January 27, 2010

The Real State of the Onion


State of the Union is an odd title unless this speech is going to sound a sincere alarm over the centrifugal forces of crime and antisociality spinning this “union” to pieces. We know we’re not going to hear any such alarm.
The state of the union according to Obama is a joke. We know with absolute clarity that Obama’s state is a nightmare of bailouts, war, secrecy, destruction of civil liberties, the imperial presidency, and the tyranny of corporatism.
We are clear that he and his party don’t care about jobs, health reform, farm reform, food reform, energy reform, or reform of any sort.
I don’t doubt Obama consciously fails to understand himself. His cognitive dissonance looks deeply engrained. Asked to grade his performance so far, he didn’t even demur to answer but leapt to give himself a “B+”. The only reason he didn’t give himself an A is because he thinks, however stellar his performance thus far, there’s always room for improvement.
And we’ve seen ad nauseum how the Democrats think Massachusetts, O’s plummeting approval ratings, and other political boners are all because of inadequate messaging; none of them are about flawed substance.
Today administration flacks say that in tonight’s speech Obama will “take responsibility” but not the blame.
How do you do that? Would you let your ten year old get away with that? “OK, it’s my responsibility, I’m sorry, but it’s not my fault”?
I remember Rumsfeld saying something like, “I don’t know where people get the notion that just because you’re head of an organization that you’re responsible for what happens in it.” (I couldn’t find the quote, but I think it was at the same assembly where he said “you go to war with the army you have, not the one you want”.)  
(I’m often reminded of the “army you have” notion when I hear Democrat hacks saying “you govern with the Democratic party you have, not the one you want”. But then these hacks remind me of Bush hacks with every lying word they say.)
Again: Bailouts, yes we can. War, yes we can. Ever-bloating Pentagon budgets, yes we can. Insurance racketeering, yes we can. Torture, yes we can. Secrecy, yes we can. Disappearing people, yes we can. Anything which empowers tyrannical corporations, yes we can. Anything which empowers tyrannical government, yes we can.
Jobs, no we can’t. Reform, no we can’t. Anything which benefits the people, no we can’t. Morality, spirit, happiness, justice, freedom, no we can’t.
That’s how we can classify, for example, all the lying gambits emitting from his lying “populist” epiphany.
Size limits on banks! No, they’ll just be capped at their existing monopoly sizes. maybe. For now.
No more prop trading for government-backstopped banks! Except for all the loopholes. On second thought, any restriction will be the exception. And of course we won’t touch the structural pathology of prop trading as such, which shouldn’t exist at all; of financial speculation as such, which shouldn’t exist at all.
Help for the middle class! In the form of mere crumbs. Insulting, really, when you compare it to the looting on behalf of the banks, health insurance rackets, weapons contractors, and others.
And now cuts in non-defense spending. That wouldn’t put a dent in the debt, wouldn’t comfort the afflicted, wouldn’t afflict the comfortable, and would on the contrary afflict the afflicted on behalf of the comfortable. No one can even figure out who the political constituency for that is supposed to be. It looks absolutely idiotic from any point of view.
Through it all Obama continues to support “Heckuva job, Bennie” Bernanke.
Bennie is doing a heckuva job for the banksters, as since December the ceiling on the Fed’s MBS purchases on the taxpayers’ bill, the ONLY thing which is still propping up the insolvent zombie system, are now in principle infinite.
(Meanwhile Robert Gates has similarly assured weapons dealers that Pentagon budgets are to be expanded without limit, purely for the dealers’ sakes, as explicit corporatist administration policy.)
That’s what Obama really thinks of the budget and its deficit.
And that’s why he self-refutes all his newfound anti-bankster talk with his support for Bennie.
Meanwhile we’re actually starting to zero in on the first identifiable de jure crime, the Fed’s money laundering through AIG. Testimony is coming up today.
From here the next step is the assault on ALL Fed secrecy. This secrecy is intended to cover up crime, to cover up the magnitude of the Bailout, to cover up how insolvent all the banks are, how the entire premise of the Bailout is a lie.
It’s a refutation on principle of Obama’s claims to “transparency” and confirms his imperial pretensions; that Obama agrees with Cheney on the imperial presidency and executive secrecy as a principle, a privilege, a prerogative.
That they even went so far as to try to claim “national security” as justification for AIG secrecy provides a case study in the general national security lie; how we must assume it’s ALWAYS a lie.
Let’s hope these hearings go somewhere, though the pattern indicates it’ll be a whitewash.
And this can still only nibble at the fringes of the great crime, for which we must someday convene a new Nuremburg Tribunal.
In the meantime we can dispose of Obama’s stupid speech.   
“State of the Union” is an odd title for a speech describing the progress of the class war from above. It’s a document of America’s continuing descent into a gangland cesspool. But since it will be a package of lies, the Orwellian title is blandly appropriate.
This speech, like all the other lying words oozing from this criminal politician and every other politician of the criminal system, will only insult our intelligence and our deepest instinct for morality, our deepest demand for justice.

January 15, 2010

Where’s the Midget?

Filed under: Bailouts Only Propped Up Zombies, Reformism Can't Work — Tags: , — Russ @ 3:55 am


This week we saw the opening act of the Financial Crisis Inquiry Commission. So far it’s been what we expected, lots of empty words headed nowhere in particular. This, like everything that’s been said so far, reminds me of the opening remarks in The Road Warrior; how “their leaders talked and talked and talked”, but nothing could stave off the collapse.
On Wednesday the chief banksters slouched in. The photo of these crooks being sworn in provided the only amusement and insight. The sneer, the scorn, the boredom, the malaise, the childishness, the hostility, the incomprehension, the psychopathy, are clear to see in their faces, which radiate the banality of evil.
Again we see how incapable they are of even pretending to respect any community of law other than the law of the jungle. Their political ineptitude, their inability by now to even play the political game, reflects the profoundly anti-political essence and agenda of finance corporatism itself. This ideology, as it engulfs and assimilates the entire political system, has sought to completely destroy democracy itself. All real politics must perish if corporate monopoly is to enjoy full dictatorship. This process is largely complete (we’re still waiting on the Supreme Court for its decision on direct corporate election commodification).
In the bankster response to this commission, and our expectations for the commission in general, we have, unfortunately, kin responses to it. The only responses the current reality support.
True, the banksters couldn’t be quite so brazen in their contempt as they’ve been with Obama. Phil Angelides will probably try to accomplish something here. But the CEO testimony showed up what will likely be the limits throughout.
The banksters were able to evade the harshest questioning with the standard boilerplate, pandering, propaganda, lies about paying back the TARP, and statements of pseudo-accountability.
Blankfein pretended Goldman only dealt with “professional investors who want this exposure”. He repeated the longstanding Goldman line that the Bailout helped everyone including GS, but that GS didn’t need it. As far as the rest of America, the real economy, real people like the teachers and cops Angelides invoked, Blankfein issued the typical non-apology apology: “We regret the consequence that people have lost money”. Kind of like, I regret if anyone was offended by my innocent remarks. It’s all your fault, you fucking crybabies.
Dimon was similarly bland and sleazy. “I blame the management teams 100% and fault no one else.”
But I really blame everyone else but management, and better yet I blame no one in particular: “This kind of thing happens every five to seven years”. A financial crisis happens every five to seven years, and it’s just a kind of “thing” that kind of “happens”.
That’s of course a lie. Number one, financial crises did not happen every few years so long as Depression-era regulation like Glass-Steagal was still in effect. They only started constantly occurring and recurring once aggressive deregulation became the government policy. JPM itself, as Dimon well knows, took the lead in lobbying for monopoly finance dereg.
Dimon went so far as to claim his daughter called him up to ask, “Dad, what’s a financial crisis”, and that after he lied to her about it the same way he lies to America she said, “then why is everyone so surprised?” Quite a heartwarming story.
Blankfein was trying to mine the same vein when he obnoxiously compared this to a “hurricane” (not just a spontaneous thought, apparently; it was in his prepared statement as well). He said these were acts of god, prompting Angelides’ best line: “Acts of god we’ll exempt. These were acts of men and women.”
(Hmm, maybe that was unfair. Maybe these were “Acts of God”. After all, they’re doing “God’s work”.)
Angelides did flummox Blankfein on one line of inquiry, where he demanded to know how Goldman could legitimately induce the ratings agencies to give AAA ratings to CDOs where GS itself had information which would cause it to bet against them. Blankfein didn’t give anything approaching an “answer”, as of course he could not.
On Thursday government cadres came in to spew their own lies. Attorney general Holder bragged about over 2000 mortgage fraud investigations underway. Of course, all of these target only small fry. None are meant to threaten the real criminals, and RICO investigations remain, in the administration’s favorite fuck-you phrase, “off the table”. FDIC chief Sheila Bair gave standard boilerplate about the “resolution” scam. SEC head Mary Schapiro complained about unstable funding for the agency, even though it’s hard to explain how insufficient funds played into the SEC’s illegal and unconstitutional decree shielding AIG laundering from public interest transparency for ten years.
The only good testimony came from state regulators who told an all-too-familiar story of Federal-level corruption, obstruction, and interference. Illinois attorney general Lisa Madigan, one of the few who want action, who has filed anti-racketeering lawsuits, focused on federal foot-dragging and resistance to state action.
She thus by implication highlighted for us how the financial “reform” bill underway in Congress will seek to expand federal power to pre-empt state action. And in mentioning the anti-law, anti-public obstructionism of the OCC she reminds us how it is still headed by Bush political appointee John Dugan. (What, the Dems couldn’t find their own pro-Wall Street hack to put in that job? Once again we see how this idiot Obama can’t even get the spoils system right.)
In the end this is just political theater, and not even good theater. People hope this might live up to its 30s predecessor, the Pecora commission. But Pecora was empowered by FDR, who actually did want to do something about bankster abuses of democracy. But by that measure we’re today still in the Hoover stage.
Pecora had the great moment where they plopped a midget in JP Morgan’s lap. Will we be able to do that to Jamie Dimon this time around? Where’s the midget going to come from?
More seriously, as Yves Smith points out, this commission is “structurally flawed”, as it doesn’t have or seek broad subpoena power to peruse the big banks’ books. Rather, they’re going to issue subpoenas ad hoc, just in stimulus-response fashion, if they accidentally happen to get a lead.
It’s reminiscent of the Private Securities Litigation Reform Act of 1995 (another gift of Rahm Emanuel), the Catch-22 corporatist legal trap whereby plaintiffs are required to know ahead of time exactly what crimes the defendant committed, when in fact pre-trial discovery is necessary to get a good grasp of what those crimes were.
Unfortunately, all the indications are that the commission will be unable, and probably won’t even try, to effect a tipping point in the public’s understanding of these crimes and their motivation to take action.
It’s part of the system; therefore it’s not trying to upset the system. Just like Obama’s bogus bank tax, this is meant to distract and appease the angry public, not educate and empower it.
Such education will have to come from outside, from among the people themselves, and only the people themselves will be able to empower themselves.

November 24, 2009

Against the People’s Outrage

“Beware the Result of Outrage” is the title of the NYT’s Andrew Ross Sorkin’s new column, and this could easily be his ideological slogan. Sorkin is an “errand boy, sent by grocers to collect the bill”. He is consistently anti-populist, pro-elite, pro-technocracy, above all pro-trickle down. In this crisis and gathering Depression the people have no right or prerogative to do anything other than meekly await dispensations and crumbs from on high. Anything else would be inelegant, and troublesome for the rich’s peace of mind.
 Last spring we saw him delivering AIG’s extortion threat: “we know how to blow up the economy once and for all, so pay us our bonuses or else.” He sees his main job as to try to shout down any sort of anti-elitist, pro-populist developments.
Today his targets are a few potentially troublesome amendments spoiling the otherwise clear sailing for the anti-reform project sleazing through Congress under the Orwellian title “Financial Stability Improvement Act”.
“Improvement”? You better duck.
The “Bair-Miller-Moore” haircut amendment would require all the bigshots, including hitherto sacrosanct secured bondholders, to take a hit if the government has to bail out a bank.
In his standard supercilious tone, Sorkin assures us that he appreciates the appeal to childish notions of justice, but that this will actually upset the adults who, darn it, are trying to keep things “stable”!

That is a hot-button idea because, for the last year, many critics have asked why bondholders were protected by the government. Again, at a gut level, it seems fair for secured creditors to take a haircut if the taxpayer if going to bail them out.

Again, not so simple in practice. Because of the new risk, banks would find it more expensive to raise money — especially so when they run into problems.

Who wants to lend money to a bank when there is a chance the government is going to come in and take it over, so that even a secured creditor at the top of the food chain is going to lose something?

I don’t know about you, but this looks to me like it would reduce the heads-I-win, tails-you-lose status quo. As things are “lenders” (using free Fed money) have all upside and little downside, since they can be confident that if their investments in TBTF entities go bad, the taxpayer will bail them out. Why shouldn’t this moral hazard be eradicated? Even if we agreed with Sorkin’s contempt for the morality and justice aspects of it all, the TBTF put is still just not good capitalist business practice, is it? The amendment as written may have flaws, but in principle it wants to head in the right direction.
If a bank, thanks to its reckless practices, is doomed to fail, why should any investor, public or private, be zombifying it? But certainly, if a private investor wants to do that, he should be doing it ONLY because he’s willing to run a big risk looking toward some big reward, NOT because there is no risk because he’s assured the public will make good his losses.
So in conjuring bogeymen here Sorkin is really fighting to uphold the lemon socialist paradigm of privatized profits, socialized risk. (You’ll look in vain through these columns to find out how we’re supposed to get rid of these systemic extortionists completely. Sorkin is not saying “Yes, let’s break them up so we won’t have to deal with these threats at all anymore.” He’s saying stay the course, business as usual, and no populist rocking the boat, dammit. Don’t you nasty cavemen go scaring my well-dressed bondholders. Just give us the money.)
(He also mentions in passing the Kanjorski amendment, but doesn’t seem to have as much of a problem with that. That’s because it’s a reactionary Trojan horse meant not to extend public power, but gut what little exists. It would allow insolvent banks to sue to prevent FDIC action. As bad as things are today, they can’t do that. Yet.)
The worst specter haunting this corporatist Xanadu is the Audit the Fed amendment.
Again, when Sorkin gets patronizing:

So on its face, the Paul amendment seems well intended. After all, who can argue with a little more sunlight?

you know he’s getting ready to whip a peasant.
You could have bet that Sorkin’s line here would be the sacred non-political “independence” of the majestic Fed, and he doesn’t disappoint. He does rather oddly cite economic vandal Judd Gregg to propagate this lie:

But consider these words of caution from Senator Judd Gregg, Republican of New Hampshire: “Congress has demonstrated time and again its inability to manage the nation’s fiscal policy, illustrated by our staggering national debt in excess of $12 trillion. So how can anyone think that its involvement in monetary policy would be good for the country?”

So any unintended consequences of the amendment — what Senator Gregg calls “a dangerous move by this Congress to pander to the populist anger” — could indeed lead to less independence for the Federal Reserve, and the result ultimately may not be good for the economy.

That “so” in there cracks me up. It’s not too much of a non sequitur, is it? The tone is, “such-and-such is true, for as it is written in scripture…….”, and your citation is Judd Gregg??? Talk about a fallacious appeal to authority. You would think a combination of Keynes, Lincoln, and Superman had said so.
When we look at how they have to scrape the bottom of the barrel like this since Greenspan’s fall from grace, we can infer the moral bankruptcy of their position, even if we didn’t know that on more substantive grounds. “As Judd Gregg has written…”  (Maybe Sorkin wants to set him up as a magisterial authority looking ahead to the upcoming attempts to completely gut all social spending. We already knew Obama is sweet on the guy.)

That has been Fed Chairman Ben Bernanke’s line all along. He does not want the Fed to be a puppet of Congress.

Representative Paul, of course, doesn’t just want oversight of the Federal Reserve, he wants to dismantle it entirely. He has a dog in this fight and it is snarling….

Getting serious, Bernanke, Gregg, and their little flunkies like Sorkin want to propagate the ideological fraud that the status quo, in this case the position and policy of the Fed, is normal, rational, moderate, non-politicized, serenely contemplative, and doesn’t fall under democracy’s purview yet somehow is not therefore an affront to democracy.
By contrast, Paul and audit supporters are represented as “snarling”, abnormal, irrational, extremist, having a political agenda. Our concerns about transparency and “democracy” are impertinent.
But the truth is that the Fed’s easy money policies in general are highly ideological, beholden to Friedman monetarism, and their manifestation over the past year and a half are extreme and radical. The Fed has been simply hemorrhaging money out of a vast fleet of helicopters, steadily expanding the range of recipients even as it ratchets down eligibility and collateral requirements. Even if we ever accepted the notion that the Fed had certain technical duties which should be insulated from politics, by now its activities are not contained within the bounds of any such framework. It has struck vast swathes of new ground. There’s simply no way society can or should accept this as technical administration. If the plumber I tasked to fix my sink starts bulldozing part of my house, I’m damn well going to call him to account.
The Fed, as its “baseline”, is a radical, extremist actor. The call to impose full oversight, transparency, and accountability upon it is not a radical departure, but a call to restore reason and moderation.
As for the vaunted Fed “independence”, what they mean by this is independence only of democracy. The fact that the Fed is not independent of its member banks; that it listens very carefully to their desires and advocacy; that it sees its great mandate as to maximize profit for these bankers; that it is nothing more or less than the synthetic manifestation of corporatism; this extreme dependence, this extreme politicization, this radical ideological position, constitute what Sorkin and the MSM at large defend as the status quo norm, from which point of view any other idea is to be judged as deviant and smeared with all the traits I described.
It’s not Paul’s amendment which “panders” to the people, as Gregg put it. As much as Gregg clearly hates the people and hates democracy, the fact is that in what’s supposed to be a democracy policy is indeed supposed to listen to the people, which is what Paul said his bill wants to do.
On the other hand the Fed sees its reason for being as not only to “listen to” the big banks, but indeed to pander to them. Pander like there’s no tomorrow, which given how the clock is running out on debt corporatism, there really isn’t. That’s why they want to steal all they can today.
We must be clear in seeing the status quo itself as the radical state of affairs, and its ideology as the radical ideology. The MSM’s sphere of consensus is extremist and predatory, while little of what the people want, what would benefit them instead of a handful of rich criminals, what democracy cries out for, would even appear on the media’s radar as a legitimate subject for debate.
We have a rogue mainstream media, serving as stenographer for a rogue government. Together they are functionaries of kleptocracy, and their whole project is simply to keep the loot machine flowing as smoothly as possible. Rumbles of democracy threaten to upset this functioning, so a tool like Sorkin goes out to spread the anti-democratic message. 

November 23, 2009

Bailout or Disaster Capitalism? The Goldman Testimony

This past weekend Goldman Sachs took the opportunity to give its own version of the AIG bailout laundering scandal in response to questions from Gretchen Morgenson.
The most telling point came at the very end of spokesman Lucas van Praag’s missive, where he closes with a cold, curt dismissal of Morgenson’s question about the legitimacy of $20 billion in GS bonuses under these circumstances. Praag replies, “Finally, there is no linkage between the AIG rescue and compensation. Best/Lucas.” Thank you, that’s that, case closed, end of story, get a life.
They’re adamant on this, the core point. This comes from the fanaticism of greed and their knowledge that their greed and their very existence has zero moral or economic basis. They know they are nothing but criminal parasites who add zero value. So to make up for this they conjure up the endemic arrogance and ideological certainty that makes them think they’re just vessels of God, the same arrogance and ideology which caused this crisis in the first place. And that same arrogance and ideology leads them to this rude, obnoxious kissoff, even where presumably they intend to be on their good political behavior. They just can’t help themselves.
Certainly GS wants us to think there’s no linkage. They insult our intelligence by telling us they were never bailed out, and that anyway cash isn’t fungible. Goldman wants us to remember only the TARP, which they never needed and paid back thank you very much. They want us to forget, not only this $13 billion AIG-laundered theft, but tens of billions worth of FDIC backing since their bogus change to a “holding company”, god knows how much borrowing through Fed “facilities” (the Fed is still stonewalling the people on this, but these secrets will soon be coming out as well), endless free money thrown down from the Fed’s helicopter, as well as the TBTF premium, and the general oligopoly rent premium.
They want us to believe they’re still capitalists, still viable, that they still “earn” legitimate revenues and profits. They pretend they’re still free men. That they aren’t pure zombies of the bailout, just as much as AIG. They’re trying to deny that we the people of America OWN THEM. It’s true, many of the people haven’t yet realized this, but they’ll soon understand.
The great collateral call will come. The Great Reckoning.
In the meantime, let’s go over these remarks, which encapsulate the Goldman Sachs world view. The party line is simple:
1. We never needed for AIG to be bailed out.
2. The AIG bailout nevertheless helped everyone so we supported it. As they put it in a formulation evidently important to them since they repeat it verbatim throughout the remarks, “We have consistently stated our belief that a collapse of AIG would have had a very disruptive effect on the financial system and that everyone benefited from the rescue of AIG.”
They reiterate versions of these in response to Morgenson’s three questions about the SIGTARP report. They claim they could easily have sold $4.3 billion notional worth of CDOs; that they were hedged through CDS they had bought against an AIG failure, and this protection would have paid off; and that in some mysterious way they would have “managed the risk” on the CDOs upon whose value they had bought CDS from AIG if they couldn’t have sold these to the Maiden Lane slush “vehicle”. They add for good measure that the Maiden Lane sale was simply good citizenship on their part, at the Fed’s request.
This sure doesn’t sound right. They didn’t need the bailout, yet they did all this? Why? They have to be either lying about (1), or else were operating in a predatory, disaster capitalist manner fueled by money looted from the public. What other option is there?
Here’s an interesting contradiction. On one hand GS makes this false claim: 

First, the SIGTARP report does not state that Goldman Sachs was more vulnerable to an AIG failure than the firm contends. It raises three general “what if” scenarios, which our collateral arrangements, risk management and accounting practices took into account.

But those aren’t general prospects. They’re very specific.
But on the other hand:

When the US Government decided that a failure of AIG posed a risk to the stability of the entire financial system, it stepped in to bail out the company. By definition, that meant bailout funds would be used to allow AIG to meet its obligations.

Now that’s a “general” assertion. In itself it doesn’t mean anything regarding any specific obligations.
So Goldman rejects SIGTARP’s “general”, i.e. specific points, while depicting its specific gift from the Fed in general terms.
According to Morgenson’s Sunday column Geithner parroted this line to her.

He said the report’s view that the Fed didn’t use its might to get better terms in the rescue was unfair. “This idea that we were unwilling to use leverage to get better terms misses the central reality of the situation — the choice we had was to let A.I.G. default or to prevent default,” he said. “We could not enforce haircuts without causing selective defaults and selective defaults would have brought down the company.”

False. They wouldn’t have been defaults if the haircut was voluntary. Isn’t that what their “extend and pretend” is all about?
Here’s the nitty gritty of the laundering. According to GS the $12.9 billion breaks down as follows.
*There was $2.5 billion AIG was disputing out of a $10 billion collateral call. Of course GS continues to assert that this was an “obligation”, but if AIG was disputing it, why was it Geithner’s right to make that call with the people’s money? Especially since Goldman says they didn’t need it.
*The “Maiden Lane III” purchase by the Fed and AIG (using bailout money) of the assets upon which the CDS were written: $5.6 billion. This is the part where GS keeps harping on how it transferred to the government “assets of equivalent value”. But this toxic paper still has only the phony book value nobody ever tested or wanted to test in the market, and Goldman never wanted to either, in spite of all their gung ho language in these remarks.
*$4.8 billion to repay a loan to AIG, while Goldman gave back the collateral of “highly marketable US Government Agency securities”. “If AIG hadn’t repaid the loan, we would simply have sold the securities.”
Much of this, like the broad assertion that every Goldman position vis AIG was safe, looks bogus. They would have “easily liquidated” $4.3 billion in CDOs? To whom? $4.8 billion in securities (“highly marketable”). To whom? The fact is, the market was seizing up. Nobody wanted to buy this toxic paper at all, nor could anyone borrow the money to do so even if they had wanted since credit was also freezing up. (And, since all the free money from the Fed became available, still nobody wants to buy this junk, even using free money. On their face Goldman’s claims are bogus.)
If those $4.8 billion in securities were so marketable, why didn’t GS just sell them? The fact is, Goldman and Geithner clearly agreed that there was no market for this or anything else, so that’s why this laundered bailout had to be arranged. Otherwise they would have just sold the collateral.
I guess that was one of the points discussed at the secret government meeting attended by only one private banker, Blankfein.
GS foolishly tries to split hairs:

On Maiden Lane III – at the time this vehicle was created, the government was already providing backing for all of AIG’s obligations, including those that were transferred to the new vehicle. As the report states in respect of the $5.5 billion of positions not included in Maiden Lane III, “continued Government backing of AIG provided Goldman Sachs with ongoing protection against an AIG default on the remaining $5.5 billion.” It is illogical to argue that we were protected against the $5.5 billion, but not against the $4.3 billion that was included in Maiden Lane III.

What kind of nonsense is this? It argues that the government bailout protected ALL of it, whether it was laundered through Maiden Lane or not. 
The “assets of equivalent value” lie is really a kind of tautology or fallacy. A tells B something is worth x, B agrees and buys it at that price using C’s money. Then when C protests, A and B each cite the testimony of the other as proof that the thing really is worth x. Needless to say, this is not proof or even evidence of real value. On the contrary, it’s strong evidence of fraud.
Goldman even repeatedly claims the “assets” have “increased in value”. Again, this is the same old phony notional value which was never tested and never could be tested. No one’s been able to actually sell any of it, which is the only test. The moment the market really tried to discover these prices, everything crashed. That’s how we got here. Now, just as Goldman continues to commit the same old crimes, it keeps peddling the same old lies.
Throughout, we have the assertion that all other securities were maintaining value even if AIG went down, such that the rest of Goldman’s hedging and collateral would remain intact. So then why did they mark down $10 billion on those securities and make that collateral call?

The SIGTARP report states that an AIG collapse “might” have made it difficult for us to collect on the credit protection – not that it would. That is an important distinction. We believe, in contrast, that the vast majority if not all of the financial institutions providing us with credit protection would have continued to perform, and thus that the protection would have been effective.

This, and several other remarks, is saying that not just Goldman but everyone else as well would have come through an AIG collapse intact.
Then what’s the basis of Party Line (2) “the AIG bailout benefited everyone”? Is this merely disaster capitalism? “Never let a good crisis go to waste”?
In fact we can infer from Goldman’s comments a third element to the Party Line:
(3) Our other counterparties didn’t need the AIG bailout either.
Isn’t this tantamount to saying the entire bailout was unnecessary? And then it would follow that everything GS proactively did – taking the TARP money, changing to a bank holding company, etc. – was under false pretenses, fraudulent. (Where it comes to those aggressive actions you can’t argue, the way I assume they do where it comes to the AIG payout, that fiduciary duty to shareholders forbade them to do otherwise. You have no duty to aggressively push the envelope of political and legal crime.)
So according to Goldman Sach’s own testimony, there was never any need for the bailout. We can reassess their mantra:

We have consistently stated our belief that a collapse of AIG would have had a very disruptive effect on the financial system and that everyone benefited from the rescue of AIG.

According to (1), disruptive but not fatal. Everyone could have soldiered on if we had allowed the free market to function.
So then what was this sector-wide “benefit”? It was simply disaster capitalism, a massive looting expedition. It was the biggest corporatist crime yet. We now have, if it wasn’t clear before, a de jure kleptocracy, a criminal government.
With this testimony: “The bailout was never necessary, for us or for Wall Street as a whole, but we did find it very beneficial”, Goldman itself has attested to the fact.

November 20, 2009

Krugman Tries to Defend Himself

Paul Krugman has fretted a lot about the likelihood that the Obama administration would undertake government action which was insufficient and half-assed but which at the same time could be represented by the Republicans as massively obtrusive. Then, when the measures inevitably failed, government action in itself, rather than Obama’s incompetence, would be discredited.
So far this looks to be the likely outcome. The stimulus was way too small and not rationally planned, so it couldn’t accomplish much beyond phony palliatives like Cash for Clunkers. 
(It was also a case study in Democrats’ monumental political incompetence. Most of the top beneficiaries were Republican districts! These idiots can’t even get to-the-victors-go-the-spoils right!)
But already, at least in Obama’s mind, the very word stimulus is mud. A second, bigger stimulus? No – “deficit reduction”. The utter pusillanimity, and apparent stupidity, of this “president” is manifest. (Of course the MSM, criminally antisocial as always, has happily taken up the deficit terrorist cheer.)
[That’s also clearly the plan with health care. By passing with great fanfare something called a “public option” which is really not a public plan at all, they intend to discredit government involvement in health care once and for all. It’s a Republican bill.]
So Krugman is dead on about Obama’s fiscal policy.
But he has a problem in that he also supported the bailouts. As the absolute failure of these even according to their original premise becomes clear, Krugman has to scramble to somehow reframe the truth along the same lines as the rest of government policy.
So he has to argue, paraphrasing some Germans of some decades back, that there was a “good” bailout concept which was hijacked and distorted toward bad ends.
Somehow, in ways that seem too subtle for many of us to comprehend, the bailout was in principle a virtuous policy. It could have and should have been something far more than just a gift of stolen public money to some rich thieves. But through a combination of bad faith, weakness, and incompetence the good bailout was overcome by the bad bailout, and now we’re stuck with it.
To maintain his position of eminent dissenter within the system, Krugman has to acknowledge that Goldman Sachs is “bad for America”, yet still claim that the bailout was the right thing to do, and that we must now simply submit to living under their thumb.
He sees this as the key to maintaining any kind of credibility at all for the government, as well as the credibility of his own place in history.
While I take it no one cares much about the latter, we have to look for signs that he may be right about the government. It’s unfortunate, but it looks like the opportunity for constructive fiscal policy is lost. Not because of Republican bleating, but because of Obama’s cowardice. (While he may be a corporatist at heart, he’s also a politician who wants reelection. It’s very clear by now that his best hope is real populism. But that he can’t see this, or seeing it is too timid to go ahead with it, is simply a bedrock character flaw. He’s a decadent coward.) 
So the people’s best hope is that the people reject the corporatist government. To the extent that we see signs of this, these may be our own green shoots.
The new SIGTARP revelations about the corruption and fecklessness of how the bailout was conducted are having salutary effects. A week ago it looked like Ron Paul’s Audit the Fed bill was dead for another year. But the expose of the Fed’s criminal actions in the AIG money laundering scheme has given it new life.
This had to be passed out of committee over the resistance of head banker waterboy Barney Frank, and it may still be defeated one way or another, but I’d call its progress so far a green shoot.
This is what scares Krugman, and what animates today’s jeremiad:

Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done — yet finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.

(My emphasis.)
He explains, with some hesitancy, why the whole mess was “probably” necessary.

So why protect bankers from the consequences of their errors? Well, by the time A.I.G.’s hollowness became apparent, the world financial system was on the edge of collapse and officials judged — probably correctly — that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.

He goes on to explain how the negotiation should have been conducted. But I agree with the critics who have pointed out that once the administration and the Fed were committed to shoveling as much taxpayer money as possible as quickly as possible to these crooks, it would have been to say the least inconsistent for the Fed to have played the hardass on any particular point. Goldman’s refusal to make any concession was in the spirit of the thing. They correctly calculated that Geithner’s haircut request was a joke.
Of course, this is what Krugman and other “dissenting supporters” of the bailout have to deny. They have to stick with the lie that bailing out AIG in the first place made sense and wasn’t a plunder excursion, but that it only went bad in the details.

So officials could have called on bankers to offer a better deal, for their own sake, and simultaneously threatened to name and shame those who balked. It was their choice not to do that, just as it was their choice not to push for more control over bailed-out banks in early 2009.

And, as I said, these seemingly safe choices have now placed the economy in grave danger.

For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

Yes, these benighted “ordinary voters” keep getting it wrong, don’t they?
Like I said, I agree with him on the stimulus. But the prospects for stimulus are among the victims of the bailout in itself, not of some illegitimate hijacking of what was originally a legitimate policy. (And certainly not of public misconceptions of the matter. Here, as in more and more instances, the public was way out ahead of the establishment elites. On the bailout, the public was right and guys like Krugman were wrong.)
The bailout was never legitimate. It was never anything other than disaster capitalism. If Krugman ever believed the lies Paulson was peddling, or if on account of his acculturation he simply forces himself to believe in the basic soundness of the policy, that’s his misconception, not the public’s.

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.

November 17, 2009

Regulation: Fed Up

As Congress debates an alleged attempt* at renewed regulation of the finance sector, one of the main issues is the proper scope of Fed authority.
[*Let’s never forget, short of breaking up the Too Big To Fails it’s all kabuki. All the debate over resolution authority is moonshine at best, disaster capitalism at worst, since none of the on-the-table proposals contemplate anything more than “resolving” TBTF entities when they again start to collapse. None seek to break them all up preemptively.
For that proposal we have to go to Bernie Sanders.]
It’s quite a fracas, with the Fed wanting to preserve and expand its powers; the administration and Frank dithering on distributing power between the Fed, the FDIC, some new “council”, and a newly merged OCC and OTS, but always wanting to maintain broad Fed power; and Dodd actually wanting to strip some Fed power and repose it in the OCC/OTS entity.
But in assessing all this we should always remain crystal clear that the Fed is not a regulator and does not see itself as one. It seeks regulatory authority only to put that range of authority on ice and open up a free fire zone for the banks, with whom it culturally identifies, and with whose personnel its personnel personally identify.
It’s a quasi-public entity only for legal and constitutional arbitrage purposes. Thus it argues its “public” status when convenient to shield it from various kinds of lawsuits and other accountability. But in its own mind it’s a private bank and the orchestrator of anti-public bank feudalism.
For a case study in all this, we have the new SIGTARP report (linked here) on the AIG swap contract resolutions.
This is the notorious incident where the Bush administration, having already bailed out the banks in numerous ways, laundered yet another bailout through AIG via the mechanism of paying off AIG-written CDSs at par.
The gamblers not only had their losses covered but here their losing bets were actually paid off as winners.
We’ve always known this was a corrupt act of theft from the people, organized by Tim Geithner at Goldman Sach’s behest, but thanks to the excellent Neil Barofsky and his investigation we have new details and analysis.
Geithner was supposed to conduct a negotiation with the AIG swapholders on behalf of the taxpayers whose money had bailed out AIG as well as many of those same counterparties. Barofsky found that the Swiss UBS volunteered to accept 98 cents on the dollar. But when Goldman and the French dug in and demanded a full payout, Geithner caved in. GS, acting as ringleader, was confident after the first AIG bailout that the government (it’s taxpayer money so I’m using “Fed” and “government” as synonyms) would bail everybody out across the board, and this was the line they followed.
Barofsky found that the Fed “refused to use its considerable leverage”. (He also correctly gets to the heart of the fact that actions are everything, conscious motive nothing: Geithner and the Fed cadres may deny it, but “irrespective of their  stated intent…tens of billions of government money was funneled inexorably and directly to AIG’s counterparties”. That’s a capital crime by its existential fact, and nothing can mitigate it.)
The report lays out the Fed’s attitudes as being these:
1. It saw itself not as a regulator, but as an AIG creditor. (And a creditor which didn’t care about its “own”, i.e. the taxpayers’, interests.) So it never talked in terms of “we bailed you out, now you need to make concession”, but rather of “AIG owes us all money, and I’m voluntarily not caring about what it owes me, so let’s see if anyone else is willing to make a voluntary concession”.
So even when UBS was willing to concede, when GS refused, the game was over from Geithner’s point of view. All he could do was ask them, and they said No.
2. The Fed decided it couldn’t treat foreign banks differently from domestic ones, so it coordinated with French regulator Commission Bancaire in handling the disposition of two French banks involved in the deal.
The French simply joined Goldman in putting up a solid front vs. anything short of a complete laundry delivery. Altogether 7 of the 8 banks involved refused concessions.
If Geithner had been negotiating on behalf of the people, he would’ve seized the opportunity for divide and conquer. Once UBS went first, they should’ve become the belle of the ball, implicitly first in line, which would’ve put pressure on the others to concede as well. (Needless to say, 98 on the dollar was absurdly high as well and should’ve been just the start of one heckuva massive haircut for these hippies.)
But this wasn’t possible, since:
3. Geithner believed on ideological grounds that his responsibility was to the “sanctity of contracts”. Never mind that (1) CDS as written by AIG were basically a scam, and the government has no responsibility to make whole the rich victims of scams, (2) in this case the “victims” were really co-conspirators, since CDS was a key part of the big bubble they were all blowing as hard as they could, (3) Geithner and the Fed’s first responsibility, their first contract overriding all others, was with the American people.
But as George Washington puts it:

Apparently, while Geithner was concerned with the sanctity of the CDS contracts (which – I would argue – were all based on fraudulent representations concerning how safe an investment they were), he didn’t care very much about the sanctity of the agreement of a government to do what is best for its people.

But actually, the New York Fed isn’t a government agency. The Fed itself maintains that:

While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
So really Geithner – as head of the private bank-owned and managed New York Fed – was simply serving his constituency: the giant New York money center banks. Geithner’s constituency never was the American public.

The giant banks were the creditors of the giant banks. Like two sock puppets putting on a big show of good cop / bad cop show, the New York Fed pretended that it was negotiating hard, but ended up making sure that the boys got their full cut.

After having been bailed out once already, Goldman turned around and said it would be illegal for the government to expect them not to demand a full bailout on their CDS position. It would be illegal for the Fed to say in effect “You should make concessions outside of bankruptcy court, because otherwise we’re not going to do anything, you’ll have to go into court with a bankrupt AIG and end up with little or nothing”.
(Of course, we never should’ve bailed out AIG in the first place. I would’ve let them collapse and blamed any reverberations on Goldman. Legally and politically.)
The Goldman argument was the argument Geithner wanted to hear anyway. As GS correctly assessed, Geithner and the Fed were absolutely committed to the bailout, every cent they could loot.
They really come off like the Keystone Kops:

The report also shed new light on the effect the rating agencies had on the way the Fed handled the A.I.G. emergency. The company’s run-on-the-bank disaster began with a major credit downgrade in September; the Fed quickly responded with an $85 billion loan.

But because the Fed moved so quickly, it recycled a set of lending terms that had previously been devised for A.I.G. by lenders in the private sector. The interest rate was too high, given A.I.G.’s distress, and so the loan that was supposed to rescue the insurer ended up putting it at risk of a second credit downgrade. That, in turn, could have set off a second run-on-the-bank episode.

The Fed got caught in a no-win situation, the report said. While it might have been able to win concessions by threatening to withdraw support from A.I.G., it also ran the risk that the credit agencies would take the threat too seriously and impose another catastrophic downgrade.

So the lesson of this sorry mess of a tale is something we should apply to our current situation. Barosky draws the right conclusion:

Mr. Barofsky said the facts also undermined the Fed’s arguments that banking secrecy was an essential part of bank stability.

“The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds,” he said.

The Fed is not a regulator and it never can be. By its very nature it wants to maximize finance sector private profit, and sees America simply as a cash cow. As Barofsky says, the Fed hates democracy, hates transparency, hates accountability. It is simply a rogue organization.
So whenever we assess any reform proposal, in addition to the minimum criterion that it breaks up the Too Big To Fails, we should also measure it according to the measure:
*Does it consider the Fed to be a viable regulator?
*Does it maintain existing Fed “authority”?
*Does it seek to add to that authority?
If the answers to these are Yes (and only Dodd’s proposal even gingerly suggests maybe the answer should be No), then it’s not real reform, but just another lie in the same tired good cop bad cop routine George referred to above.   

November 13, 2009


Filed under: Law, Neo-feudalism, Reformism Can't Work — Tags: — Russ @ 6:02 am
“It would be a shame if any unintended consequences should befall you.”
The NYT’s op-ed page has a short piece by BusinessInsider’s John Carney once again laying out the standard threats and explaining how the people’s attempts to defend themselves against these gangsters are being punished. (I guess the Times thought it would be unseemly for their own editors to carry the water the way their business page regularly does, so they outsourced the blackmailing.)
Throughout Carney uses the term “unintended consequences” to describe the kneecapping tactics of the banksters.
He refers to Christopher Dodd’s proposal to move up the effective date for the credit card reform legislation enacted earlier this year.

Let’s start with the credit card rate freeze. The rising rates charged by issuing banks that inspired Mr. Dodd’s legislation are themselves the unintended consequence of an earlier attempt to assist the consumer. Back in May, Congress passed a law requiring banks to give customers a 45-day notification before raising rates. To give banks time to adjust to the new rules, Congress decided not to put that provision into effect until February.

So what happened next? Banks rushed to raise rates before the law takes effect. Many customers who may not have had their rates raised until 2010 — or perhaps not at all, if the economy continues to improve — found themselves paying higher rates even though they had not missed any payments. How could Mr. Dodd and his fellow lawmakers not realize that banks would pre-emptively raise rates?

So this wasn’t simple greed rushing to gobble up whatever crumbs it could before the floor got mopped. No, Congress forced them to do it. They had no choice.
So I guess if I tell a thief I’m going to have him arrested and he kills me, it’s my own fault. I made him do it.
And then here’s what’s always the underlying threat.

Mr. Dodd’s new proposal may also wind up dealing a serious blow to consumers — and the economy. If banks find themselves unable to raise rates, many will limit their risk by severely restricting consumer credit. Many people will find their credit cards canceled, and new customers will be turned away. This will come on top of an already tight consumer credit market: banks sent out 2.1 billion direct-mail credit card solicitations in the third quarter of 2006, according to the research firm Mintel; this year in the same quarter, they sent out 391 million. A further contraction in consumer credit could devastate our nascent recovery.

We know we don’t need these big banks for any real function, but as long as they’ve corrupted the government they’re going to get policy based on the ideology that we do need them. For as long as that condition holds they’ll be able to make these threats, and government and the media will cringe.
It’s just like when the infinitely obnoxious AIG (with an assist from the NYT’s Sorkin) threatened that unless its thugs got their bonuses, they’d refuse to clean up their CDS mess, and even take their knowledge of explosives elsewhere to use it as a weapon against the people.
Nice recovery you got going there. Shame if anything happened to it.
(Sometimes when I say I’d make a clean sweep of all these criminals people ask me what I’d charge them with. Well, they’re all guilty of extortion, fraud, and insider trading, for starters. So those would be my fallback equivalent of disorderly persons offenses while we got the real testimony.
Of course, as the Bear Stearns prosecutorial fumble shows, the law isn’t well set up to deal with crimes of these magnitude. Of course, that’s in large part because the law itself has long since been hijacked. So if the people really want their country back they’re going to have to be willing to be more intrepid than that kind of prosecution. At Nuremburg they had to create a new way.)
[I do agree with Carney on the housebuyer tax credit, though not for the same reasons. While we need stimulus, lots of it, and the right tax credits can be part of the mix, the whole package should be rationally planned, toward general socioeconomic reform.
But what are Obama’s two signature policies? Cash for Clunkers and this housing tax credit. Neither serves a rational or constructive purpose. Both are economically regressive (driving up prices for renters and used car buyers). Both are intended only to reflate the bubble and prop up zombie structures.
More broadly, since it’s the social engineering project of suburban sprawl and rendering the whole socioeconomy car-centric and enslaved to the car which got us into this whole energy and economic mess, it’s that model we need to move away from. So both of these policies are deeply reactionary.] 

November 3, 2009

Bank Roundup

1. The Center for Economic and Policy Research recently put out a report detailing the value of the Too Big To Fail premium. The is the discount the socialized banks get when they borrow money because their lenders can rest assured that the government is propping up those banks, will not let them fail, and will make good any losses they sustain if anything bad does happen.
The report’s main findings:

The spread between the average cost of funds for smaller banks and
the cost of funds for institutions with assets in excess of $100 billion averaged 0.29 percentage
points in the period from the first quarter of 2000 through the fourth quarter of 2007, the last
quarter before the collapse of Bear Stearns. In the period from the fourth quarter of 2008 through
the second quarter of 2009, after the government bailouts had largely established TBTF as official
policy, the gap had widened to an average of 0.78 percentage points.

If this gap is attributable to the TBTF policy, it implies a substantial taxpayer subsidy for the TBTF
banks. In effect, because of the government safety net being extended to investors who lend money
to these banks, the TBTF banks are able to borrow at a much lower cost than banks who must
borrow based on their own credit worthiness. The increase in the gap of 0.49 percentage points
implies a government subsidy of $34.1 billion a year to the 18 bank holding companies with more
than $100 billion in assets in the first quarter of 2009.

It’s true that the report only asserts this as correlation, not as proven causality, but I think we all understand the drill by now. As their own ideology says, these banks, if not their benighted customers, are “rational” where it comes to every kind of arbitrage dodge, and they price in every government advantage they can get. After all, they pay enough for it in lobbying and bribes. So we can rest assured that this spread is no accident and has no other causality than the TBTF put. Wouldn’t the lender have to be irrational to not do things that way? Not performing his due diligence and fiduciary duty?
This is one example of how reported bank profits have been bogus. The Too Big To Fail premium is a phony rent generated by corporatist government policy, not a legitimate capitalist return. The banks are not profitable, they are bankrupt. The bailouts are only propping up zombies.
2. As we know, in spite of Bush and Obama lies, the banks are not lending and were never really meant to lend. Instead the bailouts have allowed them to keep the casino running, as both administrations intended.
These days it’s the carry trade that’s all the rage. It sounds fun: You get free dollars from the Fed, convert them to other currencies, play various stock markets and asset bubbles, rake in rents, all the while helping to manipulate currencies to further weaken the dollar, then cash back into dollars when most advantageous and pay back in depleted dollars the loan you got for free in the first place.
So let’s put this another way. Even as the administration and the G20 claim they want to rectify currency and trade “imbalances”, and even as the administration claims it wants to revive American exports, which implies a stronger dollar, it gives away house money to a handful of freewheeling parasites and lets them play globetrotting manipulation games. All of these are bets against the dollar, and therefore against everything the administration claims it wants to achieve. Indeed, they’re against what we as a country would need to achieve if this “growth” is ever supposed to return.
Yes, the bailouts sure are working as a public interest policy.
(This is also a bet against the broader conceit that China has “decoupled” and is going to rise as the great white hope for a new consumer base to replace the defunct West. Here again, the bets Goldman and other speculators are making display how they do not believe this is going to happen. The status quo currency imbalance will remain policy, and China will not let its currency rise while it builds a real consumer economy. Instead it will continue with its phony stimulus, which has conjured up little but asset bubbles and makework for the same old export-oriented infrastructure.
Just like the American banks, the system as a whole is insolvent. Bailouts here and around the world are only propping up zombies and keeping the casinos open.
And this is all setting us up for an even worse crash. Just as the asset speculators built a financialized Tower of Babel upon an evanescent real economic base to bring the recent crash, so now they’re building the new one even faster and taller and more top-heavy, upon even less of a base.
Yep, the bailouts are sane policy.)
3. From the propaganda front, it’s funny how they say that breaking up the Too Big To Fails would render American banks globally uncompetitive. Just yesterday Morgan Stanley CEO John Mack whined about this at the Fed meetings to discuss the proposed new executive payout guidelines.
But is this really true? More to the point, do they really believe this and care about this? As detailed by Joshua Rosner, the evidence says No:

*Those countries with the largest banks as a percentage of GDP (Iceland, Ireland, Switzerland) demonstrated that a concentration of banking power can cause significant sovereign risk and tilt global economic playing fields away from that country.
*The likely breakups of ING, Lloyds and KBC suggest that it is we who seek to support an unlevel playing field where we subsidize our TBTF banks while other nations recognize the policy failures of moral hazard. If we continue down this path we will likely be at risk of violating international fair trade regimes.
*When the “unlevel playing field” argument is cited, keep in mind this reasoning supports the disadvantaging of 8000+ community banks relative to our largest banks, all in the name of protecting big banks from governmentally- subsidized international competition.
*There is no longer any evidence that, beyond a cost of capital advantage that comes with implied government support, there are sustainable and tangible economies of scale arising from being the largest. The financial supermarket concept has been proven a failure. The only ones who benefit are the high-level executives.
*We must demand that our legislators no longer allow unelected officials at the independent Federal Reserve to sign international accords created by the TBTF banks through supra-national bodies like the Basel Committee.
*Are we to believe that if we did not have such large and globally dominant firms, US borrowers might be paying more that the 29% interest that several of the TBTF firms are now charging on their card accounts? Perhaps we should think about what advantage our population has gained as a result of our financial institutions being such a large part of our economy or being globally dominant.
*Since when did we accept a national strategy of following rather than leading? When we do what is right, others follow. As example, consider the bank secrecy havens – they made money for a bit. Now, even the Swiss and the Cayman authorities are coming around to our view.
*We are already at a disadvantage given that the largest foreign banks operate in the US without any tier one capital requirement and yet mostlarge foreign banks have not built a bricks and mortar presence here. Nobody screams about their undercapitalization nor has that undercapitalization caused deposits to migrate to foreign banks.

As we saw with the CEPR report, the TBTF banks have acted in an anti-competitive way throughout their existence. They’ve leveraged the crash they created and the bailout they bought for pennies on the billion to use their monopoly position as a club against any smaller bank who has any connection at all with main Street. 
They antisocially blew up the bubbles for profit, then used their bought flunkies to get the bailout enacted to directly loot the taxpayers, and now use that loot for casino speculation. It’s disaster capitalism across the board, monopoly predation.
So much for any concerns over “competition”.
4. Interesting article in the NYT this morning. Buttressed by a June Supreme Court ruling, several state attorneys general are suing or plan to sue the big banks for predatory lending.
This ad hoc* decision overturned a 2004 OCC rule which preempted state laws regarding mortgage and credit card fraud. The Bush administration wanted to let banks run wild in a lawless free-fire zone, and only some pesky state laws stood in their way. The result was the bubble and the crash.
Now those states who care have a chance to resume doing their jobs upholding the public interest.
(True to form, the banks’ immediate, reflex response was to issue an extortionate threat: any lawsuits will drive up “compliance costs”. Which means, nothing will change, they’ll continue squeezing every drop of blood they can out of us, just as before, but now they’ll blame it on having to answer to the law.
They also trotted out the standard corporate lie about the “patchwork of regulations”. But such patchworks can exist only where the rackets themselves succeeded in gutting federal regulation.)
So here we see laws which may once again be enforced after the banks forestalled their enforcement for six years.
Meanwhile, we should always keep in mind that the fact we’re having to talk at all these days about TBTF resolution authority means that the Prompt Corrective Action Law is not being enforced.
PCA is the law which requires the government to seize and if necessary break up insolvent banks. But both Bush and Obama considered enforcing this law upon the big banks to be a non-starter.
So the bailouts were a policy of anarchy and technical crime right from the inception.
* This was one decent SCOTUS decision. But the Court is on a deranged roller coaster ride because it’s in the hands of the capricious and directionless Anthony Kennedy. Unfortunately his whimsy more often falls on the side of corporate anarchy, and sure enough a horrid decision looms in the case of Citizens United vs. FEC, where the court looks ready to completely destroy our already trashed elections by opening them up completely to the pollution of corporate money. There will no longer be any limits at all to corporate lies, bribes, and blackmail, if this rogue, radically reactionary court does what it looks set to do. They say Kennedy is eager.
5. Who needs the TBTFs? Europe doesn’t think they do. This was listed in Rosner’s piece quoted above, versus the lie that America needs the big banks in order to be competitive.
And what about the original rationale for the bailouts? That we needed the big banks for lending?
Well look who’s looking to divest itself of that business:

The other part contains businesses that Citigroup executives hope to exit or unload. This includes asset management and consumer lending, such as residential and commercial real estate, as well as auto loans and student loans. Citigroup is also selling some of the many companies it acquired in recent years. In the weak economy, however, buyers are few.

Citi. The poster child for the bailout itself, the monstrous commercial bank we just had to save.
But not to worry; they have a plan.

Citigroup plans to undo much of what it did during a period some insiders call the lost decade — with events that included merging with Travelers Group in 1998 and a huge, dizzying expansion of its asset base. To untangle the company, Mr. Pandit has split Citigroup in half. One part consists of operations that Citigroup executives consider central to the bank’s future; these include retail banking worldwide, investment banking and transaction services for institutional clients.

Yessir. They’re going into “exciting” banking. Gonna be the next Goldman, they are.
Why did we need to bail them out (and keep bailing them out) again?
6. The small banks and credit unions are doing what they can.
7. Here’s something pleasant: the leaseback windfall demand. It looks like among the suckers for all these exotic financial instruments and scams were state transit authorities. (Since in our rotten system everyone wants something for nothing, governments are always looking for ways to provide services without directly paying for them, which would require taxation. Here the scam was to privatize public property, then lease it back from the banks.)
Much of the insurance for this scheme was written by AIG. But the banks wrote the contracts such that when their self-created crash drove AIG out of business, the contracts would trigger immediate margin calls on the public agencies.
So the insolvent banks, already bailed out with billions in stolen taxpayer money, as a result of the crash they triggered, now get to turn around and demand another windfall from those same taxpayers.
Some of their depredations go beyond even the new-normal bounds of audacity. There’s gouging, and then there’s medieval torture. But clearly these psychopaths are so irretrievably beyond any sense of limits that they can no longer even look to their political self-interest.
Eventually they’re going to trigger their own absolute destruction. They’re clearly incapable of stopping short of that.

March 24, 2009

The Bailout War II: Too Big To Fail


(See also the rest of the five-part series)


In the classic Mel Brooks comedy-western Blazing Saddles, the new sheriff arrives in town only to find the townsfolk ready to lynch him. He puts a gun to his own head and, talking about himself in the third person, threatens to shoot himself if they don’t let him as kidnapper/hostage go. They townspeople believe him: “I don’t think he’s bluffing!” He escapes to marvel over how gullible they were.
Today we have a whole industry making the same threat, except they threaten not only to destroy themselves but the whole American economy. The response of America’s public elites has been the same as in the movie. “I don’t think he’s bluffing.” But this is no comedy.
Since this crisis began we’ve been living in fear. The specter which looms over us is called “Too Big To Fail”. This concept is seldom treated as a concept, and almost never questioned. It is accepted on faith and in fear. It was peddled by the same administration whose only idea, ever, was to monger fear. Even though the media and the cognoscenti had been burned so many times by the Bush administration’s lies, and even though this latest threat followed the exact patterns which stampeded us into the Patriot Act and Iraq, and even though the same interests as before stood to profit here, they were still as gullible as ever and have been first the Bush and now Obama administrations’ water carriers right on down the line.
I believe TBTF is a classical Big Lie. Even if it were true, could any of the proposed solutions really solve such a problem? And if it is true, why does there seem to be so little will to solve it in a way which would ensure we are never so vulnerable again? Surely any good-faith plan to temporarily prop up the TBTF banks would include a plan to carefully and with all deliberate speed dismantle these entities such that we would never again be in this position.
Yet it is clear no one in the power structure has such a thought. The very personnel who express such fear and loathing over our helpless predicament are the same who seem content with the TBTF institutional model, and more often they seem intent on further consolidating and aggravating it. For that reason we must consider the possibility that out of ideology and greed they want America in the grip of TBTF. If that’s the case, we must also ask if TBTF is simply an ideologically motivated lie. Beyond this we should ask, what kind of world do we want to live in? What are we trying to preserve, that it’s worth living as a slave, paying protection to boardroom thugs, all for the sake of what? Cheap junk from China?
The basic notion of TBTF is that if the likes of AIG, Citi, BofA and others were allowed to go bankrupt, as they certainly would if they hadn’t been propped up with prodigious sums of taxpayer money, the effects of this would reverberate to other giant institutions, weakening or collapsing them as well, and out through other big corporations, and down through smaller banks, pension funds, consumer lending, etc. to hit every individual, while the failure of savings institutions would bankrupt the FDIC. The government’s only option would be to run the printing presses or default on monumental guarantees, either way destroying the dollar. It would be the end of civilization as we know it. (Of course much of this is happening anyway in spite of the bailouts.)
It’s a harrowing picture. Is it true? If this really is what will happen when this massive inverted pyramid built on bubbles and debt finally comes crashing down, then shouldn’t our priority be to build firewalls against it? Instead of obsessing on the status of all this toxic paper, talking of good banks and bad banks, shouldn’t we instead be bolstering local and regional lenders, providing them with “facilities”, helping them unwind their entanglements with the Wall Street monstrosity? Shouldn’t we be dismantling these radioactive structures as quickly as we can do with any level of reasonable care? Since the government evidently has $trillions available, shouldn’t this be used to start brand new local and regional education networks to train a new workforce of relocalized small farmers, small craftsmen, small factory workers, small distributors? Perhaps even help launch regional and local currencies? Shouldn’t the stimulus be directed toward all these endeavors, which clearly look ahead to a future in a world where exponential debt, suburban sprawl, consumerism and profligate fossil fuel use can no longer serve as the basis for an economy or a civilization? That no one among the powers that be sees things in any way other than the opposite is strong evidence of their bad faith.
To properly judge the motivation of the bailout policy, we must go back to how this came about. We must consider how the same cadres who preach TBTF are those who constructed the system in the first place. The financialization of the economy goes back to the 70s. Since the dollar was detached from gold and set loose as the free-floating reserve currency of globalization and petrodollar recycling, while the manufacturing economy of America was hollowed out and the production offshored to an ever more exploited third world work force, the elite level of the American economy has mostly engaged in rent-seeking. It wove a fantastic web of interconnections, games of chance, tricks and cons, cash flows, inflating bubbles here, preying on the aftermath of burst bubbles or otherwise gutted economies there. All the while it encouraged a massive accumulation of addiction to debt, to the point that all of America’s alleged growth over the past decade has been the result of debt and bubbles. Take those away, and America has been in recession throughout this century. As the final ingredient in this witches’ brew, we had deregulation to the point of anarchy.
While the whole process may not have been planned out step by step, the basic goal was always the same: maximum size, concentration, interdependence, and efficiency. It was the most precariously perched, least robust system imaginable. Even the slightest thing going wrong would crash it. So as delusional as many of the participants became, it’s not credible that they gave no thought to the crash contingency. “TBTF” was a planned campaign.
When the financial crisis reached critical mass with the imminent fall of AIG the TBTF machine went into action. Paulson and Bernanke sounded the cry, “Stampede!” Fear seared it in. They told a Congressional delegation if Paulson wasn’t made a literal financial dictator “by Monday you won’t have an economy”. Although the people were more skeptical, elites everywhere, panicked further by the terrorism of the stock market, leapt on board the bailout train. Since then no one has seen an alternative to shovelling hundreds of $billions, and now $trillions, and soon tens of $trillions, into an ever more hellish, more gaping crematorium, and no one sees an end to it.
Today, even as the “new” Geithner/retreaded Paulson plan is being batted about, we should ask a few questions about the status of TBTF as an economic concept. A major concern is how to unwind AIG’s CDS boondoggle. But here’s something I don’t understand about this. If these bets were never supposed to pay off, as the dogma of the perpetual bubble held, then shouldn’t that have been factored/priced into the system? Weren’t those who bet on failure more like typical casino gamblers, just having fun, betting on long-shots, while other buyers were buying for the rationalistic purpose of evading reserve requirements? My point is, why should it crash the economy if we just declared all CDS contracts held by bailed-out companies, or contracts that were offshored, void? Granted, the banks were absurdly overleveraged thanks in part to the CDS scam, but we have that problem anyway. Why are the CDSs in themselves a problem? It seems like an ideological lie, peddled in tandem with the tantrums of the stock market, to scare the people into allowing public money to be used to pay off these bets in full.
Similarly, as some have commented, this all seemed new last Fall. Perhaps people overreacted to Lehman. But today any reasonable person has been contemplating the destruction of AIG, Citi, BofA and others for over six months. So if the TBTF exposure ever did exist, why should it still exist? Surely most participants could have decoupled by now (while anyone who could have unwound at a reasonable loss but hung on in expectation of a taxpayer bailout should be treated as an asocial element).
And, if banks really were on the verge of failure, they would’ve used the bailout money to forestall this. If they aren’t going to lend it as promised, why haven’t they used it to buy the toxic assets from themselves and in that way cleanse their balance sheets? Instead they’ve used it for bonuses, parties, golfing, airplanes, mergers and acquisitions, or just hoarded it. How do any of these keep you from “failing”? How do they help the economy as a whole?
So TBTF was used to stampede America into submission to a massive redistribution of wealth from the public to the very same criminal elite who profited so obscenely in the buildup to the crisis and then set it off. It was the classical pattern of disaster capitalism: trigger the disaster; confuse, terrorize and stampede the people; apply the shock treatment; carry out the corporatist coup. Although they sold the first TARP as a stimulus to lending, they moved immediately to their real purpose. While no lending materialized, word got out that Treasury was encouraging the big banks to use the money for acquisitions. TBTF was really about helping the big get bigger, the rich get richer, and to wipe out the smaller and not-so-rich. Is the encouragement of further structural concentration the action of anyone who truly believes and fears that things are “too big to fail”?
So we’re embarked upon a program of endless cash injections, sweetheart loans, loan guarantees, every kind of subsidy and direct loot conveyance, as all the while first Paulson/Bush and now Geithner/Obama try to figure out how to fulfill every profit expectation of the banks holding this toxic paper,no matter how much loss has to be socialized. Now Geithner even wants to use the FDIC to leverage a bailout bubble, AIG-style, in his desperate attempt to serve the banks. All of this has been shrouded in as much illegal secrecy as the executive branch can manage. Obama is now continuing with what Naomi Klein called “Bush’s most creative innovation: no risk capitalism”. The goal is a kind of permanent corporatist revolution to complement the permanent imperialist war abroad. The two brand names Too Big To Fail and Global War On Terror are parallel and corollary, and both are intended to be the never-ending Long War.
How can we resist this? The first thing is to ask ourselves, are we willing to pay this price? Even if it were possible to salvage the existing system at the price of paying this protection money and having to live permanently under the thumb of these gangsters, would it be worth it? Would a human being desire to live this way? Are we willing to pay this price? Or just like the War on Terror, is it another form of throwing away our freedom for the mirage of “security”?
To anyone who doubts any of this, who claims to believe in Too Big To Fail in good faith, the question is simple: What is your plan to dismantle the TBTF structures and ensure that Never Again will any such structure exist to threaten us. These things are a clear and present danger to all economic and social stability. No one can in good faith wish for their propagation, or wish to pay the terrible price of their continued existence.
If we can accept the unsustainability of the exponential growth economy and the malevolence of TBTF; if we see how this is a path we cannot take and must not wish to take; we could take another look at the world. We could see ways to rebuild the future and build a new, revitalized America, centered on a relocalized, truly productive, truly fulfilling economy.
The financial crash could yet prove to have served a creative purpose if it alerts us to our predicament. These institutions are not our friends and they do not wish us well. They want to condemn us forever to the road of serfdom. If instead the detonation they’ve triggered can cast a light on a different trail where we retake control of ourselves and our futures, it will not have been in vain. 
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