Tag: Troubled Asset Relief Program

The Bailouts and the Risk

It’s Bank Bash time again here at RTFLC. Presented for your consideration: the Atlantic’s expose on how tenuous the banks hold on sanity really is:

The financial crisis had many causes—too much borrowing, foolish investments, misguided regulation—but at its core, the panic resulted from a lack of transparency. The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures, whether it might suddenly implode.

Note that they are talking specifically about the banking crisis, not the mortgage crisis that precipitated it. That’s another issue entirely.

For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system. This hasn’t worked. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.

It’s a very long read, but worth it. The go through the recent LIBOR and JP Morgan scandals and points out just how deceitful and opaque the banks have been on these subjects. The note how hesistant investors and the public are of investing in banks or entrusting their money to banks. They go through the books at Wells Fargo and discover just how opaque their investments are. In most cases, the value of trillions of dollars in assets is a guess. At best.

The solution they point to is not more Dodd-Frank or Sarbanes-Oxley complexity. No, it’s straight-forward disclosure to investors and to the general public who have, through TARP and the Federal Reserve, become the ultimate fiscal backstop:

The starting point for any solution to the recurring problems with banks is to rebuild the twin pillars of regulation that Congress built in 1933 and 1934, in the aftermath of the 1929 crash. First, there must be a straightforward standard of disclosure for Wells Fargo and its banking brethren to follow: describe risks in commonsense terms that an investor can understand. Second, there must be a real risk of punishment for bank executives who mislead investors, or otherwise perpetrate fraud and abuse.

These two pillars don’t require heavy-handed regulation. The straightforward disclosure regime that prevailed for decades starting in the 1930s didn’t require extensive legal rules. Nor did vigorous prosecution of financial crime.

Since [the 1980’s], however, the rules have proliferated, the arguments about compliance have become ever more technical, and the punishments have been minor and rare. Not a single senior banker from a major firm has gone to prison for conduct related to the 2008 financial crisis; few even paid fines. The penalties paid by banks are paltry compared with their profits and bonus pools. The cost-benefit analysis of such a system tilts in favor of recklessness, in large part because of the complex web of regulation: bankers can argue that they comply with the letter of the law, even when they violate its spirit.

The Basel I agreement was 18 pages long. Basel III is 616 pages long. And the current financial disclosure agreements can mean thousands of columns of numbers. Dodd-Frank may be end up being 30,000 pages long. Does that sounds like a transparent banking system to you?

Our government, of course, loves this situation because it means they can employ lots of regulators and gets lots of lobbyists genuflecting to them. But the result is that banks that don’t even know how much money they have.

This isn’t a fix. This is a system that employees zillions of regulators and lobbyists while our banking system becomes more complex, more opaque and more vulnerable. It makes bankers rich and unaccountable while leaving the taxpayers holding a bag that might be trillions of dollars deep.

And we really shouldn’t be surprised that this situation has only gotten worse under supposed communist Barack Obama. Matt Taibbi also has an article out detailing some of the chicanery behind TARP, particularly the way the Obama administration retasked it, lied about the use of TARP, lied about the health of the banks and allowed them to find ways to pay out gigantic bonuses despite the provisions that supposedly prevented it. He eventually reaches an identical conclusion: TARP has created a banking system that is more centralized, more complex and more at risk than ever before.

It’s not just the politicians, of course. What jumps out at you from the Taibbi article is the overweening sense of entitlement that emanates from the big banks: a sense of entitlement so profound, AIG (not a bank but it pretends to be one) is considering suing the government that loaned it $180 billion because its stock crashed.

(The Rolling Stone Article is a tough read because of Matt Taibbi’s famous bullshitedness. According to him, the only people who opposed TARP and stood in the way of this crony capitalist juggernaut were progressives. The battle over the bailouts is seen entirely in those terms. He completely ignores the deep conservative opposition to it. He says that TARP initially died because “95 democrats lined up against it” ignoring that 133 Republicans lined up against it too and that a majority of Republicans opposed in the eventual passage of the bill. Here’s the fucking roll call.)

We are not safer than we were five years ago. Our banking system is not more secure or more regulated. And, at some point, this is going to blow up on us.

John Huntsman was one of few in Election 2012 who tried to alert us to the danger we face. Ron Paul and Gary Johnson have also warned us about the danger of handing out large sacks of Federal Reserve funny money. But no one in power has picked it up. They’re too busy fighting each other over self-created crises like the fiscal cliff. And while they’re fighting over that cliff, we’re in danger of the whole fucking mountain falling out from under us.

This is being spun as an issue for “progressives” but it’s just as critical to conservatives and libertarians who value a sound banking system and straight-forward laws (also, you know, a functioning economy). We have to realize that this mess is bipartisan. Republicans may have opposed Dodd-Frank, but they haven’t exactly been proposing a new regime of better law. And Democrats may bash the big banks, but they take their campaign contributions and make sure no one knows what’s going on behind the doors.

No, it’s going to have to come from outside Washington, from the hundreds of millions of Americans who loaned the banks trillions and are still holding the bag four years later. I just fear that we won’t do anything about it until the next financial collapse plunges us into a dark age.

Banking On AIG


The U.S. Treasury’s sale of its remaining stake in American International Group Inc (AIG.N) will leave taxpayers with a profit of nearly $23 billion – more than the next three most successful bailouts combined.

The government’s profit on the deal is a turnabout from what was one of the most reviled bailouts of the financial crisis.

The 2008 rescue later spurred a senator to suggest top executives at the insurer consider suicide. The Government Accountability Office at one point suggested there was a real chance taxpayers would never be repaid in full.

Yet they were, with $22.7 billion in total returns, including the proceeds of the sale Treasury launched Monday night, AIG said. The government provided AIG with some $182 billion of support.

Before we start dancing in the streets, let’s clarify a few things. We’re still about $38 billion in the hole on TARP, most of the outstanding sums being those lent to the automakers. A lot of the AIG money was actually money paid to European banks that had CDS’s with AIG. Moreover, some losses are not being counted here. How much tax revenue did the government lose because of a stinky economy created by the bailout culture? How much money did we all lose because of that? If the bailouts hurt our economy, on net, to the tune of one tenth of one percent, that would easily wipe out any “profit” from TARP. You might still argue it was necessary as the lesser of two depressions, but let’s not pretend TARP made us all rich.

Most importantly, the money was never the big problem. The big problem was and remains the moral hazard. A big signal has been sent to the big banks that the United State government will bail them out of trouble. Do you think that’s going to cause them to invest more conservatively? And the big banks used that money to consolidate the banking industry, with the Big Five gaining more market share by using the loaned money to buy banks rather than fix the mortgage market. I don’t think it’s all that remarkable that banks managed to turn a profit with monopoly money loaned to them without restriction by the government.

The big risk? This time we are only (so far) out $38 billion. Next time it may be far far worse. And every time someone celebrates TARP “turning a profit”, they should be reminded of the precipice we have put our economy on. If we do end up turning a profit on TARP, it will be because of luck, not because it was good policy.

Modern Day Javerts

You know why I get irritated when people call Obama a Secret Communist Anti-Colonialist Crypto-Marxist Douchbag? Because if he actually were one, it would almost be preferable. At the very least, we wouldn’t have shit like this:

Richard Eggers doesn’t look like a mastermind of financial crime.

The former farm boy speaks deliberately, can’t remember the last time he got a speeding ticket, and favors suspenders, horn-rimmed glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative.

Egger’s crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963.

Now before you start bank bashing … and I’ll bash some banks later on, let’s go into exactly why Wells Fargo fired him for having done a stupid stunt before men landed on the moon. It’s not because they are an evil company.

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.

The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

Banks have fired thousands of workers nationally because of the rules, said Natasha Buchanan, an attorney with Higbee & Associates in Santa Ana, Calif., who has helped some of the banking workers regain their eligibility to be employed.

“Banks are afraid of the FDIC and the penalties they could face,” Buchanan said.

The regulatory rules forbid the employment of anyone convicted of a crime involving dishonesty, breach of trust or money laundering. Before the guidelines were changed, banks widely interpreted the rules to exclude minor traffic offenses and some other misdemeanor arrests.

New rules have eliminated exceptions for expunged crimes and certain minor offenses and expanded the categories of employees covered, Buchanan said.

Of course, the bank executives — you remember those guys? — the ones who turned the financial system into a cat’s cradle made out of uncooked spaghetti and then came to us with their hands out when it fell apart? Yeah, this not sweeping them up. In fact, Wells Fargo agreed to pay the Feds $175 million to make a high-level investigation go away.

There’s a waiver process for people who have mended their ways — like Eggers, who has not put a fake coin in a laundry machine recently. But the process takes time … unless you’re a high-powered executive. And the banks are prioritizing getting those waivers for … high-powered executives. The FDIC may issue a grand total of 74 waivers this year. They are not going to people like Eggers.

This is not communism. It’s not capitalism either. It’s the Corporate Welfare State, where profits are privatized, losses are socialized, risks are encouraged and the wealthy well-connected bosses are never harmed. When the hammer does come down, for appearance’s sake, it comes on low-level employees and borrowers, not the big bosses or even the medium ones. And both parties are supporting this, as much as the GOP likes to pretend they opposed TARP.

Now about those banks. This is yet one more data point for the case that the big banks have gotten too big and too powerful for the health of our nation and our economy. This is not a case where the free market has created a oligarchic banking system. This is a case where the government, by bailing out big banks and letting them use that money to buy up small banks, has encouraged this; has created this. I have made this argument before. But this is again in the news with Simon Johnson making the case that breaking up the big banks should be part of the GOP platform (if necessary, they can make room by dropping the planks on Shariah law and outlawing abortion without exception). Here is John Carney, quoting the TARP watchdog on the problem. I’ll quote Johnson:

The big opportunity for presumptive Republican presidential nominee Mitt Romney and for conservatives more broadly is to choose this moment to pivot against big banks. Ryan is plugged into the Tea Party wing of the Republican Party, which has been consistently opposed to megabanks and the subsidies they attract through being too-big-to-fail (talk to Representative Ron Paul).

Ryan can draw on the intellectual support of senior figures in the Republican Party — including former Utah Governor Jon Huntsman, the presidential candidate who had the strong support of the Wall Street Journal editorial page for his approach to breaking up the megabanks. Senator Richard Shelby — ranking Republican on the Senate Banking Committee — is cagier, but seems inclined to be skeptical of the value of the largest banks as currently constituted. Two weeks ago, Senator David Vitter co-wrote a brilliant letter to Federal Reserve Chairman Ben S. Bernanke on the problems the banks pose.

In addition to politicians, the emerging consensus among heavyweight Republican intellectuals is that bigger banks should be forced to fund themselves with much more equity relative to debt — in other words, capital requirements should be significantly higher for any financial firm whose failure can cause broad damage. The argument is that too-big-to-fail is too- big-to-exist and the right way to pressure banks to break up is through capital requirements that increase along with a bank’s size.

A Romney-Ryan ticket has the opportunity to tap the Republican populist tradition (think Teddy Roosevelt). The megabanks — such as Bank of America Corp., JPMorgan Chase & Co. (JPM) and Citigroup Inc. — have become today’s government-sponsored enterprises. They receive large, opaque and dangerous subsidies, encouraging them to engage in excessive risk taking. The question is how best to remove those subsidies.

Removing the subsidies isn’t enough. The damage to our political, financial and legal systems is too extensive. I do like the requirement of higher capital requirements, which has some support. But I fear that if we don’t do something about this soon, we’re going to have a much worse situation on our hands.

Because firing people like Eggers isn’t working the problem.

(H/T to Maggie McNeill for the post title).

Delusions of Mediocrity

Ladies and Gentlemen. If you ever want to know just how deeply some people drink of the Obama Kool-aid, take a look at this image someone just sent me.

I know that’s probably hard to read, so I’ll take the claims one at a time so you can appreciate the delusion:

Three million new private sector jobs. This number sounds accurate enough. But over 40 months, that’s less than population growth. Job recovery has been very slow under this Administration, far slower than any previous recession since the Great Depression. You can argue it could have been worse — I wouldn’t, but at least it’s an argument. But I really wouldn’t be talking about jobs with this guy.

Smaller government. By what standard can you say we have smaller government? Is government spending less than it did before? Nope. Does it have less power than before? Nope. It has slightly fewer employees, but that’s mostly on the state level.

$2 trillion deficit reduction. Maybe in Fiscal Fairy Land, where you project that the Iraq War will continue forever and future Congresses will exercise the spending restraint that current ones won’t. And even this is only after the Republicans dragged him kicking and screaming to the table. But $4 trillion has been added to our debt in the last three years and he walked away from Simpson-Bowles. Again, I wouldn’t be talking about deficits if I were you.

Health Care Reform. Fair enough. He did it. Of course, he came up with something even worse than we had before. But in LiberalLand, doing something is the most important thing.

Wall Street Reform. See above. It was written by the two Congressmen most involved with the banking industry. And the “too big to fail” banks are larger than they were when Obama took over.

Saved the US Auto Industry. By screwing over investors in favor of unions, yes. And only if you assume the industry would have disappeared in a normal bankruptcy, which I don’t.

All “bailout money” returned, with interest. All right, now I’m really starting to get pissed off. First off, what’s with the fucking quote marks? It was bailout moeny. This isn’t some Tea Party delusion. This was fact. And that it has been paid back is a myth. Many of the banks did so from other federal funds. And Fanny/Freddie are still hundreds of billions in the red. Really, I wouldn’t talk about bailouts if I were you.

Three new trade agreements, Repealed “Don’t Ask, Don’t Tell”, Killed Osama bin Laden, Rescued American hostages: I have no complaints here. All true. All accomplishments. He dragged his feet on the trade agreements but … they are in place now.

Toppled Gadhafi without an American casualty. I’ll give a little bit of credit. But let’s also note that this was done without Congressional approval in violation of the War Powers Act, something even Rachel Maddow called him out on.

Unified the world against Iran. Uh, OK. Still hasn’t stopped them, has it? Maybe in his second term, he’ll send them a strongly worded letter.

Has the Arab League watching Syria. No word on who is making the popcorn. Just last week, we saw an absolutely brutal atrocity committed by the Syrian government. The Arab League sat on their hands.

No tax dollars spent on BP clean-up. Semi-true. The taxpayers do finance a fund to cover any liability for spills over $75 million. And really, this is like saying he didn’t wet the bed. The taxpayers shouldn’t be paying to clean up BP’s mess. It’s not like there was some great public clamor that Obama resisted. So he didn’t do something we weren’t planning to do and that one wanted done anyway. What does he want, a cookie?

More deportations than Bush. True enough, but illegal immigration has been slackening due to the weak economy.

Fewer regulations than Bush. It’s only year three. And many of the regulations, like those connected with Dodd-Frank, have yet to be written. And really, let’s just stop this right here. Saying “I was better than Bush on issue X” is like saying you’re skinnier than Roseanne Barr. There were innumerable issues where Bush screwed the pooch. I’m really not that impressed that you gave it some foreplay first.

Support’s states’ rights on medical marijuana. As you can guess, this is what set me off. I startled the cat with my cry of, “What the fuck!”. Barack Obama has been horrible on medical marijuana as we have documented many times. His agencies have threatened forfeiture of people who lease property to legal dispensaries. His IRS has disallowed business expenses for clinics. They have launched numerous raids and clinics in Denver and Washington have shut down out of fear of raids. They rebuked the Ogden memo. It is right here where this piece of shit crosses from “propaganda” to “outright brassbound lies”. Much of the other stuff — deficit reduction, for example — is “true” in Washington’s reality (e.g., $2 trillion off projected debts == $2 trillion in deficit cuts).

But this is a lie. This is false. This is bullshit. And anyone who says this needs to smacked upside the head with a lighted bong. I’ve recently seen this lie coming up in numerous places, including the mainstream media and the Center for American Regress. The Administration, having throughly violate their promises on pot, are now trying to persuade us that, no, they really kept their promises.

You can’t stomp on lies like that hard enough.

Ended the War in Iraq. On Bush’s timetable, but sure.

Reduced military spending by $500 billion. Isn’t that the same thing as the above?

Increased veterans’ benefits every year. Because we know how much Congress fights against automatic benefit increases.

Saved the world from global financial collapse. Oh, really? Look, you can’t blame Bush for TARP and then claim credit for the supposed effects of it. And I would say that global financial collapse is still very much on the table.

Hired more border patrol agents than Bush. Hey, this one is true! Amazing that one of the few true claims on this involves … expanding government.

and he quit smoking. Well, OK. Good. Although he is slowly driving the rest of us to drink and smoke.

Now let’s list the things not on there: funded green energy initiatives that funneled money to politically-connected interests like Solyndra and Tesla; massively expanded the drone war including the targeted assassination of an American citizen; entrenched policies on indefinite detention and rendition; blew the stimulus on tax cuts for people who don’t pay taxes and subsidies for the states; has been spent most of three years campaigning for four more; made numerous goofs on “Polish death camps” and bows to various royalty; continued the expansion of federal raids to include raw milk and guitars. And that’s just off the top of my head.

Debunking is fun but what really alarms me is the thinking behind that graphic. Only a handful of those are true and even those often include governmentspeak distortions. And several of those points: smaller government, TARP paid back, medical marijuana — are outright lies. You have to be deranged to take some of Obama’s biggest failing and proclaim them as successes.

And they think we’re crazy.

And Burn the Banks Down

Part two of my posts on housing and banking.

If you want to know why I have some shred of sympathy for OWS despite some of their repugnant behavior (that Kos link is priceless, BTW), here is the reason:

Liberal protesters “occupying” Wall Street hate the big banks, which they see as the engine of capitalism. But conservatives ought to hate the big banks because they are the enemies of capitalism.

In addition to the Fannie/Freddie conforming loan increase I blogged about below, Bank of America moved $55 trillion in derivatives to an arm that is backed by the FDIC. We, the taxpayer, are now on the hook for their speculative bullshit. I’m no fan of Glass-Steagle but … Jesus, can’t we do something about that?

But it gets even worse:

A Government Accountability Office report highlighted plenty of conflicts of interest at the Federal Reserve. New York Fed official Stephen Friedman was on the board of Goldman Sachs and actively buying up shares of Goldman while the Fed moved to give Goldman special access to its lending windows.

JP Morgan CEO Jamie Dimon sat on the New York Fed’s board while the Fed was pouring billions of bailout dollars into JP Morgan and granting JP Morgan special regulatory exceptions.

How is this not a crime? How is not corruption that so many in the regulatory agencies have now found six- and seven-figure jobs in the very industry they refused to crack down on? Maybe there is no technical law being violated. But can we not pass a law requiring public officials to stay out of industries they regulate for at least five years? Can we not at least shame these corrupt douchebags for their repellent behavior?

The banking industry is a bigger problem than ever, not withstanding the sack of shit called Dodd-Frank. As John Huntsman recently pointed out, the taxpayers’ exposure on the big banks has only increase since the crisis. The “too big to fail” banks control more of the industry than ever before, having used TARP mainly to buy other banks. And as Russ Roberts points out, we made sure that banks and their cronies got 100% of their money out of the financial crisis. Many avoided having to taking losses at all on the financial crisis they gleefully participated in and made tens of millions off.

Look at those links I just put up. Russ Roberts is anti-Keynesian free market economist. John Huntsman is a fiscally conservative Republican. Tim Carney is a libertarian. These are not dirty hippies saying “fight the power”. All three are free market believers who are saying what OWS is saying — enough is enough.

Now OWS and the Left are wrong on what do about the banks. Forgiving student loan debt would hurt the banks, but it massively unfair to people who paid for their own education. Forcing banks to write down mortgage principal is another bad idea that would either require a gigantic violation of contract law or, effectively, the government bailing out the banks again on their bad mortgage debt. Maybe Matt Yglesias is right that we need to change the way banks account for their gains and losses, but that’s a long-term fix.

Break the big banks up. “Too big too fail” is too big to exist. The right time to do this was when they came begging to us for TARP. But we can’t afford for another financial bubble to blow up in our faces. This time, it will be even worse. This time, it may break the whole damned system.

I’d say this is one of those time when the free market has failed, but it’s not. It’s one of those times when the unfree market has failed. TARP and regulatory capture created these monster banks from corruption and influence-peddling. It’s time we turned the clock back on that.

The Taibbi Plan

Matt Taibbi, one of the key members of the More Clever than Smart Club, has an essay on what he would have OccupyWallStreet demand. It’s making the rounds. Let’s go through it. I’ve almost finished reading The Big Short, a book you really should read to understand the recent financial crisis. So this will serve two purposes: responding to Taibbi and talking about what I learned from Michael Lewis.

1. Break up the monopolies. The so-called “Too Big to Fail” financial companies – now sometimes called by the more accurate term “Systemically Dangerous Institutions” – are a direct threat to national security. They are above the law and above market consequence, making them more dangerous and unaccountable than a thousand mafias combined. There are about 20 such firms in America, and they need to be dismantled; a good start would be to repeal the Gramm-Leach-Bliley Act and mandate the separation of insurance companies, investment banks and commercial banks.

I don’t entirely disagree with this point. I thought as much in 2008 when we were told we had to bail out companies because they were “too big to fail”. If that’s the case, we need to stop them from being so big. We’ve broken up monopolies before; I don’t see why we should stop now.

That having been said, I’m dubious that this will achieve anything. As Reihan Salam points out, other countries have done fine with the same system. This idea hinges one whether you accept the idea that companies are too big to fail. I’m not sure I do.

2. Pay for your own bailouts. A tax of 0.1 percent on all trades of stocks and bonds and a 0.01 percent tax on all trades of derivatives would generate enough revenue to pay us back for the bailouts, and still have plenty left over to fight the deficits the banks claim to be so worried about. It would also deter the endless chase for instant profits through computerized insider-trading schemes like High Frequency Trading, and force Wall Street to go back to the job it’s supposed to be doing, i.e., making sober investments in job-creating businesses and watching them grow.

Several problems with this one, which is a favorite of the Left. First, a transaction tax will never go away after it’s “paid” for the bailout (which is already mostly paid back). It will stay with us longer than the phone tax that was instituted for the Spanish-American War and was repealed in … 2006. Moreover, the biggest outstanding bailouts are Chrysler, GM and Freddie/Fannie. How is a transactions tax going to punish them?

Second, the big problem here was not high frequency trading, which is a minor irritation. It was the entire system acting stupidly with mid- to long-term investments. Credit default swaps and collateralized debt obligations were sold with the anticipation of years of risk-free revenue. Howie Hubler didn’t lose $9 billion on high-frequency trading; he lost it betting on huge CDO’s.

Which brings me to a point that Taibbi doesn’t address at all — the ratings agencies. Michael Lewis makes it crystal clear that the ratings agencies — S&P and Moody’s — had no fucking clue what was going on. They would give ratings to mortgage bonds without bothering to find out what was in them. In fact, they specifically told their employees not to look. The result was that tranches of triple-B mortgage bonds were put together into CDO’s that they rated AAA. People — investors who were interested in “making sober investments in job-creating businesses and watching them grow” bought these, thinking they were as safe as Treasury Bonds. They clearly weren’t. And not only did the ratings agencies not suffer for their massive failure, Dodd-Frank strengthened their control of the market.

The primary influence of Wall Street on the financial crisis was that high-stakes mid-term gambles brought banks to their knees and they “had” to be bailed out. But perhaps an even greater influence was that the mortgage bond market created an upward suction on the mortgage market. People were making billions off of mortgage-based securities. To feed that money engine, more mortgages were needed. This created not only immense pressure but immense profits for mortgage brokers who sold people houses they couldn’t afford, sold them on bad ideas like option loans and sold no-document loans. The mortgage sellers didn’t care if the loans were good because they were selling them right to Wall Street. Wall Street didn’t care because they were selling them to each other.

Yes, there was pressure from the Community Reinvestment Act and ACORN. But that was a comparatively small effect. The tranches that did in the big banks and crashed the system were Alt-A: mortgages sold to people who had good credit scores. Everyone knew the mortgages sold to poor people were bad; it was the mortgages sold to middle class and wealthy people that broke the system.

A transaction tax does not address this problem at all. What would have addressed it was letting the banks go bust. People who bought bad mortgages suffered — they lost their homes, their credit rating and their savings. That’s what should happen when you let the bank talk you into doing something stupid. But the banks didn’t suffer.

Here’s a better idea that would replace Taibbi’s points (1) and (2). Rewrite Dodd-Frank so that any company that is bailed out in future has to fire their Board of Directors. Rewrite it so that companies that are bailed out will be eventually liquidated or broken up. Re-inject moral hazard so that companies see bailout as a last resort, rather than a first one.

3. No public money for private lobbying. A company that receives a public bailout should not be allowed to use the taxpayer’s own money to lobby against him. You can either suck on the public teat or influence the next presidential race, but you can’t do both. Butt out for once and let the people choose the next president and Congress.

I have no problem with this … if it includes agencies like ACORN that get loads of public money as well as public employee unions and public employees and government contractors (which would often include me). What Taibbi wants is to single out only some of the people sucking on the public teat; the ones he doesn’t like. Everyone else can go ahead.

4. Tax hedge-fund gamblers. For starters, we need an immediate repeal of the preposterous and indefensible carried-interest tax break, which allows hedge-fund titans like Stevie Cohen and John Paulson to pay taxes of only 15 percent on their billions in gambling income, while ordinary Americans pay twice that for teaching kids and putting out fires. I defy any politician to stand up and defend that loophole during an election year.

I sort of agree with this one. I see no reason why a businessman earning half a mil in salary should be taxed at twice the rate of a hedge-fund manager. The carried interest rule was a mistake.

However, I doubt this will actually work. People do not get rich by allowing the government to figure out how to tax them more. And the carried interest rule exists for a reason. Jim Manzi has pointed out that it would be child’s play for hedge fund managers to shift the funds so that they become capital gains or other forms of equity.

A better idea would be an overhaul of the tax system that keeps it simple and eliminates the complexities that allow income to be sheltered and fed the financial doomsday machine.

5. Change the way bankers get paid. We need new laws preventing Wall Street executives from getting bonuses upfront for deals that might blow up in all of our faces later. It should be: You make a deal today, you get company stock you can redeem two or three years from now. That forces everyone to be invested in his own company’s long-term health – no more Joe Cassanos pocketing multimillion-dollar bonuses for destroying the AIGs of the world.

This would be a huge mistake, I think. We have attempted this before and the result has always been bad Unintended Consequences. If you force them to get company stock, what’s going to happen? Well, precisely what happened in the 90’s — a stock market bubble. You’re going to have CEO’s deliberately or fraudulently inflating their stock so they can cash out.

The principle is also warped, in my opinion. If a company wants to pay bonuses to people before they do anything, let it be on their own head. We already have “say on pay” thanks to Dodd-Frank. As long as we don’t bail them out — or at least make bailout conditional on canceling bonuses — this problem will take care of itself. We don’t need to stop companies from being stupid; bankruptcy will do that for us.

This post and my response circles what I’m thinking about OWS. It is a typical liberal event. They have correctly identified the problem: big business has too much influence in Washington and vice-versa. But they are dumb as a bag of hammers when it comes to the solution. Taibbi’s proposal, lauded in liberal circles as “restrained”, would inevitably create another bubble, would create massive legal challenges that would tangle up the courts and would not address some of the biggest problems: the ratings agencies and the government’s willingness to cover up the stupidity of investors.

We turned down this road with TARP. Now is not the time to double down. Now is the time to work the problem.


That’s apparently one idea that the OccupyWallStreet crowd are keen on: an expansion of the stupid “get rid of student debt” idea I flayed a couple of weeks ago.

So my immodest proposal is simply this: Individuals and households in the bottom 99 percent who owe debt to any large financial institution that received federal government support during and after the 2008 crisis should see their debt forgiven. That would certainly stimulate the economy, as most people would suddenly find themselves with a great deal more money to spend on iPads (and food, and clothing, and housing, and healthcare). The debt can be forgiven by decree or if the government really wants to it can step in to pay it itself; I don’t much care either way. (Though it’d be nice to see it just wiped off the books, to enrage the banks.)

Let’s wipe the debt of the 99 percent off the books, tell the financial sector to eat it, and get on with our lives.

I can’t even call this Keynsianism. This is pure plunder. Pareene and his numerous supporters can proclaim this to be a stimulus all they want. But one man’s debt is another’s asset. The banks would suddenly be out trillions of dollars in capital and we might trigger bailouts all over again. Your debt would be gone; and so would your job. And the moral hazard would be extreme. Who would want to loan money in the future, knowing the debt could be erased any time a bunch of dirty kids occupies a New York thoroughfare? Indeed, if you look at the history of the jubilee, you’ll find this became a big problem and loan societies had to find ways around it. If God can’t make people loan money before a jubilee, how is Barack Obama going to?

(I’ll leave to you the irony of a bunch of liberals invoked Biblical law as a precedent. Or a bunch of supposed non-partisan activists calling for the most massive forced redistribution of wealth in history. Or the fact that since the cutoff for “the 99%” is half a million, most of this debt relief would be going to people with pretty solid incomes, not the poor and unemployed.)

Now the justification for this is TARP and the Wall Street bailout. Several people, Erin Burnett notably, have pointed out that the bailouts weren’t just a handout; the banks paid back their loans. But I think that too misses the point. The bailouts were a mistake, not a model for what should be done with the rest of the country. Our Congress didn’t even bother to attach conditions for taking the money, such as firing directors or canceling bonuses (actually, Chris Dodd made sure AIG bonuses were protected). The proper response to a dumb idea is not to follow it with an even dumber one.

Look, I understand the anger OWS are feeling and entirely sympathize. The banks are too big; the financial sector has far too much political power. Banks are sitting on piles of cash while some people are entering their third year without the hope of a job. It’s tough. Every night, I think about how lucky I am to have work.

But burning the house down isn’t the answer.

(McArdle has a decent idea: change the law so that student loans can be discharged in bankruptcy. They are presently the only loans that can’t be. Student debt has quintupled in the last decade and Big Education is becoming a huge bubble. Maybe it’s time to let the air out.)

As I said before, the OWS crowd is still organic, still figuring out what they stand for. But if this is the best they can come up with so far, maybe Herman Cain is right about them.

Goebbles’ wet dream

That’s what this new propaganda front by some organization called “Obama for America” smacks of, to me. This stuff is some serious bullshit man. I had a good laugh at some of the nonsense being showcase as I wondered if anyone there even realized how frightening this kind of thing looked like. Seriously, this is basically a government reporting program, set up to look as if it isn’t run by those in government, so they can then use it to attack their opposition. Like the title of my post implies: this smacks of closet fascism.

So I was originally just going to leave the post at that, the implications of this whole thing was frightening enough IMO, but I decided to take a deeper dive into that cesspool. In particular I wondered WTF the whole “President Bush, not Obama sign TARP into law” deal was about. Yeah Bush signed TARP, but Pelosi’s congress – where spending originates from – is the one that took the original $300 billion proposed by the assholes in the Bush administration and raised it to $700 billion, against Bush’s wishes, daring him to then not sign it. Are you trying to absolve Obama from the fact he was one of those democrats? Maybe he was not there to vote present. What’s the point here? Who do they think said Obama signed TARP anyway? Or is the point of this idiotic thing to deflect blame from both the Pelosi congress that originated the ridiculous sum assigned to TARP and the Obama administration, which supervised much of the spending, to Bush by claiming that since he signed it, he was the one responsible? Are they trying to say that Obama buying out GM for the unions basically didn’t happen because if you need to lay blame it lies with Bush for signing TARP? I don’t get it.

Next one. And man, my bullshit meter went off on the whole marxist gun grabbing crap. Maybe they think they can fool people with shit like “President Obama believes in common sense gun control laws compatible with Second Amendment rights”, but we already know that they think “common sense gun laws” are laws that prevent everyone but the state from having guns, and they are on record stating that they also believe the second amendment rights only apply to state sanctioned militias and not the public at large. They must think people are idiots. Last I remember those that believe in the same common sense laws and interpreted the second amendment to apply to militias and not the citizens lost in that SCOTUS decision, thankfully, and the constitution prevailed. Personally I also find little common sense in laws that disarm everyone but the criminals unless the common sense is to keep the sheep from being able to fight a tyrannical government off.

Then there was the bit on how “friendly” Obama is to Israel. I believe that played out in the NY-9 election where the democrat was trounced last night in a predominantly Jewish district. If Obama was so friendly to Israel one would have to wonder why the Jewish vote was deserting him in record numbers. Obama HAS thrown Israel under the bus. No US president since Carter has been this condescending and outright hostile to Israel. Then again, Obama also pissed on the leg of British people and told them it was warm rain. He seems to have made it a habit of dissing our closest allies and kissing the ass of the vilest and most evil villains out there, so maybe one could argue he wasn’t singling out Israel for this kind of shit treatment.

I just laughed at the whole Immigration reform piece. After admitting that Team Obama is looking for some kind of amnesty program – that’s what that “smart and fair” is code for – they tried to make him look good by claiming he was however going to kick out those people that posed a risk to national security. If very few, if anybody, meets that set of criteria these goons will come up with, and thus, only some token people get deported, this will still be reported as Obama getting though on illegal immigration. The fact that others now get to stay, a clear reward for breaking the law, is ignored.

I do have to admit that I was saddened that they didn’t have a Solyndra post up. Maybe they need one claimign that porkulus bill also created all those jobs the WH claimed it did. Or that this one will be the magic bullet. Those ones would have been fun to watch. Low brow doesn’t even pass muster.

The Last Bailout … and the Next


Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.

It wasn’t just US banks; foreign banks got tens of billions in this secret TARP deal. The revealing thing for me is not how much the banks got — I suspected the number was in this ballpark. It’s just how scarily close we came to a complete system meltdown.

What really gets me, however, is how little responsibility has been taken for the banking collapse. Yeah, I know — it was all CRA, ACORN and the government forcing banks to lend money to poor people. But it wasn’t poor people who created credit default swaps. It wasn’t the CRA that made banks stupidly (and often fraudulently) pack mortgages into investment vehicles and sell them to each other. The massive leveraging our bank system was not ACORN’s idea. The bankers can take all the credit they want for those “innovations”. Isn’t someone going to go to jail for this mess? The S&L bailout cost a lot of money too, but at least the crooks went to jail.

In the meantime, we can rest easy knowing that this sort of debt bubble will never … what was that?

This chart looks like a mistake, but it’s correct. Student loan debt has grown by 511% [between 1999 and 2011]. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

Obviously the number of students didn’t grow by 511%. So why are education loans growing so rapidly? One reason could be availability. The government’s backing lets credit to students flow very freely. And as the article from yesterday noted, universities are raising tuition aggressively since students are willing to pay more through those loans.

Ah, yes. Now this is one we can blame on liberal interests and politicians. They have been pushing harder and harder on the education bubble. And many want to make it worse with direct federal loans (call it Fannie Ed) or “forgiveness” of loans if someone enters a politically-correct industry.

Hang on to you wallets, guys. It’s going to get worse before it gets better.