July 17, 2010

Finance Reform Sham, CFPA Sham, SEC/Goldman Sham


I’ve written more than enough on the sham finance bill and didn’t see the need for another piece on it . (My most recent.) But I thought this post mortem was true and typical.

The ink is not even dry on the new rules for Wall Street, and already, the bankers are a step ahead of everyone else.

In ways large and small, the broad overhaul of the nation’s financial regulatory system that was approved by Congress on Thursday will eat into the profits of the nation’s banks.

So after spending many millions of dollars to lobby against the legislation, bankers are now turning to Plan B: Adapting to the rules and turning them to their advantage.

Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks have found what they think is a solution: allowing some traders to continue making those wagers, as long as they also work with clients.

Banking chiefs concede they intend to pass many of the costs associated with the bill to their customers. The legislation, which is expected to be signed into law by President Obama next week, is intended to address the causes of the 2008 economic crisis and curb the most risky behavior on Wall Street.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

Here are the banksters openly saying they’ll never take less than the extortionate amount they already extract. They regard their robberies as their divine right. As if we needed it, there’s a further declaration of war upon us, and further confirmation that humanity and the banksters cannot coexist in the same world.
So I think that’s adequate commentary on this vile sham of a “reform” bill.
Meanwhile, in order to confirm for anyone who still had doubts about whether or not Obama ever wanted a real CFPA, Geithner has gone out to oppose the appointment of Elizabeth Warren as its chief. (For a good post on Geithner as wingnut welfare poster boy, a complete failure throughout his worthless life at being anything other than a serviceable villain, see here.)
We knew this already, after the original white paper was so weak, eschewing vanilla requirements, and when the administration then without a fight let the thing be subverted and “pre-empted” in the House. So it’s no surprise today when they’re still hacking away at any possible effectiveness on its part, though that’s already a moot point. As I’ve always said, if you have to rely upon heroic personnel for effective regulation, then you can’t have sustained effective regulation over time. In a corporatist system, “regulation” can’t work.
Now, after howls of protest, the administration is publicly backpedaling, disclaiming any such opposition. So no doubt more nonsense will ensue.
I’ll just mention that the canonization of Warren seems overblown to me. She’s an administration cadre, a Harvard cadre, supports the system, supports the Bailout. The best one can say is that maybe she’s as good as it gets within the system, which is saying little.
Indeed, from the public interest point of view, wouldn’t it be better if someone more obnoxious were appointed? That would render the scam more brazen, obvious, and offensive. If you agree the bill’s a sham and want the people to understand that, why would you want an anodyne piece of window dressing like Warren to be part of it? It contradicts our educational mission.
It’s in light of this that we should consider the Goldman settlement. It’s a $550 million fine, and Goldman admits a marketing “mistake” and pledges to “reform” its policies. The SEC will distribute some of the proceeds to ACA and IKB, and Goldman agrees this amount is not mitigatory of any future civil awards. There’s all the standard crap about how Goldman agrees to closer oversight and how the SEC pledges to provide that oversight. It looks like a de facto global settlement as far as the SEC’s concerned.
I suppose from the reformist point of view there’ll be endless argument over whether or not this is a win for Goldman. From the point of view of taking back our country from these gangsters, the only question is whether or not this was a significant step toward the complete destruction of Goldman and all casino banking.
It seems not to be. On the contrary, the “best” case scenario seems to be that gamblers outside the bank hope the settlement will circumscribe the way Goldman can rig the game to the clients going forward.
But the game itself, which is purely destructive from any broader point of view, is to continue in its full ferocity.
Indeed, if the perception here is that the game will be less rigged vs. the client gamblers, then the settlement is a retrograde step, since one of the few good trends we’ve been seeing is the growing realization that Goldman’s a criminal against everyone including its own clients.
So anything that seems to improve the position of the clients is bad for the American people. From our point of view, it would’ve been better if the settlement had more obviously been a whitewash. Or even if Goldman had fought all the way and won. Insidiousness is always worse.
The corporate media will do all they can to spin this as a win for everyone, and as sufficient regulatory vigilance. Thus the NYT is calling it a “high-water mark” for regulators, trying to simultaneously exalt it as a big win but also lower expectations going forward. The spin will be: The SEC/Obama got tough, “investors” will be better protected; but Goldman is also vindicated of the worst charges, and implicitly the casino is now in better shape, and the American people should have more confidence in it going forward.
It’s all a Big Lie.

June 10, 2010

Eurozone Lethal Zone


An update on the latest stage of the crash in the tottering Eurozone. Over the past week the calls for calm were throttled into incoherency by new waves of bad news. Redolent of Greece last fall, Hungary announced that its impending budget deficits will be worse than expected. This resounded ominously among the similarly precarious budgetary perches throughout Eastern Europe. It’s unclear how exposed Austrian banks are. (By which I mean, whether they’re far more insolvent than we previously thought. Of course, all the banks are insolvent.)
Meanwhile Ireland, already deeply enmeshed in bailouts and “austerity”, indicated that its own ongoing bailout will soon need another bailout. But all of us who scoffed at there being any such thing as a final, sustainable Greek bailout were of course just being silly, right?
The Greek and Icelandic protestors who are in combat against embarking upon the bailout-austerity path in the first place are now proven correct. They saw what happened to Latvia, how the austerity immolation is burning the people alive while the bailout helped the banksters only. Now they see the same thing playing out in Ireland. Keep fighting.
Meanwhile the speculators, the finance terrorists, are extending their attacks from the Mediterranean countries to Belgium and France itself. Suddenly all “safe havens” other than the dollar itself don’t look so safe.
The response among the Eurozone’s stronger ( a relative term) economies looks to be pre-emptive austerity. Germany and the UK have announced the usual package of cuts in public sector jobs and spending. They’ve made the usual failure to announce any “sacrifice” on the part of the banks or the rich whatsoever.
Meanwhile Timmy Geithner of all people was in Europe to suggest that the trade surplus countries should NOT be thinking about austerity and what in the US would be called “fiscal responsibility”, that is gutting public spending in order to benefit the banks. Instead they should forget about deficits for now and focus on increasing domestic consumption.
Needless to say Timmy’s not becoming a born-again Keynesian. Rather, as he thrashes about looking for a way out of Bailout America’s debtor predicament, one of the mutually contradictory things he wants is to correct “trade imbalances”, and that would mean Europe imports more from the US. Trade imbalance of course means lowering the US trade deficit. So the euro has to become stronger relative to the dollar, which seems like it shouldn’t be so hard given the Fed’s churning out of free money to the banks and the US treasury’s continued profligate borrowing. But then in the same breath Geithner also wants the Chinese to stop “manipulating” the renminbi, by which he means they should let the Fed’s currency manipulation prevail to the point that the dollar strengthens vs. the renminbi. But how devalued can a currency get? The Fed already wants Goldman’s and JPM’s borrowing costs to be zero or better. The “primary dealer” banks actually lend the money they borrow from the Fed to the Treasury at a higher rate; they’re thus being paid by the government to borrow from the government. (Since, as MMT demonstrates, the currency is public property, if the Fed prints the currency it’s by definition part of the government. Having the Fed exist at all is simply adding unnecessary complexity for the purpose of enabling bank looting. It’s obvious from the public interest point of view the Treasury should directly issue the currency.)
So how can any of that work? Ask Timmy. It’s a complete mystery to sane people. Meanwhile, in spite of the Fed’s and Treasury’s heroic efforts to destroy the dollar, it’s still even now the last resort of for the markets, the last “safe” haven. Therefore try as they might they can’t weaken it enough against other currencies.
Prior to the crisis the EU was close to being in trade balance, and that’s the course Geithner was trying to convince them to maintain. But instead they’re starting to bail out on the Bailout, each man looking out for himself.
To Geithner’s pleadings, Merkel responded, “NEIN!” The Germans are trying to break free of the external round of bailouts (where they’re expected to dig deeper as bailout creditors, even as Geithner wants them to stop being such immense trade creditors; the contradictions abound), while they of course try to continue to bail out their domestic finance sector, and do it all while scapegoating those nasty spendthrift deadbeat “PIIGS”. But Germany has been so much in surplus and the Mediterranean economies so much in debt because the Eurozone strait jacket relatively devalued the euro in France and Germany while overvaluing it in the South. That can no longer hold. Therefore Merkel also shouted, “ACHTUNG! AUSTERITY!” It turns out she wants the German people to have to pay after all. Just, instead of being liquidated to directly bail out the Greek rich and indirectly bail out the German and French banks, they’re to be liquidated to directly bail out the German banks. I wonder how many German teabaggers will fall for that one? So far election polls and results look somewhat better than in Bailout America. Merkel’s neoliberal coalition’s being rejected.
At the same time French prime minister Sarkozy was heard to chirp happily, “I see only good news in parity between the euro and the dollar”. (Which is too much for the Germans, not wanting that much of a euro devaluation; thus we see more daylight between tottering France and the relatively stronger Germany. But don’t worry, in the end every debt domino will fall.) ECB honcho Trichet is mouthing the party line of deficit terrorists everywhere, we must give the markets what they may someday want, much lower deficits.
For everyone it’s going to be “beggar thy neighbor”, try to make him go into debt and not you. (Why this moral slogan? Funny how capitalism and “free markets” are supposed to be so dispassionate and “rational”, except where the game is going against a player. Then it’s suddenly immoral. How dare you try to beggar thy neighbor! Don’t you know we’re all in the same boat?)
As I’ve written, the system’s reaching the limits of what the Bailout can do by itself. The bailout’s unsustainability is now manifest, as mass defaults are imminent at every fractal level. As always, the entire bubble wants to deflate, and gravity becomes ever more insistent as more bailout weight is added to the agglomeration of debt. Perhaps in most places (but not in the US, alas) we’re at the political limits of the Bailout as well.
That’s why they’re moving on to the next step, “austerity”. They already foreclosed and repossessed your car. Now they’re going to directly mug you for what’s in your wallet. That’s also the purely economic reason (as opposed to any Peak Oil reason) why “free trade” will have to break down. It was always a scam to benefit the elites only, but now those elites will have to start throwing one another overboard, beggaring their neighbors.
But all of this can be swept away at any moment if the whole Tower of Babel simply crashes down all at once. That’s a possibility, and who knows what will trigger it. But whatever happens, our journey into the post-debt, post-oil age has commenced, and we should be preparing. That’s why I hope we in America look to a new convention.
As for Europe, they better look to their nation-states where relevant, and in most cases to their medieval cities. Because the ridiculous “European Union” sure won’t be making the trip with us.

March 24, 2010



Housing sales are again slumping after last year’s uptick, even as more units are being put on the market, according to the NYT. “Again” is a tendentious term, since only last year’s homebuyer tax credit artificially propped up sales in what’s otherwise now a three year decline. That’s the reality-based process which is being hindered by the temporary tax credit extension, now set to expire on April 30. If they want to keep this zombie propped up, they’ll have to extend this again and pretend again.
As with everything else, this tax credit may help a few random buyers (but is probably setting up most of them for underwater status), but is really yet another looting of taxpayer money for the benefit of Wall Street, to help prop up the toxic crap on the banks’ balance sheets. It’s another part of the Bailout.
The NYT piece refers to the “triple-whammy of bad news”, slumping sales, increasing inventory, and its likely depressing effect on prices. “If that proves to be the case, it could slow the broader recovery.” It’s hard to see how ideological capture gets worse than this. There is no “recovery” at all, let alone a broad one. The price effects they talk about are the natural, inexorable result of an insane bubble now deflating. There’s no way to recover from that until the deflation is complete and reality has reinstated itself.
Meanwhile all government policy has zero purpose and zero goal other than to try to reflate the bubble for as long as possible, while in the process conveying as much public wealth as possible to Wall Street. In a comment thread at Baseline Scenario I just read how someone says his Wall Street acquaintances are crowing about how 2009 was their “best year ever”. This is the year after they had intentionally crashed the economy for their own profit. And now their brazen looting of the country has no bounds of even political tact. They know they’re protected by simple government force. As Obama said a year ago, “I’m the only thing between you and the pitchforks.” Indeed, surely by now the people would deal with these bandits as they deserve.
Nothing could be more clear. We live under foreign occupation. The Wall Street banks and the filth who staff them are simply alien. They’re not American citizens and they’re not human. They’re foreign predators with their claws clutching our hides and their snouts stabbed into our veins, sucking our life blood.
Meanwhile this is a rogue, traitor government, dedicated only to enabling the tyrannical occupying power. Shall the name “Obama” supplant that of “Quisling” as the eternal personification of contemptible, shameful treason? It will if there’s any justice in the world.
So what was this government up to yesterday? The criminal cretin Geithner crept before Congress again to discuss this housing price and bank balance sheet issue. Namely, the government using Fannie and Freddie as its Bailout bagmen of last and permanent resort.
The NYT obliquely acknowledges how a theoretically infinite Bailout has been instituted off the government books and utterly beyond accountability to the law, the constitution, or the people.

The government has so far spent $126 billion bailing out Fannie and Freddie. Republican criticism over the absence of a plan for the institutions escalated when the White House released a budget in January that said only that the administration “continues to monitor the situation.”

They learned accounting control fraud from the best, since the whole GSE MBS buy-and-convey scam has been set up for one reason only, to let the banks carry worthless garbage on their balance sheets at sufficiently fraudulent values that they can report fraudulent “profits” and their officers can directly steal in the form of fraudulent “bonuses”.
The administration is pretending to want to find a new way to loot.

On April 15, the Treasury Department and the Department of Housing and Urban Development will publish a list of questions seeking comment on the appropriate role of the government in housing finance, as well as the design of mortgage products and protections for consumers who use them.

Yet under Congressional questioning Geithner had nothing new to say, just the same old boilerplate lies.

The lack of specifics frustrated several lawmakers, one of whom, Representative Bill Posey, Republican of Florida, lashed out at Mr. Geithner, saying, “We can’t wait forever to find out.”

Mr. Geithner replied: “You won’t have to wait forever. We’re starting today the necessary process of figuring out what Congress and the executive branch would like to do to reform the housing finance system.”

So after one year you’re “starting the process”. Well, I guess the process mentality, if it’s going to do anything at all, has to at least “start”. But in your case I think there’s a more significant reason you haven’t “started”.

Mr. Geithner suggested that the administration was waiting for the economy to stabilize before deciding on a plan. Fannie and Freddie back most of the nation’s home loans and are managing the administration’s $75 billion loan-modification program.

Next week, the Federal Reserve plans to complete a $1.25 trillion program to buy mortgage-backed securities, a major test of the recovery’s staying power. If mortgage rates were to quickly rise afterward, the Fed might have to step back in.

“If” mortgage rates rise afterward? Everyone thinks they will, since we know that in spite of all your lies from day one of the Bailout, these banks will not lend. Only Fed and Treasury MBS buys, as well as the contrivance of the tax credit, have kept this market functioning at all.
And we know the part about “waiting for the economy to stabilize” is the same old heads-I-win, tails-you-lose trick. You can’t reform anything during the crisis. On the contrary that’s when you need to gut all existing reforms. Disaster Capitalism 101. Meanwhile if things ever actually do stabilize, they’ll turn around and say there’s no need to change, “don’t rock the boat”.
Waiting for the economy to stabilize? Whatever happened to “not letting a crisis go to waste”? We know what happened. We know how they used the crisis. They better pray there’s no justice in the universe.

“I don’t think there is a credible argument that we can abolish, put out of existence, these institutions today,” Mr. Geithner said. “That would not be responsible.”

This little worm is the last one to lecture anyone as an authority on responsibility. We can assume as a law of reality that anything he or his masters say is the epitome of irresponsibility, criminal cover-up, and incitement to further crime.
The gist is that the administration is claiming it wants to get beyond the Bailout and government subsidy of the big banks via the housing market:

Mr. Geithner vowed in his written remarks that whatever form the overhaul takes, Fannie and Freddie would change. “Private gains will no longer be subsidized by public losses, capital and underwriting standards will be appropriate, consumer protection will be strengthened and excessive risk-taking will be restrained,” he said.

But in the same breath he directly contradicts himself and admits they have no idea and no intention to change anything:

He added: “There is a quite strong economic case, a quite strong public policy case, for preserving and designing, some form of guarantee by the government to help facilitate a stable housing finance market. But it can’t be the one we have today.”

There are no such cases. Reason, morality, and common sense would indicate, and history proves, that Obama, Geithner, and all corporatists, are idiots and liars. Government intervention in housing markets has been purely malign. It was always undertaken with malignant motives – proximately, to favor interest groups like the banks, Big Auto, and the Big Builders; more broadly, to co-opt the potemkin middle class, place it on the treadmill of debt and therefore into a state of intense socioeconomic dependence and vulnerability, and in that way enforce social conformism. Its effect has been to enshrine the evil model of suburban sprawl and the personal car as the perverted form of our “civilization” and generate this debt-indentured pseudo-“middle class” as the socioeconomic base. Thus our physical resources have been uselessly destroyed, our environment has been trashed, our real economy and real social stability have been gutted, and in particular our rich heritage of small farming has been wiped out while the rich farmland itself has been physically destroyed for the sake of highways, strip malls, and subdivisions.
By coincidence the NYT (really the Reuters Breakingviews blog) on the same page has one of its infrequent skeptical pieces on the mortgage deduction, the main tool of this government market distortion.
This deduction is simply the current tax credit writ large. Its goal is to drive people to buy bigger houses than they need or could, according to any reality-based market, afford. This artificially drives up housing prices, as well as the costs of borrowing in general, including for those who might actually want to borrow money for some constructive purpose. It’s a version of Gresham’s rule – bad money drives out good. In general, in a kleptocracy bad policy everywhere drives out good, bad people drive out good, everywhere everything that is bad drives out what is good.
Of course, even a “skeptical” MSM piece has to know its limitations.

Economists have been pointing out these distortions for years, but for politicians, advocating the elimination of this deduction is seen as suicidal. One problem is that an immediate elimination would probably pull down house prices, the last thing the already weak housing market needs.

If you’re here to tell hard truths, then why are you waffling on this one? Housing prices are still bloated and have a great distance to go to get down to reality.
The piece recognizes the impasse:

The danger comes from the lower purchasing power that higher taxes would bring. For the couple who used to be able to afford a $400,000 home, the maximum purchase price would fall by 11 percent. The $900,000 home would have to drop about 21 percent in value to offset its owners’ higher tax payments. That sounds like an invitation to open another chapter of the financial crisis.

You mean it contradicts the insane, hysterical attempts to reflate the bubble. It contradicts the way they try to permanently interrupt the crisis, to keep it from doing what it has to do, and from what it must and will do in the end. (And thanks to this government, when the final dam break comes, it will be far more explosive than it needed to have been, since all they’re doing is forcing that much more pressure to build up.)
We should have let the fever run its course, let the breached dam drain, let the bubble deflate, write off all the worthless toxic garbage, let all the Wall Street rackets go down as they deserve to and will have to in the end.
Sure, it might have been rough. But by now we’d have that part overwith. We’d be restoring morality, justice, sanity, and health to the system.

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.   

October 16, 2009

Citi On A Hill

Filed under: Bailouts Only Reopened the Casino, Corporatism, Mainstream Media — Tags: , — Russ @ 5:20 pm


You are the light of the world. A city that is set on a hill cannot be hidden.  Matthew 5:14
This inspirational line provided the source for John Winthrop’s legendary “City on a Hill” sermon, delivered as he and his fellow pilgrims were about to found the Massachusetts Bay Colony.
History’s ways are strange, and this inspiration has reverberated to our own time, as Ronald Reagan repeatedly cited the image of the city on a hill to describe what lighted his vision of what America should be, as at the 1984 Republican Convention, not long after he had signed the Garn-St. Germain act.
Did he think of this amazing bill as he evoked that shining city? It is a perfect crystallization of everything he stood for.

Now the only way to avoid this shipwreck, and to provide for our posterity, is to follow the counsel of Micah, to do justly, to love mercy, to walk humbly with our God.

Coming into office the Obama administration inherited a big economic mess and an even bigger bailout to “solve”, not the real problems, but the problem of where the banks would next extract their rents.
This was “an inheritance with a vengeance”, as Sir Henry Baskerville might have said, and Obama took it up with gusto. Never did an heir more exuberantly seize the estate and embrace it. Immediately the manifestoes came flying: the administration’s top priority was “private profit”, “private investors”, “private banks”. The Bush/Paulson bailout was now the Obama/Geithner bailout.
To justify this policy they launched an all-consuming propaganda offensive. With the avid collaboration of the MSM, the official corporate line became that the banks ARE America; by saving them Obama had saved the economy; now everywhere the green shoots are surging and blooming; Wall Street is solvent and profitable; the stock market rally reflects our newfound economic weal; the recovery is on; new growth forever is right around the corner.
All of this is a lie. We never needed the bank rackets, which are purely parasitic. Their existence and bailout harm, not help, America. By temporarily propping them up with stolen public wealth Obama and Bush have doomed the economy. The green shoots are a fraud; every real economic indicator is despondent. Wall St. is bankrupt, and its “profits” are all the result of accounting fraud. The stock market is a fantasy goosed by the artificial stimulus of taxpayer money looted by the banks. There is no recovery except for the racketeers. There will never be real growth again.
Even by these rather low standards, Citigroup is a pathetic loser. It has received $45 billion in direct welfare through the TARP and over $300 billion in taxpayer guarantees, insurance, and other backstops through the FDIC for all the worthless toxic paper on its balance sheet. To this day it is still the most decrepit and insolvent of the rackets. It’s a suitable poster child for the top Obama/Bush priority. Let’s explore further.
Citi just reported a $3.2 billion loss for the third quarter. The first two quarters even it was able to post bogus profits through shell games and accounting tricks, as the other rackets were still able to do this week. But now Citi can’t even scrape together a decent paper scam. A harbinger? (Would you expect a real loser like Citi to be the first to fail at claiming phony profits, before the better-run liars like Goldman and JPMorgan? But that they too must inevitably succumb?)
Along with its feckless twin brother Bank of America, Citi keeps whining that it’s capable of paying back the TARP, but the government won’t let it. That should tell you a lot about how hopeless they really are, that even as the administration very much wants to repeat the propaganda exercise of TARP repayments, they’re leery of letting these jokers go ahead.
Speaking of propaganda exercises, this week the House Finance committee hashed over its gutted “reform” bill, with administration blessing of course. What a freakshow it was with every imaginable kind of lobbyist calling for a lap-dance. The committee came through, the message is clear: The casino will be flung wide open, more open for business than ever, all bets now with house money.
Yep, the rackets are getting their money’s worth from the lobbyists (especially since they’re using taxpayer money). And who’s the ultimate lobbyist? Here’s one nominee:
Richard Hohlt was recently hired by Citi chairman Richard Parsons as a “consultant”. Hohlt is a former aide to Richard Lugar. His roster of clients has included, among others, JPMorgan, Washington Mutual, TimeWarner, Philip Morris, Bristol-Myers Squibb, Chevron, and the Nuclear Energy Institute. He’s a close associate of Karl Rove and collaborated with Robert Novak in outing Valerie Plame. He was a George Bush “Super Ranger” bagman.
William Black called him “infamous” and his hiring “obscene”.

For this end, we must be knit together, in this work, as one man. We must entertain each other in brotherly affection. We must be willing to abridge ourselves of our superfluities, for the supply of others’ necessities.

Work as one man, supplying each others’ necessities.
Going into the 1980s S&Ls were sleepy, dowdy things, closely regulated. Low risk, steady, modest profit, serving the needs of normal people. “Main Street” to the core.
But the racketeers had plans to turn these little engines into rent-seeking dynamos. The big deregulation push came in 1982. Loan restrictions were lifted, and with the Garn-St.Germain act the bipartisan floodgates were opened. The S&Ls were freed up to take and make any loan, pay any interest, so the money flooded in. Racketeers bought them, took in deposits to make loans to real estate developers. Reserve restrictions were removed. Meanwhile the lobbyists fought off the regulators.
One of these racketeers was Charles Keating of the Lincoln S&L, who discovered John McCain and bankrolled his congressional campaign. (Alan Greenspan, an economist at JPMorgan, also did flack work for Keating and Lincoln.)
Also in the thick of this was Richard Hohlt, chief lobbyist for the US League of Savings Institutions and close associate of Utah senator Jake Garn, chairman of the Senate Banking Committee whose name appears on his S&L blowout bill.
Over the years McCain went on to collect an impressive array of pet lobbyists and assorted clients. Yahoo asked, When did John McCain Jump the Shark? The top answer: when he associated with this nasty slew of lobbyists, including Richard Hohlt, who became a leading contributor and bagman.

We must uphold a familiar commerce together in all meekness, gentleness, patience and liberality. We must delight in each other; make others’ conditions our own; rejoice together, mourn together, labor and suffer together, always having before our eyes our commission and community in the work, as members of the same body. So shall we keep the unity of the spirit in the bond of peace.

Familiar commerce.
The taxpayers now “own” 34% of Citigroup, having “invested” $45 billion in direct handouts. Of course this is small compared to over $300 billion of added public exposure through federally guaranteed “insurance” and so on.
This incontinent ward of the state has had some strange adventures along the way. For example, it wanted to use $50 million in taxpayer money to buy a corporate jet. But that’s relatively tame compared to its freewheeling days when it was giving Robert Rubin a $115 million no-show job and issuing reports like “Plutonomy” which contemplated a more direct, ruthless dictatorship of the superrich.
Ah, those were the days. Where did it all go wrong? CEO Vikram Pandit, or “Vikula” as he’s affectionately called (also “Pandito”), doesn’t know. “This was something that was bigger than Citi”, he lamented. It’s nobody’s fault, he sighs.
(He got some backup from a government-ordered management review which gave Pandit and most of the cadre good marks. I’m sure it was at least as rigorous as the stress tests.
“Executives were evaluated according to their ability to develop and execute a business strategy, to work well with regulators and other executives, and to understand the bank’s business issues”.
Well that’s sure good to hear! How about finger-painting, sharing at recess, and being quiet during naptime? )
Indeed this was not the banks’ fault, according to the Obama/Bush administration. The banks aren’t the cause of the disaster but the solution. They aren’t predators but victims. The bailouts aren’t the definitive looting of the country, but a solid investment in a prosperous future.
It’s not surprising, since this arose naturally out of the corporatist system, which is by now an automatic machine, with the finance sector at the center of it. And if Citi is a special Obama darling, this must reflect the influence of his economic guru Robert Rubin.
“Rubin is the mole of today’s economic crisis.” He is the pivot of much that has happened. As Treasury Secretary in the 90s he worked closely with Greenspan to dismantle the entire regulatory structure which stood between America and the full fury of the bank psychopaths.
Perhaps the greatest beneficiary of 90s deregulation was Citigroup. The 1998 merger of Citi and Travellers Group constructed the most complexified Rube Goldberg structure of commercial banks, investment banks, and insurers. It was after Rubin stepped down from Treasury that they gave him the nine-figure job. And so it goes….In January 2008 Rubin declared that nothing was wrong, nothing to see here, “just periodic excess leading to periodic disruption”, the Great Moderation would continue at least for the superrich even if everyone else was doomed, in other words all was well in the world.
Evidently it’s to try to keep things that way that Citi has hired Richard Hohlt. According to the NYT he was hired by Parsons as “an advisor to provide strategic counsel on Washington matters related to the bank”. Citi insists he is not a registered lobbyist and won’t act as a lobbyist. No, he’ll keep Parsons informed about “the mood and tenor of the town”.
Hohlt himself insists he’s not the same criminal he was way back when. “I wish that everyone would comprehend that because of these past experiences, mistakes made, some problems that were created because of those mistakes, I can maybe offer more candid advice”.
The passive voice and channelling of Nixon inspire confidence. He also said that if you watch thirteen botched surgeries, you’re then qualified to advise on a fourteenth.
Sources say the real purpose of his hiring is as a strategist against the FDIC (Citi’s great benefactor), and by extension against the American people. So just as he helped loot $150 billion through the S&L crash, so he’s now going to help set up the FDIC as the sucker. The goal will be to take full advantage of that $300 billion backstop.

The Lord will be our God, and delight to dwell among us, as His own people, and will command a blessing upon us in all our ways, so that we shall see much more of His wisdom, power, goodness and truth, than formerly we have been acquainted with. We shall find that the God of Israel is among us, when ten of us shall be able to resist a thousand of our enemies; when He shall make us a praise and glory that men shall say of succeeding plantations, “may the Lord make it like that of New England.”

Ten of us shall resist.
In 1987 when the regulators finally started closing in, Charles Keating enlisted his kept man McCain, along with senators Deconcini, Cranston, Glenn, and Riegle, to try to run interference. Thus we have the egregious “Keating 5”. But when this didn’t work, and McCain bailed on Keating, the game was up. There was nothing left but the arson. As they said in Goodfellas: “You bust the place out. You light a match”. $150 billion.
But have no fear. Although Keating and some other scumbags landed in prison, everybody else landed on their feet.
McCain quickly found a new pimp. Since 1989 he’s been in the pocket of Big Oil, collecting nearly $3.5 million from fossil fuel “employees” and PACs.
And what about lobby kingpin Richard Hohlt? George H. W. Bush named him to the board of Sallie Mae, the student loan corporate launderers.
So he was right at home where he’s always been.

For we must consider that we shall be as a city upon a hill. The eyes of all people are upon us. So that if we shall deal falsely with our God in this work we have undertaken, and so cause Him to withdraw His present help from us, we shall be made a story and a by-word through the world. We shall open the mouths of enemies to speak evil of the ways of God, and all professors for God’s sake. We shall shame the faces of many of God’s worthy servants, and cause their prayers to be turned into curses upon us till we be consumed out of the good land whither we are going.

The worthy servants.
Tim Geithner was offered the Citi CEO job in 2007 but turned it down. But he’s kept in touch.
Through the first seven months of the Obama administration Geithner had at least 80 telephone contacts with Goldman CEO Lloyd Blankfein, JPMorgan chief Jamie Dimon, and Citi’s Pandit and Parsons. Only Obama himself was in the same exalted company. One time Geithner came out of an important meeting and got right on the phone. He talked first to Blankfein, then Dimon, and then Obama.
No word on whether he’s taking calls from Hohlt yet. But as they said, Hohlt’s job is to teach Parsons how to “communicate”. So he’s got a line to the White House regardless.

And to shut this discourse with that exhortation of Moses, that faithful servant of the Lord, in his last farewell to Israel, Deut. 30. “Beloved, there is now set before us life and death, good and evil,” in that we are commanded this day to love the Lord our God, and to love one another, to walk in his ways and to keep his Commandments and his ordinance and his laws, and the articles of our Covenant with Him, that we may live and be multiplied, and that the Lord our God may bless us in the land whither we go to possess it. But if our hearts shall turn away, so that we will not obey, but shall be seduced, and worship other Gods, our pleasure and profits, and serve them; it is propounded unto us this day, we shall surely perish out of the good land whither we pass over this vast sea to possess it. Therefore let us choose life,that we and our seed may live, by obeying His voice and cleaving to Him, for He is our life and our prosperity.

Whatever your guiding light, whatever covenant your heart compels, whatever article you hear recited by whatever voice, it must all say the same words decrying the misfortune which has descended upon America.
Shall we perish out of this good land?

March 30, 2009

Some thoughts on GM


So, just as many of us predicted from the start, giving the auto companies ad hoc holdover money and a deadline to come up with a plan would lead to…..giving the auto companies ad hoc holdover money and a deadline to come up with a plan. Well, the difference this time is that Rick Wagoner is out, and Chrysler has to engineer a merger with Fiat. Still no word on why Cerberus doesn’t have to put up any money.
(From the start it’s seemed to me that if Chrysler’s owner doesn’t believe it can be saved with more cash, why should the government second guess them? Why in this case does the administration know so much better than “the market” and an iconic private equity firm, while where it comes to the banks they keep repeating, Hare Krishna-like, the chant “the government shouldn’t be running banks”?) 
While I have no love for General Motors and am opposed to this bailout as well, I still differentiate between an auto manufacturer which, however sociopathic its actions and products (its role in the dismantling of America’s streetcar system; the corresponding invasion strategy of highway construction; the massive social engineering project known as suburban sprawl; SUVs), still did actually produce a real product, as opposed to the big banks which were essentially running a big scam.
So I find it telling that Obama is willing to at least make a show of getting tough with GM and Chrysler (though not so much with GMAC and Cerberus), while desperately trying to cater to every frivolous whim of the big bankers.
(Though even here the focus is very clearly on what is good for GM, i.e. its bondholders, while the public are even in the picture only as “consumers” who must somehow be induced to buy American cars, that is as a sort of mine. Notice also how even though the UAW has already made significant concessions while the bondholders have made none, the administration propaganda line is that we’re at square one, and “both” are equally obligated to give up things at this point. The bondholders are holding firm, expecting to be bailed out completely. Given how Obama is determined to do exactly that for the bankers, the bondholder intransigence here seems perfectly rational.) 
My first reaction was that Wagoner, a relatively small fish, is being sacrificed as misdirection from what is clearly a Geithner/Obama policy priority to maintain the big bankers in their jobs.
Of course Wagoner provides a clear example of the rent-seeking neo-feudalist mindset. His commitment to the sprawl-SUV societal model, his refusal to pare product lines, tranform to a hybrid-based business model, the killing of the electric car – these all show how he and the board had become completely calcified in the finance elitist sense of entitlement. Wagoner believed GM had a “right” to exist in that form, and if reality was contradicting the entitlement, it was the government’s job to suppress that reality.
So GM’s “business model” was to lobby, fund political action groups, deny climate change, and file lawsuits to preserve its bloated, calcified structure. Beyond that Big Auto for a long time coordinated strategy with Big Oil to enforce the continued existence of the fossil fuel/personal car societal model. This is the essence of corporatism. 
I think a clear sign that we no longer have a democratic capitalist system but rather a corporatist one is that no one loses his job even over major screwups. Thus we have:
1. No one fired over 9/11.
2. Where it came to Katrina, Bush got rid of “Brownie” only under extreme duress. (I would bet that to this day Bush still doesn’t understand what Brown did wrong, or why he had to relinquish him. Just like he probably doesn’t understand why he couldn’t have Meirs on the Supreme Court.)
3. To the best of my recollection, no one was ever forced out for incompetence or war crimes in Iraq (although anyone who questioned administration policy or priorities was drummed out immediately); indeed they gave Paul Bremer a medal. This certainly wasn’t for any reality-based measure of performance. Rather it was for an ideological cadre who pushed ahead with his ideologically-defined task even in the midst of a war, even where it was directly counter to the rational fighting of that war (as when he removed the entire professional class of Iraq, pretending it was de-Baathification, when it was really to remove indigenous obstacles to predatory carpetbagging; the dissolution of the Iraqi army was just one element of this “blank slate” agenda). 
4. Now no one since Fannie and Freddie is to lose his job over the planned destruction of the global economy.
It’s clear that no one but ideologues could think it’s reasonable, moral, or desirable to retain the existing management of these banks, and that in the administration we obviously have such ideologues. That the existing bank management not be fired is a major policy principle for the administration. Otherwise there’s simply no way to explain why the management hasn’t been forced out as a condition of the bailouts.
Let’s assume that an administration is committed to a bailout policy; still, where they have roused such political anger, both reason and politics demand that you at least take the simple measure of getting rid of the dead weight management. This could go a long way toward defusing populist anger, which is so easily personalized.
That Geithner and Obama have refused to take this step, that they are gratuitously courting such a political backlash, is strong evidence that here, just as with Bush and Bremer in Iraq, we are not in the realm of normal reality-based politics, but in the realm of ideology trying to dominate reality.       

March 26, 2009

The Bailout War IV: Toxic Bank Assets and the Bailouts


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


For a long time I didn’t understand the toxic asset issue. I basically took the conventional frame for granted. This is that America needs for the big banks to get this toxic paper off their balance sheets at some elusive but extant acceptable price; that this is necessary for the good of the economy, of society, for posterity, etc. But it’s become clear that it’s not economically or socially necessary to do anything with this paper. It’s only claimed to be such by those who stand to profit from a massive handout and their agents in the media.
The point of all this policy angst is supposed to be to get the big banks lending again. The banks claim to be on board with this project. That’s what the government and the pundit pen have said from the start. That was how they sold the first $700 billion bailout, and that’s how they defend the $3+ trillion in secret loans the Fed has made. So why didn’t all this money do what it was supposed to do? If the idea was that the bad paper stinking up the banks’ balance sheets was crippling their lending abilities, the infusion of government money was supposed to be an end-run around this. There seems to be no reason the banks can’t lend and just let the “assets” sit. But they haven’t used the money to lend. They’ve hoarded some of it, and boasted that they’re hoarding not out of fear, but to be ready to use that money to seize acquisition opportunities. They’ve spent the rest: quite a bit on acquisitions, and more famously on bonuses, parties, golf outings, stadium sponsorships, airplanes…It seems the banks are not particularly nervous about their financial position. So what gives?
The truth is that before they are willing to resume lending, these bankers are demanding to be bailed out of these toxic paper positions. This is a stick-up. A ransom demand. The banksters are on strike. They are holding America hostage, and their demand is that America buy them out on their own terms. They’re saying, “You want us to lend? Gives us our profits first.” Until then it’s a work stoppage.
The big banks are insolvent. Their assets exceed their liabilities only in fantasy league accounting. If they actually had to obey their vaunted “market” and sell this paper at its real value they’d be bankrupt. They could have used the bailout money to recapitalize as they wrote down this paper, or they could have done the same while selling the paper to the government at marked-down value. This was in fact the original advertised bailout concept. But the irremediable obstacle is that the banks have always privately refused on principle to consider such a thing, while the Bush and Obama administrations were lying when they claimed otherwise. The banks, the administration, and the MSM with few exceptions refuse to accept anything short of a complete public buyout of these assets at fantasy model value. They haven’t yet figured out how to get away with this, although this week Geithner and Obama are trying again.
So given this impasse so far administration policy has sought to prop up the big banks with the minimum necessary but still massive welfare, and the implicit promise that one way or another the administration, in an act of top-down civil war, will redistribute from the people to the bankster elite however many $trillions are necessary to satisfy them. That’s why these are called “zombie banks”. Paul Krugman calls it a new kind of voodoo economics, “the belief that by performing elaborate financial rituals we can keep dead banks walking”.
This is unjust and an incalculable moral hazard (which in spite of its name is a practical concern, not a moral one; the powers that be seem to have closed ranks on this point, that whatever else they may debate, actual morality should have no place in the discussion; thus we get the supercilious tone even from nationalization advocates where it comes to “populism” and public rage).  
Meanwhile the cabal is seeking a new bubble. The fantasy among most in the government is that somehow this will all work out with a new bubble, new debt creation; the banks will be able to pay back the loans, perhaps all that paper can even be reinflated for a taxpayer profit and so on. It’s the exact fix any Ponzi schemer eventually finds himself in, except until now Ponzi schemes didn’t have full government support. But now the government is the top schemer, and who’s going to bail it out? America is running against a greater headwind all the time in selling its debt to China, and China’s looking for a way out.
It doesn’t matter right now. This is their policy and they’re sticking with it. Obama agrees which is why from the moment he was elected he tacked 180 degrees from “Change” to “continuity”. That’s why today we have the “new” Geithner plan, which is really just as retreaded from last September as Geithner is.
I’ll give a quick synopsis of the Geithner plan. They’re going to have an auction of this toxic paper. The bidders will be ostensibly private members of a “Public-Private Investment Program”. These private bidders will have to put up very little of their own money. The bulk of the money is to come from an FDIC bubble: Treasury will pledge some ridiculous amount, and the already precariously leveraged FDIC will match it 6:1. (They say FDIC isn’t happy about this. Nor should we be. It’s already questionable how readily FDIC, the bedrock of stability for America’s deposit banking system, could actually pay out claims in a commercial bank crisis. And now they’re going to use its balance sheet as a toxic asset shooting gallery. Sociopathic.) The rest of it will come from the $75-100 billion of TARP money still left. The private bidders can default on the loan portion of this at will. So they stand to profit if this paper ever goes up in value in some mythical future, while they have almost no risk. Meanwhile the Taxpayer’s exposure is overwhelming and completely negative. (OK, they too can profit if they turn out to have bought low. The chances of winning the lottery are better. Indeed, this is as if you gave somebody a million dollars to buy lottery tickets, only making him chip in a hundred bucks or so, and then gave him 20% of the tickets, and said he only had to pay you anything back if one of his tickets won.)
In addition to this bailout, the plan calls for the Term Asset Lending Facility, already dispenser of gargantuan sums, to lend the banks another $1 trillion or so, at generous terms and with no real collateral.
Of course the real and intended winners here are the banks. The auction is supposed to be the vehicle by which they can trump up an inflated price for these assets. The private bidders, bidding with taxpayer money, are intended to bid the price up to whatever figure the banks choose. Then the adminstration happily shovels out that much money in a monumental loot conveyance, while claiming “the market” discovered that price, and that this is what we need to do to put the financial system on solid ground. As Yves Smith wrote, they must really think we’re idiots.
We must be clear that these “securities” have little if any real value. They never had more than a fantasy value. Now that the fantasy has been dispelled, the market has correctly priced them at or near zero. But the administration’s top priority is to bail out the banks, so they want to hand out as much public money as is politically possible. Beyond that, they’re like hippies trying to levitate the Pentagon. They want to levitate a new debt bubble. They believe we can resume exponential growth. Even the best of them is intellectually bankrupt. This is all they have. Reinflate, levitate. Indeed, the fantastical alleged taxpayer upside is completely dependent upon reflating the “growth” bubble, meaning the debt bubble. (America has not in fact legitimately grown in this century, it has only bubbled up debt.)
The bankers concur with the administration that their profitable bailout be the #1 priority. Only then will they too join in seeking the next bubble, and embarking upon new disaster capitalist expeditions.
The real public-private relationship can be seen in comparing these two quotes:
Geithner from February: “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”
At around the same time, Citi’s Vikram Pandit: “We completely remain in day-to-day charge of the company. We are going to run Citi for shareholders.”
Citi has to date received over $350 billion in handouts and loan guarantees (another kind of handout). It seems Pandit and Geithner are simpatico. Geithner only needed to add that where it comes to financial policy, the administration as well is run and managed by private shareholders, and they want to do their best to preserve that system.
Here we have explicit public-private confirmation of a corporatist coup. 
The stock market stands ready as enforcer. How did the Lehman failure cause a market crash? Or the failure of the first bailout vote in the House last September? It was market terrorism, a corrective blow, the infliction of punishment upon society for misbehaving. The market insists that every policy step have private investor profit with socialization of all losses as its overriding goal. It demands that unlimited public resources be used up for this purpose. When the government misbehaved and allowed one of the fraternity to fail, the market launched a retaliatory strike against America. You could view it as a terrorist attack. And you should consider that when you see how the market rewarded the announcement of the new PPIP. As Naomi Klein wrote back in November, “The markets can be relied on to vote in precisely the opposite way that Americans have just voted….Any and all moves to change course will be met with short term market shocks.” When the media knuckles under and parrots the dogma, Bailouts Uber Alles, we have Too Big To Fail joining with appeasement.
So that’s the bottleneck we face: an extortion racket, bankers demanding that their private profit be the #1 concern of public policy; and an administration which is ideologically sympathetic but which is under political constraint such that it can’t directly convey the loot. It needs to find ways to redirect and launder it. This is the  source of the “public-private” concept, with these Potemkin “private ” investors who are really in effect extremely well paid agents earning a guaranteed salary for playing the role of capitalists. The result is an administration which is malevolent in principle, bumbling and ad hoc in practice. Willem Buiter gets it just right: the bailouts are “without redeeming social value”. (I add, this thereby places them in the legal category of obscenity.)
Fundamentally, the concept that these assets have to come off the books at a profit level dictated by the banks is a theological tenet. The zombie banks and the financial/insurance/real estate (FIRE) trust as a whole are existential and psychological obstructions to any kind of real solution. All their actions are devoted to further consolidation and more intensive rent-seeking – the consolidation and intensification of a new feudalism.
As for our general problem, it’s that everyone in positions of power or influence have one and only one pseudo-idea: always, always more lending, more debt, more bubbles.
The numbers no longer have meaning: $100 billion more from TARP, plus a lot more from new Treasury borrowing, and that amount to be sextupled by even more borrowing in the name of the FDIC, oh and don’t forget another $1 trillion in sweetheart loans. This is clinical insanity by now.
I’m convinced the “leadership” has actually given up all reality-based hope of saving the situation. Where not bolstered by ideology, their nerves have caved in completely. They can only see, only think, only scream “More debt!” It’s a depraved latter-day degeneration from the call Marx imagined them hearing in the capitalist heyday, “Go on! Go on!” toward more production, more profit. Today they can only go on under the hypnosis and artificial stimulant of debt.
Anyone not psychologically sealed in the insanity must look at this Tower of Babel of debt, being built ever higher and ever more top-heavy by the day, and know that it can never reach whatever heaven the bingers are seeking.
If we are to try to constructively unwind the exponential debt civilization, the first thing to do is detach in our minds from the lies and craziness, as well as the seductions and promises, of this delusion. The seductions are only a mirage; no amount of propping up dead banks, no matter how profitable for the bankers themselves, is going to bring back the greed circle of debt which for a few years swept everyone along. People’s material conditions are now being forcibly simplified, but this can all be for the better if not the good if we use this pivot to simplify our aspirations as well.
The world can be a beautiful place, and no one needs the debt civilization to live there. But first we must free ourselves, and a good place to start is to stop fearing the threats of bankers.
[Next up: Nationalization]

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. 

March 20, 2009


NYT admission: AIG is racketeering.

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


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

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

Let’s go through it:  

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

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

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

It doesn’t seem fair.

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

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

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

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

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


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

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

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

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

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

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

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


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

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

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

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

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

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

And now for the terrorist threat:  

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


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

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


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

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

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

Here’s the rest: 

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

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

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

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

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

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

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

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


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

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

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

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

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


What should we think about this bonus outrage, this “unkindest cut of all”? Throughout this obscene bailout regimen, as the Bush/Obama crew lurches from debacle to debacle, AIG has been in the vanguard of arrogance, with its psychopathic sense of entitlement and gleeful will to spit in the face of the taxpaying public and then walk away laughing. Now we see their funniest prank yet. 

Here’s a few thoughts:
1.What are CDSs? They constitute an insurance scam. It’s claimed that they’re insurance, and through this claim, with the blessing of the (non-)regulators, banks were able to greatly lessen the amount of capital reserves they had to hold.

But at the same time it was claimed they’re not insurance, and therefore shouldn’t be regulated as insurance; indeed that they shouldn’t be regulated at all. “Regulators” again acquiesced.

Worst of all, most of these bets weren’t even pseudo-insurance by the above loose, unregulated standard, but were rather flat out speculative gambling by parties completely unconnected to the underlying.

By no means are CDSs a feature of capitalism. They are rather the tool of parasitic rent-seeking fraud.

2. Summers and Geithner are whining about this? But they presided over the Clinton regulatory gutting. The CFMA is their baby. They personally own this policy which has established America as an anti-regulatory no man’s land. 

3. The cadres at AIG knew this was a criminal enterprise. They knew these contracts were insolvent and yet kept writing them, engaging in conscious fraud for their personal profit. Every step of the way they fully expected that if things went wrong, the losses would be socialized while their private looting operation would be protected, since this government is in the business of facilitating crime. These bonuses are what is called fraudulent conveyance, or looting in a very literal sense.

4. Government has lots of muscle to deploy here, if it cares to flex it. Why not promise to intensively interrogate every bonus recipient, to see what if any indictments are indicated?

5. In particular, I wonder what applications RICO might have here and in the case of the banks. (Would this be an abuse of RICO? I don’t believe so, if these really are the rackets they seem to be. Anyway, they’ve never been shy about “creative” RICO prosecutions before. Why start being shy now, when it might actually be worthwhile?)

6. Getting beyond the legalities: Summers is quoted in the NYT: “this is a country of laws”. No, it’s not. That’s why we’re here. This finance industry has consistently wanted to be placed outside the law. That’s been the entire focus of their anti-regulatory anti-legal lobbying campaign for decades now. And they got what they wanted. They are veritable outlaws, still rampant with the loot, still vandalizing and desecrating. So I’d be happy to treat them as the outlaws they are.

7. What could anyone involved here be thinking? I get that the AIG personnel are pure psychopaths and probably can’t help themselves by now. There’s nothing you can do with them; no rehabilitation is possible. You either let them continue to loot and destroy, or you don’t. But what could Obama be thinking? I don’t normally go in for hyper-Machiavellianism (if only because so few are competent to successfully carry it out), but this case is so extreme, so brazen, and so seemingly gratuitous, that I can’t help wondering if it isn’t actually a trial balloon to test the reaction of the people; to see whether or not the people really will stand for the Big Loot the adminstration clearly wants to facilitate for these corporations, where AIG is just one element among many.

Many commentators have reminded us how quickly insurrection can flare up, and we’re already seeing examples around the world, just as we did a year ago with the food riots. Do the American people have any of the old spark still in them? If they let this AIG affront go by with just the same old griping, if there isn’t a groundswell of elemental outrage DEMANDING that something severe be done to rectify this, then I guess the adminstration will have its answer. It’ll feel emboldened to go ahead.

8. One last point: they say these contracts can’t be broken? That spurned bonus claimants could sue? Let them! I’d love to see that. I’d like to see who has the audacity to go before the country and publicly demand a bonus. I’d like to see who would stand up in court under oath and defend his career in great detail. I’d like to see him go before the reporters and vouch for himself and his company. “Bring ’em on!”

But of course Obama and Geithner won’t force AIG to do that. Why? Because they too agree with the bonuses and want the bonuses paid out. That’s what Geithner’s whole career has stood for, and that’s what Obama’s presidency has so far stood for. Now we’ll see what comes next.