Friday Potpourri

Much on my mind on a Friday morning.  So let’s dive right in.

Item: GDP contracts an annualized 6.2% in the fourth quarter.

Comment: Let’s break down the four major components of GDP.  Consumer spending?  Down the worst since 1980.  Business investment?  Down the worst since 1975.  Exports?  Down the worst since 1971.  Government spending?  Up slightly.  Lots more where this came from, I’m afraid.

Item: U.S. government taking 36% stake in Citi.

Comment: I love how in journalistic shorthand, these sorts of stories become, “U.S. taxpayers will soon own a big share of Citigroup.”  Like hell I do.  If I own a piece of it, where do I sign up for the dividend checks?

Item: War spending no longer to be done off-budget.

Comment: As much as the new president’s first budget proposal is an abomination, let’s at least give him credit for declaring an end to the practice of “supplemental” appropriations for Iraq and Afghanistan.  Doing so accounts partly for the mind-bending $1.75 trillion deficit.

Of course, the officially-announced deficit is never the number to watch anyway.  It’s the year-over-year increase in the national debt that really matters.  By that measure, there never was a “balanced budget” during Clintontime.

Item: SEC had a heads-up about Allen Stanford’s shenanigans in 2003.

Comment: Asleep at the switch on Madoff.  Asleep at the switch on Stanford.  Whatever the next one is, I’m sure we’ll hear similar revelations too.  It’s hard to root out real fraud when you’re busy pursuing “insider trading” witch hunts against Martha Stewart, Marc Cuban, and Joe Nacchio.  Nacchio, by the way, lost his latest appeal this week.  He’s running out of chances to avoid doing prison time for his heroic refusal to act as enabler for the government’s warrantless wiretapping schemes.

Item: Lefty economist nails the flaws with TARP.

Comment: An altogether remarkable speech by James Galbraith (son of John Kenneth):

“Guaranteeing bad assets will not stabilize the price of housing. It will not stabilize incomes and profit opportunities in the economy. Therefore it will not solve the credit problem.

“Meanwhile the guarantees will support incumbent management and shareholders. They will add vast sums to the public debt – directly or contingently – making achievement of the president’s other priorities more difficult. And they will distort the distribution of wealth, by guaranteeing the financial position of an elite group while that of so many others is collapsing.

“Keeping the existing management in place means that we will not arrive at clean and trustworthy audits of the banks. Therefore no one will know to what degree they actually are, or actually are not insolvent. No one will know just how bad the bad assets are, and most will (prudently) suspect the worst. This collapse of trust means that lending to the banks, including by other banks, will continue to be impaired.

You can’t fix a problem until you correctly identify what it is.  You have folks running the gamut from Galbraith to Rick Santelli (hey, I’ll give credit where it’s due) to the chief of U.S. Bank who can identify the problem, even if they’d probably come to blows over how to address it.  Contrast that with the clueless relay teams of Bush-Obama and Paulson-Geithner who actually make the decisions.  (And then change them.)

Item: Zimbabwe’s Mugabe plans $250,000 birthday party.

Comment: None necessary.  Have a good weekend.

The Daily Reckoning