Connelly on Commerce

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Can a State qualify for TARP assistance; would its financial collapse threaten to create a “systemic risk”?

For the municipal bond market, the answer to the latter question is probably yes. The situation in the Golden State bears an uncanny resemblance to AIG last fall:  financial mismanagement; floundering leadership; profligate spending and risk-taking with it’s balance sheet; excessive leverage. And, perhaps most importantly, no good tools available to the Federal government for an orderly restructuring of its affairs.

FDIC receivership is of course out of the question as the State is not a bank. And under our bankruptcy laws, municipalities can file for bankruptcy, but not states. Nor does the new legislation making its way through Congress to provide a framework for winding up the affairs of financial holding companies like Lehman and AIG and Citigroup will apparently  not apply to states, either. GM and Chrysler can get their  contracts reshaped in Chapter 11 to preserve their “wasting assets” and keep their workforces alive as going concerns, but not California.

What’s a Governator to do? Perhaps by cutting expenses  wherever he can by declaring a state of “disaster” and going over the legislatures heads. Perhaps by trying to substitute Federal stimuklus money for currently budgeted California’s own budgeted  expenditures.

But the guess here is that, just when you thought that TARP was being shunted at least to the recycle bin by the post-”Stress Test” rush by the systemic risk banks to raise capital “on their own”, along comes yet another systemic risk petition, this time from Sacramento. Maybe not today or tomorrow, but July 4? — then we’ll know what it cost to prop GM and Chrysler to their next lives post-bankruptcy, and a few banks may have even met the terms for repaying the TARP. But California, like it or not, will then be the next systemic shoe to drop on Washington’s table.

We are not likely to see an analogy to the famous New York Daily News headline in the mid-70′s  “Ford to NYC — Drop Dead”  — but we may well see similar intervention to what eventually occurred in New York by way of the State government– a sort of ad hoc receivership of California’s government in exchange for a Federal Aid package — like a domestic IMF loan. What a comeuppance for the world’s seventh-largest economy. But if it could get disciplined about its finances, what an engine of change it could once again be for the country. This could be a TARP loan worth the effort.

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Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Much of what passes for thought on cable news coverage of the Great Recession is as bankrupt as Chrysler and desperately in need of a “Chapter 11″ restructuring.

Witness today: Larry Kudlow on CNBC claiming the Obama Administration is directing GM to stop making trucks and produce only two-door hybrids. Utter fabrication; exaggerated nonsense; yet this kind of drivel goes unchallenged by anyone other than the increasingly isolated Steve Leisman.

Meanwhile, the similar incessant blubbering about the “sanctity of contract” on behalf of hedge fund investors in Chrysler’s secured debt by  Kudlow and Melissa Francis and Michelle Caruso-Cabrera and Dennis Kneale, along with the rants against “Socialism” from the morning host Mark Haynes,  continue to position CNBC as the clone of its competitor Fox News in vying for the title of the most vitriolic anti-Obama network on the air, and useless in terms of actual market perspective, not to mention actual knowledge of bankruptcy procedures.

No problem with critiquing Obama’s administration or his policies; but how about fair and balanced — somebody — All these people who supposedly “report” on the market during the trading day are becoming specialists in ideological ranting, so that those of us who would like not to be shouted at but rather be more informed are left with only Bloomberg TV as a choice. Dull, but at least not a GOP pep-rally.

If Kudlow wants to run for the Senate in Connecticut,  let him stand and deliver elsewhere other than as a supposed market reporter from 10 AM to 11 AM — he has a commentary show later in the day, for example, where  unbalanced opinion is at least properly positioned as such. Reporting on Anit-Obama sentiment among traders of course is entirely appropriate in terms of market-color. Fanning the flames of that sentiment, however,  is like the umpire taking a swing — interesting, but outside the rules of the game. Because then you know you have no umpire, and that the game is rigged.

Interestingly, the CNBC “commentary” shows like  Jim Cramer and Fast Money later in the day after the markets close show more balance of opinions, however exaggeratedly ludicrous (“all numbers coming out of China are false”).

Maybe the CNBC management believes they’ve got a winner with the hysterical rants of their anchors against all things Obama, but I’m not so sure they aren’t driving away an audience of serious people who want to find solutions to the Recession problems in something other than the simple mantra of unbridled capitalist animal spirits, which did us so much good between 2004 and 2007.

Notice how quiet so many of these day-anchors  are the past few days after the catastrophe they predicted when the “stress test”‘ results were announced failed to materialize, and many of the financial institutions in question were able to raise private capital in the public markets: something they said was impossible under  our “socialist” regime.

It’s enough to hear Dick Cheney laying the groundwork for a coup in the event of another terror  attack (which he pronounced as inevitable even during his own Administration, by the way). We don’t need to see the best financial news apparatus turned over lock, stock and barrel to one particular  political viewpoint hour after hour in a way that clearly frustrates some of its best on-air reporters who are trying to deal with the real as opposed to the ideological world.

After months of raving about “too big to fail” — an easy shot when you have no public responsibility for the financial system — the so-called anchors now rail against the very procedures of the bankruptcy courts that they argued should be left to handle the mess. We need something better from CNBC during the market day than shills for the hedgies  and would-be Treasury Secretaries in the Palin Administration.

Finally, there are those who argue what’s the difference with CNBC going one-sided political while MSNBC has its leftists Chris Matthews and Keith Olberman and Rachel Maddow — it’s real simple, those folks’ programs cover politics , and their political opinions are balanced by regular contributors like Pat Buchanan and Joe Scarborough and others who always get a full shot with their views and aren’t summarily cut- off by serial interrupters like Kudlow and Kneale. Moreover, the Fox lineup from dawn to dusk is more than a match with O’Reilly and Hannity (who like CNBC simply use contrarian political sentiments as punching bags).

Let’s hope CNBC finds a way to de-politicize its market day reporting and brings more balanced people like Steve Leisman and Julia Boorstin and the increasingly marginalized Erin Burnett back into prominence.

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