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Friday: Free Milk and a Cow- Reprise

The stress tests are finished and the verdicts are in:  The Bankers Have Won.

James Kwak and Simon Johnson of Baseline Scenario have a not-to-be-missed post that lay it all out:

In short, relationships between the government and the large banks have never been closer, with large amounts of money flowing in one direction, and complete co-dependency going in both directions. Those relationships are not entirely friendly, which is not surprising. In any crisis when public resources are called on to bail out the private sector, not all of the oligarchs will survive; Bear Stearns and Lehman have already vanished. But the winners – which should include Jamie Dimon of JPMorgan Chase and Lloyd Blankfein of Goldman – will emerge even more powerful and influential than before.

In rejecting “nationalization” (regulatory takeover and conservatorship), the government has not ensured a private, properly functioning banking system. Instead, it has muddled into a broken-down, undercapitalized system that is nominally in private hands, but is able to tap the state for apparently limitless support. And to date, that support has flowed on one-sided terms, with the taxpayer accepting downside risk but limited upside potential. No wonder bank shareholders are comfortable with this outcome.

As a result, the banks have largely preserved their existing management teams and bonus plans: on Wall Street, first-quarter accruals for bonuses returned to the levels of the glory years of 2006 and 2007. Creditors and counterparties have been kept whole, most notably through the AIG bailout. And shareholders have seen their share prices supported by the promise of sustained government support. The incentives we have ended up with are more similar to those of a nationalized system than those of a free market. Instead of state-owned coal mines run for the benefit of miners (the U.K. in the 1970s) or state-owned oil and gas companies run for the benefit of bureaucrats (the Soviet Union in the 1980s), we have state-backed banks in the U.S. run for the benefit of bankers and their creditors.

The smart economists in the Obama administration must know what is going on. But having insisted that large bank takeovers are tantamount to nationalization and therefore off the table, the administration is betting that the financial system will repair itself – or “earn their way out,” as StatsGuy put it.

This is possible. With the competition in both investment banking (Bear Stearns, Lehman) and mortgage lending (most of the specialist mortgage lenders) gone, the survivors all enjoy larger market shares and higher prices, contributing to their somewhat healthy profits in the first quarter. Even the large banks that receive the lowest grades in the stress tests will be given relatively cheap capital by the government; Treasury will use its resulting stakes to apply behind-the-scenes pressure to the banks (more government influence), but without taking decisive steps to clean up bank balance sheets. Instead, it will hope that the PPIP will do the trick, using cheap government financing.

According to Paul Krugman, H. Rodgin Cohen, once nominated by the Obama administration for Deputy Secretary of the Treasury, is to have made the following statement recently. “I am far from convinced there was something inherently wrong with the system.”

In short, the Change! that we all Hoped for last year is that the Democratic party is now firmly in the hands of the Republicans.  Well, that’s what it looks like to me.  I imagine that the smart, techy, creative class Republicans and Wall Street types didn’t much like living in the 14th century with the fundamentalist Goddies of their own party.  They weren’t into war either.  And they could see that the Republican party had sort of dug itself into a hole with Bush, DeLay and all the creepy GOP politicians who had issues with diapers and tapdancing in men’s bathrooms.  (not that there’s anything wrong with tapdancing in men’s bathrooms but if you’re going to do it, for gawdsakes, get a room)  The Republican party became so declasse.  How does one keep mainlining money when you’re no longer on the A list?  Hey!  Why not take over the other guy’s party?

We should have seen this coming.  Actually, I think *we* did see this coming.  The traditional media is owned and operated by big corporations that love neo-feudalism and cut-throat competition where winner takes all.  So, when they started praising Barack Obama like he was the second coming of Jesus, our antenna started to twitch.  This was a media that was so in the tank for everything Bush for eight straight years and was opposed to everything Democratic, in their words “liberal” for eight years before, that their support of anyone would have to have been seen as self-serving.

But there were warning signs before the 2008 election.  There was Joe Lieberman, for example.  Ned Lamont won the Democratic primary in CT in 2006 but it was Lieberman who got the support of the party in the general.  It was almost like the primary never happened.  The party did what it damned well pleased.  It was followed up with last year’s presidential primary where once again, the party chose the victor and bent over backwards in the most obvious way to finagle the numbers so that Obama’s disastrous experiment of forgoing the Michigan primary was not held against him.  But there’s more!  Now, we have Arlen Specter, newly minted Democrat who is having problems adjusting, given a guarantee by the party that he won’t face a primary challenger for the Democratic nomination for Senator next year.  Yes, the governor of PA has just decided that voters need not apply, their choices have been made for them.

Maybe these party officials think they are doing us a favor by removing what must be an agonizing and difficult responsibility from us.  Maybe they think we are too immature and untrustworthy to handle these decisions ourselves.  I thank them for my part but I don’t need the kind of guidance they are providing.  But maybe they think they can now get away with it.

I was watching Frost/Nixon the other night and one of the characters, a research assistant, tries to explain to Frost why it was so important to nail Nixon publicly.  It was because he  committed constitutional crimes and letting him get away with it with a pardon would come back to haunt us in the future.  And it did.  We don’t hold anyone responsible anymore for anything.  Nixon got away with Watergate, Reagan and Bush with Iran/Contra, Bush II with torture.  We let the Savings and Loan crisis happen and didn’t learn a thing from it.  We watched the debacle at Enron and Tyco and clicked our tongues in sympathy for the employees that lost everything.  But the finance industry at large has adopted Enron’s Wild West risktaking and accounting practices.  And now, no one will be held accountable but the taxpayers for the trillions of dollars lost.

It didn’t have to be like this.  We could have gotten off the emotional roller coaster last year when there was time.  We could have asked the party what we were going to get in exchange for nominating this neophyte with the pockets overflowing with cash.  We could have set conditions for his nomination, raised a ruckus when our votes were callously thrown away.  We could have held the party accountable for the decisions it was intending to make.  We tried.  We were called racists.

This is what happens when you don’t ask for anything in return for your vote.  Why buy the cow when you can get the milk for free?

And there is no such thing as being a little bit pregnant.  We are all now well and truly fucked.

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53 Responses

  1. When the people fear their government, there is tyranny; when the government fears the people, there is liberty

    thomas jefferson

    • ur right RD we saw this coming .. just nobody was reallt payiny atttion that much … after the dems took control of the senate & the house .. they gave bush everything he asked 4 & more // now that was a big red flag of the things 2 come

      • Last year on the FISA amendment – the Dems didn’t cave into the GOP, they were leading the charge!

        • sure they did . the goldenchid & most of the dems give the telecoms immuinty even after the golden child said it was unconstitutiona & that he would support a filibuster of it.. he voted 4 it .

        • I’m sure they were serving their constituents – the money.

    • i think its time they fear us again

    • this government should fear the people.cause we are going to fire all of them.then they will be homeless and hungry.

  2. The old Republican party should start calling themselves the Luddites, and the the ones who took over our party should give it back and start a new party – the Morlocks.

    • nah, the old Republican party is the Governement of the Patriarchal Theocrats. … they’re more like the American Inquisition.

  3. as far as the banks getting money left & right … follow the money … ill bet they all gave alot of $$$ to the goldenchild this past elec . now they r getting a return for buying the goldchild … berry just a puppet nothing more

  4. The voters are so taken for granted and I am truly saddened by the fact that we don’t have accountability of our legislators or at the very least a report card. What irks me the most are people like Biden a 26+ year Senator who will stand there along his cronies (dinosaurs) and say they are going to usher in CHANGE.

  5. Of course “there wasn’t anything inherent wrong with the system”. Or else, “the system” wouldn’t have invested a million dollars in the new figurehead, Jr.jr. And not only do the old problems continue, they escalate. Only now, without any scrutiny. Or even coverage. Like the 120 civilians just murdered by US in Afghanistan. Not a problem in the Era of Obama.

  6. The fact that broken down Specter is a Dem candidate, as well as Stormy Daniels ….plus the pushing of Princess Caroline , and the upper crust sulking when she didn’t inherit her “rightful seat,” says to me the Senate level is no longer seen as relevant and any celeb will do, in fact media creations are preferred.

    • I think “average” voters are easily swayed by the media psudo-news and celebrity of any kind helps when they vote because people vote for familiar names.

      Most of the people I know don’t spend any time on the “news” at all, all they know is the brief update news (traffic & weather) between songs. They watch the latest competition / survivor type show on during prime time and that’s about it. Some watch MSNBC, but really what is the difference between KO and Dancing with the Stars?

      • ….but really what is the difference between KO and Dancing with the Stars?

        lol….nothing. Except folks on Dancing with the Stars
        work alot harder lol! And really, an up coming event on Dancing with the Stars is treated as late breaking news on my local channel ‘s “news” ….so the short answer is, ” no difference “

      • What does Walmart and big Media have in common?

        Walmart sells you cheap goods and junk you don’t need.

        Big Media sells you cheap thrills and junk journalism you can’t use and the Couric’s and the William’s of the world are nothing more than Corporate Grocery Clerks bagging this shit for you.

        Paper or Plastic?

  7. “there wasn’t anything inherent wrong with the system”.

    If I was getting endless billions, I’d think the system was great too! lol! The system is called theft

  8. OT – afriend just called and said she heard that Glen Beck is on a real tear about the need for a third party because “the good Democrats and good Republicans” are fed up with their parties and he’s doing an expose on ACORN on Fox tonight.

    • I know you aren’t saying otherwise but, I just want to make it perfectly clear that any party endorsed by Glen Beck isn’t going to be my party.

      I don’t know what he means by the phrase but, I’m pretty sure that he wouldn’t consider me a “good Democrat”

      • Katiebird: The very few times I’ve caught Glen Beck, I thought his show was stupid (fake radio mic) and I wasn’t impressed that he had command of the issues – he just seemed loud but not very smart.

        Other than those things, what issues are there with him? Partly being funny, partly curious 😉

        • jjmtacoma, It’s nothing specific. Any time I’ve seen him (as we cruise around looking for something else) he’s babbling like Rush Limbaugh.

          • but so do Olbermann, Colbert, Jon Stewart , Bill Maher– they all babble like Limbaugh. What they say and the ways in which they say it are as absurd as Limbaugh.

        • I’ve never listened to him – and am not even sure what time he’s on tonight. Does anybody know?

      • I don’t align with Beck at all but my friend (who listens fairly regularly) said he’s been sounding really different lately – and has been bad mouthing the republicans and the “progressive” dems – hey, if he honestly does get some points out there about ACORN – I don’t really care where he’s coming from.

  9. I’m in moderation… Don’t know what I said!

  10. Anyone on TV is part of the problem. Mr. Beck is a comedian looking for a niche.

  11. Beck is doing his thing up to the limits set by Murdoch….He doesn’t give the whole story…as in, never telling us the other day who actually ran Cerberus (see Logistics Monster for more info on the their reach into GMC, Chrysler etc). Let’s see, that would involved Fmr. Treasury Sec. John Snow (Bush) and Dan Quayle (spokesperson and runs an international unit).

    On the home front, some black bloggers who have consistently mistrusted him are on his case….very interesting read…

    A Black Blogger’s Take on Obama’s Ambivalence toward the Real Problems in the Black Community


  12. I agree we are are screwed, but that has been increasingly the case for several decades, and it has not resulted from takeover of the ‘Democrat’ party by the ‘Republic’ party.

    Instead, it is the result of the takeover of both parties by the corporatists. Oh sure, the R’s still depend on the fundies for foot soldiers/voters and the D’s depend on unions/minorities for the same role, but neither party gives a damn about them once elections are over.

    I recommend again Kevin Phillips’ latest excellent book “Bad Money” for the interesting details of how big money…not just Wall Street but also HIGH TECH…dominates Village Dems. He also highlights the inheritable nature of the American political elite…not just the Kennedys and Bushes, but the Gores, Chaffees, Romneys etc. Among the 535 people elected to the 107th Congress 77 were relatives of senators, representatives, governors, judges or state officials. Many, perhaps a majority, of Senators are millionaires

    Increasingly this country is looking like a lot of empires which have preceeded us….a vast impoverished citizenry supporting an aristocracy which uses tax funded military might to enrich itself.

    • Very well said…and as an Empire we didn’t even last as long as most !

    • I agree… it’s easy to blame “the republicans” but that misses the fact that so many corporate bigwigs are actually democrats. Both small government conservatives and social conservatives are fed up with the republican party. It is only the strong foreign policy types that have any love for the republican party.

      And as you say the Democratic party has long since ceased to be the party of the “working man” and is just as enthrall to corporate big money interests while using minorities and unions to bolster their electoral strength.

    • Well said. I couldn’t agree more.

    • salmonrising said:
      “the inheritable nature of the American political elite…not just the Kennedys and Bushes, but the Gores, Chaffees, Romneys etc. Among the 535 people elected to the 107th Congress 77 were relatives of senators, representatives, governors, judges or state officials. Many, perhaps a majority, of Senators are millionaires”

      The importance of this cannot be overestimated.

      The American political class is not of the middle class, it is largely an elite class. Why else would Hillary and Bill, not to mention Sarah Palin, evoke so much disdain and ridicule.

      I believe, sadly, that the days of the self-made American, the one who Palin embodied so dramatically, are over. Unfortunately, that leaves few (Hillary is one) who really care about and will fight for the average American citizen.

    • The idea of the self-made person ended and will not be given a chance at re-birth.

      The problems with income disparity are not about race and to a lesser extent, gender, but position.
      The working class regardless of location or skin color and gender are still falling behind. Gov. Schwietzer of Montana pointed this out.

  13. I’ve been reading about the stress results from various sources this a.m. and can add some links. Krugman’s piece was a little confusing, because he said that other lenders have stepped in–the Fed & Fannie & Freddie and that “may work.” He goes on to say it’s very risky, and we should be “very afraid,” but he seems to be hedging his predictions lately.

    Here’s an article from the FT that talks about the discussion of behavior economics, and “Animal Spirits.” Sounds like more propaganda and mind control from the WH to me…

    What a feeling: how emotions may yet save the economy

    Since mid-March President Barack Obama and his team have mounted a sophisticated effort to brighten those “ideas and feelings”, reassuring the nation with “glimmers of hope across the economy” and the assertion that “we’re starting to see progress”. The much bally-hooed stress tests – whose comprehensively leaked results were fully unveiled after the markets closed on Thursday – are both an important example of this confidence-building campaign and its toughest challenge.

    Since then Americans have been hearing a decidedly more optimistic vibe from Washington. It has seemed to work. A Google search for the term “economic recovery” turned up 6,991 references to the term in January and 7,831 in February. In the first week of May the phrase occurred 24,443 times.

    More traditional yardsticks show the same result. According to a recent ABC/Washington Post poll, Americans’ belief that their country is heading in the right direction has soared from 19 per cent, just before Mr Obama’s inauguration, to 50 per cent, the highest in six years.


  14. Comment eaten–please rescue.

    • It was a link to an article in the Financial Times (not the Nation link below).


  15. More on Animal Spirits: notice, again, how he does not lay the blame on BO. He is “sincere,” but Geithner & Summers are the self-serving myopics.

    Stress Test: Obama’s Rosy Scenario
    By William Greider

    Now it’s official. Prosperity is right around the corner. We have heard the good news from both Wall Street and Washington.

    Barack Obama’s wholesome optimism is doubtless sincere, and so was Herbert Hoover’s. But in Hoover’s day, people did not believe him. They could see for themselves it wasn’t true. In time, Americans came to revile Hoover for his repetitious happy talk.

    President Obama is now flirting with the same fate.

    Reality is unlikely to cooperate, because the core of this crisis is not psychological. It is about real breakdown and real loss–trillions of dollars lost to the collapsing financial values, thousands of businesses and banks deeply damaged by collapsing balance sheets and markets. Wishing does not necessarily make it so. Talking up the economy prematurely may actually yield an opposite result–deepening cynicism and mistrust, a sense that the authorities do not know what they are talking about or, even worse, are concealing the truth.

    More bearish analysts look beyond the good talk and they see deepening troubles for the banking system. While Obama’s technocrats captured the big headlines with their encouraging “stress test” results, a private firm produced its own “stress test” on the very same day and it told an opposite story. The Institutional Risk Analytics Bank Monitor produces quarterly reports for investors on the health of individual banks and the system as a whole. IRA has gained enormous prestige in financial markets during the last few years because it has consistently been far ahead of government regulators and economists in warning about big trouble ahead.

    Contrary to the government’s claims, IRA’s analysis is not brightening. IRA crunches the internal numbers that all banks report to the FDIC.

    “Our overall observation is that US policy makers may very well have been distracted by focusing on 19 large stress test banks designed to save Wall Street and the world’s central bank bondholders, this while a trend is emerging of going concern viability crash taking shape under the radar,” IRA explained. That is a polite way of saying Treasury Secretary Tim Geithner and Obama’s economic guru, Larry Summers, are so fixated on trying to save their old Wall Street colleagues they do not seem to recognize the deterioration underway broadly in banking.

    “We may have wasted valuable time trying to save Wall Street at the cost of Main Street,” IRA’s Christopher Whalen warns. “…Has the time come to shift the policy focus away from the things that we love, namely big zombie banks, to tackle those things that are truly hurting us?”


  16. im getting sckj & tired of it them saying its going to be better soon dont worry . i just like then to go out & ask some of those people that lost jobs , homes & life saveings . how well they think its going

    • Actually Boogie, I personnaly hope they continue. I won’t believe a word of it, but I look at it as a credibility issue. The more they run their mouths, the less credibility they have. And if we want to regain our country by wrestling our Congress back out of the ends of that Oligarchy in place at the moment, they need to loose complete credibility for the common man.

  17. But our ponies are arriving!

  18. RD, this is one of the best posts you’ve written. I just wanted to stand up and applaud. I don’t understand why more people don’t GET this. It seems so obvious; especially when it is so well put.

    • A lot of people don’t want to get it – they’d rather not face scary realities, the result being even scarier realities springing up down the road. But the syndrome continues…

  19. I just saw this:


    Something is just so wrong with all of this. Really wrong.
    It seems to me that somebody should go after the crooks?
    They really need to. I hope they are and will, soon.

    Anyway. Who sold out Americans? It is like a mass Enron or worse.
    Totally horrible.

    great piece RD.

    It’s really not clear who is in control of what?

    ps: I watched that news guy Olbermann? What a joke. This is part of the problem as I see it. Plus that chick on after him? None of it is really news and there is no investigative reporting going on.
    Oh for the journalists of the Watergate era, no?

    They were real, and honorable.

    It’s like a very bad cartoon.

  20. […] Friday: Free Milk and a Cow- Reprise […]

  21. applause applause for R.D. great post…

  22. Justice Scalia told us that elections are too messy, and that’s why the Supreme Court had to take charge in 2000. I guess the Democrats learned that lesson well.

    Carolyn Kay

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