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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.

********************************************

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.

38 Responses

  1. amen

  2. Bears repeating for the Kosshole lurkers. Obama, the first black republican president.

    • beware … be very very … ware … some of us kossholes do more than lurk! bwahahahahahahaha

    • I still like the term “kosswipe”. I will re-suggest it from time to time to see if it goes anywhere.

  3. “Ultimately, the responsibility for this fiasco falls on [Obama’s] shoulders and those of the people he hired. And the people who unquestioningly supported him.”

    Taibbi was one of those unquestioning supporters. I haven’t read him since 2008 when he was covering the campaigns and making fun of Clinton’s with child rape “jokes.”

    We have plenty of people who were right from the start on this subject (Confluence, Black Agenda Report, Susie Madrak, madamab, even me). The Taibbis who keep riding the latest popular resentments using any garbage they can find need to be in the trash can together with it. No matter how elegantly they do it.

  4. I have to cut some slack for the people who came around. Taibbi seems to have done that pretty completely. Yeah, he was an asshole in 2008. He’s learned his lesson.
    It’s the Tbogg’s and Kevin Drum types who I have no respect for.

    • No kidding. Tbogg, I don’t care about. But I read Kevin Drum for years before his Obama Conversion. And he was either a liar then or he’s a liar now. It’s like he’s not even the same person.

  5. They will write was is required…who knows what they actually think? They may not themselves .

    No one will pay them for thier own thoughts. That’s not the job.
    The job is to pretend they think the current shit thier paymasters want put over…to make the faxed talking points de jour as palpable as they can

    • Which paymasters would want Taibbi to write “giant vampire squid” or to write the book Griftopia?

      • You gotta freshen up your ceds on occasion by approximating journalism …, anyone fooled by Obama the first time is an idjijt or was paid to do so. I’m giving him the benefit of the doubt by saying it was dough…or rather career. It was obvious in 2008…no Barry love = no “serious” career.

        • If that is the price we the public pay to get a book of merit like Griftopia, is that a price worth paying? We have already paid it regardless, so if Griftopia has merit
          we might as well use it.

          • It’s nice to have a history book about Wall St.’s screwing of the last ten years …but it would be nicer to have journalism about the current screwing .

            But he can’t write that, nor would any one publish it .

            Any journalism done today is presented in a history book …when that episode over and can’t be stopped. ” Frontline” does this nicely

            Call it the “who could have known ” school of journalism

          • I have just briefly skimmed parts of Griftopia. Based on that brief skimming it appears to me to be about the current “yeltsinization” underway all over America, not yet over, and therefor still current. If my impression is correct, it could be a valuable and useful current real-time applicable book.

  6. Behind the newly proposed US food regulations

    http://tinyurl.com/aprbbr4

    Obama signed the FSMA bill on January 4, 2011. Two years later, the New York Times noted, “But it took the Obama administration two years to move the rules through the regulatory agency, prompting complaints that the White House was more concerned about protecting itself from Republican criticism than about public safety.”

    nah…that couldn’t be!

    Food safety advocates sued the administration to release the rules after the original January 4, 2012 deadline was missed. The FDA sought to have the lawsuit dismissed……

  7. As a certain V. Lenin once wrote (in somewhat similar circumstances): “What Is To Be Done?” I confess I don’t have the answer. But perhaps a guillotine factory might prove useful when the time comes to bust up this Wall Street/Washington DC criminal enterprise. And as long as it wasn’t outsourced to, oh, China, it would also create manufacturing jobs. It’s a thought…

    • Was that in April Theses? I’m trying to find something actually written by Lenin, not just secondhand opinions about him. Any advice?

    • Not a fan of Lenin or communism in general. Not really a fan of guillotines either, although I find it amusing that the rich in France seem to be kept in check very effectively by references to the past.
      As for China, we don’t need to outsource finance to China. Nooooo, it’s much simpler than that. All we need to do is lobby congress to issue Green Cards to promising Chinese math, science and economics majors who come here to study. These Green Cards should be unrestricted so that Wall Street can recruit as many as they need. Why should the biotechs have all the fun?
      And why should American scientists be the only ones who have to compete for wages in a global marketplace?
      Think of all the money the shareholders could save if they got cheap, Chinese analysts to work 24/7 running the numbers? It would be a bah-gain. The money would pile up in no time, the champagne would flow and everyone would be happy.

      • Given that its an internet-wired world, such analysis could very well be done from desktop workstations in China. The plus is that it would turn much of Wall Street into the abandoned “Rustbelt” which it deserves to become. And hopefully the City of London as well.

        The minus is that it would give the ChinaGov total realtime intelligence into American bussiness affairs, including the affairs of such actual thingmaking bussinesses as actually still exist here. And since everyone knows that “trade is the pursuit of war by other means” . . . do we really want to give one of our most dangerous trading enemies that kind of access to our information?

  8. To reiterate, over the cliff and off with their heads!

  9. Put a modest (1%) tax on security and derivative trades. If you look at the Bank for International Settlements website ( http://www.bis.org/publ/qtrpdf/r_qa1212_anx23a.pdf), you’ll see that the value of derivative turnover on the North American exchanges in 3Q2012 was in excess of 140 trillion dollars – and that was an unusually light quarter. Annual totals for 2010 and 2011 were 729 and 823 trillion dollars, respectively – or around 20 times the GDP of the entire planet (which gives you some idea of how little these markets have to do with objective reality).

    A 1% tax on this turnover would produce a budget surplus of 4 to 6 trillion dollars per year, with no changes to expenditures or other taxes (in fact we could abolish every other Federal tax and still run a surplus), allowing us to pay off the national debt in 4 years or less.

    Nearly every other form of financial or commercial activity is taxed. We tax friggin’ unemployment compensation. Why not this?

    • I have wondered this myself. Of course, “Why” is not REALLY a mystery.

      The mystery is why “we” don’t insist on it.

      • We would need a long-term intercycle party or movement to give staying power and advancing power to the insistence on that and other things. One or another of the wannabe third parties may end up being the party side of that movement.

        It is not entirely too late for officeholders like Harkin, Kaptur, Grayson, and some others who may be referred to as “real Democrats” to resign en masse from the Democratic Party and take all their voters and support people networks with them. They could found a party and call it the Real Democrat Party, as much to insult the Democratic Party as much as anything else. They could bar entry to any Catfood Democrats. They could make a rigid refusal to accept any alteration whatsoever to SS/Mcare/Mcaide their minimum requirement for joining the Real Democrat Party. They could also say “sunset the BushCoBama Tax Cuts and return to Strict Clinton Rates”. If the “real” Democrats don’t quit the Democratic Party en masse, they will become tainted-by-association as it becomes more clear to more people that they enable the Catfood Democrats by
        lending the “Democratic” name to the Catfood Democrats.
        No “real” Democrat would support any trace or element of the B S Obama Catfood Plan. Any so-called “Democrat” who supports it is a Catfood Democrat, and if the “real” Democrats, especially in the Senate, permit any trace or element of the Catfood Plan to become law, that proves that the “real” Democrats were really secret Catfood Democrat agents all along. At which point, “resigning” from the Democratic Party would be too late for them anymore.

    • what katiebird said

  10. You know, if the banks only have credibility because our government supports them quite literally and massively … isn’t that a description of a nationalized bank? So we pay for it, they keep all the profits and now they’re getting hysterical because we won’t give them the last of our pensions?

    This from the Taibbi piece stood out for me – “Today, excess reserves at the Fed total an astonishing $1.4 trillion.”

    I’m going to remember that figure and repeat it to everyone I know to innoculate us against the manufactured debt crisis blather.

    Check out what’s happening in Japan – http://real-economics.blogspot.com/2013/01/japan-experiment-with-stimulus.html

    “While Japan does have an independent central bank, [the new prime minister] has made it clear that he will use his control of parliament to take away this independence if the central bank does not agree to carry out his inflation-promoting agenda.”

    Also, from Joe Stiglitz – Central Bank Independence Is Unnecessary And Impossible – http://www.businessinsider.com/stiglitz-on-central-bank-independence-2013-1

    • It’s getting interesting. I can’t remember where I read this but political revolutions happen when the haves get f^&*ed over by the have mores and decide to level the playing field. I think we’re almost at that stage. A lot of people have been burned lately because the have mores have access to all of the money and all of the information, leaving ordinary well off people like brokers and small banks to fend for themselves.
      Of course, the misery is going to have to intensify quite a bit more here before average people take to the streets. Look at Spain. It doesn’t get a whole lot more miserable than that and they have done nothing to deserve it. So far, there haven’t been any major insurrections. But give it time. The New Deal was put together to head off violent revolution.
      In this country, the relatively well off might be the ones who initiate the change.
      Something’s got to give. We can’t keep giving all of our national wealth to the bankers simply so they won’t be inconvenienced or have to pay their taxes.

      • During the New Deal era there was an hundreds if not thousands independent news media outlets (mostly print) to give the populace a smorgasbord of ideas. Today with most of the media controlled by six corporate entities the public is easily misled or confused into inaction.

    • “Isn’t it really a sign of a Nationalised Bank?” No . . . it is a sign of a Privatised Government. A Bankerised Government.

  11. I remember reading someone’s realtime suggestion that the OWS protesters really ought to be chanting and signwaving . . . “Mark to Market! Mark to Market! Mark to Market!”

  12. Last question, what did Taibbi do in 2008? Could somebody tell me, or throw up a link?

    • Taibbi was an Obama fanboy. Don’t make me go look. I’m sure I will find the references but it’s all so depressing. I’d rather just forgive and forget. He’s turned his life around. We need to let him recover his dignity.

  13. I first started reading Taibbi and Ames when they were co-managers of The Exile in Russia. They combined interesting work with nasty behavior. I wonder if Taibbi’s support for Obama was based on lingering post-adolescent rebelliousness and groovy coolness. Clinton was so olllllld and so ungroovy and so unhip and so forth if you were a young politically high-fashion groovy cooler.

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