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More Windfalls For Wall Street

August 3rd, 2009 Posted in Uncategorized

Aug, 03 2009

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August 3, 2009

At a time when states and municipalities are going broke, foreclosures are on the rise and bankruptcies are skyrocketing, it’s nice to know that the Federal Reserve keeps coming up with new and inventive ways to enrich the investment banks on Wall Street.

I’ve often discussed the involvement of the Federal Government in “propping up” (manipulating) the stock markets since the onset of the financial crisis, nearly one year ago. The so-called “Plunge Protection Team” or PPT was created during the Reagan administration to prevent stock market crashes after the October 19, 1987 event. Although the PPT has been called an “urban myth” by many skeptics, there is plenty of documentation as to its existence. Its formal name is the Working Group on Financial Markets. It was created by Executive Order 12631 on March 18, 1988, which appears at 53 FR 9421, 3 CFR 559, 1988 Comp. You can read the Executive Order here. Much has been written about the PPT over the years since 1988. Brett Fromson wrote an article about it for The Washington Post on February 23, 1997. Here is a paragraph from that informative piece:

In the event of a financial crisis, each federal agency with a seat at the table of the Working Group has a confidential plan. At the SEC, for example, the plan is called the “red book” because of the color of its cover. It is officially known as the Executive Directory for Market Contingencies. The major U.S.stock markets have copies of the commission’s plan as well as the CFTC’s.

In October of 2006, two years before the financial meltdown, Ambrose Evans-Pritchard wrote an interesting piece about the PPT for the Telegraph. Here’s some of what he had to say:

The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.

“They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem,” he said.

“In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall,” he said.

Back on September 13, 2005, The Prudent Investor website featured a comprehensive report on the PPT. It referenced a paper by John Embry and Andrew Hepburn. Here is an interesting passage from that essay:

A thorough examination of published information strongly suggests that since the October 1987 crash, the U.S. government has periodically intervened to prevent another destabilizing stock market fall. And as official rhetoric continues to toe the free market line, manipulation has become increasingly apparent. Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years.

The conclusion reached in The Prudent Investor‘s article raises the issue of moral hazard, which continues to be a problem:

But a policy enacted in secret and knowingly withheld from the body politic has created a huge disconnect between those knowledgeable about such activities and the majority of the public who have no clue whatsoever. There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors. Whether they have been indemnified against potential losses or simply made privy to non-public government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field.

That point brings us to the situation revealed in a recent article by Henny Sender for the Financial Times on August 2. Although, the PPT’s involvement in the equities markets has been quite low-profiled, the involvement one PPT component (the Federal Reserve) in the current market for mortgage-backed securities has been quite the opposite. In fact, the Fed has invoked “transparency” (I thought the Fed was allergic to that) as its reason for tipping off banks on its decisions to buy such securities. As Mr. Sender explained:

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclay’s, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

* * *

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.

So let’s get this straight: When Republican Congressman Ron Paul introduced the Federal Reserve Transparency Act (HR 1207) which would give the Government Accountability Office authority to audit the Federal Reserve and its member components for a report to Congress, there was widespread opposition to the idea of transparency for the Fed. However, when Wall Street banks are tipped off about the Fed’s plans to buy particular securities and the public objects to the opportunistic inflation of the pricing of those securities by the tipped-off banks, the Fed emphasizes a need for transparency.

Perhaps Ron Paul might have a little more luck with his bill if he could demonstrate that its enactment would be lucrative for the Wall Street banks. HR 1207 would find its way to Barack Obama’s desk before the next issue of the President’s Daily Brief.

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Fed Up With The Fed

July 20th, 2009 Posted in Uncategorized

Jul, 20 2009

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July 20, 2009

Last week’s news that Goldman Sachs reported $3.44 billion in earnings for the second quarter of 2009 provoked widespread outrage that was rather hard to avoid. Even Jon Stewart saw fit to provide his viewers with an informative audio-visual presentation concerning the role of Goldman Sachs in our society. Allan Sloan pointed out that in addition to the $10 billion Goldman received from the TARP program, (which it repaid) Goldman also received another $12.9 billion as a counterparty to AIG’s bad paper (which it hasn’t repaid). Beyond that, there was the matter of “the Federal Reserve Board moving with lightning speed last fall to allow Goldman to become a bank holding company”. Sloan lamented that despite this government largesse, Goldman is still fighting with the Treasury Department over how much it should pay taxpayers to buy back the stock purchase warrants it gave the government as part of the TARP deal. The Federal Reserve did more than put Goldman on the fast track for status as a bank holding company (which it denied to Lehman Brothers, resulting in that company’s bankruptcy). As Lisa Lerer reported for Politico, Senator Bernie Sanders questioned whether Goldman received even more assistance from the Federal Reserve. Because the Fed is not subject to transparency, we don’t know the answer to that question.

A commentator writing for the Seeking Alpha website under the pseudonym: Cynicus Economicus, expressed the opinion that people need to look more at the government and the Federal Reserve as being “at the root of the appearance of the bumper profits and bonuses at Goldman Sachs.” He went on to explain:

All of this, hidden in opacity, has led to a point at which insolvent banks are now able to make a ‘profit’. Exactly why has this massive bleeding of resources into insolvent banks been allowed to take place? Where exactly is the salvation of the real economy, the pot of gold at the end of the rainbow of the financial system? Like the pot of gold and the rainbow, if we just go a bit further…..we might just find the pot of gold.

In this terrible mess, the point that is forgotten is what a financial system is actually really for. It only exists to allocate accumulated capital and provision of insurances; the financial system should be a support to the real economy, by efficiently allocating capital. It is entirely unclear how pouring trillions of dollars into insolvent institutions, capital which will eventually be taken out of the ‘real’ economy, might facilitate this. The ‘real’ economy is now expensively supporting the financial system, rather than the financial system supporting the real economy.

The opacity of the Federal Reserve has become a focus of populist indignation since the financial crisis hit the meltdown stage last fall. As I discussed on May 25, Republican Congressman Ron Paul of Texas introduced the Federal Reserve Transparency Act (HR 1207) which would give the Government Accountability Office the authority to audit the Federal Reserve as well as its member components, and require a report to Congress by the end of 2010. Meanwhile, President Obama has suggested expanding the Fed’s powers to make it the nation’s “systemic risk regulator” overseeing banks such as Goldman Sachs, deemed “too big to fail”. The suggestion of expanding the Fed’s authority in this way has only added to the cry for more oversight. On July 17, Willem Buiter wrote a piece for the Financial Times entitled: “What to do with the Fed”. He began with this observation:

The desire for stronger Congressional oversight of the Fed is no longer confined to a few libertarian fruitcakes, conspiracy theorists and old lefties. It is a mainstream view that the Fed has failed to foresee and prevent the crisis, that it has managed it ineffectively since it started, and that it has allowed itself to be used as a quasi-fiscal instrument of the US Treasury, by-passing Congressional control.

Since the introduction of HR 1207, a public debate has ensued over this bill. This dispute was ratcheted up a notch when a number of economics professors signed a petition, urging Congress and the White House “to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability.” An interesting analysis of this controversy appears at LewRockwell.com, in an article by economist Robert Higgs. Here’s how Higgs concluded his argument:

All in all, the economists’ petition reflects the astonishing political naivite and historical myopia that now characterize the top echelon of the mainstream economics profession. Everybody now understands that economic central planning is doomed to fail; the problems of cost calculation and producer incentives intrinsic to such planning are common fodder even for economists in upscale institutions. Yet, somehow, these same economists seem incapable of understanding that the Fed, which is a central planning body working at the very heart of the economy — its monetary order — cannot produce money and set interest rates better than free-market institutions can do so. It is high time that they extended their education to understand that central planning does not work — indeed, cannot work — any better in the monetary order than it works in the economy as a whole.

It is also high time that the Fed be not only audited and required to reveal its inner machinations to the people who suffer under its misguided actions, but abolished root and branch before it inflicts further centrally planned disaster on the world’s people.

Close down the Federal Reserve? It’s not a new idea. Back on September 29, when the Emergency Economic Stabilization Act of 2008 was just a baby, Avery Goodman posted a piece at the Seeking Alpha website arguing for closure of the Fed. The article made a number of good points, although this was my favorite:

The Fed balance sheet shows that it injected a total of about $262 billion, probably into the stock market, over the last two weeks, pumping up prices on Wall Street. The practical effect will be to allow people in-the-know to sell their equities at inflated prices to people-who-believe-and-trust, but don’t know. Sending so much liquidity into the U.S.economy will stoke the fires of hyperinflation, regardless of what they do with interest rates. In a capitalist society, the stock market should not be subject to such manipulation, by the government or anyone else. It should rise and fall on its own merits. If it is meant to fall, let it do so, and fast. It is better to get the economic downturn over with, using shock therapy, than to continue to bleed the American people slowly to death through a billion tiny pinpricks.

So the battle over the Fed continues. In the mean time, as The Washington Post reports, Fed Chairman Ben Bernanke takes his show on the road, making four appearances over the next six days. Tuesday and Wednesday will bring his semiannual testimony on monetary policy before House and Senate committees. Perhaps he will be accompanied by Goldman Sachs CEO, Lloyd Bankfiend, who could show everyone the nice “green shoots” growing in his IRA at taxpayer expense.

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More Bad Press For Goldman Sachs

July 16th, 2009 Posted in Uncategorized

Jul, 16 2009

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July 16, 2009

They can’t seem to get away from it, no matter how hard they try. Goldman Sachs is finding itself confronted with bad publicity on a daily basis.

It all started with Matt Taibbi’s article in Rolling Stone. As I pointed out on June 25, I liked the article as well as Matt’s other work. His blog can be found here. His article on Goldman Sachs employed a good deal of hyperbolic rhetoric which I enjoyed — especially the metaphor of Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Nevertheless, many commentators took issue with the article, especially focusing on the subtitle’s claim that “Goldman Sachs has engineered every major market manipulation since the Great Depression”. I took that remark as hyperbole, since it would obviously require over 120 megabytes of space to document “every major market manipulation since the Great Depression” — so I wasn’t disappointed about being unable to read all that. Some of Taibbi’s critics include Megan McArdle from The Atlantic and Joe Weisenthal at Clusterstock.

On the other hand, Taibbi did get a show of support from Eliot “Socks” Spitzer during a July 14 interview on Bloomberg TV. Mr. Spitzer made some important points about Goldman’s conduct that we are now hearing from a number of other sources. Spitzer began by emphasizing that because of the bank bailouts “Goldman’s capital was driven to virtually nothing — because we as taxpayers gave them access to capital — they made a bloody fortune” (another vampire squid reference). Spitzer voiced the concern that Goldman is simply going back to proprietary trading and taking advantage of spreads, following its old business model. He argued that, a result of the bailouts:

. . . their job should be, from a macroeconomic perspective, to raise capital and put it into sectors that create jobs. If they’re not getting that done, then why are we supporting them the way we have been?

This sentiment seems to be coming from all directions, in light of the fact that on July 14, Goldman reported second-quarter profits of 3.44 billion dollars — while on the following day, another TARP recipient, CIT Group disclosed that it would likely file for bankruptcy on July 17. On July 16, The Wall Street Journal ran an editorial entitled: “A Tale of Two Bailouts” comparing Goldman’s fate with that of CIT. The article pointed out that since Goldman’s risk is subsidized by the taxpayers, the company might be more appropriately re-branded as “Goldie Mac”:

We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.

If there is a lesson in this week’s tale of two banks, it’s that it won’t be enough to give the Federal Reserve a mandate to “monitor” systemic risk. Last fall’s bailouts are reverberating through the financial system in a way that is already distorting the competition for capital and financial market share. Banks that want to be successful will also want to be more like Goldman Sachs, creating an incentive for both larger size and more risk-taking on the taxpayer’s dime.

Robert Reich voiced similar concern over the fact that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” He went on to explain:

Value-at-risk — a statistical measure of how much the firm’s trading operations could lose in a day — rose to an average of $245 million in the second quarter from $240 million in the first quarter. In the second quarter of 2008, VaR averaged $184 million.

Meanwhile, Goldman is still depending on $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation. Which means you and I are still indirectly funding Goldman’s high-risk operations.

* * *

So the fact that Goldman has reverted to its old ways in the market suggests it has every reason to believe it can revert to its old ways in politics, should its market strategies backfire once again — leaving the rest of us once again to pick up the pieces.

At The Huffington Post, Mike Lux reminded Goldman that despite its repayment of $10 billion in TARP funds, we haven’t overlooked the fact that Goldman has not repaid the $13 billion it received for being a counterparty to AIG’s bad paper or the “unrevealed billions” it received from the Federal Reserve. This raises a serious question as to whether Goldman should be allowed to pay record bonuses to its employees, as planned. Didn’t we go through this once before? Paul Abrams is mindful of this, having issued a wake-up call to “Turbo” Tim Geithner and Congress.

As long as we keep reading the news, each passing day provides us with yet another reminder to feel outrage over the hubris of the people at Goldman Sachs.

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Matt Taibbi Deserves An Award

June 25th, 2009 Posted in Uncategorized

Jun, 25 2009

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June 25, 2009

Like many people, I found out about Matt Taibbi as a result of his frequent appearances on HBO’s Real Time with Bill Maher. Last spring, Matt appeared on Real Time to discuss his research into the global economic crisis and the resulting scheme of numerous bailouts engineered in response to each sub-crisis of this economic catastrophe. My March 26 piece: “Understanding The Creepy Bailouts“, quoted from Matt’s fantastic article for Rolling Stone magazine, entitled: “The Big Takeover”. (At that time, the “Big Takeover” link led to the complete article. Rolling Stone now provides only abbreviated versions of its published articles on line.) One important theme of Matt’s commentary was evident in this passage:

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Matt has a unique way of discussing the extremely complicated, technical issues involved in the financial crisis, by breaking them down into understandable, plain-language points. Unfortunately, most mainstream journalists lack either the understanding or the courage (or both) to discuss our financial predicament in such a frank, informative manner. Take for example: Fareed Zakaria’s discussion of the economic catastrophe as it appeared in Newsweek under the title “The Capitalist Manifesto”. Nobody could to a better job of ripping that thing to shreds than Matt Taibbi himself. With his June 24 blog entry, he did just that:

Zakaria works hard to tell the crisis story minus these outrageous details. Then he goes on to argue that, basically, nothing should be done. We mostly just need a “gut check”; we, all of us, need to rediscover that little voice in all of us that says, “if it doesn’t feel right, we shouldn’t be doing it.” I mean, that is actually what he wrote. No one needs to go to jail, we don’t need to worry about who’s to blame, we just need, you know, do a better job using our trusty moral compasses to navigate the seas of life. It’s classic Zakaria in the sense that he attacks ugly political phenomena with tired cliches and hack pablum until you’re almost too bored to keep your eyes open, then in the end reduces it all to a dumbed-down t-shirt that carries us forward to another cycle of political inaction: Laissez-faire capitalism doesn’t rip off people, people rip off people!

Matt’s previous blog entry on June 18, focused on one of my favorite subjects: the hideous monster we have come to know as Goldman Sachs. I had written a piece about that entity on May 21, discussing how Paul Farrell of MarketWatch and John Crudele of the New York Post had been voicing the same suspicions I had been harboring about Goldman. After reading Matt Taibbi’s June 18 article, I enthusiastically sent the link to my friends. This stuff was just too good! Matt was laying it on the line in a way few others had the courage or the skill to do. I doubt whether many in the mainstream media will follow his lead. Here is one of the highlights from that piece:

Any way you slice it, Goldman was responsible for putting tens of billions of toxic mortgages on the market, resulting in mass foreclosures, mass depletion of retirement funds, and a monstrously over-leveraged financial system that we will now all be bailing out for the next half-century or so. All of this so that Goldman could make a few billion bucks acting as the middleman in all of these deadly transactions.

If that weren’t enough, Matt pointed out that the upcoming issue of Rolling Stone would feature another of his reports — this one focused exclusively on Goldman Sachs. That issue (#1082-83, with the Jonas Brothers on the cover) is now on the newsstands. Matt’s article: “The Wall Street Bubble Machine” is best explained in the subtitle:

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — And they’re about to do it again.

In case you are wondering how they’re going to do it again . . . Matt reports that it will be by way of the “Cap and Trade” program. Goldman has already positioned itself to serve as one of our government’s premier carbon credit pimps. Matt offered this explanation:

Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

Matt’s “bottom line” paragraph at the conclusion of the essay underscores what I believe are America’s biggest problems: “lobbying” and “campaign contributions” (our tradition of legalized graft). Our government is not just one of laws . . . it is one of loopholes, exemptions and waivers. Those things cost money. The people who have the money to “invest” in such machinations, usually find themselves rewarded handsomely . . . at the expense of the taxpayers. Here’s how Matt wrapped it up:

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal, excusing them from homework until the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.

Amen.

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Defending Reagan

June 4th, 2009 Posted in Uncategorized

Jun, 04 2009

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June 4, 2009

In case you’ve wondered whether Nobel laureates ever emit brain farts, Paul Krugman answered that question in the May 31 edition of The New York Times. His column of that date targeted former President Ronald Reagan for causing our current economic crisis:

There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

I was never a big fan of Ronald Reagan. My reaction to his nomination as the Republican Presidential candidate in 1980, conjured up James Coburn’s sarcastic line from the movie In Like Flint: “An actor for President!” Reagan’s legacy was exaggerated — which is why the book, Tear Down This Myth by Will Bunch, is available on this site, under the “Featured Books” section on the left side of this page. I never believed that Reagan deserved all the credit he was given for the collapse of the former Soviet Union. In my opinion, that distinction belongs to Lech Walesa, leader of Solidarity (the former Soviet bloc’s first independent trade union) and his old buddy, Karol Wojtyla, who later became Pope John Paul II. In fact, former Soviet leader Mikhail Gorbachev admitted that the demise of the Iron Curtain would have been impossible without John Paul II.

Another literary deflation of that aspect of the Reagan legend can be found in The Rebellion of Ronald Reagan: A History of the End of the Cold War by James Mann. In his review of that book for The Washington Post, Ronald Steel noted how James Mann addressed the claim that Reagan broke up the Soviet Union:

And in 1991 the Soviet Communist Party disintegrated and with it ultimately the Soviet Union itself. Did Reagan make it happen? This would be too strong, Mann insists. The Cold War ended largely because Gorbachev “had abandoned the field.”

Despite my own feelings about the Reagan legacy, upon reading Paul Krugman’s attempt to blame Ronald Reagan for the economic meltdown, I immediately rejected that idea. What became interesting was that in the aftermath of that article, commentators from “left-leaning” news sources voiced objections to the piece. For example, William Greider is the national affairs correspondent for The Nation. On his own blog, Greider wrote an essay entitled: “Krugman Gets His History Wrong”. While upbraiding Krugman, Mr. Greider took care to note the complicity of the Democrats in causing the current economic crisis:

What Krugman leaves out is that financial deregulation actually started two years earlier — before the Gipper got to Washington. A Democratic Congress and Democratic president (Jimmy Carter) enacted the Monetary Control Act of 1980 which removed all remaining controls on interest rates and repealed the federal law prohibiting usury (note that sky-high interest rates and ruinous predatory lending have been with us ever since). It was the 1980 legislation that took the lid off banking and doomed the savings and loan industry, the mainstay that used to provide housing loans and home mortgages. The thrifts were able to raise capital because they were allowed to pay a half percent more in interest to depositors. Bankers wanted them out of the way. The Democratic party obliged.

Robert Scheer is the editor of Truthdig. The columns he writes for Truthdig regularly appear in The Nation. (He is famous for getting Jimmy Carter to admit for Playboy magazine, that Carter often “lusts in his heart for other women”.) Mr. Scheer’s reaction to Krugman’s vilification of Reagan as the saboteur of the economy includes such words as “disingenuous” and “perverse”. Beyond that, Sheer lays blame for this crisis where it properly belongs:

Reagan didn’t do it, but Clinton-era Treasury Secretaries Robert Rubin and Lawrence Summers, now a top economic adviser in the Obama White House, did. They, along with then-Fed Chairman Alan Greenspan and Republican congressional leaders James Leach and Phil Gramm, blocked any effective regulation of the over-the-counter derivatives that turned into the toxic assets now being paid for with tax dollars.

* * *

How can Krugman ignore the wreckage wrought during the Clinton years by the gang of five? Rubin, who convinced President Clinton to end the New Deal restrictions on the merger of financial entities, went on to help run the too-big-to-fail Citigroup into the ground. Gramm became a top officer at the nefarious UBS bank. Greenspan’s epitaph should be his statement to Congress in July 1998 that “regulation of derivatives transactions that are privately negotiated by professionals is unnecessary.” That same week Summers assured banking lobbyists that the Clinton administration was committed to preventing government regulation of swaps and other derivatives trading.

Thank goodness Eliot “Socks” Spitzer is still around, writing for Slate. His most recent article about the economy not only provides an accurate assessment of the cause of the problem — it also suggests some solutions:

We have had a fundamentally misguided industrial policy over the past decade. Yes, industrial policy is a dirty phrase to many, some of whom would argue that we haven’t had one, and indeed shouldn’t. But the truth is we did have one: to leverage up and guarantee the bets of a financial services sector that has now collapsed and left nothing of value in its wake.

What would be a better approach? A policy to support those sectors that actually create goods and value. Investment in transformational technology and infrastructure are core national needs. So why not start with a government order for 500,000 electric cars, subject to an RFP two years from now, by which time a true electric car prototype will have been developed? It should be open to any manufacturer, as long as 75 percent of the value of the car is domestically produced. I don’t care if the name on the plate is GM or Toyota, as long as the value added is here. (I prefer a “Toyota” produced in Tennessee to a “GM” produced in China. Why struggle to save the shell of a company –GM– that intends to ship jobs overseas anyway?) Guaranteeing an order of 500,000 will give manufacturers the needed scale to generate profits and reassure private customers that service and support will be around for the long haul. And the federal government could also issue an RFP for recharging stations, to be built by private companies, along the interstate highway system, wherever there is a traditional filling station, so that recharging will be possible.

(By the way: An “RFP” is a Request for Proposals, or bids, on a government project — just in case you were thinking it might mean “request for prostitutes”.)

I have always been a fan of Socks Spitzer. His personal story underscores the simple truth that all of us, regardless of our accomplishments, are only human and we all make mistakes — even Nobel Prize winners such as Paul Krugman.

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Sign This Petition

May 25th, 2009 Posted in Uncategorized

May, 25 2009

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May 25, 2009

For some reason, the Boston College School of Law invited Federal Reserve Chairman, B.S. Bernanke, to deliver the commencement address to the class of 2009 on May 22. While reading the text of that oration, I found the candor of this remark at the beginning of his speech, to be quite refreshing:

Along those lines, last spring I was nearby in Cambridge, speaking at Harvard University’s Class Day. The speaker at the main event, the Harvard graduation the next day, was J. K. Rowling, author of the Harry Potter books. Before my remarks, the student who introduced me took note of the fact that the senior class had chosen as their speakers Ben Bernanke and J. K. Rowling, or, as he put it, “two of the great masters of children’s fantasy fiction.” I will say that I am perfectly happy to be associated, even in such a tenuous way, with Ms. Rowling, who has done more for children’s literacy than any government program I know of.

Meanwhile, that great master of children’s fantasy fiction (and money printing) is now faced with the possibility that someday, someone might actually start looking over his shoulder in attempt to get some vague idea of just what the hell is going on over at the Federal Reserve.

The Federal Reserve’s resistance to transparency has been a favorite topic of many commentators. For example, once Ben Bernanke took over the Fed Chairmanship from Alan Greenspan in 2006, Ralph Nader expressed his high hopes that Bernanke might adopt Nader’s suggested “seven policies of openness”. Dream on, Ralph!

Speaking of children’s fantasy fiction, one expert on that subject is Congressman Alan Grayson. As the Representative of Florida’s Eighth Congressional District, his territory includes Disney World. Thus, it should come as no surprise that back in January of 2009, as a new member of the House Financial Services Committee, he immediately set about cross-examining Federal Reserve Vice-Chairman Donald Kohn about what had been done with the 1.2 trillion dollars in bank bailout money squandered by the Fed after September 1, 2008. Glenn Greenwald of Salon.com provided a five-minute video clip of that testimony along with an audio recording of his 20-minute interview with Congressman Grayson, focusing on the complete lack of transparency at the Federal Reserve.

Better yet was Congressman Grayson’s questioning of Federal Reserve Board Inspector General Elizabeth Coleman on May 7. In one of the classic “WTF Moments” of all time, Ms. Coleman admitted that she had no clue about the “off balance sheet transactions” by the Federal Reserve, reported by Bloomberg News as amounting to over nine trillion dollars in the previous eight months. If you haven’t seen this yet, you can watch it here. After reviewing this video clip, Yves Smith of Naked Capitalism was of the opinion that Coleman was not stonewalling, but instead was “clearly completely clueless”. Ms. Smith pointed out how opacity at the Federal Reserve may be by design, with the apparent motive being obfuscation:

But there is a possibly more important issue at stake. The interview is with the Inspector General of the Federal Reserve Board of Governors. The programs are actually at the Federal Reserve Bank of New York. For reasons I cannot fathom, the Board of Governors is subject to Freedom of Information Act requests, while the Fed of New York has been able to rebuff them.

So I take Coleman’s inability to answer key questions to be a feature, not a bug. The Fed of New York probably can answer Congressional questions, is taking care to limit what it conveys to the Board so as to keep the information from Congress and the public. Note in the questioning the emphasis on “high level reviews”.

In order to shine a bright light on the Federal Reserve, Republican Congressman Ron Paul of Texas has introduced the Federal Reserve Transparency Act, (H.R. 1207) which would give the Government Accountability Office the authority to audit the Federal Reserve and its member components, and require a report to Congress by the end of 2010. On May 21, Congressman Alan Grayson wrote to his Democratic colleagues in the House, asking them to co-sponsor the bill. Among the many interesting points made in his letter were the following:

Furthermore, the Federal Reserve has refused multiple inquiries from both the House and the Senate to disclose who is receiving trillions of dollars from the central banking system. The Federal Reserve has redacted the central terms of the no-bid contracts it has issued to Wall Street firms like Blackrock and PIMCO, without disclosure required of the Treasury, and is participating in new and exotic programs like the trillion-dollar TALF to leverage the Treasury’s balance sheet. With discussions of allocating even more power to the Federal Reserve as the “systemic risk regulator” of the credit markets, more oversight over the central bank’s operations is clearly necessary.

The net effect of recent actions has been to isolate financial policy-making entirely from democratic input, and allow the Treasury Department to leverage the Federal Reserve’s balance sheet to spend money it cannot get appropriated from Congress. The public does not know where trillions of its dollars are going, and so has no meaningful control over the currency or this unappropriated “budget”. The extraordinary size of these lending facilities combined, the extreme secrecy, and the private influence is a dangerous seizure of Congress’s constitutional prerogative to appropriate public monies and control the currency.

You can do your part for this cause by signing the on-line petition. Let Congress know that we will no longer tolerate “children’s fantasy fiction” from the Federal Reserve. Demand an audit of the Federal Reserve as well as a report to the public of what that audit reveals.

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A Consensus On Conspiracy

May 21st, 2009 Posted in Uncategorized

May, 21 2009

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May 21, 2009

I guess I can throw away my tinfoil hat. I’m not so paranoid, after all.

Back on December 18, after discussing the bank bailout boondoggle, I made this observation about what had been taking place in the equities markets during that time:

Do you care to hazard a guess as to what the next Wall Street scandal might be? I have a pet theory concerning the almost-daily spate of “late-day rallies” in the equities markets. I’ve discussed it with some knowledgeable investors. I suspect that some of the bailout money squandered by Treasury Secretary Paulson has found its way into the hands of some miscreants who are using this money to manipulate the stock markets. I have a hunch that their plan is to run up stock prices at the end of the day, before those numbers have a chance to settle back down to the level where the market would normally have them. The inflated “closing price” for the day is then perceived as the market value of the stock. This plan would be an effort to con investors into believing that the market has pulled out of its slump. Eventually the victims would find themselves hosed once again at the next “market correction”. I don’t believe that SEC Chairman Christopher Cox would likely uncover such a scam, given his track record.

Some people agreed with me, although others considered such a “conspiracy” too far-flung to be workable.

Thanks to Tyler Durden at Zero Hedge, my earlier suspicions of market manipulation were confirmed. On Tuesday, May 19, Mr. Durden posted a video clip from an interview with (among others) Dan Schaeffer, president of Schaeffer Asset Management, previously broadcast on the Fox Business Channel on May 14. While discussing the latest “bear market rally”, Dan Schaeffer made this observation:

“Something strange happened during the last 7 or 8 weeks. Doreen, you probably can concur on this — there was a power underneath the market that kept holding it up and trading the futures. I watch the futures every day and every tick, and a tremendous amount of volume came in at several points during the last few weeks, when the market was just about ready to break and shot right up again. Usually toward the end of the day — it happened a week ago Friday, at 7 minutes to 4 o’clock, almost 100,000 S&P futures contracts were traded, and then in the last 5 minutes, up to 4 o’clock, another 100,000 contracts were traded, and lifted the Dow from being down 18 to up over 44 or 50 points in 7 minutes. That is 10 to 20 billion dollars to be able to move the market in such a way. Who has that kind of money to move this market?

“On top of that, the market has rallied up during the stress test uncertainty and moved the bank stocks up, and the bank stocks issues secondary — they issue stock — they raised capital into this rally. It was a perfect text book setup of controlling the markets — now that the stock has been issued …”

Mr. Schaeffer was then interrupted by panel member, Richard Suttmeier of ValuEngine.com.

My fellow foilhats likely had no trouble recognizing this market manipulation as the handiwork of the Plunge Protection Team (also known as the PPT). Many commentators have considered the PPT as nothing more than a myth, with some believing that this “myth” stems from the actual existence of something called The President’s Working Group on Financial Markets. For a good read on the history of the PPT, I recommend the article by Ambrose Evans-Pritchard of the Telegraph. Bear in mind that Evans-Pritchard’s article was written in October of 2006, two years before the global economic meltdown:

Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.

Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.

Mr Paulson says the group had been allowed to languish over the boom years. Henceforth, it will have a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis.

* * *

The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.

“They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem,” he said.

“In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall,” he said.

The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929. The level of moral hazard is subtly different.

John Crudele of the New York Post frequently discusses the PPT, although he is presently of the opinion that it either no longer exists or has gone underground. He has recently considered the possibility that the PPT may have “outsourced” its mission to Goldman Sachs:

Let’s remember something.

First, Goldman Sachs accepted $10 billion in government money under the Troubled Asset Relief Program (TARP), so it is gambling with taxpayer money.

But the bigger thing to remember is this: The firm may be living up to its nickname – Government Sachs – and might be doing the government’s bidding.

The stock market rally these past seven weeks has certainly made it easier for the Obama administration to do its job. That, plus a little fancy accounting during the first quarter, has calmed peoples’ nerves quite a bit.

Rallies on Wall Street, of course, are good things – unless it turns out that some people know the government is rigging the stock market and you don’t.

That brings me to something called The President’s Working Group on Financial Markets, which is commonly referred to as the Plunge Protection Team.

As I wrote in last Thursday’s column, the Team has disappeared.

Try finding The President’s Working Group at the US Treasury and you won’t.

The guys and girls that Treasury Secretary Hank Paulson relied on so heavily last year when he was forcing Bank of America to buy Merrill Lynch and when he was waterboarding other firms into coming to Wall Street’s rescue has gone underground.

Anybody who has read this column for long enough knows what I think, that the President’s Working Group Plunge Protectors have, in the past, tinkered with the financial markets.

We’ll let interrogators in some future Congressional investigation decide whether or not they did so legally.

But right now, I smell a whiff of Goldman in this market. Breath in deeply, it’s intoxicating – and troubling.

Could Goldman Sachs be involved in a conspiracy to manipulate the stock markets? Paul Farrell of MarketWatch has been writing about the “Goldman Conspiracy” for over a month. You can read about it here and here. In his May 4 article, he set out the plot line for a suggested, thirteen-episode television series called: The Goldman Conspiracy. I am particularly looking forward to the fourth episode in the proposed series:

Episode 4. ‘Goldman Conspiracy’ is manipulating stock market

“Something smells fishy in the market. And the aroma seems to be coming from Goldman Sachs,” says John Crudele in the New York Post. Stocks prices soaring. “So, who’s moving the market?” Not the little guy. “Professional traders, with Goldman Sachs leading the way.” NYSE numbers show “Goldman did twice the number of so-called big program trades during the week of April 13,” over a billion shares, creating “a historic rally despite the fact that the economy continues to be in serious trouble.” Then he tells us why: Because the “Goldman Conspiracy” is using TARP and Fed money, churning the markets. They are “gambling with taxpayer money.”

It’s nice to know that other commentators share my suspicions … and better yet: Some day I could be watching a television series, based on what I once considered my own, sensational conjecture.

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Spinning Away From The Truth

May 14th, 2009 Posted in Uncategorized

May, 14 2009

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May 14, 2009

Wednesday was a rough day on Wall Street. The Dow Jones Industrial Average dropped 184 points (just over two percent) to 8284; the Standard and Poor’s 500 index gave up over 24 points (2.69 percent) closing at 883.92 and the NASDAQ 100 index gave up 51.73 points (3.01 percent). One didn’t have to look very far to find the reason. At The Daily Beast website on Wednesday evening, item number 2 on the Cheat Sheet was a link to an article from The Wall Street Journal by Peter McKay, entitled: “Signs of Consumer Strain Hit Stocks”. The morning’s bad news was described by Mr. McKay in these terms:

The Commerce Department reported that retail sales fell 0.4% in April from the prior month, a steeper decline than the 0.1% gain economists expected. Sales in March were revised down, falling 1.3% instead of 1.2% as previously reported.

The Wall Street Journal also ran an article on this subject by Justin Lahart: “Retail Sales Stall on Consumer Caution”. Mr. Lahart’s piece underscored the message reverberating through the evening’s financial reporting:

Indeed, retail sales rose in January and February after sliding for six straight months. But those hopes were undermined by the 1.3% drop in retail sales in March as well as April’s decline.

The data suggest that a recovery won’t come until the second half of the year, and that when it does arrive it will be sluggish, said Michael Darda, an economist at MKM Partners in Stamford, Conn.

As I scanned through a number of websites to peruse the evening’s news stories, I was quite shocked to see the following headline on the Huffington Post blog, with screaming, bright red, upper-case, oversized font: “BLOOMBERG NEWS: CONSUMERS FEELING ‘INSPIRED’ TO SPEND MORE”. Huh? Just below the headline were three large photos. The photo on the left featured a lineup of luxurious yachts, reminiscent of what can be found along Indian Creek during the Miami Beach Boat Show. The middle picture showed that guy from Lifestyles of the Rich and Famous, raising a silver goblet in a toast to the photographer. The photo on the right depicted a headless woman, adorned in enough jewelry to turn Ruth Madoff green with envy. Had someone hacked into the HuffPo website and put this up as a gag? (Later in the evening, I checked back at the site. Although there was a new main headline relating to a different story, the link to the “inspired consumers” story was still there, although down the page.)

Clicking on the “inspired consumers” headline brought me to a story from Bloomberg News, entitled: “‘Good Bad’ Economy Inspires Consumers As Slump Eases”. “Good bad economy”? I had trouble figuring out what that meant because I lost my George Orwell Decoder Ring. Looking at this slice from the story told me enough about what they were trying to say:

Investor Exuberance

A Bloomberg survey of users on six continents showed that confidence in the global economy rose to the highest level in 19 months.

Antarctica and what five other continents?

The Huffington Post‘s BizarroWorld headline struck me as an attempt to imbue readers with a perception of Happy Days in Obamaland. That headline and its incorporated story reminded me of a point recently made by one of my favorite bloggers, Jr. Deputy Accountant:

You know, there are times when I wonder just how difficult it is to keep the PR machine running at full speed and keep the market propped up artificially and massage Goldman’s nuts all at once. Somehow, the powers-that-be are pulling it off, and I imagine that a large part of the dirty work, at least when it comes to PR, is taken care of by our moronic friends in mainstream media who feed up gems like this: Citi using most of TARP capital to make loans.

(As an aside: the reference to “Goldman” is Goldman Sachs, the second largest contributor to President Obama’s election campaign.)

Instead of relying on “the PR machine” to feed me propaganda about the economy, I rely on some of the sources included on this website’s blogroll. Most of the writers for those sites are credentialed professionals, regarded as experts in their field (as opposed to the dilettantes, who cheerlead for Wall Street in the mainstream media). One of these experts is Yves Smith of Naked Capitalism. If you want to keep up with what’s really happening in the financial world, I suggest that you read her blog.

The truth of what the economy has in store for us is not pretty. If you are ready to have a look at it, read Jeremy Grantham’s most recent report. His bottom line is that late this year or early next year there will be a stock market rally, bringing the Standard and Poor’s 500 index near the 1100 range. After that, get ready for seven really lean years:

A large rally here is far more likely to prove a last hurrah — a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.

Unfortunately, it’s already too late for President Obama to accept the following rationale from Mr. Grantham’s essay:

We should particularly not allow ourselves to be intimidated by the financial mafia into believing that all of the failing financial companies — or very nearly all — had to be defended at all costs. To take the equivalent dough that was spent on propping up, say, Goldman or related entities like AIG (that were necessary to Goldman’s well being), as well as the many other incompetent banks and spending it instead on really useful, high return infrastructure and energy conservation and oil and coal replacement projects would seem like a real bargain for society. Yes, we would certainly have had a very painful temporary economic hit from financial and other bankruptcies if we had decided to let them go, but given the proven resilience of economies, it would still have seemed a better long-term bet.

After reading Jeremy Grantham’s recent quarterly letter, ask yourself this: Do you feel “inspired” to spend more?

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Somebody Really Loves Goldman Sachs

May 7th, 2009 Posted in Uncategorized

May, 07 2009

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May 17, 2009

The recent article about Treasury Secretary “Turbo” Tim Geithner by Jo Becker and Gretchen Morgenson, appearing in the April 26 edition of The New York Times, seems to have helped fan the flames of the current outrage concerning the Federal Reserve Bank of New York. Turbo Tim was president of the New York Fed during the five years prior to his appointment as Treasury Secretary. Becker and Morgenson pointed out many of the ways in which “conflict of interest” seems to be one of the cornerstones of that institution:

The New York Fed is, by custom and design, clubby and opaque. It is charged with curbing banks’ risky impulses, yet its president is selected by and reports to a board dominated by the chief executives of some of those same banks. Traditionally, the New York Fed president’s intelligence-gathering role has involved routine consultation with financiers, though Mr. Geithner’s recent predecessors generally did not meet with them unless senior aides were also present, according to the bank’s former general counsel.

By those standards, Mr. Geithner’s reliance on bankers, hedge fund managers and others to assess the market’s health — and provide guidance once it faltered — stood out.

The New York Fed is probably the most important of the nation’s twelve Federal Reserve Banks, since its jurisdiction includes the heart of America’s financial industry. As the Times piece pointed out, this resulted in the same type of “revolving door” opportunities as those enjoyed by members of Congress who became lobbyists and vice versa:

A revolving door has long connected Wall Street and the New York Fed. Mr. Geithner’s predecessors, E. Gerald Corrigan and William J. McDonough, wound up as investment-bank executives. The current president,William C. Dudley, came from Goldman Sachs.

The New York Fed’s current chairman, Stephen Friedman, has become a subject of controversy these days, because of his position as director and shareholder of Goldman Sachs. Goldman sought and received expedited approval to become a “bank holding company” last September, thus coming under the jurisdiction of the Federal Reserve and becoming eligible for the ten billion dollars in TARP bailout money it eventually received. After Goldman became subject to the New York Fed’s oversight (with Friedman as the New York Fed chairman) the Fed made decisions that impacted Goldman’s financial state. Although this controversy was discussed here and here by The Wall Street Journal, that publication’s new owner, Rupert Murdoch, now requires a $104 annual on-line subscription fee to read his publication over the Internet. Sorry Rupert: Homey don’t play that. Although Slate provided us with an interesting essay on the Friedman controversy by Eliot “Socks” Spitzer, the best read was the commentary by Robert Scheer, editor of Truthdig. Here are some important points from Scheer’s article, “Cashing In on ‘Government Sachs’ “:

When N.Y. Fed Chairman Stephen Friedman bought stock in the company that he once headed, and where he still serves as a director, he was already in violation of Federal Reserve policy and was hoping for a waiver to permit him to hold his existing multi-million-dollar stock stash and to remain on the Goldman board. The waiver was requested last October by Timothy Geithner, then the president of the N.Y. Fed and now Treasury secretary. Yet,without having received that waiver, Friedman went ahead in December and purchased 37,300 additional shares. With shares he added in January, after the waiver was granted, he ended up with 98,600 shares in Goldman Sachs, worth a total of $13,330,720 at the close of trading on Tuesday.

* * *

As Jerry Jordan, former president of the Fed Bank in Cleveland, told the Journal in reference to Friedman’s obvious conflict of interest, “He should have resigned.”

Unfortunately, this was not the view during the reign of Geithner, who argued that Friedman needed to remain chairman of the N.Y. Fed board to find a suitable replacement for Geithner as he moved on to be secretary of the Treasury. Friedman chose a fellow former Goldman Sachs exec for the job.

* * *

Geithner is a protege of former Goldman Sachs chairman Rubin. And it was therefore not surprising when he picked Mark Patterson, a registered lobbyist for Goldman Sachs, to be his chief of staff at the Treasury Department. That appointment was made on the same day that Geithner announced new rules for limiting the influence of registered lobbyists. Need more be said?

Yes, there are a couple more things: Goldman Sachs was the second largest contributor to Barack Obama’s Presidential election campaign, with a total of $980,945 according to OpenSecrets.org. President Obama nominated Gary Gensler of Goldman Sachs to become Chairman of the Commodity Futures Trading Commission. As Ken Silverstein reported for Harpers, this nomination has stalled, since a “hold” was placed on the nomination by Vermont Senator Bernie Sanders. Mr. Silverstein quoted from the statement released by the office of Senator Sanders concerning the rationale for the hold:

Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S.history. He supported Gramm-Leach-Bliley, which allowed banks like Citigroup to become “too big to fail.” He worked to deregulate electronic energy trading, which led to the downfall of Enron and the spike in energy prices. At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace and move us away from the greed, recklessness and illegal behavior which has caused so much harm to our economy.

“Change you can believe in”, huh?

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Geithner In The Headlights

April 30th, 2009 Posted in Uncategorized

Apr, 30 2009

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April 30, 2009

Regular readers of this blog know that one of my favorite targets for criticism is Treasury Secretary “Turbo” Tim Geithner. My beef with him concerns his implementation and execution of programs designed to bail out banks at avoidable taxpayer risk and expense. Lately, we have seen a spate of wonderful articles vindicating my attitude about this man. One of my favorites was written by Gary Weiss for what was apparently the final issue of Conde Nast Portfolio. Mr. Weiss began the article discussing what people remember most about Geithner from the first time they saw him on television:

In his worst moments, when the camera lights are burning and the doubt, the contempt, in the Capitol Hill hearing rooms become palpable, Tim Geithner has a look in his eye — at once wary and alarmed, even as he speaks quickly, sometimes interrupting, sometimes repeating his talking points. It has become a look that he owns. It is his. It has made him famous in all the wrong ways. The Geithner Look.

A few paragraphs later, Weiss recalled Geithner’s disastrous February 10 speech, intended to describe what was then known as the Financial Stability Plan — now referred to as the Public-Private Investment Program (PPIP or pee-pip). Mr. Weiss recalled one of the reviews of that speech, wherein Geithner was described as having “the eyes of a shoplifter”. I later learned that it was MSNBC’s Mike Barnicle, who came up with that gem.

The most revealing story about Geithner appeared in the April 26 edition of The New York Times. This article, written by Jo Becker and Gretchen Morgenson, provided an understanding of Geithner’s background and how that has impacted his decisions and activities as Treasury Secretary. This piece has received plenty of attention from a variety of commentators, most notably for the in-depth investigation into Geithner’s “roots”. Becker and Morgenson summed-up their findings this way:

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

After a thorough explanation of how Geithner’s social and professional ties have influenced his thinking, the motivation behind Turbo Tim’s creation of the PPIP became clear:

According to a recent report by the inspector general monitoring the bailout, Neil M. Barofsky, Mr. Geithner’s plan to underwrite investors willing to buy the risky mortgage-backed securities still weighing down banks’ books is a boon for private equity and hedge funds but exposes taxpayers to “potential unfairness” by shifting the burden to them.

Becker and Morgenson apparently went to great lengths to avoid characterizing Geithner as venal or corrupt. Nicholas von Hoffman said it best while discussing the Times article in The Nation:

The authors did not have to spell it out for readers to conclude that Geithner, while honest in the narrow sense of the word, has been extremely helpful to his billionaire mentors and protectors.

Mr. von Hoffman was not so restrained while discussing the behavior of the bailed-out banks in an earlier piece he wrote for The Nation. In attempting to figure out why those banks did not get back into the business of lending money after the government-provided capital infusions, von Hoffman pondered over some possible reasons. First, he wondered whether the banks still lacked enough capital to back-up new loans. I liked his second idea better:

Another possibility is that the banks may have found new ways to steal money, which is more profitable than lending it. The banks’ conduct has been so devious, so mendacious, so shifty and so dishonorable that you cannot rule out any kind of sharp practice. You just can’t trust the bastards.

In recent days, some banks have enhanced their reputations by announcing quarterly profits achieved not by business enterprise but by bookkeeping legerdemain.

Renowned journalist Robert Scheer saw fit to praise Becker and Morgenson’s article in a piece he wrote for the Truthdig website (where he serves as editor). His analysis focused on how Geithner’s views were shaped while working for his mentors in the Clinton administration: Robert Rubin and Larry Summers. Scheer reminded us that these are the people who created “the policies that Clinton put in place and George W. Bush accelerated”:

The seeds of the current economic chaos were planted in those years, in which Wall Street lobbyists were given everything they wanted in the way of radical deregulation, and hence was born the madcap world of credit swaps and other unregulated derivatives.

Scheer noted how Turbo Tim has kept alive, what President Obama has often described as “the failed policies of the past eight years”:

Geithner has since pushed the Obama administration to approach the banking crisis not in response to the needs of destitute homeowners but rather from the side of the bankers who are seizing their homes. Instead of keeping people in their homes with a freeze on foreclosures, he has rewarded the unscrupulous lenders who conned ordinary folks.

He still wants to give more money to Citigroup, which has just been found woefully short of cash by Treasury’s auditors, and has not stopped Fannie Mae, Freddie Mac and some other big banks ostensibly under government influence, and indeed sometimes ownership, from recently ending their temporary moratoriums on housing foreclosures. Geithner has been in the forefront of coddling the banks in the hopes that welfare for the rich will trickle down to suffering homeowners, but that has not happened.

Rather than just complaining about the problem, Mr. Scheer has suggested a solution:

What is involved here is an extreme case of government-condoned “moral hazard” offering outrageous compensation to the superrich for screwing up royally. Where is the socially conscious Obama we voted for? E-mail him and ask.

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