is eligible to receive public campaign financing (limit X ratio of general fund), if qualified by a plurality of votes in an open popular primary.

Diversity is the key to economic and political evolution.

by Cat on Fri Oct 10th, 2008 at 01:53:56 PM EST
[ Parent ]
To be clear, direct election of the Secretary of the Treasury would, de facto, create a fourth branch of government.  Would the existing Congress perform oversight? What would be its relationship to the Executive branch? etc.  It seems to me that we need to reassert the political aspects of what once was called political economy.  This proposal would likely make  economic policy even more divorced from politics.

Given the extent to which the currently accepted approach to economics is being shown to be primarily a public relations front for a pack of looters, on what basis would such an economic fourth branch of government operate?  The power of the purse remains the chief power of Congress, even if Congress seldom has the courage to use it.  How could it stand up to a President and a Treasurer who shared goals and coordinated policies?  The possible scope for unintended consequences from this proposal seem massive.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 12th, 2008 at 12:07:12 PM EST
[ Parent ]
A terrific reply: I'm sorry I just noticed it in the history :) I will reply in an article. Which means carving out a time to address each point. Thank you.

Diversity is the key to economic and political evolution.
by Cat on Tue Oct 14th, 2008 at 07:56:39 AM EST
[ Parent ]
I wouldn't call him a stockpicker, rather an excellent corporate manager.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Oct 9th, 2008 at 01:23:18 PM EST
[ Parent ]
Warren "there's a class war and my side, the wrong side, is winning" Buffet

An excellent selection from the Buffettorium and a provocative prediction of management conflict(s) that should disabuse both candidates of passing the mystical buck to a competitor.

if he were screwed around with he would immediatly quit, cauing massive PR damage to the Administration.

Jesse Jones had FDR by the balls for nearly 20 years.

Diversity is the key to economic and political evolution.

by Cat on Thu Oct 9th, 2008 at 12:04:00 PM EST
[ Parent ]


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