One example of this is pointed out in the NYT today: for many people suffering through dramatic declines in their home prices, the “rational” choice is to simply walk away from their mortgages. This is a consequence of the policies that created the home mortgage market in the first place (and also an example of one of my other favorite talking points – namely that markets are created, not born … but that’s for another post). Regardless of the moral feelings, social pressure, or hit to their credit scores that those who walk away from their mortgages may suffer, the fact is that this is not only LEGAL, but the CORRECT, rational response to declining home prices and an “underwater” mortgage.

The NYT piece explores the reasons why more people don’t just walk away. It’s a good read. For my part, I’ll just say that if you really want to s***w the banks (and why not?), then support the idea that people with underwater mortgages just walk away from their properties. Plus, it’s the right thing to do for the economy.

* Trucks, including that paragon of fuel efficiency, the Chevy Silverado (14 mpg city) were 3 of the top 10 selling vehicles.  The Ford F150 (14 or 15 mpg city, depending on the model), was 11th on the list.

* Foreign automakers — the Japanese and Koreans in particular — made a killing on the program, with 5 of the top 10 models and over 60% of the total sales.  This included the single best-selling car, the Toyota Corolla.

* Chrysler, much-publicized recipient of a US-government bailout, managed just 6.6% of total sales under the program, behind Hyundai and well behind the leading sellers.

Despite the Administration’s claims that average fuel economy was improved by 9 mpg for those who participated in the program, it’s time to just abandon the lie.  Cash for Clunkers was a subsidy to US consumers, nothing more, nothing less.  To its credit, the Government, as a major stakeholder in both GM and Chrysler, might’ve slapped a “made in America” provision on the program.  Thankfully, they at least resisted that urge.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

Kevin Drum responds beautifully:

All I can say is: Richard Shelby has way bigger balls than I do. Call me a wuss if you must, but I’m really not willing to take the gamble and find out, especially since I think the odds are pretty strongly in favor of Citigroup having the ability to take all the rest of us down with them if they collapse. Shelby, however, the ranking Republican member of the Senate Banking Committee, guardian of the nation’s financial health, is apparently willing to just say “fuck it,” roll the dice, and hope against hope for snake eyes.

This is what the defense industry is today, an industry that has only a single client.

I’ve been noodling on what the health care industry would look like if the U.S. government moved to a single-payer system, and I think it’s probably something similar to what the defense industry has turned in to.

I don’t see this as necessarily a bad change.  You’d still have a “market” system, in the sense that the U.S. government would constitute the entirety of the market.  The government would put out an RFP, say, for a cancer treatment.  The pharmaceutical industry would respond with various candidates and proposals.

As for competition, well, the race with the Soviets was pretty competitive.   Isn’t the struggle against disease  a compelling and urgent enough challenge to spur innovation?

Just some thoughts …

Obama’s pay rules focus on any firms that seek and receive future help from government, with a firm cap on those getting “exceptional” assistance. Citigroup and Bank of America among the few examples of firms so far that have received targeted support that would cross the threshold to be called “exceptional.” But the new rules will not be applied retroactively.

I think a lot of people wonder why it had to come to this. Why hadn’t they voluntarily cut their own pay by now? The way the news media plays it, you’d think that this amorphous group of “Wall Street Fatcats” would have huddled in their secret bunker under Lower Manhattan, and voted to lower their own salaries to avoid public ridicule.

But the media — and our politicians — have it wrong. They believe that “Wall Street” is, in fact a defined entity that has strong collective interests, and therefore will act to preserve the entity at all costs. They believe it is an entity that can be negotiated with.

This is, after all, how politicians behave. My party negotiates with your party and we work things out. But the the executives who run the world’s largest financial institutions form no such cohesive group. Sure, they have common interests (like, say, getting a new publicly-financed helipad in Lower Manhattan), but they don’t act to preserve the good of the whole. They act to preserve themselves, as we all do in our professional capacities.

And this, friends, is how you end up with a $35,000 toilet.

General Motors’ cash problems could give car buffs the rare opportunity to buy some of GM’s most unique vehicles at auction next week, giving gearheads an extraordinary chance to own some of Detroit’s history.

The auction is part of an effort to raise cash for the struggling automaker … GM’s Heritage Center in Sterling Heights has about 200 of the automaker’s 1,000 historic or special vehicles on display.

More than 200 of the center’s vehicles will be put up for sale at the Barrett-Jackson Auction in Scottsdale, Ariz.

I mean, it’s bad enough when your buddy has to hawk his guitar to buy enough ramen for a few weeks.  But GM?  If  they’re really that cash strapped … well, that’s just pathetic.

I’m still a bit disappointed that the Labor Secretary wasn’t rolled out with the rest of the “economic policy team” a few weeks ago, but maybe she hadn’t accepted yet. Anyway, the symbol of nominating a latina Congresswoman from East L.A. (as opposed to, say, a white dude from Michigan or Ohio) gives a sense of how much the face of organized labor has changed over the years.

In a similar vein, this piece in TNR about how to structure a rescue package.

I’d go one further and say that runaway executive compensation is not one of the pressing problems facing the auto industry, either. And yet that seems to be one of Congress’s genius “strings” that they’re going to attach to any bailout plan.

All that said, I completely agree with Ben McConnell’s take:

If they were very smart, the CEOs would drive unreleased, next-generation cars that get 100 MPG. They’d stop in a half-dozen towns along the way and invite a newspaper editorial board writer to ride shotgun for a dozen miles. They’d update their status on Twitter. They’d write a few posts for the company blog. They’d shoot video on a Flip camera and talk about how they screwed up at their first appearance, how they’re selling their fleet of corporate jets, and their plans for the future. If they behave like real people instead of CEO machines, they might arrive in D.C. backed by some pretty good word of mouth.

Set aside the issues of driving on highways in cars that aren’t street legal; I think this is the right idea. The Big 3 are cutting back on traditional advertising right now, it’s a perfect time to think about low-cost, effective word-of-mouth campaigns. GM’s has a blog, they ought to use it. It’s time to rebuild their relationship with their customers — flesh-and-blood customers, the U.S. taxpayer is not a sufficient proxy.

Now, in all fairness, GM has come up with a plan (PDF). It’s aggressive, but probably not aggressive enough. They’re proposing shrinking their dealer network down from 6500 to 4700. I’ve read analysts say they need to go down to about 1500 dealers (!) to be viable. They’re also looking at shuttering several brands, which is smart.

Also, Alan Mullaly, Ford’s CEO, seems to get it, as I’ve written before. So you can’t lump these three companies all in together. Chrysler, on the other hand, is totally screwed.

Detroit needs a turnaround, not a check.

Actually, the title of piece says it all –

Let Detroit Go Bankrupt

If this weren’t an op-ed, I might blame the editor for the attention-grabbing headline. But this must certainly be Mitt’s own work. Re: that presidency thing, thanks for playing, Mitt.

In all seriousness, I still haven’t made up my mind if I support a Detroit bailout or not. Assuming the companies are eligible for restructuring under Chapter 11, I agree with Romney that tough love is in the long-term best interest of the American auto industry and its workforce. But if it must be Chapter 7 (an idea which — upon reflection — seems more and more ludicrous to me), then it’s a different story.

Citigroup is not the only bank grappling with tremendous losses. Many financial institutions are hiking customer fees at record levels.

It may be quick and easy, but that ATM convenience is going to cost you. Citibank, Chase, Bank of America and Wells Fargo are all starting to charge non-customers as much as $3 per transaction to use their machines.

“I think it’s kind of ridiculous because everybody is going through economic hardships,” New Yorker said Margo Waltz said.

. . .

Several banks are also boosting minimum account balance requirements and experts warn this is just the beginning as banks merge or go belly-up.

“The fewer banks you have the fewer choices consumers have the more a sort of gotcha the banks have,” Ludwig said.

One alternative experts are suggesting is checking out your local credit union.

“They’re not going to gouge their members because their members are the people who run the credit union,” Ludwig said.

States currently control interest rates, which are practically unlimited. Consumer advocates are calling on the Federal Reserve to step in as they did after the 1989 savings and loan bailout. They want interest rates and fees capped.

It’s estimated banks collected $17 billion in overdraft fees last year alone.

Lahde — a former hedge fund manager — announces his intention to retire from the business of managing other people’s money.  He rips into the supposedly “smart” MBAs from top schools who rode American capitalism into the ground like Slim Pickens*:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

Having dealt with enough “stuffed shirt” MBA types myself, I can personally attest to the fact that — good as their PowerPoint skills might be — most of these people would die, starving, of exposure within a few weeks of losing their cush bourgeoisie lifestyles.  And yet these are the people we’ve entrusted to make our decisions for us!

Makes me want to retreat to a basement squat and pirate cable TV and electricity, and wait for the rest of it to blow up.

* In case you don’t get the Dr. Strangelove reference:

The Federal Reserve chairman and senior economic officials of the Bush administration solemnly filed into the large conference room of the Treasury Department. There was a sense of urgency, an understanding that drastic action — restructuring the financial landscape of corporate America — was desperately needed.

. . .

The crisis of that moment was the implosion of Enron, Global Crossing and other companies. Along with conflicts of interest and criminally creative bookkeeping, the culprit was often a combination of financial complexity and insanely expensive compensation packages.

Enron is long gone, but this episode — as much a warning for our financial security as the 1993 World Trade Center bombing was to the threat of wider terrorism — carries some telling lessons as our best minds struggle now to save the economy.

The meeting, recounted to me by Paul O’Neill, Mr. Bush’s first Treasury secretary, and several other participants, was something of a showdown. Everyone came armed for battle, none more than Mr. Greenspan and Mr. O’Neill, who railed that day like a pair of blue-suited Jeremiahs. Their colloquy on economic policy and corporate practice, which began when they were senior officials in the Ford administration, had evolved over three decades.

To the surprise of many younger men in the room, the duo opened by reminiscing about a bygone era when the value of a company’s stock was assessed by how strong a dividend was paid. It was a standard that demanded tough, tangible choices. Everything, of course, came out of the same pot of cash, from executive compensation and capital improvements to the dividend — which could be spent by a shareholder or reinvested in more company stock as a show of support.

In contrast to dividends, Mr. Greenspan intoned, “Earnings are a very dubious measure” of corporate health. “Asset values are, after all, just based on a forecast,” he said, and a chief executive can “craft” an earnings statement in misleading ways.

Speaking with a hard-edged frankness rarely heard in public — and seeing that those assembled were not sharing his outrage — Mr. Greenspan slapped the table. “There’s been too much gaming of the system,” he thundered. “Capitalism is not working! There’s been a corrupting of the system of capitalism.”

Mr. O’Neill, for his part, pushed to alter the threshold for action against chief executives from “recklessness” — where a difficult finding of willful malfeasance would be necessary for action against a corporate chief — to negligence. That is, if a company went south, the boss could face a hard-eyed appraisal from government auditors and be subject to heavy fines and other penalties. By matching upside rewards with downside consequences — a bracing idea for the corner office — Messrs. O’Neill and Greenspan hoped fear would compel the titans of business to enforce financial discipline, full public disclosure and probity down the corporate ranks.

But they were in the minority. . . .

The Fed effectively killed Glass-Steagull today by allowing the last two remaining investment banks — Goldman Sachs and Morgan Stanley — to convert themselves into Bank Holding Companies.  Instead of being subject to SEC regulation, the banks will now be subject to Fed oversight.

It’s interesting to note that Glass-Steagull was originally enacted to prevent the worst excesses of the Robber Baron era from recurring.  In particular, the practice of the commercial banking arms of a financial institutions lending its own investment bank money and then using assets it issued itself to underwrite consumer lending.

Crazy days, folks.  Crazy days.