Dumb move. With mortgages sliced and diced amongst dozens, if not hundreds, of investors, you cannot renegotiate terms in many cases, which means more defaults and foreclosures.
He’s not opposed to allowing bankruptcy judges to rewrite mortgages, he just does not want it in the bailout package.
That’s because he’s still pursuing the asinine goal of getting 80 votes in the senate.
He won’t get 80 votes for a bill that works, because Republicans cannot afford fiscal stimulus to succeed.
Obama has ordered a halt to the implementation of the Bush last-minute regulations pending a review and he has suspended the Gitmo kangaroo courts pending a review.
So Timothy Geithner will be free to do exactly what Hank Paulson did for TARP round 2.
Lovely.
They allows people to submit short (>400 word) commentaries for broadcast, so I sent them the following missive.
It’s highly unlikely that they would publish it, I have no professional background in the field, and I’m just not that good a writer, but what the hell.
Amputating the Financial Industry
It is clear that the economy is sick, and it is also clear that the two things that are most directly responsible for this are the finance industry, and real estate.For real estate and construction, we have a classic bubble, where prices outstripped values, and the only real solution is for time and no small amount of inflation to put borrowers back above water.
The finance industry is a different matter. Between the Treasury Department and the Federal reserve, trillions have been spent to recapitalize this industry without a real thaw in credit.
If the economy is a body, it is clear that there is a serious illness in the financial industry, and the question is whether this is simply a bad infection, illiquidity, or whether this is gangrene, insolvency.
I would argue for the latter, and with advanced gangrene the only option is to amputate.
So, how can you amputate, when the finance industry is essential to the functioning of the rest of the economy?
The answer is that it’s not essential. Reasonable access to credit that is essential.
The question is not how to preserve Wall Street, it is how to make sure that businesses on Main Street can continue to operate.
The numbers to do this are actually relatively small, GM and Chrysler got $18 billion to continue to operate, which is a drop in the bucket compared to the more than 8½* trillion that has been allocated to the finance industry.
Even just using the $350 billion remaining in the TARP to set up a lending facility for small and medium businesses would go a long way.
In fact, it would go much farther than throwing more money at the Wall Street.
You could recruit a workforce quickly from the hundreds of thousands of rank and file financial professionals who have been laid off in 2008.†
This would have the effect of providing the grease to ease the wheels of the economy, without enormous expense of supporting what are walking dead zombie institutions.
Obviously, you would not want this as a permanent solution, but our economy is more like an octopus than a person, and so lost limbs regenerate over time, so if one were to add a small surcharge, which would render this facility irrelevant and unnecessary once a new finance industry, springs from real market needs.
Footnotes:
* Economic rescue could cost $8.5 trillion
† Layoffs in U.S. up 59% from 2007
Thoughts?
The Treaury is finally, “demanding monthly reports from the banks that received the most capital from the government’s $700 billion rescue program.”
You see, this isn’t so tough.
Well, it appears that we have Nobel Prize winner Paul Krugman, Portfolio’s Felix Salmon, and the Financial Times’ Willem Buiter’s all calling for nationalization.
Basically, all three of them say, and I agree, that that the banks are “zombie banks”, dead but still walking, and that the most effective, and the most cost effective for the taxpayer, solution is for the government to take them over and allow their problems to unwind.
They all agree that the idea of the “bad bank”, basically the Resolution Trust Corporation (RTC) from the S&L bailout, but without taking over the banks, is among the worst possible solutions.
Basically, if you buy these banks assets at market value, they are still insolvent, and if you overpay, the taxpayer loses and the banks are encouraged to do more stupid things.
To my mind, I would actually set up a government agency to directly make loans to business, and let the banks all hang…What I have repeatedly called “amputating the financial sector.”
I would add that with banks publicly declaring that they will take the money and not open up their lending, we need some serious tough love hate headed towards the banks.
It really is beginning to look like the UK is going to be hit worse by this than the US, with Gordon Brown unveiling a new bank bailout, one which, shocker, requires the banks to lend the money out again, imagine that.
I would imagine that the catalyst for this action was that Royal Bank of Scotland posted a £ 28 billion loss for 2008.
Even more than the US, the UK seems to have banked on (pun not intended) finance being the future of their economy, and they are suffering as a result.
Spain, which created a boom on real estate, is doing worse with S&P cutting the rating on its debt from AAA to AA+.
The downgrades to countries like Spain, Portugal, Italy, Greece, and Ireland are throwing a monkey wrench into the vision of the Euro Zone as a unitary institution:
Diverging bond yields hurt [Euro Central Bank President] Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.
Autos are not great either, with France talking about a partial takeover its car makers in order to bail them out, and GM at risk of defaulting on its recent government loan, because it cannot find enough debtors to swap debt for equity.
Likely, the sticking point here is PIMCO, the worlds largest bond fund, which has just been hired to manage a Federal Reserve facility, so they are extorting GM, while at the same time, they are being paid to manage the Fed’s attempt to fix the problem of frozen credit.
It’s nice when you can generate demand for your services without having to deal with the market, I guess.
Meanwhile, in currency, the dollar was stronger today, largely on the UK bank rescue, and the Ruble continues its slide.
In energy, oil is down, largely on the end of Gaza fighting and the Russian-Ukranian gas deal, and retail gasoline is up again today.
I don’t expect it to go above $4/gal soon, but I think that sub $2/gal gasoline will be gone shortly.
An exchange between freshman Congressman Alan Grayson and Federal Reserve Vice Chairman Donald Kohn, where the distinguished gentleman from Florida points out the Fed is spending around $4000.00 (actually, it total, it’s closer to $20,000.00 at this point when other programs are rolled in) of taxpayer money for every man, woman, and child in the US, and refusing to provide details.
The Fed is completely out of control, and has gone native, and believes that the financial industry is the economy, and Grayson shows just how corrupt the whole process has become in this exchange.
Bank of Clark County, Vancouver, WA and National Bank of Commerce, Berkeley, IL
They always do it Friday evenings, when I go off line.
Just 3 months after we threw $350 billion at the banking system, which was more like $9 trillion when you count what the Fed is doing, we have exploding bank losses threatening bank solvency, with one of the main contributors being, “the unexpectedly high costs of shotgun mergers arranged by federal officials last year.”
Thank you Henry Paulson, now we have Bank of America getting in line for a Citi style bailout, because the black hole that is Merrill Lynch is deeper than anticipated, among other clusterf%$#s.
As Atrios says, “Just nationalize the lot of them and end this.”
This time, it’s the Federal Home Loan Banks that look to be running out of capital because of losses in mortgages.
They are nominally owned by member banks, and Moody’s is saying that as few of 4 of the 12 regional banks may remain solvent.
And Old Pinko drops me an email, because it’s about economics, and I post a fair amount about this, but I’m not an economist.
On Truthout, we have an article written by Joshua Holland, Was the “Credit Crunch” a Myth Used to Sell a Trillion-Dollar Scam?.
The thesis here is that there wasn’t a credit crunch, but rather that it was all smoke and mirrors in order to steal $350 billion to $750 billion and siphon it off to their friends.
I think that this is wrong for a number of reasons. It’s like saying that 911 was a DoJ covert operation, because they wanted toe Patriot act passed.
The DoJ had the Patriot act on their wish list waiting for the right time, just as the Financial industry, in this personified by Henry “Hank” Paulson, is always on the lookout for a big score with other people’s money.
I would suggest that this was rather more like Naomi Kline’s thesis in The Shock Doctrine, where there is a statistical certainty that something bad will happen somewhere, and the people most interested in enriching themselves have contingencies to both personally profit from the system, and further the cause of Friedman/Rand free marketeers.
The first thing to understand is that even before massive deregulation and the rise of the shadow banking system, fractional reserve banking is a lot like juggling.
Your basic bank has far less money in its accounts that what the account balances say, the rest is out in the form of loans to other people.
It’s why even a relatively small run can take a bank down. They borrow short term from their depositors who can generally withdraw money at any time, and lend long term on things like business loans (5 or so years) and mortgages (30 years).
This is very much like juggling, and when you start dropping balls, it’s game over.
He contradicts himself, saying that the increase in wealth was false, but the reduction in lending was false.
So, if we don’t have a credit crunch, what is all this?
Well, Mr. Holland maintains that:
While I agree that with Mr. Holland’s prescription, specifically that any aid should be directed toward financial institutions, as opposed to the financial industry (I have suggested that the financial industry is the gangrenous limb of the body economic, and so should be amputated), I think that discussions of a vast conspiracy distract from the solutions, and make the speaker look like a complete tool.
Henry Paulson and his associates are not predators, they are opportunistic scavengers, and they keep things like this in their back pocket for when the inevitable crisis.
These people don’t create a crisis to put forward their agenda, that would be an expensive and risky endeavor. They get their ducks in a row, and wait for a crisis, and then step in with a “solution” that is really a wish list.
This distinction matters, because the vision of the grand criminal mastermind distracts us from the very real activities of the banal vulture.
We are dealing but with Professor Moriarty but rather Chauncey Gardner.
Basically, the complaint is that S&P is the sole supplier of unique identifiers for securities in the US for the American Banking Associations, and it has been using that status to extract payments from people who want to use those identifiers:
Each security such as a stock or bond has a unique number to ensure there is no confusion when it comes to clearing and settling a trade in that security.
Standard & Poor’s operates the CUSIP service bureau on behalf of the American Bankers Association, the sole issuer of identifiers for U.S. securities.
Standard & Poor’s says it charges a license fee when the numbers are used for purposes other than clearing and settlement.
The complaints focus on whether Standard & Poor’s can charge financial market data vendors such as Thomson Reuters and Bloomberg News as well as end users of these identifiers, such as asset managers and banks.
It is alleged that S&P forces vendors to cut off financial institutions from data feeds on U.S. securities unless they have licensing agreements.
These are serial numbers, and as such, they should not be protected by IP law, and the EU is going after them on this.
It’s Julius Genachowski for head of the FCC.
I don’t know him from Adam, but Harold Feld is cautiously optimistic about his appointment, and FCC and telecom regulation is Harold’s day job.
Calculated risk makes a very good point on any potential economic stimulus plan, you don’t just have to spend on building things, you can spend on tearing them down too.
He’s talking about spending money to demolish houses in neighborhoods with high vacancy rates.
They are actually doing this in Youngstown, where the city council has finally abandoned hairbrained growth schemes, and they are pulling down phone lines, demolishing roads, and buying people out from abandoned neighborhoods so as to live within their means.
It appears that the congressional panel tasked with investigating the Treasury Department’s TARP program has discovered that absolutely nothing has been done by way of oversight on the recipients of this money.
Maybe I’m a cynic, but I think that this is a feature, not a bug.
Bush and His Evil Minions™ in general, and Henry Paulson in particular, have done their level best to ensure that not the smallest vestige of accountability accrue to those people who are most responsible for this mess, because they believe the rules of accounting and honesty should not apply to rich people.
Elizabeth Warren, who heads a congressionally appointed oversight panel, told ABC news there was no evidence the Treasury had used money from the Troubled Asset Relief Program to support the housing market by avoiding preventable foreclosures.
“There’s just no money that’s gone in that direction. This one’s not even arguable,” she said. “The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so.”
In a draft of a report to be released on Friday, the panel said the Treasury has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used.
But the Exxon CEO is right in endorsing a carbon tax over cap and trade.
It’s simpler, and harder to game, and the net effect is the same, with more revenue flowing to government, and less to Wall Street bankers who want commissions for creating “Carbon Backed Securities.”
It’s already proving a failure in Europe.
The news that Citi is supporting cramdown legislation (with some conditions) is heartening.
However, it does raise some questions, most notably, “Why, after being bailed out by the US government, do they have a seat at the table at all,” and “Why are they supporting this at all?”
As to the first question, I put it down to the corruption that is Washington, DC business as usual.
As to the second, I am sure that part of this is a desire to be in on the process to shape it in the most advantageous way possible, but I think the real interest here is that Citi manages a lot of mortgages for the holders of mortgage backed securities, and as such, they carry much of the costs of a foreclosure process, but they carry none of the costs of s cram-down.
Initial claims for unemployment fell unexpectedly to 467,000, but continuing claims increased to 4.6 million, the highest number since 1982.
We also saw Monster.com’s Online Job Index Stumbles falling in December, which is another indication that we are nowhere near the bottom.
In retail, holiday sales were grim, with even Wal-Mart missing sales predictions.
This is far from surprising when you consider the fact that consumer credit fell by a record amount in November.
People are not buying, they are paying down debt.
Surveys in Europe are showing a precipitous drop in sentiment too.
We are also seeing a rather precipitous drop in port traffic in 2008, it looks to be about 8%, to the lowest level since 2004, according to the National Retail Federation (NRF)
Consumers are buying less, and domestic manufacturers are drawing down inventories, and both of these reduce the demand for imports.
As such, it is no surprise that the Bank of England cut its benchmark rate by 50 basis points (½%), the lowest since its founding…..In 1694.
Interest rates are still trending down here, with the 30-year fixed mortgage rate hitting a record low.
I’m not sure how long the low rates will last though, as Moody’s is reporting that the Federal Home Loan Banks (FHLB) are experiencing serious losses in mortgage backed bonds, and may fall below required capital minimums as a result.
While failure is not imminent, the spreads between their bonds and treasuries are rising as a result.
BTW, we are also seeing holes in one of the panglossian predictions of real estate professionalw, residential rents are dropping too, “apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008.”
We are also getting rumblings that the Chinese are losing their appetite for US debt, though Brad Setser says that this article is bogus, and he has the number to show this.
Really, the important thing here is not that people are not investing in US debt, it’s that they are talking about not investing, in the New York Times no less, which is the first step to a drying up of foreign lending.
The only foreign lending that does not seem to be decline is that of central banks to commercial banks. Case in point: the Bank of Japan decided to shovel $13 Billion to banks in the hopes of jumpstarting their lending.
In currency, the dollar fell today, largely because the 50 basis point cut of the BoE was less than had been predicted.
In energy, oil fell again, on the expectation that the recession would continue to suppress demand.
Well, the incoming House of Representatives has adopted the new rules for the 111 House of Representatives.
Because the house is elected every two years, it’s easier to change the rules than in the Senate, which is technically a continuing body, because 2/3 of its members are returning every Congress.
The changes made are generally fairly obscure, but the important ones are changing the motion to recommit such that a report must returned “forthwith”, rather than “promptly” and eliminating term limits on committee chairs.
The change in the motion to recommit means that a motion to ammend a bill must be voted on then and there, as opposed to being sent back to committee, where, at best it is delayed, and frequently dies.
The Republicans have been using it for some time to obstruct legislation.
The end of term limits for committee chairmen is also an improvement, though less of one.
It return the chairman system to one that is largely based on seniority, though the case of Waxman beating out Dingell at the Energy and Commerce Committee shows that it is not universal.
I’m not a fan of seniority determining who is chairman of a committee, but under the Republicans, it became pay-to-play for chairmanships, which is worse.
Also interesting is a provision for the House to continue its contempt of Congress actions against Harriet Miers and Josh Bolton, which means that they might have a receptive Attorney General actually enforce the subpoenas for them to testify.
Of course if I were in Congress, I would trying to get the House Sergeant at Arms to arrest them and lock them in the House basement, which was last done in the 1930s.
This is why you should be glad that I am not in Congress.