Whitman Can't Buy Her Way Out of the Goldman Sachs Charges
May 04, 2010
There was a lot of interesting comments at the GOP debate for governor. A lot of crazy on immigration issues and a lot of magical thinking on budgetary issues. But that's for a different discussion. The exchange, and the charge, that is working right now against Meg Whitman is simple. She is a profiteer who put her own personal fortune over the best interests of her company and its shareholders.
Everytime this clip, or Poizner's ad, is played, you can practically hear voters turning away from MoneyBags Whitman. She is part of a kleptocracy that thinks they can have what they want, when they want it. They are entitled, and Whitman thinks she's entitled to the governor gig. Her staff practically said as much when they demanded that Poizner drop out of the race.
Frankly, I have no favorites in the GOP primary, they are both far too conservative, and would move the state in the wrong direction. And it is really hard to tell which one is more out of touch with Californians. Could it be the Goldman Sachs billionaire or the man who thought $450,000 homes were the "wrong side of the tracks?" [ http://calitics.com/diary/11585/breaking-steve-poizners-book-is-a-sack-of-lies ]
I'm on the call with Steve Poizner's campaign, and they are reporting on their polling numbers that show a significant collapse in Meg Whitman's early lead.
According to the campaign, their internal polling showed Whitman led Poizner 59-11 in mid-February (called it their "Valentine's Day massacre"). However, since then, Poizner has closed gap to a 38-28 Whitman lead statewide, and outside the Bay Area, he's closed the gap to a 35-30 Whitman lead outside the Bay Area.
That's a pretty big collapse in Meg Whitman's numbers. Poizner was down nearly 50 points in February and is down 5 (outside CA). No wonder Mike Murphy was trying to slam Poizner on the Whitman campaign's own call - they're seeing 1/3 of the Republican primary electorate undecided with 5 weeks to go after a massive, unprecedented carpet bombing of the state's TV airwaves.
And a word on that electorate - Murphy said that the average likely Republican primary voter is over age 50. In case you thought the CA GOP was at all representative of California.
As to Poizner, what he's shown is that Whitman's support was very, very soft. That should not only give him hope that he might be able to win, but give Jerry Brown hope that he can build off his stronger base of support to run a strong campaign taking advantage of Whitman's weaknesses - arrogance, ties to Goldman Sachs, desire to destroy schools and other vital public services - to erode Whitman's very soft support.
[ This almost makes me want to give money to Poizner. I'd much rather have that racist and lying nutjob in the General than the press-shy and vacuous eMeg. ]
Whitman's economic plan will do little to bring jobs to California, experts say
Republican gubernatorial candidate Meg Whitman makes a campaign appearance in the City of Industry. Experts say her economic plan will do little to bring jobs to California. (Gary Friedman, Los Angeles Times / September 19, 2010)
The GOP gubernatorial candidate promises to cut spending and suggests that lower taxes and less regulation will spur business. But experts say the bleak economy is mostly due to the real estate crisis.
By Michael J. Mishak, Los Angeles Times September 18, 2010|6:26 p.m.
Reporting from Sacramento — When Meg Whitman says California is bleeding jobs, the Republican gubernatorial nominee often cites the exit of Northrop Grumman.
After 70 years in Southern California, Northrop, the nation's second-largest defense contractor, announced in January that it was moving its corporate headquarters to the Washington, D.C., area. On the campaign trail, Whitman uses the company's decision to highlight the need for aggressive action as the state grapples with what she describes as a corporate exodus.
"We have got to have an economic development team that stands up and competes for California jobs," she said at a recent appearance in Folsom, near Sacramento.
But Gov. Arnold Schwarzenegger created such a team in April — and it would have had little leverage with Northrop Grumman. The company said it left the state not because of high taxes or cumbersome regulations but to be closer to its key customer: the U.S. government. The exit represents a net loss of about 300 white-collar jobs, the firm says; the bulk of its California workforce — about 30,000 employees — remains in the state.
Whitman, the former head of EBay, promises to help turn California's economy around by cutting government spending as much as $15 billion, including the elimination of 40,000 state jobs. She would become marketer-in-chief, using the bully pulpit of the governor's office and the power of political appointments to draw business here.
She suggests that if the government also cut taxes, eased regulations and focused more on recruiting new companies and retaining those already here, California would not be suffering record unemployment.
But many policy experts say such plans will do little in the short term to create the 2 million new jobs Whitman promises: The state's bleak economy is primarily the result of its deep investment in the real estate boom. The resulting mortgage crisis and credit crunch led to hundreds of thousands of construction-related workers being laid off in an industry that is unlikely to rebound anytime soon.
Most large corporations and small businesses are basing key decisions on factors over which a governor's economic team would have little influence, the experts say. Credit markets are still tight and consumer confidence remains low.
Unlike Whitman, Democratic nominee Jerry Brown has not made the economy the centerpiece of his campaign or provided the level of detail in his proposals that Whitman has in the 34-page, magazine-style document that lays out her ideas.
Brown released a jobs plan last month aimed at expanding the renewable-energy industry and supports "strike teams" to help businesses cut bureaucratic red tape, in addition to advocating tax credits for manufacturers and less regulation. But on the stump he focuses on his past experience as governor and his ability to bring people together to solve the state's problems.
Whitman's ideas have been endorsed by the California Chamber of Commerce and the state chapter of the National Federation of Independent Business. And John Taylor, a Stanford University economist who advises her, said the plan would make California more attractive to business so that the state, which has retained many corporate headquarters, does not lose out on expansion opportunities to other places.
"Lower tax rates encourage businesses and create jobs," he said. "You make it easier for firms to set up and expand."
Economists agree that the state does not attract many new businesses from elsewhere. But according to the Public Policy Institute of California, the jobs it loses as a result of relocations total about 11,000 a year — less than one-tenth of 1% of California's 18 million jobs. Moreover, in a downturn, marketing and outreach play a relatively small role in California's economy, which, like the national economy, expanded and collapsed with the housing bubble.
The experts say California's job growth has been closely tied to the national economy for the last 30 years — regardless of policies in Sacramento — after outperforming the country during the Cold War era, when the state was home to several large contractors and dozens of military bases.
The state's jobless rate is higher than the national rate of 9.5%; so are those in neighboring Nevada, Oregon and Arizona. But experts say California's unemployment is consistently higher because its population growth tends to outpace job creation. State unemployment surpassed the national rate during the technology boom of the late 1990s, even as California outperformed the country in job growth.
"There are limits on what governors can do," said Stephen Levy, director and senior economist at the Center for Continuing Study of the California Economy. "Most of what happens is governed by world and national and macro-economic forces that we struggle to grab hold of even with all the tools a federal government has."
Levy and others point to Schwarzenegger's efforts as Exhibit A.
In 2004, he drove the Las Vegas Strip in an 18-wheeler bearing the words "Arnold's Moving Company" to launch a nationwide marketing campaign. He put recruitment billboards in other states that read, "Arnold says: California Wants Your Business."
He traveled on international trade missions. And he created the Governor's Office of Economic Development. That has had some early successes, including wooing Tesla Motors Inc. to restart a manufacturing plant in Northern California formerly operated by Toyota and General Motors. About 1,000 workers will make electric cars there.
But Wayne Schell, president and chief executive of the California Assn. for Local Economic Development, said most of the efforts amounted to "shotgun economic development," a reaction to events rather than a comprehensive strategy for targeting industries. Unemployment was 6.7% when Schwarzenegger took office; it's 12.3% now.
Whitman says she would eliminate taxes on manufacturing equipment and capital gains, increase the research and development tax credit for businesses and cut red tape. Schwarzenegger has tackled these areas, with mixed success.
But the problem is cyclical, not structural, economists said.
Whitman "talks as if the California economy is shriveling up and blowing away in the wind. That's not true," said Christopher Thornberg, a founder of Beacon Economics in Los Angeles.
He and other experts point to the same positive indicator: More than half of the venture capital invested in U.S. companies in the second quarter of this year poured into California, the most since the third quarter of 2008, when the national economy collapsed.
Although Whitman acknowledges that fact on the stump, she cites the state's poor rankings in national surveys of business climates to convey the message that California is losing its competitive edge. This year, Chief Executive magazine named California the worst state in the country for business, saying it was on its way to becoming the "Venezuela of North America."
Some economists say the rankings she cites, by focusing on taxes and regulation, take a narrow view of the business climate.
Jed Kolko, associate director of the Public Policy Institute of California, described California as a "high-cost, high-benefit state," saying that employers pay higher average wages than in surrounding states but that its workers are more productive. And the rankings fail to consider the high education level of the workforce, the availability of capital and other attractions.
Economists said investments in education and infrastructure will help boost the state's economy, particularly as the UC and California State University systems struggle with overcrowded classes, admission waiting lists and soaring tuition. Likewise, investment in roads, highways and public transit has languished in recent years.
"I think that taxes and regulation and being friendly is something candidates can talk about, but it's only a small part of keeping California competitive," Levy said.
Let me tell you a story about Jefferson County, Alabama, whose county seat is Birmingham, and whose congressman is Spencer Bachus, the Republican who chairs the House Financial Services Committee.
Once upon a time — back when too many people viewed derivatives as glittering innovations with magical powers to hedge against risk — Jefferson County was ordered by the Environmental Protection Agency [ http://www.jimcarns.com/pdfs/execsummary.pdf ] to upgrade its sewer system. To finance the new sewers, it issued bonds totaling nearly $3.2 billion.
After the sewer system was completed, the county moved all that debt from fixed rates to variable rates [ http://subprimelosses.com/jefferson-county-governor-bankruptcy.php ]. It did so because some investment bankers at JPMorgan persuaded the county to purchase derivative contracts, in the form of interest rate swaps, that would supposedly allow it to avoid paying higher interest if rates went up. Magic indeed.
At first, this arrangement worked well enough. Though the cost of the sewers was bloated beyond belief — they were originally supposed to cost $1 billion — the county made its bond payments. The bank reaped handsome fees from its swaps contracts.
But the financial crisis caused those clever hedges to go blooey. Indeed, the swaps not only failed to protect the county from losses — they actually exacerbated the losses. In addition, two of its bond insurers had their credit rating lowered because they had also insured lots of toxic subprime derivatives. The downgrade triggered huge hikes in interest and principal for Jefferson County.*
Today, the county is broke; according to The Birmingham News, it may run out of cash by July [ http://blog.al.com/spotnews/2011/03/jefferson_county_expected_to_r.html ]. It is toying with a bankruptcy filing — which, if it happened, would be the largest municipal bankruptcy in history.
Though the county no longer has to pay fees to JPMorgan — the bank agreed to void the swaps as part of a settlement with the Securities and Exchange Commission — its bond debt for the sewers now totals almost $4 billion. The Birmingham News described Jefferson County as a “poster child” for all that can go wrong when municipalities start playing with unregulated derivatives peddled by Wall Street sharpies.
Has Spencer Bachus, as the local congressman, decried this debacle? Of course — what local congressman wouldn’t? In a letter last year to Mary Schapiro [ http://blog.al.com/sweethome/2010/09/us_rep_spencer_bachus_requests.html ], the chairwoman of the S.E.C., he said that the county’s financing schemes “magnified the inherent risks of the municipal finance market.” (He also blamed, among other things, “serious corruption,” of which there was plenty, including secret payments by JPMorgan to people who could influence the county commissioners.)
Bachus is not just your garden variety local congressman, though. As chairman of the Financial Services Committee [ http://financialservices.house.gov/ ], he is uniquely positioned to help make sure that similar disasters never happen again — not just in Jefferson County but anywhere. After all, the new Dodd-Frank financial reform law [ http://banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf ] will, at long last, regulate derivatives. And the implementation of that law is being overseen by Bachus and his committee.
Among its many provisions related to derivatives — all designed to lessen their systemic risk — is a series of rules that would make it close to impossible for the likes of JPMorgan to pawn risky derivatives off on municipalities. Dodd-Frank requires sellers of derivatives to take a near-fiduciary interest in the well-being of a municipality.
You would think Bachus would want these regulations in place as quickly as possible, given the pain his constituents are suffering. Yet, last week, along with a handful of other House Republican bigwigs, he introduced legislation that would do just the opposite: It would delay derivative regulation until January 2013 [ http://www.govtrack.us/congress/billtext.xpd?bill=h112-1121 ].
It is hard not to see this move as an act of hostility toward any derivative regulation. After all, by 2013 a presidential election will have taken place, and if the Republicans take the White House and the Senate, one can expect that the next step would be to roll back derivative regulation entirely. Even if it is just about delay, rather than outright obstruction, that means the Republicans are asking for two more years during which the industry will add trillions of dollars worth of “financial weapons of mass destruction” (to use Warren Buffett’s famous description [ http://news.bbc.co.uk/2/hi/2817995.stm ]) to the $466.8 trillion of unregulated derivatives already in existence [ http://www.isda.org/statistics/recent.html ]. How can this possibly be good?
I tried to ask this question of Bachus, but I was told he was unavailable. I asked his staff if he believed, after the experience of Jefferson County, that derivatives should be regulated at all. I couldn’t get an answer.
I’ll keep trying. It’s not just an answer his constituents deserve to hear. Given the risks derivatives still pose, it’s something the nation needs to know about Chairman Bachus. If he decides to tell me, I promise to pass it on.
*Disclosure alert: Among the many lawsuits resulting from this fiasco is one brought by a bond insurer against Jefferson County. The county has hired Boies, Schiller & Flexner to defend it. The firm employs my fiancée.
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