Obama Dissed, Volcker Speaks Out Against Bankers Gone Wild
If anything about the financial crisis made you beet-red angry, then you must read Simon Johnson. Johnson is a former chief economist for the International Monetary Fund who wrote one of the best pieces on the financial crisis in print, the Quiet Coup. This week he urges people to pass on the message of Paul Volcker, former head of the Fed Reserve (before Greenspan), and now the head of Obama’s Economic Recovery Advisory Board.
Obama met this week with the heads of the major banks in an attempt to discuss regulation and the return of stability to the financial system. Guess who decided to attend the meeting with the President of the Free World only by phone? If you guessed Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup you got it right. (Thanks guys, cause that shows how much you appreciated the use of all our taxpayer dollars!!)
The meeting continued with discussions about executive compensation, regulation, and making more loans available to small business. From the NY Times:
…the banks are seeking to restore executive pay to high levels and asserting that the government’s demand that they hold bigger financial buffers against possible losses makes it hard for them to issue more loans. During the hourlong meeting in the Roosevelt Room of the White House, Mr. Obama prodded the executives to stop fighting the regulation legislation intended to deal with the problems that led to the financial crisis”
Paul Volcker was one of the few outspoken critics of the unprecedented response by the Federal Reserve in the financial crisis. Far oversimplified, he did not agree that it was a good idea to bail out failing banks at all.
After President Obama’s meeting with the top banking executives, Volcker had this to say (emphasis added):
Every day I hear financial leaders saying that they are necessary and desirable, they are wonderful and they are God’s work. Has there been one financial leader to stand out and say that maybe this is excessive and that maybe we should get together privately to think about some restraint?
I hear about these wonderful innovations in the financial markets, and they sure as hell need a lot of innovation. I can tell you of two—credit-default swaps and collateralized debt obligations—which took us right to the brink of disaster. Were they wonderful innovations that we want to create more of? [...] Wake up, gentlemen. I can only say that your response is inadequate. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information.
Paul Volcker and Simon Johnson for the win.
Federal Spending: Simon Johnson, Plus Graphs on Stimulus, TARP, Bailouts
Boy, you think you’ve finally got a handle on how much money the federal government is tossing around — and then you take a look at these interactive graphs (Feds to the Rescue and Fiscal Stimulus Map)published in the Atlantic this month in an article entitled, The Fed’s Cash Machine. The graphs are awesome because they do exactly what visual aids are supposed to do: They give you an insight into the scale of the spending meant to pull the economy up from its massive nosedive. Warning: these graphics are upsetting in nature since they may represent the complete leveraging of our children’s and grandchildren’s futures in order to provide the current bankers, CEOs and shareholders with a cushion against their painful mistakes in corporate policy and investment strategies.
For an incisive view of the current US economic situation, I cannot recommend enough Simon Johnson’s Atlantic article entitled, The Quiet Coup. Johnson, a former chief economist for the IMF, lays it bare. In no uncertain terms, Johnson explains:
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.
More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
And:
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances.
Will Obama become just another protector of the banking industry elites? Will the far Right wake up to the fact that Obama is not the enemy, and maybe Greenspan, Paulsen, and the Federal Reserve are? Tune in for more in the months to come.
Ron Paul Sponsors Bill Requiring Transparency on Bailout
It takes a pissed-off Libertarian to really question the system. Irony abounds because of that “free-market with no regulation thing” the Libertarians back, but never-the-less, you should know Ron Paul is sponsoring a simple, clear bill called the Federal Reserve Transparency Act of 2009 that requires full-disclosure of where federal bailout funds are going and have gone.
Here’s a blog with a draft letter for you to use to contact your Congressional Representative to ask them to support the bill.
AIG is a Sucking, Bottomless Pit
Both Democratic and Repulican senators are (finally!!) getting angry over the massive bailout money forked over to AIG. AIG was supposed to be an insurance company for investors. But what did they do with their assets? The leveraged them outrageously in a frenzy of horrendous greed and mismanagement.
And now? Vice Chairman of the Federal Reserve Board, Donald Kohn, wants to give them more money — get this — “to protect investors.” Uh, the time to protect investors was a long time ago when AIG was ripping everyone off and taking huge heaps of profits from what should have been a very conservatively run business. Where was the regulation? Where was the oversight?
It’s starting to look more and more like dirty deals and the ultra-wealthy protecting the ultra-wealthy.
I’ve got a proposition for you. How about the federal government gives the money DIRECTLY to the investors and cuts out the middlemen at AIG pulling down the fat salaries!?!?!?
Whew. Okay. Calm… I swear, sometimes you just don’t even want to know this stuff.
Where’s Our Green New Deal? Treasury Reinforces Old Economy
I haven’t read Thomas Friedman’s new book Hot, Flat, and Crowded, but I’m going to. Friedman argues that we are at a unique moment in history where we need to forcefully impose green thinking. He takes the long view that we absolutely MUST shift out of our oil/coal dependent energy economy and throw money at all opportunities for green energy innovation. Here’s a quote from a HuffPost interview:
Just don’t tell me — this is the Cheney line — let’s let the market work. Just let the market work. As if the market is neutral. We give nothing to renewables. We give very little to renewables. And we have legacy subsidies and tax incentives for dirty fossil fuels. The whole thing is totally skewed. This market has been gamed from the beginning. If we’re going to game the market let’s at least game it so that clean fuels are on an equal footing with the dirty fuels.
We should be throwing money at this problem. This could give birth to a whole industry. This is not a thing you nickel and dime.
In the meantime, Neel Kashkari is pissing off finance execs by refusing to discuss recent Treasury decisions. Treasury increased funding to AIG from $123 BILLION to $130 BILLION with no explanation, among other mysteries. Bloomburg News is suing Treasury under the Freedom of Information Act for details about who/what institutions are receiving the massive amounts of dollars the government is throwing at them. WHATUP WITH THE SECRECY?? IT’S TAXPAYER MONEY!! Here’s a quote from the Bloomburg article:
The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn’t made.
The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn’t include an additional $700 billion approved by Congress in a bailout package.
So, is our country bleeding or what? It’s all headlines right now, we’re not experiencing food shortages or energy blackouts yet. But dang! Is there impending doom? What would REALLY happen if these financial institutions collapsed, or to put it another way, if the Invisible Hand did its worst? Mass unemployment at least. Are we are only staving off the inevitable?
Like Friedman, I can’t help feeling like our country’s lack of imagination at the highest levels is our biggest burden. Hurry Obama!!! We need you. And don’t forget to make Al Gore, or somebody with VISION, Chief of Energy Independence when you pull together your cabinet!
How Big Firms Were Allowed to Leverage Debt to Assets at 33:1
A must read article from the New York Times explains how a little-known ruling in 2004 eliminated the requirement that large investment banks retain a reasonable amount of cash to cover losses.
Here’s an excerpt:
Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.
On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. [The fox guarding the hen house possibly?]
Still, nothing illegal happened. There’s no one to prosecute since they got permission. How scary is that???
On the topic of a dissenting view of the bailout, check out this awesome clip from Representative Kaptur from Ohio (Thanks The Soccer Mom Vote!) While I have argued that it was probably necessary to bail out the ultra-wealthy, I liked that Kaptur called out the Paulsen crew for the fear-mongering and obfuscation. Considering Paulsen was somewhat instrumental in CAUSING the meltdown. (see above!)
-
-
About
Welcome to duh pookie where we work hard to bring you sparkly new thoughts.
-
- RSS Feed
-
Visit Political Voices of Women Community
