Tag Archives: geithner

Hey, Paul Krugman

22 Mar

HT Atrios

The Doomsday Clock of Aught-Nine

22 Mar

I am not a financial guy. I am not a patient or careful observer of the ins and outs of Wall Street, ancillary entities, or the ostensible regulatory schemes overseeing the markets. My eyes glaze over almost instantaneously at all of it.

To some degree, it seems that every decade needs its doomsday clock. In the 70s, it was an actual doomsday clock, figuring that the Soviets were going to throw some ICBMs our way at any moment, and it was up to Steve Austin to use his bionic powers to save us. In the 80s, it was pretty much the same thing, especially as the communist world began to destabilize and ultimately unravel. The 90s began the runup to the complete disaster we have on our hands today. The 90s started with Saddam Hussein giving the world the finger and raping Kuwait, combined with the new dangers in the wake of the breakdown of a bipolar world. While most people worried more about where Bill Clinton put that cigar, all hell was breaking loose in the middle east, and the dot com bubble burst, teaching us no lessons whatsoever in the process. Finally, this decade, we’ve had 9/11, two wars, all topped off with a steaming pile of financial meltdown.

My lack of patience and deficit of attention to financial things extend even to this Matt Taibbi Rolling Stone article exposing the massive kleptomaniacal fraud perpetrated by AIG, Goldman Sachs, the Fed, and other masters of the universe, all without any governmental oversight at all – not just meaningful oversight with teeth, but any at all. To this day, the lending practices of the Federal Reserve are not only secret, but any inquiry whether from Congress or journalists is met with the kind of eye-rolling you’d expect from a teenager engaged in conversation with her parent in a public place.

Taibbi analyzes what went wrong with AIG, how it committed massive fraud and left us footing the bill. He also argues that the whole bailout is, for all intents and purposes, merely a coup d’etat by Wall Street investment banks acting in concert with compliant politicians and impotent regulators.

There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That’s the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers’ credit card.

The thing about all this Wall Street bailout stuff is that you really do need to have some background in it to get any of it. The auto bailout is easy – everyone understands that if you sell a shitty product, you’ll fail. This stuff is complicated by design to ensure plunder without oversight.

The New York Times sort of pre-revealed yesterday what the Geithner – Bernanke plan is to “fix” the financial markets. As this guy points out, there’s not a single independent economist you can find who’ll say it’s a good idea.

Calculated Risk, Naked Capitalism, Paul Krugman,
The shorthand analogy would be to say that Wall Street is in cardiac arrest, and the government’s solution is to inject pure bacon grease into its circulatory system. Balloon Juice shorthands it:

If this were a medical emergency, it appears it would look something like this:

The Illness- reckless and irresponsible betting led to huge losses
The Diagnosis- Insufficient gambling.
The Cure- a Trillion dollar stack of chips provided by the house.
The Prognosis- We are so screwed.

Politically, the problem is twofold and paradoxical. On the one hand, the problem is so acute and crippling that swift action is needed. On the other hand, rushing into this sort of stuff isn’t necessarily the best way to handle such an acute and fundamental problem. Add to that a supercharged political atmosphere, the fact that the vast majority of media figures and politicians are as clueless about all of this shit as you or I, there seems to be way too much on the line to leave it all to chummy Wall Street insiders and doltish Washingtonians.

Brad DeLong has a Geithner Plan FAQ and two of the Q/A are:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world’s largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off–in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn’t make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Assigning blame isn’t necessarily of critical importance at this point. Taibbi spends a tremendous amount of ink going through the historical events that led to banks taking advantage of a dangerous combo of loosening regulations and regulatory loopholes to make incredibly huge bets which ultimately collapsed in on themselves. We then bailed them out, and still have no real regulatory oversight or sunlight clauses to both protect and inform the taxpayers.

Too many people are predicting cataclysm if all of this fails to work. Arguably, it’s the same catastrophe that would have happened had the original bailout not taken place.

Because it’s all so complex and specialized, and the stakes are unprecedentedly high, it’s time for the political elites to stop focusing on sideshows like AIG bonuses, and carefully examine what’s being proposed by the Fed and Treasury here. It’s time for the experts to step in – not the politicians. I don’t care what your representative or my representative thinks about it all. I care what respected economists and financial experts have to say about it. We ought to demand that everything is exposed in the sunlight and that every reasonable solution is considered and deliberated.

This is not the time for schoolyard bullshit. The grownups need to step up.

$11.6 Trillion

19 Mar

The United States government has spent $11,600,000,000,000 of your money to “bailout” the economy.

This all began back in December of 2007 when the Federal Reserve, in coordination with other global central banks, established a Term Auction Facility to inject liquidity into banks that had stopped lending as the leading indicators of a coming subprime mortgage crisis began to mount.

It continues to this day with regular capital injections to banks, the continued implementation of TARP and yesterday’s announcement that the Federal Reserve would spend $1,000,000,000,000 on the purchase of long term treasury bonds and an effort to lower mortgage rates and other commercial loans.

Yet, with all of that money pouring out from the central banks and the bailout progressing at a breakneck pace, what issue dominated the news cycle?  $165,000,000 in bonuses to employees (current and former) of AIG’s Financial Products Division.  And today we will most likely focus on which members of Congress received campaign donations from AIG or AIG connected donors.  This is a total media distraction designed to rile up the populist feathers of every American who is either struggling in difficult economic times, opposed to “bailing out the bums” or free marketeers who loathe the very idea of a bailout for anyone.

$165,000,000 is a number that is small enough to get pissed off about. Hell, it’s less than A-Rod’s latest contract with the Yankees.  It’s even easier to get pissed off that AIG gave $111,875 to Sen. Chuck Schumer over the past two decades. It’s easy to draw a line of complicity between those donations and the current crisis and fill 24 hours of cable verbal diarrhea with righteous indignation.

While we’re certainly right to be angry that AIG executives have taken money from the public trough to compensate many who were responsible for creating the bailout in the first place, we should be talking about the big picture.  Shockingly, one of the few voices who is doing just that is former New York Governor Eliot Spitzer.

Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

Spitzer is essentially saying, “Where is the fucking oversight?”  Good question, the Congressional appointed TARP Oversight Panel has some questions it would like answered.

Damon Silvers, the oversight panel’s deputy chairman, told the Joint Economic Committee that he and other panel members are waiting for Treasury Secretary Geithner to appear before them to explain how the Obama administration plans to help failing banks. Among the things the panel still needs to know is how the administration plans to deal with the toxic assets like failed loans and foreclosures that are bogging down banks, panel members said.

The oversight panel had asked Henry Paulson, Treasury secretary in the Bush administration and the chief architect of the Troubled Asset Relief Program, for the same information but never heard back from him, Silvers said. The bottom line, panel members said, is that even though about $300 billion has been spent and another $350 billion has been made available to bail out financial institutions, those who are supposed to be overseeing the program lack the information they need to perform their duties, Silvers said.

As I see it, the larger problem is that the majority of the American people do not have neither a basic understanding of the problem nor the solutions that have already been implemented.  Thus, they don’t know what to get angry about and focus on matters like AIG executives pulling down bonuses.  It is a systemic failure of the establishment media that most Americans have not been properly educated about the crisis.  For instance, it’s shocking to me that there is little discussion of the Maiden Lane enterprises and their role in subverting much of what Congress intended for TARP.

During Tim Geithner’s confirmation hearings, we heard a lot more discussion about his mastery of personal income tax software than we did about his involvement with TARP design, implementation and administration or his role in creating the oversight dodging Maiden Lane III while head of the New York Federal Reserve, didn’t we?

The media takes the easy way out on stories rather than doing the heavy lifting and explaining the scope of the issue and that’s the shame of it all.

The Geithner Plan vs The Buffalo Geek Plan

11 Feb

In short, this is what Secretary of the Treasury, TIm Geithner presented to Americans today as the second phase of the Troubled Asset Relief Program:

Keep in mind, that Tim Geithner was the head of the New York Federal Reserve Bank during the first phase of the TARP and was pivotal in the bailout of AIG, the sale of Bear Stearns and the decision to let Lehman Brothers go bankrupt.  His plan for the second phase?  Well, ummm, lots of money.  Phase One of TARP was intended to do the following:

TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of “troubled” assets. “Troubled assets” are defined as “(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.”

Buying troubled assets required oversight by Congress.  So, Paulson decided that it would be wiser to simply buy preferred stock in the financial companies.  Umm, FAIL.  So, Geithner’s plan, coming in somewhere between $1,000,000,000,000 and $2,000,000,000,000 and light on details will probably work to accomplish what Paulson abandoned in the first phase, the purchase and auction of mortgage backed securities and failed assets.  This might help loosen credit and decrease the TED spread, but it does little to save vast swaths of cities being destroyed by foreclosures.

So, let me present the BuffaloGeek plan to stimulate the economy and free up credit.  Let’s call it the Happy Handouts plan.

In the United States, there are roughly 181 million people between the ages of 18-64.  The Federal Reserve estimates that each American household carries about $9000 in revolving debt and $80,000 when you roll student loans, mortgages and auto loans into the equation.  Staggering, people are simply crushed by the debt that we have accumulated in the easy credit era that began under President Clinton and increased under President Bush.  I won’t even mention our collective lack of interest in saving…

So, on to the plan…

Step 1.) Each of the 181 Million people of employment age in America will receive a check for $15.000 from the Federal Government, bringing the total of the Happy Handouts Plan to $2,715,000,000,000.

Step 2.)  You don’t think I’m just gonna give you spending junkies $15,000 each to go out and buy overpriced Macs or the latest gadget for your cubicle, do ya?  No, there will be a requirement that each person use that $15,000 to pay down debt.  If there is a lack of revolving debt or no remaining balance on mortgage, student or automobile loans, your money will be placed in savings, preferably in municipal bonds or a similar low risk investment vehicle.  How will it be implemented and managed?  That’s what the Congressional monkeys are for, I’m just the fucking idea man, mmmkay?

Step 3.)  Each household that is currently in an adjustable rate mortgage or high rate fixed mortgage, will be offered a one time opportunity to refinance their home loans at a 30 year rate of 5%.  Means testing will be put in place, however, poor credit ratings based on the inability to pay mortgages during the go-go 90’s and aughts will be forgiven.

Step 4.)  New restrictions on lending will be put in place.  No more free credit cards for college students, buying a house will require 20% down and a solid credit history.  Ya know, like it used to be before Jimmy Carter, Andrew Cuomo, Bill Clinton and others launched a well meaning effort to increase home ownership amongst minorities and watched as the banks twisted that legislation into the ability to give morons ludicrous loans for homes they couldn’t afford.  And before Phil Gramm rewrote the laws to allow for this whole MBS fiasco in the first place.

From a high level…banks get the liquidity that was to be given them during Phase 1 and 2 of the TARP and Americans are able to lower debt and free up discretionary income to stimulate the economy with their new found financial breathing room.  Credit should loosen due to the increase in liquidity and inter-bank lending should again begin to flow.

While this won’t return us to the collective standard of living we (as in middle class and higher) enjoyed during the wild credit explosion, it should return us to normalcy.  After all, if Obama had a set, he’d let people know that it’s not going to be like it used to be