The NYTimes finally puts LIBOR on the frontpage

It took long enough.  This article even starts poking around the edges at the Federal Reserve Bank of NY:

As big banks face the fallout from a global investigation into interest rate manipulation, American and British lawmakers are scrutinizing regulators who failed to take action that might have prevented years of illegal activity.

Politicians in both London and Washington are questioning whether regulators allowed banks to report false rates in the run-up to the 2008 financial crisis and afterward. On Monday, Congress stepped into the fray, requesting information about the role of the Federal Reserve Bank of New York, according to people close to the matter.

 […]

On Monday, the oversight panel of the House Financial Services Committee sent a letter to the New York Fed seeking transcripts from at least a dozen phone calls in 2007 and 2008 between central bank officials and executives at Barclays.

“Some news reports indicate that although Barclays raised concerns multiple times with American and British authorities about discrepancies over how Libor was set, the bank was not told to stop the practice,” Representative Randy Neugebauer, a Texas Republican and the head of the House oversight panel, said in the letter, which was reviewed by The New York Times.

Tim Geithner was the head of the Fed in NY during the time frame in question.  It is hard for me to imagine that he didn’t know that LIBOR was being manipulated.  We have already heard the panic defense, that if the true LIBOR rate was known, a financial apocalypse would have swiftly followed.  But it’s the aftermath of the manipulations when the panic had subsided that intrigue me.  Tim Geithner gave a lot of advice to Obama that was very friendly to bankers.  But he must have known that a couple of banks, like Citigroup, were insolvent.  Yet instead of nationalizing those failed banks, we merely stress tested them, bought their toxic assets and bailed them out.

Much of our current unemployment woes and struggling economy can be traced back to those early days of the Obama administration when we saved the bankers and ignored everyone else’s needs.  There were many smart people who were in favor of being more aggressive with the bankers and making a strong case for a bigger fiscal stimulus package.  They were ignored.  You can blame the Republicans, if you are so inclined.  But let’s remember that the Democrats were in charge in the first two years.  We can only speculate how they might have come together to push financial reforms and New Deal programs if we had only known how serious the situation was.

Hiding the true nature of the financial collapse from our elected officials amounts to a coverup, in my humble opinion.  It’s a coverup that cost many of us our houses, jobs and security.  Heads have got to roll for this one and THIS time, we have to demand that the parties responsible are held fully accountable.  There has to be real reform and perp walks or our present economic environment will never get better.

Yes, it sucks for the White House that it all comes to light in an election year.  What can I say? When you sell your soul to a bunch of people who have more money than God, they usually expect something significant in return. It looks like they got it.

Has someone found a smoking gun?  Reuters reports that Geithner had a “Fixing LIBOR” entry on his calendar in 2008.  Does that mean fix the rate or fix the problem with banks manipulating the rate?  Such ambiguity.

In early 2008, questions about whether Libor reflected banks’ true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor.

“FIXING LIBOR”

According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a “Fixing LIBOR” meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.

It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated.

It doesn’t look like LIBOR got fixed.  But clearly, Geithner knew what was going on.  And if he didn’t have a come to Jesus meeting with politicians right after he took office to explain how dire the situation was, then what can we conclude except that he was operating in the bankers’ interests at the expense of ours?

This s^*( is serious.  It affects mortgages, credit card rates, student loans and economic health and every decision that has been made in the past 4 years.  The timing is even crucial.  These meetings were taking place in the middle of the primary season when money was pouring into Obama’s campaign coffers from Wall Street and crazy Obots were screaming for Hillary Clinton to quit the race even as she was still winning big state primaries.  We know from other sources that the meltdown started in 2007.  So, even our primaries might have been affected by the shaky bank situation.

Darrell Duffie, a Stanford University finance professor who has followed the Libor issue for several years, said that he believed regulators were “on the case reasonably quickly” after questions were raised in 2008.

“It appears that some regulators, at least at the New York Fed, indeed knew there was a problem at that time. New York Fed staff have subsequently presented some very good research on the likely level of distortions in Libor reporting,” Duffie said. “I am surprised, however, that the various regulators in the U.S. and UK took this long to identify and act on the misbehavior.”

Surprise!

One last thing: If Geithner want to fix LIBOR in April of 2008, why did it take the CFTC to launch an investigation about it in March of 2011?  You’d think something as big and potentially litigious as a LIBOR scandal would have prompted swifter action. The fact that that didn’t happen suggests there is some bigger thing that is being covered up.  I can’t imagine what it is but it must be huge.

Economics Food Fight

Matt Taibbi

Finally we have something fun to talk about. This could save us from wallowing in the horrors of Obama’s health insurance company bailout bill all weekend long. Matt Taibbi’s latest piece came out in Rolling Stone weeks ago, but was only available to subscribers until recently. Suddenly there is a fascinating back and forth going on between Taibbi and Obama apologist Tim Fernholtz at American Prospect. Fernholz nitpicked Taibbi’s article in a much-discussed critique. Then Felix Salmon stepped in to add his two cents to war of words. Then, Taibbi put his own response to Fernholz up on his blog. And finally, the latest: Fernholz has a new response to Taibbi’s response and he includes a couple of digs at Salmon too!

Here are links to all the relevant articles with some highlights:

Taibbi’s original RS story: Obama’s Big Sellout

Taibbi’s main argument is that Bob Rubin and people closely connected with him are running Obama’s economic policy–ensuring that deregulation and free-trade will continue to be the order of the day, rather than efforts to control an out-of-control Wall Street.

It is bad enough that one of Bob Rubin’s former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama’s Treasury secretary!

Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.

Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government’s bailout generosity would not die with George W. Bush and Hank Paulson.

Fernholz’s critique: The Errors of Matt Taibbi

Matt Taibbi has done it again — written a nightmare of a story for Rolling Stone on Obama’s economic sell-out of his campaign. The piece is a factual mess, a conspiracy theorist’s dream, doesn’t even indict Obama for his real failures (which I’ll discuss in a post later today) and of course invokes the cold hands of Bob Rubin like a bogeyman at every turn. This is pernicious for a lot of journalistic reasons, but politically it’s bad for progressives beacuse conspiracy theories stand in the way of good policy analysis and good activism, replacing them with apathy and fear.

Salmon’s critique of Fernholtz’s critique: Fernholtz vs. Taibbi

Tim Fernholz’s intemperate attack on Matt Taibbi and his latest article is getting a lot of attention in the Twittersphere. It turns out that a lot of journalists don’t like Taibbi, and love it when he gets taken down a peg.

But Fernholz’s attack is weaker than it looks at first glance; a lot of it is simply a matter of slant and opinion.

Taibbi’s response to Fernholz: On Obama’s Big Sellout

So I fucked up with that line — “a former Clinton diplomat” — and for that I certainly am sorry, among other things because Rolling Stone’s fact-checkers are the most rigorous in the business (much more so than any other newspaper or magazine I’ve worked for) and I think actually this was my error and not theirs, a late-stage mixup near press time.

Now, that said, it was indeed Bob Rubin’s son Jamie who worked with Michael Froman in the Obama transition team. Had it not been Bob Rubin’s son, that would certainly have qualified as a serious error, because then we’d be making an argument based upon a factual error.

But the basic argument of the article was that an enormous number of people with ties to Bob Rubin and/or other Wall Street insiders had assumed positions of responsibility in the Obama transition and White House. And Jamie Rubin is Bob Rubin’s son, and he was a headhunter for Obama’s economic hires from the first days of the transition. So the meaning here is really not significantly different. The fact that this heads the Prospect’s list of complaints says a lot about the substance of this criticism.

Fernholz’s response to Taibbi’s response and Salmon’s critique of his critique of Taibbi: Lighting Round

So yesterday’s post on Matt Taibbi’s latest in Rolling Stone got a bit more attention than I had anticipated, including a response from Felix Salmon that I thought was worth addressing. Salmon defends Taibbi — I’d accuse him of some logrolling in our time thanks to his appearance in the piece, but Salmon is better than that — but it’s not a very strong defense….

Here’s my point: Taibbi has written an article arguing that Obama has sold out his campaign-era economic populism by surrounding himself with Bob Rubin’s lackeys and giving away the farm to the bankers — “one of the most dramatic political about-faces in our history.” Only it turns out, though, that many of the Rubinites he identifies don’t work on the things he says they work on, or don’t take the positions he applies to them, or aren’t as influential as he thinks they are. The people he says were “banished” from Obama’s inner circle, like Austan Goolsbee, weren’t. He manages not to mention any of the populist decisions Obama has made.

And Andrew Leonard at Salon is threatening to get involved–he sounds like another Obama apologist.

Is it my imagination, or does the attribution “spent 12 years as an executive at Goldman Sachs” now carry with it the stain of the scarlet letter? Nothing more need be said.

I will return to this theme later today when I tackle Matt Taibbi’s Rolling Stone assault on President Barack Obama but let’s note here for the record that this is yet another case of the White House proposing a sensible piece of regulatory reform — anything that quacks like a financial services banking duck should be regulated like a financial services banking duck — that has been watered down by Congress.

Back and forth–who will be heard from next and will they come to blows?

UPDATE I:

Here is the promised attack on Taibbi by Andrew Leonard: Matt Taibbi goes Obama scalp hunting

And, another voice pipes up from the peanut gallery, Big Media Matt, king of the apologists, Blame Obama First h/t MABlue

UPDATE II:

Salmon returns Leonard’s serve: Don’t Ask Taibbi to be Krugman

But where does Salmon get the idea that we have a “left-leaning government now?” What is he smoking?

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Did Hank Paulson Use TARP as a “Ruse” to Rescue Citigroup?

Be sure you’re sitting down before you read this, Okay? Barry Rithholtz speculates in his forthcoming book, Bailout Nation that the entire multi-trillion dollar boondoggle was

a giant ruse, a Hank Paulson engineered scam to cover up the simple fact that CitiGroup (C) was teetering on the brink of implosion. A loan just to Citi alone would have been problematic, went this line of brilliant reasoning, so instead, we gave money to all the big banks.

From the book:

As of October 2008, the other banks, while somewhat worse for wear, neither wanted nor needed the capital injection. None of them were in the same trouble as Citi. Even Bank of America’s problems via Merrill Lynch wouldn’t become acute until December 2008. Washington Mutual, the most troubled on the list, had already been put into FDIC receivership the month before.26 JPMorgan bought WaMu from the FDIC for under $2 billion, and Wachovia was swept up by Wells Fargo for about $15 billion. Thanks to a change in the tax law, Wells Fargo got to shelter $74 billion in profits from taxation. Instead of the FDIC absorbing a few billion in losses from Wachovia’s bad assets, the taxpayers lost 35 times that amount.

According to Rithholtz, today’s news that ten banks are going to pay back the TARP funds provides support for his thesis:

The hurry to repay this cheap cash confirms that the fix was in. If these banks were really in the bad shape Paulson suggested, they would hold onto this cheap source of credit. Instead, they want to throw the yoke of government monies off as soon as possible. The desire to return to their old compensation packages for executives cannot be the only factor . . .

In other words (or as President Obama would say, “Let us be clear”) our government spent $2.25 trillion and put our social safety net and maybe even the future of our country in jeopardy in order to rescue one huge bank that should have just been allowed to go bankrupt. I think I’m going to scream now.

Rithholtz went into more detail in an interview with Bloomberg Radio yesterday. You can listen to it here. In the interview, he makes the argument that huge corporate bailouts always seem to happen in election years. {{Sob!}} There’s a little good news in the broadcast, I guess; since Rithholtz says that while things are still getting worse, it isn’t happening as quickly as before. He thinks maybe we are going to pull out of this without falling all the way into another Great Depression.

Oh goody. But I’d feel a whole lot better about that prediction if I could see any sign that the government cares even a tiny bit about jobs and health care and such mundane needs of ordinary people as opposed to protecting banksters from their own stupidity and greed.

(See also Dakinikat’s post from earlier today.)

UPDATE: The Wall Street Journal has a new article in which they argue that Citigroup should be broken up.

Resolving Citi — by either forcing it into a strategic partnership, if anyone will have it, or selling off its assets and breaking it up — wouldn’t be cheap, but it would have a number of benefits. It would remove the leading candidate for zombie-bankdom from the financial system. It would also, finally, put an end to the slow bleeding of taxpayer money into the bank.

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I’m No Economist, but I Think We Need Prosecutions!

The face of greed

I’m hooked on the economics blogs these days. Blame Dakinikat for starting me on a (probably hopeless) quest to understand the economic meltdown. I have been mathphobic since the eighth grade when I was horribly traumatized by algebra. And geometry! Don’t even get me started. When I was an undergrad, I was forced to take two math classes–basic math and statistics. Fortunately, those of us in the psych department were assigned a good humored, patient professor who cracked jokes about our having post-traumatic stress from high school math and had developed simple ways to explain mathematical concepts. Thanks to that kind and supportive professor, I was also able to survive two mind-numbing semesters of graduate statistics without too much anxiety.

Despite my lifelong troubled relationship with numbers, I am determined to understand what is happening to our economic and political systems to the best of my ability. These days, when I first get up, I open up The Confluence (my home page), quickly see what’s happening and then I check all my favorite econ blogs to find out the latest news and views.

This morning via The Market Ticker, I found this ABC News story on Joseph Cassano. (By the way, Cassano donated $2,500 to Obama’s primary campaign and $2,300 to his presidential campaigns. Isn’t $2,300 the maximum?) But back to ABC News:

The FBI and federal prosecutors are reportedly closing in on the AIG executive whose suspect investments cost the insurance giant hundreds of billions of dollars. The government is investigating whether or not 54-year old Brooklyn-native Joseph Cassano committed criminal fraud in virtually bankrupting the company.

Presidentin’ Is Hard

Though I make no claims of being a financial wizard, or a political maven, even I can see that all is not right on Wall Street, D.C. where the heart and soul of our country is on life support, currently being administered to by second graders who want to be doctors when they grow up.  And, I’m sophisticated enough to recognize that a lot of what I read about our dire national situation is presented in the media by people representing the political party so far out of favor they have to look to bloviating blowhards for advice, or worse, can be made to appear to need to do so.  I get that.  However, in spite of all that, the forces pretending to represent the white-hatted good guys in this classic Adventures in Administration movie, armed with their heralded sky-high approval ratings for their poor man’s Dark Gable leading man, simply can’t mount enough of a stampede to disguise the fact that the dustcloud that follows them like Charlie Brown’s pal Pigpen’s is not the result of riding hard and strong over the dusty trail, but merely the wispy smoke trails from their “throw ’em off the path,” hastily built, diversionary cookfire.  In other words, they got nothing.

Stalwart bastion of the Obamedia protection service, Salon Magazine, has an article by former Clinton labor secretary and Obacolyte, Robert Reich, in which he pitifully attempts to pooh-pooh rightwing claims that the Obamessiah himself is responsible for our economic woes by trying to lay them at the feet of the finger-pointers:

When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $68 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG’s largest trading partner, a distinct scent of self-dealing begins to emanate. When it turns out that Citigroup got a bailout deal last October far more generous than that given to any other distressed bank, when a top Citi executive was advising the Treasury and Fed, the scent increases. Goldman’s past CEO was treasury secretary at that time, by the way, and another former Goldman CEO was a top Citi official and also a former treasury secretary. I am not suggesting anything so crude as corruption. But could it be, given these tangled webs, that — innocently, unintentionally, perhaps even subconsciously — the entire bailout effort was premised on saving these companies rather than protecting the public? Or that the distinction between the two was lost, and still is?

Yet, Reich gleefully and disingenuously, ignores the fact that the people he’s defending his ObaMaster against are the people who funded his campaign.  Not only that, the central figure in Reich’s little morality play, Turbo Tax Timmy Geithner, tax cheat, (TTTG,tc)  has a family history of sorts with Barry Sutoro, and is currently employed as the Blameless One’s lapdog and whipping boy.  To point out that he may have colluded with the banksters against the public in ripping off the country on the other team’s watch is…well…stupid.

Why would anyone purporting to defend the Obama administration draw attention to the man quickly becoming the public face of its incompetence?  Especially when the author can’t even make it through to the end of his own piece without acknowledging at least some of the complicity of the Obama Drama Troupe?

The Wall Street and Republican media attack machine doesn’t know exactly what to make of this. The Wall Street Journal’s editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street’s excesses. But then again, Obama doesn’t seem to know exactly what to make of it either. He seems to vacillate as well — one moment scorning Wall Street, the next moment justifying further bailouts. I do hope he takes a firmer hand, drawing a clearer distinction and making a clearer connection between clearing up these financial balance sheets and helping average people. Otherwise, the next populist uprising will be born in this moneyed quagmire. It is here — within the muck that was created by AIG, Citigroup, Fannie and Freddie, other giant financial institutions, now in combination with the U.S. Treasury and Fed — that the public is most confused, bears its most serious scars, and is potentially most burdened in future years, by decisions still made in secret.