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Financial Reform Bill Exposed As Hoax

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June 28, 2010

You don’t have to look too far to find damning criticism of the so-called financial “reform” bill.  Once the Kaufman-Brown amendment was subverted (thanks to the Obama administration), the efforts to solve the problem of financial institutions’ growth to a state of being “too big to fail” (TBTF) became a lost cause.  Dylan Ratigan, who had been fuming for a while about the financial reform charade, had this to say about the product that emerged from reconciliation on Friday morning:

It means that the same people who brought you these horrible changes — rising wealth discrepancy, massive unemployment and a crumbling infrastructure – have now further institutionalized the policies that will keep the causes of these problems firmly in place.

The best trashing of this bill came from Tyler Durden at Zero Hedge:

Congrats, middle class, once again you get raped by Wall Street, which is off to the races to yet again rapidly blow itself up courtesy of 30x leverage, unlimited discount window usage, trillions in excess reserves, quadrillions in unregulated derivatives, a TBTF framework that has been untouched and will need a rescue in under a year, non-existent accounting rules, a culture of unmitigated greed, and all of Congress and Senate on its payroll.  And, sorry, you can’t even vote some of the idiots that passed this garbage out:  after all there is a retiring lame duck in charge of it all.  We can only hope his annual Wall Street (i.e. taxpayer funded) annuity will satisfy his conscience for destroying any hope America could have of a credible financial system.

*   *   *

In other words, the greatest theatrical production of the past few months is now over, it has achieved nothing, it will prevent nothing, and ultimately the financial markets will blow up yet again, but not before the Teleprompter in Chief pummels the idiot public with address after address how he singlehandedly was bribed, pardon, achieved a historic event of being the only president to completely crumble under Wall Street’s pressure on every item that was supposed to reign in the greatest risktaking generation (with Other People’s Money) in history.

Robert Lenzner of Forbes focused his criticism of the bill on the fact that nothing was done to limit the absurd leverage used by the banks to borrow against their capital.  After all, at the January 13 hearing of the Financial Crisis Inquiry Commission, Lloyd Bankfiend of Goldman Sachs and JP Morgan’s Dimon Dog admitted that excessive leverage was a key problem in causing the financial crisis.  As I discussed in “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”.

At Forbes, Robert Lenzner discussed the ugly truth about how the limits on leverage were excised from this bill:

The capitulation on this matter of leverage is extraordinary evidence of Wall Street’s power to influence Congress through its lobbying dollars.  It is another example of the public servants serving the agents of finance capitalism.  After pumping in gobs of sovereign credit to replace the credit that had been wiped out and replace the supply of credit to the economic system, a weak reform bill will just be an invitation to drum up the leverage that caused the crisis in the first place.

Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit).  The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study.  The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban.  Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome.  Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact.  Jim Jubak exposed the strategy employed by the lobbyists:

But lobbying Congress is only part of the game.  Congress writes the laws, but it leaves it up to regulators to write the rules.  In a mid-June review of the text of the financial-reform legislation, the Chamber of Commerce counted 399 rule-makings and 47 studies required by lawmakers.

Each one of these, like the proposed de minimus exemption of the Volcker rule, would be settled by regulators operating by and large out of the public eye and with minimal public input.  But the financial-industry lobbyists who once worked at the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Commodities Futures Trading Commission or the Federal Deposit Insurance Corp. know how to put in a word with those writing the rules.  Need help understanding a complex issue?  A regulator has the name of a former colleague now working as a lobbyist in an e-mail address book.  Want to share an industry point of view with a rule-maker?  Odds are a lobbyist knows whom to call to get a few minutes of face time.

At the Naked Capitalism website, Yves Smith served up some more negative reactions to the bill, along with her own cutting commentary:

I want the word “reform” back.  Between health care “reform” and financial services “reform,” Obama, his operatives, and media cheerleaders are trying to depict both initiatives as being far more salutary and far-reaching than they are.  This abuse of language is yet another case of the Obama Administration using branding to cover up substantive shortcomings.  In the short run it might fool quite a few people, just as BP’s efforts to position itself as an environmentally responsible company did.

*   *   *

So what does the bill accomplish?  It inconveniences banks around the margin while failing to reduce the odds of a recurrence of a major financial crisis.

The only two measures I see as genuine accomplishments, the Audit the Fed provisions, and the creation of a consumer financial product bureau, do not address systemic risks.  And the consumer protection authority was substantially watered down.  Recall a crucial provision, that banks be required to offer plain vanilla variants of products, was axed early on.

So there you have it.  The bill that is supposed to save us from another financial crisis does nothing to accomplish that objective.  Once this 2,000-page farce is signed into law, watch for the reactions.  It will be interesting to sort out the clear-thinkers from the Kool-Aid drinkers.





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ObamaWatch

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June 14, 2010

Last week, I highlighted some criticism of Barack Obama’s presidency, which came from such unlikely sources as Maureen Dowd and Frank Rich of The New York Times, as well as Tony Norman of the Pittsburgh Post-Gazette.  The man whom I described as the “Disappointer-in-Chief” during his third month in office, has continued to draw harsh criticism from unlikely sources.  At this point, the subject pondered by many commentators concerns whether any of this dissatisfaction will stick long enough to have an impact on the mid-term elections and beyond.

If the President read Tim Dickenson’s recent essay for Rolling Stone, “The Spill, The Scandal and the President”, it must have been painful.  Mr. Dickenson didn’t pull any punches while explaining Mr. Obama’s role in the Deepwater Horizon disaster:

Like the attacks by Al Qaeda, the disaster in the Gulf was preceded by ample warnings – yet the administration had ignored them.  Instead of cracking down on MMS, as he had vowed to do even before taking office, Obama left in place many of the top officials who oversaw the agency’s culture of corruption.  He permitted it to rubber-stamp dangerous drilling operations by BP – a firm with the worst safety record of any oil company – with virtually no environmental safeguards, using industry-friendly regulations drafted during the Bush years.  He calibrated his response to the Gulf spill based on flawed and misleading estimates from BP – and then deployed his top aides to lowball the flow rate at a laughable 5,000 barrels a day, long after the best science made clear this catastrophe would eclipse the Exxon Valdez.

At the Naked Capitalism website, Yves Smith summed up a good number of the Obama Administration’s shortcomings in the first paragraph of her June 11 piece about the BP mess:

As readers may know, I’ve been consistently disappointed by the Obama Administration:  its faux progressive packaging versus its corporatist posture, its half-hearted, halting reforms which are noisily trumpeted as the real thing, its deep seated belief that public antipathy to its initiatives means it needs to work harder on selling its message, when it really needs a new strategy.

But the escalating disaster of the Gulf oil spill, and the unique constellation it presents, namely, a big, rich, isolated, foreign perp, which is largely if not solely responsible for the mess, in close proximity to contested mid-term elections, might actually rouse Obama to do something uncharacteristic, namely get tough.

This is by no means a likely outcome, but we are seeing some novel behaviors.  First is that Obama finally may have succeeded in getting someone important afraid of him.  This is a critically important lesson; Machiavelli told his prince it was much more important to be feared than loved.  Mere anger is often negotiation posturing or a manifestation of CEO Derangement Syndrome; fear is much harder to fake.  And BP is finally starting to get rattled.

In case you are wondering whether the President is still popular in Hollywood, The Hill recently turned to a couple of southern California bloggers to provide some insight as to whether Mr. Obama has begun to lose his sparkle in Tinsel Town.  John Nolte of Andrew Breitbart’s Big Hollywood blog expressed the belief that the President’s supporters in Hollywood have been keeping the faith:

If anything, Hollywood is worried about and for Obama.  Worried about the upcoming mid-terms, his re-election chances, his sliding poll numbers, and his gilded ship sailing off course and landing in Carter-ita-ville instead of Mt. Rushmore.

From the more left-leaning perspective, Deborah White of The Liberal OC blog gave us the impression that the President’s Hollywood supporters are becoming increasingly disappointed, although not yet disgruntled:

As of now, President Obama has not lost the support of most Hollywood liberals.  But Democrats in Hollywood are also no longer lavishing praise on Obama as they did in hopeful droves before his triumphant election.

Hollywood liberals no longer view Barack Obama as someone they blindly “want to follow… somewhere, anywhere” as pal George Clooney famously told Charlie Rose in early 2008.

Meanwhile, Maureen Dowd has continued with her unrestrained criticism of the President.  Her June 11 column must have irritated more than a few people on Pennsylvania Avenue:

The press traveling with Obama on the campaign never had a lovey-dovey relationship with him.  He treated us with aloof correctness, and occasional spurts of irritation.  Like many Democrats, he thinks the press is supposed to be on his side.

The patrician George Bush senior was always gracious with reporters while conveying the sense that what we do for a living was rude.

The former constitutional lawyer now in the White House understands that the press has a role in the democracy.  But he is an elitist, too, as well as thin-skinned and controlling.  So he ends up regarding scribes as intrusive, conveying a distaste for what he sees as the fundamental unseriousness of a press driven by blog-around-the-clock deadlines.

During the Presidential election campaign, Mr. Obama was often described as a “Rorschach test” — people saw in him whatever they imagined.  Now that the President has been able to disappoint his supporters, the criticism is gradually becoming increasingly harsh.  As frustration over the BP crisis, unemployment and the economy continues to build — the criticism voiced by those who voted for him is likely to become more caustic.




Banking Lobby Tools In Senate Subvert Reform

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May 20. 2010

The financial pseudo-reform bill is being exposed as a farce.  Thanks to its tools in the Senate, the banking lobby is on the way toward defeating any significant financial reform.  Although Democrats in the Senate (and the President himself) have been posing as reformers who stand up to those “fat cat bankers”, their actions are speaking much louder than their words.  What follows is a list of the Senate Democrats who voted against both the Kaufman – Brown amendment (to prevent financial institutions from being “too big to fail”) as well as the amendment calling for more Federal Reserve transparency (sponsored by Republican David Vitter to comport with Congressman Ron Paul’s original “Audit the Fed” proposal – H.R. 1207 – which was replaced by the watered-down S. 3217 ):

Akaka (D-HI), Baucus (D-MT), Bayh (D-IN), Bennet (D-CO), Carper (D-DE), Conrad (D-ND), Dodd (D-CT), Feinstein (D-CA), Gillibrand (D-NY), Hagan (D-NC), Inouye (D-HI), Johnson (D-SD), Kerry (D-MA), Klobuchar (D-MN), Kohl (D-WI), Landrieu (D-LA), Lautenberg (D-NJ), Lieberman (ID-CT), McCaskill (D-MO), Menendez (D-NJ), Nelson (D-FL), Nelson (D-NE), Reed (D-RI), Schumer (D-NY), Shaheen (D-NH), Tester (D-MT), Udall (D-CO) and Mark Warner (D-VA).

I wasn’t surprised to see Senator Chuck Schumer on this list because, after all, Wall Street is located in his state.  But how about Senator Claire McCaskill?  Remember her performance at the April 27 hearing before the Senate Permanent Subcommittee on Investigations?   She really went after those banksters – didn’t she?  Why would she suddenly turn around and support the banks in opposing those two amendments?   I suppose the securities and investment industry is entitled to a little payback, after having given her campaign committee $265,750.

I was quite disappointed to see Senator Amy Klobuchar on that list.  Back on June 19, 2008, I included her in a piece entitled “Women to Watch”.  Now, almost exactly two years later, we are watching her serve as a tool for the securities and investment industry, which has given her campaign committee $224,325.  On the other hand, another female Senator whom I discussed in that same piece, Maria Cantwell of Washington, has been standing firm in opposing attempts to leave some giant loopholes in Senator Blanche Lincoln’s amendment concerning derivatives trading reform.  The Huffington Post described how Harry Reid attempted to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill.  Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:

There were some unusually Johnsonian moments of wrangling on the floor during the nearly hour-long vote.  Reid pressed his case hard on Snowe, the lone holdout vote present, with Bob Corker and Mitch McConnell at her side.  After finding Brown, he put his arm around him and shook his head, then found Cantwell seated alone at the opposite end of the floor.  He and New York’s Chuck Schumer encircled her, Reid leaning over her with his right arm on the back of her chair and Schumer leaning in with his left hand on her desk.  Cantwell stared straight ahead, not looking at the men even as she spoke.  Schumer called in Chris Dodd, who was unable to sway her.  Feingold hadn’t stuck around.  Cantwell, according to a spokesman, wanted a guarantee on an amendment that would fix a gaping hole in the derivatives section of the bill, which requires the trades to be cleared, but applies no penalty to trades that aren’t, making Blanche Lincoln’s reform package little better than a list of suggestions.

*   *   *

“I don’t think it’s a good idea to cut off good consumer amendments because of cloture,” said Cantwell on Tuesday night.

Other amendments offered by Democrats would ban banks from proprietary trading, cap ATM fees at 50 cents, impose new limits on the payday lending industry, prohibit naked credit default swaps and reinstate Glass-Steagall regulations that prohibit banks from owning investment firms.

“We need to eliminate the risk posed to our economy by ‘too big to fail’ financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms,” said Feingold in a statement after the vote.  Feingold supported the amendment to reinstate Glass-Steagall, among others.

“Unfortunately, these key reforms are not included in the bill,” he said.  “The test for this legislation is a simple one — whether it will prevent another financial crisis.  As the bill stands, it fails that test.  Ending debate on the bill is finishing before the job is done.”

Russ Feingold’s criticisms of the bill were consistent with those voiced by economist Nouriel Roubini (often referred to as “Doctor Doom” because he was one of the few economists to anticipate the scale of the financial crisis).  Barbara Stcherbatcheff of CNBC began her report on Dr. Roubini’s May 18 speech with this statement:

Current efforts to reform financial regulation are “cosmetic” and won’t prevent another crisis, economist Nouriel Roubini told an audience on Tuesday at the London School of Economics.

The current mid-term primary battles have fueled a never-ending stream of commentary following the same narrative:  The wrath of the anti-incumbency movement shall be felt in Washington.  Nevertheless, Dylan Ratigan seems to be the only television commentator willing to include “opposition to financial reform” as a political liability for Congressional incumbents.  Yves Smith raised the issue on her Naked Capitalism website with an interesting essay focused on this theme:

Why have political commentators been hesitant to connect the dots between the “no incumbent left standing” movement and the lack of meaningful financial reform?

Her must-read analysis of the “head fakes” going on within the financial reform wrangling concludes with this thought:

So despite the theatrics in Washington, I recommend lowering your expectations greatly for the result of financial reform efforts.  There have been a few wins (for instance, the partial success of the Audit the Fed push), but other measures have for the most part been announced with fanfare and later blunted or excised.  Even though the firestorm of Goldman-related press stiffened the spines of some Senators and produced a late-in-process flurry of amendments, don’t let a blip distract you from the trend line, that as the legislative process proceeds apace, the banks will be able to achieve an outcome that leaves their dubious business models and most important, the rich pay to industry incumbents, largely intact.

As always, it’s up to the voting public with the short memory to unseat those tools of the banking lobby.  Our only alternative is to prepare for the next financial crisis.



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Everyone Knew About Lehman Brothers

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March 19, 2010

A March 18 report by Henny Sender at the Financial Times revealed that former officials from Merrill Lynch had contacted the Securities and Exchange Commission as well as the Federal Reserve of New York to complain that Lehman Brothers had been incorrectly calculating a key measure of its financial health.  The regulators received this warning several months before Lehman filed for bankruptcy in September of 2008.  Apparently Lehman’s reports of robust financial health were making Merrill look bad:

Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons.  The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less liquid than Lehman.

*   *   *

In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.

*   *   *

The former Merrill officials said they contacted the regulators after Lehman released an estimate of its liquidity position in the first quarter of 2008.  Lehman touted its results to its counterparties and its investors as proof that it was sounder than some of its rivals, including Merrill, these people said.

*   *   *

“We started getting calls from our counterparties and investors in our debt.  Since we didn’t believe the Lehman numbers and thought their calculations were aggressive, we called the regulators,” says one former Merrill banker, now at another big bank.

Could the people at Merrill Lynch have expected the New York Fed to intervene and prevent the accounting chicanery at Lehman?  After all, Lehman’s CEO, Richard Fuld, was also a class B director of the New York Fed.  Would any FRBNY investigator really want to make trouble for one of the directors of his or her employer?  This type of conflict of interest is endemic to the self-regulatory milieu presided over by the Federal Reserve.  When people talk about protecting “Fed independence”, I guess this is what they mean.

The Financial Times report inspired Yves Smith of Naked Capitalism to emphasize that the New York Fed’s failure to do its job, having been given this additional information from Merrill officials, underscores the ineptitude of the New York Fed’s president at the time — Tim Geithner:

The fact that Merrill, with a little digging, could see that Lehman’s assertions about its financial health were bogus says other firms were likely to figure it out sooner rather than later.  That in turn meant that the Lehman was extremely vulnerable to a run.  Bear was brought down in a mere ten days.  Having just been through the Bear implosion, the warning should have put the authorities in emergency preparedness overdrive.  Instead, they went into “Mission Accomplished” mode.

This Financial Times story provides yet more confirmation that Geithner is not fit to serve as a regulator and should resign as Treasury Secretary.  But it may take Congress forcing a release of the Lehman-related e-mails and other correspondence by the New York Fed to bring about that outcome.

Those “Lehman-related e-mails” should be really interesting.  If Richard Fuld was a party to any of those, it will be interesting to note whether his e-mail address was “@LehmanBros”, “@FRBNY” or both.

The Lehman scandal has come to light at precisely the time when Ben Bernanke is struggling to maintain as much power for the Federal Reserve as he can — in addition to getting control over the proposed Consumer Financial Protection Agency.  One would think that Bernanke is pursuing a lost cause, given the circumstances and the timing.  Nevertheless, as Jesse of Jesse’s Cafe Americain points out — Bernanke may win this fight:

The Fed is the last place that should receive additional power over the banking system, showing itself to be a bureaucracy incapable of exercising the kind of occasionally stern judgment, the tough love, that wayward bankers require.  And the mere thought of putting Consumer Protection under their purview makes one’s skin crawl with fear and the gall of injustice.

They may get it, this more power, not because it is deserved, but because politicians themselves wish to have more power and money, and this is one way to obtain it.

The next time the financial system crashes, the torches and pitchforks will come out of the barns and there will be a serious reform, and some tar and feathering in congressional committees, and a few virtual lynchings.  The damage to the people of the middle class will be an American tragedy.  But this too shall pass.

It’s beginning to appear as though it really will require another financial crisis before our graft-hungry politicians will make any serious effort at financial reform.  If economist Randall Wray is correct, that day may be coming sooner than most people expect:

Another financial crisis is nearly certain to hit in coming months — probably before summer.  The belief that together Geithner and Bernanke have resolved the crisis and that they have put the economy on a path to recovery will be exposed as wishful thinking.

Although that may sound a bit scary, we have to look at the bright side:  at least we will finally be on a path toward serious financial reform.



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Inviting Blowback

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March 11, 2010

Is it just a coincidence that “Turbo” Tim Geithner was the subject of back-to-back feature stories in The New Yorker and The Atlantic ?  A number of commentators don’t think so.

The March 10 issue of The New Yorker ran an article by John Cassidy entitled, “No Credit”.  The title is meant to imply that Getithner’s efforts to save America’s financial system are working but he’s not getting any credit for this achievement.  From the very outset, this piece was obviously an attempt to reconstruct Geithner’s controversial public image – because he has been widely criticized as a tool of Wall Street.

The article by Jo Becker and Gretchen Morgenson in the April 26, 2009 issue of The New York Times helped clarify the record on Geithner’s loyalty to the big banks at the public’s expense, during his tenure as president of the Federal Reserve of New York.  That piece began with a brainstorming session convened by Treasury Secretary Hank Paulson in June of 2008, at which point Paulson asked for suggestions as to what emergency powers the government should have at its disposal to confront the burgeoning financial crisis:

Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer.  He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.

The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.

“People thought, ‘Wow, that’s kind of out there,’” said John C. Dugan, the comptroller of the currency, who heard about the idea afterward.  Mr. Geithner says, “I don’t remember a serious discussion on that proposal then.”

But in the 10 months since then, the government has in many ways embraced his blue-sky prescription.

The recent article in The New Yorker defends Geithner’s bank bailouts, with a bit of historical revisionism that conveniently avoids a small matter referred to as Maiden Lane III:

During the past ten months, U.S. banks have raised more than a hundred and forty billion dollars from investors and increased the reserves they hold to cover unforeseen losses.  While many small banks are still in peril, their larger brethren, such as Bank of America, Wells Fargo, and Goldman Sachs, are more strongly capitalized than many of their international competitors, and they have repaid virtually all the money they received from taxpayers.  Looking ahead, the Treasury Department estimates the ultimate cost of the financial-rescue package at just a hundred and seventeen billion dollars — and much of that related to propping up General Motors and Chrysler.

Edward Harrison of Credit Writedowns dismissed the NewYorker article as “an out and out puff piece” that Geithner himself could have written:

Don’t be fooled; this is a clear plant to help bolster public opinion for a bailout and transfer of wealth, which was both unnecessary and politically damaging.

The article on Geithner, appearing in the April issue of The Atlantic, was described by Mr. Harrison as “fairly even-handed” although worthy of extensive criticism.  Nevertheless, after reading the following passage from the first page of the essay, I found it difficult to avoid using the terms “fawning and sycophantic” to describe it:

In the course of many interviews about Geithner, two qualities came up again and again.  The first was his extraordinary quickness of mind and talent for elucidating whatever issue was the preoccupying concern of the moment.  Second was his athleticism.  Unprompted by me, friends and colleagues extolled his skill and grace at windsurfing, tennis, basketball, running, snowboarding, and softball (specifying his prowess at shortstop and in center field, as well as at the plate).  He inspires an adolescent awe in male colleagues.

Gawd!  Yeech!

The reaction to the New Yorker and Atlantic articles, articulated by Yves Smith of Naked Capitalism, is an absolutely fantastic “must read” piece.  Ms. Smith goes beyond the subject of Geithner.  Her essay is a tour de force, describing how President Obama sold out the American public in the service of his patrons on Wall Street.  The final two paragraphs portray the administration’s antics with a long-overdue measure of pugilism:

But the Obama administration miscalculated badly.  First, it bought the financiers’ false promise that massive subsidies to them would kick start the economy.  But economists are now estimating that it is likely to take five years to return to pre-crisis levels of unemployment.  Obama took his eye off the ball.  A Democratic President’s most important responsibility is job creation.  It is simply unacceptable to most Americans for Wall Street to be reaping record profits and bonuses while the rest of the country is suffering.  Second, it assumed finance was too complicated to hold the attention of most citizens, and so the (non) initiatives under way now would attract comparatively little scrutiny.  But as public ire remains high, the press coverage has become almost schizophrenic.  Obvious public relations plants, like Ben Bernanke’s designation as Time Magazine’s Man of the Year (precisely when his confirmation is running into unexpected opposition) and stories in the New York Times that incorrectly reported some Goldman executive bonus cosmetics as meaningful concessions have co-existed with reports on the abject failure of Geithner’s mortgage modification program.  While mainstream press coverage is still largely flattering, the desperation of the recent PR moves versus the continued public ire and recognition of where the Administration’s priorities truly lie means the fissures are becoming a gaping chasm.

So with Obama’s popularity falling sharply, it should be no surprise that the Administration is resorting to more concerted propaganda efforts.  It may have no choice.  Having ceded so much ground to the financiers, it has lost control of the battlefield.  The banking lobbyists have perfected their tactics for blocking reform over the last two decades.  Team Obama naively cast its lot with an industry that is vastly more skilled in the dark art of the manufacture of consent than it is.

Congratulations to Yves Smith for writing a fantastic critique of the Obama administration’s combination of nonfeasance and misfeasance in responding to both the financial and economic crises.



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Three New Books For March

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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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An Early Favorite For 2010

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February 11, 2010

It appears as though the runner-up for TheCenterLane.com’s 2009 Jackass of the Year Award is well on his way to winning the title for 2010.  After reading an op-ed piece by Ross Douthat of The New York Times, I decided that as of December 31, 2009, it was too early to determine whether our new President was worthy of such a title.

Since Wednesday morning, we have been bombarded with reactions to a story from Bloomberg News, concerning an interview Obama had with Bloomberg BusinessWeek in the Oval Office.  In case you haven’t seen it, here is the controversial passage from the beginning of that article:

President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein, noting that some athletes take home more pay.

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday.  “I, like most of the American people, don’t begrudge people success or wealth.  That is part of the free-market system.”

Many commentators have expounded upon what this tells us about our President.  I’d like to quote the reactions from a couple of my favorite bloggers.  Here’s what Yves Smith had to say at Naked Capitalism:

There are only two, not mutually exclusive, conclusions one can reach from reading this tripe:  that Obama is a lackey of the financiers, and putting the best spin he can on their looting, or he is a fool.

The salient fact is that, their protests to the contrary, the wealth of those at the apex of the money machine was not the result of the operation of  “free markets” or any neutral system.  The banking industry for the better part of two decades has fought hard to create a playing field skewed in their favor, with it permissible to sell complex products with hidden bad features to customers often incapable of understanding them.  By contrast, one of the factors that needs to be in place for markets to produce desirable outcomes is for buyers and sellers to have the same information about the product and the objectives of the seller.

Similarly, the concentrated capital flows, often too-low interest rates, and asymmetrical Federal Reserve actions (cutting rates fast when markets look rocky, being very slow to raise rates and telegraphing that intent well in advance) that are the most visible manifestations of two decades of bank-favoring policies, are the equivalent of massive subsidies.

And that’s before we get to the elephant in the room, the massive subsidies to the banksters that took place during the crisis and continue today.

We have just been through the greatest looting of the public purse in history, and Obama tries to pass it off as meritocracy in action.

Obama is beyond redemption.

At his Credit Writedowns website, Edward Harrison made this observation:

The problem is not that we have free markets in America, but rather that we have bailouts and crony capitalism.  So Americans actually do begrudge people this kind of monetary reward.  It has been obvious to me that the bailouts are a large part of why Obama’s poll numbers have been sinking.  It’s not just the economy here — so unless the President can demonstrate he understands this, he is unlikely to win back a very large number of voters who see this issue as central to their loss of confidence in Obama.

Is it just me or does this sound like Obama just doesn’t get it?

Victoria McGrane of Politico gave us a little background on Obama’s longstanding relationship with The Dimon Dog:

Dimon is seen as one of the Wall Street executives who enjoys the closest relationship with the president, along with Robert Wolf, head of the American division of Swiss bank UBS.  A longtime Democratic donor, Dimon first met Obama in Chicago, where Dimon lived and worked from the late 1990s until 2007.

And both Dimon and Blankfein have met with the president several times.  In their most recent meeting, Obama invited Dimon to Washington for lunch right before the State of the Union, according to a source familiar with the meeting.

Some commentators have expressed the view that Obama is making a transparent attempt to curry favor with the banking lobby in time to get those contributions flowing to Democratic candidates in the mid-term elections.  Nevertheless, for Obama, this latest example of trying to please both sides of a debate will prove to be yet another “lose/lose” situation.  As Victoria McGrane pointed out:

But relations between most Democrats and Wall Street donors aren’t as warm this cycle as the financial industry chafes against the harsh rhetoric and policy prescriptions lawmakers have aimed at them.

As for those members of the electorate who usually vote Democratic, you can rest assured that a large percentage will see this as yet another act of betrayal.  They saw it happen with the healthcare reform debacle and they’re watching it happen again in the Senate, as the badly-compromised financial reform bill passed by the House (HR 4173) is being completely defanged.  A bad showing by the Democrats on November 2, 2010 will surely be blamed on Obama.

As of February 11, we already have a “favorite” in contention for the 2010 Jackass of the Year Award.  It’s time for the competition to step forward!



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The Dishonesty Behind The Bernanke Vote

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January 28. 2010

While reading a recent Huffington Post piece by Jason Linkins, wherein he criticized President Obama’s proposed spending freeze, I was struck by Linkins’ emphasis on the notion that this proposal signaled a return to “institutionalized infantilism”:

One of the most significant things that Obama promised to do during the campaign was to simply level with the American people — deal with them in straightforward fashion, tell the hard truths, make the tough choices, and go about explaining his decisions as if he were talking to adults.

Linkins referred to a recent essay about the freeze, written by Ryan Avent of The Economist, which underscored the greater, underlying problem motivating politicians such as Obama to believe they can “slip one by” the gullible public:

This is yet another move toward the infantilisation of the electorate; whatever the gamesmanship behind the proposal, Mr. Obama has apparently concluded that the electorate can’t be expected to handle anything like a real description of the tough decisions which must be made.

Matt Taibbi made a similar observation about our President, while pondering whether the announced reliance on the wisdom of Paul Volcker meant an end to Tim Geithner’s days as Treasury Secretary:

Obama, as is his nature I think, tried to take the fork in the road all year, making nice to his base while actually delivering to his money people, not realizing the two were perpetually in conflict.  His failure to make a clear choice, or rather to make the right choice, is what has doomed him everywhere politically.

It will be interesting to see what comes next, whether this is just for show or not.

We are now witnessing another example of this “infantilisation of the electorate” as it takes place with the dishonest maneuvering to get Ben Bernanke’s nomination to a second term past a filibuster.  Here’s how this scam was exposed by Josh Rosner at The Big Picture website:

Sources have suggested that Senator Barbara Boxer (D-CA) intends to vote “yes” on Chairman Bernanke’s cloture vote and “no” on the floor.  The cloture vote requires 60 “yes” votes to approve and really is THE vote to confirm.  The floor vote only requires a simple majority to pass and therefore is a less important vote requiring fewer “yes” votes.

Get it?  These Senators believe they can go back to their constituents with a straight face and tell the chumps that they voted against Bernanke’s confirmation when, in fact, they facilitated his confirmation by voting for cloture to give Bernanke a boost over the potentially insurmountable, 60-vote hurdle.  This sleight-of-hand comes along at the precise moment when we are learning about Bernanke’s true role in the AIG bailout.  As Ryan Grim reported for The Huffington Post:

A Republican senator said Tuesday that documents showing Federal Reserve Board Chairman Ben Bernake covered up the fact that his staff recommended he not bailout AIG are being kept from the public.  And a House Republican charged that a whistleblower had alerted Congress to specific documents provide “troubling details” of Bernanke’s role in the AIG bailout.

Sen. Jim Bunning (R-Ky.), a Bernanke critic, said on CNBC that he has seen documents showing that Bernanke overruled such a recommendation.  If that’s the case, it raises questions about whether bailing out AIG was actually necessary, and what Bernanke’s motives were.

Yves Smith of Naked Capitalism disclosed that Congressman Darrell Issa, who has been investigating the AIG bailout in his role as ranking Republican on the House Oversight and Government Reform Committee, “believes there is evidence that says Bernanke overruled his staff and authorized the rescue”.  Ms. Smith explained how Issa is pushing ahead to investigate:

Rep. Darrell Issa of the House Oversight Committee has asked to Committee Chairman Towns to subpoena more documents from the Fed regarding its decision-making process in the AIG bailout.

*   *   *

In addition, Issa has noted that the Fed had failed to comply in full with previous subpoenas, and has not released any documents relative to AIG prior to September 2008 or after May 2009, even though they fall within the scope of previous subpoenas.

Congressman Issa’s letter can be viewed in its entirety here.

You may recall that the fight against the Fed for release of the AIG bailout documents became the subject of an opinion piece in the December 19 edition of The New York Times, written by Eliot Spitzer, Frank Partnoy and William Black.

There are plenty of reasons to oppose confirmation of Ben Bernanke to a second term as Fed chair.  Senator Jim Bunning did a fantastic job articulating many of those points during the confirmation hearing on December 3.  Beyond that, economist Randall Wray gave us “3 Reasons to Fear Bernanke’s Reappointment” at the Roosevelt Institute’s New Deal 2.0 website.  Dr. Wray concluded his essay with this statement:

To be clear, I would prefer to replace Bernanke with someone who actually understands monetary policy and who advocates regulation and supervision of financial institutions.

The really pressing issue at this point is whether the withheld AIG bailout documents, which are the subject of Congressman Issa’s latest inquiry, might actually reveal some malefaction on the part of Bernanke himself.  A revelation of that magnitude would certainly kill the confirmation effort.  If Bernanke is confirmed prior to the release of documents indicating malfeasance on his part, I’ll be wishing I had a dollar for every time a Senator would say:  “I just voted for cloture –but I voted against confirmation.”



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The Pushback Against Bernanke

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November 30, 2009

This week brings us the confirmation hearings on President Obama’s nomination of Ben Bernanke to a second four-year term as chairman of the Federal Reserve.  The recent progress in Congressional efforts to audit the Federal Reserve will certainly spice up the confirmation hearings.  If that weren’t enough, Bernanke saw fit to write a commentary piece for Sunday’s edition of The Washington Post, expressing his opposition to any attempts to limit the Fed’s power and subject it to an audit.  Here is some of what he had to say in that column:

These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States.  The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

Well, he should have known what would be coming next  . . .  the avalanche of criticism pointing out how the Fed played a major role in causing the crisis.  As you will see below, that response was swift.  Worse yet, Bernanke’s theme of “we learned our lesson” will surely inspire harsh interrogation at the confirmation hearings:

The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis.  We have extensively reviewed our performance and moved aggressively to fix the problems.

Dean Baker did not waste any time before ripping into Bernanke’s essay.  Baker’s Beat the Press blog at The American Prospect website regularly upbraids Bernanke for his responsibility in causing the economic crisis.  Baker’s retort to the Washington Post piece was published at the Talking Points Memo website.  The final paragraph of Baker’s essay reflected his outrage that the Post would publish Bernanke’s rant without an opposing response:

The arrogance of this column is almost beyond belief.  This man is incredibly lucky to still have his job at time when millions of other workers have lost theirs as a direct result of his incompetence.  A serious news outlet would not have printed such a ridiculously self-serving piece without at least securing an opposing opinion.  Of course, Bernanke’s piece appeared in the Washington Post.

Dean Baker’s primary criticism of Bernanke is based on the Fed chair’s failure to control the 8-trillion-dollar housing bubble before it burst, nearly destroying the entire economy:

We had further losses in demand associated with the bursting of a bubble in non-residential real estate.  In total, the loss in bubble-driven demand was well over $1 trillion a year.  All of it an entirely predictable outcome of the collapse of a housing bubble.

The simple reality is that there is nothing in the Fed’s bag of tricks that will allow it to easily replace over $1 trillion in annual demand.  In short, the bubble guaranteed the economic disaster that we are now experiencing, end of story.

At the Naked Capitalism website, Yves Smith dealt a hefty load of thorough criticism on the Bernanke article.  She began with the verdict against Bernanke and built an impressive argument supporting her opinion:

What is interesting is how much the tables have turned.  The Obama effort to make the Fed into the uber bank regulator has become a rout, with decent odds that the Fed will have its powers reduced, and an increasing possibility that Bernanke might not be reconfirmed (which is frankly the right outcome, no CEO who presided over a similar disaster would still be in charge).

Smith did not restrict her criticism to the Fed’s failure to control the housing bubble.  Here are some of her points:

For instance, the Fed was the architect of the “let a thousand flowers bloom” policy towards derivatives, and made inadequate (one might say no) effort to understand new financial technology.  Bernanke himself rationalized burgeoning consumer debt, claiming that consumer balance sheets were in good shape.  Hun?  This is Japan circa 1989 thinking.

*   *   *

Yes, I am told the Fed is now making all the banks disclose their derivatives positions to them, but the Fed lacks the analytical capacity to do much with this information (and I am further told the Fed staff understands that too).  So that does not fit my notion of “tougher oversight.”  And the rest is just empty promises.

In response to Bernanke’s claim that Congressional efforts to rein-in the authority of the Fed are “very much out of step with the global consensus on the appropriate role of central banks,” Ms. Smith pounced:

Notice how Bernanke invokes a “global consensus,” which is wonderfully vague and ignores the fact that the pre-crisis “global consensus” of minimally regulated markets and financial institutions, is precisely what caused the crisis.  Moreover, even if the Fed’s mandate in theory was appropriate, its governance structure is not.  The Bank of England and the ECB are not peculiar largely private institutions, accountable to almost no one, as the Fed now is.  The Fed’s insistence on secrecy regarding many of its emergency operations is unwarranted and deeply troubling.  And “the Fed played a major role in arresting the crisis” ignores the fact that the Fed played a major role in creating it, namely, via negative real interest rates for a protracted period.  And he is declaring the Fed’s policies to be successful when the jury is still out.

Brenanke’s claim that the idiotic bank stress tests “marked a turning point in public confidence in the banking system” invited a well-deserved attack.  Here’s how Yves Smith handled it:

The worst is the folks at the Fed clearly believe the bogus stress tests were a meaningful exercise.  That alone should disqualify them from getting a bigger role in bank supervision.  And if you read their pronouncements, they plan to continue to use them, and have the process run by …  monetary economists!  Pray tell, what do they know about bank operations?  Help me!  And some of the help the Fed has enlisted in the stress test exercise includes the consulting firm McKinsey, which has the biggest banking practice in the consulting industry.  Think McKinsey is going to devise anything that might be rough on its biggest meal tickets?

Remember that these negative reactions to the Bernanke article are just what appeared on Sunday.  By the time the confirmation hearings begin on December 3, you can be sure that Bernanke’s own words from the Post column will be used against him.  We may find that his decision to write this piece was a crucial turning point leading to a decision against his confirmation.



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Avoiding The Kool-Aid

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November 5, 2009

Ask NOT what your country can do for you  —

But ask what your country can do for its largest banks.

—  “Turbo” Tim

All right  .  . .  “Turbo” Tim Geithner didn’t really say that (yet) but we’ve all seen how his actions affirm that doctrine.  Former federal banking regulator, Professor William Black, recently criticized Geithner for not protecting the taxpayers when Turbo Tim bailed out CIT Group to the tune of 2.4 billion dollars this past summer.  CIT has now filed for bankruptcy.  Henry Blodget of The Business Insider described Professor Black’s outrage over this situation:

The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds.  More importantly, being the lender of last resort, the government should have guaranteed we’d be the first to get paid if CIT eventually filed Chapter 11.  By failing to do so, “it’s like he [Geithner] burned billions of dollars again in government money, our money, gratuitously,” says Black.

After Tuesday’s election defeats for the Democrats in two gubernatorial races, the subject of “bailout fatigue” has been getting more attention.

Acting under the pretext of “transparency” the Obama administration has developed a strategy of holding meetings for people and groups with whom the administration knows it is losing credibility.  Jane Hamsher of FiredogLake.com has written about the Obama team’s efforts to keep the disaffected Left under control by corralling these groups into what Hamsher calls “the veal pen”.  She described one meeting wherein Rahm Emanuel used the expression “f**king stupid” in reference to the critics of those Democrats opposing the public option in proposed healthcare reform legislation.

A different format was followed at what appeared to be a “message control” conference, held on Monday at the Treasury Department.  This time, the guest list was comprised of a politically diverse group of financial bloggers.  One attendee, Yves Smith of Naked Capitalism, described the meeting as “curious”:

None of us knew in advance how many attendees there would be; there were eight of us at a two-hour session, Interfluidity, Marginal Revolution, Kid Dynamite’s World, Across the Curve, Financial Armageddon, Accrued Interest, and Aleph (and of course, others may have been invited who had scheduling conflicts).

*   *   *

It wasn’t obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate.  Unfortunately, some of us are not housebroken).  I will give them credit for having the session be almost entirely a Q&A, not much in the way of presentation.  One official made some remarks about the state of financial institutions; later another said a few things about regulatory reform.  The funniest moment was when, right after the spiel on regulatory reform, Steve Waldman said, “I’ve read your bill and I think it’s terrible.”  They did offer to go over it with him.  It will be interesting to see if that happens.

*   *   *

My bottom line is that the people we met are very cognitively captured, assuming one can take their remarks at face value.  Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient.

*   *   *

Several of us raised questions about whether what their vision for the industry’s structure was and that the objective seemed to be to restore the financial system that got us in trouble in the first place.

Michael Panzner of Financial Armageddon and When Giants Fall adopted Ms. Smith’s description of the event, adding a few observations of his own:

  • . . . it wasn’t clear that there was a “plan B” in place if things do not recover in 2010 as many mainstream analysts expect.  In fact, the suggestion from one official was that the tenure of the current crisis would likely be nearer the shorter end of expectations.
  • There was also a bit of a disconnect between the remarks various Treasury officials have made in public forums and what was said at the meeting.  … Yesterday, however, a number of those present clearly acknowledged that things could (still) go wrong and said such fears kept them awake at night.  While that is not unusual in and of itself, at the very least it adds to doubts I and others have expressed about the true state of the financial system and the economy.
  • Finally, the meeting seemed to confirm the strong grip that Wall Street has on the levers of legislative power.

The most informative rendition of the events at the conclave came from Kid Dynamite, whose two-part narrative began with a look at how Michael Panzner interrupted a Treasury official who was describing the Treasury’s current focus “on reducing the footprint of economic intervention cautiously, quickly and prudently”:

Michael Panzner jumped right in, addressing a concept I’ve written about previously – that of  “extend and pretend,” or “delay and pray” – the concept of attempting to avoid recognizing actual losses and or insolvencies, and growing out of them after enough time.  Panzner called it “fake it ‘till you make it.”  I mentioned that I felt like we were undergoing a “Ponzi scheme of confidence” – but that confidence mattered less than ever in the current environment where, contrary to perhaps the prior 10 years, confidence can no longer be “spent.”

Kid Dynamite’s report contained too many great passages for me to quote here without running on excessively.  Just be sure to read his entire report, including Part II (which should be posted by the time you read this).

David Merkel of The Aleph Blog also submitted a two-part report (so far — with more to come) although Part 2 is more informative.  Here are some highlights:

As all bloggers there will note, those from the Treasury were kind, intelligent, funny … they were real people, unlike the common tendency to demonize those in DC.

*   *   *

To the Treasury I would say, “Markets are inherently unstable, and that is a good thing.”  They often have to adjust to severe changes in the human condition, and governmental attempts to tame markets may result in calm for a time, and a tsunami thereafter.

*   *   *

As for the bank stress-testing, one can look at it two ways: 1) the way I looked at it at the time — short on details, many generalities, not trusting the results.  (Remember, I have done many such analyses myself for insurers.) or, 2) something that gave confidence to the markets when they were in an oversold state.  Duh, but I was dumb — the oversold market rallied when it learned that the Treasury had its back.

John Jansen from Across The Curve included his report on the meeting within his usual morning posting concerning the bond market on November 4.   In a subsequent posting that afternoon, he referred his readers to the Kid Dynamite report.  Here’s what Mr. Jansen did say about the event:

. . .  those officials expressed real concern about the downside risks to the economy (as did blogger Michael Panzner of Financial Armageddon) and since I think that the relationship between the Treasury and the Federal Reserve has morphed into something somewhat incestuous I suspect that the Federal Reserve will not jump off the reservation and take the first baby steps to exiting its easy money policy.

The report at the Accrued Interest blog drew some hostile comments from readers who seemed convinced that Accrued was the only blogger there who actually drank the Kool-Aid being served by the Treasury.  Their reaction was easily understandable after reading this remark (which followed a breach of protocol with the admission that Turbo Tim was there in the flesh):

It was a fascinating experience and I have to admit, it was just plain cool to be within the bowels of power like that.

Huh?  All I can say is:  If you like being in powerful bowels, just take a cruise over to duPont Circle.  Actually — it was at his next statement where he lost me:

I am also on record as saying that Geithner was a good choice for Treasury secretary.

— and then it was all downhill from there.

The administration’s “charm offensive” has moved to the dicey issue of financial reform, where it is drawing criticism from across the political spectrum.  Given the fact that they have all but admitted to a strategy of simply reading The Secret and willing everything to get better by their positive thoughts  — Michael Panzner might as well start writing Financial Armageddon — The Sequel.



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