Klein/Maddow on Bailout

Visit msnbc.com for Breaking News, World News, and News about the Economy

Calling the bailout the "greatest heist in monetary history," Klein goes on to state that "the crisis on Wall Street created by deregulated capitalism is not actually being solved, it's being moved. A private sector crisis is being turned into a public sector crisis."

------

The countdown to bank nationalization continues.

Obama and congress cannot have it all ways and they cannot please everyone. The evidence shows that they will please their financial and corporate masters first.

You and yours can get fucked.

Obama and Geithner's Ultra-Bullshit: Moral Hazard

Moral Hazard can be defined as "the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk."

Here's Joshua Holland on Geithner's less than brilliant plan:

------

http://www.alternet.org/blogs/peek/134986/proof_that_geithner's_bank_plan_is_a_massive_giveaway_to_the_bastards_who_started_this_mess/

Recall the Geithner Bank Plan in a nutshell: private investors would buy those "toxic" assets off of struggling "zombie banks." The buyers would put about 7 percent of the purchase price down, and the Treasury Department would match that with another 7 or so percent. Then the FDIC would offer government-backed loans for the remainder.

If the assets were to recover their value and turn a profit down the road, the investors would split the profits with the government. But if they don't -- if their values continue to tank -- then you and I and everyone else who pays taxes will be on the hook for the lion's share of the losses.

In other words, we're limiting bargain-hunters' downside risk if they buy the banks' crap and it doesn't turn out well for them. It's a pretty sweet deal for those investors. And, as I wrote when Geithner first announced it, pretty much the definition of "moral hazard."

------

And the countdown to nationalization continues...

Gentle Landings

------

There is nothing like a good visual aid to fully grasp the problem.

Jump You Fuckers! Part Three

http://www.nytimes.com/2009/02/14/business/economy/14pay.html?_r=1&adxnnl=1&partner=rss&emc=rss&adxnnlx=1234588665-ORtEVmI52gmQ0XJ7wx5I/A

A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.

The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.

The stimulus package was approved by the House on Friday, then by the Senate in the late evening.

The pay restrictions resemble those that the Treasury Department announced this month, but are likely to ensnare more executives at many more companies and also to cut more deeply into the bonuses that often account for the bulk of annual pay.

The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay. Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.
...
“These rules will not work,” James F. Reda, an independent compensation consultant, said on Friday. “Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”

------

Congress Trumps Obama by Cuffing Bonuses for CEOs
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/13/AR2009021303288.html?hpid=topnews

"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."

Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.

------

Incredible, ain't it?

Just a heads up fellas...



For Whom the Bell Tolls
by John Donne

No man is an island,
Entire of itself.
Each is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manner of thine own
Or of thine friend's were.
Each man's death diminishes me,
For I am involved in mankind.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee.

Jump You Fuckers! Part Two

Simon Johnson on Bill Moyers Journal
http://www.pbs.org/moyers/journal/02132009/watch.html

BILL MOYERS: Are you saying that the banking industry trumps the president, the Congress and the American government when it comes to this issue so crucial to the survival of American democracy?
SIMON JOHNSON: I don't know. I hope they don't trump it. But the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.
...
BILL MOYERS: ...I mean, when I watched the eight CEOs testify before Congress at the House Financial Services Committee earlier this week, I had just finished reading a report that almost every member of that Committee had received contributions from those banks last year. I mean in a way that's like paying the cop on the beat not to arrest you, right?
...
SIMON JOHNSON: I have no problem with poachers turning gamekeeper, right? So if you know where the bodies are buried maybe you can help us sort out the problem...
...
SIMON JOHNSON: I have no idea. Of course, the administration, the new administration, has a lot of rules about lobbying. And they have rules that basically say, I think, as understood the rules, when they were first presented, I was very impressed. They basically said, "We're not going to hire lobbyists into the administration. There has to be some sort of cooling off period."
BILL MOYERS: And the next day Obama exempted a number of people from that very rule that he had just proclaimed.
SIMON JOHNSON: Yes. It's a problem. It's a huge problem.
BILL MOYERS: So here's the trillion dollar question that I take from your blog, that I read at the beginning, quote, "Can this person," your new economic strategist, in this case Geithner, "really break with the vested elite that got you into this much trouble?" Have you seen any evidence this week that he's going to be tough with these guys?
SIMON JOHNSON: I'm trying to be positive. I'm trying to be supportive. I like the administration. I voted for the president. The answer to your question is, no, I haven't seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach.
My intuition, from crises, from situations that have improved, the situations that got worse, my intuition is that this is going to get a lot worse. It's going to cost us a lot more money. And we are going down a long, dark, blind alley.
...
SIMON JOHNSON: That's where you go and you check the bank's books, and you say, okay, not only do we use market prices, not pretend prices, not what you wished things were worth, what they're really worth, okay, in the market today. We use that to value your loans and the securities that you have, your assets, right?
And we also assess what will happen to the value of the things you own if there's a severe recession. So that's the idea, it's a stress test, like when you go to see the doctor, they put you on a treadmill, and make you run to see how your heart is going to behave under stress.
So you're looking at how the bank's balance sheets will look under stress. And then you say to them, "This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession."
And, as the president said, we may lose a decade. So we've got to be very hard headed, and all the officials forecasters are still too optimistic on that. This is the amount of capital you need. Now you have a month, or two, to raise this amount of capital privately.
And when this was done in Sweden, by the way, in the early 1990s, they did it to three big banks. One of the three was able to go to its shareholders, raise a lot more capital, and stay in business as a private bank, same shareholders. That's an option. Totally fine. However, the ones that can't raise the capital are in violation of the terms of their banking license, if you like.
We have no problem in this country shutting down small banks. In fact, the FDIC is world class at shutting down and managing the handover of deposits, for example, from small banks. They managed IndyMac, the closure of IndyMac, beautifully. People didn't lose touch with their money for even a moment. But they can't do it to big banks, because they don't have the political power. Nobody has the political will to do it.
So you need to take an FDIC-type process. You scale it up. You say, "You haven't raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone." Okay? Because the bank has failed.
This is a government-supervised bankruptcy process. It's called, in the terminology of the business, it's called an intervention. The bank is intervened. You don't go into Chapter 11 because in that's too messy. Too complicated. There's an intervention, you lose the right to operate as a bank. The FDIC takes you over. I think we agree, everyone agrees, we don't want the government to run banks in this country.

------

Here's what I want to be understood in the most crystal clear way that is possible to imagine: we know exactly what to do and we must do it.

I've been blathering on about the solution for over two months privately and I even blogged about it here:
http://thebloodofpatriotsandtyrants.blogspot.com/2008/12/what-should-have-happened.html

There is no fucking mystery in what we need to do. None. Zero. Anyone that tries to claim that we don't know what to do is completely and hopelessly full of shit. Got that?

Most reasonable economists agree that we need to do something like the Swedish solution. Krugman supports it. DeLong supports it. The list is quite expansive really. Those people are not idiots despite what people may say about their political leanings. And despite all the empty rhetoric about how "left-leaning" these economists may be let's be clear about what they want to do: they want to save capitalism and the status quo in this country as you know it. For this they are branded heretics, leftists, and even socialists.

The extreme right - completely blinkered and as spent as a used condom - wants more deregulation and tax cuts to boot. The market will correct this problem. I really can't address that kind of thinking because it is too cruel and asinine on its face. Thousands will die while these morons figure out that they are dead fucking wrong.

Personally, I am extremely disappointed in Obama already. It may be that he is in the midst of the ultimate clever economic brinksmanship against the GOP...maybe...we can hope. Hope is cheap. Hope is usually in vain and achieves nothing. Or it may simply turn out that despite all of that uplifting campaign rhetoric Obama is a mere stooge for the elites that control him.

We are in deep shit. Not because the outlook is so bad economically, but because there is no political will or ability to do what must be done.

We are in the grip of the lootocracy.

Avoiding Oversight At All Costs

Some Banks Want to Return Government Money
http://www.nytimes.com/2009/02/11/business/economy/11wall.html?_r=1&partner=rss&emc=rss

Paying back all those funds would be difficult in this tough economic environment. But banking executives worry that the government may intrude further into their businesses as long as they are beholden to Washington.

“We just think that operating our business without the government capital would be an easier thing to do,” said David A. Viniar, the chief financial officer of Goldman. “We’d be under less scrutiny, and under less pressure. Not that we’d be out of the public eye; we’re still going to be in the public eye.”

------

Facing Oversight, Banks Go on Offense
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/10/AR2009021003302.html?hpid=topnews

The banks helmed by Blankfein and the other seven chief executives called to appear before the House Financial Services Committee this morning received $165 billion from the $700 billion government bailout. Lawmakers are furious at the executives over accounts of their lavish spending since receiving the taxpayer funds, and have attacked them for hoarding the money instead of using it to boost lending.

"This is going to be a torture session for them; they know they are going to be pilloried, particularly by the Democrats on the committee," said Anne Mathias, director of policy research for Stanford Group, a financial services firm. "They know that they have to reframe the debate on their own terms and show that they understand the public frustration."

------

Obama on Nationalization
http://www.calculatedriskblog.com/2009/02/obama-on-nationalization.html

Obama: Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem; Sweden had like five banks. [LAUGHS] We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

------

Yeah, that's Obama getting it completely wrong. Wrong as wrong can be...

And who benefits? Exactly.

We do not benefit. Not you and I. Not Main street. The ones that used deregulation and off-shoring to destroy a strong economy are still being handed gold on silver platters while the rest of us go without.

But we must continue going without because we have different traditions in this country. Traditions like what Obama - plutocracy?

Why not nationalise?

http://www.economist.com/blogs/freeexchange/2009/01/why_not_nationalise.cfm

...Not really on the list was nationalisation.

But it seems to me, based on an ongoing blogospheric discussion, that nationalisation is the only good option left. The basic problem is this—some banks are likely insolvent. Any option that solves the problem by buying bad assets will either fail (if those assets are bought at face value—recall, the banks are insolvent) or will succeed by buying those assets at well more than they're worth. The latter option is a large and generous gift to the bank's shareholders.

The question is, why would one want to give a large and generous gift to bank shareholders, out of the taxpayer's purse?...

------

Exactly. And remember, this is from that well-known "liberal" source the "Economist."

Nationalization is the only solution and always was. But the elite want their handouts and politicians abhor doing their actual job of providing oversight in these matters.

This what we do:
We nationalize insolvent banks and then hold onto their toxic waste real estate or put it to work housing the homeless. Later we can sell these banks to other banks once the subprime debris is cleared away. Once the economy stiffens a bit we can unload the real estate at improved market prices. The taxpayer might not even lose anything at all in such an arrangement.

But yeah, that makes too much sense to actually be implemented.

And so it goes...

BofA Buying Up Banks on TARP Funds

Bank of America May Get U.S. Aid for Merrill Lynch
http://www.bloomberg.com/apps/news?pid=20601087&sid=aei_22INcQaI&refer=home

-----

Gee, I guess they are getting to be too big to fail. Of course, they are acquiring so many assets themselves that there is no liquidity for lending.

Will we never learn?

The Foxes Guarding the Hen House II

The New Trough
http://www.rollingstone.com/politics/story/24012700/the_new_trough/print

It didn't have to be this way. Five days before Paulson struck his deal with the banks, British Prime Minister Gordon Brown negotiated a similar bailout - only he extracted meaningful guarantees for taxpayers: voting rights at the banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses.

In sharp contrast, this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What's more, golden parachutes and bonuses already promised by the banks will still be paid out to executives - all before taxpayers are paid back.

No wonder it took just one hour for Paulson to convince all nine CEOs to accept his offer - less than seven minutes per bank. Not even the firms' own lawyers could have drafted a sweeter deal.

...[skipped]...

sense and should be immediately scrapped - a move that would also handily get rid of most of the crony contractors. As for purchasing equity in banks, the next round of deals - and there will be more - has to start from the premise that the banks are bankrupt and will therefore accept whatever terms we choose to impose, including real regulatory oversight. The possibilities of what could be done if a chunk of the banking system were genuinely under public control - from a moratorium on home foreclosures to mandatory investment in green community redevelopment - are limitless.

Because here is what George Bush and Henry Paulson are hoping we won't figure out: When a society no longer has enough money to pay for its most pressing needs, there are worse things than discovering you own the banks.

-----

Comment:

I hate to repeat myself endlessly but all I can do is wonder why we are bailing these assholes out instead of filing charges against them. I think all we are doing is postponing the inevitable. I suppose that must seem like a worthy goal to some, but I'd rather just get the inevitable over with first and then get onto the good stuff. Kind of like saving dessert for last, if you know what I mean.

Update: Foxes (from yesterday)

Two more links of interest:

---

Banks “We have better things to do with that money you gave us than lend it out”
http://firedoglake.com/2008/10/25/banks-we-have-better-things-to-do-with-that-money-you-gave-us-than-lend-it-out/

The US has shoved 5 trillion dollars at this problem since the crisis started last year. Enough is enough. Money alone is clearly not sufficient, and that means more stern measures need to be taken. The financial industry, whose hubris is so great they just announced 70 billion of bonuses for themselves after getting a taxpayer bailout, needs to learn that they exist for the purpose of serving the overall economy, not themselves. This is especially true of banks, whose entire business model relies on the government giving them the right to create money, to borrow money at concessionary rates that no one else receives, and so on. Banks are entirely creatures of the government who exist because the government gives them what amounts to a license to print money under certain circumstances. They are in no way a "naturally free market".

---

Bailout Free-For-All: Companies Line Up For Cash
http://www.time.com/time/business/article/0,8599,1853819,00.html?iid=digg_share?iid=perma_share

---

OK then...

That first link is going to seem like capitalist heresy to many Americans because they still think that saving the "free market" is the agenda. Sadly, the very necessity of any kind of bailout proves that a "free market" doesn't exist and never will and that any unrestrained capitalism will fail because of human greed.

The second link is proof of that greed even in the midst of crisis. Every hand is out, and the most shameless of all are those of rich people.

"Free money? Gimme...!"

That's why Warren Buffett bought preferred stock. He wants to be sure that when profits are to be had he gets paid first. That's how they are - even when they are as rich as blazes, it's never enough.

The Foxes Guarding the Hen House

Paulson and Kashkari are the biggest con men we have going. These two chrome domes would stick a knife in your grandmother and then steal the gold from her teeth. Is it too ass-holy to note that one of these dudes surnames looks like it literally means "cash n' carry"? So yeah, I see Kaskkari as a man that walks off with the goods. What a pair!

So When Will Banks Give Loans?

http://www.nytimes.com/2008/10/25/business/25nocera.html?pagewanted=1&partner=rssuserland&emc=rss

It is starting to appear as if one of Treasury's key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury's version of the weapons of mass destruction.

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, "the government wants not only to stabilize the industry, but also to reshape it." Now they tell us.

Indeed, Mr. Landler's story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: "It couldn't be clearer if they had taken out an ad."

...[skipped]...

"We share your view," Mr. Kashkari replied. "We want our banks to be lending in our communities."

Senator Dodd: "Are you insisting upon it?"

Mr. Kashkari: "We are insisting upon it in all our actions."

But they are doing no such thing. Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead. And those pleas, in this environment, are falling on deaf ears.

...[skipped]...

Late Thursday afternoon, I caught up with Senator Dodd, and asked him what he was going to do if the loan situation didn’t improve. "All I can tell you is that we are going to have the bankers up here, probably in another couple of weeks and we are going to have a very blunt conversation," he replied.

He continued: "If it turns out that they are hoarding, you'll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay."

-----

And this is why you don't write blank checks without significant oversight and detailed instructions as to what to do with the money. I mean, we taxpayers aren't even stakeholders in any of this. Once again we trust in the good will of free-wheeling investors and bank presidents.

Did anyone hear the guilty admission of Greenspan yesterday? He basically admitted that he is a blinkered know-nothing. Of course, this is substantially after he has profited from his supposed ignorance.