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Obstruction of Justice

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Two years ago, I was inspired to write a piece entitled, “Justice Denied” after seeing hedge fund manager, David Einhorn interviewed by Charlie Rose.  I also discussed an essay Jesse Eisenger wrote for the DealBook blog at The New York Times entitled, “The Feds Stage a Sideshow While the Big Tent Sits Empty”.  The piece reinforced my suspicion that the “insider trading” investigation which received so much publicity in December of 2010 was simply a diversionary tactic to direct public attention away from the crimes which caused the financial crisis.

Since that time, a good deal of commentary has been written, lamenting the fact that no criminal charges have been brought against the miscreants who caused the financial crisis.  Unfortunately, Attorney General Eric Hold-Harmless has taken no action against those responsible, while the time for bringing those charges within the applicable Statutes of Limitations was allowed to tick away.

With the expiration of the relevant Statutes of Limitations, the next question becomes:  Does the failure to prosecute those cases rise to the level of obstruction of justice?  Although President Obama has repeatedly insisted that “no crimes were committed” which could have caused the financial crisis, we are now learning that such was not the case.

Jesse Eisenger recently wrote another piece for the Deal Book blog at the New York Times entitled, “Financial Crisis Lawsuit Suggests Bad Behavior at Morgan Stanley” which appeared on January 23.  In that essay, Eisenger discussed how the discovery process in civil lawsuits against the Wall Street Banks involved in the creation of the collateralized debt obligations (CDOs) based on subprime mortgages, revealed that those CDOs were known to be toxic at the time they were marketed.

The Naked Capitalism website has provided and excellent roadmap to the skulduggery involving the role CDOs played in causing the financial crisis.

Matt Taibbi has written another magnum opus on the financial crisis, this time focusing on sleazy conduct which took place after the meltdown.  In his article for Rolling Stone entitled, “Secrets and Lies of the Bailout”, we were reminded how the bank bailouts not only unjustly enriched the culprits who caused the problem – but they also provided the opportunity for those too-big-to-fail institutions to become even bigger while facilitating the cover-up of how the original mess occurred:

The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue.  Money wasn’t the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us.  And it was all done in the name of helping regular people and creating jobs.  “It is,” says former bailout Inspector General Neil Barofsky, “the ultimate bait-and-switch.”

Despite so many efforts to hide the truth from “the little people”, the truth is slowly leaking out as a result of the dogged investigation by journalists and bloggers.  As discovery proceeds in the civil lawsuits against the megabanks, revealing the extent of criminal activity which brought about the most catastrophic economic disaster since the Great Depression, people will begin to ask:  “How did they get away with this?”  Perhaps the best way to answer that question would be to bring criminal charges against those who allowed the perpetrators to get away with it.


 

Why Bad Publicity Never Hurts Goldman Sachs

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My last posting focused on the widely-publicized research conducted by Stéphane Côté, PhD, Associate Professor of Organizational Behavior at the University of Toronto’s Rotman School of Management, who worked with a team of four psychologists from the University of California at Berkeley to conduct seven studies on a rather timely subject.  Their article, “Higher social class predicts increased unethical behavior” was published in the February 27 issue of the Proceedings of the National Academy of Sciences (PNAS).  The following excerpt from the abstract of their paper provides the general theme of what their efforts revealed:

.   .   .  investigation revealed upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals.

I began my discussion of that paper by looking back at a Washington Post opinion piece entitled, “Angry about inequality?  Don’t blame the rich”.  The essay was written last January by James Q. Wilson (who passed away on March 2).  On March 4, William K. Black took a deeper look at the legacy of James Q. Wilson, which provided a better understanding of why Wilson would champion the “Don’t blame the rich” rationale.  As Bill Black pointed out, Wilson was a political scientist, known best for his theory called “broken windows” – a metaphor based on a vacant building with a few broken windows, which quickly has all of its windows broken because petty criminals feel emboldened to damage a building so neglected by its owners.  Bill Black emphasized that Wilson was exclusively preoccupied with minor, “blue collar” crimes.  Black noted that in a book entitled, Thinking About Crime, Wilson expressed tolerance for “some forms of civic corruption” while presenting an argument that criminology “should focus overwhelmingly on low-status blue collar criminals”.  Bill Black went on to explain how Wilson’s blindness to the relevance of the “broken windows” concept, as it related to “white collar” crime, resulted in a missed opportunity to attenuate the criminogenic milieu which led to the 2008 financial crisis:

Wilson emphasized that it was the willingness of society to tolerate relatively minor blue collar crimes that led to social disintegration and epidemics of severe blue collar crimes, but he engaged in the same willingness to tolerate and excuse less severe white collar crimes.  He predicted in his work on “broken windows” that tolerating widespread smaller crimes would lead to epidemic levels of larger crimes because it undermined community and social restraints.  The epidemics of elite white collar crime that have driven our recurrent, intensifying financial crises have proven this point.  Similarly, corruption that is excused and tolerated by elites is unlikely to remain at the level of “a few deals.”  Corruption is likely to spread in incidence and severity precisely because it undermines community and the rule of law and it is likely to grow more pervasive and harmful the more we “tolera[te]” it.

*   *   *

Taking Wilson’s “broken windows” reasoning seriously in the elite white collar crime context would require us to take a series of prophylactic measures to restore integrity and strengthen peer pressures against misconduct.  Indeed, we have implicitly tested the applicability of “broken windows” reasoning in that context by adopting policies that acted directly contrary to Wilson’s reasoning.  We have adopted executive and professional compensation systems that are exceptionally criminogenic.

*   *   *

Fiduciary duties are critical means of preventing broken windows from occurring and making it likely that any broken windows in corporate governance will soon be remedied, yet we have steadily weakened fiduciary duties.  For example, Delaware now allows the elimination of the fiduciary duty of care as long as the shareholders approve.  Court decisions have increasingly weakened the fiduciary duties of loyalty and care.  The Chamber of Commerce’s most recent priorities have been to weaken Sarbanes-Oxley and the Foreign Corrupt Practices Act.  We have made it exceptionally difficult for shareholders who are victims of securities fraud to bring civil suits against the officers and entities that led or aided and abetted the securities fraud.

*   *   *

In the elite white collar crime context we have been following the opposite strategy of that recommended under “broken windows” theory.  We have been breaking windows. We have excused those who break the windows.  Indeed, we have praised them and their misconduct.  The problem with allowing broken windows is far greater in the elite white collar crime context than the blue collar crime context.

To find a “poster child” example for the type of errant fiduciary behavior which owes its existence to Wilson’s misapplication of the “broken windows” doctrine, one need look no further than Matt Taibbi’s favorite “vampire squid”:  Goldman Sachs.  One would think that after Taibbi’s groundbreaking, 2009 tour de force about Goldman’s involvement in the events which led to the financial crisis . . .  and after the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal, the firm would at least try to keep a lower profile these days.  Naaaaw!

Goldman Sachs has now found itself in the crosshairs of a man, formerly accused of carrying water for the firm – Andrew Ross Sorkin.  Sorkin’s March 5 DealBook article for The New York Times upbraided Goldman for its flagrant conflict of interest in a deal where the firm served as an adviser to an oil (and natural gas) pipeline company, El Paso, which was being sold to Houston-based Kinder Morgan for $21.1 billion.  Goldman owned a 19.1 percent stake in Kinder Morgan at the time.  Andrew Ross Sorkin quoted from the script which Goldman CEO, Lloyd Blankfein read to El Paso’s CEO, Douglas Foshee, wherein Blankfein confirmed that Foshee was aware of Goldman’s investment in Kinder Morgan.  It was refreshing to see a bit of righteous indignation in Sorkin’s discussion of the dirty details behind this transaction:

When the deal was announced, buried at the end of the news release was a list of Wall Street banks that had advised on the deal, including Goldman Sachs.  Goldman received a $20 million fee for playing matchmaker for El Paso.  The fee, of course, was not disclosed, nor was the Kinder Morgan stake owned by Goldman Sachs’s private equity arm, worth some $4 billion.  Nor did the release disclose that the Goldman banker who advised El Paso to accept Kinder Morgan’s bid owned $340,000 worth of Kinder Morgan stock.

Now, however, a court ruling in a shareholder lawsuit has laid bare the truth:  Goldman was on every conceivable side of the deal.  As a result, El Paso may have unwittingly sold itself far too cheaply.  Mr. Blankfein may have said he was “very sensitive to the appearance of conflict,” but the judge’s order ruling “reluctantly” against a motion to block the merger made it clear that Goldman’s conflicts went far beyond mere appearances.

Here’s just one example:  In an effort to help mitigate its clear conflict, Goldman Sachs recommended that El Paso hire an additional adviser so that El Paso would be able to say that it had received completely impartial advice.  Goldman did not say it would step down, and lose its fee, it simply suggested that El Paso hire one more bank – in this case, Morgan Stanley.

After explaining that Goldman included a provision in the deal that Morgan Stanley would get paid only if El Paso agreed to the sale to Kinder Morgan, Sorkin expressed this reaction:

Goldman’s brazenness in this deal is nothing short of breathtaking.

Goldman’s conflict of interest in the El Paso deal was also the subject of an article by Matthew Philips of Bloomberg BusinessWeek.  Mr. Philips reminded us of whom we have to thank for “helping Greece dupe regulators by disguising billions of dollars’ worth of sovereign debt”:

New details have also emerged about Goldman’s role in helping Greece hide its debt so it could qualify for membership in the European Union.  In a Bloomberg News story out this week, Greek officials talk about how they didn’t truly understand the complex swaps contracts they were buying from Goldman bankers from 2001 to 2005, and that each time Goldman restructured the deal, things got worse for Greece.

The story reads like a cautionary tale of a homeowner who keeps returning to the same contractor to repair the damage done by the previous fix-it job.  At one point, Goldman prohibited Greece’s debt manager, Christoforos Sardelis, from seeking outside price quotes on the complicated derivatives Goldman was selling to Greece.

*   *   *

Yet Goldman’s sullied reputation doesn’t appear to be negatively impacting its business.  In fact, Goldman is outpacing its Wall Street competition recently in key areas of business.  In 2011, Goldman was the top adviser for both global M&A and equity IPOs.  A Bloomberg survey of traders, investors, and analysts last May showed that while 54 percent of respondents had an unfavorable opinion of Goldman, 78 percent believed that allegations it duped clients and misled Congress would have no material effect on its business.

In other words:  Goldman Sachs keeps breaking windows and nobody cares.  Thanks for nothing, James Q. Wilson!


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From Disappointing To Creepy

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It was during Barack Obama’s third month in the White House, when I realized he had become the “Disappointer-In-Chief”.  Since that time, the disappointment felt by many of us has progressed into a bad case of the creeps.

Gretchen Morgenson of The New York Times has been widely praised for her recent report, exposing the Obama administration’s vilification of New York State Attorney General Eric Schneiderman for his refusal to play along with Team Obama’s efforts to insulate the fraud-closure banks from the criminal prosecution they deserve.  The administration is attempting to pressure each Attorney General from every state to consent to a settlement of any and all claims against the banksters arising from their fraudulent foreclosure practices.  Each state is being asked to release the banks from criminal and civil liability in return for a share of the $20 billion settlement package.  The $20 billion is to be used for loan modifications.  Leading the charge on behalf of the administration are Shaun Donovan, the Secretary of Housing and Urban Development, as well as a number of high-ranking officials from the Justice Department, led by Attorney General Eric Hold-harmless.  Here are some highlights from Ms. Morgenson’s article:

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

*   *   *

Mr. Schneiderman has also come under criticism for objecting to a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion.

*   *   *

This month, Mr. Schneiderman sued to block that deal, which had been negotiated by Bank of New York Mellon as trustee for the holders of the securities.

The passage from Gretchen Morgenson’s report which drew the most attention concerned a statement made to Schneiderman by Kathryn Wylde.  Ms. Wylde is a “Class C” Director of the Federal Reserve Bank of New York.  The role of a Class C Director is to represent the interests of the public on the New York Fed board.  Barry Ritholtz provided this reaction to Ms. Wylde’s encounter with Mr. Schneiderman:

If the Times report is accurate, and the quote below represents Ms. Wylde’s comments, than that position is a laughable mockery, and Ms. Wylde should resign effective immediately.

The quote in question, which was reported to have occurred at Governor Hugh Carey’s funeral (!?!)  was as follows:

“It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it.  Wall Street is our Main Street — love ’em or hate ’em.  They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

I do not know if Ms. Wylde understands what her proper role should be, but clearly she is somewhat confused.  She appears to be far more interested in representing the banks than the public.

Robert Scheer of Truthdig provided us with some background on Obama’s HUD Secretary, Shaun Donovan, one of the administration’s arm-twisters in the settlement effort :

Donovan has good reason not to want an exploration of the origins of the housing meltdown:  He has been a big-time player in the housing racket for decades.  Back in the Clinton administration, when government-supported housing became a fig leaf for bundling suspect mortgages into what turned out to be toxic securities, Donovan was a deputy assistant secretary at HUD and acting Federal Housing Administration commissioner.  He was up to his eyeballs in this business when the Clinton administration pushed through legislation banning any regulation of the market in derivatives based on home mortgages.

Armed with his insider connections, Donovan then went to work for the Prudential conglomerate (no surprise there), working deals with the same government housing agencies that he had helped run.  As The New York Times reported in 2008 after President Barack Obama picked him to be secretary of HUD, “Mr. Donovan was a managing director at Prudential Mortgage Capital Co., in charge of its portfolio of investments in affordable housing loans, including Fannie Mae and the Federal Housing Administration debt.”

Obama has been frequently criticized for stacking his administration with people who regularly shuttle between corporations and the captured agencies responsible for regulating those same businesses.  Risk management guru, Christopher Whalen lamented the consequences of Obama’s cozy relationship with the Wall Street banks – most tragically, those resulting from Obama’s unwillingness to adopt the “Swedish solution” of putting the insolvent zombie banks through temporary receivership:

The path of least resistance politically has been to temporize and talk.  But by following the advice of Rubin and Summers, and avoiding tough decisions about banks and solvency, President Obama has only made the crisis more serious and steadily eroded public confidence.  In political terms, Obama is morphing into Herbert Hoover, as I wrote in one of my first posts for Reuters.com, “In a new period of instability, Obama becomes Hoover.”

Whereas two or three years ago, a public-private approach to restructuring insolvent banks could have turned around the economic picture in relatively short order, today the cost to clean up the mess facing Merkel, Obama and other leaders of western European nations is far higher and the degree of unease among the public is growing.  You may thank Larry Summers, Robert Rubin and the other members of the “do nothing” chorus around President Obama for this unfortunate outcome.

We are now past the point of blaming Obama’s advisors for the President’s recurrent betrayal of the public interest while advancing the goals of his corporate financiers.  Yves Smith of Naked Capitalism has voiced increasingly harsh appraisals of Obama’s performance.  By August 22, it became clear to Ms. Smith that the administration’s efforts to shield the fraud-closure banks from liability exposed a scandalous degree of venality:

It is high time to describe the Obama Administration by its proper name:  corrupt.

Admittedly, corruption among our elites generally and in Washington in particular has become so widespread and blatant as to fall into the “dog bites man” category.  But the nauseating gap between the Administration’s propaganda and the many and varied ways it sells out average Americans on behalf of its favored backers, in this case the too big to fail banks, has become so noisome that it has become impossible to ignore the fetid smell.

*   *   *

Team Obama bears all the hallmarks of being so close to banks and big corporations that it has lost all contact with and understanding of mainstream America.

The latest example is its heavy-handed campaign to convert New York state attorney general Eric Schneiderman to a card carrying member of the “be nice to our lords and masters the banksters” club.  Schneiderman was the first to take issue with the sham of the so-called 50 state attorney general mortgage settlement.  As far as the Administration is concerned, its goal is to give banks a talking point and prove to them that Team Obama is protecting their backs in a way that the chump public hopefully won’t notice.

*   *   *

Yet rather than address real, serious problems, senior administration officials are instead devoting time and effort to orchestrating a faux grass roots campaign to con a state AG into thinking his supporters are deserting him because he has dared challenge the supremacy of the banks.

I would include Eric Schneiderman in a group with Elizabeth Warren and Maria Cantwell as worthy challengers to Barack Obama in the 2012 Presidential Election.  I wish one of them would step forward.


 

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Goldman Sachs In The Crosshairs

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Last December, I expressed my disappointment and skepticism that the culprits responsible for having caused the financial crisis would ever be brought to justice.  I found it hard to understand why neither the Securities and Exchange Commission nor the Justice Department would be willing to investigate malefaction, which I described in the following terms:

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products – who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

Fortunately, the tide seems to have turned with the recent release of the Senate Investigations Subcommittee report on the financial crisis.  The two-year, bipartisan investigation, led by Senators Carl Levin (D-Michigan) and Tom Coburn (R-Oklahoma) has given rise to new hope that the banks responsible for causing the financial crisis – particularly Goldman Sachs – could face criminal prosecution.  Tom Braithwaite of the Financial Times put it this way:

The Senate report criticised rating agencies, regulators and other banks.  But Goldman has drawn particular focus.  Eric Holder, attorney-general, said this month the justice department was looking at the report “that deals with Goldman”.

Will Attorney General Eric Hold-harmless initiate criminal proceedings against President Obama’s leading private source of 2008 campaign contributions?  I doubt it.  Nevertheless, the widespread meme that no laws were violated by Goldman or any of the other Wall Street megabanks, is coming under increased attack.  Matt Taibbi recently wrote an excellent piece for Rolling Stone entitled, “The People vs. Goldman Sachs”, which took a humorous jab at those who deny that the financial crisis resulted from illegal activity:

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money.  We now know, unequivocally, that this is bullshit.  Goldman isn’t a pudgy housewife who broke her diet with a few Nilla Wafers between meals – it’s an advanced-stage, 1,100-pound medical emergency who hasn’t left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes.  If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana.  Caught, but still free:  above the law.

Taibbi focused on the easiest case to prosecute:  a perjury charge against Goldman CEO Lloyd Blankfein for his testimony before the Levin-Coburn Senate Subcommittee.  Blankfein denied under oath that his firm had a “short” position, betting against the very Collateralized Debt Obligations (CDOs) that Goldman had been selling to its customers.  As Taibbi pointed out, this conflict of interest was the subject of a book by Michael Lewis entitled, The Big Short.  At issue is the response Blankfein gave to the question about whether Goldman Sachs had such a short position:

“Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market.  The fact is, we were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008.  We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.”

As Tom Braithwaite explained in the Financial Times, Senator Levin expressed concern that Blankfein could defend a perjury charge, based on his use of the words “consistently or significantly” in the above-quoted response.  Levin’s concern is that those words could be deemed significantly equivocal as to prevent the characterization of Blankfein’s response as a denial that Goldman had such a short position.  Nevertheless, the last sentence of the response is an unqualified, compound statement, which could support a perjury charge:

We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.

I would be very amused to watch someone make the specious argument that Goldman’s $13 billion short position was not “massive”.

Meanwhile, New York Attorney General Eric Schneiderman is moving ahead to pursue an investigation concerning the role of the Wall Street banks in causing the financial crisis.  Gretchen Morgenson of The New York Times provided this explanation of Schneiderman’s current effort:

The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

*   *   *

It is unclear which parts of the byzantine securitization process Mr. Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.

*   *   *

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions – that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis.  Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

*   *   *

It is unclear whether Mr. Schneiderman’s investigation will be pursued as a criminal or civil matter.

Are the banksters running scared yet?  John Carney of CNBC’s NetNet blog, noted some developments, which could signal that some potential “persons of interest” might be seeking cover:

A Warning Sign:  CFOs Resigning

The chief financial officers of both Wells Fargo and Bank of America recently resigned.  JPMorgan Chase replaced its CFO last year.  While each of these moves has been spun as benign news by the banks, it could be a warning sign that something is deeply amiss.

Hope springs eternal!


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Time For Another Victory Lap

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I’m no cheerleader for President Obama.  Since he first became our Disappointer-In-Chief, I have vigorously voiced my complaints about his decisions.  At the end of President Obama’s first month in office, I expressed concern that his following the advice of “Turbo” Tim Geithner and Larry Summers was putting the welfare (pun intended) of the Wall Street banks ahead of the livelihoods of those who voted for him.  I lamented that this path would lead us to a ten-year, Japanese-style recession.  By September of 2010, it was obvious that those early decisions by the new President would prove disastrous for the Democrats at the mid-term elections.  At that point, I repeated my belief that Obama had been listening to the wrong people when he decided to limit spending on the economic stimulus package to approximately half of what was necessary to end the economic crisis:

Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate.

Last week, I was about to write a piece, describing that decision as “Obama’s Tora Bora moment”.  When I sat down at my computer just after 11 p.m. on Sunday, I realized that the timing wouldn’t have been appropriate for such a metaphor.  The President was about to make his historic speech, announcing that Osama Bin Laden had been killed.  Just as many have criticized the Obama administration’s handling of the disaster in the Gulf of Corexit as “Obama’s Katrina Moment”, I believe that the President’s decision to “punt” on the stimulus – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora.  The consequences have been enormously expensive (simply adding the $600 billion cost of QE 2 alone to a better-planned stimulus program would have reduced our current unemployment level to approximately 5%).  Beyond that, the advocates of “Austerian” economics have scared everyone in Washington into the belief that the British approach is somehow the right idea – despite the fact that their economy is tanking.  Never mind the fact Australia’s stimulus program was successful and ended the recession in that country.

The Fox Ministry of Truth has brainwashed a good number of people into believing that Obama’s stimulus program (a/k/a the American Recovery and Reinvestment Act of 2009) was a complete failure.  You will never hear the Fox Ministry of Truth admit that prominent Republican economist Keith Hennessey, the former director of the National Economic Council under President George W. Bush, pointed out that the 2009 stimulus “increased economic growth above what it otherwise would have been”.  The Truth Ministry is not likely to concede that John Makin of the conservative think-tank, the American Enterprise Institute, 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.

On the other hand, count me among those who are skeptical that the Federal Reserve’s monetary policy can have any impact on our current unemployment crisis (it hasn’t yet).

Many of Obama’s critics have complained that the Presidential appearance at Ground Zero was an inappropriate “victory lap” – despite the fact that George W. Bush was invited to the event (although he declined).  Not only was that victory lap appropriate – Obama is actually entitled to run another.   As E.J. Dionne pointed out, the controversial “nationalization” of the American auto industry (what should have been done to the Wall Street banks) has become a huge success:

The actual headlines make the point. “Demand for fuel-efficient cars helps GM to $3.2 billion profit,” declared The Washington Post.  “GM Reports Earnings Tripled in First Quarter, as Revenue Jumped 15 Percent,” reported The New York Times.

*   *   *

“Having the federal government involved in every aspect of the private sector is very dangerous,” Rep. Dan Burton, R-Ind., told Fox News in December 2008.  “In the long term it could cause us to become a quasi-socialist country.”  I don’t see any evidence that we have become a “quasi-socialist country,” just big profits.

Rep. Lamar Smith, R-Texas, called the bailout “the leading edge of the Obama administration’s war on capitalism,” while other members of Congress derided the president’s auto industry task force.  “Of course we know that nobody on the task force has any experience in the auto business, and we heard at the hearing many of them don’t even own cars,” declared Rep. Louie Gohmert, R-Texas, after a hearing on the bailout in May 2009. “And they’re dictating the auto industry for our future? What’s wrong with this picture?”

*   *   *

In the case of the car industry, allowing the market to operate without any intervention by government would have wiped out a large part of the business that is based in Midwestern states.  This irreversible decision would have damaged the economy, many communities and tens of thousands of families.

And contrary to the predictions of the critics, government officials were quite capable of working with the market in restructuring the industry. Government didn’t overturn capitalism.  It tempered the market at a moment when its “natural” forces were pushing toward catastrophe. Government had the resources to buy the industry time.

In fairness, President Obama has finally earned some bragging rights, after punting on health care, the stimulus and financial “reform”.  He knows his Republican opponents will never criticize him for his own “Tora Bora moment” – because to do so would require an admission that a more expensive economic stimulus was necessary in 2009.  As a result, it will be up to an Independent candidate or a Democratic challenger to Obama (less likely these days) to explain that the persistent economic crisis – our own “lost decade” – lingers on as a result of Obama’s “Tora Bora moment”.


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Leadership Void

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In my last posting, I re-ran a passage from what I wrote on December 2, which was supported by Robert Reich’s observation that, unlike Bill Clinton, Barack Obama is not at the helm of a country with an expanding economy.  As I said on December 2:

After establishing an economic advisory team consisting of retreads from the Clinton White House, President Obama has persisted in approaching the 2010 economy as though it were the 1996 economy.

After I posted my April 7 piece, I felt a bit remorseful about repeating a stale theme.  Nevertheless, a few days later, Ezra Klein’s widely-acclaimed Washington Post critique of President Obama’s misadventure in “negotiating” the 2011 budget was entitled, “2011 is not 1995”.  Ezra Klein validated the point I was trying to make:

Clinton’s success was a function of a roaring economy.  The late ‘90s were a boom time like few others — and not just in America.  The unemployment rate was less than 6 percent in 1995, and fell to under 5 percent in 1996. Cutting deficits was the right thing to do at that time.  Deficits should be low to nonexistent when the economy is strong, and larger when it is weak.  The Obama administration’s economists know that full well.  They are, after all, the very people who worked to balance the budget in the 1990s, and who fought to expand the deficit in response to the recession.

Right now, the economy is weak.  Giving into austerity will weaken it further, or at least delay recovery for longer.  And if Obama does not get a recovery, then he will not be a successful president, no matter how hard he works to claim Boehner’s successes as his own.

President Obama’s attempt at spin control with a claim of “bragging rights” for ending the budget stalemate brought similar criticism from economist Brad DeLong:

To reduce federal government spending by $38 billion in the second and third quarters of 2011 when the unemployment rate is 8.9% and the U.S. Treasury can borrow on terms that make pulling spending forward from the future into the present essentially free is not an accomplishment.

It will knock between 0.5% and 1.0% off the growth rate of real GDP in the second half of 2011, and leave us at the start of 2012 with an unemployment rate a couple of tenths of a percent higher than it would have been otherwise.

Robert Reich expressed his disappointment with the President’s handling of the 2011 budget deal by highlighting Mr. Obama’s failure to put the interests of the middle class ahead of the goals of the plutocracy:

He is losing the war of ideas because he won’t tell the American public the truth:  That we need more government spending now – not less – in order to get out of the gravitational pull of the Great Recession.

That we got into the Great Recession because Wall Street went bonkers and government failed to do its job at regulating financial markets.  And that much of the current deficit comes from the necessary response to that financial crisis.

That the only ways to deal with the long-term budget problem is to demand that the rich pay their fair share of taxes, and to slow down soaring health-care costs.

And that, at a deeper level, the increasingly lopsided distribution of income and wealth has robbed the vast working middle class of the purchasing power they need to keep the economy going at full capacity.

“We preserved the investments we need to win the future,” he said last night.  That’s not true.

The idea that a huge portion of our current deficit comes from the response to the financial crisis created by Wall Street banks was explored in more detail by Cullen Roche of Pragmatic Capitalism.  The approach of saving the banks, under the misguided notion that relief would “trickle down” to Main Street didn’t work.  The second round of quantitative easing (QE 2) has proven to be nothing more than an imprudent decision to follow Japan’s ineffective playbook:

And in 2008 our government was convinced by Timothy Geithner, Hank Paulson and Ben Bernanke that if we just saved the banks we would fix the economy.  So we embarked on the “recovery” plan that has led us to one of the weakest recoveries in US economic history.  Because of the keen focus on the banking system there is a clear two tier recovery.  Wall Street is thriving again and Main Street is still struggling.

Thus far, we have run budget deficits that have been large enough to offset much of the deleveraging of the private sector.  And though the spending was poorly targeted it has been persistent enough that we are not repeating the mistakes of Japan – YET.  By my estimates the balance sheet recession is likely to persist well into 2013.

*   *   *

QE2 has truly been a “monetary non-event”.  As many of us predicted at its onset, this program has shown absolutely no impact on the US money supply (much to the dismay of the hyperinflationists).  And now its damaging psychological impact (via rampant speculation) has altered the options available to combat the continuing balance sheet recession.  While more stimulus is almost certainly off the table given the Fed’s misguided QE2 policy, it would be equally misguided to begin cutting the current budget deficit.  Sizable cuts before the end of the balance sheet recession will almost guarantee that the US economy suffers a Japan-like relapse.  It’s not too late to learn from the mistakes of Japan.

So where is the leader who is going to save us from a Japanese-style “lost decade” recession?  It was over two years ago when I posed this question:

Will the Obama administration’s “failure of nerve” – by avoiding bank nationalization – send us into a ten-year, “Japan-style” recession?  It’s beginning to look that way.

Two years down – eight years to go.


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The Wrong Playbook

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President Obama is still getting it wrong.  Nevertheless, we keep hearing that he is such a clever politician.  Count me among those who believe that the Republicans are setting Obama up for failure and a loss to whatever goofball happens to win the GOP Presidential nomination in 2012 – solely because of a deteriorating economy.  Obama had the chance to really save the economy and “right the ship”.  When he had the opportunity to confront the greatest economic crisis since the Great Depression, President Obama violated Rahm Emanuel’s infamous doctrine, “You never want a serious crisis to go to waste”.  The new President immediately made a point of squandering the opportunity to overcome that crisis.  I voiced my frustration about this on October 7, 2010:

The trouble began immediately after President Obama assumed office.  I wasn’t the only one pulling out my hair in February of 2009, when our new President decided to follow the advice of Larry Summers and “Turbo” Tim Geithner.  That decision resulted in a breach of Obama’s now-infamous campaign promise of “no more trickle-down economics”.  Obama decided to do more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus.  Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate.  At the Calculated Risk website, Bill McBride lamented Obama’s strident posturing in an interview conducted by Terry Moran of ABC News, when the President actually laughed off the idea of implementing the so-called “Swedish solution” of putting those insolvent banks through temporary receivership.

In September of 2009, I discussed a fantastic report by Australian economist Steve Keen, who explained how the “money multiplier” myth, fed to Obama by the very people who caused the financial crisis, was the wrong paradigm to be starting from in attempting to save the economy.  The Australian professor (Steve Keen) was right and Team Obama was wrong.  In analyzing Australia’s approach to the financial crisis, economist Joseph Stiglitz made this observation on August 5, 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world.  He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon.  So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked:  Australia had the shortest and shallowest of recessions of the advanced industrial countries.

On October 6, 2010, Michael Heath of Bloomberg BusinessWeek provided the latest chapter in the story of how America did it wrong while Australia did it right:

Australian Employers Added 49,500 Workers in September

Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.

The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today.  The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists.  The jobless rate held at 5.1 percent.

Meanwhile, America’s jobless rate has been hovering around 9 percent and the Federal Reserve found it necessary to print-up another $600 billion for a controversial second round of quantitative easing.  If that $600 billion had been used for the 2009 economic stimulus (and if the stimulus program had been more infrastructure-oriented) we would probably have enjoyed a result closer to that experienced by Australia.  Instead, President Obama chose to follow Japan’s strategy of perpetual bank bailouts (by way of the Fed’s “zero interest rate policy” or ZIRP and multiple rounds of quantitative easing), sending America’s economy into our own “lost decade”.

The only member of the Clinton administration who deserves Obama’s ear is being ignored.  Bill Clinton’s Secretary of Labor, Robert Reich, has been repeatedly emphasizing that President Obama is making a huge mistake by attempting to follow the Clinton playbook:

Many of President Obama’s current aides worked for Clinton and vividly recall Clinton’s own midterm shellacking in 1994 and his re-election two years later – and they think the president should follow Clinton’s script. Obama should distance himself from congressional Democrats, embrace deficit reduction and seek guidance from big business.  They assume that because triangulation worked for Clinton, it will work for Obama.

They’re wrong.  Clinton’s shift to the right didn’t win him re-election in 1996. He was re-elected because of the strength of the economic recovery.

By the spring of 1995, the American economy already had bounced back, averaging 200,000 new jobs per month.  By early 1996, it was roaring – creating 434,000 new jobs in February alone.

Obama’s 2011 reality has us losing nearly 400,000 jobs per month.  Nevertheless, there is this misguided belief that the “wealth effect” caused by inflated stock prices and the current asset bubble will somehow make the Clinton strategy relevant.  It won’t.  Instead, President Obama will adopt a strategy of “austerity lite”, which will send America into a second recession dip and alienate voters just in time for the 2012 elections.  Professor Reich recently warned of this:

House Majority Leader Eric Cantor recently stated the Republican view succinctly:  “Less government spending equals more private sector jobs.”

In the past I’ve often wondered whether they’re knaves or fools.  Now I’m sure.  Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.

They figure it’s the one sure way to unseat Obama.  They know that when the economy is heading downward, voters always fire the boss.  Call them knaves.

What about the Democrats?  Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.

And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized.  So they’re reduced to mumbling “don’t cut so much.”  Call them fools.

If inviting a double-dip recession weren’t dumb enough – how about a second financial crisis?  Just add more systemic risk and presto! The banks won’t have any problems because the Fed and the Treasury will provide another round of bailouts.  Edward Harrison of Credit Writedowns recently wrote an essay focused on Treasury Secretary Geithner’s belief that we need big banks to be even bigger.

Even if the Republicans nominate a Presidential candidate who espouses a strategy of simply relying on Jesus to extinguish fires at offshore oil rigs and nuclear reactors – Obama will still lose.  May God help us!


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No Justice For The Wicked

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Although the drumbeat continues, I remain skeptical as to whether any of the criminals responsible for causing the financial crisis will ever be brought to justice.  In the weeks before President Obama’s Inauguration, the foremost question on my mind was whether the new administration would take the necessary steps to change the culture of corruption on Wall Street:

As we approach the eve of the Obama Administration’s first day, across America the new President’s supporters have visions of “change we can believe in” dancing in their heads.  For some, this change means the long overdue realization of health care reform.  For those active in the Democratic campaigns of 2006, “change” means an end to the Iraq war.  Many Americans are hoping that the new administration will crack down on the unregulated activities on Wall Street that helped bring about the current economic crisis.

On December 15, Stephen Labaton wrote an article for the New York Times, examining the recent failures of the Securities and Exchange Commission as well as the environment at the SEC that facilitates such breakdowns.

At that time, I also focused on the point made in a commentary by Michael Lewis and David Einhorn, which appeared in the January 3 New York Times:

It’s not hard to see why the S.E.C. behaves as it does.  If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

I concluded that piece with a rhetorical question:

Let’s hope our new President, the Congress and others pay serious attention to what Lewis and Einhorn have said.  Cleaning up Wall Street is going to be a dirty job.  Will those responsible for accomplishing this task be up to doing it?

By March 23, 2009, it had become obvious that our new President was more concerned about the “welfare” (pun intended) of the Wall Street banks than the well-being of the American economy.  I began my posting of that date with this statement:

We the people, who voted for Barack Obama, are about to get ripped off by our favorite Hope dealer.

On August 27 of that year, I wrote another piece expressing my disappointment with how things had (not) progressed.  My October 1, 2009 posting focused on the fact that H. David Kotz, Inspector General of the Securities and Exchange Commission, issued two reports, recommending 58 changes to improve the way the agency investigates and enforces violations of securities laws, as a result of the SEC’s failure to investigate the Bernie Madoff Ponzi scheme.  The reports exposed a shocking degree of ineptitude at the SEC.

After the release of the report by bankruptcy examiner Anton Valukas, pinpointing the causes of the collapse of Lehman Brothers, I lamented the fact that the mainstream media hadn’t shown much concern about the matter, despite the terrible fraud exposed in the report.  Nevertheless, by the next day, I was able to highlight some great commentaries on the Valukas Report and I felt optimistic enough to conclude the piece with this thought:

We can only hope that a continued investigation into the Lehman scandal will result in a very bright light directed on those privileged plutocrats who consider themselves above the law.

If only  . . .

By the eve of the mid-term elections, I had an answer to the question I had posed on January 5, 2009 as to whether our new President and Congress would be up to the task of cleaning up Wall Street:

One common theme voiced by many critics of the Obama administration has been its lack of interest in prosecuting those responsible for causing the financial crisis.  Don’t hold your breath waiting for Attorney General Eric Hold-harmless to initiate any criminal proceedings against such noteworthy individuals as Countrywide’s Angelo Mozilo or Dick Fuld of Lehman Brothers.  On October 23, Frank Rich of The New York Times mentioned both of those individuals while lamenting the administration’s failure to prosecute the “financial crimes that devastated the nation”:

The Obama administration seems not to have a prosecutorial gene.   It’s shy about calling a fraud a fraud when it occurs in high finance.
*   *   *
Since Obama has neither aggressively pursued the crash’s con men nor compellingly explained how they gamed the system, he sometimes looks as if he’s fronting for the industry even if he’s not.

The special treatment afforded to the perpetrators of the frauds that helped create the financial crisis wasn’t the only gift to Wall Street from the Democratically-controlled White House, Senate and Congress.  The financial “reform” bill was so badly compromised (by the Administration and Senate Democrats, themselves) as it worked its way through the legislative process, that it is now commonly regarded as nothing more than a hoax.

By the close of 2010, I noted that an expanding number of commentators shared my outrage over the likelihood that we would never see any prosecutions result from the crimes that brought about the financial crisis:

A recent article written by former New York Mayor Ed Koch began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

Most recently, Matt Taibbi has written another great article for Rolling Stone entitled, “Why Isn’t Wall Street in Jail?”.  It’s nice to know that the drumbeat for justice continues.  Taibbi’s essay provided a great history of the crisis, with a particular emphasis on how whistleblowers were ignored, just as Harry Markopolos was ignored when (in May of 2000) he tried to alert the SEC to the fact that Bernie Madoff’s hedge fund was a multi-billion-dollar Ponzi scheme.  Here is a great passage from Matt Taibbi’s essay:

In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type.  Last year, the government deported 393,000 people, at a cost of $5 billion.  Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent.  In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would “demean the seriousness” of the offenses.

So there you have it.  Illegal immigrants:  393,000.  Lying moms:  one.  Bankers:  zero.  The math makes sense only because the politics are so obvious.  You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players.  But for stealing a billion dollars?  For fraud that puts a million people into foreclosure?  Pass.  It’s not a crime.  Prison is too harsh.  Get them to say they’re sorry, and move on.  Oh, wait — let’s not even make them say they’re sorry.  That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead.  But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year.  What’s next?  Taxpayer-funded massages for every Wall Street executive guilty of fraud?

Wouldn’t it be nice if public opinion meant more to the Obama administration than campaign contributions from Wall Street banksters?




Democrats Share The Blame

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January 21 brought us Episode 199 of HBO’s Real Time with Bill Maher.  At the end of the program, Bill went through his popular “New Rules” segment.  On this occasion, he wound it up with a rant about how the Republicans were exclusively at fault for the financial crisis.  Aside from the fact that this claim was historically inaccurate, it was not at all fair to David Stockman (a guest on that night’s show) who had to sit through Maher’s diatribe without an opportunity to point out the errors.  (On the other hand, I was fine with watching Stephen Moore twist in the wind as Maher went through that tirade.)

That incident underscored the obvious need for Bill Maher to invite William Black as a guest on the show in order to clarify this issue.  Prior to that episode, Black had written an essay, which appeared on The Big Picture website.  Although the theme of that piece was to debunk the “mantra of the Republican Party” that “regulation is a job killer”, Black emphasized that Democrats had a role in “deregulation, desupervision, and de facto decriminalization (the three ‘des’)” which created the “criminogenic environment” precipitating the financial crisis:

The Great Recession was triggered by the collapse of the real estate bubble epidemic of mortgage fraud by lenders that hyper-inflated that bubble.  That epidemic could not have happened without the appointment of anti-regulators to key leadership positions.  The epidemic of mortgage fraud was centered on loans that the lending industry (behind closed doors) referred to as “liar’s” loans — so any regulatory leader who was not an anti-regulatory ideologue would (as we did in the early 1990s during the first wave of liar’s loans in California) have ordered banks not to make these pervasively fraudulent loans.

*   *   *

From roughly 1999 to the present, three administrations have displayed hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their opposition to vigorous regulation.  When these administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in regulating, the administration attacked the regulators.  In the financial regulatory sphere, recent examples include Arthur Levitt and William Donaldson (SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).

Similarly, the bankers used Congress to extort the Financial Accounting Standards Board (FASB) into trashing the accounting rules so that the banks no longer had to recognize their losses.  The twin purposes of that bit of successful thuggery were to evade the mandate of the Prompt Corrective Action (PCA) law and to allow banks to pretend that they were solvent and profitable so that they could continue to pay enormous bonuses to their senior officials based on the fictional “income” and “net worth” produced by the scam accounting.  (Not recognizing one’s losses increases dollar-for-dollar reported, but fictional, net worth and gross income.)

When members of Congress (mostly Democrats) sought to intimidate us into not taking enforcement actions against the fraudulent S&Ls we blew the whistle.

President Obama’s January 18 opinion piece for The Wall Street Journal prompted a retort from Bill Black.  The President announced that he had signed an executive order requiring “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive”.  Obama’s focus on “regulations that stifle job creation” seemed to exemplify what Black had just discussed one day earlier.  Accordingly, Bill Black wrote an essay for The Huffington Post on January 19, which began this way:

I get President Obama’s “regulatory review” plan, I really do.  His game plan is a straight steal from President Clinton’s strategy after the Republican’s 1994 congressional triumph. Clinton’s strategy was to steal the Republican Party’s play book.  I know that Clinton’s strategy was considered brilliant politics (particularly by the Clintonites), but the Republican financial playbook produces recurrent, intensifying fraud epidemics and financial crises.  Rubin and Summers were Clinton’s offensive coordinators.  They planned and implemented the Republican game plan on finance.  Rubin and Summers were good choices for this role because they were, and remain, reflexively anti-regulatory.  They led the deregulation and attack on supervision that began to create the criminogenic environment that produced the financial crisis.

Bill Clinton’s role in facilitating the financial crisis would have surely become an issue in the 2008 Presidential election campaign, had Hillary Clinton been the Democratic nominee.  Instead, the Democrats got behind a “Trojan horse” candidate, disguised in the trappings of  “Change” who, once elected, re-installed the very people who implemented the crucial deregulatory changes which caused the financial crisis.  Bill Black provided this explanation:

The zeal, crude threats, and arrogance they displayed in leading the attacks on SEC Chair Levitt and CFTC Chair Born’s efforts to adopt regulations that would have reduced the risks of fraud and financial crises were exceptional.  Just one problem — they were wrong and Levitt and Born were right.  Rubin and Summers weren’t slightly wrong; they put us on the path to the Great Recession.  Obama knows that Clinton’s brilliant political strategy, stealing the Republican play book, was a disaster for the nation, but he has picked politics over substance.

*   *   *

Obama’s proposal and the accompanying OMB releases do not mention the word or the concept of fraud.  Despite an “epidemic” of fraud led by the bank CEOs (which caused the greatest crisis of his life), Obama cannot bring itself to use the “f” word. The administration wants the banks’ senior officers to fund its reelection campaign.  I’ve never raised political contributions, but I’m certain that pointing out that a large number of senior bank officers were frauds would make fundraising from them awkward.

Black targeted Obama’s lame gesture toward acknowledgement of some need for regulation, encapsulated in the statement that “(w)here necessary, we won’t shy away from addressing obvious gaps …”:

Huh?  The vital task is to find the non-obvious gaps.  Why, two years into his presidency, has the administration failed to address “obvious gaps”?  The administration does not need Republican approval to fill obvious gaps in regulation.  Even when Obama finds “obvious gaps” in regulatory protection he does not promise to act.  He will act only “where necessary.”  We know that Summers, Rubin, and Geithner rarely believe that financial regulation is “necessary.”  Even if Obama decides it is “necessary” to act he only promises to “address” “obvious gaps” — not “end” or “fill” them.

At the conclusion of his Huffington Post essay, Black provided his own list of  “obvious gaps” described as the “Dirty Dozen”  —  “. . .  obvious gaps in financial regulation which have persisted and grown during this, Obama’s first two years in office.”

Bill Black is just one of many commentators to annotate the complicity of Democrats in causing the financial crisis.  Beyond that, Black has illustrated how President Obama has preserved – and possibly enhanced — the “criminogenic” milieu which could bring about another financial crisis.

The first step toward implementing “bipartisan solutions” to our nation’s ills should involve acknowledging the extent to which the fault for those problems is bipartisan.


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Tool-Trashing Time

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I never liked Joe “The Tool” Lieberman.  If you run that name (nickname included) on the search bar at the upper-right corner of this page, you will find a total of 13 previous entries wherein I discussed him in uncomplimentary terms.  What bugs me most about Lieberman is that so many people consider him as the personification of centrism.  I believe that Lieberman gives centrism a bad name because he is simply an opportunist.    The guy doesn’t really appear to stand for anything in particular – he is simply a tool for whatever lobbyist or other interest group is willing to play his quid pro quo game.  After Lieberman lost the Democratic Primary for his Senate seat in 2006, he chose to run as an Independent and in the process, he betrayed those individuals who contributed to his election campaign, believing that Lieberman would champion the causes he advanced before he had to sell his soul to Bush and Cheney in order to save his political hide.  It was only because Ned Lamont (the man who defeated him in the Democratic Primary) came down with a bad case of  The Smug – spending more time vacationing than campaigning for the November election – that Lieberman managed to win a fourth term as junior Senator from Connecticut.

Needless to say, Emily Bazelon’s recent article for Slate, “Good Riddance, Joe Lieberman – Why I loathe my Connecticut Senator” was a real treat.  It was nice to see that a good number of people were as thrilled as I to hear that The Tool was calling it quits.  While discussing the celebratory outpouring of enthusiasm by anti-Lieberman-ites Ms. Bazelon mentioned this:

Another friend, Judy Chevalier, burned up her iPad tonight when I asked her to enumerate why she hates Joe Lieberman.  She ticked off a half-dozen reasons and then said, “The thing is, I did not come up with most of these myself.  They come from many rounds of playing the peculiar Connecticut liberal cocktail party game ‘I hated Joe Lieberman before you hated Joe Lieberman.’ ”  Longtime Lieberman haters, she says, look all the way back to 1993, when Lieberman led a hedge-fund-friendly charge in the Senate against the Financial Accounting Standards Board, which at the time wanted to close the accounting loophole that let corporations duck the recording of stock options on their balance sheets.

As an aside, the first half of that passage was characterized as “the money quote” by the Red State blog and other far-right commentators, anxious to avenge Sarah Palin since her “crosshairs” SarahPac campaign ad was criticized after the attempted assassination of Representative Gabrielle Giffords.  The magic word, “hate” gave the hard right the opportunity to argue that “liberals hate politicians, too”.  Actually, the real “money quote” can be found by clicking on the highlighted language discussing the fight over the Financial Accounting Standards Board rules:

Corporate America aligned with the accounting industry to fight the FASB proposal, with the result that in 1994, the Senate, led by Senator Joseph Lieberman (D-Conn.), passed a non-binding resolution condemning the proposal by a vote of 88-to-9.

“It wasn’t an accounting debate,” says Jim Leisenring, the vice chairman of FASB from 1988 to 2000.  “We switched from talking about, ‘Have we accurately measured the option?’ or, ‘Have we expensed the option on the proper date?’ to things like, ‘Western civilization will not exist without stock options,’ or, ‘There won’t be jobs anymore for people without stock options.’ … People tried to take the argument away from the accounting to be just plainly a political argument.”

Does that rhetoric sound familiar?

After his 2006 victory, Lieberman continued to betray the people of Connecticut by abandoning his duties in the Senate to follow John McCain all along the 2008 campaign trail (including McCain’s trip to Afganistan) in the hope of securing a place for himself in the would-be McCain administration.  The Tool knew he would never win a fifth term in the Senate.  His only hope was to latch on to McCain’s pantsleg and hang on for dear life.  In the wake of that fiasco, The Tool’s approval rating continued to slide and by October of 2010, it was down to 31 percent.  A fifth term in the Senate was definitely out of the question.  His campaign war chest could be put to better uses – such as buying “friendships” before beginning a new career as a lobbyist.

Despite Lieberman’s crucial effort in the repeal of the military’s “don’t ask – don’t tell” policy, it is interesting to observe how many gay people are willing to overlook that good deed while celebrating Lieberman’s retirement.  A review of the comments at the joemygod blog exposes these reactions:

Good riddance.  DADT capped an otherwise awful career as a spoiler.

*   *   *

Thanks for DADT, but not terribly sorry you’re leaving the Senate.  And I really didn’t want the anxiety of watching a 3-way race in CT, which might have sent a wingnut from the Right to the Senate.

*   *   *

good riddance to the man who killed the public option to satisfy his insurance industry friends in Connecticut. a terrible person

So much for that legacy thing   .   .   .

Daniela Altimari of The Hartford Courant’s CapitolWatch blog, revealed a wide spectrum of reactions to Lieberman’s announcement.  As one might expect, the remarks from politicians were painfully cordial, polite and not worth our time here.  I’ll provide you with two of the more interesting quotes:

“Joe Lieberman took millions from insurance companies, Wall Street banks, and other corporate interests – and then did their dirty work in Congress, including killing the public option.  As a result, Lieberman’s poll numbers were disastrous in Connecticut.  His decision to quit in the face of assured defeat is a huge victory for the progressive movement and all Americans who want Democrats to put regular families ahead of corporate interests.”

—  Keauna Gregory, Progressive Change Campaign Committee

*   *   *

“Of all the horrible things Joe Lieberman has done in his hideous career, depriving everyone of the joy at seeing him lose is near the top”

—  Glenn Greenwald of Salon (via Twitter)

The Connecticut Mirror provided these reactions:

“It’s the first thing he’s done in 10 years to make Connecticut Democrats completely happy.”

—  Bill Curry, former state comptroller, as quoted in The New York Times

*   *   *

“He couldn’t leave the Senate fast enough as far as I’m concerned. He’s not only driving Democrats nuts down here, but he’s become a right-wing extremist on everything except the environment and gay rights.”

—  Ralph Nader, as quoted in The Hartford Courant

*   *   *

“He will leave behind a long list of achievements, from helping to consolidate the nation’s intelligence gathering services in a way that appears to make it more difficult to gather intelligence, to threatening to filibuster the health care reform act until it had been watered down to suit his own high principles.  You will find it all in my upcoming book, ‘Everything Bad Is Joe Lieberman’s Fault.’ ”

—  Gail Collins, writing in The New York Times

As we approach The Tool’s final days in the Senate, I will be looking forward to similar tributes.


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