Volatility

November 18, 2009

Bank Roundup 11/18

1. So how have things been on the regulation front? Any signs of life?
 
Ed Yingling of the American Bankers Association says he hates it, so that’s one good thing we can say about Christopher Dodd’s bank reform proposal.
 
In most ways it looks in theory to be a moderate improvement over Barney Frank’s corrupt mess in the House. It would have a passable CFPA, derivatives clearinghouses, would try to drag some of the shadow banking into the regulatory light (like hedge funds with $100 million or more in assets).
 
Its most disruptive departure would be to strip the Fed and FDIC of resolution authority and repose all such authority in a new agency which would also subsume the OCC and OTS. This would have separate divisions for big and small banks.
 
But it still wouldn’t break up the Too Big To Fail entities. Since that’s an absolute necessity, and a baseline measure for whether we have real reform or not, the proposal fails right there. It would still leave us under the thumb of gangsters.
 
There’s no reason to believe any “resolution authority” would ever be responsibly exercised anyway. In the crisis, under political and disaster capitalist pressure, if it’s possible for resolvers to throw the plan out the window and just repeat the bailout, that’s what they’ll do.
 
The very fact that the systemic risk entities are being allowed to continue to exist at all proves that this government will always do everything it can for their benefit. It proves that all regulation proposals are lies.
 
The same goes for all the lesser measures Dodd proposes. Just as in the House, these will be chipped away in committee, and predatory amendments will be added. In the end an anti-reform pro-racketeer bill will be passed.
 
If you doubt that, then why do you think even as we speak they’re rolling back existing regulation? (See below for more on accounting standards.)
 
There is the Kanjorski proposal to reinstate a version of Glass-Steagall floating around. This at least purports to wind down TBTF.
 
But in itself it too misses the real problem of systemic protection rackets, which is not just size but the interconnections of their socially worthless but very destructive bets. (There’s lately been some controversy over the term Too Big to Fail. I always recognized that “Big” encompasses not just size but interconnection, and that interconnection can be a clear and present systemic danger even where the firms are not-so-big, like Bear. So that’s how I’ve always used the term and will continue to use it. As for any alleged political risk that somehow the people won’t “get it” in the case of an entity not quite as big as, say, BofA, I’m not worried about it. These are all pretty damned big by any common sense measure.)
 
As Yves Smith put it:
 

So that is why the Kanjorski approach, despite the tough talk and possible disruption, is actually a win for the industry, even if a somewhat extreme version (remarkably) were to pass. It means no one is on the trail of the draconian measures needed to contain the risks the industry poses to the public at large.

The only viable solution to the misbranded TBTF problem is to require systemically important firms (one in the OTC debt businesses, which thanks to the development of “market based credit” is now essential to modern capitalism) to exit all activities that are not socially essential and therefore deserving of government support (pure fee businesses that pose no risk to the taxpayer would be allowed). The permitted activities are regulated intrusively, with tough rules on capital requirements, and product scope (new products would be subject to approval to make sure they were socially productive, that the regulators understood them, and they did not result in increased risk to taxpayers). In other words, an effective solution requires more extensive dismemberment than anyone plans right now, and still requires heavy regulation of the crucial bits that will inevitably be taxpayer backstopped.

 
For a more typical example of how this “regulation” is supposed to work, let’s look at the proposed Perlmutter amendment to the House reform bill. “Strongly supported by banks”, this amendment would give the proposed systemic risk council the power to order the FASB and SEC to suspend or change accounting rules. You know it’s got to be bad when even the US Chamber of Commerce opposes it.
 
The FASB has already been a political whipping boy this year, as the same Kanjorski bullied it into dropping the imperfect but closer-to-reality-based mark-to-market accounting standard. But now even Paul Volcker, also an enemy of mark-to-market, but a proponent of international accounting standards, is an outspoken opponent of the Perlmutter amendment, which would bring chaos as it tosses standards formally and completely into the bloody arena.
 
A basic element of ugly harmony throughout the crisis, from both banks and politicians, has been hostility toward reality-based accounting. The reason for this is clear. The banks are all insolvent, and the only way they can pretend to be capitalistically viable rather than corporatist parasites is through massive accounting fraud. This massive fraud is now enshrined government policy, and on every front the corrupt political lackeys of Wall Street are seeking to extend it.
 
 
2. One place where the accounting wilderness has crept back is in the realm of commercial real estate.
 
The banks have perhaps around $1.8 trillion in CRE loans on their books, but since this hasn’t been marked to market no one has any idea what it could really be worth. The potemkin stress tests didn’t even pretend to deal with this.
 
Over the next several years $500 billion in loans per year are set to mature. These loans are likely to be under extreme pressure from debt deflation. Declining property cash flows, construction depressed on account of the credit crunch, depreciation in the value of the collateral underpinning these loans, all portend defaults, perhaps enough to trigger the next crash.
 
Through the TALF the Fed is backstopping many of these loans, and meanwhile the order of the day is extend and pretend: give extensions on loans you think or know will default. More phony accounting, hoping to play for time while praying for a miracle.
 
So what this means is the Fed is propping up the simulacrum of a continuing CRE loan market. But when the Fed withdraws this support, or when it’s just not enough, lending will stop, everyone will then value all this paper at zero, and again the banks will be forced into insolvency check.
 
We are in end game. The government will certainly keep trying to help its bank king escape check, but it can’t do it forever. One day, inevitably, it will be checkmate.
 
 
3. Meanwhile, there seems never to be any lack of just plain bad behavior. These people are not only evil, they are petty and mean.
 
*Obama’s “good people” have certainly shown their good will in rushing to jack up credit card rates before a new regulatory restriction prevails next year. (Dodd has also proposed legislation to move up this date.) The most notorious is Citi slamming some of its best customers with a 29.99% rate. But according to a Fed survey 50% of banks are raising rates and lowering credit lines for good customers. It’s a combination of squeezing the cash cow and punishment for the Congress daring to pass a mildly reformist bill.
 
(Citi issued a statement blaming the people and regulators.)
 
According to the Pew Charitable Trusts the twelve largest banks, who issue 80% of credit cards, are still using “unfair or deceptive”, and often illegal, lending tactics.
 
All of this is going on while their bank vaults are full of free Fed money.
 
[For anyone who still has questions about the health care rackets, how they'll confront legislation, and therefore how legitimate the bill there is going to be, see the same behavior on the part of Big Drug.]
 
*The Jefferson County scam has given us some insight into the character of JPMorgan. JPM, with the connivance of the standard corrupt local yahoos, swindled the county into bonding a $3.2 billion sewer project with a package of interest rate swaps which are now worthless. (Sewage indeed.)
 
(This was such an all-day sucker that other sharks were circling, and JPM paid them off to go away: $3 million to Goldman, 1.4 to Rice Financial.)
 
The county is now suing JPM, which says the claims are “meritless”. But they already settled a federal suit for $700 million. Under that deal they paid the county $50 million and wrote off $650 million in “fees”. But the county still says it can’t service the debt JPM’s scam saddled them with, and they’re demanding more support.
 
*We may learn more this week about the BofA/Merrill deal as two board members and a former executive are scheduled to testify before the House Oversight Committee.
 
Former general counsel Timothy Mayopoulos claims he was summarily fired in 12/08 when he informed BofA brass that there existed no material adverse change which would legally justify BofA’s pulling out of the Merrill deal. Meanwhile, one of the board members, Charles Gifford, is caught trashing the deal in an email: “Unfortunately it’s screw the shareholders!!”
 
It’s not yet clear what all of this means, but the picture which has been emerging is of a rotten deal pushed by the Bush administration, agreed to by the incompetent BofA “leadership” (especially the moronic Ken Lewis), who then got cold feet, especially when they realized what a garbage barge Merrill really was (they couldn’t be bothered to do due diligence earlier; Paulson stampeded them, but they were stupid enough to be stampeded).
 
They were especially upset to see how Merrill went happily whistling along handing out billions in bonuses. They wanted out of the deal, and what happened…..? That’s what we’re eventually going to find out. Supposedly Paulson used a combination of threats and rewards to rope Lewis back in.
 
We are already 100% sure of one thing. Whatever went down, it was massive theft from the taxpayers.
 
*We can’t finish without some news from the incorrigible pricks at AIG. In his latest antic, placeholder dreg CEO Robert Benmosche (last seen beginning his tenure with a vacation), frustrated at how he doesn’t get to go parading around as king of the world like Lloyd Blankfein, and how everyone doesn’t just hate him and his company but considers him a contemptible little worm, and AIG a smelly little rathole, has been threatening to quit if the government doesn’t stop dissing him.
 
Apparently the last straw was Feinberg’s decree on executive pay for his special children who haven’t paid back the TARP, remedial dunces like AIG and its head dunce Benmosche. (What kind of loser is this guy that he can’t get a better job than that? Clearly he’s not very high on the “talent” list. He quits here and he might as well go hang out with Dick Fuld.)
 
Well, there’s no point in much analysis here. AIG is the dreg of dregs (maybe along with GMAC). I wouldn’t pay the whole lot of them a plug nickel, let alone the hundreds of billions which two administrations have looted from us on their behalf.

September 15, 2009

Two Speeches, One Policy

Another week, another speech. Another year, another unfolding disaster.
 
We saw quite a contrast yesterday between two opposed philosophies on what public service is supposed to be about, and what America is supposed to be about. Judge Jed Rakoff finally said he’d had enough of the criminal collusion in his court. The case is over how Bank of America lied to its shareholders about its pending deal to buy Merrill Lynch, promising that there would be no “bonuses” paid at Merrill. In fact they already knew that $3.6 billion in bonuses were all set to go. Under pressure from defrauded Bank of America shareholders, the SEC felt constrained to bring an action against BofA, which the collaborating parties agreed to settle for a slap on the wrist and no admission of wrong-doing. Corporatism in action. All the bigshots are happy, and everyone can get back to business as usual.
 
Just by accident, this case landed in the court of a judge who actually takes his job seriously. He repeatedly denounced the settlement as a whitewash and demanded more answers. He demanded to know who was personally responsible for this crime. BofA tried to claim that its executives never made any decisions, but only obeyed the advice of lawyers. But in order to maintain their client-attorney privilege they laundered the lawyer story through the SEC brief. So “both” sides agreed, no one in particular could be held responsible.* When the litigants (that is, the defiant defendant and its flunkey “prosecutor”) finally were reduced to insulting the court’s and the public’s intelligence in this way, Rakoff had enough. He rejected the settlement and ordered them to prepare for trial.
 
Everything the judge wrote sounds downright quaint. He said the settlement was “not fair”. He demanded to know where “justice and morality” have gone, where personal responsibility. He was especially incensed that even the token $30 million fine in the settlement would have been paid not by the executive wrongdoers, but by the very shareholders who were defrauded.
 
It’s a good bet that everyone on Wall St and in Washington today are scratching their heads over this decision and its language. It doesn’t make any sense to them. The words are familiar enough; we hear them all the time in politics. But what’s up with this action which seems to indicate that this guy actually means something by those words?
 
Luckily everyone could relax and listen to some similar words in a more familiar way, when Obama went up to Wall St to say something about financial reform. Here everyone could expect the same platitudes and bluster as in last week’s health reform speech, equally contradicted by his every action. He didn’t let them down. (Of course as the psychopathic louts they are they couldn’t even pretend to feel remorseful, even as an exercise in political tact. That’s how confident and incorrigible they are.)
 
“We will not go back to the days of reckless behavior and unchecked excess at the heart of the crisis.”
 
Just as with health care, this rhetoric is belied by this administration’s policy. From day one, and indeed going all the way back to the campaign, Obama has supported the massive redistribution of wealth from the people to the finance racket. He has done all he can to facilitate this conveyance, through bailouts, loan guarantees, loan “facilities”, maintaining illegal secrecy about these disbursements, and generally flooding the system with cash in order to prop up phony values on the stock market and on bank balance sheets. They call this “quantitative easing”, and it certainly does make it easy to pretend we’re “recovering”, even as the debt-hallucinated “wealth” of the middle class vaporizes like the hologram it has long been.
 
Meanwhile the very real jobs America used to enjoy have been permanently destroyed. They will not come back under this system. Even the propagandists are forced to call what they’re peddling a “jobless recovery”. Except that the phony mortgage bubble recovery following the early-2000s recession was already the start of a permanent jobless death march, which itself was the intensification of a forty year trend of eroding wages and concentration of wealth. The financialization of the economy was dialectically both a cause and effect of this increasingly social Darwinist economy.
 
Obama says they can’t commit the same crimes “and expect that next time, American taxpayers will be there to break their fall”. This is a flat out lie, because everyone knows Too Big to Fail is now officially enshrined American policy. Every aspect of Obama policy, simply following through on Bush policy, contradicts this lie and promises that in the inevitable future crashes the bailouts will be repeated. The entire sector, and by extension the business class, are structuring around this promise.
 
Indeed there’s no reason to believe the bailed-out banks will ever again be anything but wards of the lemon socialist state. Although Goldman and JPMorgan and a few others “paid back” the TARP money with much fanfare and administration self-congratulation, this was only a small portion of the bailouts. Trillions remain outstanding; nobody outside the Fed or government knows how much or held by whom, since the administration has tyrannically kept this information a secret from the very taxpayers whose money is being looted.
 
For this reason Congressman Brad Sherman, one of those who voted against the TARP last fall, raised a protest after yesterday’s speech over the provisions of the administration’s proposed systemic risk plan, which would, reminiscent of its health care proposal, require a large number of institutions to pay into an insurance fund which would offer benefits to only a handful of privileged big banks. As usual, the mass of small players must bear all the costs and losses of the big rentiers, who rake in all the profits. Sherman condemned it as “TARP on steroids.”
 
We can only wish that protest like this could lead to another kind of Progressive Block. 
 
This taxpayer bailout promise is summed up in the sardonic term “Bernanke put” (AKA Geithner put, back when they were attempting a more direct loot conveyance through the PPIP; today it’s more through the Fed’s quantitative easing)
 
This term can encapsulate the entire Obama economic ideology and policy, which is simply an extension of the longstanding corporatist ideology and policy.
 
So this economy is both mean and predatory in general, and has become permanently unstable and prone to crisis and crash as well. There is no longer any real, stable basis for this economy. It’s now a permanent casino, dependent upon the bubble and crash, boom-bust cycle.
 
This is the economy as dominated by the finance sector. It’s an economy of, by, and for the bankers. A government policy which is dedicated to sustaining this casino is as pure a distillation of corporatism as is possible. This is truly the end stage of monopoly finance capitalism.
 
Obama’s government has dedicated itself to this casino barker role. It has done nothing to restrain the “recklessness” and “excess”; on the contrary it has enshrined it as the core quality of America.
 
All American policy now emanates logically from this racketeering core. Every other racket, and even the legitimate businesses, are arranged according to their logical places in the financialized structure. All other policies stand or fall according to whether they fit in with this logic.
 
Thus with health care reform, since the combination of individual mandate-phony regulation confirms the loot flows along the chart from people to insurers and up to banks and bank shareholders, this is anointed as not only the correct policy but the only policy in the eyes of the feudal nexus of corporation-government-mainstream media.
 
Meanwhile since single-payer or a real public plan make no corporatist sense, they are beyond consideration. Establishment Democrats and the MSM treat a public plan as a stupid whim on the part of romantics, while single-payer is so alien as to not even be deemed a fit topic for conversation. Even the progressives are wobbling: are we really going to stand against the entire logic and vote against its result?
 
I guess the answer boils down to, is it really just a whim on the part of those who are system players at heart? Or are they true progressives, who have no choice by now but to become rebels vs. this system?
 
Where you see anyone say, let’s cave in again, but we’ll get ‘em next time, you have your answer.
 
So it has been so far with pretty much everyone vis the big banks.
 
[* This Kafkaesque idea of saying "the lawyers told him it was OK, so we can't prosecute him", while the lawyers can't be held to account at all since they were simply giving professional advice for which they take no responsibility, seems to be popular with the Obama people. It's also Eric Holder's preferred way of dealing with the Bush administration's war crimes.]      

August 1, 2009

Why Do We Need The Banks?

According to a new report by New York attorney general Andrew Cuomo, nearly 5000 Wall Street cadres were awarded “bonuses” of $1 million or more in 2008. This was their reward for engineering the complete meltdown of the global financial system and extorting trillions of dollars of protection money from the people of America.
 
The worst malefactors could well afford this, as the money was conveyed directly from the taxpayers. Thus Citi, which extracted $45 billion in direct handouts and hundreds of $billions in other forms of welfare spent $5.3 billion of this on bonuses.
 
Bank of America and its acquisition Merrill Lynch also directly collected $45 billion and used $7 billion of that for bonuses.
 
Goldman Sachs collected $10 billion from the TARP, had $12 billion laundered to it through AIG, and an untold (literally, by the secret-keeping Treasury) fortune in other forms of looting, and paid out a relatively meager $4.8 billion of the proceeds.
 
The bonanza was similar for other gangs. JPMorgan got $25+ billion and gave out $8.7 billion of it. For Morgan Stanley the loot was $10 billion, bonus handout $4.5 billion.
 
This bonus bonanza is just the latest in a long, tedious string of government-enabled crimes. All along we’ve been told over and over that putting up with something so revolting is necessary to prevent the total economic collapse of America, and to put us on a footing for “recovery”. Even establishment dissenters like Paul Krugman are still establishment in the end, and toe this party line.
 

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

 
Yet Krugman himself is unable to let cognitive dissonance go so far as to completely deny the obvious

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America..

If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

 

If you’re wondering how what’s bad for America can also be good for America, so am I. It’s apparently a mystery decipherable only to those within the system.
 
Meanwhile a report from Ethisphere finds that as of mid-June the TARP has already lost forever $148 billion out of 700. This number is bound to grow, and does not include the trillions in other kinds of Treasury and Fed handouts.
 
Special inspector general for the TARP Neil Barofsky recently mortified the establishment with his worst-case projection that the taxpayers may end up losing $23.7 trillion down this rathole. The corporate media, suitably scandalized, was quick to close ranks and scoff at this. But of course every projection so far by every kind of cornucopian has fallen far short of the true horror, so while we may perhaps take Barofsky’s figure as an upper bound, we can by no means dismiss it as impossible. 
 
Yet we stupid peasants were promised a profit on this “investment”.
 
Why did we make this investment again?
 
What are the banks supposed to do, in the good business civics textbooks?
 
Oh yeah, they’re supposed to facilitate constructive capital flows so that entrepreneurship can flourish, innovation can occur, and we can receive better products at lower prices, better tech for better living, better jobs at better wages and lesser hours…
 
Weren’t these the promises of modern banking, modern capitalism, modern technology? They were.
 
Is this what the banks have delivered?
 
No. As Krugman explains:

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

 

*They presided over the liquidation of the economy. With the advent of financialized globalization, they facilitated the basically treasonous nature of modern wealth. They led the charge of outsourcing, offshoring, the destruction of wages and jobs.
 
*They presided over the binge of monopoly consolidation, furthering wealth concentration and wealth inequality, all against the public interest.
 
*They created the most complex, opaque, mysterious, irresponsible, unfathomable “products” they could.
These complex financial products are inherently dangerous when used as intended. When was the golden time when CDSs were being used responsibly and constructively? If such a time did briefly exist, it was enforced only by regulation, and filled up and shortened by anti-regulatory activity.
The real measure of reckless behavior and abuse isn’t absolute but relative. If everyone in the biz wanted to be what an outside observer would call abusive, then they really weren’t “abusing” but using according to how the culture decreed the baseline would be. Insider ideologues are simply lying  when they try to pretend to draw any distinction between proper use and abuse. These complex instruments are what Buffett called them, and they are a clear and present danger to public health. They are by definition to be abused, and no one can be trusted with them.
*Their bubbles drove up the prices of all staples: food, fuel, shelter, all to feed the greed of speculators and hedonists. Human beings who just wanted a decent life were forced into rat race slavery, or were forced out of society.
 
*They did everything they could to irrationalize and destabilize not just the financial sector, not just the economy as a whole, but society itself.
   
*They gambled, looted, hoarded.
 
Why did we need for these banks to exist again? Why did we allow their crimes?
 
And then we reached the crisis. What has been the narrative of this crisis? What is supposed to redeem these bailouts?
 
We were told this was a liquidity crisis, and that what we needed was to get cash to the banks, they’d resume lending, and all the jobs they failed to create before would suddenly spring into being.
 
(Apologists for the banks nowadays say they never actually promised to lend. And then there’s the misdirection tactic of blaming the government for lying of for confusion. Thus we recently saw henry Paulson grilled on Capitol Hill over his switching from buying toxic paper to cash injections to buying corporate paper…
 
What all this is meant to confuse is that we were sold the entire program on the premise that it would jumpstart lending. Whether or not this was a good idea is not what matters now. (It was of course not a good idea; when your whole problem is your addiction to debt, you don’t solve that by going further into debt.)
 
The banks endorsed this marketing campaign. So when we see what a lie it always was, how the banks did not “lend” and never intended to lend, we see what a Big Lie was the entire premise of the TARP and all its minion welfare programs.
 
That Paulson and Geithner have never been able to settle on a particular tactic for carrying out the looting is irrelevant.)
 
So what have the banks done with the ill-begotten loot? They haven’t leant; they’ve hoarded and used the money for acquisitions. Some openly boasted of their disaster capitalist opportunism.
 
And what did any of this do for us? Not one cent of the money “trickled down”.
 
Now we know that “Too Big To Fail” was always a lie, since propping up these banks hasn’t helped us, it has only harmed us. They have not only stolen trillions, but in the process have further consolidated their position for further adventures in looting. On every front they continue their obstruction front vs. even the most paltry regulation, while they assault consumers with further outrages. They jack up credit rates, refuse to modify mortgages, they have dug in vs. every pathetic attempt to take even an inch from them in the name of the public good.
 
This is, of course, the same public without whose stolen wealth these banks wouldn’t exist at all. The people are now in the position of the victim of highway robbery who is now forced to beg for a crumb from those who stole, and in return is kicked in the face.
 
That’s the utopia of the Too Big To Fail ideology, as espoused by both Washington parties and the corporate mainstream media: a boot kicking us in the face forever, while we’re fleeced of every cent.
 
Letting this vile system of organized crime go down in the first place couldn’t have been worse than the damage we’ve sustained: to our wealth, to our society, to our freedom and dignity. Why should we suffer them to exist?
 
Even if the paramount imperative were to resume the degradation of debt “growth”, this is no longer possible. The banks’ own behavior displays how they know the jig is up. It’s long been clear that the banks, fearing insolvency rather than laboring through illiquidity, don’t want to lend at all. The whole premise of their existence, the exponential debt/growth socioeconomic model, is defunct. There is no longer a real economic basis on which it can be sustained. There is no future here.
 
The system is insolvent. Now they are simply trying to steal as much as they can while the getting is good.
 
The core premise of the Too Big To Fail ideology and the bailout onslaught which has followed from it is that the economy, in order to be restored to health, needs the banks.
 
The contention is that if all the banks collapsed “main street” would get clobbered, that business would suffer and even more jobs would be lost, because there wouldn’t be lending? But they’re not lending now.
 
So it’s clear that anything that would happen from the non-existence of the banks is already happening.
But if the banks have abdicated, then why exactly do we need to loot the country to keep them from failing? (“Failing” – but if they’re failing to lend, haven’t they already failied according to the original premise?)
Why again can’t all federal support be plowed into direct stimulus, and none into financial bailouts?
Why again do we need the banks at all?
Their alleged macroeconomic benefits have proven to be so much vapor. America hasn’t even had any real “growth” in a decade, only debt- and bubble-puffed fictional growth, which has now all vaporized, while wages have continued to decline.
The ONLY benefits have accrued to a handful of criminals and parasites.
The harms are obvious and legion and socialized.
So zero benefit, infinite harm…Why are we even still debating this? Smash the infamous thing. Get rid of the globalized “finance industry” completely.
*We don’t need it at all.
*We’re better off without it.
*It’s definitely not worth keeping at such a price.

March 20, 2009

AIG 2

NYT admission: AIG is racketeering.

The NYT’s Andrew Sorkin has written a piece unusual for the MSM.

http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp=&pagewanted=print  

What’s unusual is not the standard MSM corporatist ideology and theological adherence to “Too Big To Fail”, the angry volcano everyone dances around, looking more and more tribalistic all the time. Nor is the slimy sanctity-of-contracts argument unusual. On the contrary, it’s the same old heads-I-win, tails-you-lose.   

What’s unusual is how Sorkin openly states, as a matter of fact and not rhetoric, that AIG and the banks are literally extortionists, only metaphorically holding society at gunpoint, but just as surely demanding protection money or else.   Sorkin actually says the AIG gangsters need to be paid or they’ll get revenge through intentional subversion and treason.

Let’s go through it:  

The Case for Paying Out Bonuses at A.I.G. By ANDREW ROSS SORKIN 

Do we really have to foot the bill for those bonuses at the American International Group?

It sure does sting. A staggering $165 million – for employees of a company that nearly took down the financial system. And heck, we, the taxpayers, own nearly 80 percent of A.I.G.

It doesn’t seem fair.

So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.

Everyone from President Obama down seems outraged by this. The president suggested on Monday that we just tear up those bonus contracts. He told the Treasury secretary, Timothy F. Geithner, to use every legal means to recoup taxpayers’ money. Hard to argue there.

“This isn’t just a matter of dollars and cents,” he said. “It’s about our fundamental values.”

On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

 

This is disingenuous. As others have pointed out, there are many perfectly legal ways that contracts can be modified after the fact: if material conditions change, non-performance, non-disclosure of important information (e.g. if a trader was taking reckless positions), functional insolvency (like when the government has to take you over), acts of god, force majeure, unconscionable outcomes, and most of all in this case, fraud and crime.

The facts are that AIG has been running a massive pyramid scheme, selling fake insurance policies to banks to enable them to evade capital reserve requirements. Meanwhile, enabled all the way by corrupt regulators, it was allowed to turn around and claim it wasn’t selling insurance after all, and therefore wasn’t subject to regulation as an insurer, or to maintain the requisite capital reserves of an insurer. It could instead invest the revenues from this scam in other derivative scams, enabling other pyramid schemes, and so on. All of this was certainly in violation of the spirit of god knows how many laws, and I have no doubt an intrepid prosecutor could prove them guilty in the letter-of-the-law sense.

In particular, these bonuses are clearly “fraudulent conveyance”, which is stripping assets from a company in the form of “compensation” when you realize the company is in financial trouble. It’s looting plain and simple, stealing from the company on your way out the door. (AIG is, of course, insolvent in reality; only redistribution of wealth from the taxpayers is propping it up.)

We saw another particularly brazen example of this at Merrill late last year.

So let’s be clear: there are ample reasons to void these “contracts”, or at least delay their execution, which shouldn’t for a moment unnerve any legitimate businessman.  

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts. 

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue – but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

 

Beyond the facts of AIG con artistry, let me emphasize the broad fact that the finance “industry” from its inception has sought to exist outside the law. Its entire lobbying agenda has been to empower it above the law, beyond regulation. They have in fact wanted to be outlaws, and succeeded in becoming so.

Of course, as always with feudalists, they only wanted the upside profit from this, and wanted only the people to bear the risks, the costs, the losses, the pain.

And now through flunkies like this they dare to cite the “sanctity of contracts” and accuse anyone who is skeptical of wanting to “break a bond”?

What contracts? AIG wrote all these contracts they could never pay off. Right there they have forfeited forever any right to have any contract which would benefit them, like these loot-seeking “bonus” contracts, honored. They no longer exist in the world of contracts.

What bond? AIG and its confederates long ago renounced any “bond” they could possibly have had with anyone, with any society. For all intents and purposes, they renounced any American or even human citizenship when they embarked upon their monumental con job and looting expedition, when they sought the eradication of all regulation, all social restraint, all rule of law, except where such things could be twisted to their benefit. They are anti-social to the level of a capital crime. They no longer exist in the world of bonds.

So I would happily deal with them as the outlaws they always wanted to be.

And now for the terrorist threat:  

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

 

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave – the buzz on Wall Street is that some have, and more are ready to – they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

 

So here MSM Sorkin goes further than anyone else I’ve seen in saying (1) these cadres have intentionally set financial charges all over the economy, (2) they are now demanding protection money, (3) if they’re denied, the bombs will go off, (4) indeed these agents will personally detonate these charges, (5) in order to destroy the American and global economies.

This reads like James Bond villainy. And it seems correct. It seems to be exactly what’s happening here.

So why aren’t these extortionists in prison? This is their “rule of law”? Last time I checked extortion was a crime as well.

Here’s the rest: 

Not that any of this takes the bite out of paying these bonuses. For better or worse – in this case, worse – someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear. Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.
That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)

“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.

There’s some truth to what Mr. Liddy is saying. Would you want to work at A.I.G.? Sure, maybe for $3 million. But not if you could go somewhere else for even more – or even much less.

“The jobs are terrible,” said Robert M. Sedgwick, an executive compensation lawyer at Morrison Cohen who represents a number of employees of banks that have taken government money. “You have to read about yourself in the paper every day. These people are leaving as soon as they can.”

Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work – against taxpayers’ interests.

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.

Of course, if taxpayers had not bailed out A.I.G., these contracts would not be worth anything. Andrew M. Cuomo, the attorney general of New York, made the point on Monday, when he subpoenaed A.I.G. for the names of the people who received the bonuses. If A.I.G. had spiraled into bankruptcy, its employees would have had to get in line with other unsecured creditors.

Mr. Cuomo wants to know who A.I.G.’s lucky employees are, and how they have been doing at their jobs. So here is a suggestion for him. Get the list, and give those big earners at A.I.G. a not-so-subtle nudge: Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers. But in the meantime, despite how offensive and painful it might be, let’s honor the contracts.

 

So it’s no longer just rabble-rousers in the blogosphere accusing AIG and the banks of racketeering and extortion, and making comparisons to terrorism. We now have the NYT’s corporatist business section conceding the truth of this and ordering us to knuckle under and submit.

I’ve long had my doubts about the Too Big To Fail religion. I believe it’s a classical Big Lie, meant to terrorize the people into standing by like sheep as the country is further looted.

But even beyond the “truth” of what would happen if we rejected the bailout ideology and let these insolvent entities go down, I don’t see how any human being would want to live under the thumb of this protection racket, paying up every month or else the system goes down and you wouldn’t be able to buy cheap crap from China anymore.

The exponential debt model is not sustainable. One way or another this financial edifice must come down anyway. Many material things will have to be foregone. Wouldn’t it be better to take what real wealth still remains to us and use it toward a rational, human transformation and devolution? What’s more, wouldn’t it be better to come through it with our human dignity intact?

One thing’s for sure. We keep obeying the dictates of government and media, and keep “bailing out” these criminals, and we’ll soon have nothing left of wealth or dignity.     

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