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Plutocracy Is Crushing Democracy

November 21st, 2011 Posted in Uncategorized
Nov, 21 2011
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It’s been happening here in the United States since onset of the 2008 financial crisis.  I’ve complained many times about President Obama’s decision to scoff at using the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  One year ago, economist John Hussman of the Hussman Funds discussed the consequences of the administration’s failure to do what was necessary:

If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, there is no doubt in my mind that we would be quickly on the course to a sustained recovery, regardless of the extent of the downturn we have experienced.  Unfortunately, we have built our house on a ledge of ice.

*   *   *

As I’ve frequently noted, even if a bank “fails,” it doesn’t mean that depositors lose money.  It means that the stockholders and bondholders do.  So if it turns out, after all is said and done, that the bank is insolvent, the government should get its money back and the remaining entity should be taken into receivership, cut away from the stockholder liabilities, restructured as to bondholder liabilities, recapitalized, and reissued.  We did this with GM, and we can do it with banks.  I suspect that these issues will again become relevant within the next few years.

The plutocratic tools in control of our government would never allow the stockholders and bondholders of those “too-big-to-fail” banks to suffer losses as do normal people after making bad investments.

As it turns out, a few of those same banks are flexing their muscles overseas as the European debt crisis poses a new threat to Goldman Sachs and several of its ridiculously-overleveraged European counterparts.  Time recently published an essay by Stephan Faris, which raised the question of whether the regime changes in Greece and Italy amounted to a “bankers’ coup”:

As in Athens, the plan in Rome is to replace the outgoing prime minister with somebody from outside the political class.  Mario Monti, a neo-liberal economist and former EU commissioner who seems designed with the idea of calming the markets in mind, is expected to take over from Berlusconi after he resigns Saturday.

*   *   *

Yet, until the moment he’s sworn in, Monti’s ascension is far from a done deal, and it didn’t take long after the markets had closed for the weekend for it to start to come under fire.  Though Monti, a former advisor to Goldman Sachs, is heavily championed by the country’s respected president, many in parliament have spent the week whispering that Berlusconi’s ouster amounts to a “banker’s coup.”  “Yesterday, in the chamber of deputies we were bitterly joking that we were going to get a Goldman Sachs government,” says a parliamentarian from Berlusconi’s government, who asked to remain anonymous citing political sensitivity.

At The New York Times, Ross Douthat reflected on the drastic policy of bypassing democracy to install governments led by “technocrats”:

After the current crisis has passed, some voices have suggested, there will be time to reverse the ongoing centralization of power and reconsider the E.U.’s increasingly undemocratic character. Today the Continent needs a unified fiscal policy and a central bank that’s willing to behave like the Federal Reserve, Bloomberg View’s Clive Crook has suggested.  But as soon as the euro is stabilized, Europe’s leaders should start “giving popular sovereignty some voice in other aspects of the E.U. project.”

This seems like wishful thinking.  Major political consolidations are rarely undone swiftly, and they just as often build upon themselves.  The technocratic coups in Greece and Italy have revealed the power that the E.U.’s leadership can exercise over the internal politics of member states.  If Germany has to effectively backstop the Continent’s debt in order to save the European project, it’s hard to see why the Frankfurt Group (its German members, especially) would ever consent to dilute that power.

Reacting to Ross Douthat’s column, economist Brad DeLong was quick to criticize the use of the term “technocrats”.  That same label appeared in the previously-quoted Time article, as well:

Those who are calling the shots in Europe right now are in no wise “technocrats”:  technocrats would raise the target inflation rate in the eurozone and buy up huge amounts of Greek and Italian (and other) debt conditional on the enactment of special euro-wide long-run Fiscal Stabilization Repayment Fund taxes. These aren’t technocrats:  they are ideologues – and rather blinders-wearing ideologues at that.

Forget about euphemisms such as:  “technocrats”, “the European Union” or “the European Central Bank”.  Stephen Foley of The Independent pulled back the curtain and revealed the real culprit  .  .  .  Goldman Sachs:

This is the most remarkable thing of all:  a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti.  The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis.  Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence.

*   *   *

This is The Goldman Sachs Project.  Put simply, it is to hug governments close.  Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort.  Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government.  The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

*   *   *

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent.  Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under.  No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less.  The alternative is a second financial crisis, a second economic collapse.

The previous paragraph explains precisely what the term “too-big-to-fail” is all about:  If a bank of that size fails – it can bring down the entire economy.  Beyond that, the Goldman situation illustrates what Simon Johnson meant when he explained that the United States – acting alone – cannot prevent the megabanks from becoming too big to fail.  Any attempt to regulate the size of those institutions requires an international effort:

But no international body — not the Group of -20, the Group of Eight or anyone else — shows any indication of taking this on, mostly because governments don’t wish to tie their own hands. In a severe crisis, the interests of the state are usually paramount. No meaningful cross-border resolution framework is even in the cards.  (Disclosure:  I’m on the FDIC’s Systemic Resolution Advisory Committee; I’m telling you what I tell them at every opportunity.)

What we are left with is a situation wherein the taxpayers are the insurers of the privileged elite, who invest in banks managed by greedy, reckless megalomaniacs.  When those plutocrats are faced with the risk of losing money – then democracy be damned!  Contempt for democracy is apparently a component of the mindset afflicting the “supply side economics” crowd.  Creepy Stephen Moore, of The Wall Street Journal’s editorial board, has expounded on his belief that capitalism is more important than Democracy.  We are now witnessing how widespread that warped value system is.


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Dubious Reassurances

October 20th, 2011 Posted in Uncategorized
Oct, 20 2011
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There appears to be an increasing number of commentaries presented in the mainstream media lately, assuring us that “everything is just fine” or – beyond that – “things are getting better” because the Great Recession is “over”.  Anyone who feels inclined to believe those comforting commentaries should take a look at the Financial Armageddon blog and peruse some truly grim reports about how bad things really are.

On a daily basis, we are being told not to worry about Europe’s sovereign debt crisis because of the heroic efforts to keep it under control.  On the other hand, I was more impressed by the newest Weekly Market Comment by economist John Hussman of the Hussman Funds.  Be sure to read the entire essay.  Here are some of Dr. Hussman’s key points:

From my perspective, Wall Street’s “relief” about the economy, and its willingness to set aside recession concerns, is a mistake born of confusion between leading indicators and lagging ones.  Leading evidence is not only clear, but on a statistical basis is essentially certain that the U.S. economy, and indeed, the global economy, faces an oncoming recession.  As Lakshman Achuthan notes on the basis of ECRI’s own (and historically reliable) set of indicators, “We’ve entered a vicious cycle, and it’s too late: a recession can’t be averted.”  Likewise, lagging evidence is largely clear that the economy was not yet in a recession as of, say, August or September. The error that investors are inviting here is to treat lagging indicators as if they are leading ones.

The simple fact is that the measures that we use to identify recession risk tend to operate with a lead of a few months.  Those few months are often critical, in the sense that the markets can often suffer deep and abrupt losses before coincident and lagging evidence demonstrates actual economic weakness.  As a result, there is sometimes a “denial” phase between the point where the leading evidence locks onto a recession track, and the point where the coincident evidence confirms it. We saw exactly that sort of pattern prior to the last recession. While the recession evidence was in by November 2007 (see Expecting A Recession ), the economy enjoyed two additional months of payroll job growth, and new claims for unemployment trended higher in a choppy and indecisive way until well into 2008. Even after Bear Stearns failed in March 2008, the market briefly staged a rally that put it within about 10% of its bull market high.

At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis.

*   *   *

A few weeks ago, I noted that Greece was likely to be promised a small amount of relief funding, essentially to buy Europe more time to prepare its banking system for a Greek default, and observed “While it’s possible that the equity markets will mount a relief rally in the event of new funding to Greece, it will be important to recognize that handing out a bit more relief would be preparatory to a default, and that would probably be reflected in a failure of Greek yields to retreat significantly on that news.”

As of Friday, the yield on 1-year Greek debt has soared to 169%. Greece will default. Europe is buying time to reduce the fallout.

As of this writing, the yield on 1-year Greek debt is now 189.82%.  How could it be possible to pay almost 200% interest on a one-year loan?

Despite all of the “good news” about America’s zombie megabanks, which were bailed out during the financial crisis (and for a while afterward) Yves Smith of Naked Capitalism has been keeping an ongoing “Bank of America Deathwatch”.  The story has gone from grim to downright creepy:

If you have any doubt that Bank of America is in trouble, this development should settle it.  I’m late to this important story broken this morning by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate (or at the very best, remarkably inept) move by Bank of America’s management.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC.  About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

*   *   *

This move reflects either criminal incompetence or abject corruption by the Fed.  Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail.  Remember the effect of the 2005 bankruptcy law revisions:  derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs.  So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral.  It’s well nigh impossible to have an orderly wind down in this scenario.  You have a derivatives counterparty land grab and an abrupt insolvency.  Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that.  During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle.  It had to get more funding from Congress.  This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.  No Congressman would dare vote against that.  This move is Machiavellian, and just plain evil.

It is the aggregate outrage caused by the rampant malefaction throughout American finance, which has motivated the protesters involved in the Occupy Wall Street movement.  Those demonstrators have found it difficult to articulate their demands because any comprehensive list of grievances they could assemble would be unwieldy.  Most important among their complaints is the notion that the failure to enforce prohibitions against financial wrongdoing will prevent restoration of a healthy economy.  The best example of this is the fact that our government continues to allow financial institutions to remain “too big to fail” – since their potential failure would be remedied by a taxpayer-funded bailout.

Hedge fund manager Barry Ritholtz articulated those objections quite well, in a recent piece supporting the State Attorneys General who are resisting the efforts by the Justice Department to coerce settlement of the States’ “fraudclosure” cases against Bank of America and others – on very generous terms:

The Rule of Law is yet another bedrock foundation of this nation.  It seems to get ignored when the criminals involved received billions in bipartisan bailout monies.

The line of bullshit being used on State AGs is that we risk an economic crisis if we prosecute these folks.

The people who claim that fail to realize that the opposite is true – the protest at Occupy Wall Street, the negative sentiment, the general economic angst – traces itself to the belief that there is no justice, that senior bankers have gotten away with economic murder, and that we have a two-tiered criminal system, one for the rich and one for the poor.

Today’s NYT notes the gloom that has descended over consumers, and they suggest it may be home prices. I think they are wrong – in my experience, the sort of generalized rage and frustration comes about when people realize the institutions they have trusted have betrayed them.  Humans deal with financial losses in a very specific way – and it’s not fury.  This is about a fundamental breakdown of the role of government, courts, and leadership in the nation.  And it all traces back to the bailouts of reckless bankers, and the refusal to hold them in any way accountable.

There will not be a fundamental economic recovery until that is recognized.

In the mean time, the quality of life for the American middle class continues to deteriorate.  We need to do more than simply hope that the misery will “trickle” upward.


 

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Looking Beyond Rhetoric

October 10th, 2011 Posted in Uncategorized
Oct, 10 2011
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As a result of the increasing popularity of the Occupy Wall Street movement (which now gets so much coverage, it’s referred to as “OWS”) President Obama has found it necessary to crank up the populist rhetoric.  He must walk a fine line because his injecting too much enthusiasm into any populist-themed discussion of the economic crisis will alienate those deep-pocketed campaign donors from the financial sector.  Don’t forget:  Goldman Sachs was Obama’s leading private source of 2008 campaign contributions, providing more than one million dollars for the cause.

The Occupy Wall Street protest has now placed Obama and his fellow Democrats in a double-bind situation.  Many commentators – while pondering that predicament – have found it necessary to take a good, hard look at the favorable treatment given to Wall Street by the current administration.  A recent essay by Robert Reich approached this subject by noting that Obama is as far from left-wing populism as any Democratic President in modern history:

To the contrary, Obama has been extraordinarily solicitous of Wall Street and big business – making Timothy Geithner Treasury Secretary and de facto ambassador from the Street; seeing to it that Bush’s Fed appointee, Ben Bernanke, got another term; and appointing GE Chair Jeffrey Immelt to head his jobs council.

Most tellingly, it was President Obama’s unwillingness to place conditions on the bailout of Wall Street – not demanding, for example, that the banks reorganize the mortgages of distressed homeowners, and that they accept the resurrection of the Glass-Steagall Act, as conditions for getting hundreds of billions of taxpayer dollars – that contributed to the new populist insurrection.

*   *   *

But the modern Democratic Party is not likely to embrace left-wing populism the way the GOP has embraced – or, more accurately, been forced to embrace – right-wing populism. Just follow the money, and remember history.

Another commentator, who has usually been positive in his analysis of the current administration’s policies – Tom Friedman of The New York Times – couldn’t help but criticize Obama’s performance while lamenting the loss a great American leader, Steve Jobs:

Obama supporters complain that the G.O.P. has tried to block him at every turn.  That is true. But why have they gotten away with it? It’s because Obama never persuaded people that he had a Grand Bargain tied to a vision worth fighting for.

*    *    *

The paucity of Obama’s audacity is striking.

As I recently pointed out, any discussion of our nation’s economic problems ultimately focuses on President Obama’s failure to seize the opportunity – during the first year of his Presidency – to turn the economy around and reduce unemployment.  Despite the administration’s repeated claims that it has reduced unemployment, Pro Publica offered an honest look of that claim:

Overall, job creation has been relatively meager during the Obama administration, particularly compared to the massive job losses brought on by the recession.  According to the St. Louis Federal Reserve, even if job creation were happening at pre-recession levels, it would take us 11 years to get back to an unemployment rate of 5 percent.

Ron Suskind’s new book, Confidence Men provided a shocking revelation about Obama’s decision allow unemployment to remain above 9 percent by ignoring the advice of Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers).  I discussed that issue and the outrage expressed in reaction to Obama’s attitude on September 22.

At The Washington Post, Ezra Klein wrote an engaging piece, which provided us with a close look at how the Obama administration was fighting the economic crisis.  Klein interviewed several people from inside the administration and provided a sympathetic perspective on Obama’s decisions.  Nevertheless, Klein’s ultimate conclusion – although nuanced – didn’t do much for the President:

From the outset, the policies were too small for the recession the administration and economists thought we faced.  They were much too small for the recession we actually faced.  More and better stimulus, more aggressive interventions in the housing market, more aggressive policy from the Fed, and more attention to preventing layoffs and hiring the unemployed could have led to millions more jobs.  At least in theory.

Of course, ideas always sound better than policies.  Policies must be implemented, and they have unintended consequences and unforeseen flaws.  In the best of circumstances, the policymaking process is imperfect.  But January 2009 had the worst of circumstances – a once-in-a-lifetime economic emergency during a presidential transition.

*   *   *

These sorts of economic crises are, in other words, inherently politically destabilizing, and that makes a sufficient response, at least in a democracy, nearly impossible.

Klein’s apologia simply underscored the necessity for a President to exhibit good leadership qualities.  Despite a “Presidential transition”, the Democratic Party held the majority of seats in both the Senate and the House.  In July of 2009, when it was obvious that the stimulus had been inadequate, Obama was too preoccupied with his healthcare bill to refocus on economic recovery.  As I said back then:

President Obama should have done it right the first time.  His penchant for compromise – simply for the sake of compromise itself – is bound to bite him in the ass on this issue, as it surely will on health care reform – should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.  As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

Weak leadership is hardly a justifiable excuse for an inadequate, half-done, economic stimulus program.  Beyond that, President Obama’s sell-out to Wall Street by way of a sham financial “reform” bill has drawn widespread criticism.  In his March 29 op-ed piece for The New York Times, Neil Barofsky, the retiring Special Inspector General for TARP (SIGTARP) criticized the Obama administration’s failure to make good on its promises of “financial reform”:

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior.  This promise also appears likely to go unfulfilled.  The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever.  They reasonably assume that the government will rescue them again, if necessary.

*   *   *

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

Running as an incumbent President presents a unique challenge to Mr. Obama.  He must now reconcile his populist rhetoric with his record as President.  The contrast is too sharp to ignore.


 

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Doing Fine Without A Demand

October 3rd, 2011 Posted in Uncategorized
Oct, 03 2011
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Back on September 8, when I wrote about the plans for an “Occupy Wall Street” demonstration, I expressed my surprise that the ultimate goal of the occupation was deliberately left open.  Since that time, there has been a good deal of criticism concerning a failure of the movement to focus on a particular demand.  Many observers (including myself) believed that the lack of a single goal would doom the effort to failure.  As it turned out, the only drawback of that strategy was that it got the campaign off to a slow start.  When forced to acknowledge that the occupation was taking place after the arrest of 80 demonstrators on September 25, the corporate-controlled media made a point of emphasizing that there were only “a couple hundred” people participating in the protest.  After over 700 protesters were arrested on the Brooklyn Bridge Saturday, it became obvious that the mainstream media had been understating the number of participants involved in this effort.

Despite the transparent media efforts to under-report this event, there was one conspiracy allegation that fell apart.  Many protesters claimed that the New York police “set up” the Brooklyn Bridge marchers, by directing them from the pedestrian walkway onto the vehicular traffic lanes. Natasha Lennard of the City Room blog at The New York Times – who ended up getting arrested with the Brooklyn Bridge protesters – debunked the claims of entrapment:

The Internet was filled with pointed suggestions that officers from the New York Police Department led protesters onto the road as a trap to perform mass arrests; indeed, some video footage seems to show officers leading protesters onto the “illegal” section of the bridge.  From what I saw, however, a couple of dozen marchers made the decision to move off the sidewalk into the road at the bridge’s entrance to chants of “off the sidewalks, into the streets.”

This breakaway group quickly gained support of surrounding marchers, numbers of whom jumped over barricades on the sidewalk’s edge to stream into the road, until hundreds of people eventually covered the passageway usually intended for a steady flow of traffic.

As the Occupy Wall Street movement spawned similar protests around the nation, critics continued to bemoan the absence of a clear-cut message – many of whom offered their own suggestions.  These remarks by Nicholas Kristof were typical of the criticisms expressed since the occupation began:

Where the movement falters is in its demands:  It doesn’t really have any.  The participants pursue causes that are sometimes quixotic – like the protester who calls for removing Andrew Jackson from the $20 bill because of his brutality to American Indians.

On the other hand, the lack of a specific goal seems to be having the same “Rorschach effect” exploited by Barack Obama during his 2008 campaign.  The avoidance of a narrow agenda appears to be attracting a broader range of participants from across the political spectrum, who are now joining the protest.

Tina Susman of the Los Angeles Times discussed the views of some who emphasized keeping the message vague or simply sticking with no unified message at all:

Michael T. Heaney, a University of Michigan political science professor who has studied social protest movements, said such groups often bump up against pressure to become more focused and to either build or join institutions that can support them.

“What you’re talking about is a degree of buying into a political system,” Heaney said.  “But the more you use tactics that we recognize as getting you influence, the more you buy into the system, and the more you buy into the system, the more you open yourself up to compromise.”

In Occupy Wall Street’s case, Heaney said demands could be as vague as simply calling for financial bailout programs to apply to individuals rather than banks.

Most of those in Zuccotti Park, though, don’t see the need for a change in tactics.  At least not yet.

“There isn’t a consolidated message, and I don’t think there needs to be,” said Andrew Lynn, 34, who drove the three hours from his home in Troy, N.Y., to help the demonstrators’ media team.

So far, Occupy Wall Street seems to be doing just fine without a unified message.  As Andrew Grossman reported for The Wall Street Journal, the protest doesn’t appear to be losing any steam:

Meanwhile, the encampment in Zuccotti Park showed no signs of ending, despite falling temperature and a night of rain.  Shortly after 1 a.m. Sunday, a few hundred people huddled under tarps and sleeping bags filled the windswept plaza.  Once the sun rose, more joined:  Members of Transport Workers Union Local 100, which represents nearly 38,000 workers in the city’s bus and subway systems, marched in to cheers.

Protesters distributed a newspaper – “The Occupied Wall Street Journal” – that they printed using money raised online.

Its lead story began:  “What is occurring on Wall Street right now is remarkable.  For over two weeks, in the great cathedral of capitalism, the dispossessed have liberated territory from the financial overlords and their police army.”

At this point, it appears as though the activists participating in the Occupy Wall Street effort should stick with their unrestricted focus.  If it ain’t broke, don’t fix it.


 

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Trouble Ahead

September 19th, 2011 Posted in Uncategorized
Sep, 19 2011
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Forget about what you’ve been told by the “rose-colored glasses” crowd.  We are headed for more economic trouble.  On September 17, economist Lakshman Achuthan gave his prognosis for the economy to Guy Raz, of NPR’s All Things Considered:

Achuthan, co-founder and chief operations officer of the Economic Cycle Research Institute, says all of his economic indicators point to more sputtering ahead.

“The risk of a new recession is quite high,” he says.

In Toronto, Michael Babad of The Globe And Mail saw fit to focus on the latest forecast from “Dr. Doom”:

Nouriel Roubini, the New York University professor who forecast the financial crisis, went further today, warning that “we are entering a recession.”   The question isn’t whether there will be a double-dip, he said on Twitter, but rather how deep it will be.

And the answer, added the chairman and co-founder of Roubini Global Economics, depends on the response of policy makers and developments in the euro zone’s ongoing crisis.

As Gretchen Morgenson reported for The New York Times, the European sovereign debt crisis is already beginning to “wash up on American shores”.  The steep exposure of European banks to the sovereign debt of eurozone countries has become a problem for the United States:

Some of these banks are growing desperate for dollars.  Fearing the worst, investors are pulling back, refusing to roll over the banks’ commercial paper, those short-term i.o.u.’s that are the lifeblood of commerce.  Others are refusing to renew certificates of deposit. European banks need this money, in dollars, to extend loans to American companies and to pay their own debts.

Worries over the banks’ exposure to shaky European government debt have unsettled markets over there – shares of big French banks have taken a beating – but it is unclear how much this mess will hurt the economy back here.  American stock markets, at least, seem a bit blasé about it all:  the Standard & Poor’s 500-stock index rose 5.3 percent last week.

Last Thursday, I expressed my suspicion that the recent stock market exuberance was based on widespread expectation of another round of quantitative easing.  This next round is being referred to as “QE3”.   QE3 is good news for Wall Street because of those POMO auctions, wherein the New York Fed purchases Treasury securities – worth billions of dollars – on a daily basis.  After the auctions, the Primary Dealers take the sales proceeds to their proprietary trading desks, where the funds are leveraged and used to purchase high-beta, Russell 2000 stocks.  You saw the results during QE2:  A booming stock market – despite a stalled economy.

I believe that the European debt situation will become the controlling factor, which will turn the tide in favor of QE3 at the September 20-21 Federal Open Market Committee meeting.

Most pundits have expressed doubts that the Fed would undertake another round of quantitative easing.  Bill McBride of Calculated Risk put it this way:

QE3 is unlikely at the September meeting, but not impossible – however most observers think the FOMC will announce a program to change the composition of their balance sheet (extend maturities).  It is also possible that the FOMC will announce a reduction in the interest rate paid on excess reserves (currently 0.25%).

Tim Duy expressed a more skeptical outlook at his Fed Watch website:

Even more unlikely is another round of quantitative easing.  I don’t think there is much appetite at the Fed for additional asset purchases given the inflation numbers and the stability of longer-term inflation expectations relative to the events that prompted last fall’s QE2.

On the other hand, hedge fund manager Bill Fleckenstein presents a more persuasive case that the Fed can be expected to react to the “massive red ink in world equity markets” (due to floundering European bank stocks) by resorting to its favorite panacea – money printing:

So, to sum up my expectations, I believe that not only will we get a bold new round of QE from the Fed this week, but other central banks will join the party.  (The Bank of Japan and Swiss National Bank are already printing money in an attempt to weaken their currencies.)  If that happens, I believe that assets (stocks, bonds and commodities) will rally rather dramatically, at least for a while, with the length and size of the rally depending on the individual idea/asset.

If no QE is announced, and we basically see nothing done, it will probably be safe to short stocks for investors who can handle that strategy.  Markets would be pummeled until the central planners (i.e., these bankers) are forced to react to the carnage. Such is the nature of the paper-money-central-bank-moral-hazard standard that is currently in place.

The Fed will announce its decision at 2:15 on Wednesday, September 21.  Even if the FOMC proceeds with QE3, its beneficial effects will (again) be limited to the stock market.  The real American economy will continue to stagnate through its “lost decade”, which began in 2007.


 

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From Disappointing To Creepy

August 25th, 2011 Posted in Uncategorized
Aug, 25 2011
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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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Drew Westen Nails It Again

August 8th, 2011 Posted in Uncategorized
Aug, 08 2011
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Dr. Drew Westen is a Professor of Psychology and Psychiatry at Emory University.  After receiving his Bachelor of Arts degree at Harvard, Westen picked up a Master’s in Social and Political Thought from the University of Sussex in England.  He earned his PhD in Clinical Psychology at the University of Michigan.

In 2007, Dr. Westen wrote a book entitled, The Political Brain.  Here’s how the book was described by the publisher, PublicAffairs:

The idea of the mind as a cool calculator that makes decisions by weighing the evidence bears no relation to how the brain actually works.  When political candidates assume voters dispassionately make decisions based on “the issues,” they lose.      .   .   .

In politics, when reason and emotion collide, emotion invariably wins. Elections are decided in the marketplace of emotions, a marketplace filled with values, images, analogies, moral sentiments, and moving oratory, in which logic plays only a supporting role.     .   .   .   The evidence is overwhelming that three things determine how people vote, in this order:  their feelings toward the parties and their principles, their feelings toward the candidates, and, if they haven’t decided by then, their feelings toward the candidates’ policy positions.

The people at Fox News have been operating from this premise for years.  On Fox, the news is presented from an emotional perspective (i.e.  fear and outrage about terrorism, indignation about government spending, patriotic devotion to whomever or whatever principle is singled out for such allegiance).  Opposition political candidates (Democrats) are usually portrayed as contemptible, flawed individuals.  As a result, Fox has enjoyed tremendous success at shaping public opinion and influencing the electorate.  Dr. Westen’s book appears likely to help one understand why.

The 2008 candidacy of Barack Obama presented a unique challenge to Fox News:  A Democrat finally had a campaign based on an emotional appeal, conveyed with the single word, “Hope”.  Despite the rational campaign strategy developed by Mark Penn for Hillary Clinton, (and continued by the McCain campaign) which posed the question:  “Who is Barack Obama?” – the voters followed their emotions and voted for “Hope”.

At this point in the Obama Presidency, people from across the political spectrum (especially the Left) are still pondering Mark Penn’s 2008 question:  “Who is Barack Obama?”  As I have frequently pointed out on this website, Obama has been repeatedly criticized (by his former supporters) as a cynical, narcissistic individual, who has carefully created a Rorschach-esqe public image, shaped by whatever characteristics the individual audience members would choose to project back onto their perception of the man himself.  Obama has been able to conceal his flexible, mercenary agenda behind the Rorschach screen and until recently, few have bothered to peek behind it.

David Sirota recently wrote an insightful essay about Obama which began with these words:

Barack Obama is a lot of things – eloquent, dissembling, conniving, intelligent and above all, calm.  But one thing he is not is weak.

I was particularly impressed by an essay about our President, written by the aforementioned Dr. Drew Westen, which appeared in The New York Times on August 6.  The article was entitled, “What Happened to Obama?” and it was absolutely magnificent.  Dr. Westen began by taking us back to January of 2009, when we were still in the depths of the financial crisis, shocked by the unemployment tsunami and looking to our new President for effective leadership through a gauntlet of bank bailout schemes and economic stimulus proposals.  Unfortunately, what America heard from Barack Obama during his Inaugural Address was a big nothing.  As Dr. Westen explained, the disappointment of Obama’s Inaugural Address was emblematic of the disappointment we experienced throughout the ensuing months:

The president is fond of referring to “the arc of history,” paraphrasing the Rev. Dr. Martin Luther King Jr.’s famous statement that “the arc of the moral universe is long, but it bends toward justice.”  But with his deep-seated aversion to conflict and his profound failure to understand bully dynamics – in which conciliation is always the wrong course of action, because bullies perceive it as weakness and just punch harder the next time – he has broken that arc and has likely bent it backward for at least a generation.

*   *   *

When Dr. King spoke of the great arc bending toward justice, he did not mean that we should wait for it to bend.

*   *   *

IN contrast, when faced with the greatest economic crisis, the greatest levels of economic inequality, and the greatest levels of corporate influence on politics since the Depression, Barack Obama stared into the eyes of history and chose to avert his gaze. Instead of indicting the people whose recklessness wrecked the economy, he put them in charge of it.  He never explained that decision to the public – a failure in storytelling as extraordinary as the failure in judgment behind it.  Had the president chosen to bend the arc of history, he would have told the public the story of the destruction wrought by the dismantling of the New Deal regulations that had protected them for more than half a century.  He would have offered them a counternarrative of how to fix the problem other than the politics of appeasement, one that emphasized creating economic demand and consumer confidence by putting consumers back to work.  He would have had to stare down those who had wrecked the economy, and he would have had to tolerate their hatred if not welcome it.  But the arc of his temperament just didn’t bend that far.

But why did Obama turn out to be such a disappointment?  Is he simply weak – or is Obama actually the inverse Franklin Delano Roosevelt described by David Sirota as “Bizarro FDR”?  From his unique perspective as a clinical psychologist, Dr. Westen is well-qualified to provide us with a valid opinion.  After first expressing the requisite ethical disclaimer (rarely heard from TV and radio “shrinks”) that he would “resist the temptation to diagnose at a distance”, Westen put on his “strategic consultant” hat to “venture some hypotheses”:

The most charitable explanation is that he and his advisers have succumbed to a view of electoral success to which many Democrats succumb – that “centrist” voters like “centrist” politicians.  Unfortunately, reality is more complicated.  Centrist voters prefer honest politicians who help them solve their problems.  A second possibility is that he is simply not up to the task by virtue of his lack of experience and a character defect that might not have been so debilitating at some other time in history. Those of us who were bewitched by his eloquence on the campaign trail chose to ignore some disquieting aspects of his biography:  that he had accomplished very little before he ran for president, having never run a business or a state; that he had a singularly unremarkable career as a law professor, publishing nothing in 12 years at the University of Chicago other than an autobiography; and that, before joining the United States Senate, he had voted “present” (instead of “yea” or “nay”) 130 times, sometimes dodging difficult issues.

A somewhat less charitable explanation is that we are a nation that is being held hostage not just by an extremist Republican Party but also by a president who either does not know what he believes or is willing to take whatever position he thinks will lead to his re-election.

*   *   *

Or perhaps, like so many politicians who come to Washington, he has already been consciously or unconsciously corrupted by a system that tests the souls even of people of tremendous integrity, by forcing them to dial for dollars – in the case of the modern presidency, for hundreds of millions of dollars.

With the passing of time, the likelihood that Barack Obama will be a single-term President increases dramatically because Americans are now scrutinizing him from a more judicious perspective.  Who will become the Independent candidate to return that forgotten emotion of hope to the disillusioned electorate?


 

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Time For Some Serious Pushback

July 25th, 2011 Posted in Uncategorized
Jul, 25 2011
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The American people are finally getting angry.  I thought it would never happen.  In case you haven’t heard about it yet, the most popular topic on Twitter right now is:  #FuckYouWashington.  (For those who don’t like typing dirty words on their computer – there is the alternative #FYW.)  If you’re looking for some refreshing reading, which will reinforce your confidence in the people of this great country (especially after excessive exposure to the depressing, “debt ceiling” debate) be sure to check in on it.

Meanwhile, our fake, “two-party system” is facing a fresh challenge.  The Republi-Cratic Corporatist Party is being threatened by an Internet-based organization called, Americans Elect.  Here’s how the group describes itself:

Americans Elect is the first-ever open nominating process.  We’re using the Internet to give every single voter – Democrat, Republican or independent – the power to nominate a presidential ticket in 2012.  The people will choose the issues. The people will choose the candidates.  And in a secure, online convention next June, the people will make history by putting their choice on the ballot in every state.

*   *   *

We have no ties to any political group – left, right, or center.  We don’t promote any issues, ideology or candidates.  None of our funding comes from special interests or lobbyists.  Our only goal is to put a directly-nominated ticket on the ballot in 2012.

*   *   *

The goal of Americans Elect is to nominate a presidential ticket that answers to the people – not the political system.  Like millions of American voters, we simply want leadership that will work together to tackle the challenges facing our country.  And we believe a direct nominating process will prove that America is ready for a competitive, nonpartisan ticket.

Just when the Obama Administration was getting comfy with the idea that it could take the voters for granted  …  along came this new threat in the form of Americans Elect.  The timing couldn’t have been more appropriate.  A recent CNN poll revealed that Obama’s support among liberals has dropped to “the lowest point in his presidency”.  The man whom I characterized as the “Disappointer-In-Chief” during his third month in office, is now being referred to by The Nation as the “Compromiser-in-Chief”.  Ari Melber’s essay in The Nation provides a great summary of the criticism directed against Obama from the Left.  One example came from economist Paul Krugman, who described Obama as “President Pushover”.

In order to resist any new challenges to the status quo, the Republi-Cratic Corporatist Party is taking advantage of the proposed “debt ceiling” legislation to cement its absolute control over the United States government.  Ryan Grim of The Huffington Post provided us with the revelation of a bipartisan effort to create an authoritarian governing body, designed to circumvent Constitutionally-prescribed legislative procedures:

This “Super Congress,” composed of members of both chambers and both parties, isn’t mentioned anywhere in the Constitution, but would be granted extraordinary new powers.  Under a plan put forth by Senate Minority Leader Mitch McConnell (R-Ky.) and his counterpart Majority Leader Harry Reid (D-Nev.), legislation to lift the debt ceiling would be accompanied by the creation of a 12-member panel made up of 12 lawmakers — six from each chamber and six from each party.

Legislation approved by the Super Congress — which some on Capitol Hill are calling the “super committee” — would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote.  With the weight of both leaderships behind it, a product originated by the Super Congress would have a strong chance of moving through the little Congress and quickly becoming law.  A Super Congress would be less accountable than the system that exists today, and would find it easier to strip the public of popular benefits.  Negotiators are currently considering cutting the mortgage deduction and tax credits for retirement savings, for instance, extremely popular policies that would be difficult to slice up using the traditional legislative process.

House Speaker John Boehner (R-Ohio) has made a Super Congress a central part of his last-minute proposal, multiple news reports and people familiar with his plan say.

Independents and “Third-Party” members of Congress would be excluded from this “Super Congress”, thus subverting any attempts by the “little people” to steal control of the government away from the Republi-Cratic Corporatist Party.  Concern about the upstart Americans Elect organization could have been the motivating factor which inspired the “Super Congress” plan.  Tom Friedman’s recent New York Times commentary must have set off a “treason alert” for the Congressional kleptocrats, who read this:

Write it down:  Americans Elect.  What Amazon.com did to books, what the blogosphere did to newspapers, what the iPod did to music, what drugstore.com did to pharmacies, Americans Elect plans to do to the two-party duopoly that has dominated American political life – remove the barriers to real competition, flatten the incumbents and let the people in.  Watch out.

The Republi-Cratic Corporatist Party is already watching out.  That’s why they are moving to create a new, imperial “Super Congress”.  Be sure to express your opposition to this power grab by logging-on to Twitter and sharing your feelings at #FuckYouWashington.


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Taibbi Tackles A Tool

June 10th, 2011 Posted in Uncategorized
Jun, 10 2011
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A few weeks ago, I saw Andrew Ross Sorkin’s appearance on Real Time with Bill Maher.  At one point during the discussion, Sorkin asserted that the financial crisis of 2008 did not result from the violation of any laws.  I immediately screamed “Tool!” at the teevee.  Worse yet, because Sorkin is not an attorney, his legal opinions are not worth the electrons used to convey them.

Since that time, ARS has continued with his bankster exoneration crusade.  In the process, he has drawn criticism from such authorities as William Black.

On May 24, Robert Scheer of Truthdig posted a review of the HBO movie-adaptation of Sorkin’s book, Too Big To Fail.  Scheer’s review demonstrated how “access journalism” often creates fawning sycophants.  Scheer closed the piece with this thought:

Perhaps the main value of the book and film is the instruction they provide on the limits of mainstream journalism in the decade that led up to the meltdown. Sorkin, who rose to be a business editor at the Times, covered Wall Street deal-making in exquisite detail, relying on an access journalism that has often proved deeply flawed in traditional business news coverage. What was largely ignored as it was unfolding was the story of the unbridled power of Wall Street financiers over the political process that caused this tragedy for so many tens of millions who have lost jobs and homes.

On June 6, Sorkin wrote a piece for his Dealbook blog in defense of Goldman Sachs.  The essay seemed to be particularly focused on the vulnerability of Goldman CEO, Lloyd Blankfein, to perjury charges resulting from his testimony before the Senate Permanent Subcommittee on Investigations, chaired by Senator Carl Levin. Sorkin concluded that the evidence was “far from convincing” that Blankfein lied when he testified that Goldman “didn’t have a massive short” position against the housing market.

It’s difficult to avoid turning up on Matt Taibbi’s radar when one is carrying water for Goldman Sachs.  Taibbi immediately set about debunking Sorkin’s Goldman piece on June 7.  Taibbi did a thorough job of making it clear that Blankfien lied, using a similar analysis to what I expressed on May 19.  While focusing on Sorkin’s perspective, Taibbi made an especially strong point, reminiscent of the debate which has arisen concerning the ethics of economists in the aftermath of the film, Inside Job. Economists who publish “academic studies” on a subject don’t usually feel obligated to disclose that they are on the payrolls of companies who could benefit from that that type of support.  It appears as though Sorkin may be suffering from a similar affliction.  Consider this point from the beginning of Taibbi’s retort to Sorkin’s June 6 defense of Goldman:

The Sorkin piece reads like it was written by the bank’s marketing department, which may not be an accident. In November of last year, the New York Times announced that “Dealbook” was entering into a sponsorship agreement with a variety of companies, including … Goldman, Sachs. This is from that announcement last year:

DealBook  will also feature news and insights on deal-related topics from  Business Day’s well-known roster of leading business reporters, which  includes recent hires in addition to a veteran stable of Wall Street’s  most highly-regarded journalists.

Barclays Capital, Goldman Sachs, Sotheby’s and Tata Consultancy Services are charter advertisers for the relaunch of DealBook.

“This  is the next step in the evolution of DealBook, providing a community of  highly-engaged readers and busy executives with essential news and  insights, and keeping them plugged in to the most important news of the  day,” said Andrew Ross Sorkin, DealBook editor.

Even last year I thought it was a terrible decision by the Times to take money from Goldman in the wake of an unprecedented period of financial corruption – especially to sponsor, of all things, business reporting.

But now? This looks like a joke. In Russia in the Yeltsin years, reporters had a term for selling editorial print content to mobsters. They called it “selling jeans,” a play on the old Soviet-era black-marketeer practice of trading rabbit hats to tourists for their Levi’s. This Sorkin piece has the unmistakable look of a brand-new set of 501s to me. Pieces like this undermine the great work that reporters like Gretchen Morgenson have done in the paper in recent years.

Once again, Matt Taibbi has used his unique style to keep the spotlight on the malefaction which caused the financial crisis and the subsequent wrongdoing, as well as the failure of the mainstream media to give a damn about any of it.

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Obama And The TARP

June 2nd, 2011 Posted in Uncategorized
Jun, 02 2011
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I always enjoy it when a commentator appearing on a talk show reminds us that President Obama has become a “tool” for the Wall Street bankers.  This theme is usually rebutted with the claim that the TARP bailout happened before Obama took office and that he can’t be blamed for rewarding the miscreants who destroyed our economy.  Nevertheless, this claim is not entirely true.  President Bush withheld distribution of one-half of the $700 billion in TARP bailout funds, deferring to his successor’s assessment of the extent to which the government should intervene in the banking crisis.  As it turned out, during the final weeks of the Bush Presidency, Hank Paulson’s Treasury Department declared that there was no longer an “urgent need” for the TARP bailouts to continue.  Despite that development, Obama made it clear that anyone on Capitol Hill intending to get between the banksters and that $350 billion was going to have a fight on their hands.  Let’s jump into the time machine and take a look at my posting from January 19, 2009 – the day before Obama assumed office:

On January 18, Salon.com featured an article by David Sirota entitled:  “Obama Sells Out to Wall Street”.  Mr. Sirota expressed his concern over Obama’s accelerated push to have immediate authority to dispense the remaining $350 billion available under the TARP (Troubled Asset Relief Program) bailout:

Somehow, immediately releasing more bailout funds is being portrayed as a self-evident necessity, even though the New York Times reported this week that “the Treasury says there is no urgent need” for additional money.  Somehow, forcing average $40,000-aires to keep giving their tax dollars to Manhattan millionaires is depicted as the only “serious” course of action.  Somehow, few ask whether that money could better help the economy by being spent on healthcare or public infrastructure.  Somehow, the burden of proof is on bailout opponents who make these points, not on those who want to cut another blank check.

Discomfort about another hasty dispersal of the remaining TARP funds was shared by a few prominent Democratic Senators who, on Thursday, voted against authorizing the immediate release of the remaining $350 billion.  They included Senators Russ Feingold (Wisconsin), Jeanne Shaheen (New Hampshire), Evan Bayh (Indiana) and Maria Cantwell (Washington).  The vote actually concerned a “resolution of disapproval” to block distribution of the TARP money, so that those voting in favor of the resolution were actually voting against releasing the funds.  Earlier last week, Obama had threatened to veto this resolution if it passed.  The resolution was defeated with 52 votes (contrasted with 42 votes in favor of it).  At this juncture, Obama is engaged in a game of “trust me”, assuring those in doubt that the next $350 billion will not be squandered in the same undocumented manner as the first $350 billion.  As Jeremy Pelofsky reported for Reuters on January 15:

To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.

“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”

Of course, we all know how that worked out  .   .   .  another Obama promise bit the dust.

The new President’s efforts to enrich the Wall Street banks at taxpayer expense didn’t end with TARP.  By mid-April of 2009, the administration’s “special treatment” of those “too big to fail” banks was getting plenty of criticism.  As I wrote on April 16 of that year:

Criticism continues to abound concerning the plan by Turbo Tim and Larry Summers for getting the infamous “toxic assets” off the balance sheets of our nation’s banks.  It’s known as the Public-Private Investment Program (a/k/a:  PPIP or “pee-pip”).

*   *   *

One of the harshest critics of the PPIP is William Black, an Economics professor at the University of Missouri.  Professor Black gained recognition during the 1980s while he was deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC).

*   *   *

I particularly enjoyed Black’s characterization of the PPIP’s use of government (i.e. taxpayer) money to back private purchases of the toxic assets:

It is worse than a lie.  Geithner has appropriated the language of his critics and of the forthright to support dishonesty.  That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies.  He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent.  He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything.  He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Although President Obama’s hunt for Osama bin Laden was a success, his decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – became Obama’s own “Tora Bora moment”, at which point he allowed economic recovery to continue on its elusive path away from us.  Economist Steve Keen recently posted this video, explaining how Obama’s failure to promote an effective stimulus program has guaranteed us something worse than a “double-dip” recession:  a quadruple-dip recession.

Many commentators are currently discussing efforts by Republicans to make sure that the economy is in dismal shape for the 2012 elections so that voters will blame Obama and elect the GOP alternative.  If Professor Keen is correct about where our economy is headed, I can only hope there is a decent Independent candidate in the race.  Otherwise, our own “lost decade” could last much longer than ten years.


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