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A Wary Eye On The Indicators

March 1st, 2010 Posted in Uncategorized

Mar, 01 2010

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March 1, 2010

The past few days brought us some observations by a number of financial commentators, who expressed concern about how our economic recovery is coming along. Although none of the following three are ready to start sounding alarms, they all seem to share a similar tone of discouragement.

Don Luskin of The Wall Street Journal ’s Smart Money blog began his February 26 piece with an explanation of how proud he used to be about the accuracy of his May, 2009 declaration that the recession had ended. Although he still believes that he made the right call back then, the most recent economic indicators have muddied the picture:

I made my recession end call in May because of an entirely different set of statistics, designed to be predictive rather than merely to recognize what has already happened. What worries me is that these statistics have all started to get a little worse recently.

Luskin explained that although initial unemployment claims reached their peak in early April, the four-week moving average has risen 7 percent from where it was a few weeks ago.

Over history, upticks like that have no predictive value. There have been many of them, and very few have led to recessions. Still, 7% is a big reversal. In May when I got excited about the drop in claims, that drop was only about 4%!

Luskin found another disappointing trend in the fact that earnings expectations for the S&P 500 are now growing at a much slower pace than they were in April. Two other trends concerned him as well. The fact that the dollar has rallied ten percent in the last couple of months raises the question whether “the fear that gripped world markets in 2008 and 2009” could be returning. Finally, the fact that the credit spread between Treasuries and “junk bonds” is now at six percent after having been below 5%, brings a little discomfort simply because of a move in the wrong direction. Nevertheless, Luskin is still optimistic, although his perspective is tempered with realism:

So is the economic recovery over? I don’t think so. I think it’s just being tested. None of the indicators I use to detect the onset of recession are giving signals. But it’s haunting, nevertheless. After the horrific global recession we went through, you’d think we ought to come roaring back. We’re back, but we’re not exactly roaring.

In Sunday’s Washington Post, Frank Ahrens wrote an article discussing three indicators that “spell trouble for the recovery”. Here’s how he explained them:

— On Wednesday, the Commerce Department reported that January new-home sales dropped 11.2 percent from December, plunging to their lowest level in nearly 50 years.

— On Tuesday, the Conference Board reported that February consumer confidence fell sharply from January, driven down by the survey’s “present situation index” — how confident consumers feel right now — which hit its lowest mark since the 1983 recession. On Friday, the Reuters/University of Michigan consumer sentiment survey also showed a falloff from January to February.

— On Thursday, the government’s report on new jobless claims filed during the previous week shot up 22,000, which was exactly opposite of what economists predicted. Forecasters expected new jobless claims to drop by about 20,000.

Taken together, what do these reports tell us?

We’ve got a long way to go to get out of this economic mess, and we may be actually losing a little ground.

At the conclusion of that piece, Mr. Ahrens added that another factor holding back recovery is the current state of activity in the stock market. Investors seem to be exhibiting caution, uncertainty and “a hard-to-shake sense that we haven’t hit bottom yet”.

As I frequently point out, one of my favorite financial gurus is Jeremy Grantham of GMO. The February 26 issue of Bloomberg Business Week featured an article by Charles Stein concerning Grantham’s career. In the section of the piece discussing Grantham’s current outlook, we see yet another view toward a very lean, slow recovery process:

Grantham’s favorite asset class today is high-quality U.S.stocks, companies defined by high, stable returns and low debt. The allocation fund had 31 percent of its money in that category at year-end, sometimes called blue chips, according to the GMO Web site. In the interview, he said he expects such stocks to return an average of 6.8 percent a year over the next seven years, compared with 1.3 percent for all large-cap U.S. stocks.

Emerging-market stocks may rise about 4 percent annually in the next seven years, as investor enthusiasm for economic growth in developing countries carries the stocks to unsustainable levels, Grantham said.

“Why not go along for the ride?” he said. The MSCI Emerging Markets Index returned an average of 22 percent in the past seven years, compared with a gain of 5.5 percent by the S&P 500 index.

U.S.government bonds will return 1.1 percent a year over the seven-year period, according to the latest GMO forecast. The Bank of America Merrill Lynch U.S. Treasury Master Index rose 4.3 percent from 2003 through 2009.

Grantham said he expects a difficult, not disastrous, period for the economy and investments.

“It will feel like the 1970s,” he said. “One step forward, one step back.”

None of the three gentlemen whom I have quoted here are seeing visions of rainbows and unicorns in our economic future — at least not for the next few years. Be sure to keep the opinions of these experts in mind if the cheerleading by some perma-bull, TV pundit motivates you to “get in on the ground floor of the next stock market rally”. You could save yourself a lot of money and even more pain.

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Three New Books For March

February 24th, 2010 Posted in Uncategorized

Feb, 24 2010

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February 24, 2010

The month of March brings us three new books about the financial crisis. The authors are not out to make apologies for anyone. To the contrary, they point directly at the villains and expose the systemic flaws that were exploited by those who still may yet destroy the world economy. All three of these books are available at the Amazon widget on the sidebar at the left side of this page.

Regular fans of the Naked Capitalism blog have been following the progress of Yves Smith on her new book, ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. It will be released on March 2. Here is some information about the book from the product description at the Amazon website:

ECONned is the first book to examine the unquestioned role of economists as policy-makers, and how they helped create an unmitigated economic disaster.

Here, Yves Smith looks at how economists in key policy positions put doctrine before hard evidence, ignoring the deteriorating conditions and rising dangers that eventually led them, and us, off the cliff and into financial meltdown. Intelligently written for the layman, Smith takes us on a terrifying investigation of the financial realm over the last twenty-five years of misrepresentations, naive interpretations of economic conditions, rationalizations of bad outcomes, and rejection of clear signs of growing instability.

In eConned (sic), author Yves Smith reveals:

–why the measures taken by the Obama Administration are mere palliatives and are unlikely to pave the way for a solid recovery

–how economists have come to play a profoundly anti-democratic role in policy

–how financial models and concepts that were discredited more than thirty years ago are still widely used by banks, regulators, and investors

–how management and employees of major financial firms looted them, enriching themselves and leaving the mess to taxpayers

–how financial regulation enabled predatory behavior by Wall Street towards investors

–how economics has no theory of financial systems, yet economists fearlessly prescribe how to manage them

Michael Lewis is the author of the wildly-popular book, Liar’s Poker, based on his experience as a bond trader for Solomon Brothers in the mid-80s. His new book, The BigShort: Inside the Doomsday Machine, will be released on March 15. Here is some of what Amazon’s product description says about it:

A brilliant account — character-rich and darkly humorous — of how the U.S. economy was driven over the cliff.

* * *

Michael Lewis’s splendid cast of characters includes villains, a few heroes, and a lot of people who look very, very foolish: high government officials, including the watchdogs; heads of major investment banks (some overlap here with previous category); perhaps even the face in your mirror. In this trenchant, raucous, irresistible narrative, Lewis writes of the goats and of the few who saw what the emperor was wearing, and gives them, most memorably, what they deserve. He proves yet again that he is the finest and funniest chronicler of our times.

Our third author, Simon Johnson, recently co-authored an article for CenterPiece with Peter Boone entitled, “The Doomsday Cycle” which explains how “we have let a ‘doomsday cycle’ infiltrate our economic system”. The essay contains a number of proposals for correcting this problem. Here is one of them:

We believe that the best route to creating a safer system is to have very large and robust capital requirements, which are legislated and difficult to circumvent or revise. If we triple core capital at major banks to15-25% of assets, and err on the side of requiring too much capital for derivatives and other complicated financial structures, we will create a much safer system with less scope for “gaming” the rules.

Simon Johnson is a professor of Entrepreneurship at MIT’s Sloan School of Management. From 2007-2008, he was chief economist at the International Monetary Fund. With James Kwak, he is the co-publisher of The Baseline Scenario website. Johnson and Kwak have written a new book entitled, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. Although this book won’t be released until March 30, the Amazon website has already quoted from reviews by the following people: Bill Bradley, Robert Reich, Arianna Huffington, Bill Moyers, Alan Grayson, Brad Miller, Elizabeth Warren and others. Professor Warren must be a Democrat, based on the affiliation of nearly everyone else who reviewed the book.

Here is some of what can be found in Amazon’s product description:

. . . a wide-ranging, meticulous, and bracing account of recent U.S. financial history within the context of previous showdowns between American democracy and Big Finance: from Thomas Jefferson to Andrew Jackson, from Theodore Roosevelt to Franklin Delano Roosevelt. They convincingly show why our future is imperiled by the ideology of finance (finance is good, unregulated finance is better, unfettered finance run amok is best) and by Wall Street’s political control of government policy pertaining to it.

As these authors make the talk show circuit to promote their books during the coming weeks, the American public will hearing repeated pleas to demand that our elected officials take action to stop the mercenary financial behemoths from destroying the world. Perhaps the message will finally hit home.

If you are interested in any of these three books, they’re available on the right side of this page.

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Rethinking The Stimulus

February 22nd, 2010 Posted in Uncategorized

Feb, 22 2010

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February 22, 2010

On the anniversary of the stimulus law (a/k/a the American Recovery and Reinvestment Act of 2009 — Public Law 111-5) there has been quite a bit of debate concerning the number of jobs actually created by the stimulus as opposed to the claims made by Democratic politicians. For their part, the Democrats take pride in the fact that John Makin of the conservative think-tank, the American Enterprise Institute, recently published this statement at the AEI website:

Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S.growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.

A few months ago, I had a discussion with an old friend and the subject of the stimulus came up. My beefs about the stimulus were that it did not offer the necessary degree of immediate relief and that a good chunk of it should have gone directly into the hands of the taxpayers.

I recently read a blog posting by Keith Hennessey, the former director of the National Economic Council under President George W. Bush, which expressed some opinions similar to my own on what the stimulus should have offered. Although Mr. Hennessey preferred the traditional panacea of tax cuts as the primary means for economic stimulus, he made a number of other important points. With so much fear being expressed about the possibility of a “double-dip” recession, our government could find itself in the uncomfortable position of considering another stimulus bill. If that day comes, we have all the more reason to look back at what was right and what was wrong with the 2009 stimulus.

Keith Hennessy began with this statement:

Unlike many critics of the stimulus law, I think that fiscal policy can increase short-term economic growth, especially when the economy is in a deep recession. In other words, I think that fiscal stimulus is a valid concept. This does not mean that I think that every increase in government spending, or every tax cut, (a) increases short-term economic growth or (b) is good policy.

At the end of his second paragraph, he got to the part that was music to my ears:

If the Administration had instead put $862 B directly into people’s hands, you would have seen more immediate spending and economic growth than we did, even if people had saved most of it.

In contrast, government spending is powerful but painfully slow. If the government spends $1 on building a road, eventually that entire $1 will enter the economy and increase GDP growth. Your bang-for-the-deficit-buck is extremely high. The problem is that bang-for-the-buck doesn’t help us if that bang occurs two or three or four years from now.

* * *

I would instead prefer that people be allowed to spend and save the money how they best see fit. My preferred path also has less waste and bureaucracy.

A bit later in the piece, Hennessey said some things that probably caused a good number of the CPAC conventioneers reach for the Tums:

I agree with the Administration that last year’s stimulus law increased economic growth above what it otherwise would have been. I agree that employment is higher than it would have been without a stimulus.

Of course, Hennessey complained that “The law was poorly designed and inefficient” — in part because the money was funneled through federal and state bureaucracies — another valid point. Then, he got to the important issue:

Given a decision last year to do a big fiscal stimulus, I would have preferred, in this order:

1. putting all the money into a permanent reduction in income and capital taxes;

2. putting all the money into a temporary reduction in income and capital taxes;

3. putting all the money into transfer payments;

4. what Congress and the President did.

Given the policy preferences of the President, his team’s big policy mistake last year was to let Congress turn a reasonable macroeconomic fiscal policy goal into a Congressional spending toga party. Given his policy preferences, the President should have insisted that Congress put all the money into (2) and (3) above. He would have had a bigger macro stimulus bang earlier.

In case you’re wondering what “transfer payments” are — you need to think in terms of “wealth transfer”. In this case, it concerns situations where the government gives away money to people who aren’t rich. A good example of this was the stimulus program that took place under President Bush. Individuals with incomes of less than $75,000 received a $300 “stimulus check” and households with joint incomes under $150,000 got $600.

My own stimulus idea would involve a “tax rebate” program, wherein the taxpayers receive a number of $50 vouchers based on the amount of income tax they paid the previous year. The recipients would then be instructed to go out and buy stuff with the vouchers. So what if they spent it on imported merchandise? The American retailers and shipping companies would still make money, finding it necessary to hire people. The vouchers would display the person’s name and address. In order to use the vouchers, identification would be needed, so as to prevent resale. The maximum amount of cash change one could get back from a voucher-funded purchase would be $10.

Hopefully, we won’t need another stimulus program. However, if we do, I suggest that the government simply give us vouchers and send us shopping.

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Senator Cantwell Stands Tough

February 8th, 2010 Posted in Uncategorized

Feb, 08 2010

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February 8, 2010

Back in June of 2008, when it became obvious that Hillary Clinton would not win the nomination as the Democratic Party’s Presidential candidate, Clinton’s despondent female supporters lamented that they would never see a woman elected President within their own lifetimes. At that point, I wrote a piece entitled, “Women To Watch”, reminding readers that “there are a number of women presently in the Senate, who got there without having been married to a former President (whose surname could be relied upon for recognition purposes).” One of those women, whom I discussed in that essay, was Senator Maria Cantwell of Washington. Since that time, Senator Cantwell has proven herself as a defender of her constituents and an opponent of Wall Street. Her bold criticism of the Obama administration’s handling of the economic crisis as well as her vocal opposition to the influence of lobbyists, motivated me to write a second piece about Senator Cantwell in November of 2009. More recently, she voted against the confirmation of Ben Bernanke’s nomination to a second term as Federal Reserve chair and on February 2, Reuters reported that she was taking a stand against loopholes in proposed financial reform legislation.

On February 7, Les Blumenthal of the McLatchy Newspapers saw fit to highlight Senator Cantwell’s efforts at backing-up with real action, her tough stand against Wall Street:

To hear Sen. Maria Cantwell talk, another economic bubble is building as Wall Street banks — backed by taxpayer bailouts — continue to play the high-risk derivatives markets rather than extend credit to struggling businesses on Main Street.

Cantwell says that Congress and the Obama administration are just watching it happen.

* * *

“We are trying to keep the focus on what needs to be done to get credit flowing and avoid another bubble,” Cantwell said in an interview. “Do I wish the White House team was more attuned to these issues? Yes.”

* * *

White House officials have, at least twice, backed off commitments they made to her that they’d push for tougher regulations, Cantwell said.

“Their economic team is not living up to what they said they would,” Cantwell said.

Her criticism of the financial regulatory reform bill passed by the House — as being “riddled with loopholes” — was reminiscent of the widespread reaction to the disappointing failure of the Democrats to pass any significant healthcare reform legislation:

If the bills emerging from committees aren’t tough enough, Cantwell vowed a floor fight. She said she had support from half a dozen senators, including Democrats Dianne Feinstein of California, Tom Harkin of Iowa, and Carl Levin of Michigan.

“People are going to have to ask themselves what’s better — a weak bill or no bill?” she said.

At a time when her peers are busy selling out to lobbyists, Senator Cantwell is continuing to reinforce her image as a reformer. Her February 4 exchange with “Turbo” Tim Geithner, during his appearance before the Senate Finance Committee, was an example of the type of challenge that other Democrats are afraid to publicly vocalize when addressing members of the administration. Cantwell emphasized that the President has the authority to act on his own (by issuing an Executive Order) to make $30 billion available to community banks, rather than waiting for Congress to pass legislation for such a rescue. Her home state’s Lake Stevens Journal discussed that moment:

“If we don’t implement change right now, we are going to lose more jobs,” Cantwell told Geithner. “Do not wait for legislation. Come to terms with the community banks on reasonable terms that they can agree to — and I think that that we will be well on our way to getting Americans back to work.”

Maria Cantwell continues to exhibit a (sadly) unique toughness in standing up to those forces bent on preserving the destructive status quo. As disgruntled supporters of Hillary Clinton wonder whether her intention to step down as Secretary of State in 2012 could signal another opportunity to elect America’s first female President — they would be well-advised to consider Senator Cantwell as their best hope for reaching that historic milestone.

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Taking The Suckers For Granted

January 21st, 2010 Posted in Uncategorized

Jan, 21 2010

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January 21. 2010

In the aftermath of Coakley Dokeley’s failed quest to replace Teddy Kennedy as Senator of Massachusetts, the airwaves and the blogosphere have been filled with an assortment of explanations for how and why the Bay State elected a Republican senator for the first time in 38 years. I saw the reason as a simple formula: One candidate made 66 campaign appearances while the other made 19. The rationale behind the candidate’s lack of effort was simple: she took the voters for granted. This was the wrong moment to be taking the voters for chumps. At a time when Democrats were vested with a “supermajority” in the Senate, an overwhelming majority in the House and with control over the Executive branch, they overtly sold out the interests of their constituents in favor of payoffs from lobbyists. Obama’s centerpiece legislative effort, the healthcare bill, turned out to be another “crap sandwich” of loopholes, exceptions, escape clauses and an effective date after the Mayan-prophesized end of the world. Obama’s giveaway to Big Pharma was outdone by Congressional giveaways to the healthcare lobby.

The Democrats’ efforts to bring about financial reform are now widely viewed as just another opportunity to rake in money and favors from lobbyists, leaving the suckers who voted for them to suffer worse than before. Coakley Dokeley made the same mistake that Obama and most politicians of all stripes are making right now: They’re taking the suckers for granted. That narrative seems to be another important reason why the Massachusetts senatorial election has become such a big deal. There is a lesson to be learned by the politicians, who are likely to ignore it.

Paul Farrell recently wrote an open letter to President Obama for MarketWatch, entitled: “10 reasons Obama is now failing 95 million investors”. In his discussion of reason number five, “Failing to pick a cast of characters that could have changed history”, Farrell made this point:

Last year many voted for you fearing McCain might pick Phil Gramm as Treasury secretary. Unfortunately, Mr. President, your picks not only revived Reaganomics under the guise of Keynesian economics, you sidelined a real change-agent, Paul Volcker, and picked Paulson-clones like Geithner and Summers. But worst of all, you’re reappointing Bernanke, a Greenspan clone, as Fed chairman, an economist who, as Taleb put it, “doesn’t even know he doesn’t understand how things work.” And with that pick, you proved you also don’t understand how things work.

Another former Obama supporter, Mort Zuckerman, editor-in-chief of U.S. News and World Report and publisher of the New York Daily News, wrote a piece for The Daily Beast, examining Obama’s leadership shortcomings:

In the campaign, he said he would change politics as usual. He did change them. It’s now worse than it was. I’ve now seen the kind of buying off of politicians that I’ve never seen before. It’s politically corrupt and it’s starting at the top. It’s revolting.

* * *

I hope there are changes. I think he’s already laid in huge problems for the country. The fiscal program was a disaster. You have to get the money as quickly as possible into the economy. They didn’t do that. By end of the first year, only one-third of the money was spent. Why is that?

He should have jammed a stimulus plan into Congress and said, “This is it. No changes. Don’t give me that bullshit. We have a national emergency.” Instead they turned it over to Harry Reid and Nancy Pelosi who can run circles around him.

As for the Democrats’ pre-sabotaged excuse for “financial reform”, the fate of the Consumer Financial Protection Agency is now in the hands of “Countrywide Chris” Dodd, who is being forced into retirement because the people of Connecticut are fed up with him. As a result, this is his last chance to get some more “perks” from his position as Senate Banking Committee chairman. Elizabeth Warren, the person likely to be appointed to head the CFPA, explained to Reuters that banking lobbyists might succeed in “gutting” the proposed agency:

“The CFPA is the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants,” she told Reuters in an interview.

* * *

Consumer protection is relatively simple and could easily be fixed, she said. The statutes, for the most part, already exist, but enforcement is in the hands of the wrong people, such as the Federal Reserve, which does not consider it central to its main task of maintaining economic stability, she said.

Setting up the CFPA is largely a matter of stripping the Fed and other agencies of their consumer protection duties and relocating them into a new agency.

With all the coverage and expressed anticipation that the Massachusetts election will serve as a “wake-up call” to Obama and Congressional Democrats, not all of us are so convinced. Edward Harrison of Credit Writedowns put it this way:

But, I don’t think the President gets it. He is holed up in the echo chamber called the White House. If the catastrophic loss in Massachusetts’ Senate race and the likely defeat of his health care reform bill doesn’t wake Obama up to the realities that he is not in Roosevelt’s position but in Hoover’s, he will end as a failed one-term President.

I agree. I also believe that the hubris will continue. Why would any of these politicians change their behavior? The “little people” never did matter. They exist solely to be played as fools. They are powerless against the plutocracy. Right?

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Lev Is The Drug

January 14th, 2010 Posted in Uncategorized

Jan, 14 2010

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January 14, 2010

The first day of hearings conducted by the Financial Crisis Inquiry Commission (FCIC) was as entertaining as I expected. The stars of the show: Lloyd Blankfein of Goldman Sachs, John Mack of Morgan Stanley, “The Dimon Dog” of JP Morgan Chase and Brian Moynihan from Bank of America presented themselves as likeable guys. However, in the case of Blankfein, whenever he wasn’t talking he would sit there with that squinting, perplexed look on his face that seemed to mime the question: “WTF?” A large segment of the viewing public has already been primed to view these gentlemen as “The Four Horsemen of The Financial Apocalypse”. Nevertheless, there were four more Horsemen absent from the “stage” on Wednesday: Messrs. Greenspan, Bernanke, Paulson and Geithner. Beyond that, Brian Moynihan didn’t really belong there, since he was not such a significant “player” as the other panel members, in events of 2008. In fact, history may yet view his predecessor, Ken Lewis, as more of a victim in this drama, due to the fact that he was apparently coerced by Hank Paulson and Ben Bernanke into buying Merrill Lynch with instructions to remain silent about Merrill’s shabby financial status. I would have preferred to see Vikram Pandit of Citigroup in that seat.

As I watched the show, I tried to imagine what actors would be cast to play which characters on the panel in a movie about the financial crisis. Mike Myers would be the obvious choice to portray Lloyd Blankfein. Myers could simply don his Dr. Evil regalia and it would be an easy gig. The Dimon Dog should be played by George Clooney because he came off as a “regular guy”, lacking the highly-polished, slick presentation one might expect from someone in that position. Brian Moynihan could be portrayed by Robin Williams, in one of his rare, serious roles. John Mack should be portrayed by Nicholas Cage, if only because Cage needs the money.

Although many reports have described their demeanor as “contrite”, the four members of the first panel gave largely self-serving presentations, characterizing their firms in the most favorable light. Blankfein emphasized that Goldman Sachs still believes in marking its assets to market. As expected, his theme of “if we knew then what we knew now . . .” got heavier rotation than a Donna Summer record at a party for Richard Simmons. John Mack, who was more candid and perhaps the most contrite panel member, made a point of mentioning that some assets cannot be “marked to market” because there really is no market for them. Excuse me . . . but isn’t that the definition of the term, “worthless”?

Throughout the session, the panel discussed the myriad causes that contributed to the onset of the financial crisis. Despite that, nobody seemed interested in implicating the Federal Reserve’s monetary policy as a factor. “Don’t bite the hand that feeds you” was the order of the day. All four panelists described the primary cause of the crisis as excessive leverage. They acted as a chorus, singing “Lev Is The Drug”. Lloyd Blankfein repeatedly expressed pride in the fact that Goldman Sachs has always been leveraged to “only” a 23-to-1 ratio. The Dimon Dog’s theme was something like: “We did everything right . . . except that we were overleveraged”. Dimon went on to make the specious claim that overleveraging by consumers was a contributing element in causing the crisis. Although many commentators whom I respect have made the same point, I just don’t buy it. Why blame people who were led to believe that their homes would continue to print money for them until they died? Dimon himself admitted at the hearing that no consideration was ever given to the possibility that home values would slump. Worse yet, for a producer or purveyor of the so-called “financial weapons of mass-destruction” to implicate overleveraged consumers as sharing a role in precipitating this mess is simply absurd.

The second panel from Wednesday’s hearing was equally, if not more entertaining. Michael Mayo of Calyon Securities seemed awfully proud of himself. After all, he did a great job on his opening statement and he knew it. Later on, he refocused his pride with an homage to his brother, who is currently serving in Iraq. Nevertheless, the star witness from the second panel was Kyle Bass of Hayman Advisors, who gave the most impressive performance of the day. Bass made a point of emphasizing (in so many words) that Lloyd Blankfein’s 23-to-1 leverage ratio was nearly 100 percent higher than what prudence should allow. If you choose to watch the testimony of just one witness from Wednesday’s hearing, make sure it’s Kyle Bass.

I didn’t bother to watch the third panel for much longer than a few minutes. The first two acts were tough to follow. Shortly into the opening statement by Mark Zandy of Moody’s, I decided that I had seen enough for the day. Besides, Thursday’s show would hold the promise of some excitement with the testimony of Sheila Bair of the FDIC. I wondered whether someone might ask her: “Any hints as to what banks are going to fail tomorrow?” On the other hand, I had been expecting the testimony of Attorney General Eric Hold-harmless to help cure me of the insomnia caused by too much Cuban coffee.

The Commissioners themselves have done great work with all of the witnesses. Phil Angelides has a great style, combining a pleasant affect with incisive questioning and good witness control. Doug Holtz-Eakin and Brooksley Born have been batting 1000. Heather Murren is more than a little easy on the eyes, bringing another element of “star quality” to the show.

Who knows? This commission could really end up making a difference in effectuating financial reform. They’re certainly headed in that direction.

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More Fun Hearings

January 11th, 2010 Posted in Uncategorized

Jan, 11 2010

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January 11, 2010

In my last posting, I discussed the need for a 9/11-type of commission to investigate and provide an accounting of the Federal Reserve’s role in causing the financial crisis. A more broad-based inquiry into the causes of the financial crisis is being conducted by the Financial Crisis Inquiry Commission, led by former California State Treasurer, Phil Angelides. The Financial Crisis Inquiry Commission (FCIC) was created by section 5 of the Fraud Enforcement and Recovery Act (or FERA) which was signed into law on May 20, 2009. The ten-member Commission has been modeled after the Pecora Commission of the early 1930s, which investigated the causes of the Great Depression, and ultimately provided a basis for reforms of Wall Street and the banking industry. Like the Pecora Commission, the FCIC has subpoena power.

On Wednesday, January 13, the FCIC will hold its first public hearing which will include testimony from some interesting witnesses. The witnesses will appear in panels, with three panels being heard on Wednesday and two more panels appearing on Thursday. The witness list and schedule appear at The Huffington Post website. Wednesday’s first panel is comprised of the following financial institution CEOs: Lloyd Blankfein of Goldman Sachs (who unknowingly appeared as Dr. Evil on several humorous, internet-based Christmas cards), Jamie Dimon (a/k/a “The Dimon Dog”) of JP Morgan Chase, John Mack of Morgan Stanley and Brian Moynihan of Bank of America. Curiously, Vikram Pandit of Citigroup was not invited.

Frank Rich of The New York Times spoke highly of FCIC chairman Phil Angelides in his most recent column. Nevertheless, as Mr. Rich pointed out, given the fact that the banking lobby has so much influence over both political parties, there is a serious question as to whether the FCIC will have as much impact on banking reform as did the Pecora Commission:

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties.

A similar degree of skepticism was apparent in a recent article by Binyamin Appelbaum of The Washington Post. Mr. Appelbaum also made note of the fact that the relatively small, $8 million budget — for an investigation that has until December 15 to prepare its report — will likely be much less than the amount spent by the banks under investigation. Appelbaum pointed out that FCIC vice chairman, William Thomas, a retired Republican congressman from California, felt that the commission would benefit from its instructions to focus on understanding the crisis rather than providing policy recommendations. Nevertheless, both Angelides and Thomas expressed concern about the December 15 deadline:

The tight timetable also makes it impossible to produce a comprehensive account of the crisis, both men said. Instead, the commission will focus its work on particular topics, perhaps producing a series of case studies, Angelides said.

* * *

Both Angelides and Thomas acknowledged that the commission is off to a slow start, having waited more than a year since the peak of the crisis to hold its first hearing. Thomas said that a lot of work already was happening behind the scenes and that the hearing next week could be compared to a rocket lifting off after a lengthy construction process.

Even as books and speeches about the crisis pile up, Thomas expressed confidence that the committee’s work could still make a difference.

“There are a lot of people who still haven’t learned the lessons,” he said.

One of those people who still has not learned his lesson is Treasury Secretary “Turbo” Tim Geithner, who is currently facing a chorus of calls for his resignation or firing. Economist Randall Wray, in a piece entitled, “Fire Geithner Now!” shared my sentiment that Turbo Tim is not the only one who needs to go:

There is a growing consensus that it is time for President Obama to fire Treasury Secretary Timothy Geithner. While he is at it, he needs to clean house by firing Larry Summers, by banning Robert Rubin from Washington, and by appointing a replacement for Chairman Bernanke. It is time for a fresh start.

Geithner is facing renewed scrutiny due to his questionable actions while at the NYFed. As reported on Bloomberg and in the NYT, secret emails show that the NYFed under Geithner’s command prohibited AIG from reporting that it was passing government bail-out funds directly to counterparties, including Goldman Sachs.

Beyond that, Professor Wray emphasized that Obama’s new economic team should be able to recognize the following four principles (which I have abbreviated):

1. Banks do not face a liquidity crisis, rather they are massively insolvent. Reported profits are due entirely to trading activities – which amount to nothing more than a game of Old Maid, with institutions selling bad assets to each other at inflated prices on a quid-pro-quo basis. As such, they need to be shut down and resolved. …

2. Saving financial institutions does not save the economy. …

3. As such, all of the bail-outs and guarantees provided to financial institutions (over $20 trillion) need to be unwound. Not because we cannot “afford” them but because they are dangerous. Unfortunately, Congress has come to see all of these trillions of dollars committed to Wall Street as a barrier to spending more on Main street. …

4. Finally, we need an economic team that understands government finance. The current team is hopelessly confused, led and misguided by Robert Rubin. …

At The Business Insider website, Henry Blodget gave a four-minute, video presentation, citing five reasons why Geithner should resign. The text version of this discussion appears at The Huffington Post. Nevertheless, at The Business Insider’s Clusterstock blog, John Carney expressed his belief that Geithner would not quit or be forced to leave office until after the mid-term elections in November:

We would like to see Geithner go now.

* * *

But there’s little chance this will happen. The Obama administration cannot afford to show weakness. If it caved to Congressional critics of Geithner, lawmakers would be further emboldened to chip away at the president’s authority. Senate Republicans would likely turn the confirmation hearing of Geithner’s replacement into a brawl — one that would not reflect well on the White House or Democrat Congressional leadership.

There’s also little political upside to getting rid of Geithner now. It will not save Congressional Democrats any seats in the mid-term election. Obama’s popularity ratings won’t rise. None of the administration’s priorities will be furthered by firing Geithner.

All of this changes following the midterm elections, when Democrats will likely lose seats in Congress. At that point, the administration will be looking for a fall guy. Geithner will make an attractive fall guy.

Although there may not be much hope that the hard work of the Financial Crisis Inquiry Commission will result in any significant financial reform legislation, at least we can look forward to the resignations of Turbo Tim and Larry Summers before the commission’s report is due on December 15.

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A 9-11 Commission For The Federal Reserve

January 7th, 2010 Posted in Uncategorized

Jan, 07 2010

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January 7, 2010

After the terrorist attacks of September 11, 2001, Congress passed Public Law 107-306, establishing The National Commission on Terrorist Attacks Upon the United States (also known as the 9-11 Commission). The Commission was chartered to create a full and complete account of the circumstances surrounding the September 11, 2001 terrorist attacks, including preparedness for and the immediate response to the attacks. The Commission was also mandated to provide recommendations designed to guard against future attacks. The Commission eventually published a report with those recommendations. The failure to implement and adhere to those recommendations is now being discussed as a crucial factor in the nearly-successful attempt by The Undiebomber to crash a jetliner headed to Detroit on Christmas Day.

On January 3, 2010, Federal Reserve Chairman Ben Bernanke gave a speech at the Annual Meeting of the American Economic Association in Atlanta, entitled: “Monetary Policy and the Housing Bubble”. The speech was a transparent attempt to absolve the Federal Reserve from culpability for causing the financial crisis, due to its policy of maintaining low interest rates during Bernanke’s tenure as Fed chair as well as during the regime of his predecessor, Alan Greenspan. Bernanke chose instead, to focus on a lack of regulation of the mortgage industry as being the primary reason for the crisis.

Critical reaction to Bernanke’s speech was swift and widespread. Scott Lanman of Bloomberg News discussed the reaction of an economist who was unimpressed:

“It sounds a little bit like a mea culpa,” said Randall Wray, an economics professor at the University of Missouri in Kansas City, who was in Atlanta and didn’t attend Bernanke’s speech. “The Fed played a role by promoting the most dangerous financial innovations used by institutions to fuel the housing bubble.”

Nomi Prins attended the speech and had this to say about it for The Daily Beast:

But having watched his entire 10-slide presentation (think: Economics 101 with a political twist), I had a different reaction: fear.

My concern is straightforward: Bernanke doesn’t seem to have learned the lessons of the very recent past. The flip side of Bernanke’s conclusion — we need stronger regulation to avoid future crises — is that the Fed’s monetary, or interest-rate, policy was just fine. That the crisis that brewed for most of the decade was merely a mistake of refereeing, versus the systemic issue of mega-bank holding companies engaged in reckless practices, many under the Fed’s jurisdiction.

* * *

Meanwhile, justifying past monetary policy rather than acknowledging the real-world link between Wall Street practices and general economic troubles suggests that Bernanke will power the Fed down the path of the same old mistakes. Focusing on lending problems is important, but leaving goliath, complex banks to their worst practices (albeit with some regulatory tweaks) is to miss the world as it is.

As the Senate takes on the task of further neutering the badly compromised financial reform bill passed by the House (HR 4173) — supposedly drafted to prevent another financial crisis — the need for a better remedy is becoming obvious. Instead of authorizing nearly $4 trillion for the next round of bailouts which will be necessitated as a result of the continued risky speculation by those “too big to fail” financial institutions, Congress should take a different approach. What we really need is another 9/11-type of commission, to clarify the causes of the financial catastrophe of September 2008 (which manifested itself as a credit crisis) and to make recommendations for preventing another such event.

David Leonhardt of The New York Times explained that Greenspan and Bernanke failed to realize that they were inflating a housing bubble because they had become “trapped in an echo chamber of conventional wisdom” that home prices would never drop. Leonhardt expressed concern that allowing the Fed chair to remain in such an echo chamber for the next bubble could result in another crisis:

What’s missing from the debate over financial re-regulation is a serious discussion of how to reduce the odds that the Fed — however much authority it has — will listen to the echo chamber when the next bubble comes along. A simple first step would be for Mr. Bernanke to discuss the Fed’s recent failures, in detail. If he doesn’t volunteer such an accounting, Congress could request one.

In the future, a review process like this could become a standard response to a financial crisis. Andrew Lo, an M.I.T. economist, has proposed a financial version of the National Transportation Safety Board — an independent body to issue a fact-finding report after a crash or a bust. If such a board had existed after the savings and loan crisis, notes Paul Romer, the Stanford economist and expert on economic growth, it might have done some good.

Barry Ritholtz, author of Bailout Nation, argued that Bernanke’s failure to understand what really caused the credit crisis is just another reason for a proper investigation addressing the genesis of that event:

Unfortunately, it appears to me that the Fed Chief is defending his institution and the judgment of his immediate predecessor, rather than making an honest appraisal of what went wrong.

As I have argued in this space for nearly 2 years, one cannot fix what’s broken until there is a full understanding of what went wrong and how. In the case of systemic failure, a proper diagnosis requires a full understanding of more than what a healthy system should look like. It also requires recognition of all of the causative factors — what is significant, what is incidental, the elements that enabled other factors, the “but fors” that the crisis could not have occurred without.

Ritholtz contended that an honest assessment of the events leading up to the credit crisis would likely reveal a sequence resembling the following time line:

1. Ultra low interest rates led to a scramble for yield by fund managers;

2. Not coincidentally, there was a massive push into subprime lending by unregulated NONBANKS who existed solely to sell these mortgages to securitizers;

3. Since they were writing mortgages for resale (and held them only briefly) these non-bank lenders collapsed their lending standards; this allowed them to write many more mortgages;

4. These poorly underwritten loans — essentially junk paper — was sold to Wall Street for securitization in huge numbers.

5. Massive ratings fraud of these securities by Fitch, Moody’s and S&P led to a rating of this junk as Triple AAA.

6. That investment grade rating of junk paper allowed those scrambling bond managers (see #1) to purchase higher yield paper that they would not otherwise have been able to.

7. Increased leverage of investment houses allowed a huge securitization manufacturing process; Some iBanks also purchased this paper in enormous numbers;

8. More leverage took place in the shadow derivatives market. That allowed firms like AIG to write $3 trillion in derivative exposure, much of it in mortgage and credit related areas.

9. Compensation packages in the financial sector were asymmetrical, where employees had huge upside but shareholders (and eventually taxpayers) had huge downside. This (logically) led to increasingly aggressive and risky activity.

10. Once home prices began to fall, all of the above fell apart.

As long as the Federal Reserve chairman keeps his head buried in the sand, in a state of denial or delusion about the true cause of the financial crisis, while Congress continues to facilitate a system of socialized risk for privatized gain, we face the dreadful possibility that history will repeat itself.

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Lacking Reform

January 4th, 2010 Posted in Uncategorized

Jan, 04 2010

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January 4, 2010

David Reilly of Bloomberg News did us all a favor by reading through the entire, 1,270-page financial reform bill that was recently passed by the House of Representatives. The Wall Street Reform and Consumer Protection Act (HR 4173) was described by Reilly this way:

The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders.

After reading the bill, David Reilly wrote a commentary piece for Bloomberg entitled: “Bankers Get $4 Trillion Gift from Barney Frank”. Reilly seemed surprised that banks opposed this legislation, emphasizing that “they should cheer for its passage by the full Congress in the New Year” because of the bill’s huge giveaways to the banking industry and Wall Street. Here are some of Reilly’s observations on what this bill provides:

— For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Admitting you have a problem, as any 12-stepper knows, is the crucial first step toward recovery.

— Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

— Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.

More Bailouts

— The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy — there are more bailouts to come.

— The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.

— Don’t worry, this time regulators will have better tools. Six months after being created, the council will report to Congress on “whether setting up an electronic database” would be a help. Maybe they’ll even get to use that Internet thingy.

— This group, among its many powers, can restrict the ability of a financial firm to trade for its own account. Perhaps this section should be entitled, “Yes, Goldman Sachs Group Inc., we’re looking at you.”

My favorite passage from Reilly’s essay concerned the proposal for a Consumer Financial Protection Agency:

— The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke.

The cover story for the December 30 edition of Business Week explained how this bill became so badly compromised. Alison Vekshin and Dawn Kopecki wrote the piece, explaining how the New Democrat Coalition, which “has 68 fiscally conservative, pro-business members who fill 15 of the party’s 42 seats on the House Financial Services Committee” reshaped this bill. The New Democrats fought off proposed changes to derivatives trading and included an amendment to the Consumer Financial Protection Agency legislation giving federal regulators more discretion to override state consumer protection laws than what was initially proposed. Beyond that, “non-financial” companies such as real estate agencies and automobile dealerships will not be subject to the authority of the new agency. The proposed requirement for banks to offer “plain-vanilla” credit-card and mortgage contracts was also abandoned.

One of my pet peeves involves Democrats’ claiming to be “centrists” or “moderates” simply because they enjoy taking money from lobbyists. Too many people are left with the impression that a centrist is someone who lacks a moral compass. The Business Week story provided some insight about how the New Democrat Coalition gets … uh … “moderated”:

Since the start of the 2008 election cycle, the financial industry has donated $24.9 million to members of the New Democrats, some 14% of the total funds the lawmakers have collected, according to the Center for Responsive Politics. Representative Melissa Bean of Illinois, who has led the Coalition’s efforts on regulatory reform, was the top beneficiary, with donations of $1.4 million.

As the financial reform bill is being considered by the Senate, the U.S. Chamber of Commerce has stepped up its battle against the creation of a Consumer Financial Protection Agency. The Business Week article concluded with one lawmaker’s perspective:

“My greatest fear for the last year has been an economic collapse,” says Representative Brad Miller (D-N.C), who sits on Frank’s House Financial Services Committee. “My second greatest fear was that the economy would stabilize and the financial industry would have the clout to defeat the fundamental reforms that our nation desperately needs. My greatest fear seems less likely … but my second greatest fear seems more likely every day.”

The dysfunction that preserves this unhealthy status quo was best summed up by Chris Whalen of Institutional Risk Analytics:

The big banks pay the big money in Washington, the members of Congress pass new laws to enable the theft from the public purse, and the servile Fed prints money to keep the game going for another day.

As long as Congress is going through the motions of passing “reform” legislation, they should do us all a favor and take on the subject of lobbying reform. Of course, the chances of that ever happening are slim to none.

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This Fight Is Far From Over

December 24th, 2009 Posted in Uncategorized

Dec, 24 2009

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December 24, 2009

On November 26, I mentioned how apologists for controversial Wall Street giant, Goldman Sachs, were attempting to characterize Goldman’s critics as “conspiracy theorists” in the apparent hope that the use of such a term would discourage continued scrutiny of that firm’s role in causing the financial crisis. The name-calling tactic didn’t work. Since that time, my favorite reporter for The New York Times — Pulitzer Prize winner, Gretchen Morgenson — has continued to dig down into a dirty, sickening story about how Goldman Sachs (as well as some other firms) through their deliberate bets against their own financial products, known as Collateralized Debt Obligations (or CDOs) caused the financial crisis and ruined the lives of most Americans. Ms. Morgenson had previously discussed the opinion of derivatives expert, Janet Tavakoli, who argued that Goldman Sachs “should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books”. Although the Goldman apologists have been quick to point out that the firm repaid the bailout money it received under TARP, the $13 billion received by Goldman Sachs as an AIG counterparty by way of Maiden Lane III, has not been repaid.

On December 23, The New York Times published the latest report written by Gretchen Morgenson and Louise Story revealing how Goldman and other firms created those Collateralized Debt Obligations, sold them to their own customers and then used a new Wall Street index, called the ABX (a way to invest in the direction of mortgage securities) to bet that those same CDOs would fail. Here’s a passage from the beginning of that superb Morgenson/Story article:

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

Wait a minute! Let’s pause for a moment and reflect on that. “Turbo” Tim Geithner has retained a “special counselor” whose responsibilities included oversight of Tricadia’s parent company. Tricadia has the dubious honor of having helped cause the financial crisis by creating CDOs and then betting against them. What’s wrong with this picture? Our President apparently sees nothing wrong with it. At this point, that’s not too surprising.

Anyway . . . Let’s get back to the Times article:

How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.

We can only hope that the investigations by Congress, the SEC and FINRA might result in some type of sanctions. At this juncture, that sort of accountability just seems like a wild fantasy.

Janet Tavakoli did a follow-up piece of her own for The Huffington Post on December 22. She is now more critical of the November 17 report prepared by the Special Inspector General of Tarp (SIGTARP) and she continues to demand that Goldman should pay back the billions it received as an AIG counterparty:

The TARP Inspector General’s November 17 report missed the most damaging facts. Intentionally or otherwise, it was evasive action or just plain whitewash. The report failed to clarify Goldman’s role in AIG’s near collapse, and that of all the settlement deals, the U.S.taxpayers’ was by far the worst.

* * *

Goldman paid mega bonuses in past years subsidized by selling hot air. Now it proposes to again pay billions in bonuses based on earnings made possible by taxpayer dollars.

Now that the crisis is over, we should ask Goldman Sachs — and all of AIG’s other trading partners involved in these trades — to buy back these mortgage assets at full price. Alternatively, we can impose a special tax. Instead of calling it a windfall profits tax, we might label it a “hot air” profits tax.

It was refreshing to read the opinion of someone who felt that Janet Tavakoli was holding back on her criticism of Goldman Sachs in the above-quoted piece. Thomas Adams is a banking law attorney at Paykin, Kreig and Adams, LLP as well a former managing director of Ambac Financial Group, a bond insurer that is managing to crawl its way out from under the rubble of the CDO catastrophe. Mr. Adams obviously has no warm spot in his heart for Goldman Sachs. I continue to take delight in the visual image of a Goldman apologist, blue-faced with smoke coming out of his ears while reading the essay Mr. Adams wrote for Naked Capitalism:

. . . Ms. Tavakoli stops short of telling the whole story. While she is very knowledgeable of this market, perhaps she is unaware of the full extent of the wrongdoings Goldman committed by getting themselves paid on the AIG bailout. The Federal Reserve and the Treasury aided and abetted Goldman Sachs in committing financial and ethical crimes at an astounding level.

* * *

But Ms. Tavakoli fails to note that the collapse of the CDO bonds and the collapse of AIG were a deliberate strategy by Goldman. To realize on their bet against the housing market, Goldman needed the CDO bonds to collapse in value, which would cause AIG to be downgraded and lead to AIG posting collateral and Goldman getting paid for their bet. I am confident that Goldman Sachs did not reveal to AIG that they were betting on the housing market collapse.

* * *

Goldman goes quite a few steps further into despicable territory with their other actions and the body count from Goldman’s actions is so enormous that it crosses over into criminal territory, morally and legally, by getting taxpayer money for their predation.

Goldman made a huge bet that the housing market would collapse. They profited, on paper, from the tremendous pain suffered by homeowners, investors and taxpayers across the country, they helped make it worse. Their bet only succeeded because they were able to force the government into bailing out AIG.

In addition, the Federal Reserve and the Treasury, by helping Goldman Sachs to profit from homeowner and investor losses, conceal their misrepresentations to shareholders, destroy insurers by stuffing them with toxic bonds that they marketed as AAA, and escape from the consequences of making a risky bet, committed a grave injustice and, very likely, financial crimes. Since the bailout, they have actively concealed their actions and mislead the public. Goldman, the Fed and the Treasury should be investigated for fraud, securities law violations and misappropriation of taxpayer funds. Based on what I have laid out here, I am confident that they will find ample evidence.

The backlash against the repugnant activities of Goldman Sachs has come a long way from Matt Taibbi’s metaphor describing Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” With three investigations underway, the widely-despised icon of Wall Street greed might have more to worry about than its public image.

ABX, AIG, AIG counterparty, Ambac Financial Group, American capitalism, American Insurance Group, American International Group, bank bailout, bank holding company, bank stocks, banking crisis, Barack Obama, Ben Bernanke, blog, CDOs, centrist, collateralized debt obligations, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, conspiracy theorists, credit default swaps, crony capitalism, Democrat, Democratic Party, Democrats, derivatives crisis, Deutsche Bank, economic crisis, economics, economists, equities markets, FDIC, Federal Deposit Insurance Corporation, Federal Reserve, Federal Reserve Chairman Ben Bernanke, financial crisis, financial institutions as too big to fail, financial reform, FINRA, foreclosures, FRBNY, giant vampire squid, Goldman Sachs, Goldman Sachs apologists, government guarantees, Government Sachs, great vampire squid wrapped around the face of humanity, Gretchen Morgenson, huge financial institutions, investment banks, Janet Tavakoli, John Burke, John T Burke Jr, Joint Economic Committee, Lewis A Sachs, liberal, Louise Story, Maiden Lane III, Matt Taibbi, moral hazard, Morgan Stanley, mortgage-backed securities, Naked Capitalism, Neil Barofsky, New York Federal Reserve, New York Stock Exchange, News, Obama Administration, Obama Presidency, opacity, Opinion, Paykin Kreig and Adams, Political, Politics, President of the United States, Pulitzer Prize, regulatory capture, Republican, Republican Party, SEC, securities, Securities and Exchange Commission, self-dealing insiders, SIGTARP report, socialized loss and privatized gain, stock markets, systemic risk, TARP, TARP bailout, Tavakoli Structured Finance, taxpayer subsidies to investment banks, taxpayers, the banks, the center lane, the economy, The Huffington Post, The New York Times, The White House, thecenterlane, This Fight Is Far From Over, Thomas Adams, too big to fail, toxic assets, transparency, Treasury Department, Treasury Secretary Tim Geithner, Tricadia Inc, troubled assets, Troubled Assets Relief Program, Turbo Tim Geithner, United States Senate, United States Treasury, Wall Street, Wall Street meltdown, wealth transfer, welfare for the rich

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