So, we have the AIG bailout undermining the rest of the insurance industry now, because of the federal money and implicit federal guarantee.
Delightful.
I think that the Geithner plan will do the same thing to the smaller more responsible banks out there.
The federal bailout is squeezing out the good actors in these industries.
It looks like there will be some real good coming from the AIG bonus fiasco, as Barney Frank is taking a few steps back from his idea of the Federal Reserve as the über regulator of the economy:
A proposal to put the Federal Reserve in charge of market oversight is losing congressional support after its main backer, Barney Frank, said criticism over American International Group Inc. “undercuts” his proposal.
“There’s still a need for a systemic-risk regulator,” Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, said yesterday. “The argument for the Fed alone has lost a lot of political support. I think that’s now got to be re-looked at.”
Senate Banking Committee Chairman Christopher Dodd and Richard Shelby, the panel’s top Republican, said March 19 they are reluctant to expand the Fed’s role, faulting the central bank for lapses leading to the financial crisis.
When one considers how opaque the operations of the Federal Reserve are, and how, of all the regulatory agencies, it was the one that failed the worst, the others being hamstrung through legislation or executive initiative, Dodd and Shelby are right to be dubious of the fed.
Just ask yourself this question: Do you want Alan “Bubbles” Greenspan to be the systemic risk regulator for the economy?
So, I was on a private BBS formed out of the ashes of Netslaves, and someone asked the following:
CNN keeps talking about it raising the DOW today, but I have no idea what it actually is supposed to do.
So I quickly riffed on this, and the response was very positive, so I thought that I should share my (somewhat profane) explanation with the world:
Short:
Longer version:
What can I say but sh@#?
I wholeheartedly approve of the distinguished gentleman’s decision to place a hold on the nomination of Gary Gensler to be chairman of the Commodity Futures Trading Commission.
Gensler (along with Geithner and Summers, but those guys are water under the bridge) fought long and hard for the Commodity Futures Modernization Act of 2000, first as Assistant Secretary of the Treasury, and then as Undersecretary of the Treasury, which deregulated derivatives and swaps, and is one of the architects of the current meltdown, and Sanders is 100% correct in objecting to his having a any role in further regulation of derivatives.
Then there is also the matter of his brother being hip deep in Wall Street too, running a fund for T. Rowe Price, and Gary Gensler himself is another Goldman Sachs alum.
Enough is enough. We need people who aren’t the ones who created the problem in the first place in charge of policing those who were.
Un-dirtyword-believable, and good for Sanders to stand up for a semblance of competence and honesty in Barack Obama’s economic team.
Since we’ve already covered the Geithner political suicide pact economic plan, let’s lead off with housing.
Happy, happy, joy, joy, home sales rose 5.1% in February relative to January, seasonally adjusted, though people not so closely attached to the realty industry have noted that it’s
really a pretty modest rise, or note that home sales have fallen year over year, and that about 45% of these sales are distressed in some manner.
I would say that year over year is the only metric to apply, because the so called “seasonal adjustment” if it ever were valid, has become meaningless in the current collapsing market.
Internationally, we have another member of the 0% benchmark club, as the Bank of Israel has cut its benchmark rate to 0.50%.
In currency and commodities, the dollar is down, because people are less concerned about safe havens, so there is less dollar flight to safety, and copper and oil rose.
It appears that these markets like Geithner’s plans, because, they are over paid and over bonused trader types, I guess.
So, the plan has been announced, and it’s pretty much what I said over the weekend: A massive subsidy to big investment firms, and the little guy can’t get in on the “3% down and that’s all you lose” deal.
It’s the buy the sh%$pile with taxpayer money thing all over again….and again….and again.
Geithner has an OP/ED in the Wall Street Journal,† where he rolls out the Treasury’s new weasel words for financial toxic waste, “Legacy Assets.”
I’m sure that he thinks of Chernobyl as an “accelerated sunshine facility” too.
We know that the financial masters of the universe love the subsidies, because players like BlackRock and Pimco are falling all over themselves to get in.
I won’t go over the problems with the plan here, you can look at my Saturday post for that, but the short form is that Wall Street is mugging you.
*Really Barack Obama’s plan, because he is where the buck stops, though a lot of the blame goes to Larry Summers too.
†Which, considering the WSJ’s editorial page reputation for outright deception, is utterly appropriate.
Frank Rich, who I generally find unobjectionable, but also unmemorable, asks this question, and I believe that he may be right.
I believe that Wall Street is being run by, and for, a corrupt class of overpaid crooks, and most of the country agrees with this, but Geithner/Summers/Bernanke believe that these folks posses the unique genius to fix the problem that they have created.
They are wrong, and unless, and until, the campaign to fix these things becomes a campaign against these folks too, a bit of reality that even perennial light weight Maureen Dowd gets, things will get worse.
These people don’t work for their banks or brokerages, they work for their own benefit at the expense of those banks or brokerages.
They are commercial credit unions, which means that they do things like serve as check clearing houses for retailers, they do not hold personal accounts.
Assets, %57 billion.
So, we now have a definitive leak of the features of Geithner’s plan to help the financial system, and it’s the same old, same old: The problem is not that the banks are insolvent, or that their assets are worthless piles of crap, it’s that the markets are just undervaluing them.
The basic provisions:
This is what Geithner has been pushing for a long time, some sort of program to overvalue assets at taxpayer expense, all while, “firmly against imposing any restrictions on pay for companies investing money in the rescue effort rather than receiving money from it,” except, of course, any participants in this are receiving federal money because of the subsidies.
Dean Baker notes that the that unlike Timothy “Eddie Haskell” Geithner and Lawrence “Shoggoth” Summers and their Evil Minions™, the current market values of the securities are probably accurate, because real estate prices remain 20% above the historical trend, and if houses fall another 20%, these mortgage backed securities now selling for 30¢ on the dollar, which are the very top tranches, would be near a dime on the dollar.
Paul Krugman correctly calls it, “an open invitation to play heads I win, tails the taxpayers lose,” policy, and Calculated Risk and Yves Smith are similarly disparaging, though John Cole is the one who best nails the situation:
The Illness- reckless and irresponsible betting led to huge losses
The Diagnosis- Insufficient gambling.
The Cure- a Trillion dollar stack of chips provided by the house.
The Prognosis- We are so screwed.”
Seriously, tag team of Geithner/Summers may very well be worse for the economy than Hank Paulson.
For your amusement, here is Rep Brad Sherman (D-CA) opening up a can of whup ass on the CNBC Wall Street apologists
Happened after I shut down for Shabbos.
TeamBank, National Association, Paola, KS
Colorado National Bank, Colorado Springs, CO
FirstCity Bank, Stockbridge, GA
Bank failure numbers18, 19, and 20 in 11 weeks.
It looks like US and British authorities are investigating possible criminal activity.
Here’s hoping they find some, and send him away for a very long time.
The former chief economist of the IMF has an Op-Ed in the New York Times, and he makes the point that removing the “geniuses” who created the problem has to be the first step of fixing the problem:
A.I.G. can hardly claim that its generous bonuses attract the best and the brightest. So instead, it defends the payments by arguing they’re needed to retain employees who are crucial for winding down transactions that are “difficult to understand and manage.” In other words, only the people who stuck the knife into the American International Group can neatly extract it for a decent burial.
There is no reason to believe this.
Similar arguments made during the 1997 Asian financial crisis, when currencies and stock markets collapsed in much of Southeast Asia, turned out to be a smokescreen to protect the executives who were partly responsible for the mess. Recovery from that crisis required Indonesia, South Korea and Thailand to close or consolidate banks. In all three countries, bankers protested, claiming that their connections with borrowers were critical to recovery.
…
The lesson of all this is that when insiders have broken a financial institution, the most direct remedy is to kick them out. Traders are hardly in short supply, and you don’t need to rely on the ones who made the toxic trades in the first place. Companies must always plan around the potential departure of even their star traders, or they are certain to fail. A.I.G. does not need to keep all of its traders, especially since it takes far fewer people to unwind a portfolio than to build it up.
The longer that we put this off, the worse it will be.
*Charles de Gaulle, a man not known for his own sense of personal dispensablity, coined this bon mot.
So, we have the government looking to legislation giving them the authority that the FDIC does when it shuts down banks for not bank entities, such as bank holding companies and hedge funds.
And in related news, the FDIC is looking for additional authority to acutally write regulations, a function which is currently does not have.
It has strong enforcement powers, but, “but only the Federal Reserve, Office of Thrift Supervision and National Credit Union Administration can write the regulation it enforces.”
It’s about time.
So, the commodities markets surged as a result of the Fed’s quantitative easing, which means that they are expecting inflation there, which has, among other things, put oil at a 4-month high,
The fact that the 2009 US budget deficit has just been revised higher may also be contributing to traders’ positions.
Of course, Bernanke is primarily interested in preventing deflation, so this is a good thing, though I wonder how effective he will be.
Case in point: investors requested only $4.7 billion out of $200 billion available for the Fed small business and consumer lending program, the TALF.
It’s a confidence problem, and I really think that the first step to restoring confidence needs to be removing the malefactors in finance who screwed this up in the first place.
The dollar rose today, largely on the belief that yesterday’s drop indicated a time for profit taking.
His bail was denied.
Andrew Cuomo just got a ruling to compel Bank of America to turn over all the names of Merrill Lynch big bonus recipients.
He’s also looking to do the same with AIG.
As a matter of public policy, maybe any bonus or salary more than 40 or so times the median wage should be public information.
Yves Smith at Naked Capitalism calls for aggressive criminal investigations, and I agree.
It’s clear that there was a lot of outright criminality, and the broken window theory of law enforcement works with white collar criminals too:
Of course, it isn’t clear whether deterrence works against white collar criminals, but the flip side is William Bratton style zero tolerance policing was successful in seemingly ungovernable New York. The theory was that allowing minor infractions, like window breaking, to go unpunished sent a very visible signal that misdeeds were tolerated. Of course, zero tolerance wasn’t the only technique used by Bratton (he also was big on flexible deployment, shifting officers to neighborhoods that suffered an increase in crime), but it is considered to be an effective policing tool. And Wall Street is so far from having any meaningful policing that it’s a joke.
It seems anything short of regulatory or legal moves that limit career options (read future earning power) is an insufficient disincentive to risky trader and investor behavior.
I would argue that the Wall Street crooks have more to lose than a corner dope dealer.
After all, if they get caught, thrown in jail, and their assets,and possibly those of their spouses and perhaps their children’s college funds, are forfeit, that’s a lot more to lose than getting 3 to 5 in a prison when you had nothing before.
Well, I suppose that it’s an improvement that we now have people in cabinet positions who, when caught in a bald faced lie, will, when absolutely forced to, tell the truth.
Compared to Dick Cheney, or Alberto Gonzalez, the fact that Timothy Geithner is now admitting that it was the Treasury that demanded the bonus loophole is a step forward.
Of course, this followed 24 hours of “pin the bonus on Chris Dodd,” and only when people went back to contemporaneous news reports, and his fellow senators pushed back against the smear, did they change their tune, but considering the fact that Ari Fleischer accused Saddam Hussein of planning 911 just 6 days ago, this is a step forward, but still, Geithner needs to realize that he works for Barack Obama, who works for us, and not the banks.
Just over half of the ‘Phants voted against it, and all but 6 Democrats (I’ll post who and what should be done later) voted for a 90% tax on bonuses of companies getting bailed out by the government.
On some level I understand just how this is really a very small part of the bailout, but from news, to outrage, to bill passing the house is about 4 days, and it means something, though I’m not sure who gets that yet.
I think that Geithner will be gone by June….He should have rented a house, because we now have a report that Treasury was informed of the bonuses two weeks before Geithner says that he knew, which makes him either a liar, or incompetent.
Me, I’ll go with liar, as it is clear that the Obama administration is lying their asses off about Dodd’s role in proposed bonus restrictions in the bailout legislation, and the logical people lying about it right now are all on the Geithner/Summers “axis of weasels”:
After the recent furor relating to the AIG payments, lawmakers returned to make a forensic examination of the provision seeking to assign blame for what some called a secret agreement to spare the tottering insurance giant, which has received more than $170 billion in federal aid. The provision and its genesis consumed Capital Hill Wednesday.
“The president goes out and says this is not acceptable and then some backroom deal gets cut to let these things get paid out anyway,” said Sen. Ron Wyden, (D., Ore.), author of an earlier, alternative pay amendment, told the Associated Press.
The Obama administration had not tried to hide its concern about the moves to clamp down on executive compensation. Both Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers lobbied Mr. Dodd to make changes.
Administration officials said the Treasury didn’t suggest any language or say how the amendment should be changed. They said they noted legal issues that could likely lead to challenges, but was the end of their involvement. The official said Mr. Dodd and Congress made the final changes on their own.
At issue were competing provisions in the stimulus bill that capped executive compensation for recipients of bailout funds. One, drafted by Sens. Wyden and Olympia J. Snowe (R, Maine), would have capped bonuses at $100,000, retroactive to 2008. Companies awarding bonuses above that level would face the choice of returning those funds to the Treasury or having them taxed at 35%.
“Administration Officials” means someone under Geithner’s or Summers’ control here.
What’s more, the rest of the world does not have any confidence in Geithner either, as evidenced by the IMF criticizing his plan as “lacking detail.”
The IMF never criticizes a Secretary of the Treasury, and the fact that they are now indicates that there are a number of foreign nations that are sick of him, and signed off on this statement.
We need someone who will hold the financial industry to account, and Geithner still has knee pads on.