Volatility

December 18, 2009

Goldman

 

A few days ago Barack Obama tried to “shame” the great bankster magnates into doing more to permanently modify mortgages and help economically troubled Americans.
 
The planned sermon lost some of its zing when several intended recipients couldn’t be bothered to show up. John Mack, Richard Parsons, and Goldman Sach’s Lloyd Blankfein instead literally phoned it in because “inclement weather” allegedly stopped them from flying out of New York (which is odd because everyone else says the weather was fine). Jamie Dimon made it on his corporate jet, and in one for the thanks-for-nothing files so did lame duck Ken Lewis. I guess he’s already looking for excuses to get out of the house.
 
This public show of disrespect comes a few months after none of these CEOs could be bothered to show up for an Obama lecture right there in Manhattan. While I can appreciate their contempt for Obama, who seems to ask for it,  I still chalk this up primarily to the banksters’ innate arrogance.
 
It’s the same childish arrogance which inspired Goldman Sachs cadres to embark upon a PR campaign whose premise was that they’re doing “God’s work”, in Blankfein’s now infamous quip. While Goldman has tried to claim that was just a joke, it’s hard to say the same for Brian Griffiths’ October 20 speech in St. Paul’s Cathedral.
 
“The injunction of Jesus to love others as ourselves is a recognition of self-interest”, went this innovative piece of theological interpretation. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.” Ah, religious tolerance. It’s especially needed in the case of trickle-down, which by now can’t be sustained by anything other than fanatical believing because it’s absurd.
 
When we consider these prepared, carefully thought-out intonations, it puts Blankfein’s little joke in perspective, doesn’t it? This is what these psychopaths really think of themselves.
 
You need this level of self-confidence, or what anyone else would call insane levels of arrogance, to justify the primary activity of the banksters, which is looting the economy and their own banks on a personal basis while calling it “bonuses”.
 
If you need evidence that these people are literally insane on the subject and have no other way of looking at life, just look at the recent spectacle of Bank of America and now Citi rushing to pay back the TARP, weakening their own balance sheets to do so. Citi has tremendously embarrassed itself in the process, as the market has publicly smacked down its absurd claims to fiscal health.
 
BofA and Citi did this for only one reason: To get out from under the exec looting restrictions for TARP recipients. Similarly, at AIG we’ve seen CEO tantrums and a mutiny organized by the firm’s own general counsel, all of it over nothing but this demented sense of welfare entitlement. (As vile as AIG and everyone who “works” there are, they do have the virtue of being so stupid that they consistently say what everyone else in the biz clearly thinks but rarely says. So they provide a useful window into the real FIRE sector id.)
 
I discussed BofA, Citi, and AIG to offer some evidence of how utterly focused on their “bonuses” everyone on Wall Street is. Goldman Sachs is certainly no different. They’re every bit as greedy as anyone at AIG.
 
So therefore it’s somewhat important that the political heat they’ve been taking has been intense enough to get through to them and make them decide to modify their looting schedule somewhat. They’re now going to pay their top cadres in longer-term stock instead of immediate cash.
 
Everyone has assumed that they’ll try to compensate themselves for this hassle, that the real payout will end up even greater than what they wanted to give themselves right now, and no one takes the clawback provision seriously. I assume they’ll try to do all this as well.
 
But they still would rather have just grabbed the dough. They definitely wanted to simply hand out the bonuses to themselves immediately. And clearly they didn’t change their minds because of any fear of Obama, who they do not respect.
 
No, I think this means the bottom-up political pressure was enough to break through their wall of arrogance and actually get them to change their tactic. (According to reports they’re concerned enough that some are even trying to get pistol permits. Somehow the prospect of a Goldman banker packing heat sounds about as frightening as being sermonized by Obama.) This is just a small thing, of course, but it does prove that we don’t yet have a complete tyranny; that we the people do still have power. What’s happened so far has only been a uncoordinated groundswell of feeling. Imagine what might be accomplished by an organized movement deploying that power in a coordinated way.
 
What we’ve seen so far is that Goldman Sachs and its fellow bailed out banks may be rich and powerful, but in spite of doing God’s work they’re not infallible, and they’re not invulnerable. They’re part of the same political universe as anyone running for student council.
 
What about how smart Goldman is supposed to be? Is the fact that they lost money only three days this year evidence of their superhuman trading genius? Not according to this Zero Hedge analysis of the trades conducted by Goldman’s charity fund.
 

The observations above are troubling: Goldman’s trading is by no stretch of the imagination better than average. In fact, in 2008, the firm’s prop trading was on par with some of the worst performers on Wall Street. Which begs the question: just how has Goldman managed to transform itself into a behemoth that over the past 6 months has had only three trading days of losses? The answer is simple: with no Lehman and no Bear to curb its tentacular dominance of all aspects of the Fixed Income market, Goldman can now rely almost exclusively on its monopolist agency position vis-a-vis mutual, pension, and hedge funds who are desperate to maintain a good relationship and an open dialog with the firm which rewards its best clients with market moving information ahead of all others peasants.

 
Matt Taibbi elaborates:
 

Specifically, I’ve heard more than once from traders who tell me that Goldman makes all its money gouging its clients, who either don’t know any better or are reluctant to get on the wrong side of the bank, for obvious reasons. Also, the fact that not only Goldman but all the banks have made mountains of money this year by borrowing cheap from the government and lending dear to the rest of the world is also manifestly obvious (credit card interest rates went up more than 20 percent in the first six months of the year, despite vastly reduced borrowing costs for the banks issuing that credit).

 
So if this small window into Goldman’s activities is representative of the performance of all their trading, then it turns out GS isn’t some capitalist dynamo after all, but simply an entrenched parasite gorging on extorted rents. It’s a dug-in tick bloating itself sucking the blood that happens to flow by.
 
It seems that the perception of how “smart” Goldman is is just another example of people’s propensity to think attractive people are smarter than they really are. In this case, it’s Goldman’s alleged profits and their master-of-the-universe propaganda which look attractive in a way similar to the evil Queen from Snow White. But it’s an illusion. 
 
Even by MSM accounts Goldman has long since lost touch with its client-friendly roots and vaunted “greedy, but long-term greedy” culture. Blankfein’s tenure is simply the culmination of the ascendancy of the most venal, nihilistic, short-term greedy gutter trader culture. Goldman Sachs is simply a medieval land baron extracting grain from the serfs. It relies only on position and pull, not on intelligence or innovation. The evidence is it has little of these. It’s a feudalist, not a capitalist.
 
So they’re not that smart.
 
They are in fact a ward of the state. We the people OWN this welfare patient. Goldman Sachs would not exist today if it had not been the recipient of massive bailouts, both directly and indirectly to its own bottom line and to the financial system in general.
 
There was the $10 billion from the TARP, but that was just a small piece. There’s also $13 billion laundered through AIG, $28 billion in FDIC guarantees through the “bank holding company” scam (even though they were never held to any of the vaunted “restrictions” the MSM blathered about) plus no one knows how much in free money from Fed loans (also allowed thanks to becoming a “bank”; this is the part of the bailout the government is keeping secret; they’re simply afraid to tell us how much money they’ve stolen from us and handed over to the likes of Goldman; Bernanke shouldn’t be audited, he should be strung up). There’s also plenty of other goodies, government contracts, the pull to get preferential policy like the ban on short-selling, and on. Then there’s the Too Big To Fail premium and the oligarchy premium. And in general Goldman swims in a pool filled and heated by taxpayer money. Without the bailout the whole sector would just have flopped and gasped in a fast-freezing puddle.
 
We the people own these banks. All of them. And especially a phony bank like Goldman, who even more than a basket case like Citi is purely a creature of the casino, a casino which shouldn’t exist at all.
 
So they’re not so tough. They’re a soft, fat, coddled little welfare queen.
 
And why are they so coddled? Because in their most thorough-going feudal strategy they’ve infiltrated their personnel into the government so completely that the term Government Sachs isn’t even a joke, but an accurate depiction of the neo-fascist corporate state.
 
I won’t repeat here the long, long list of Goldman cadres who entered high-level government and government officials who went to work for Goldman, but you can read it here and here, just for a few examples. Put it all together and we can see how and why Goldman Sachs is the most preffered corporation by this corrupt government, and how this is the real basis of all its phony profits.
 
So let’s recap. Goldman Sachs is motivated only by greed, and has made so much money that it sees itself as anointed by God. Yet even in this arrogance it feels vulnerable.
 
This feeling of vulnerability is because it is NOT smart and NOT tough and NOT solvent. Rather it has only mediocre intelligence, strength, or solvency, if left on its own.
 
ALL of its strength, all of its savvy, is 100% dependent on preferential treatment from the government, and from the gangland extortion racket it is able to run based on this entrenched welfare state position.
 
So we the people, the rightful owners of Goldman Sachs, don’t have to worry about this entity as if it were some majestic and terrible Death Star. Goldman IS just another government welfare program.
 
So the goal is simply to end this particular welfare program. We take back the government, from the bottom up, and we can break these pigs.
 
I don’t have the whole answer yet on how to do that, but I hope we can start to realize that what we’re up against is really just a stupid, clumsy beast. It is big and bloated, but it’s not smart or tough.
 
It’s not God, and the reason they keep telling themselves they’re doing God’s work is out of a sense of vulnerability, not strength.
 
Only the people have strength, but only if they choose to use it.

December 4, 2009

The Gods Must Be Crazy

 

“How much should Goldman Sachs pay Lloyd C. Blankfein?” This question kicks off an earnest analysis of one of corporatism’s pressing issues. How much should a temporarily legalized robber get to openly steal? The piece takes this very seriously. They’re clear that they consider this purely a tactical question, a PR issue. There’s no morality or justice involved, of course.
 
It’s silly to be so serious about such an absurd question. How much?
 
1. He “should”, by the standards of himself, the government, and the NYT, take all he can get, just as Goldman Sachs does. By that standard he is indeed the most “talented” of them all.
 
2. The real answer, which any human being would give when asked “What does he deserve?”, is a noose around his neck. (Or a prison term if you’re a pacifist, I guess.)
 
“Let each man be paid in full.”
 
So the question is rather incoherent when they pretend it’s not a class war question. But like I said they’re offering PR advice. How do you least rile up the peasants?
 
Their advice: Throw out the “bubble year” 2007 where Blankfein extracted $68 million. By the percentage of income measure he’d get $64 million this time around. Too much. Those populists will go nuts. And yet proven losers like Richard Fuld and Jimmy Cayne got a higher percentage in 2007 than he did. (Blankfein’s $68 million was only .6% of GS’s net income, whereas Fuld got 1.2 and Cayne a whopping 1.9% for running their banks into the ground.) So yes, Lloyd, life’s not fair sometimes.
 
The piece does concede that GS as well is a ward of the state. Blankfein should therefore do the noble thing and take far less than his dazzling talent deserves. Would $9 million be good, the nice symbolism of a single digit?
 
“But critics of Wall Street and executive pay probably would oppose a $9 million payout almost as much as one that was twice as large.*” That’s true, some of us would. Nine cents is too much for these villains. But the higher it goes, the more obvious it is to more people.
 
Blankfein has to be worth more than Benmosche at AIG at $9 million. The logic is irrefutable. Even the NYT thinks Benmosche’s worthless.
 
“The right number for Mr. Blankfein may be around $20 million.” Ninety percent in stock, vs. 60% in 2007; .2% in profits.
 
So that’s expert advice from professional journalists who wish “Mr. Blankfein” well.
 
It looks like there’ll be a lot more executive freedom to ponder pay once Bank of America pays back the TARP. Citi as well is looking for a way out.
 
It’s simply insane that this is where we still are after all that’s happened. In every case every banker’s sole concern regarding the TARP, which was supposed to help recapitalize these things, is “How will it affect my pay”.
 
As Yves Smith said today, this is pure looting.
 

The Bank of America stock offering, which will be used to repay the TARP, went off well, so surely this means the Charlotte bank is on the mend and its finances are sound, right?

Chris Whalen, who is an expert on the banking industry and has a proprietary database that measures the risk of individual banks, doesn’t buy it:

We are reaffirming our “negative” outlook on operating results for BAC….

We…look at the specific transaction proposed by BAC, we see the repayment of government TARP equity and a $20 billion reduction in the overall capital of BAC at precisely the time when the Fed is withdrawing many forms of subsidies for the largest banks. Assuming that BAC can place $18.8 billion in new securities and sell $4 billion in assets at valuations that do not generate capital losses, the consolidated entity ends up with $20 billion less capital on a consolidated basis than today.

Ahem, the point of this exercise was to make sure the banks came out sounder, and did not weaken themselves by paying back the TARP funding. Instead, the reverse is happening. A company that threw a fit to get funding from Uncle Sam early this year is now depleting its capital….so it can pay executives better than if it was on the government short leash.

Scrimping on capital to show better returns to allow for bigger bonuses is looting, and it’s what got us in this mess in the first place. But here the authorities are now enabling this process, because “paying back the TARP,” no matter what the true costs and risks are, validates Obama’s economic programs.

 
According to the TARP principle, and the propaganda of the bailout in general, the only measure should be the health of the balance sheet. But just as with the phony “stress tests”, so here the government and the media are going along with systematic looting fraud.
 
BofA is clearly weakening its financial state in order to facilitate looting by its executives and cadres. Citi is looking for a way to do the same thing. Otherwise its traders are said to be gearing up for an “exodus” next year if this year’s bonuses are too insulting to their “talent”.
 
We get the standard lies about how paying the TARP will render Citi free and clear, and never mind the continuing $300 billion in government guarantees plus god knows what Fed support.
 
Once they succeed the way Goldman did we’ll be able to read analyses on how much Pandit and whoever succeeds Lewis should go ahead and plunder, based on the political cosmetics.
 
The MSM already can’t wait, judging by the tone of these articles, which are both opinion pieces masquerading as journalism. Even at this late date they’re still solemnly using the Orwellian term “talent” with nary a quotation mark in sight. The very headline of the BofA piece decrees that it will now “shed its stigma”, and the celebration continues from there.
 
“Its recovery, while many ordinary Americans are still struggling, is an important milestone in the government’s yearlong effort to stabilize the nation’s financial industry.” How many lies in that sentence? BofA recovery, milestone, effort to stabilize….The sentence does, I imagine inadvertently, starkly juxtapose the struggling of real Americans with the fact that the government does not care about Americans, only big banks.
 
We’re treated to the opinion that Citi has “a clear strategic direction”. This is, to say the least, highly disputed. Many commentors have said that Pandit’s proclaimed strategy is just as incoherent and senseless as this assemblage of this Frankenstein’s monster in the first place.
 
And then there’s the bizarre ongoing spectacle of the MSM openly admitting, as if it’s a matter of course, that the whole bailout premise of “getting the banks lending again” was a fraud.
 
“Citi’s fortunes have slipped recently as rising consumer losses overshadow gains from its trading activity”. I thought the point of bailing Citi out in the first place was to improve the fortunes of Main Street, of the “consumer”. If the bailout was ever anything other than a lie, then what possible meaning could it have to even talk about “Citi’s fortunes” other than from the point of view of its consumer lending? Yet here we are right back to casino business as usual, trading activity shows gains, everything’s great except for that stupid bank lending stuff…
 
Same here:
 

Indeed, Merrill’s businesses have improved this year as Wall Street’s traditional business of trading and deal making picked up. At the same time, Bank of America’s core consumer lending units suffered greater losses as the economy weakened.

 
How many lies in there?
 
Why is the casino still open AT ALL? There’s only one answer: our government is irremediably corrupt.
 
“Core consumer units” – you mean the one and only thing the bailout was supposed to be about? They got the bailout, they were supposed to lend. PERIOD. What’s this garbage about “losses”?
Again we know the answer. The bailout was a LIE.
 
“Suffered greater losses as the economy weakened”. Yeah – it’s a force of nature, and it’s all impersonal.
 
Try this way of phrasing it: Criminal robbers continue to rob  and to party with the loot while the real Americans who actually create 100% of the wealth freeze and starve.
 
It’s like when 9/11 was supposed to mean the end of all frivolity and stupidity in the media. America in general and the media in particular were finally going to grow up. Strike One!
 
And now the financial crisis and the alleged “need” for the bailouts were supposed to accomplish the same thing. Strike Two!
 
I don’t know about you, but I don’t think I need to wait for the next pitch.
 
After all that, it shouldn’t be surprising to see Ben Bernanke compare himself to a bank robber. I didn’t know he had such a lively sense of irony, although it could mean that political tutorial isn’t coming along so well.
 
At his reconfirmation hearings, which are getting a little bumpy what with holds by Sanders and Bunning, as well as the Paul/Grayson Audit the Fed amendment and Dodd’s plan to strip the Fed of much of its regulatory authority looming in the background.
 
How does Bernanke defend his atrocious record? He uses the stupidity defense: “I did not anticipate a crisis of this magnitude.”
 
Then there’s the old I’ve-learned-my-lesson. Subprimes and reserve requirements? “That is a mistake we won’t make again.”
 
Then you claim things would’ve been much worse. You claim credit for “significant improvements”.
 
Apparently no one asked him, worse for whom? Improvement for whom?
 
We don’t have to ask him, since even in his political discomfort he got to his real agenda: the great call for cutbacks in the hated Social Security and Medicare.
 
I really can’t improve on Bernanke’s own larcenous frankness here, so I’ll let him speak for himself:
 

Ben Bernanke has overseen the greatest expansion of the Federal Reserve’s balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates.

His generosity, however, has a limit.

In testimony before the Senate Banking Committee today, where he’s seeking re-appointment as the Fed’s chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.

Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: “That’s where the money is.”…

“Well, Senator, I was about to address entitlements,” Bernanke replied. “I think you can’t tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care.”

Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.

“It’s only mandatory until Congress says it’s not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation,” said Bernanke…..

“Willie Sutton robbed banks because that’s where the money is, as he put it,” Bernanke said. “The money in this case is in entitlements.”

 
And what about the Fed’s vaunted political “independence”? It’s non-politicality? Well, Bernanke is very clear on how much he hates civilian entitlements, and how much he loves bankster entitlements.
 
Yet when he’s asked about instead taxing the rich for their fair share? “These decisions are up to Congress.” But what about Greenspan’s advocacy of tax cuts in 2000? “I have not done that. I’ve done my best to leave that authority where it belongs, with the Congress.”
 
So with the political advocacy of Ben Bernanke and his highly politicized Fed, disaster capitalism seeks its next big scalp: entitlements. This assault is coordinated in the Senate with a right-wing “bipartisan” goon squad led by Kent Conrad, where they’re demanding an extra-legal, unconstitutional Star Chamber empowered to gut Social Security and Medicare.
 
With this assist from Bernanke and the Senate, Obama hopes to succeed where Bush failed, to destroy these programs completely.
 
This is class war at its most vicious short of actual violence. Bernanke is a cadre. Bernanke’s mission in life, as a mercenary and as an ideologue, is to steal as much as possible from the Americans who create America and convey it to rich parasites. If we always keep that fact in mind, and apply it to every last thing he says and does, we’ll always understand him perfectly.
 
The same goes for a guy who, as the Greatest Depression sets in, as millions of jobs continue to be destroyed, with a $27 trillion bankster bailout as the centerpiece of his entire policy, can convene a “jobs summit”, look America in the eye, and say: “It’s important to face the fact that our resources are limited”.
 
It’s a flat out LIE. The bailouts prove he has infinite resources for anything he wants to do. So anywhere he starts crying poverty, that means nothing other than he DOESN’T CARE.
 
Well, Obama does care about one thing here. No matter what comes out of this job summit, the first priority is corporate profit. He likes “cash for caulkers” because big box stores like Walmart and Lowes can be “contracted” to “advertise” it.
 
More generally, he emphasized that he wants the corporatized private sector to rule. “Ultimately true economic recovery is only going to come from the private sector.”
 
Would that be the same corporatist private sector that destroyed it? Who have done all they can to destroy as many jobs as possible for nearly forty years now? Who are only gearing up to destroy more jobs now?
 

“I want to be clear: While I believe the government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector,” he told his audience, which included critics as well as executives from American Airlines, Nucor Corp., Google Inc., Walt Disney Co. and Fed-Ex.

Mr. Obama told the chief executives that he wanted to know: “What’s holding back business investment and how we can increase confidence and spur hiring? And if there are things that we’re doing here in Washington that are inhibiting you, then we want to know about it.”

 
WTF is this, Bush?
 
Since we’re doing the flunkey round, how about the elaborations on Obama’s war speech the other night? Gates has gone before Congress and assured everyone nothing Obama said about timelines has any real meaning. 2011 is an “inflection point”. Actions will be determined by “conditions on the ground”. “Gradual”. Zero timetable.
 
Hillary, same thing. No timetable, and everything depends upon “requests for logistical support” from the corrupt client. If that’s true, forget about it. We’d still be in Vietnam today propping up the South if Nixon and Kissinger hadn’t lied to Thieu about that.
 
Also, “civilian commitment must continue” indefinitely, which of course will require military protection, which won’t be included in the “withdrawal” schedule, and so on. She even patronizes Jim Webb, one of the handful in Congress who actually know something about this stuff. He asked her a “profoundly important question”, according to her. Another Fuck You from a chickenhawk. (I hope it’s not just my own pet peeve when somebody replies “that’s a good question!” There’s no way that’s not patronizing, since the question usually wasn’t any good at all, but rather stupid or pedestrian. Or if it really is a good question then you’re basically saying, “That really is a good question. I never expected that from a moron like you.”)
 
Admiral Mullen of the JCS also said “conditions on the ground” will decide. So we have confirmation that whatever they really intend, whatever happens, the notion of a firm 2011 timetable is simply feathers thrown into the wind.
 
So there’s a rundown on what Bernanke, Obama, and some lesser flunkies have been up to as their masters work out the details of how to get their bonus mojo back.
 
One last thread of the constricting ropes. At the Dallas Morning News they’ll be reporting more directly to their masters.
 

In an interview, Bob Mong, the editor of The Morning News, stressed that no other parts of the paper would report to people outside the newsroom, though advertising managers had been assigned to work with several other areas, like health, education, travel and real estate. Asked if there were plans to apply the structure in sports and entertainment to other parts of the paper, he said, “not at this time.”

 
It looks like a wedge. Soon the ad department, really just in-house corporate lobbyists, will have to directly vet editorials. And then on to all the newspapers.
 
I guess it cuts down on some of the farce. 
 
[*The kind of lesson “progressives” absolutely refuse to learn.]

November 18, 2009

Bank Roundup 11/18

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

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

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

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

September 15, 2009

Two Speeches, One Policy

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

August 1, 2009

Why Do We Need The Banks?

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

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

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

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

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

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

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

 

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

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

 

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

March 24, 2009

The Bailout War II: Too Big To Fail

 

(See also the rest of the five-part series)
 
https://attempter.wordpress.com/2009/03/24/the-bailout-war-part-i-aig/ 
 
https://attempter.wordpress.com/2009/03/25/the-bailout-war-iii-corporatism-and-finance/
 
https://attempter.wordpress.com/2009/03/26/the-bailout-war-part-iv-toxic-bank-assets-and-the-bailouts/
 
https://attempter.wordpress.com/2009/03/27/the-bailout-war-v-nationalization-and-relocalization/

 

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.