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Seething Seniors

Rich Old Guys Who Hate Obama

Jack Welch, who accused Obama of manipulating the jobs report, is just one of the wealthy white dudes, mostly in their late 60s and 70s, who’ve been stalking the airwaves, print, and social media, attacking the president. Daniel Gross offers a guide to the aging moguls who loathe Obama.

They’re everywhere! In the past few weeks, it’s been hard not to notice a new species: Maleus Americanus Crustius. Sure, they’ve always been with us. But these days, the alpha-male specimens, white dudes mostly in their late 60s and 70s, have been stalking the airwaves, print, and social media. They’re full of rage and fury about politics, tax policy, and the resident of 1600 Pennsylvania Avenue. They share certain characteristics: north-south migration patterns, brittle egos, receding hairlines, and long records in business. While they respond well to obsequiousness and stroking, they exhibit a tendency to snarl when put on the defensive. And they don’t need medication to get blood moving to their extremities. The mere mention of President Obama does the trick.

Zell Wynn and Murdoch

(From left to right) Real Estate Investor Sam Zell, Wynn Resort's Founder Steve Wynn and News Corp CEO Rupert Murdoch. (AP Photo (3))

Our Field Guide to Angry Old Obama-Hating Rich Men.

Name: Jack Welch

: 76

Titan of industry, 20-year CEO of General Electric, turned speaker,  management guru and columnist with wife Suzy. Active on Twitter.

Natural habitat: 
Boston, Nantucket, Palm Beach.

Recent noteworthy activities
: Starting with a series of tweets last Thursday, Welch has been all over the media—on CNBC, on MSNBC, on the Wall Street Journal op-ed page—accusing the White House and the Obama campaign of manipulating the September jobs report. He’s also generally been running down the conduct of the U.S. economy under the Obama administration. Reacted to harsh pushback from reality-based community by comparing U.S. to Soviet-style authoritarian regime in which any and all dissenting views are crushed.

Ostensible reason for anti-Obama rage
: Is convinced the Obama administration is cooking the books on labor market, and is anti-business.

Real reasons for generalized anger
: Legacy as a highly praised CEO who raised revenues from $26 billion in 1980 to nearly $130 billion in 2000 but has been attacked recently as just the wins of a bull market economy. Meanwhile, his hand-picked successor, Jeff Immelt, who accepted an Obama appointment to a jobs council, has racked up much less impressive record—but is much better-liked.

Name: Leon Cooperman


Founder and CEO of Omega Advisors, wildly successful hedge fund

Natural habitat: 
Lower Manhattan

Recent noteworthy activities: 
Cooperman featured prominently in Chrystia Freeland’s recent article in The New Yorker  about angry rich guys. He distributed a letter to colleagues complaining about Obama’s divisive rhetoric and class warfare, and obliquely compared Obama’s political rise to that of Hitler.

Ostensible reason for anti-Obama rage: 
Obama occasionally refers to the wealthy as fat cats, says people who fly in private jets should pay higher taxes, blames banker and Wall Street for woes of economy.

Real reason for generalized anger: 
Neither Obama—nor his kids—sent Cooperman a thank-you note after he presented the president with a volume of self-published poems written by Cooperman’s teenaged granddaughter.

Name: Sam Zell


Legendary real estate investor, known for jumping into distressed situations. Ill-fated, highly leveraged acquisition of Tribune Company wound up in bankruptcy.

Natural habitat: 
Chicago, distressed-investing conferences.

Recent noteworthy activities: 
In an appearance on CNBC on October 2, Zell tore into Obama, suggesting that it didn’t make sense for people like him to invest at a time when business is under attack.

Ostensible reason for anti-Obama rage: 
Obama wages class warfare by arguing that those with higher incomes should pay higher taxes than they pay now.

Real reason for generalized anger
: Even after a successful career as contrarian investor, Zell is mostly known to the public for his disastrous, money-losing purchase of the Tribune Company in 2007.

Name: David Siegel


Founder of Westgate, a large time-share business. Builder of 90,000-square-foot home in Florida, featured in documentary, The Queen of Versailles.

Natural habitat
: Orlando

Recent noteworthy activities: 
Recently circulated an email to employees in which he said he would fire employees if President Obama were to be reelected.

Ostensible reason for anti-Obama rage: 
Obama’s plans to raise taxes on rich and health care costs will make it impossible for businessmen like him to make money. Also, president has apparently failed to stimulate sufficient demand for the low-end vacation time shares he sells.

Real reason for generalized anger
: He came off badly in documentary about his unfinished 90,000-square-foot house.

Name: Steve Wynn

: 70

Charismatic founder of Wynn Resorts, helped reinvent Las Vegas.

Natural habitat
: Las Vegas, Macau

Recent sightings
: In an interview with journalist Jon Ralston earlier this week, Wynn raged about the president’s practice of class warfare. “I can’t stand the idea of being demagogued, that is put down by a president who has never created any jobs and who doesn’t even understand how the economy works.”

Ostensible reason for anti-Obama rage: 
Obama has called for higher taxes on the wealthy, and has made off-handed comments that are harmful to casinos’ effort to pry dollars from consumers. For example, he warned companies that accepted bailout funds: “You can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer’s dime.” He also told Americans: “You don’t blow a bunch of cash in Vegas when you’re trying to save for college.”

Real reason for generalized anger: Enraged that Andy Garcia got to play the role of the casino owner in the Ocean’s 11 franchise.

Secret Twins?

How Obama’s Like Facebook

The introverted leader, the lady heir apparent, the dubious plans for financial success—it all matches. If the Obama administration were a company, it would have to be Facebook. Daniel Gross explains.

We’ve had some fun in recent weeks comparing the Romney campaign to corporate entities like Chick-fil-A and the New York Jets. But if the Obama administration/
campaign were a company, what would it be?

Social Media Politics

Pablo Martinez Monsivais / AP Photo

Facebook, duh.

Let’s review the similarities.

Both were extremely hot and really popular among young people a few years ago but have reached something close to saturation in the U.S. market. The metrics suggest Facebook is running out of Americans to sign up to join its network. The polling data suggest President Obama is showing signs of running out of Americans to sign up to join his network. Meanwhile, fickle fans of both entities are constantly looking for other alternatives—i.e., Twitter, Romney.

Both were organized around a somewhat introverted, awkward young guy who spent a few formative years in Cambridge, Mass., and who cultivates an aloof public persona with his constituents—investors for Mark Zuckerberg, voters for Obama.

At both Facebook and the Obama administration, the most effective leader and future heir apparent may be an older woman who serves as the diplomat, who served in the Clinton administration, and who is an iconic figure for working moms—i.e., Sheryl Sandberg and Hillary Clinton.

Both were designed to level the playing field, promote an egalitarian, barrier-free society, and give voice to the voiceless. But both have wound up lining the pockets of insiders and making the rich richer as middle-class folks suffer. Since 2009, median income in the U.S. has declined, even as the stock market has risen sharply, the wealthy have enjoyed low tax rates, and income inequality has risen. Just so, in the Facebook initial public offering, the Wall Street underwriters made money, early venture-capital investors and insiders cashed out—and the ordinary investors who bought the stock when it opened for trading have lost about half their money.


What Mitt Got Wrong

In his foreign-policy speech today, Romney excoriated the president for failing to sign ‘one new free-trade agreement.’ Daniel Gross on why that’s a small but significant lie.

As lies go in this political campaign, it’s a relatively small one. But it’s a pretty telling one nonetheless.

In his foreign-policy speech on Monday, Mitt Romney excoriated President Obama for not seeking to open new markets for American goods and services. “I will champion free trade and restore it as a critical element of our strategy, both in the Middle East and across the world,” Romney said. “The president has not signed one new free-trade agreement in the past four years. I will reverse that failure.”

That’s false. In fact, about a year ago, on Oct. 21, 2011, Obama signed new free-trade agreements with South Korea, Panama, and Colombia. (There’s a picture of him doing so right here.)

While those free-trade agreements were many years in the making—as all free-trade deals are—they are indisputably “new” free-trade agreements. They were not ratified by the U.S. Congress until President Obama convinced the legislative branch to do so. And they did not exist as laws until President Obama signed them.

The Bush administration and the government of South Korea first signed a trade agreement in June 2007. The same month the administration also reached agreement with Panama on a new trade deal. President Bush first submitted the Colombia free-trade deal to Congress in April 2008. But Bush was not able to get any of these measures through Congress, in part because Democrats in Congress didn’t like all the terms of the deals, and in part because he was losing effectiveness as a legislator. To get them through Congress, Bush would have had to (a) convince the counterparties to modify some of the terms; and (b) convince Congress to approve them. He did neither.


U.S. Republican presidential candidate Mitt Romney delivers a foreign-policy speech at the Virginia Military Institute in Lexington, Va., on Oct. 8, 2012. (Jim Watson / AFP / Getty Images)

Obama was ultimately able to do both. For much of the early part of the Obama administration, the free-trade agreements languished. But eventually things came together. Colombia agreed to implement new protections for labor. Panama, responding to concerns that it had become a tax haven, in 2010 agreed to share more tax information. With Korea, the Obama administration held out for—and won—better terms on market access for U.S. carmakers. As a result, the United Auto Workers wound up supporting the agreement. In all three instances, the agreements signed in October 2011 contained significant differences from the agreements reached in 2006 and 2007.

It is an article of faith among conservatives that the Obama administration is hostile to businesses of all sorts, that it has created barriers to companies seeking to get involved in trade, and that it is hostile to the expansion of free trade. That’s a holy trinity of hooey.

Jobs Jobs Jobs

Finally, Some Good Numbers

The U.S. added 114,000 jobs in September, sending the unemployment rate down to 7.8 percent. Daniel Gross digs into the report and finds even more positive trends—and just a few red flags.

Well, Friday’s jobs report—aka the most important jobs figure of all time, ever—didn’t disappoint. The Bureau of Labor Statistics reported that the U.S. economy added 114,00 payroll jobs in September, and that the unemployment rate fell from 8.1 percent to 7.8 percent. Here are a few important takeaways.

The labor market is recovering, 1.

The payroll-jobs figure shows the labor market is recovering. The economy has now added jobs for 24 straight months. Since February 2010, the private sector has added 4.7 million new positions. Employment is pretty much back where it was in January 2009.

The labor market is recovering, 2.

The household survey—the component of the jobs report that yields the unemployment rate—has generally told a less positive story than the payroll-jobs figure, which describes how many people companies are hiring. For the household survey, BLS calls people and asks if they’ve been working, if they’ve given up, if they’re working part time. This survey yields not only the unemployment rate, but the size of the labor force, the employment-to-population ratio, and an alternate measure of employment. And in recent months, even as payroll jobs grew, many of these measures went in the wrong direction.

In September, however, the household survey flashed all kinds of green lights. Instead of contracting, the labor force grew over the month, by 418,000. And yet the unemployment rate fell to 7.8 percent from 8.1 percent in August. The reason: all these new entrants to the labor force were absorbed, and then some. The household survey found that some 873,000 more people were at work in September than in August, and that the employment-to-population ratio ticked up from 58.3 percent to 58.7 percent.

The trend is the friend. 

Over the past few years, we’ve seen a pattern develop, one that is common during the early stages of labor-market recoveries. The BLS revises its monthly data in each of the successive months. Then it revisits all the numbers and issues annual revisions. The trend has generally been for the revisions to be positive. That may not do much for political campaigns that live and die by the headline number, but it is good news for the economy. So, for example, in September, BLS reported that the economy created 386,000 more jobs between March 2011 and March 2012 than originally thought. This month, BLS looked back on July and August and found lots of new jobs. The July figure, previously reported as a gain of 141,000 jobs, was revised to a gain of 181,000. The August figure, originally reported as an anemic 96,000 gain, was revised to a more impressive 142,000. That’s 86,000 additional jobs.


The Think Tank Snoozer

What should have been a passionate clash about unemployment and economic growth turned out to be a boring, abstract yawner. Daniel Gross on what was missing from the first debate.

This was supposed to be a debate about the economy–— the gripping, all-consuming question. How is the creaky engine of global growth performing? How can it boost demand and soak up all the unemployed and underemployed? What should be done about the crisis of unemployment? About housing? How can America compete in global markets? And how does the state of play in the global markets affect the economic experience of individuals?


Saul Loeb / AFP-Getty Images

That’s not what happened. What we saw was a discussion that was very narrowly contained—the type I’ve seen a dozen times at Davos, at Washington think tanks, on Metro North. Entitlement reform, discussed in abstract terms. Reducing the deficit, as a presumed end rather than a means. The Simpson-Bowles Commission, for G-d’s sake. A long back and forth about Dodd-Frank? I can barely muster up the energy to follow the discussion about Dodd-Frank, and I get paid to do this. There was no discussion of the bailouts and revival of the nation’s largest manufacturing and retail sector: the automobile industry. There was precious little mention of the unemployed. And if they talked about housing, I must have slept through it.

At the outset, the candidates set up opposite approaches—Obama calling for “economic patriotism” and Romney complaining about “trickle-down government.” But the differences weren’t sustained. Obama didn’t hit Romney on his Bain experience, or on his atrocious 47 percent remarks. Romney’s mentions of overreaching government were rote.

That said, especially in the early going, Romney had the better of it. Stylistically, he was on the front foot—aggressive, prepared, and engaged. Romney gets truly animated when he talks about enterprise, business creation, and—above all—bringing down tax rates. Obama simply isn’t as fluent—never has been—when talking about the economy, and the connection between government policy and economic growth.

There was a great deal missing from the parts of the debate that were supposed to be on the economy—passion, aggression, and a game plan by Obama, truthfulness by Romney. Romney continually said that his massive reductions in marginal rates wouldn’t be tax cuts, because ... well, just because he said so. That’s a new one on me.

But more significantly, while both candidates occasionally dipped into the real world—isn’t it funny how so many of their meaningful encounters with struggling voters happened to take place in Ohio—the entire discussion was remarkably detached from the reality of today’s economy. There have been some significant changes in the U.S. economy in the past three years—good and bad. A massive increase in exports and rise in trade. A sharp rise in domestic energy production, which in turn stimulates other industries. An incredible rebound in the credit and stock markets, and in corporate profits. At the same time, we have a historically stubborn unemployment problem, a decline in median income, and a massive increase in income inequality.

These developments present—and demand—responses from politicians and government. And we’ve certainly got some reactions and counter-reactions in the past four years. But in Denver Wednesday night, the two candidates were oddly detached from the realities of the U.S. economy circa 2012. Obama failed to make his case for the positive trends in recent years, and Romney failed to connect the dots on how his policies would be implemented, and how they would bring help to people struggling today. In fact, at the outset, when the candidates laid out their economic plans, they were somewhat interchangeable: trade, energy, education/skills, blah, blah, blah.


Car Sales Roll Ahead in September

Amid signs of an economic slowdown, U.S. car sales keep moving, led by sales of small cars and a resurgent Toyota. By Daniel Gross.

In the U.S., cars constitute both the largest manufacturing sector and the largest sector of the vast retail industry. So it really matters how many cars are sold each month. We’ve entered an autumn full of fears of a slowdown. But while global growth sputters, and cracks are showing in the U.S. growth story, auto sales held up relatively well in September. Industrywide, sales came in at an annualized pace of 14.87 million. That’s better than analysts’ expectations of about 14.5 million.

Auto Sales

Chrysler sales consultant Doug Desloover, left, shows a Jeep Wrangler to Lewis Colon at the Hollywood Chrysler Jeep car dealership on October 2 in Hollywood, Fla. (Joe Raedle / Getty Images)

A few important takeaways.

The Italian job, continued. Chrysler, which stood on the verge of liquidation just a few years ago, is sustaining its remarkable comeback under the leadership of Fiat CEO Sergio Marchionne. Chrysler sales rose (PDF) 12 percent in September from last year, the 30th straight month of year-on-year gains. Chrysler has been energized by new products. It sold more than 4,100 Fiat 500s and 5,235 Dodge Darts—two recent introductions. Meanwhile, sales of the company’s iconic Jeeps rose 10 percent from last year. While September’s gains were less impressive than results from recent months, the figures show a company that is firing on almost all cylinders.

The Rising Sun. Last year was a terrible year for Japanese carmakers like Toyota and Honda. The tsunami and its aftermath disrupted the supply chain and made it impossible for dealers to stock vehicles at a time when overall demand was rising. But Toyota and Honda are back up at full speed. Toyota reported (PDF) September sales of 171,910 vehicles, up a whopping 41 percent from September 2011. From inexpensive models like the Scion to the upscale Lexus, sales were strong across the board. The company sold 26,747 hybrid vehicles in September—accounting for about 16 percent of its total. Honda’s sales were up by a smaller margin. U.S. Honda sales rose 30.9 percent from September 2011, to 117,211 units, led by gains in the Accord and the Civic.

Small is Beautiful. Rising gas prices and pinched incomes means Americans continue to show interest in smaller, more fuel-efficient vehicles. Toyota and Honda’s results showed that. At General Motors, which sold 210,245 vehicles in September, up only 1.5 percent from a year ago, sales of passenger cars soared by 29 percent. The company sold nearly 26,000 Chevy Cruzes, up 42 percent from a year ago, and 2,851 units of the much-maligned Chevy Volt—a four-fold increase from a year ago.

The Big Picture. Sales of the Big Three—GM, Ford, and Chrysler—always tend to garner the biggest headlines. And in September, the Big Three’s results were less impressive than in previous months. But that has less to do with the weakness of the auto market, and more to do with the return of foreign automakers like Honda and Toyota to the marketplace in full force. The pie continues to expand, but foreign automakers are gobbling up slightly larger pieces this year than last. Good things happen in the U.S. when more cars are produced and more cars are sold. At a time of rising economic anxiety, the September car sales data offers some reassurance.


American Airlines Hits Turbulence

From loose seats to a scathing op-ed in The New York Times, American Airlines’ reputation is in free fall. Daniel Gross reports that the iconic airline may not be able to survive going through bankruptcy.

American Airlines, the Ft. Worth–based international air carrier, may have already had its worst week ever—and it’s only Tuesday. The airline has been operating in bankruptcy since November and has suffered a series of public relations and operational black eyes in just the last few days.

American Airlines

American Airlines planes on the tarmac at Miami International Airport. (Joe Raedle / Getty Images)

Their travails started on Saturday with novelist Gary Shteyngart’s caustic op-ed in The New York Times detailing his harrowing 30-hour journey from Paris to New York. Shteyngart declared, on America’s most important op-ed page, that the airline “should no longer be flying across the Atlantic” because American did not have the “know-how” and that its employees “have clearly lost interest in the endeavor.”

The bad news continued today, with news that the federal government is investigating two cases of seats on American Airlines planes coming loose midflight. There have been three reported incidents of loose seats since last Wednesday.  A flight on Monday from New York City to Miami had to be diverted back to John F. Kennedy airport when the seats came loose.

Meanwhile, the company’s management team is embroiled in a dispute with its most important employees—the pilots—even while trying to fend off a takeover bid from rival US Airways. All of which shows the perils of operating a complex business like an airline in bankruptcy for an extended period of time.

Although American’s parent company filed for bankruptcy last November, it has continued to operate. The U.S. bankruptcy system gives companies great leeway in restructuring debt, renegotiating contracts, and shucking other financial obligations. The ability of the system to process financial failure while letting businesses continue to operate has been a competitive advantage for the United States. And every year, thousands of companies successfully emerge from bankruptcy protection with better balance sheets without substantial erosion of their brand and underlying business.

But it’s a lot easier for a restaurant chain or a hotel to operate while in Chapter 11 than it is for an airline, as American has proved. Airlines are complex, capital-intensive businesses that rely on highly skilled labor and expensive machinery and systems that require vigilant maintenance and constant improvement.

In the best of times, U.S. airlines struggle with customer service, maintaining their fleets, and working within a creaky aviation infrastructure. And they’re not very profitable—between 1979 and 2009, U.S. airlines have lost $67 billion.


Romney’s Campaign = the Jets

They both bet on (but coexist awkwardly with) evangelicals, take defensive approaches to their campaigns, and rely on a tough guy from New Jersey. Dan Gross points out the similarities between Romney and the Jets.

Republican presidential candidate Mitt Romney has repeatedly expressed his affinity for business owners. When asked if he was a NASCAR fan, he responded that he was friends with some NASCAR team owners. Romney similarly finds support among the elite class of professional sports franchises owners. New York Jets owner Woody Johnson, for example, is the chairman of Romney’s New York campaign, and a major fundraiser. So it comes as no surprise that the Jets, who just endured a humiliating 34-0 loss on Sunday to the San Francisco 49ers, bear certain resemblances to the Romney campaign. Let’s count the ways.

Both are occasionally overshadowed by franchises based in Wisconsin—the Packers for the Jets, vice presidential nominee Paul Ryan for Romney.

Both have relied on a blustery, plus-size, New Jersey-based, media-hogging, tough-talking guy with an over-inflated sense of his own competence as a frontman and spokesperson: head coach Rex Ryan for the Jets, and New Jersey Governor Chris Christie for the Romney campaign.

Both have placed bets on evangelicals but coexist awkwardly with them and hold back from letting them hold center stage. Romney’s brief history as a moderate, and lifelong history as a Mormon, have contributed to an uneasy relationship with fundamentalist Christians. At the Republican convention in Tampa, few were given primetime speaking spots. The same might be said of the Jets, who brought in Tim Tebow, the Bible-thumping, knee-taking quarterback from Denver in the off-season. Tebow has been a fish out of water in the Jets’ offense. Even in Sunday’s debacle, as incumbent quarterback Mark Sanchez struggled, going 13 of 29, for 103 yards, with one interception, Tebow remained anchored on the bench. He threw one piece (complete) and carried the ball twice.

Both have taken a defensive approach to the campaign, and find it difficult to go on the offensive. In both the primaries and the general elections, Romney has generally waged a careful campaign that frequently finds itself pinned near its own end zone thanks to gaffes and fumbles. He has struggled to seize the initiative and narrative of the campaign. And he’s constantly calling audibles that result in incomplete passes—most recently, he’s taken to touting the Massachusetts health-care mandate as a sign of empathy. Just so, the Jets are a team that has historically been based on playing tough defense first, and that has struggled for years to develop a razzle-dazzle, high-scoring offense. On Sunday, the Jets’ offense was incompetent.


Getty Images (2)

Bettors give both entities long odds at success this fall. The “Nowcast” in Nate Silver’s election model on Monday gave Romney a 1.9 percent chance of winning the election. The same day, Vegas Insider had the Jets at a 30:1 longshot to win the Super Bowl.

Earlier in the season, both the Romney campaign and the Jets found themselves subject to Monday-morning quarterbacking and a dreaded quarterback controversy. In a recent Politico story, outsiders, anonymous insiders, and pundits questioned the play-calling and the game plan of the Romney campaign, and suggested that campaign QB Stuart Stevens be benched. These guys have been at it for four years, and they don’t seem to have a clue as to what to do with the ball. Which precisely echoes the criticism levied at the New York Jets offensive minds and quarterback Mark Sanchez. See this New York Post blogpost for an example: “He was flat out awful. This is now three straight weeks where he has completed less than 50 percent of his passes. If it’s not Tebow time yet, it’s getting close. The fumble at the end of the first half was an unbelievable mistake for a fourth-year player … Plain and simple, he’s not getting better.”


Bair Dishes on Bailout

A rare competent regulator describes policy battles with the Obama administration in her new book. Watch exclusive video.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, is a member of a very small club: competent crisis-era financial regulators. Bair was one of the policymakers in Washington in the 2007–2009 period who was ahead of the curve. From her perch at the FDIC, where she was charged with safeguarding the nation’s bank deposits, Bair had a front-row seat to the housing/credit boom and the spectacular bust.

The officials in charge at the Federal Reserve and the Treasury Department—Ben Bernanke, Henry Paulson, Tim Geithner—have been placed at the center of the many crisis narratives. But Bair and the FDIC deserve better billing. While the crisis originated in banks that were not part of its system—so-called shadow banks like Lehman Brothers, Countrywide Financial, and AIG—the FDIC played an important role in stemming the panic in 2008 and 2009. In the middle of the crisis, for example, the FDIC expanded the levels of deposit available for insurance and set up a program through which it guaranteed more than $300 billion of debt issued by financial companies.

In her comprehensive new book, Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself, Bair recounts her experiences at the FDIC, her frequent run-ins with banking executives, and with officials such as Treasury Secretary Tim Geithner.


Sheila Bair, a senior adviser to the Pew Charitable Trusts and former chairman of the Federal Deposit Insurance Corp. (FDIC), speaks during a Bloomberg Television interview in New York, on Wednesday, Sept. 26, 2012. (Peter Foley / Bloomberg via Getty Images)

In our extended interview, Bair discusses the historic bailout and the still-current issues surrounding banking reform, the size and influence of Wall Street, and the still-incomprehensible failure of the Obama administration to deal decisively with the housing and foreclosure crisis.


'Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself'

It’s worth noting that Bair was one of the only figures in Washington to emerge from the crisis with her reputation intact, and indeed, burnished. Hundreds of failing and faltering banks failed and were closed, with little disruption to customer service. No depositor lost a single penny in insured deposits, despite the worst banking crisis since the early 1930s. The debt insurance program collected several billion dollars in fees without having to make any payments. And the insurance fund run by the FDIC is replenishing itself without having to dun taxpayers. For better or worse, the banking system is now in relatively good health.

NFL owners thought they could get away with treating officials the way corporate America treats its employees.

“Whoever wants to know the heart and mind of America had better learn baseball,” wrote the cultural critic Jacques Barzun in the middle of last century. But if you want to understand what’s going on in the U.S economy, you’d be better advised to get to know football. The recently resolved labor dispute between the National Football League and its referees illuminates several larger trends in the economy.

NFL Officials and the Working Class

Jose Luis Pelaez Inc / Blend-Getty Images; Otto Greule Jr / Getty Images

First, when rich and powerful guys defund the rulemakers and regulators, bad things happen—but only the public and the little guys seem to suffer. The NFL officials aren’t just workers. We learned they are vital to the quality of the experience in the marketplace—the pace of the game, making sure it is called reasonably, protecting participants from injury, and providing a safety net. They police activity, smack down out-of-bounds behavior, punish wrongdoers, and generally tamp down volatility. Which is very similar to the function that regulators like the Securities and Exchange Commission and the Office of the Comptroller of the Currency were supposed to do. When those entities were underfunded, understaffed, and marginalized, it encouraged an anything-goes environment. And then things went south, it wasn’t the owners of the institution that got hurt. Wall Street CEOs still got their businesses and saw their companies bailed out. It was small investors, borrowers, little firms that got hurt. Just so, during the strike, which severely hampered the quality of the experience, the owners didn’t suffer any financial harm. The payments from television deals and ticket sales still flowed in. But it was the workers and spectators that got hurt: the player who may have been injured when a cheap shot was missed, the coaches and fans who suffered when the results were miscalled, and small-time betters who found the spreads suddenly meaningless and unpredictable.

Second, American management views low wages and dominance over labor as an entitlement. It’s no secret that organized labor has declined as a force in American culture. In 2011, according to the Bureau of Labor Statistics, only 11.8 percent of salaried workers belong to a union, and only 7.6 percent of private-sector workers were represented by unions—down from 9.8 percent in 2000. The overwhelming majority of companies in the U.S. today simply do not have to deal with workers who band together to negotiate salaries and benefits. In the 1950s, big corporation and big labor forged an entente, in which they generally agreed to share an expanding pie. These days it’s much more like a zero-sum game. Capital takes what it wants and essentially tells workers to take what is offered without offering much of a peep. As David Lynch of Bloomberg notes, “quarterly corporate profits of $1.9 trillion have almost doubled since the end of 2008, while workers’ inflation-adjusted average hourly earnings have declined.” The concept of sharing the wealth is simply alien to the titans of industry who own NFL teams. So the willingness of a group of employees to hold fast to their demands came as a shock, and the owners’ natural inclination was to tell the refs to stuff it.  

Third, there’s an epidemic of wealthy entities choosing not to fund retirement promises made to longtime workers—when they could easily afford to do so. One of the central points of contention was the owners’ desire to convert the officials’ old-school, defined-benefit pension into a 401(K). Commissioner Roger Goodell told the Huffington Post that “Yours truly doesn’t have that. It’s something that doesn’t really exist anymore and that I think is going away steadily.” (Of course, people who earn multi-million dollar salaries, as Goodell does, can easily fund their own retirements out of wages and savings.) The NFL owners would have saved a few million dollars by altering the pension scheme—a tiny sliver of their overall revenues, and a sum that wouldn’t  put a crimp in their day. Just so, corporate America at large, which is flush with cash, is choosing not to fund adequately the pensions it has promised to employees—even as they pay out dividends and large bonuses and stay current on other obligations. For years, states, cities, and the federal government have chosen not to collect—or deploy—adequate resources to fund pensions plans and other benefit programs. There is a pension-funding crisis in the U.S. But it is largely a matter of choice.

Fourth, while the public isn’t exactly high on unions, it won’t always stand for it when organized labor is pushed around by powerful bullies. In the case of the NFL officials, public sentiment was overwhelmingly on the side of the referees. Players, fans, and even the sportscasters on networks that have vital, massive contracts with the NFL excoriated the owners for their shortsightedness and mean spiritedness. Just so, attempts by state governors to curtail the rights of esteemed public employees like teachers, cops and firefighters has frequently provoked a backlash. Wisconsin, where labor sought to recall Gov. Scott Walker, is Exhibit A. Ohio, where organized labor successfully overturned an anti-public-union measure, is Exhibit B.

Treasury’s $18 billion sale of AIG stocks highlights unlikeliest success of the bailout programs. Daniel Gross crunches the numbers.

Nearly 30 months ago, in March 2010, we used this space to suggest that the stricken insurer AIG might return all its taxpayer aid. With the announcement of a huge, $18 billion sale of AIG stock owned by Treasury, that might be happening.

AIG’s management will chalk up the achievement to its management. But really the success can be attributed to three huge forces: the decades-long growth in AIG’s core insurance business; rapid economic growth in Asia; and the successful reflation of the credit markets.

Of all of the efforts, the AIG rescue was the most inexplicable, the most stunning, the most infuriating, and the most damaging—not just for what it said about the company but for what it said about the financial system. How could a gigantic institution effectively escape banking regulation, and sell insurance on hundreds of billions of dollars’ worth of mortgage products and other securities—without ever setting aside money to cover claims should they arise? And how could the government shovel out a seemingly limitless amount of cash to make sure AIG’s counterparties, giant banks, like Goldman, Sachs, were paid at one hundred cents on the dollar? How could top employees and management, shortly after receiving a bailout that would rise to $182 billion, even consider paying out huge bonuses? And, lastly, how would the taxpayers ever get their money back?

When the Federal Reserve and the Treasury Department stepped into AIG, it was obvious they were wading into a swamp. AIG was subject to a panic. Many of the assets it held and insured were plummeting in value, and there were no ready buyers for many of them. The decline of the mortgage market and the seizing up of the credit markets swamped the real value inherent in its real, functioning businesses—life and property insurance units in the U.S., Europe, and Asia. But the government wound up buying an option on the bounce-back of the financial system and continuing growth in Asia. And those were pretty smart bets to make in the fall of 2008 and the spring of 2009.

AIG Treasury Sale

In this Aug. 3, 2012, file photo, Specialist Donald Himpele, foreground second left, resumes trading in AIG stock on the floor of the New York Stock Exchange. (Richard Drew / AP Photo)

It would take a dissertation to detail all the help the government gave AIG. The Federal Reserve created two vehicles, Maiden Lane II and Maiden Lane III, and lent more than $50 billion to them, so they could purchase toxic assets and mortgage-backed securities from the company—for pennies on the dollar. It further made tens of billions of dollars of credit available to AIG, for which the company turned over interests in two of its crown jewels: Asian insurer AIA and U.S. life insurance subsidiary ALICO. The Treasury Department committed nearly $70 billion to AIG, and in turn took common shares that gave the government a 92 percent stake in the (barely) surviving company. It was a moral hazard salad.

But a funny thing happened. AIG sold ALICO, a very solid business in a large market, to MetLife for $15.5 billion. It staged an initial public offering of AIA, a very solid business in a rapidly growing market, which raised about $20 billion. It used those funds to pay down the loans it took from the Fed. Then, as the credit markets recovered in 2009 and 2010, the bonds and other securities held by Maiden Lane II and Maiden Lane III rose in value and threw off interest. Over time, the two Maiden Lane entities used the cash raised from interest payments and asset sales to pay down the debt. In February and June 2012, respectively, Maiden Lane II and Maiden Lane III retired their debt to the Federal Reserve—with interest and several billion dollars left over in profits.

Extricating the Treasury Department from its massive, dominant stake was going to be the hardest portion of the exit. The market would have to absorb a huge flow of AIG shares, and the stock would have to stay above $29 for the taxpayers to break even. But over the past two years, like other companies with access to cash at a low cost, AIG has performed quite well. It has rebuilt its balance sheet through earnings, and through continued sale of assets—an insurer in Taiwan, shares it owned in MetLife and in AIA. And so starting in 2011, it began to return cash to Treasury by buying back shares. Meanwhile, a rising stock market has enabled Treasury to sell off big chunks. In May 2011, Treasury sold 200 million shares for $5.8 billion; in March 2012, 207 million shares for $6 billion; in May another 188.5 million shares worth $5.75 billion; and another $5.75 billion raised in August. That still left Treasury with a 53 percent stake—some 871 million shares—and about $24.2 billion that had yet to be returned.


Obama’s Got a Secret

A major unemployment report is dropping tomorrow morning, just hours after the president's big speech—and he already knows the new stats. Daniel Gross on whether he’ll drop any hints.

On Friday, pollsters will be crunching numbers coming out of the convention. But the most consequential number will be released at 8:30 a.m.: the August payroll jobs report. The strength (or weakness) of that report will be enormously consequential for this fall’s election. It will color the rhetoric and trajectory of the remainder of the campaign. It may even color the rhetoric that the president delivers tonight.

Construction Job Fair in New York

Job seekers wait in line at a construction job fair in New York, New York in August 2012. (Seth Wenig / AP Photo)

Here’s the thing. While reporters, analysts, and investors wait on pins and needles for the clock to hit 8:30 a.m., a few people in the White House already know the figure. Generally, the chairman of the Council of Economic Advisers finds out the figure on Thursday—the day before the report is released.  (Here’s a great Bloomberg report on how the data is received and disseminated within the White House.) In other words, when the president steps up to the podium in Charlotte tonight, he’ll know the jobs number.

Will he drop a hint as to what the figure is? In a speech as sweeping and comprehensive as tonight’s is likely to be, it’s hard to believe he would devote much time talking about a specific number. And he surely won’t break the embargo by declaring the good news if a large number of jobs have been created. But it may be possible to read between the lines.

I’ll be looking specifically at the way Obama speaks about jobs and employment. Regardless of what the number is, Obama will have to talk about jobs in a difficult way. He’ll talk about the massive losses taking place in the economy as he came into office, and the steady comeback in private sector jobs that started in early 2010. But if he sounds more defensive, and seems to make more excuses as to why the job market isn’t recovering rapidly today—whether it’s because of the slowdown in Europe, or political uncertainty at home, or the weather—that could be an indication that tomorrow’s jobs number will be disappointing.

On the other hand, if he talks about jobs in more upbeat terms—noting the losses, but highlighting the gains, noting that America is finally getting back to work, and predicting that millions of new jobs will be created in the coming years—that could be a sign that tomorrow’s jobs number will be positive, and better than expected.

We’ll have to wait and see in the morning.

The president addressed the economy at the DNC.

Revving Up

U.S. Car Sales Up Strongly in August

With 1.285 million cars sold, August was a solid month. American manufacturers continued their comeback while Japanese automakers bounced back from the aftereffects of the tsunami.

August was another very good month for car dealers. About 1.285 million cars and light trucks were sold, as Reuters reports. At an annualized rate of 14.52 million, those sales were better than expected. Through the first eight months of 2012, sales are running at a pace nearly 12 percent higher than 2011’s selling rate.

The rising sales are a sign of rising confidence—of both consumers and lenders. Cars are big-ticket purchases—$20,000, $25,000, $30,000. Most must be financed, either with car loans or leases. Without the twin engines of available credit and consumers’ willingness to assume financial obligations, two components that disappeared four years ago this month and stayed missing for more than two years, there could be no recovery in auto sales.

Chrysler continues its impressive comeback. As we’ve written, the infusion of Italian management and marketing flair brought by the merger with Fiat seems to be working. Sales of 148,472 units were up a solid 14 percent from August 2011. But for a company on the verge of liquidation, this is good news. The core pickups and sedans did well. But the (still small) sales of Fiat models grew sharply, up 34 percent from August 2011. And the new Dodge Dart, the clunky classic reimagined as a high-mileage coupe, sold 3,045 units.

The bailout of General Motors has been less successful than the Chrysler rescue. GM still owes a lot of money to taxpayers, and its stock has been suffering. The only way for GM to return the entire "investment" is sustained, profitable sales growth, at home and abroad. In August, the U.S. division upheld its end of the bargain. GM’s overall sales rose 10 percent in August from last year, to 240,520. Sales of smaller passenger cars were particularly strong, up 25 percent. The Chevrolet Volt, the much-maligned electric-gasoline car, set a monthly record with 2,831 units. Meanwhile, Ford, whose unassisted turnaround was one of the most impressive feats of modern-day corporate engineering, turned in another solid month. Sales came in at about 197,000, up 13 percent from August 2011.

Ford’s growth enabled it to hang on to its second-place position in the U.S. market. In 2011, Honda and Toyota were laid low by the tsunami, which made it impossible for them to produce new vehicles or to export completed cars. But swift reconstruction of the supply chain and greater investment in U.S. production capacity have allowed the Japanese car companies to catch up. Toyota’s sales rose rose 40 percent. It sold 188,520 cars. Across the board it was a big month from the high end (Lexus) to the low (sales of Scion more than doubled from August 2011). Toyota sold 28,960 hybrids more than double the number of hybrids it sold in August 2011. Hybrids came to more than 15 percent of the company’s sales. Not bad for a niche technology. Honda’s sales, at more than 131,000, were up nearly 60 percent from August 2011.

Car Sales

Ford salesman Greg Bowles, left, helps customers at the Star Ford dealership in Glendale, California. (Kevork Djansezian / Getty Images)

The other foreign car companies had big gains as well: Volkswagen, up 62.5 percent; Kia, up 21 percent. And so on. Increasingly it is meaningless to talk of a division between the Big Three domestic automakers and foreign automakers—and not just because Chrysler is owned by Fiat. Every major foreign automaker has established significant production capacity in the U.S.—mostly in Southern states. And so the rising sales of foreign nameplates increasingly leads to more production and jobs in the U.S.

All in all, August was a very solid month for car sales.

Spring Ahead

U.S. Home Values Rose in June

The Case-Shiller report on housing values for the second quarter of 2012 is another piece of evidence suggesting that housing is back. Daniel Gross reports.

We’ve been noting that the data flow surrounding housing has been generally positive. Last week, for example, McMansion builder Toll Brothers reported impressive earnings. “We are enjoying the most sustained demand we’ve experienced in over five years,” said CEO Douglas Yearley. And the National Association of Realtors reported that existing-home sales rose 10.4 percent in July from July 2011 year, while the price of a typical home climbed 9.4 percent. And through the first seven months of this year, housing starts are up sharply from 2011.

Home for Sale in Glendale

Kevork Djansezian / Getty Images

On Tuesday, we received further confirmation of this trend, with S&P’s publication of the Case-Shiller Index of home values rose for the second quarter of 2012.

S&P/Case-Shiller produce three home index—a 10-city composite index, a 20-city composite index, and a national index. All of them are now flashing green. “All three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010.” Nationwide, home prices were up 1.2 percent in the second quarter of 2012 compared with the second quarter of 2011. The positive momentum is clear. In the second quarter, the national composite index rose 6.9 percent from the first quarter. And on a monthly basis, prices in every one of the large cities in the 20-city index were up in June compared with May.

It’s important not to make too much of this number. It has been something of a lost decade for homeowners. “As of the second quarter of 2012, average home prices across the United states are back at their early 2003 levels,” as S&P notes. But before prices start to rise, they have to stop falling. The data suggests that the housing recovery may finally be leaving the stabilization stage and returning to growth.


Homes Cooking

Builders sold 25 percent more new homes in July 2012 than they did in July 2011. Daniel Gross on housing’s comeback.

Here comes housing—again. On Wednesday the National Association of Realtors reported that existing-home sales rose in July—up 2.3 percent from June and up 10.4 percent from July 2011. On Thursday the Census Bureau reported that new-homes sales were up by a much more significant margin.

Sales came in at an annual rate of 372,000. That’s up 3.6 percent from June’s total of a 359,000 annual rate (which itself was revised upward from the initial report of a 350,000 rate). More important, the July 2012 figure was up a whopping 25.3 percent from the July 2011 figure. In fact, through the first seven months of this year, new-homes sales are up 21 percent from the first seven months of 2011.

While new-home sales are still far below their bubble-era peak—back in the golden years of 2005 and 2006, new home sales topped 1 million—something is clearly happening. The pace of activity is rising. Inventory is falling. At the end of July there were only 142,000 completed new homes for sale. That’s down from 165,000 in July 2011, a 14 percent decline. For each of the past 12 months, the inventory of available homes for sale has declined, while the pace of sales has been rising. At the current rate of sales there are only 4.6 months’ worth of new supply on the market; a year ago, there were 6.7 months’ worth.

New Home Sales

A new home is under construction in Palo Alto, Calif. Sales of new homes in the United States rose 3.6 percent in July to match a two-year high reached in May, the latest sign of a steady recovery in the housing market. (Paul Sakuma / AP Photo)

Clearly low mortgage rates are helping. So too are low prices. Builders have pulled in their horns. They’re building more modest homes, and in many cases they are building on lots they picked up for peanuts after the bust. Which means they can keep prices down while still turning a profit. The typical new home sold in July cost $224,200. That’s actually down from a year ago.

Month after month, even as skeptics point out that foreclosures continue and home values remain far below their peak, a steady accumulation of data is moving charts in the right direction. This year will likely go down as the first year since 2006 in which sales of new and existing homes rose and in which values bumped up.

About the Author

Author headshot

Daniel Gross

Daniel Gross is a columnist and global business editor at The Daily Beast.

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