http://www.pbs.org/moyers/journal/02272009/watch.html
BILL MOYERS: How do we stop the bleeding?
ROBERT JOHNSON: People talk of nationalization. I just call it restructuring. Restructuring is a part of capitalism. That's how the airlines get restructured when they go through bankruptcy. How you might have to deal with the auto industry, how you deal with venture capital projects. Do the same thing with the banks.
...
Well, I think the notion of nationalization has been a little bit of a PR spin. Restructuring is what you do as capitalist economies to maintain function and continuity. Nationalization invokes the specter of the state seizing the means of production, like Che Guevara is about to take over or something.
...
Well, what I think they need to do is inspect them thoroughly, examine, mark down the assets to a conservative level that protects the taxpayer. See the resulting deficit on the balance sheet, which is the hole.
Then the government injects the capital. People continue to operate the banks. People who continue to work there then perhaps sign new contracts with the government. And the government just becomes the stockholder until such time that they sell the stock back to the market and get paid back a little bit for all the lost support that they're creating for these banks.
...
BILL MOYERS: Well, FEMA's a pretty unsettling model.
ROBERT JOHNSON: Yes, it is. But I would say you could work with Tim Geithner, who's quite a competent man, working with the existing Citibank management, with just a different set of stockholders. The one danger you have, when you keep these banks open, when they're insolvent, is they have a temptation to very risky activity.
Sort of like a quarterback throwing the Hail Mary pass. The losses on an interception accrue to the taxpayers. And the touchdown is kept by the stockholders. So if they take excessive risk in those times they can actually endanger the stockholders further. The plan that Geithner and the White House, the Obama administration, is adopting right now, which I will call intravenous drip capitalization, is one of forbearance. Meaning, don't realize the losses on the balance sheet now. Don't account for everything in a prompt way. Don't truncate the losses, but allow them to go on. And the danger is the ditch could get deeper and deeper.
BILL MOYERS: What's the most discouraging thing you've seen about the Obama plan?
ROBERT JOHNSON: I think the capital assistance program is warehousing zombie banks and running the risk of the taxpayer over the next one or two years, will experience much larger losses.
...
BILL MOYERS: And so the government would step in and do what?
ROBERT JOHNSON: I would ask for letters of resignation from the top executives of all the major banks. I would not do a case by case restructuring. I would take the largest group all in and say, "I want everybody's letter for resignation."
You might not honor all those letters, but you'd have them. I would then say, "The stock is worth zero. The balance sheet is too far negative to continue risking the taxpayer's money." The examiners, somewhat like FDR did in a bank holiday, would examine the depth of the hole in those balance sheets.
Fill that hole with money, taxpayer's money, to recapitalize. Send them back out into the marketplace where people know they're wholly capitalized. And last thing I would do is I would separate the toxic assets from the bank that you put back in the marketplace.
So everybody knew the resulting creature was sound and confidence could rebuild. Inner bank credit could start to flow again, 'cause they aren't afraid of each other.
BILL MOYERS: But the question is would that resulting system of financial institutions, separated from the bad assets, recapitalized for the medium term, create new credit flows?
ROBERT JOHNSON: Give people confidence that there was fair play. That the economy and the financial system, I would say, was subject to the same discipline as the rest of us. There's an old saying about you don't ever want to walk under a guillotine, but after the blade falls, you can walk over it. Well after the blade falls people just start walking forward again. But they don't want to be walking under it.
BILL MOYERS: You're saying that the blade should fall, on the management of these banks, and the shareholders who went along with this excessive risk taking, because they wanted the big returns. The blade should fall on them. Get them out of the way. Government restructures. And then offers the banks back into the market and new investors come in.
ROBERT JOHNSON: That's correct.
BILL MOYERS: So the people pay the price who bet wrong, right?
ROBERT JOHNSON: That's correct. I think that's very fair. I think that's how markets are constructed.
------
Must view interview.
Showing posts with label Robert Johnson. Show all posts
Showing posts with label Robert Johnson. Show all posts
Saturday, February 28, 2009
Friday, October 3, 2008
The Wrong Bailout
Wary of Public Outcry, Revised $800B Wall St. Bailout Stuffed with Earmarks to Sway Election-Year Incumbents
http://www.democracynow.org/2008/10/3/wary_of_public_outcry_revised_800b
ROBERT JOHNSON: I think this bill, five weeks before an election, is illustrating for the American people, when there are two currencies of power—votes and money—that even at this time, when the power of votes is at its cyclical high, meaning just before the election, they are almost laughing at the American people, in the—by the nature and structure of this bill. This is a very sad result.
...[skipped]...
JUAN GONZALEZ: Robert Johnson, you mentioned Henry Paulson. The New York Times has an article today, a fascinating look at how this crisis unraveled, and they claim that back in 2004, it was Paulson himself, who, as head of Goldman Sachs at that time, had meetings with all the other major investment banks and the Securities and Exchange Commission and convinced the SEC to allow them to reduce the amount of money that they kept in reserves to back up any debt that they had, in essence, that he pushed the SEC to reduce regulation and allow them to take the risks that ended them up where they are today.
ROBERT JOHNSON: I read that story, as well, and while I can’t comment in the sense of having been there, it doesn’t surprise me. Investment bankers were trying to relieve constraints, diminish capital and give themselves the freedom to take more leverage, and that is a very significant part of why we’re in this mess today.
I do also want to underscore that I believe it was Secretary Paulson who made the call to let Lehman Brothers go bankrupt, that led to the very, very violent restructuring of AIG with taxpayers’ money, which led to the crisis that led to this bailout bill. I believe, when people take the zoom lens out and look at the history of this bill, they will look at Henry Paulson as being the person who made the critical error that has sent us not only into a national, but a worldwide, credit freeze right now. He’s got a lot of work to do to earn his reputation back with the taxpayers’ $700 billion in the next chapter, and I am nowhere near as comfortable as Warren Buffett is about having him be the person to do that.
...[skipped]...
What I would like to see in this bill, I would like to have seen the money injected as capital infusion by buying preferred stock into the banks, so that the taxpayer would retain some rights, existing stockholders would be deluded. Existing stockholders, after all, are the owners of the companies that made this mess. Then, in the recovery, the Treasury could make back as much as, some estimate, $300 billion on that stock ownership, instead of having those existing stockholders make that money.
Secondly, and perhaps a place where we should have started, was the Home Owners’ Loan Corporation acknowledging the overhang of these—and unaffordability of all these mortgages and developing a restructuring, which, by the way, would raise the value of the securities, these mortgage-backed securities, that are toxic assets sitting in all the banks.
I do believe we need a bailout. As I said the other day when I was talking with Bruce Marks, I do not think this is a synthetic or fake crisis. We do need to inject what you might call life back into the organs of the economy. There was a story this morning. The Federal Reserve reports that bank lending to small businesses is being cut off very rapidly. And this does not portend well for the economic health of every region of the United States.
But homeowner relief, some significant regulatory reform, equity capital injections into the banks, which, by the way, because of the use of capital and the leverage of capital, you get ten to twelve times the impact on the credit flow in the economy as when you pay—when you overpay for toxic assets as the TARP facility would.
I think it was a very misconceived bill. Paul Krugman, Joe Stiglitz, John Makin on the American Enterprise Institute, Alex Pollock, the American Enterprise Institute, Lucian Bebchuk at Harvard Law School and Olin Foundation—these are conservatives and liberals all standing around saying, “Why are you doing the wrong thing, Secretary Paulson?” And Congress went along.
...[skipped]...
Yes. It went up by roughly $150 billion for those kinds of special pork-related projects. Now, what you’re seeing is the Congress and the Senate are daring the American people to get mad and throw them out. As David Sirota said in his first book, Hostile Takeover, this isn’t about choosing between Rs and Ds; this is about a bipartisan money machine working against the population. They’re daring you. They’re daring you to turn out in five weeks and, in essence, support challengers against incumbents, because the incumbents are the ones responsible for doing this bill.
-----
Comment:
Democracy inaction or the beginning of some kind...?
My advice: vote every motherfucker that voted for this travesty - this great social and financial injustice - out on his ass!
Seriously.
There were and are dozens of ways to do this better and far more wisely.
And let's be very clear about one other thing. This really doesn't fix anything. It's just a money-grab. Who gives a shit if some investment firms go belly up? Who cares if foreign investors cry like bitches? This is very specifically about how to spend money for which we taxpayers work very hard. We were all just robbed - every person in the U.S. now owes a part of this handout worth a few grand and rising. Because that's the real problem: they didn't fix the underlying problems, those will still need to be fixed and escalate the price of this bailout.
I don't like to be alarmist, but this could be the final looting that is even possible. When you fall back from your current position, is there another to which you can fall back to the next time? Or is this it - the final belt-tightening before the end?
http://www.democracynow.org/2008/10/3/wary_of_public_outcry_revised_800b
ROBERT JOHNSON: I think this bill, five weeks before an election, is illustrating for the American people, when there are two currencies of power—votes and money—that even at this time, when the power of votes is at its cyclical high, meaning just before the election, they are almost laughing at the American people, in the—by the nature and structure of this bill. This is a very sad result.
...[skipped]...
JUAN GONZALEZ: Robert Johnson, you mentioned Henry Paulson. The New York Times has an article today, a fascinating look at how this crisis unraveled, and they claim that back in 2004, it was Paulson himself, who, as head of Goldman Sachs at that time, had meetings with all the other major investment banks and the Securities and Exchange Commission and convinced the SEC to allow them to reduce the amount of money that they kept in reserves to back up any debt that they had, in essence, that he pushed the SEC to reduce regulation and allow them to take the risks that ended them up where they are today.
ROBERT JOHNSON: I read that story, as well, and while I can’t comment in the sense of having been there, it doesn’t surprise me. Investment bankers were trying to relieve constraints, diminish capital and give themselves the freedom to take more leverage, and that is a very significant part of why we’re in this mess today.
I do also want to underscore that I believe it was Secretary Paulson who made the call to let Lehman Brothers go bankrupt, that led to the very, very violent restructuring of AIG with taxpayers’ money, which led to the crisis that led to this bailout bill. I believe, when people take the zoom lens out and look at the history of this bill, they will look at Henry Paulson as being the person who made the critical error that has sent us not only into a national, but a worldwide, credit freeze right now. He’s got a lot of work to do to earn his reputation back with the taxpayers’ $700 billion in the next chapter, and I am nowhere near as comfortable as Warren Buffett is about having him be the person to do that.
...[skipped]...
What I would like to see in this bill, I would like to have seen the money injected as capital infusion by buying preferred stock into the banks, so that the taxpayer would retain some rights, existing stockholders would be deluded. Existing stockholders, after all, are the owners of the companies that made this mess. Then, in the recovery, the Treasury could make back as much as, some estimate, $300 billion on that stock ownership, instead of having those existing stockholders make that money.
Secondly, and perhaps a place where we should have started, was the Home Owners’ Loan Corporation acknowledging the overhang of these—and unaffordability of all these mortgages and developing a restructuring, which, by the way, would raise the value of the securities, these mortgage-backed securities, that are toxic assets sitting in all the banks.
I do believe we need a bailout. As I said the other day when I was talking with Bruce Marks, I do not think this is a synthetic or fake crisis. We do need to inject what you might call life back into the organs of the economy. There was a story this morning. The Federal Reserve reports that bank lending to small businesses is being cut off very rapidly. And this does not portend well for the economic health of every region of the United States.
But homeowner relief, some significant regulatory reform, equity capital injections into the banks, which, by the way, because of the use of capital and the leverage of capital, you get ten to twelve times the impact on the credit flow in the economy as when you pay—when you overpay for toxic assets as the TARP facility would.
I think it was a very misconceived bill. Paul Krugman, Joe Stiglitz, John Makin on the American Enterprise Institute, Alex Pollock, the American Enterprise Institute, Lucian Bebchuk at Harvard Law School and Olin Foundation—these are conservatives and liberals all standing around saying, “Why are you doing the wrong thing, Secretary Paulson?” And Congress went along.
...[skipped]...
Yes. It went up by roughly $150 billion for those kinds of special pork-related projects. Now, what you’re seeing is the Congress and the Senate are daring the American people to get mad and throw them out. As David Sirota said in his first book, Hostile Takeover, this isn’t about choosing between Rs and Ds; this is about a bipartisan money machine working against the population. They’re daring you. They’re daring you to turn out in five weeks and, in essence, support challengers against incumbents, because the incumbents are the ones responsible for doing this bill.
-----
Comment:
Democracy inaction or the beginning of some kind...?
My advice: vote every motherfucker that voted for this travesty - this great social and financial injustice - out on his ass!
Seriously.
There were and are dozens of ways to do this better and far more wisely.
And let's be very clear about one other thing. This really doesn't fix anything. It's just a money-grab. Who gives a shit if some investment firms go belly up? Who cares if foreign investors cry like bitches? This is very specifically about how to spend money for which we taxpayers work very hard. We were all just robbed - every person in the U.S. now owes a part of this handout worth a few grand and rising. Because that's the real problem: they didn't fix the underlying problems, those will still need to be fixed and escalate the price of this bailout.
I don't like to be alarmist, but this could be the final looting that is even possible. When you fall back from your current position, is there another to which you can fall back to the next time? Or is this it - the final belt-tightening before the end?
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