“Beware of geeks bearing their formulas.”
Is this any way to run a bank—let alone a global financial system?
I spent the past two days at a financial regulation conference in Washington (where I saw more BlackBerries than I have seen in years—can’t lawyers and lobbyists afford decent phones?). In his remarks on the final panel, Frank Partnoy mentioned something I missed when it came out a few weeks ago: the role of Microsoft Excel in the “London Whale” trading debacle.
The issue is described in the appendix to JPMorgan’s internal investigative task force’s report. To summarize: JPMorgan’s Chief Investment Office needed a new value-at-risk (VaR) model for the synthetic credit portfolio (the one that blew up) and assigned a quantitative whiz (“a London-based quantitative expert, mathematician and model developer” who previously worked at a company that built analytical models) to create it. The new model “operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.” The internal Model Review Group identified this problem as well as a few others, but approved the model, while saying that it should be automated and another significant flaw should be fixed. After the London Whale trade blew up, the Model Review Group discovered that the model had not been automated and found several other errors. Most spectacularly,
“After subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had intended. This error likely had the effect of muting volatility by a factor of two and of lowering the VaR . . .”
I write periodically about the perils of bad software in the business world in general and the financial industry in particular, by which I usually mean back-end enterprise software that is poorly designed, insufficiently tested, and dangerously error-prone. But this is something different.
Microsoft Excel is one of the greatest, most powerful, most important software applications of all time. (But, like many other Microsoft products, it was not particularly innovative: it was a rip-off of Lotus 1-2-3, which was a major improvement on VisiCalc). Many in the industry will no doubt object. But it provides enormous capacity to do quantitative analysis, letting you do anything from statistical analyses of databases with hundreds of thousands of records to complex estimation tools with user-friendly front ends. And unlike traditional statistical programs, it provides an intuitive interface that lets you see what happens to the data as you manipulate them.
As a consequence, Excel is everywhere you look in the business world—especially in areas where people are adding up numbers a lot, like marketing, business development, sales, and, yes, finance. For all the talk about end-to-end financial suites like SAP, Oracle, and Peoplesoft, at the end of the day people do financial analysis by extracting data from those back-end systems and shoving it around in Excel spreadsheets. I have seen internal accountants calculate revenue from deals in Excel. I have a probably untestable hypothesis that, were you to come up with some measure of units of software output, Excel would be the most-used program in the business world.
But while Excel the program is reasonably robust, the spreadsheets that people create with Excel are incredibly fragile. There is no way to trace where your data come from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets, for starters. The biggest problem is that anyone can create Excel spreadsheets—badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.
This is why the JPMorgan VaR model is the rule, not the exception: manual data entry, manual copy-and-paste, and formula errors. This is another important reason why you should pause whenever you hear that banks’ quantitative experts are smarter than Einstein, or that sophisticated risk management technology can protect banks from blowing up. At the end of the day, it’s all software. While all software breaks occasionally, Excel spreadsheets break all the time. But they don’t tell you when they break: they just give you the wrong number.
There’s another factor at work here. What if the error had gone the wrong way, and the model had incorrectly doubled its estimate of volatility? Then VaR would have been higher, the CIO wouldn’t have been allowed to place such large bets, and the quants would have inspected the model to see what was going on. That kind of error would have been caught. Errors that lower VaR, allowing traders to increase their bets, are the ones that slip through the cracks. That one-sided incentive structure means that we should expect VaR to be systematically underestimated—but since we don’t know the frequency or the size of the errors, we have no idea of how much.
Is this any way to run a bank—let alone a global financial system?
go to timeclock 44:57 to end at 58:38 — 14 minutes in length –
Brian Lamb: Let me throw some politics into this. President Obama all through the
campaign positioned himself as being anti-Wall Street and anti-big banks. In reality was
Sheila Bair: Well it was
– look I think the – I met with him several times, so when he
first came in he was very accessible and then kind of after several months that faded
away and I think Larry and Tim probably didn’t want everybody else having access to
Brian Lamb: Larry Summers, Tim Geithner?
Sheila Bair: Larry Summers and Tim Geithner, yes. So I think his heart was in the right
place but at the end of the day he picked people who had been very much part of this, I
Brian Lamb: Make the connection because you do in the book about Robert Rubin and
Tim Geithner and Hank Paulson and all the people that come and go out of government
to the Wall Street. Is there
– again what’s going on here?
Sheila Bair: Well it’s perspective, it’s narrow focus on Wall Street and viewing the needs
of the country though the needs of Wall Street and the idea that if you fix Wall Street,
you fix the rest of the country and it’s just not so. Their interests are different from ours
and them making big profit
s and big bonuses isn’t necessarily in the benefit of the
country. It’s to the hindrance of the country if they think they can take big risks and put it
on tax payers. That makes for a less
Brian Lamb: Why didn’t they put a restriction on these outfit’s that were bailed out?
Sheila Bair: Well they were all sorts of reasons. They did finally for B of A and Citi
because they had to have multiple bailouts. They did out more severe restrictions on
them but then that’s when we found ourselves at the end of 2009 treasury putting
pressure on everyone to let B of A and Citi repay their TARP, their bailout money, so
they could pay bonuses again. Which I thought was premature; those are still very sick
institutions. But the healthier ones and to some extent this is right, the healthier ones
really didn’t need a lot of bailout money. There was a bit of a liquidity problem but they
had enough capital, the commercial banks and so
– but I think in a desire to camouflage
the ones that had real problems like Citi Group, they pretty much told everybody to take
But you go to a healthy bank like a Wells Fargo or J.P. Morgan Chase and the markets
are open to them, they just had done big capital raises they weren’t in really any kind of –
you know they had capital, they had access to liquidity. You go to them and say we want
you to take
this TARP money and, oh by the way, we’re not going to let you have your
bonus next year or whatever and they’re going to baulk, they’re not going to take it. So
that was the reason.
Brian Lamb: I’m going to read you just another sentence from your bo
ok. I have seen
many instances when career staff have been too differential to industry wishes.
Sheila Bair: Yes, absolutely.
Brian Lamb: Why? How many of them want to go out of being in government to work
for these institutions?
Sheila Bair: Well that is part of it. I think the
– this accepted practice of having a career
trajectory where you work for a regulatory agency for several years and then go work for
an institution that you regulated, I think that impairs thinking. But the political pressure
too can be quite profound and I think at the FDIC we had much less of that in terms of,
examiners thinking they were going to go work for banks, but they had really been beaten
down. As I talked about there’s been some significant downsizing prior to the crisis and
then on our backup authority, when our staff in the past had tried to exercise backup
authority over some of these large banks, the board actually had slapped them down
because of political pressure from the large institutions.
So they had also not gotten the support that they needed from the political leadership of
the agency and I think this has happened in the past at the OCC and the Fed too. The
principals, the leaders of the agencies have to support their staff and let their staff know
that they want them to be independent, that they want them to take enforcement actions
or whatever else needs to be done if these banks are operating in an unsafe and unsound
manner. And the examiners don’t
always know that they have that support, so that’s a
Brian Lamb: During this period we’re going th
rough the inauguration and the President’s
group have called for a million dollar contributions from big corporations. If you were
sitting in the FDIC and you’re having meetings with the Secreta
ry of the Treasury and the
Comptroller of the Currency and you knew that a company had given a million dollars,
what impact would that have on you?
Sheila Bair: Well it wouldn’t have an impact on me but I’m difficult what
can you say?
I’d make it work.
Brian Lamb: What impact would it have on most of these situations you’ve found?
Sheila Bair: Well it would make them stop and think; yes sure of course it would make
them stop and think. It’s
– and I think that’s one of the reasons why it’s good for these
agencies to be independent so they don’t work for the P
resident and I think if you’re a
lower level person at the FDIC and you have a chairman like me or a Marty Gruenberg
now who is a very independent person.
Brian Lamb: He’s the new chairman?
Sheila Bair: He’s the new chairman, you’re going to understand that’s’ not going to
matter to us.
Brian Lamb: I want to show you some video tape
– this is Neil Barofsky, who we had on
this program, who had a book talking about what it was like working inside the treasury
department as a Special Inspector General for TARP which is all very gobbly gook
language that most of us don’t understand but watch what he has to say.
Sheila Bair: All right, ok.
Neil Barofsky: And as I laid that case out to him and explained to him that he was not
being sufficiently transparent the meeting got very contentious. He
– to put it mildly
disagreed with my contention. He used a lot of obscenities in expressing his view that he
had been one of the most transparent secretaries of the treasury in the history of the
country. That he had forced the banks to disclose things that no one else would and it
sort of followed this pattern for about 40 minutes of really very explosive obscenity laid
in tirades against me as I was sort of trying to make that argument. And let me make this
clear, I’m not complaining about that. It was just sort of the nature of a very contentious
meeting. But still, inside, I’m still just a line prosecutor from Manhattan, and also n
I’ve got one of the most powerful officials in the world, dropping F bombs on me. It was
sort of this very remarkable moment. And my deputy would come with me from New
York, Kevin Puvalowski, after us, just looked at each other, and it was sort of this
remarkable thing that here we are trying to advocate for what we think is some pretty
common sense changes and this deep level of animosity and condescension, was
Brian Lamb: He’s talking about Tim Geit
hner the secretary of the treasury who’s leaving
but you write a lot about Tim Geithner in here and I guess I’m not sure at the end. So
many people quarrelling about him was he successful or was
– what’s all this contention?
Was it good or bad for the process?
Sheila Bair: Well I think the lack of tolerance for different views was not helpful. I think
you know the FDIC had a lot to add to the discussion especially when we got on to 2009
when the system was stable and we didn’t have the opportunity to restructure some
banks and that’s what the FDIC does. They deal with troubled financial
institutions. They restructure and they clean them up, they return them to the private
sector and there was not a willingness or an openness to always listen to our contributions
and I think that hurt the process. The discussion about whether the things were
successful or not I mean define success, we didn’t go over the cliff so that was a good
thing. But we didn’t have a robust recovery we had a re
-struggling recovery we still do.
The financial sector has still been a drag not a source of strength for the economy.
Hopefully that’ll change this year. They are finally cleaning up the balance sheets and
doing a better job of lending but it’s been a long time coming. I think
there could have
been some things that were done differently and it would have been nice if there had been
more openness to different viewpoints at least having open discussions, serious dialogues
about it we just didn’t have that.
Brian Lamb: Let me back into something you were talking about earlier Citi Group, how
big a company is that?
Sheila Bair: Right now it’s about 1.2 trillion I think, it was close to
two when this crisis
started. They had been whittling down their assets.
Brian Lamb: At one point one of the top people there was Bob Rubin who was former
secretary to the treasury under Bill Clinton.
Sheila Bair: Right, yes that’s right.
Brian Lamb: You say basically in your book that Bob Rubin was responsible for
bringing Tim Geithner to the secretary of the treasury?
Sheila Bair: That’s my assumption, yes.
Brian Lamb: And he came out of the New York Fed?
Sheila Bair: Yes.
Brian Lamb: And then you say in your book “Tim had always played a staff
role; even as
the head of the New York Fed he had basically been the mechanic who had engineered
the bailout programs. Hank and Ben, Hank Paulson Ben Bernanke treated him almost like
Sheila Bair: Right.
Brian Lamb: “He had been elevated to the role for all of the wrong reasons. Boo
Bob Rubin with no doubt had, had every expectation that Tim would continue his Citi
Group friendly pol
icies.” That seems to be the nub of part of what you’re writing about
here. Did he continue the Citi Group friendly policies and did the people at Citi Group
make out better because he was at the secretary of the treasury?
Sheila Bair: Oh I think there’s no question about that. That’s objective fact. I mean the
government was quite generous to Citi. That was a very, very sick institution. They had
made just about every mistake in the book.
Brian Lamb: But they all went away. I mean Bob Rubin is worth millions.
Sheila Bair: Yes, yes.
Brian Lamb: Never was punished in any way whatsoever.
Sheila Bair: No, no.
Brian Lamb: He’s still a
confidante of the president.
Sheila Bair: I don’t get it. He shows up in Op Ed columns and in conferences and as
near as I can tell never really accepted responsibility for any of this. Which I find
amazing and he helped create the beast when they got Glass-Steagall repealed and he was
secretary of the treasury and drove that and supported that and got that done and to go
and become the chairman or the executive chairman as
– they made special title for him
at the institution that was the primary beneficiary of this major policy change I think the
optics were terrible.
Brian Lamb: Another piece of tape
– another piece of something you were involved in,
it’s Suzie Orman and Sheila Bair, let’s run it, it’s not very long and then I’ll ask you how
you got into this.
Sheila Bair: OK.
Suzie Orman: Ever lose one of these? Everyone has, except for people whose money is
fully insured by the FDIC. Those depositors have never lost one penny in the 75 years of
the FDIC. Good to know in times like these. So here’s the question. Do you know if all
your money is safe and sound?
Sheila Bair: Go to myFDICinsurance.gov
Suzie Orman: Click on EDIE the Estimator.
Sheila Bair: Because the more you know…
Suzie Orman: …the safer your money.
Brian Lamb: First question, did you pay her to do that?
Sheila Bair: No we didn’t. She did it all pro bono.
Brian Lamb: She makes out like a bandit though, when she’s standing next to the head of
the FDIC and she’s done big business.
Sheila Bair: I think the benefit was mutual actually. She had been a critic of ours and I
started engaging her because she had criticized and several justifications were appropriate
at the complexity of our deposit insurance rules and the difficulty of understanding how
deposit insurance rules work. So we simplified it and she gave us a lot of free time
helping us set up a very user friendly Web site called EDIE to better explain our deposit
insurance system and our limits. And as we got into the crisis more and more when there
was a tremendous amount of press speculation about whether we were going to run out of
money. People were raising questions about the safety of their insured deposits and I was
fighting that but I was the head of the agency so it was going to be my job to do that and
we thought it would be good to have a third person and Suzie is never one to pull
punches, to vouch for us basically and she was willing to do that. She spent
donated all of her time, she donated a lot of time her consulting services were completely
free on EDIE and on doing those ads and that was a full day of taping.
Brian Lamb: Those ads run free of charge on television stations.
Sheila Bair: They are public service announcements.
Brian Lamb: And so for her it gives her a tremendous amount of
Sheila Bair: Well
I don’t think – does Suzie Orman needs that? She’s written several
bestselling books, she’s
got a very well watched show. I mean I think her name
recognition frankly was much higher than the F
DIC’s. I’m not sure I think we benefited
actually from her credibility with Main Street not the other way around.
Brian Lamb: Let me asked one last series of questions; what did you decide to do once
you left the chairman’s job because obviously in this book
you write about a people the
revolving door business.
Sheila Bair: So I joined a Pew Charitable Trust.
I’m a senior advisor there, I also – I
wrote the book.
I’m joining a couple of boards, I go give speeches and it’s a nice
combination of things and I’m
enjoying my life right now and I wanted to practice what I
preached and I didn’t think it would be appropriate to go work for a bank
regulated and I won’t take speaking fees either–
for people who use our debt guarantee
programs or insured banks.
So it’s what I’m comfortable with, other people do not
follow the same path and that’s fine but you know I think it’s good to show by example
and we did a lot of things to assist banks during the crisis like with the debt guarantee
programs and a higher deposit insurance limit
s and I didn’t want anybody to think – that
there was anything on my mind other than protecting the public in taking those measures.
So again it was my personal choice. I don’t judge people who choose different options
but I do think I wish they would think hard about that because it really, it undermines
public confidence in the regulatory process and in government and when they see these
regulators who had helped industries go and work for them.
Brian Lamb: Our guest has been Sheila Bair. The book is called Bull by the Horns.
She’s the former Federal Deposit Insurance Corporation chairman and we thank you.
Sheila Bair: You’re welcome.
Social Gospel of Presidents Lincoln, FDR, & LBJ [Obamathology plays out itself with timidity-caused miscues aplenty]
Our greatest U.S. Presidents were incredibly progressive and transformative by surmounting national crises by taking their matters directly to the people/commoners, the backbone of America, and then define the old order/status quo as being the obstacles to what reform demands and will result in, and then create whole new possibilities — the politics of the aspirational, per James MacGregor Burns & Bob Kuttner — and then reconstruct the political system instead of menially operating within the status quo/conventional. President Obama chooses to be a mediocre transactional leader who gets his high on bargaining and manipulating within a given system, to the detriment of the nation as a whole, as seen in Kuttner’s & Woodward’s books on Obama. And therein the power reposes — Wall St., not back street U.S.A. — even our national financial collapse in 2008 to date has not been able to shake the hegemony of finance — Robert Rubin and his hacks Summers/Geithner, Bernanke, Paulson, were not fatally damaged goods to President Obama — to the contrary, mishap-laden greenhorn President Obama saw these pillagers/looters as entrees for tutelage, access, and validation to our monied power center, Wall St. So, the road not taken by meek/timid President Obama — to radical financial reform, broadened prosperity for the common lot, and the mobilization of our national appreciative citizenry would have been redemptive and transformative. He failed to seize such moment in history pregnant with possibilities, so to speak. I coined the word “Obamathology” head-on into Obama’s virginal entry [no one else had ever linked Obama to Greek mythology], feeling his vibes/energy as having the potential to mark him as jesus incarnate, yet also risking his stubborn and blindered timidity [actuated as overpride/self-righteousness] grinding him down to mediocrity and uselessness to our common lot. Or, to invert poet Seamus Heaney, hope & history don’t rhyme. And unlike today’s contagious wind of freedom in the Middle East/northern Africa [catalyzed by self-immolation of a protestor][got that, Madame Nhu??!!], British historian AJP Taylor, ripening the year 1848, when revolutions in central Europe seeking self-determination and liberal democrary all were aborted, characterized the events as a turning point of history in which history failed to turn! Obamathology plays out itself as such an era in America. The road not taken [thank you, poet Frost]. A road to Obama’s nascent audacity of hope, which he blew up in his face. From President Obama’s book — the politics of capture — “I [Barack] increasingly found myself spending time with people of means — law firm partners, investment bankers, hedge fund managers, venture capitalists. The top 1% of the income scale who can write huge checks to a political candidate. They found it hard that a social ill could not be cured with a high SAT [so-called college entry level intelligence marker] score. They had no patience with everyday financial issues, they found unions troublesome, they were not sympathetic to those commoners whose lives were upended by movements of global capital. As a consequence of my fund-raising, I became more like the wealthy donors I met, I spent more time above the fray, outside the world of immediate hunger, homelessness, poverty, disappointment, fear, irrationality, and frequent hardship of the other 99% of the population — the people to whom and for whom I entered politics in the first place and in public life to serve and to protect. ” –The Audacity of Hope. As Bob Kuttner says, “seldom were there two back-to-back presidents more different than George W. Bush and Barack Obama. Seldom was there a crisis that more thoroughly discredited a failed economic order. But when it came to financial policy and extreme deference to Wall Street, seldom has there been more policy continuity between the outgoing administration and its successor.” President Obama, being Black, does not want to be the angry black man provocateur a la Jesse Jackson. Bete noir/disliked is what timid black Barack wanted to avoid. Be cool/competent/managerial/very buttoned up.
Huge mistake. Be passionate against heedless elites. Take charge. Lead. Such Obamathology discourses Greek tragedy/fallen hero to the tee.
Robert Rubin rose thru the ranks of Goldman Sachs as risk-arbitrageur, a takeover predator a la T Boone Pickens. Goldman Sachs was designed for insider trading since one side of GS does mergers & acquisitions, & the other side windfalls on trades. Underwriting & trading are supposed to be kept apart, since pending deals are supposed to be confidential. Essentially, one cannot be both banker & speculator, which GS is. Rubin deftly skirted the law via his legal team & investing in politicians like both Bill/Hillary Clinton & Obama, so that no matter who won, Clinton or Obama, Rubin wins anyway, even as later Citigroup boss, just as Rubin has the GOP in Rubin’s hip pocket. In this sense, there is no difference b/n a Democrat & GOP on Wall St., in that populist Democrats pursue lucrative careers as lawyer lobbyists-fundraisers. Bolsheviks they are not! Rubin alone created the artificially inflated boom going on 2 decades ago, w/deregulator alter ego Greenspan cluelessly applauding plunderer Rubin. Rubin’s Citigroup would have collapsed in 2008 without massive government bailouts, due to Rubin’s speculative strategies creating & trading in high risk securities. Rubin’s Citi’s grand design as investment trader and bank for a one-stop smorgasbord of financial services. Rubin’s repeal of the Glass-Steagall Act of 1933 which separated reckless gambler investment banks like Goldman Sachs from strictly regulated & government insured commercial banks like the original Citi who play key roles in our nation’s monetary supply, resulted in momentous conflicts of interest which resulted in both the crash of 1929 and of 2008. Bill Clinton’s key player in repealing Glass-Steagall was Robert Rubin, & Rubin’s acolytes Summers/Geithner now power over President Obama. Contrary to popular belief, President Obama’s biggest campaign contributors were big self-interested Wall St. donors – liberal on foreign policy/race/human rights, centrist on pocketbook issues like alleviating poverty, engaging in school reform, and downright hands-off on financial regulation & taxation, in that reg/tax hit them in the belly like a ballpeen hammer, & justifiably so, in that their conjured write-offs get them off the hook completely. So President Obama’s Rubinistas got rid of fellow Robert, this one being Robert Reich, along w/progressive reformers Dan Tarullo/Karen Kornbluh/Jim Galbraith/Jared Bernstein [youngster Jared was sent off to irrelevant domestic VP Biden, an office which FDR VP John Nance Garner analogized to a bucket of warm shi*t][Rubin detests labor/common lot, which Biden represents]/Austan Goolsbe/Christina Romer.
Antiquated Marxists spoke of GOP Ike as the “head of the executive committee of the ruling class” because Ike was GOP & our former war commander. Yet it was Ike who chafed over our military-industrial complex! Such Marxist pejorative is better suited to describe President Obama’s Wall St. cabal, despite bad guys Obama’s/Summers’/Geithner’s/Rubin’s Democratic populist propaganda. Ike’s disdain of Wall St. & his tight regulation over capitalists earned him the positive distinction of the proponent of countervailing power vs. the predatory capitalists.
FDR’s most audacious intervention, the Home Owners Loan Corporation HOLC 1933 used the government’s own borrowing rate — 2.5% — to refinance directly mortgage loans. HOLC saved one million homeowners from foreclosure, equivalent to 10 million homeowners today. A new HOLC under President Obama could be armed with a revolving fund, and use the power of eminent domain to require the investor to sell pools of securitized subprime mortgages to the government at their fair market value, today about 40 cents on the dollar. Today’s idealized HOLC then could convert the security back into a mortgage, using the savings to reduce the principal and the monthly payment by an average of at least half, and continue to subsidize the mortgage where necessary w/TARP stimulus funds. Feasible/constitutional, but timid President Obama locks into his self-imposed isolation of political mishap after mishap. Into 2011 hedge funds like Fortress Investment Group operated a lucrative business by buying underwater mortgages from banks at deep discounts and arranging reduced monthly payments for borrowers — while pocketing fat fees for themselves. Had President Obama been bold and prescient like FDR was [thanks, grassrooter Harry Hopkins, FDR’s bosom buddy], HOLC’s resulting savings could go to homeowners and less to financial middlemen. The government could buy nonperforming mortgages directly from the bank at its current discounted value. If the bank doesn’t want to sell, government’s eminent domain solves the problem. This would result in a steep reduction of principal & interest to the homeowner, which could be completed as necessary w/TARP funds. Only innocent victim homeowners deserving of aid would be helped, not speculators/plunderers from the commercial sector.
President Obama’s corrupt team of Rubin/Summers/Geithner/Bernanke/Paulson say our banking crisis is of confidence, not solvency, and that time is on our side, not against us. Wrong on both counts. The longer we delay acknowledging the real insolvency of the large banks like Rubin’s Citigroup, the longer the banks drag down the economy. Citigroup should be broken up & its good assets sorted out from its bad ones, instead of pretending it to be solvent. Summers/Geithner cry “nationalization” ergo socialism on government’s takeover of failed banks. Phooey, no one proposes permanency, just do receivership to get rid of Summers/Geithner’s plunderer cronies & clean up the balance sheets. Summers keeps propagandizing that government is not good at managing companies, even companies bailed out at taxpayer expense. And President Obama buys such lie lock/stock/barrel, that recovery programs should be based on propping up and bailing out failed private financial institutions, not transforming them/financial system. Point of fact is that Summers’ b.s. ignores history — twice before, with FDR’s Reconstruction Finance Corp. RTC 80 yrs. ago, and with Resolution Trust Corp. RTC 2 decades ago which cleaned up our S & L disaster – government proved better than Wall St. in recapitalizing failed banks and managing them in the public interest until their assets could be sorted out and the banks returned to private health/sovereignty. Crony capitalism is odious for its conflicts of interest and the unconscionable pillage by insiders [yes, our White House’s Rubinomic boys et al today] — and because it prevents return to a robust economy/recovery. How big a hit the banking industry bondholders take, how much TARP is infused, then Citi can be sold off or broken up in order to ensure healthy functioning. Such direct approach rids us of Summers/Geithner’s looters, no more credit withholding which drags down the economy. As it stands, President Obama’s fleecers’ bank profit mantra means tightening loan standards at a time when our economy needs healthy alternatives, not outrageous credit card usury/consumer credit as major profit inductions for bankers, and not specious trading schemes that flip into large but vacuous profits until the collapse of the next credit bubble.
President Obama’s bogey boys fertilize CDS [credit default swaps] which bundle major profits for their cronies. Fed Treasury refuses to solve our foreclosure crisis, inasmuch mandatory write-downs & refinancings cut into bank profits. And conflicts of interest rapaciously take away our solvency, in that “policy by dealing” of our exclusive star chamber Wall St. starlights profit by advance knowhow of government moves. Fed Treasury never before doled out money directly to failed banks, unlike FDIC, who took over/recapitalized smaller failed banks. Paulson/Geithner instead went back to Wall St. to do TARP, thereby again benefitting their insiders/cronies. Cheap money, tight credit continue to depress our economy. An unsold condo complex w/large vacancy cannot find permanent lenders. Same w/shopping malls/hotels/office bldgs. — no creditor wants to convert construction loans to long-term mortgages inasmuch no one can forecast vacancy rates. Investors avoid the whole sector of construction loans converted to mortgages, even for developer properties w/Walgreens as lessee.
After our Keatingesque S & L industry fell to speculative lending via deregulation a quarter century ago, we restored them back to health via our Fed Resolution Trust Corp., which looter Summers revulses at, inasmuch required receivership liquidates Summers’ crony pillager bank execs. RTC devised sealed bid auction to attract buyers for distressed properties which were collateral for loans, on top of ridding bad loans & creating new transparent securities to raish cash. RTC encouraged bids from bargain hunters, & RTC offset government payouts by recouping value from sold assets. Again, President Obama’s team of Wall St. insiders denies reality by continuing to purloin off the public trust in these insiders. RTC did not bail out Rubin’s/Summers’ incumbent execs/shareholders — capitalism worked as it is supposed to under RTC by jettisoning these crooked insiders/sweetheart dealmakers. So ditch Rubin/Summers/Geithner’s cries of socialism cometh. Just shibai on their part. Hoover’s Reconstruction Finance Corp. RFC is RTC’s predecessor, though FDR gets credit for RFC. Both RTC/RFC liquidated Obama’s crooked execs & capped salaries at a deserved level.
Irony is that GOP/conservative experts on financial crises extol the value of RFC 80 yrs. ago because it kept the Federal Reserve out of the bailout business — RFC separated the function of recapitalization & resolution of insolvent banks/industrial outfits from the conduct of monetary policy. President Obama’s strategy sadly puts the Federal Reserve into bailouts w/no hands-on supervision, again amplifying the political spoils system. Instead of RFC’s competent/transparent meritocracy, President Obama’s conflict of interest pillagers waive accounting standards/weaken regulatory constraints/deny conflicts of interest/refuse to immerse in bank management decisions despite massive amounts of taxpayer monies/aid. RFC’s hands-on approach opts to shut down a failed bank such as Rubin’s Citi, sell off its assets, replace its management. The only outfit today reminiscent of Hoover’s RFC is FDIC [Hoover’s Honolulu connection Bill Castle is a shining example that not all was bad about Hoover]. But FDIC has no authority over bank holding companies such as Rubin’s Citigroup and Bank of America, which are the largest & most insolvent outfits. Good economists [vs. the looters] include but are not limited to President Obama’s crooked gang’s nemeses [my A-Team] Paul Krugman/Volcker/Joe Stiglitz/Sheila Bair/Bob Kuttner/Nouriel Roubini/Jeffrey Sachs/Simon Johnson. Purloiners/hedge fund bosses/clubby insiders aligned w/Rubin et al promote weak reporting/accountability requirements vs. reform measures such as the Levin-Doggett bill. Levin is an establishment guy who courageously champions the people’s cause of transparency/accountability. Levin & follower Doggett of Texas sought to bring in at least $100 billion a year & as much as $130 billion from tax-evading corps/high-income folks who use offshore havens w/no taxes & no tax treaties w/the U.S. — Levin would treat these 20,000 U.S. companies based offshore at Caymans, for example, which in reality has a single occupant, the law firm Maples & Calder — as domestic corps — Morgan Stanley as another example has 160 subsidiaries in the Caymans for MS’s hedge funds. Pan-national mega-corps evade taxes on dividends via deferral, which also encourages shifting jobs overseas. U.S. multinational profits camp in Bermuda/Luxembourg/etc., & nearly all have an effective tax rate below 10%. Believe it, President Obama’s looters/insiders cost the Treasury hundreds of billions of dollars & renege on President Obama’s campaign pledge of fighting for back street/Main St., instead of corrupt Wall St. It’s not a left wing radical notion — this ripoff is reality. Such looting results in a job gap of 11 million due to lost capital/etc. As NYT’s Joe Nocera says, the Obama Plan sticks a regulatory finger into a very leaky mega-dam instead of addressing the integrity of the dam itself.
President Obama failed to reform the corruption of credit rating agencies, whose complicity with the issuers of deceptive securities such as subprime bonds had a central role in the collapse of Wall St. President Obama failed to reform the conflict of interest graft which principally resulted in the fall — by mixing commercial banking with speculative proprietary trading & the creation of exotic securities. Volcker’s remonstrance to restore the Glass-Steagall fire wall between commercial banking & more speculative trading was ignored. Derivatives are the crux of the financial mess. Credit default swaps were built upon layers of leverage at the center of the collapse of our financial industry. Even after Wall St.’s fall in September 2008, the purported value of derivatives ran into the hundreds of trillions of dollars — over 10 times the world GDP — & bankers & traders relied on derivatives for mega-profits. Derivatives operate at one or more layers of abstraction from actual transactions. Example — a mortgage loan is an actual transaction, as is a bond backed by a subprime mortgage loan, an actual security. But 17 yrs. ago synthetic packages of bond backed by mortgage loans, or what we know as derivatives, were invented. And a credit default swap, which is an insurance policy against such packages of bonds going bad, is even more abstract. CDS were insurance for a security which the insuring party did not own. At each stage of abstraction, derivatives induce pyramids of leverage & huge speculative profits for insiders — as long as the bubble keeps growing. AIG wrote hundreds of billions of dollars’ worth of swaps backed by none of its own capital — it was all leverage, not real security/actual investment/savings. The less capital, the greater the loss. Wall St./banking industry still rules the White House/Capitol Hill, enabled by President Obama’s crooked insider economic team of Summers/Geithner/Paulson/etc. Goldman Sachs, alma mater of Citigroup’s Robert Rubin & Henry Paulson, rules [Goldman made a killing off AIG], strategic advisor Blackrock fleeced taxpayers as inside player. The auto rescue was legit, where domestic manufacturing [except for national defense] is not coddled like Wall St. is coddled. D.C. doesn’t care where production is located, but this blinder mentality results in our trade deficit [we import what we don’t produce] & our loss of manufacturing capacity. Ron Bloom/Steve Rattner are to restructuring Detroit what Volcker/Stiglitz could be if President Obama’s looters did not kick them out the door at the White House. Plunderer Summers says that recovery should be based on propping up & bailing out failed private financial institutions, not transforming them. Yet Summers fails to recognize our New Deal RFC & our S&L RTC — government recapitalized failed banks & managed them far better than Wall St. — at which point their assets could be sorted out & the banks returned to private financial health.
The problem with our President living in an insulated world of insiders is that outside opinions are dismissed, as you see w/President Obama’s reliance on looters Rubin/Summers/Geithner/Bernanke, Hoover’s same reliance on Wall St., & LBJ’s reliance on genius whiz kids McNamara/McGeorge Bundy. Of President Obama’s own economic team, Jared Bernstein/Christina Romer/Austan Goolsbe were good folks who were jettisoned by Summers/Geithner/Emanuel, all 3 fanatics on “one mind, one voice” [no loyal opposition allowed]. Of course, we all know about actual messiahs siahs Volcker/Stiglitz/Paul Krugman/Sheila Bair/Marshall Ganz/Rich Trumka, & Congressional Oversight Panel’s Elizabeth Warren, a Harvard law professor specializing in bankruptcy, Warren the co-author of a popular book w/her daughter Amelia Warren Tyagi, called “The Two-Income Trap,” on the economic squeeze on middle class folks, caused partly by predatory financial abuses/parasitic Wall St. execs — Elizabeth the leading regulatory progressive reformer which President Obama’s thugs revulsed at, because she would stop the bleeding of the taxpayers by Summers/Geithner/Bernanke/Paulson/etc. Born in Oklahoma in 1949, Liz Warren remembers her parents & grandparents recalling the Great Depression & savior FDR, “People like my grandparents knew two things about Roosevelt — one, he made it safe for you to put your money in banks, and two, he put the government on the side of helping ordinary folks.” Two decades ago Enron looked for a government bailout, arguing that Enron was indispensable in owning the futures market in electricity. But government said no, then came Bear Stearns, which got a bailout, only to fall in 2008. Up to 2008, only 3 companies got bailed out by the government [where taxpayers stand behind shareholders], Chrysler in 1979, Long-Term Capital Mgmt. over a decade ago, & Bear Stearns. But Paulson’s TARP guaranteed all the Wall St. profiteers/gunslingers who shot dead John Q. Public, that suddenly now there is no penalty for failure, in order to cover up the excesses/abuses of Paulson’s/Summers’/Geithner’s/Rubin’s cronies. Not to mention Emanuel, who also profited off Wall St.’s excesses. Now President Obama lay in the center of a room of quickdraws at the scratch vs. John Q. Public. Of course, Liz was riddled silly w/gunshots from the White House attack flank headed by Summers, not to mention Capitol Hill solons on the take like Barney Frank/Chris Dodds. So the same w/messiah Sheila Bair, another woman! FDIC head Bair, Independence Kansas native born 1955, as much of nearby Oklahoma in her as Kansas, Bair worked earlier for a small town bank, & her parents were progressive GOPs. Bair was the most assertive regulator of the Obama era. Of course, a decade before, Enron wanted Bair’s Commodity Futures Trading Commission to exempt Enron’s futures contracts in energy transactions from CFTC jurisdiction. Bair was its lone voice for tougher regulation/oversight, as Brooksley Born was under President Clinton. Yes, another female! Born a progressive Bay area gal. CFTC egregiously got snagged into Enron’s lie in a 2-1 split vote, w/Bair issuing a blistering dissent, opposing the majority vote that transactions b/n highly intelligent consenting adults did not require regulation/oversight. Bair exhorted, “If we are to rationalize exemptions from antifraud and other components of our regulatory scheme on the basis of the ‘sophistication’ of market users, we might as well close our doors tomorrow.” Of course, Bair got shotgunned by Paulson/Summers/Geithner et al under President Obama. Bair wanted to refinance subprime mortgage loans on terms the borrower can afford, instead of foreclosing/taking the home. But Paulson/Geithner lubed volunteer plans via government inducement payments which went nowhere — thence today’s multitude of home foreclosures. As FDIC head, Bair seized a failed bank, toss out mgmt., get depositors paid off [no interest/dividends], sell the assets, & merge the failed bank with a viable successor bank if the bank is cleaned up on an accurate balance sheet. But Paulson et al use public money to prop up corrupted banks, bail out shareholders, & bonus up the crooked execs who ditched the bank in the first place. Ole’ Boys Network resides in President Obama’s White House. But at least 2 yrs. ago, Bair won over Geithner on Washington Mutual/Wachovia, & Geithner is on a tear to revenge Bair for upending Geithner’s plunderer cronies. Of course, Bair’s fine day vs. Geithner/Paulson/Bernanke was in Bair’s blocking a sweetheart deal in which Rubin’s Citigroup was set to take over Wachovia. Bair is still trying to keep speculators out of commercial banking. Bair’s FDIC correctly posits that you don’t mix banking w/ordinary commerce, because if a conglomerate who owns other businesses also owns a bank, it can self-deal/benefit by extending credit to its subsidiaries w/federally insured depositor money — & thereby disadvantages competing businesses who don’t own a bank. Transactions between banks & their customers are supposed to be arm’s length, not sweetheart/self-dealing in nature.
The need to find buyers for failed banks result in takeover speculators taking over banking –unregulated full leveraged [no equity/capital] private equity speculators cannot own more than 25% of a bank– so they each own 24.9% & effectively take over a bank, only to ramp up its value via short-gain methods, & then sell to make a huge profit, even though the bank is worked to fail. IndyMac comes to mind. The inverse also occured w/Washington Mutual or WaMu, in which private equity looters Texas Pacific Group prevented WaMu from raising needed capital until it was too late. In raking in short gain profits, Texas Pacific Group forced WaMu to take big risks, resulting in its demise. In Florida, 4 speculator equity firms bought $12.7 billion failed Bank United, only to have short term gains. FDIC’s Sheila Bair sought to levy additional penalities against banks whose pay packages/executive compensation promoted reckless behavior, which passed on the risks to the taxpayer insurance fund — Bair proposed rewarding banks which paid execs in stocks which could be redeemed over several years, & whose executive pay was set by outside directors.
Simon Johnson analogizes our financial crises to familiar crises he dealt with as chief economist of the IMF. The common element is simple corruption — top government officials using public funds to protect or revive busted cronies in the financial elite, thus prolonging the crises. “If you hid the name of the nation & just showed the numbers, IMF old hands would say — nationalize troubled banks and break them up as necessary,” per Johnson. Such simple insight was less remarkable for what it said than for who was saying it, an international expert who marked his break with the global financial elite, and now is on Summers’ sh*t list.
Lion in Winter’s Volcker argued for resurrection of the Glass-Steagall Act , though subprime loan genesis was neither commercial nor investment banker types. But w/the repeal of this Act, Rubin’s Citi & other large commercial banks became conglomerates of insurance companies/broker-dealers/investment profiteers, and bankrolled retail mortgage companies which originated subprime mortages, and bank-holding company affiliates traded in subprime securities. Creating/trading swaps were the upswell toward demise/implosion. Volcker presciently said, as did many others outside the White House, that “extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking. Won’t the unwarranted protection for the largest banks and their holding companies encourage worse risk-taking, especially when compensation practices so greatly reward short-term success?” [CEOs fleece their outfits by selling short to gain huge bonuses, instead of long range solutions which ensure stability/steady returns-ROI]. Ownership/sponsorship of hedge funds/private equity funds/proprietary trading are all terribly inherent risks/gambling & in Volcker’s cross hair for a wall of protection against these vices, from commercial prudent banking. Of Geithner, foot in the coffin [huge coffin for 6’7″ Volcker] Volcker says, “my views of Tim Geithner are unprintable.” Volcker got lukies [lukewarm/tepid] VP Biden/pol Axelrod/SEC’s Bill Donaldson/Bush I Treasury boss Nicholas Brady/ex-Citi CEO John Reed/Rubin’s ex-deputy Roger Altman to turn against looters Summers/Geithner et al. Maria Cantwell/Bernie Sanders/Byron Dorgan/Dick Durbin/Nancy Pelosi on Capitol Hill are Volcker fans. Ron Paul/Jeff Lacker/Dick Fisher/Tom Hoenig on the right wing political spectrum are Volcker good guys. Rahm Emanuel is a predator vs. the ordinary man/woman, cut from the same cloth as Summers/Geithner/Paulson/Rubin/Bernanke/etc. Strangely enough, Employee Free Choice Act EFCA is a Democrat honeybun but ignored by President Obama’s insiders, not because of fat slob union corruption, but because Emanuel et al are fanatic Wall St. insiders/backers & disdain blue collar labor movement/workers rights in trade law. Which partly is why GOP Scott Brown defeated Dem Martha Coakley in Boston, when Dem base voters/independents swept toward Brown as a referendum against President Obama. GOP obstructionism nothwithstanding, President Obama self-destructs via his plunderer all-star pick up team of Wall St. insiders. Steady hands like Volcker/Stiglitz/Paul Krugman get iced out. History shows that when progressive reformers like William Jennings Bryan & Volcker et al are shut out of governance, & what ensues is utter failure to address popular pocketbook grievances, GOP obstructionists fill the gap to plunder again for their elite cadre on Wall St., though Summers et al trot forward as populist Dems, which in reality are a horrid lie/shibai.
Pocketbook voters wanted President Obama to issue bold policies to improve the condition of the ordinary man/woman/child, and to lead decisively thru our financial apocalypse on Wall St. President Obama failed on both counts, not wanting to take on and overturn our powerful economic oligarchy on Wall St. Reminiscent of plantation era Hawai’i & antebellum Planter Dixie South cotton country, when a miniscule nerve center of economic power held sway over every aspect of life in the “colonies.” FDR succeeded because of FDR’s unmitigated ferocity vs. money-is-god elitists — FDR’s New Deal didn’t seek to appease money markets like diffident/timid President Obama does — FDR’s New Deal overhauled the collapsed financial markets & redid them all over again, for the better. FDR didn’t seek to find common ground w/GOP/Wall St. like ridiculously passive President Obama does — FDR forced reforms over the most strenuous opposition of our nation’s elite cadres [as did FDR’s cuz Teddy Roosevelt at the turn of the last century] — because the reforms were backed by ordinary folks — who were all for broad economic recovery/pocketbook aid. Consensus at all costs is suicide, as you see time & again w/pols going back to our early Founders. Woodward’s book screams Obama’s miscue — a sick extreme of LBJ’s Isaiah’s let us gather creed. FDR saved the common lot. This was FDR’s strength/audacity. In 1936 FDR carried 46 of 49 states. Special interests were not taken as prisoners under FDR. President Obama is captive to Wall St. in 2011. With obstructionist populist Dixiecrat Huey Long’s assassination in 1935, FDR had no unbeatable detractors, despite FDR’s race inclusion/1st ever female Cabinet appointee/plethora of Jewish advisors. The resounding defeat for President Obama in 2010, esp. among working class rural bumpkins, but also in white Virginia/North Carolina, happened simply because these voters lost hope in his economic program. Useless is another word for President Obama, in their pocketbook mentality.
Just the same, President Obama’s health reform is too closely aligned w/industry special interests [insurers/drug companies/etc.], rather than ordinary citizens vs. elites. Bad politics breed bad policy. President Obama’s appeasement to powerful health industry lobbyists strategy jettisoned using federal bargaining clout to negotiate cheaper drug prices/expanding Medicare for more people of wider age eligibility. Instead, President Obama’s appeasement policy which requires the government to come up w/a trillion dollars of subsidy for the insurance industry taxes premiums of insureds, forces folks to buy policies which they can’t afford, diverts money from Medicare itself. And in doing so President Obama abandons senior citizens on fixed income, and alienates trade unionists. True, this comprehensive reform helps two-thirds of America’s uninsured, but taxes the 80% of Americans w/insurance which becomes more costly & unpredictable every year. After all, his base supporters wanted a single-payer plan. In return they got contingency band-aid setups. Cost containment among the fat slobs [insurance/drug/hospital/medical aids] not in his cross-hair. Social Security/Medicare are public social insurance to make up for the failure of the commercial sector to provide adequate retirement, and the failure to provide affordable health insurance. Contrarily, President Obama’s health reform subsidizes political spoils system insurers w/almost no oversight, in pandering to the health industry lobbyists. Had he made the special interest lobbyists his enemies instead of his allies, he would have popular support, which possibly would have resulted in Medicare for all subsidized by general tax revenues. One thing you can say about Barry Bomber [Punahou hoopster whole-cheeser shooter] Obama born 1961 — he reinvents himself time & again, a man of many masks, so to speak. Now if, as he says, Barry Bomber. “by nature I’m not somebody who gets real worked up about things,” Barry Bomber’s search for common ground is his one reliable constant, then Barry Bomber has lost his shooting touch, and his shooting match, because of all things and times, now Barry Bomber needs to be a fighter for the common lot
FDR seized the day carpe diem & transformed our economy to avert widespread societal disaster. President Obama is the opposite — instead pandering to Wall St. as opposed to reforming it. Less transformative President Truman then becomes President Obama’s next exemplar, not top like FDR, but progressive just the same. When GOP obstructionists thwarted Truman’s programs, & Truman’s popularity was at an alltime low, Truman not only saved his election upset in 1948 but got Democrats to take back Congress in one of the largest turnovers in the history of Capitol Hill — the House alone picked up 75 seats. As we see w/every President since LBJ, the opposition party of the President on Capitol Hill takes no prisoners, so there is no point in finding common ground, to use President Obama’s repulsive phrase, because it includes the unspoken “at all costs,” even to the demise of the common lot. As much as political ace/pundit Keoki Kai born 1965 effuses endlessly over President Clinton, President Clinton’s legacy is dismal like President Obama’s — because both clueless men have the same Wall St. team backing up them — headed by looters Rubin/Summers. Clinton won re-election but only at the cost of the common lot, & Clinton’s backdoor dealing struck a disastrous blow to progressive reform & to the Democrats as a majority party. From Clinton’s 1st address to Congress, Clinton’s godfather economic advisor Robert Rubin omitted the words “working people” [social class] lest financial markets ergo Wall St. be targeted for investigation of corruption/graft. Like President Obama, President Clinton used up all of his political capital/dibs on health reform, and ended up playing into the hands of health industry special interest lobbyists. And like President Obama [what do you expect w/”U da Man” w/the biggest penis/di*k “overcompensator” Rubin in charge??], Clinton abandoned pocketbook relief for the common lot. Like President Obama, Clinton also split his own Democratic Party by endorsing Bush I’s NAFTA, despite Democrats voting no on Capitol Hill. So that come 1994, GOPs again took control of the House, taking no prisoners from the Dems/Clinton.. Of course, w/Wall St. apologists Dick Morris/Mark Penn as Clinton’s strategists, Clinton won re-election by a hair over a very weak has-been GOP in corpse Bob Dole in 1996, pandering to GOP budgeteers of help the rich, screw the poor, so to speak. But, as w/President Obama, Clinton’s pandering was not reciprocated by the GOP. Witness Clinton’s welfare reform which became but a GOP crumb tosser to the poorest segments of America, draconian against the helpless/powerless. Because of its punitive nature, against the advice of egalitarians Stan Greenberg/Jim Carville/Donna Shalala — Clinton’s Act drastically cut benefits & kicked off recipients from the welfare rolls w/only minimum transitional supports [child care/training/wage subsidies/safety net for periods of high unemployment/etc.] — 3 Clinton cabinet staffers quit in protest because of Clinton’s hypocrisy — expediency over principle. Of course, Clinton’s worst embrace was w/de-regulatory Rubinomics — in which the so-called boom became a bubble which burst in our millennium recession w/right wing reactionary laws as a result of Clinton’s wishy-washiness. As we see today w/President Obama, the GOP elitist agenda doesn’t revive our economy, so there is no reason for President Obama to pander to the reactionary right, only to lose via the common lot’s pocketbook.
Of course, President Truman came up thru the crooked Pendergast machine of Kansas City in the 1934 U.S. Senate, & headed the cost-cutting National Defense Program ergo Truman Committee, which saved taxpayers $15 billion in cleaning out waste/corruption in military contracts, thereby earning Truman the glorious patch of being the scourge of war profiteers [military-industrial complex]. Arthur Miller’s “All My Sons” exemplified Truman’s war on shoddy contractors who cost the lives of combat soldiers. Of course, Truman became FDR’s VP only to be clueless on the A-bomb when FDR died. Till this day, the bombing of Hiroshima/Nagasaki were crimes against humanity — unneccesary/uncalled for — as a show of unconquerable muscle to Stalin’s encroachment into Oceania’s/Pacifica’s spheres. After the 1946 mid-term elections in which Democrats took a beating, President Truman fought the GOP like hell/high water, earning him the enmity of the GOP [Give’m Hell Harry], resulting in his come from nowhere win in the 1948 election. Strom Thurmond’s States’ Rights Party to the reactionary right & quirky personality Henry Wallace’s Progressive Party to the labor Left did not deter Truman from answering the strength of the Silent Majority Center — Truman embarassed the GOP into casting unpopular votes or backing laws the common lot opposed. President Obama’s compromise at all costs mantra abandons the common lot. Class warfare won the day for Truman, and the abandonment of it will spell the demise of President Obama, at least on Capitol Hill come 2012. Let’s face it — Presidential races are referenda on the incumbent President. Presidents who fail to deliver in crisis risk defeat. The extremism of the opponent, as we saw in 1980 w/Hollywood Ronald Reagan as GOP candidate, is no protection. Copying President Truman’s class warfare makes sense, not Clinton’s inertia via the same gang as Rubin, inasmuch being our Nation’s inexplicable 1st Black President [thanks to Truman’s de-segregation & progeny], most Americans want underdog Barry to succeed. Why not plaster the GOP as retrograde losers in the evolution of Humanity?? Obstructionists/racists/elitists, robbers of the pocketbook of the common lot/America’s Silent Majority. Wall St. is the source of our economic depression & high unemployment. Wall St. is blocking reform of any kind, in refutation of our Silent Majority/Middle America. And President Obama needs to rid the White House of Wall St. looters headed by Summers/Geithner/Bernanke/Paulson/etc., all acolytes of Clinton’s Rubin/Rubinomics ergo leave alone Wall St. plunderers — do not regulate/oversee them! LBJ was able to define racism/poverty as our national emergency, just as slowed growth/high unemployment are our national emergencies as we speak. Tax and spend are not bad so long as we tax and invest a la FDR/LBJ — invest in the working man/woman & in families! Taxes to enact include but are not limited to rescinding the 2001/2003 Bush II tax cuts for rich income earners over $250,000/restore the estate tax to the pre-Bush II level/add a transfer tax on very short-term financial transactions/tax short-term capital gains at the same rate as ordinary income/remove the tax deductibility of interest used to finance corporate takovers/as w/Levin’s crusade, remove loopholes which allow domestic firms to incorporate in tax havens for tax purposes, & enforce offshore tax evasion/add interest-dividend-capital gains income to the Medicare tax base/add a special surtax on all incomes over $l million a year/close other narrow-interest loopholes/etc. W/deregulation came collateralized debt obligations/credit derivatives — nobdody was too big to fail — but it did fail, and failed big. The gamblers/entrepreneurs of the financial industry such as investment banks/venture capitalists/hedge fund chiefs — used monies not backed by government. And these profiteers channeled risk capital for new outfits/corporate expansions. The test of dissemination of capital/spreading of risk — should be increased productivity/GDP growth. Instead, CDS concentrated risk/spread toxins. As Presidential historian Doris Kearns Goodman says, President Obama needs to start landing on his feet instead of his proverbial cerebral head, just as learner President Lincoln had to go thru several generals before finding a fine commander in Ulysses S. Grant. President Obama had every opportunity to rein forward a new social order against Wall St./Pentagon endless war proponents/war profiteers. He had his Obama for America gang which he has silenced out of fear that he cannot control his gang — yet, every major social change occured from social movements outside the White House — Lincoln & his Quaker/Congregationalist abolitionists — FDR & his labor movement — LBJ & Martin Luther King, & now President Obama & his Obama for America populist anti-Wall St. gang. Look at GOP’s success w/its own social movements — Christian Right/gun lobby/anti-abortion forces. On the Left, the Stonewall protests of 1969, like the Mattachine Society a decade before, brought Gayness into the mainstream of thought/discussion. Bush I ratified disability rights ADA 1990. Remember that NO movement was about the pocketbook, but about inclusion/fair play/equality. Only incidentally was the pocketbook invoked. After all, MLK’s last march was for the Memphis janitors, not just for better wages, but for respect/dignity. Outgroups who petition for full membership in the American Dream. Of course, Wall St. remains unscathed. President Obama’s reliance on 527 tax code lobby groups to neuter his Obama for America happening also explains his absence of support for the Employee Free Choice Act — to appease Wall St.
None other than country boy Bill Moyers beseeched President Obama, “Come on, Mr. President, show us America is more than a circus or a market. Remind us of our greatness as a democracy. When you speak to Congress next week, just come out and say it. We thought we heard you say during the campaign that you want a government-run insurance plan alongside private insurance — mostly premium-based, with subsidies for low- and moderate-income people. Open to all individuals and employees who want to join and with everyone free to choose the doctors we want. We thought you said Uncle Sam would sign on as our tough, cost-minded negotiator standing up to the cartel of drug and insurance companies and Wall Street investors whose only interest is a company’s share price and profits.
But after seeing President Obama’s capitulation to special interest groups and the political spoils system, Moyers remarked, “Something’s not right here. One year after the great collapse of our financial system, Wall Street is back on top while our politicians dither. As for health care reform, you’re about to be forced to buy insurance from companies whose stock is soaring, and that’s just dandy with the White House. Truth is, our capital’s being looted. Republicans are acting like the town rowdies, the sheriff is firing blanks, and powerful Democrats in Congress are in cahoots with the gang that’s pulling the heist.”
For now, as Chicago organizer/Saul Alinsky acolyte Mike Kruglik observes, President Obama has kissed the arse of the power elite — financial traders/bankers, health insurers & drug companies, etc. If President Obama chooses the status quo power elite over his promised change, he will fare no better than a clueless President Clinton, not ascend/ramp up to the audacity of a come from behind plain-speaking high school graduate like President Truman, and certainly not getting anywhere near the pantheon of our greatest crises solvers like President Lincoln, who decided that the Civil War was not just about preserving the Union but about freeing the slaves, President FDR who chose to side with the common lot over Wall St. [just as his cuz President Teddy did a century ago today], President LBJ who redeemed the promise of the great Lincoln a century later.
By Simon Johnson
An interesting debate is developing within the Republican Party on how to approach the problem of too-big-to-fail financial institutions.
On the one hand, a growing number of influential voices are pushing for measures that would limit the size of megabanks or even push them to become smaller. Richard Fisher, president of the Federal Reserve Bank of Dallas, continues to draw a lot of attention, as does Thomas Hoenig, the former president of the Federal Reserve Bank of Kansas City and now vice chairman of the Federal Deposit Insurance Corporation. And Jon Huntsman planted a strong conservative flag on this issue during his run for the presidency in 2011.
This assessment is now shared much more broadly across the right, as seen in recent opinion pieces by George Will and Peggy Noonan, as well as regular analysis by James Pethokoukis of the American Enterprise Institute, including on the issue I write about today. See this Holiday 2012 survey, provided by the Dallas Fed, with links to views in favor of and against breaking up the big banks.
Senator David Vitter of Louisiana and Jim DeMint, the former senator from South Carolina who now heads the Heritage Foundation, have also come out hard against very big banks. Both men are usually considered to be in the right wing of the party.
But some other Republicans are pushing back, as seen this week in a paper by Hamilton Place Strategies, a group headed in part by communications professionals who previously worked with President George W. Bush, John McCain and Mitt Romney. (The people involved insist that it is not a Republican firm. Of its five partners, four previously had senior Republican jobs, while the fifth worked for Hillary Clinton and other Democrats. Of its three managing directors, two have worked for Democrats and one was a senior staff member on the Romney campaign. Historically, of course, deference to big banks is bipartisan.)
Can Hamilton Place Strategies help turn the tide within Republican thinking? This is not likely, because its paper is not credible and should not be taken seriously for three reasons.
First, it fails to deal with the most important recent work showing the problems with big banks. For example, it essentially ignores the analysis of Andrew Haldane and his colleagues at the Bank of England, which finds no economies of scale and scope for the world’s largest financial institutions (the paper mentions the finding that economies of scale do not exist above about $100 billion but does not go into the specifics of this result). I see no mention of Richard Fisher and Harvey Rosenblum of the Dallas Fed, who explain clearly how megabanks weaken the effectiveness of monetary policy and undermine United States influence over all aspects of our financial system (a direct counter to one main point of the Hamilton Place Strategies paper).
The paper makes vague assertions about bank equity capital now being sufficient to withstand future adverse shocks, but it fails to take on any of the many concerns raised by Anat Admati and her co-authors, which are increasingly gaining traction. Professor Admati and Martin Hellwig have a new book, “The Bankers’ New Clothes,” which will be introduced on Monday at the Peterson Institute for International Economics (where I am a senior fellow); excerpts have been posted on Bloomberg. Anyone who wants to be taken seriously in this debate needs to read the book (and the technical papers already available).
Second, Hamilton Place Strategies denies the existence of too-big-to-fail subsidies for global megabanks. This is laughable. Has it talked to anyone in credit markets about how they price various kinds of risk – and assess the willingness and ability of the government and the Fed to support troubled megabanks? Or have its authors read the report on the SAFE Banking Act, produced by the staff of Senator Sherrod Brown, Democrat of Ohio? The International Monetary Fund, the Bank of England and other sources cited there put the funding advantage of too-big-to-fail banks at 50 to 80 basis points (0.5 to 0.8 of a percentage point, which is a lot in today’s market).
Such subsidies encourage big banks to borrow more – to take more risk and to become even larger. The damage when such a bank fails is generally proportional to its size. So this implicit taxpayer subsidy creates serious risks for the macroeconomy and contributes to the further build-up of taxpayer liabilities – when any financial system crashes, that causes a recession, reduces tax revenue, and pushes up government debt.
Even William Dudley, the former Goldman Sachs executive who now heads the Federal Reserve Bank of New York, acknowledges that too-big-to-fail and its associated subsidies continue. Daniel Tarullo, the lead Fed governor for financial regulation, is in the same place. (Again, neither is cited in the Hamilton Place Strategies document.)
Hamilton Place Strategies contends that large banks can be resolved – taken through liquidation by the F.D.I.C. without difficulties – and that the “living wills” process helps to provide a meaningful road map. I talk to people closely involved with these issues, officials and private-sector participants (as a member of the F.D.I.C.’s Systemic Resolution Advisory Committee and as a member of the Systemic Risk Council, led by Sheila Bair, the former chairwoman of the F.D.I.C.). Hamilton Place Strategies is completely wrong on the substance here.
Hamilton Place Strategies also asserts that global megabanks are an essential part of a well-functioning international economy.
Putting too-big-to-jail banks in charge of financial flows helps no one – except, presumably, the executives at those banks that the Department of Justice has determined are immune from criminal prosecution.
Third, the Hamilton Place Strategies “report” reads as if it is either some form of paid advertising or a sales pitch to potential clients — but the firm refuses to disclose for whom it is working and on what basis.
The firm is in the business of influencing opinion. As it says prominently on its Web site, “We show clients how to shape opinion, navigate challenges, make informed decisions and create opportunities.”
While the firm’s clients in this area may not be clear, the language in its report strongly resembles arguments being made by the Financial Services Forum and other lobbying groups for large banks.
We have seen deceptive lobbying, posing as objective “research,” many times in the financial reform debate – for example, the case of Keybridge Research on derivatives, which I wrote about in 2011.
Upton Sinclair once quipped, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”
Hamilton Place Strategies’ decision not to disclose who is paying for its “research” is far more significant than all the errors in its white paper.
Scouting The Sweet Spot Between Purpose And Profit
At 59, becoming a “scout” for social impact halfway around the world was the last thing on Steve Hoberg’s mind. Having left business school 35 years ago, and more recently having sold his profitable windows manufacturing concern in New Mexico, Hoberg knew he had to make a quantum leap not to repeat the conventional, albeit successful, path he had mapped in building his first career. He opted out of board memberships with nonprofits and foundations, wanting to reinvent himself. Eventually, Hoberg applied for the Frontier Market Scouts program, and became one of the 30 scouts in the FMS class of 2012.
Jointly developed and managed by the Monterey Institute of International Studies (a graduate school of Middlebury College), Sanghata Global and Village Capital, the Frontier Market Scouts program turns compassionate and capable professionals into investment managers in capital-starved regions and sectors of the world. Their mission is to unlock economic opportunity by supporting and scaling the efforts of enterprising individuals in poverty-stricken societies, while gaining career-defining and life-changing experiences at the rich intersection of ideas, people and places between purpose and profit.