Uncomfortable conclusions

Matt Taibbi has a follow up to his Secrets and Lies of the Bailout article in the Rolling Stone.  This one, called “One Broker’s Story” is about the consequences of the bailout to ordinary brokers as a result of asymmetric information.  Neil Barofsky hinted at this in his book Bailout when he described all of the money that the government let the banks have access to.  It amounts to trillions and trillions of dollars.  It’s a little like opening the bank vault doors to people who have a habit of setting money on fire and telling them, “We know you didn’t mean to burn up everyone’s nest eggs.  Now, don’t do it again.”

Trillions and Trillions.  Imagine all of the money that the Republicans are constantly going on about in the deficit crisis hysteria and multiply it my several times over.  The social security shortfall requires a minor adjustment, a teensy tweak.  But the amount of money we have thrown at bankers and allowed them to access whenever they want is vastly, vastly larger.  When it comes right down to it, the bankers pretty much own the money supply.  They can tap into it whenever they want, charge interest on money they lend to others on money they got virtually interest free, and they don’t have to tell you about it.

The hapless broker in Taibbi’s story didn’t know that the bank he worked for, Wells Fargo, had access to all this cash.  He was looking at the fallout of the 2008 disaster, estimated the financial solvency of all of the major banks and decided to short them because he figured it was only a matter of time before they started falling like dominos due to the weight of all their bad assets.  But the broker didn’t know that all these banks had nothing to worry about because not only did the US government bail them out, it covered up their problems and then opened the money sluice to them in perpetuity.  So, stocks continued to climb in spite of all evidence to the contrary and the broker lost his shirt and everyone else’s shirts he did business with.

He only found out when Bloomberg filed a FOIA to obtain information on where all the bailout programs money was going.  The banks and the Treasury (and the White House, I’m sure) were hoping to keep it a secret as long as possible.

What the stock market is showing everyday is an illusion.  The banks are doing well because they’re being propped up by our money.  That is the observation.  The question is, why?  Why are we allowing the banks to have so much money?  Why aren’t we letting the market suffer?

I think it comes back to the 401K and IRAs again.  So many of us have so much of our money locked into the market instead of pensions that if the government let the market sink to its natural level, there would be a social and political crisis.  It is a vicious circle.  And we can’t take our money out to start new businesses or pay debts or just live without paying punitive taxes.  Those taxes virtually guarantee that the money stays in the market.  So, the government has to prop up the market until it can’t be propped up anymore.  That should happen when the next bubble bursts on Wall Street.

Taibbi finishes the post like this:

This is the real problem with the bailouts, and the issue we tried to underscore with the “Secrets and Lies” piece. With their hide-and-seek policies, bogus stress testing and stubborn insistence on calling failing banks healthy and publicly endorsing other such fibs, the architects of the federal rescue (from both the Bush and Obama administrations, as well as from the Federal Reserve) created a two-tiered market. The new economy has two classes of investors: those who know the real numbers, and those who don’t.

So while the proponents of the bailout will argue they were a success, and the covert and overt federal support helped bring the Dow all the way back from below 7,000 to above 13,000 – seemingly a good thing no matter how you look at it – there’s another bitter reality, which is that the bailouts officially created a sucker class.

When banks started making fortunes again in 2009 and beyond, it wasn’t a victimless situation. There were losers in this trade, too. Hartzman and his clients are examples of the kind of people who lost when the government made decisions about who’s entitled to the truth and who wasn’t. As one former hedge fund manager put it to me recently, “Joe Sixpack has no chance in this market.”

We are the sucker class.  Well, some of us are suckers.  Some of us weren’t suckered into voting for Obama either time.  Ultimately, the responsibility for this fiasco falls on his shoulders and those of the people he hired.  And the people who unquestioningly supported him.

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And about that $1Trillion platinum coin, mint the damn thing already.  As Krugman pointed out yesterday:

There seem to be two kinds of objections. One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution.

It sounds like another civility bluff to me.  The bullies announce they are going to steal your lunch money, push you down in the dirt and stomp on your face but if you protest or come up with some clever workaround, they start heading to the fainting couch with the vapors.

Normally, I’d say that this kind of silliness with the coin is just going to make the matter worse because who in the world will take us seriously.  But there shouldn’t be any real economic fallout, so mint the damn coin.

On the other hand, maybe we should just call their bluff.  Let them wreck the economy, pull down our credit rating, sow chaos and confusion and ruin people’s lives.  I’m sick of Republicans pulling this shit.  They need to be terrified of the consequences of their actions for a change.  If you mint the coin, they’ll just come back with something else to hold hostage.  So, let the babies have their way and get the end of the financial world over with.  It’s out of control and an unmitigated disaster and it’s going down eventually anyway.  Why prolong the suffering.  Let’s just lance the boil now and start over.   I want a capitalism without exploitation.

Reboot.  Do it now.

Neil Barofsky’s book is depressing.

Summary: Obama appointed the Mafia to run the Treasury.

You know it’s bad when your Democratic Special Inspector General for TARP who was appointed under Bush says the Obama Treasury appointees are worse.  Not only that but the HAMP program was constructed in such a way as to encourage mortgage foreclosure fraud by the servicers. Tim Geithner is not a nice guy.  Oh, no, he isn’t.  He’s a sociopath.  It’s just bad any way you look at it.  We’ve been had.  The banks own everything.

I don’t know if I can handle Sheila Bair’s book, Bull by the Horns, as well.  It might be too much.

Don’t let anyone fool you.  The good guys have left the administration with a couple of exceptions.  The rest have to go.  Clean them all out.

Weird…and probably misleading

I read this WaPo article, following a link from Atrios.  It’s about when Tim Geithner considered leaving and he recommended Hillary take his place as Secretary of the Treasury.  So, the summary goes like this: Geithner was ready to leave a couple of years ago and when they asked him who would be a good replacement, he suggested Hillary.  Here’s the run down of how that played out including the part that Atrios finds weird in bold:

Geithner had submitted a list of names to the White House. Chief of Staff William Daley appeared to “slow-walk” and rob the Clinton suggestion of any momentum, according to one of the administration officials. But actually, Daley was conducting his own vetting process, another official said.

He broached the idea with Clinton. An administration official familiar with the exchanges characterized her response as “cautious interest.” A person close to Clinton had a different take: “She listened respectfully and politely.”

Daley called a few trusted eminences on Wall Street, sounding them out on the personnel switch. Their response was resoundingly positive, both officials said. She had never been a banker, but as a senator from New York, Clinton had cultivated many relationships within the financial sector. Some of them had been longing for the kind of attention they had received from her and her husband, former president Bill Clinton, but rarely got from Obama.

And unlike Geithner, who disdained high jinks on Capitol Hill, Clinton had an intuition for political risk. She knew committee chairs. As the debt crisis worsened in the United States and Europe, Clinton’s popularity abroad would have also allowed her to talk sense to other leaders.

Weird indeed, considering that these were the very same bankers who rejected Clinton for Obama in 2008.  Back then, I suspect that Hillary looked a little too much like rehab so they threw their weight behind the guy who might like to party with them later.  That didn’t work out so well for any of them, or us, for that matter.

It doesn’t surprise me that the Clintons cultivated the bankers.  They’re politicians.  It’s what they do. Of course, there’s a difference between cultivating and prostitution. But as Karen Ho’s book, Liquidated, explained, bankers distrust Yale graduates as being too liberal.  I know that sounds facile on the surface but conditioning and tribalism are not easy things to overcome, even for the banker crowd.

In any case, by the time Geithner was ready to retire from Treasury, the damage was already done.  The article reports that sources close to Clinton says she listened “politely and respectfully” to the suggestion but it doesn’t sound like she was interested.  She’s not stupid, which is probably why only a national emergency will ever persuade her to take the VP position and maybe not even then.  Why the f^&* would she want to do clean up after Geithner?  They didn’t get along almost from the beginning when he wanted to move into her territory at State.  At State, she’s not sullied by all of the domestic crap.  If Obama and Geithner made a royal mess of things and didn’t support the homeowners drowning in their mortgages, they couldn’t pin it on Hillary.  Her political reputation doesn’t take any hits.  Dragging her into Treasury would definitely do her in.

I think it says a lot about Clinton’s professionalism and capabilities that Geithner even suggested such a thing.  It’s like saying she’s the best that Obama has in his cabinet.  She can do practically anything.

But note who “slow walked” it around the White House.  It was Chief of Staff William Daley.  There is a political component of this that the Chicago boys don’t like.  Were they afraid she’d get more face time?  Get in to the office and find that there were things she actually could do after all?  Make Obama look even worse than he already does?

I don’t know.  There’s not enough information for me to go on, although I’m sure it is more meaningful to the people in the immediate vicinity of Washington.

What this article *does* do is associate Clinton’s name with Wall Street’s in a potentially negative way, implying that she would be friendlier to them than Obama has been (hard to imagine that, to be honest).  We’ve seen this kind of thing before whenever the voting public starts getting wistful about Hillary.  Suddenly, there are articles about “Hillaryland!” at State and how she doesn’t run State like a man would, like that’s a bad thing.  But it’s all rumors and innuendos, intended to put you off your kibble if you’re a Democrat constructing all of the possible 2012 election scenarios.

Nevertheless, we can’t deny that the bankers took a good look at both candidates in 2008 and decided to pass on Hillary, despite the “attention” she gave them as their senator from New York.  They threw all of their weight behind Obama in a major way.  Let’s not pretend that the bankers had nothing to do with Obama getting the nomination. It has always been my suspicion that the Clintons weren’t overwhelmed by the “complexity” of the financial industry, after their experience and time to reflect where things went wrong.  The fact that the bankers seemed receptive to the idea of Hillary going to Treasury indicates that they thought they didn’t have much to fear from her after they’d already rewritten the rules in their favor and endorsed the blank checks in 2008-2009.

It was the White House that blinked.

Also, Atrios has an Asshole Test about children of illegal immigrants.  Cut out and carry with you.  This is useful.

More of this please.  It could be a series.

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BTW, this is what Hillary said in September 2008 and gives a pretty good indication why she didn’t get the nomination.  She put too damn much emphasis on bailing out people with bad mortgages.  Her priorities were all wrong even it turns out she was prematurely right.  Hmmm, if we’d elected her, we might actually be on our way to recovery right now and looking forward to a second Clinton term instead of dreading the future:

Thursday: High Noon at the Banker Corral

Simon Johnson is saying we’re headed for a showdown with the bankers. The forbearance strategy that Obama is using is going to prolong the problem and cost us a lot more money in the form of much higher taxes if Treasury does not force the bankers to back down. Incredibly, the finance industry, especially Goldman-Sachs, is making the situation worse:

In the case of Goldman, the explicit intention is to pay back TARP funds and to escape all government-imposed limitations on compensation. This would obviously be good for Goldman and the people who run it. Anything that strengthens their advantage over competitors and increases market share will presumably raise their profits and compensation, making it easier to attract even more good people.
Such developments would worsen the business prospects of other large banks and potentially threaten their financial situation. The government’s forbearance strategy is fragile unless big banks do as the supervisors tell them. But Goldman and other major players apparently think they have so much political power- and this may be more about connections on Capitol Hill than links with the administration- that they can ignore the supervisors.

Go read the whole thing. Goldman is playing a global game of Monopoly with the potential for devastating consequences for all of us. Now that I think of it, didn’t Hank Paulsen hate Lehman Brothers? And wasn’t he the former CEO of Goldman? Is bankruptcy the way G-S is eliminating their competition? Something strange and unsavory is going on with G-S and the other banks that feels like out of control aggressive avarice.
And who are the people on Capitol Hill who refuse to put a stop to it all? Frank? Dodd?
Johnson says there’s no time like the present to engage the Department of Justice to enforce and prosecute antitrust laws. So, who is standing in the way of a showdown?

Thursday: Elizabeth Warren Reports

Knowledge is power.  Pass it around.

Other videos in this series can be found at oversightpanel

I picked up on a few things that Warren is too polite to say.  First, Geithner’s plan doesn’t get her full support.  Now, Warren is not a politician, so she doesn’t know how to speak out of both sides of her mouth with ease.  To me, it looks like conflict all over her face and body.  She’s trying really hard not to say what she really thinks.  Second, there are elements on her panel who do not even want to discuss alternatives to the Geithner plan.  Now, *that’s* weird.  The plan doesn’t get Warren’s full support and there are plenty of unanswered questions but you’re not allowed to discuss alternatives?  OK, this suggests that the terms of the plan as written are so favorable to some parties that anything else would be very detrimental to their outcome.

John Sununu wrote an objection to the current Warren Report in which he complains that the panel is overstepping its boundaries and criticizes it for trying to make predictions as to the success or failure of the plan.

In reviewing the drafting of the April Oversight Report, however, it became clear that
much of the content pursued topics which strayed far from the Panel’s core mission.  Moreover,
the April Report engages in a premature discussion of dramatic changes in Treasury’s chosen
approach to supporting stabilization in the US financial markets.  These and other concerns are
more fully discussed in the joint additional views which I have submitted with Richard
Neiman.373
Given the magnitude of these differences, I am unable to support the full April
Oversight Report.

Oh, I don’t know, John.  With graphs like this:

World Stock Market Performance

World Stock Market Performance, now vs The Great Depression

And this:

World Industrial Output, now vs The Great Depression

World Industrial Output, now vs The Great Depression

it looks like it might be good to get out ahead of the curve, so to speak, wouldn’t you say?  However, it appears that Sununu would like to reduce the panel’s scope to that of a mere observer that reports what it sees and not as an oversight committee that monitors the plan, asks timely questions or issues warnings to the Congress that has the power to intervene where intervention is necessary.

Why is it that when smelly girls try to gain power or use power or even just report to power there is always a guy like Sununu sitting in the wings ready and willing to smite her?  We know that Tim Geithner and Larry Summers have no fondness for Sheila Bair at the FDIC.  And Obama treats Hillary like his personal servant.  Can I just say for the record that I am thoroughly sick of this?  It is undermining the credibility of all of these guys.  I distrust *everything* they say and my feelings are rapidly turning towards active hate of all of the male power elite who continue to stand in the way of women and good judgment.

Come to think of it, why *are* there so many women on the other side of the financial meltdown?  Elizabeth Warren, Sheila Bair, Hillary Clinton, Gretchen Morgenson (NYTimes reporter, Yves Smith at Naked Capitalism.  Many of the those who have objected to, reported on or have been pushed out of the way are women.

Go figure.

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