Ritholtz has some good news

Good news today. Some of you have noted that it is somewhat outrageous for the Treasury to privately price and sell warrants back to the banks that got TARP money instead of doing an open auction that will fetch the best price for the taxpayer. The Congressional Oversight Panel claims that the currently used secret process returns only 66 cents on the dollar to the taxpayer.

Mary Jo Kilroy, a freshman Democrat from Ohio, introduced a bill (HR 3232) to compel an open auction of these warrants with six cosponsors: Brad Sherman, John Boccieri, Betty Sutton, Jackie Speier, Marcia Fudge and Alan Grayson.

All of these members except Brad Sherman are in their first or second term in Congress, and all are Democrats. Sherman was the leader of the little noted but important ‘skeptics caucus’ that attempted to stop the $700B bailout in September.

There is also a hearing on the TARP warrant repayments on Wednesday. Many of you don’t have faith in Congress, but there are lots of crosscurrents and sometimes people here do show leadership.

Republicans are hammering Obama because the unemployment rate is about to go over 10% (Gingrich says the stress tests “have already failed” because they were based on a lower number), and many Democrats in Congress are getting anxious about a tough reelection if the numbers don’t get better soon (and therefore are less willing to stick their necks out for the president).

But my money is on much better numbers turning out for August, maybe even coming back under 9%.  Here’s why:

  • Summer Jobs that typically are filled by high school students this year are going to be picked up by displaced workers, even though overqualified.  Teenagers unable to find jobs will have less money for games, clothes and to save for the Fall, but nevertheless they will not be claiming unemployment benefits.
  • Stimulus package: Construction projects will finally start coming online.  Not the big rail and infrastructure projects to be sure, but definitely the smaller ones, such low-income housing weatherization and city roads.  Also tax incentives for energy efficient windows and solar energy have kicked in, and these retail type contracts are ramping up as banks start lending again and contractors start marketing them aggressively.  Then there is the undocumented worker factor: A sizable portion of construction work used to be done by illegal immigrants (20% ??), especially with small 5-10 person contractors.  Many of these workers have gone back to their homelands, so for every 9 legal construction workers that were laid off, about 10 will now be hired back for a comparable project.
  • College grads: More than usual they will go into volunteer work (unpaid or sponsored by the expanded Americorps), delay graduation, pursue graduate degrees, travel for a wile if they have the resources, or stay with their parents (without collect unemployment).
  • Chinese stimulus: We’ll start feeling the effect of Chinese projects on our durable orders numbers.

The Consumer Product Safety Improvement Act will go into effect February 10.  It was passed after lead was found on toys assembled in China.  Among other things, it requires stringent testing of every batch of a product, whether the production run is 10 or one million.

Unfortunately it is the textbook example of a poorly written law, passed in haste, which places unbearable burdens on many business and favors large corporations over small businesses.

In fact, the biggest winners may end up being Mattel and other large toy manufacturers (which created the mess to begin with by outsourcing to unscrupulous Chinese suppliers), as most small and home-based producers are driven entirely out of the market.

If you wanted proof that our government answers to corporations (aka ‘special interests’), this is it.

This story is especially important to me:  My friend owns a successful boutique toy store, and he will be struggling to stay afloat when the law takes effect.  I shudder to think that my own business could one day be threatened so profoundly by a congressman or bureaucrat that didn’t think things through or was doing a lobbyist’s bidding.

I urge you please petition, call or write your congressman to delay and amend this disastrous piece of legislation.

More info at nationalbankruptcyday.com