Here come the Clampetts

By Mustang Bobby

Matt Taibbi sums up the bailout of Wall Street:

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

And now AIG, one of the companies we helped get through rehab – and is running a PR campaign to say "Thank you" – is thinking about suing the U.S. government because their stockholders didn't get a pony. 

Digby says that's chutzpah. Wrong; it's typical.

(Cross-posted at Bark Bark Woof Woof.)

Robert Reich whistling in hell

By Frank Moraes 

I really value optimistic people. But I don't pay much attention to them. Two of my favorite political writers are Dean Baker and Eric Alterman, or as I think of them, the Depressing Duo. Or "Pessimistic Pair" if you prefer. Alterman perpetually looks like his first girlfriend just dumped him. Baker has transcended that and is on to that period when you are sarcastic about everything. But I read them because (1) they are brilliant and (2) they are right to be depressed. But sometimes, rarely, an optimist is right. So you have to pay attention.

There is an old Far Side cartoon I remember. It takes place in hell. Everyone is working very hard. There are all miserable. Except for one guy. He is pushing an over-filled wheelbarrow and whistling a happy tune. Two demons overlook the scene and one says, "I don't think we're getting through to that guy." That's how I'm feeling about Robert Reich today.

He posted an article that seems pretty compelling even if it seems on the far side of Pollyanna, "TARP is Over, But the Bailouts Will Continue Until the Big Banks are Broken Up -- And Washington Knows It." He notes that the chairman of the House Financial Services Committee, Jeb Hensarling -- a Republican, of course -- wants to break up the banks. And so does the Dallas Fed. So he argues that all we need is one more big bank loss and we will get a better banking system.

Read more »

Bankers campaign for reduced regulations -- oh, goody!

By Richard K. Barry 

To be filed under the category of "things that make me weary," the American Bankers Association, a group representing the largest banks in the U.S., is likely to launch a new Super PAC "to back candidates who favor rolling back provisions of the Dodd-Frank financial reform law."

This is according to a piece by ThinkProgress, which also says this:

The group plans to focus on Senate races, as "attempts in the Republican-controlled House to roll back regulation of the financial industry, particularly the 2010 Dodd-Frank Act, have so far run aground in the Democratic-controlled Senate." Having a Super PAC would allow the ABA to funnel money anonymously to these races; so far, the ABA has donated $1.7 million to 2012 candidates, the majority of which went to Republicans.

Doesn't that make you feel optimistic about the future of financial regulation in America?

(Cross-posted at Lippmann's Ghost.)

Why the business world is fucked up

By Carl 

A full 25% of businessmen and women surveyed believe that it is not only acceptable but necessary to break laws and ethical codes in order to succeed in business.

One inference we may draw from this rather remarkable set of data is that the more successful any random group of executives is, the more likely there are skeletons in the closet.

Which brings me to the LIBOR scandal:

"A cesspit." That's how the usually measured Paul Tucker, deputy governor of the Bank of England, described banks' attempts to manipulate the London interbank offered rate, or Libor.

Faced by a throng of sound-bite-hungry British Parlamentarians, on Monday Mr. Tucker did a convincing job of rebuffing allegations that the authorities had put pressure on Barclays PLC to manipulate Libor, the world's most important interest rate. 

There's a hint in that last paragraph as to why you should be paying more attention to this story. LIBOR is the rate that is the basis of the interest rate you pay on everything, from your mortgage and credit cards to student and auto loans.

Not the Fed rate, LIBOR.

LIBOR (London InterBank Offered Rate) is set by a panel of lenders each night, and therefore is removed from the political pressures of the Federal funds rate (the rate at which banks lend money overnight to other banks in America.) Ostensibly, it should be a fairer and truer benchmark of, to put it in layman's terms, the cost of borrowing money.

Which is fine. Free markets, no social structural rate, no incentive for a government to raise or lower, yadayadayada. It makes sense for the markets to use this rate to set all other rates.

Until...

The investigation found that Barclays's traders communicated with colleagues at some of the 16 banks involved in Libor setting. As one Barclays trader explained to another one at a rival lender, "the trick is you must not do this alone." This kind of evidence should help regulators prove that others were in on the fix.

Given [Barclay's CEO Robert] Diamond's resignation, the question is whether CEOs of other firms will follow suit once their companies settle. While some will argue they weren't there at the time, those with long tenure and an investment-banking past will come under pressure.

"CEOs of other banks should be worried, especially those who rose through the ranks of the fixed-income and rate businesses" says Michael Karp, managing partner of Options Group, an executive search and consulting firm. 

Aye, there's the rub. And also the rationale behind strict government oversight of the financial markets.

This crisis will make the subprime bubble look like a bump in the road. See, this means that not only were a handful of bankers in England making out like bandits, pumping up their bottom lines at the expense of, well, the entire fucking population of the planet, but likely it means that the US banks who issued those cards and mortgages and loans had foreknowledge of the rip-off.

And so now we get back to the original point of this post: the tendency towards rule- and law-breaking the higher up the financial food chain one gets.

Evidence suggests that this crisis was covered up furiously when the story began to break, back in April 2008.

After all, would TARP have ever happened if the American public had focused on the fact that the underlying structure of bank lending was rubble and sand? Is it any wonder now why banks, after receiving their injections of steroids, went about not lending to anyone? If it got out that they were scamming people, even as they were being scammed themselves, there might have been full-scale class warfare.

And as George W. Bush was still president at the time, that would not have boded well for the long-term electability of Republicans. Or for that matter, a certain wealthy presidential candidate who banks most of his money overseas and reaps the benefits of investments that likely took advantage of these same scams.

Too, the entire sordid affair puts paid to yet another Republican talking point: that markets will fix themselves.

They might, but it takes time and in the interim, billions -- if not trillions -- of dollars will be illegally skimmed off an already struggling global economy.

Make no mistake about this: this incident could be the crack in the dam where the entire reservoir pours out onto the valley below. This one might actually put capitalism as we know it out of business.

(Cross-posted to Simply Left Behind.)

Top Ten Cloves: Possible new fees banks will start charging

By J. Thomas Duffy


News Item:  Banks likely to try range of new fees


10.  The Kardashian Charge - Get divorced after 72-days, fees, fees, fees ...


  9.  Don't have your own Deposit or Withdrawal Slips? ... Just rent one of the banks, for a fee


  8.  ATM's will have "Coin Slots" (like old public pay phones) if you want to use them


  7.  HuffPo Model:  You can work at the bank, not get paid salary - and get charged with a fee


  6.  Need to speak to the Bank Manager? ... You can book time with him, for a fee ...


  5.  Fee for just walking into the bank


  4.  Don't have a pen to write out deposit/withdrawal slip? ... Bank has one, for a fee ...


  3.  The Jeopardy Fee; You didn't phrase your transaction request in the form of a question


  2. Car loans, instead of based on amount/time/years/, will be based on cars' weight


  1.  Groucho Marx Fee - Don't know the Secret Word, it will cost you a $100 fee


 
(Image courtesy of Tom Priest at "In a Nutshell")


Bonus Riffs


Will Oremus: Fee-Market Capitalism - Bank of America learns it has to be more subtle about screwing its customers.


Lauri Apple: More Banks Scrap Debit Card Fee Idea


Even The S.E.C Thinks Goldman Sucks!

Cross posted on The Garlic: All The Cloves Fit To Peel

Attention Teabag shoppers

By Distributorcap

Congratulations! Your insanity is only overshadowed by your stupidity -- you are sending foxes to the Congressional henhouse.

Today, the U.S. Senate voted on extending the Bush tax cuts for the middle class (or what is left of it) -- and not extending them for families earning over $250,000. It took 60 votes to break the filibuster (only in America does 60% equal a majority).

Guess what? With 41 Republicans (and some Democrats including Joe "the Douchebag" Lieberman), it did not pass.

So for those teabaggers out there who think these guys are on their side:

There are 100 senators, ALL of whom earn over or somewhat close to that $250,000 magical tax cutoff (the base salary is $174,000, and with the perks and other income they most come close). Income only tells half the story. What about net worth (the value of one's assets less liabilities and debt)?

• 84 are worth over $500,000
• 69 are worth over $1,000,000
• 28 are worth over $5,000,000
• 17 are worth over $10,000,000
• 3 are worth over $200,000,000 (Kohl, Kerry, Warner)

The median net worth (the mid-point) is $2 million. The average net worth is estimated to be $13,500,000 (Kohl, Kerry and Warner skew this).

These are the people "representing America" who get to  vote decide on the fate of tax cuts for "average American." These "everyday Americans" sit in a body that requires a 60% supermajority to get anything done, including the economic security of a majority of Americans.

For comparison sake:

The median net worth of an American household is $120,000. That is about 95% lower than the Senate median. The average net worth of an American household is $550,000 (folks like Gates and Buffet skew this number), but that is also about 95% lower than the Senate average.

So the average Senator is worth 95x the average American.

Let's just assume for a minute the mean and median income of the Senate is the base of $174,000 (it isn't, but lets be conservative). The median HH income in the U.S. is just under $50,000, 72% lower than the Senate. The average HH income is around $72,000 (again thank Gates and Buffet), 60% lower than the Senate.

As another point of reference, only 34% of American HHs earn over $65,000, 17% have incomes over $120,000, and under 3% have an income over $200,000.

Two-thirds of Americans live in HHs with incomes under $65,000! Who needs the break?

The nation (including the teabaggers) sit idly by as people who are worth 95x more than the average American household decide whether that typical American family will be able to pay their mortgage or rent, clothe themselves, heat their houses, or feed their kids. With this 60 vote supermajority, the Republicans, who have been adamant about continuing the tax cuts for everyone, including the uber-rich, are holding the extension of tax breaks hostage to 97% of the population -- who need every cent -- over a barrel to pay back the 3% who don't.

Note to teabaggers: The median net worth of the Republicans in the Senate is $4.1 million. The median net worth of the Democrats is $3.2 million.

And guess what? A big CHUNK of those 97% voted for those $4.1 million-assholes like Kyl, McCain, Corker, Inhofe, Grassley, and the King Anus of them off, Mitch McConnell. You get what you pay for.

Some more facts about the folks the Senate has decided to take hostage to ensure the welfare of the 3%:

• 83% of all U.S. stocks are in the hands of 1% of the people.
• 61% of Americans "always or usually" live paycheck to paycheck, which was up from 49% in 2008 and 43% in 2007.
• 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
• 36% of Americans say that they don't contribute anything to retirement savings.
• 43% of Americans have less than $10,000 saved up for retirement­.
• 24% of American workers say that they have postponed their planned retirement age in the past year.
• Over 1.4 million Americans filed for personal bankruptcy in 2009, which represente­d a 32% increase over 2008.
• Only the top 5% of U.S. HHs have earned enough additional income to match the rise in housing costs since 1975.
• For the first time in American history, banks own a greater share of residentia­l housing net worth in the U.S. than all individual Americans put together.
• In 1950, the ratio of the average executive'­s paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
• The GDP has risen by 67% since 1980, while the median HH income has risen by only 15%

And we wonder why there is a economic mess in this country. Look who is deciding policy, people who have ZERO stake or ZERO experience in the struggle of 300,000,000 people, including the teabaggers who have insanely enabled this to go on.

On the backs of taxpayers

By Creature

Daniel Indiviglio [via Ezra]:

[The FinReg] Conference reconvened due to the protests from centrists Republicans in the Senate who didn't like the idea of taxing the big banks and hedge funds. Instead, taxpayers will pay for the regulation, since any TARP money unspent was supposed to go towards paying down the deficit.

And, in the NYT today, a little reminder of what our Treasury Secretary was up to at his old job:

The documents also indicate that regulators [Timmy!] ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks.

The banks escape. The people pay. Same old. Same old.

Onward Christian financiers

By Distributorcap

When the clock flipped into the year 2000, America was enjoying true prosperity. The economy was humming, the budget was balanced, the internet was hot as dot-com stocks were flying, and real estate was beginning its rise into the stratosphere. In fact, the biggest fear was that the entire computing structure of the US would go haywire as internal clocks in the CPUs and software would not be able to handle the change in the century digit. By the time 2001 rolled around, the dot-com stocks had collapsed and George Bush had been installed as Chief Defender of the Faith of Idiocy.

But the real estate market kept flying. During that year, Integrity Bank, opened their doors in the Atlanta suburb of Alpharetta. The bank's philosophy (which in hindsight would blend nicely with the coming decade of Bush dogma) would be to transact business based on Christian principles and make a lot of money at the same time. The bank's charter and philosophy took the motto on American money “In God We Trust” literally. The bank gave customers free Bibles, and employees prayed together at meetings. Investors included Georgia politicians and the former CNN host Lou Dobbs.

The bank’s founder, Steven M. Skow, a Lutheran, said he would give away 10 percent of annual profits to churches and faith-based charities. In 2007, Mr. Skow donated $1.7 million. Mr. Skow said he would not discriminate against non-Christians. “We weren’t selling religion,” he said. “We just managed the bank on godly principles, like the golden rule.”

The gold sure ruled until their Golden Calf god turned out to be made of iron pyrite.

In August 2008, government regulators in Georgia shut down Integrity Bank just as the economy began to collapse in a sea of red ink and bad mortgages. Integrity bank was initially seen as just another failed lender that had fallen victim to the hard times of easy lending and overvalued the real estate. After all, these were good Christians who made some bad decisions.

When it was put into receivership on August 29th, 2008, Integrity had assets of $1.1 billion and deposits of $974. What was left on the balance sheet was sold to Regions Bank of Alabama. The failed Christian bank's five offices re-opened on Sept. 2 as branches of Regions. The FDIC estimated the bank lost up to $350 million on those $1.1 billion in assets, putting the red ink at a stunning 32%, one of the highest loss percentages in the last 40 years.

Onward Christian financiers.

On Friday, May 8, a federal indictment was unsealed. It accused two former vice presidents at the bank of hastening its downfall by selling fraudulent loans to a hotel developer in exchange for bribes.

From the The New York Times:

The two executives, Douglas Ballard and Joseph Todd Foster, were charged with conspiracy, insider trading and bank fraud, according to the indictment. Mr. Ballard was also charged with bribery. The developer, Guy Mitchell, who received $80 million in loans, was charged with conspiracy and bribery.

But in announcing the indictment, the United States attorney Sally Quillian Yates said Mr. Ballard and Mr. Foster had not lived up to the bank’s name or mission. “A number of banks have suffered from the plummeting real estate market, but this bank was robbed from the inside,” she said. 

To say the least.

Good Christian Mitchell pled not guilty at a federal courthouse in Atlanta. Good Christians - Ballard and Foster - have yet to turn themselves in and will probably be arraigned within a few days.

The soldiers for the good Christians were deployed quickly to defend these pious and moral citizens. Edward Garland, Mitchell's attorney said his client had been a law-abiding, profitable customer for the bank. “The collapse of the economy caused the bank failure, not his activity,” Mr. Garland said.

The indictment states Mitchell received the $80 million in loans from Integrity from 2004 to 2006. The holdings in the Mitchell portfolio include the upscale Casa Madrona Hotel and Spa in Sausalito, Calif., and the Royal Palm Hotel near Miami. The indictment goes on the state that he obtained the money under false pretenses and deposited nearly $20 million in a personal checking account. From this account his bought some very religious inspired items, like a private island in the Bahamas for $1.5 million.

The indictment also charges that Mitchell made few, if any, payments on the loans. Instead, it says, he took additional loans, and his debt ballooned. In return for lenient terms on the loan, Mitchell paid Ballard more than $230,000 in bribes. It also accuses the two good Christian bank executives of engaging in insider trading when they sold off their Integrity stock as the bank began to wallow in a sea of debt.

“After passing out $80 million to the developer like it was Monopoly money, both officers dumped their Integrity stock before the failed loans came to light,” Ms. Yates said. 

"We expect to show that he is completely innocent." stated defense lawyer Garland of Mitchell. He said "Mr. Mitchell was in compliance with banking regulations and merely used a central bank account for both personal and business expenses.” These words are right out of the most holy biblical text - the book of Hypocrisy.

Before the collapse of the bank, Integrity had launched its own internal investigation of the loans to Mitchell, since they were such a large part of the portfolio. The probe found that some of Integrity's good Christian, Bible-thumping executives lent more and more money to Mitchell, in order to boost their own collection plate. "By continuing to loan Mr. Mitchell money, large loan fees were generated for commissions to the loan officers, as well as loan dollar volume goals to justify larger year-end bonuses for executive management," the directors concluded in January 2008, according to minutes from a board meeting that were filed in the bankruptcy.

By the time the bank collapsed in 2008, Mitchell had several different loans from Integrity that added up to $83 million, or 127% of the bank's total capital of $65.3 million, according to court and regulatory filings. The loans were secured by the hotel, shopping centers, his home in Florida and co-signed by Jesus himself.

However, good Christian Mitchell had a sweetheart clause in his loans. Unlike almost any other borrower, Mitchell wasn't required to make payments on the loans out of his own pocket. Instead, each loan had interest reserves, or money set aside to cover payments until the projects started generating their own cash. In other words the loan was being paid back with money from the loan. Regulators have criticized the use of interest reserves as a payment mechanism, claiming its makes it difficult to detect troubled loans.

Founder Steven Skow, who left the bank in 2007, was not implicated in the indictment. He claimed he was a good Christian (and good Sergeant Schultz) and knew nothing about the activities in the indictment. He said he had lost $22 million in stock when the bank failed.

I guess this is a true test of faith for Mr. Skow, 22 million faiths in all.

By the way, the faith-based state of Georgia leads the nation in bank failures, with 38 banks having closed since 2007, according to the FDIC. Georgia has one of the nation's most underregulated banking system.

(Cross-posted from Distributorcap NY.)

Standing up to Wall Street and the GOP on financial reform

By Michael J.W. Stickings

From our friends at the Senate Democratic Policy Committee:

Senate Democrats Are on Your Side: Standing Up to Republican Obstructionism on Wall Street Reform

Republicans have yet again put their political interests ahead of the well-being of the American people. By refusing to allow debate on Wall Street reform, they have sent a clear message: Senate Republicans are on the side of big banks and Wall Street CEOs. This disingenuous, obstructionist attitude was set in motion last month after Senate Republicans met behind closed doors with the CEOs of big banks. They returned and promptly started trying to water down legislation that would rein in corporate greed and excess on Wall Street.

Senate Democrats want to restore accountability and transparency to Wall Street, and have brought forward historic reform legislation to protect American consumers, investors and businesses from the greed and recklessness that brought our economy to the brink of collapse. The Restoring American Financial Stability Act puts in place the strongest consumer financial protections ever and will help put a stop to the reckless behavior that cost Americans over 8 million jobs and trillions of dollars in savings. 

By choosing to side with Wall Street over the American people, Republicans have voted against legislation that will:

·     End Taxpayer Bailouts.  As long as giant financial firms believe the government will bail them out if they get into trouble, they only have the incentive to get larger and take bigger risks. This bill guarantees that taxpayers will never again be forced to bail out reckless Wall Street firms by creating a safe orderly liquidation mechanism for the FDIC to unwind failing significant financial companies; shareholders and unsecured creditors will bear losses; and management will be removed.

·     End "Too Big To Fail." The bill provides for strict new capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system. The Federal Reserve will be authorized, as a last resort, to require a large complex company, to divest some of its holdings if it poses a grave threat to the financial stability of the United States. 

·    Put a New Cop on The Beat. The bill establishes the Financial Stability Oversight Council to focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms as well as products and activities that spread risk across firms. 

·    Bring Sunlight and Transparency to Shadowy Markets. The legislation eliminates loopholes that allow risky and abusive practices to go unnoticed and unregulated – including loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.

·    Guarantee Clear Information in Plain English. The bill creates the Consumer Financial Protection Bureau, which will have the sole job of protecting American consumers from unfair, deceptive and abusive financial products and practices and will ensure people get the clear information they need on loans and other financial products from credit card companies, mortgage brokers, banks and others.

·    Protect Against Bernie Madoff-Type Scams. The SEC has failed to perform aggressive oversight and is unable to understand some of the very companies it is supposed to regulate. This bill creates a program within the SEC to encourage people to report securities violations and mandates an annual assessment of the SEC's internal supervisory controls. The bill also establishes a new Office of Credit Rating Agencies at the SEC to strengthen regulation of credit rating agencies, many of which failed in the past to warn people about risks hidden throughout layers of complex structures.

MJWS: It's good for the American people, good for the American economy, and good for anything and everything other than the Wall Street oligarchy. No wonder Republicans are against it.

Republicans (heart) Goldman Sachs (and fraud)

By Michael J.W. Stickings

Bloomberg:

The U.S. Securities and Exchange Commission split 3-2 along party lines to approve an enforcement case against Goldman Sachs Group Inc., according to two people with knowledge of the vote.

SEC Chairman Mary Schapiro sided with Democrats Luis Aguilar and Elisse Walter to approve the case, said the people, who declined to be identified because the vote wasn't public. Republican commissioners Kathleen Casey and Troy Paredes voted against suing, the person said.

For the Republicans -- both these two in the Goldman Sachs case as well as the entirety of the Republican caucus in the Seante (that opposes Wall Street reform) -- this is pretty much defending the indefensible. It's defending fraud, and what that means is defending a laissez-faire system in which big players like Goldman, and indeed any player on the inside, can make massive sums of money by blatantly deceiving investors and capitalizing on the misfortune of others in a time of job losses and home foreclosures. 

You want a big campaign issue this year? Here it is. Democrats should be proud of health-care reform and of what they have done to stabilize the economy, but they should also hammer Republicans for being the party of Goldman Sachs and everything it represents.

What went wrong with the banks and how can we fix it?

By Carol Gee

This disturbing headline, "A Congressional Panel, Hobbled in Its Financial Inquiry," is via The New York Times.  Group theory experts would have an interesting challenge in figuring out what went wrong with this commission.  In contrast, the 9/11 Commission seemed to have a great deal more success with its widely read and effectively utilized report.  To quote from the Times:

In recent months, a top investigator resigned, frustrated by delays in assembling a staff. Behind closed doors the panel’s chairman and vice chairman have had heated disagreements over whether to make public preliminary findings or revelatory documents. . .


The people appointed to the Financial Crisis Inquiry Commission last July, six by Democrats and four by Republicans, say they hope to publish, by the Dec. 15 deadline, a volume much like the 9/11 Commission report, which was acclaimed for its narrative sweep and became a surprise best seller.


But that goal seems increasingly out of reach, given what the commissioners themselves acknowledge has been a haphazard approach and a lack of time and resources. Given the delays, the commission’s impact on policy could be modest; the House has already voted on a sweeping financial reform bill, and the Senate could vote on it by summer.

Chairman of the Banking Committee, Senator Chris Dodd will be retiring at the end of his term. As he leads this Congressional reform effort, he does not need to be distracted by reelection issues. Senator Dodd can comfortably push for regulation reforms that can truly protect the nation, and particularly vulnerable consumers, from another Great Recession. If Congress does not go far enough, the next banking greed bubble-and-burst episode could become the Great Depression-II.


My banking reform  suggestions include: 1) Establish an independent Financial Consumer protection agency. 2) Break up the biggest banks -- who are really investment banks, not banks who serve banking customers. 3) Regulate exotic derivatives.See original Democratic Strategist quote at Amplify.

My own initial take on this Financial Crisis Inquiry Commission story is that, as always, it comes down to the qualities of leadership that appointees and staff bring to the task. People associated with the 9/11 Commission were very outstanding. I did not get that same impression regarding the current commission.  To quote further from the NYT article referenced above:

. . . In an interview, the commission’s chairman, Phil Angelides, said the panel was struggling to satisfy a broad mandate to examine the role of 22 factors in bringing about the crisis. He pointed out that the panel had a budget of just $8 million, compared with the $38 million spent by a federal bankruptcy trustee who dissected the collapse of Lehman Brothers.


Even though the panel is backward-looking and will not issue formal recommendations, Mr. Angelides said he hoped its findings would be authoritative and useful for future policy makers.


But Bill Thomas, the Republican vice chairman of the panel and a former chairman of the House Ways and Means Committee, acknowledged, “We are limited by time.”


. . . The commission’s executive director, J. Thomas Greene, was named in September but took several months to assemble a staff of 49, leading one investigator, Martin T. Biegelman, an expert on corporate fraud, to resign during the winter. Twelve staff members are on loan from agencies like the Federal Reserve. The commission struggled to hire researchers and investigators with expertise in areas like structured finance or accounting.


. . . Commissioners also said that Mr. Angelides and Mr. Thomas recently clashed over whether to release preliminary staff reports or some of the 500,000 pages of materials that had been gathered so far. When Mr. Angelides floated the idea of releasing some of the materials to reporters, Republicans threatened to look into the panel’s work if they took control of the House, a person briefed on the dispute said.

Lack of money cannot be used as an excuse for an overly ambitious congressional mandate, too much political bickering, lack of transparency and obviously poor organizing.  The FCI Commission has until the end of the year to finish its work.  The key to its success will be for members and staff to do the best they can from here on out with the marginal hand they were dealt.  This body's work is,  in a very different way -  of course, of comparable importance to the work of the 9/11 commission.  The Great Recession did great damage to our nation.  We need to know why it happened and how to prevent a recurrence, just as we did with the 9/11 attacks.


(Cross-posted at South by Southwest.)

We used to call it "trust busting"

By Carl

Finally, some rational thought from the Federal Reserve:

"I think the disagreeable but sound thing to do regarding institutions that are TBTF [ed. note. Too Big To Fail] is to dismantle them over time into institutions that can be prudently managed and regulated across borders," he said. "And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis."

Adam Smith would roll over in his grave to understand how perverted his elegant economic system, for all its initial flaws, has become, corrupted by the aggregation of money, power, and influence. He intended for small businesses to compete against each other to provide goods and services to consumers.

Indeed, our Founding Fathers had a great and long debate about even opening up a national bank which would serve as a 800 lb gorilla in the banking system to provide leverage against large business combinations attempting to wrest control of the national money supply. Inevitably, businesses of all sizes fail. It's just a question of time.

If a major multinational bank fails, it doesn't just hurt its employees and shareholders as we've seen. It threatens the entire nation, from its financial security right down to its physical security.

And that's not good.

"Too Big To Fail" is, quite simply, too big. Full stop.

We've discussed on this blog the marvels of distributed power generation. Money is power. Banks should be hacked down to manageable sizes that service the communities they are located in, with no direct entanglements in regions where they have no business being in, and I don't just mean geographic. I mean economic sectors, business sectors, even political sectors.

Will this harm the banking system? I don't think so. I think the system will evolve, perhaps parent corporations that can hold smaller banks under an umbrella, with governmental oversight to make sure there isn't as much crossover as there is now will be established.

One thing is certain: the banking system we have now is on the road to yet another collapse. Businesses fail. Industries fail. Banking will fail again unless we address the inherent flaws immediately.

(Cross-posted to Simply Left Behind.)

The end of too-big-to-fail?

By Creature

I'll believe it when I see it, but the mere fact that Paul Volcker's name is in the same sentence as Obama's is a good start. Taking on the banks is good policy and good politics. More like this, please.

Easy money

By Carl

This is a kind of strawman argument to make by Obama, but nonetheless it will resonate:

In an interview with CBS's "60 Minutes" programme, he said he did not run for office to be "helping out a bunch of fat cat bankers on Wall Street".
Later on Monday, the president will meet some of the US's top bankers face-to-face.
He is scheduled to hold a meeting with executives from Goldman Sachs, JP Morgan Chase and Citigroup.
He is planning to tell them to step up lending to small businesses and get behind legislation to overhaul Wall Street regulations.

The term "fat-cat bankers" is one of those totems of neurolinguistic programming that I have been urging Democrats to pick up on for quite some time. We are not in a race war in this nation, nor are we truly in a political fight with the right.

We are, however, in a class war, one that pits the monied interests against the hundreds of millions of Americans who not only are not wealthy, but stand absolutely no chance of ever becoming wealthy. ("No chance" includes a rounding error to account for that small percentage, perhaps one-tenth of one percent, who might actually get lucky and hit the lottery or write a novel that takes off).

"Fat Cat Banker" raises the image of Mr. Monopoly, Rich Uncle Pennybags, complete with top hat, morning coat and striped pants, wearing a monocle and smoking a cigar, or the image used in so many mortgage and business lending commercials prior to the banking crisis, with a wood-paneled office, drinking brandy from a snifter which the banker then uses to crush the poor little guy trying to get a loan from Megabucks Bank.

But it's the rest of his remarks that truly intrigued me.

"“They don’t get it,” Mr. Obama said. “They’re still puzzled why is it that people are mad at the banks. Well, let’s see. You guys are drawing down ten million, twenty million dollar bonuses after America went through the worst economic year that it’s gone through in decades, and you guys caused the problem.[...]

Much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products seeking short-term profits and big bonuses with little regard for long-term consequences.[...]

What's really frustrating me right now is that you've got these same banks who benefited from taxpayer assistance who are fighting tooth and nail with their lobbyists up on Capitol Hill, fighting against financial regulatory control," he said.

And here's the most effective point he's made while raising the image of the greedy banker: not so much that the banks were greedy for their own sake, but that they owe a debt of gratitude to the small business owners and taxpayers who stood by them when the shit hit the fan.

See, any idiot with a degree in accounting or finance (like me) could have told any banker that the risks they were taking by lending to anyone and everyone who walked up with a hat in hand were enormous and unnecessary. That the bankstahs spent more time listening to the shareholders who threatened mutiny if this quarter's earnings didn't meet or exceed last quarter's earnings and the board of directors who insisted on pay-for-share-performance than they did to the people warning them of the cliff they were about to drive over means they now owe a debt to the people who not only warned them, but who got down under the cliff and caught the bank before it crashed.

Greed is pervasive in the capitalist system. Hell, it IS the capitalist system and used wisely, greed is good. I'm not about to stick my neck out on the chopping block unless there's a better than even chance that I'll end up better, much better, off than when I knelt in front of it.

But here's the thing: that same greed should recognize the people who stood by me, my workers, my investors, my community. That same greed should acknowledge the role of my customers and my vendors. AND that same greed should reward the government that put me in a position to take the chance, by creating a framework that was safe for me to do business in.

And if anyone of these groups, these stakeholders, goes above and beyond the call of duty to assist me when I am in trouble, then greed should absolutely be given to them, not me.

The parallel in my mind is alcoholism. If a man is supporting his family and giving to his community and keeping up with his obligations, then by all means, if he's a drunk then let him drink.

But keep an eye on him, because at some point, the drink, the greed, will overtake him and someone needs to be prepared to step in.

The right wing knuckleheads will tell you that this should be a function of his family (the company), taking care of his alcholo problem (his greed), but they may not notice or worse, may not care. That's when someone else needs to step in and stop him.

(crossposted to Simply Left Behind)

Obama pressures banks to start lending again

By Michael J.W. Stickings

I hate banks. They do nothing positive for anybody except take care of themselves. They're first in with their fees and first out when there's trouble.

- Earl Warren -

According to Politico, bank CEOs told "President Barack Obama in a meeting on Monday that they are ready to 'step up' and take additional steps to promote economic recovery." Apparently, Obama's view is that banks "have a special responsibility to help spur recovery because of the extraordinary bailout assistance they received last year." (The meeting was held this morning.)

Well, yes, they do, and the president is right to play a bit of hardball. You'll forgive me, though, for being, oh, a tad skeptical. Banks hardly make Main Street, or the overall health of the economy, their top priority, and they'll only start lending again if they think they can rape society and ordinary working Americans profit from it.

Also, shouldn't there have been such strings attached from the start? I get that Geithner and Summers were all about refinancing their buddies on Wall Street, but, you know, it wasn't exactly hard to see this coming.

Neither a borrower nor a lender be

By Capt. Fogg

And he said unto them that stood by, Take away from him the pound, and give it unto him that hath the ten pounds.

- Luke 19:24 -

_____________________________________

Once upon a time, there were people who would lend you money at high rates of interest. We called them loan sharks and we put them in jail if we could catch them. We had usury laws to protect the public from being forced into ruinous transactions. We were just inches away from Marxism.

Then came the deregulators who told us that it was toxic government interference and was depriving us of our "freedoms" to apply the same laws to that class of supercitizens known as corporations, and so now we are free to borrow at rates Don Corleone wished he could have charged. Sure, some states jumped in and capped payday loans and the government "protected" the military from being charged more than 36%, but of course that's an outrageous assault on our "freedoms" and, sure enough, the lobbyists came out of the woodwork and bought themselves a House subcommittee which went to work legitimizing loans with a 391% APR. For many in the payday loan business, that's not enough.

H.R. 1214, introduced earlier this year by Congressman Rep. Luis "dances with jackals" Gutiérrez [D-IL4], is still in committee. Yes, Luis is a Democrat, let's give credit where it's due, and Luis, who rose from poor Hispanic roots in Chicago promising to help others like him is now the champion of legalized juice loans and the big banks that screw the little guy in a big way.

The congressman got into trouble last year for getting a $200,000 loan from a contractor for whom he had intervened with the zoning board, but I'm sure he isn't paying 391%. A competing bill from Congressman Joe Baca would prevent states from capping rates at all and would allow much larger add-on fees and charges, but the really great feature would allow you to roll over the loan indefinitely, racking up that 400% or so until you're forced to commit suicide.

Meanwhile, for the rest of us who aren't desperate enough with trying to pay medical bills and mortgages we can't afford, the credit companies are out to protect our freedom, too. Faced with having to warn us they're tightening the screws in the near future, they're tightening them now without warning. I got a letter yesterday from my friendly MasterCard folk -- I won't mention the name, but it rhymes with Citibank -- informing me that since I've been such a good customer for 25 years and always paid the full balance on time, they would raise my interest rate to over 20%. Well, to tell the truth, there was a time or two when I got the unpostmarked bill on or after the due date, although the last two times they tried that I'd switched to e-bills and had documentary proof that they sent the bill too late to be paid on time. They refunded the charges, which would have amounted to nearly 100%, but I never got an apology for their attempt at petty larceny and I don't expect a letter of appreciation for my part (and yours) in bailing them out when they choked on their own greed.

Yes, I know, when the Republicans justify their crimes by insisting the Democrats aren't pure at heart either, they don't avoid the guilt, but they're not always lying.

(Cross-posted from Human Voices.)

Banks continue to record billions in profits

By Creature

I wouldn't mind the profits so much if the money made was being pumped back into the economy. The point of all the rescuing was to first stabilize the banking system, then to energize the economy, in part, by loaning out the money made.  Instead they hoarded, they padded their balance sheets, and they covered over their toxic losses with new math.

I was naive to think the banks would act in good faith.  I thought it was understood that when the taxpayer covers your ass and saves you from the cliff that maybe the banks would reciprocate.  I was wrong. Business as usual rules the day.  

They only tools the American people have left is reform and regulation.  I hope the Congress and the Obama administration have the stomach for that fight.  As of now, I doubt it very much.

Groundhog day

By Creature

Ahhh, the magic of AAA:

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News.

I don't blame Morgan Stanley for trying to resell their crap, I blame the rating agencies for allowing it. Crap, backed by crap, is still crap (no matter how many magical AAAs Moody's uses to try and cover the stench).

Quote of the Day

By Creature

"So the status quo remains: banks with bad assets, a Treasury program to fix it that isn't operational and isn't expected to yield much once it is, and an economy stuck in quicksand in part because of it." -- Kevin G. Hall of McClatchy Newspapers reporting on our zombie banks, their toxic assets and the failure of all parties to face up to or do anything concrete about it.

Not too big to plan for failure

By Creature

As Hilzoy says, this is good news:

Under the administration's proposal, companies such as Citi, Goldman Sachs and others in a broad top tier engaged in complex transactions would face stricter scrutiny and have to hold more assets and more cash as cushions against a downturn.

They also would have to anticipate their own demise, drafting detailed descriptions of how they could be dismantled quickly without causing damaging repercussions. Think of it as planning their own funerals -- and burials. [...]

Under the administration's plan, the Treasury could decide to take a company swiftly through a bankruptcy-like process, appointing the Federal Deposit Insurance Corp. as a conservator or receiver. The FDIC currently now only has the authority to take over troubled banks."

While I still think these too-big-to-fail banks should be dismantled now and the idea that these banks would "anticipate their own demise" leaves way too much wiggle room for those great at wiggling, this is a step in the right direction and should be encouraged.