Wednesday, January 13, 2010

What Would You Ask the Banksters?

Today the Financial Crisis Inquiry Commission will be interviewing criminal banksters: Lloyd Blankfein (Goldman Sachs), Jamie Dimon  (JPMorgan Chase), John Mack (Morgan Stanley) and Brian Moynihan (Bank of America):  Here are questions that financial experts would like to ask them:

banksters ...1. Bankers are dealers in money. The Federal Reserve is a creator of money — since the crisis began in August 2007, it has conjured up $1.1 trillion. Given the ease with which these dollars are materialized on a computer screen, how can they be worth anything?

2. The Federal Reserve’s setting of its benchmark federal funds rate at nearly 1 percent in 2003 to 2004 was a primary cause of the housing and mortgage debacle. Yet, in an attempt to nurse the economy back to health, the Fed has set that rate at nearly zero percent. So what’s the next bubble, and how do you intend to profit by it?

3. For Mr. Blankfein: In capitalism, profits are no sin, yet Goldman Sachs keeps making excuses for its success in 2009. If you earned the money honestly, what are you apologizing for? And if you didn’t earn it honestly, how did you do it?

— JAMES GRANT, the editor of Grant’s Interest Rate Observer and the author, most recently, of “Mr. Market Miscalculates”

1. It still isn’t clear precisely how mortgage-related losses in the financial sector grew to be many times greater than the actual losses on the mortgages themselves. What role did synthetic collateralized debt obligations — a Wall Street invention that uses credit default swaps to mimic the payments from mortgages — play in multiplying the losses? Is there any way in which a synthetic debt obligation adds value to the real economy?

2. Goldman Sachs and other Wall Street firms argue that the clients to whom they sold mortgage-related securities were sophisticated investors who fully understood the risks. Goldman has said this was also the case when its clients bought the very same mortgage securities that Goldman, on its own behalf, was betting would default. Did these clients indeed understand all the gory details?

3. At the height of the panic in the fall of 2008, Wall Street firms blamed short-sellers for trying to destroy them. What short positions did Wall Street firms have in one another’s shares, and were they also betting against each other using credit default swaps?

— BETHANY McLEAN, a contributing editor for Vanity Fair, who is co-writing a book about the financial crisis with Joe Nocera of The Times

1. Without the Troubled Asset Relief Program, Wall Street banks would not have survived the shock to the financial system that occurred in September 2008. Nor would they have subsequently accrued large profits and bonus pools in 2009. Shouldn’t a substantial share of those bonus pools be sequestered on bank balance sheets for several years to increase the banks’ capital levels and shield taxpayers against another bailout?

2. All deposits insured by the Federal Deposit Insurance Corporation that were held by Wall Street financial conglomerates should have been insulated in separate bank subsidiaries that were prohibited from trading, holding derivative securities and investing in risky assets like equities or bonds with less than a AAA rating. Wouldn’t such safeguards have reduced excess banker risk-taking, thereby reducing the need for taxpayer bailouts?

3. Wall Street turbocharged the subprime mortgage boom from 2002 to 2006 by providing billions in cheap warehouse loans to non-bank lenders that otherwise had virtually no capital or financing. Had the Federal Reserve kept short-term interest rates at a more normal 4 percent to 5 percent, rather than pushing them down to 1 percent, would this not have greatly curtailed the reckless growth of subprime loans?

— DAVID STOCKMAN, a director of the Office of Management and Budget under President Ronald Reagan

1. One result of the Pecora commission, the Depression equivalent of this investigation, was the Glass-Steagall Act, which kept investment banking separate from commercial banking until the act was repealed in 1999. Many experts now believe that divide should be reinstated. Yet commercial banks like Washington Mutual lost a lot of money during the crisis without having any investment banking activities, and pure investment banks like Bear Stearns and Lehman Brothers collapsed without being deposit-taking institutions. This suggests that the problem does not lie with mingling commercial and investment banking. Are you in favor of the return of Glass-Steagall, and why?

2. Many people argue that the financial industry now accounts for far too much of the gross domestic product and that it is unproductive, indeed counterproductive, to devote so much of the nation’s resources to simply moving money around rather than making things. Why has this shift occurred and what, if anything, can the government do about it?

3. Over the last 20 years, the world of finance has been irrevocably transformed: individuals have moved their money from savings accounts into money market funds, and institutional investors now keep their cash in the repo market, where Treasury securities are borrowed and lent, rather than as deposits in commercial banks. As a result, before the crisis, half of the credit provided in the United States was being channeled outside the commercial banking system. What regulatory changes do we need to ensure that our current financial system is as stable as the traditional banking system that served us so well from 1936 to 1996?

— LIAQUAT AHAMED, the author of “Lords of Finance: The Bankers Who Broke the World”

1. Describe in detail the three worst investments your bank made in 2007 and 2008 — that is, those transactions on which you lost the most money. How much did the bank lose in each case?

2. What was the total compensation of each manager or executive supervising those three transactions — including yourself — in 2007 and 2008?

3. Are those executives still with your bank? What investments do they supervise today? How much will they be paid for 2009, including their bonuses?

— SIMON JOHNSON, a professor at the M.I.T. Sloan School of Management and a senior fellow at the Peterson Institute for International Economics

Some of your firms received payouts on credit-default swap contracts with American International Group. Most of those guarantees resulted from hedging supposedly safe investments (they had AAA ratings, after all) with A.I.G. or other insurers. This hedging allowed traders to book “profits” that had not yet been earned — profits that would be counted in calculating their bonuses.

However, this insurance was likely to fail, as your risk managers surely knew. It involved so-called wrong-way risk: the guarantor (A.I.G.) was certain to be damaged by the same event (the housing market collapse) that would lead you to seek payment on the insurance. The insurance was effective only because the government stepped in, theoretically on the taxpayers’ behalf, and made payments for A.I.G., an otherwise bankrupt firm. Since employees’ bonuses, and ultimately yours, were based on these fraudulent profits, my questions are these:

1. How much profit did your firm record for bonus purposes on these trades that ultimately delivered huge losses? How much of those bogus profits were paid out in bonuses?

2. Have you made any effort to recover the bonuses? If not, why not?

— YVES SMITH, the head of Aurora Advisors, a management consulting firm, and the author of the blog Naked Capitalism and the forthcoming book “Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism”

1. Why did Wall Street continue to package and sell as securities so many mortgages of questionable value and underwriting standards even as the housing market started to collapse?

2. Why were Wall Street traders and other moneymen permitted to make bets — through the use of so-called credit-default swaps — on the long-term value of securities they didn’t even own? (This is akin to everyone in your neighborhood being allowed to buy fire insurance on your house. Since the only way that bet can pay off is if your house burns down, it shouldn’t be any surprise when that is exactly what happens.)

3. Why aren’t bankers and traders required to have more skin in the game — that is, more of their own salary at risk — and not just a marginal part of one year’s bonus? (In the old days, when investment banks were private partnerships, a partner’s entire net worth was on the line, every day.)

— WILLIAM D. COHAN, a former Wall Street banker and the author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street,” who writes a regular column on business at nytimes.com/opinion

1. How did you use the bailout money, and to what extent did it result in more lending or higher bonuses for your employees than you otherwise would have provided?

2. What, if any, changes do you contemplate making to your pay programs for executives and other high-level employees in light of recent events and related public concerns?

3. What have you done to modify your risk management and oversight structures to reduce the possibility that the problems of 2008 and 2009 will occur again?

— DAVID M. WALKER, the president and chief executive of the Peter G. Peterson Foundation and the comptroller general of the United States from 1998 to 2008

Inserted from <NY Times>

What would you ask them?  I’ll start:

Considering the damage to the US economy and the suffering of the people of the US that you have caused, through your rampant greed, how much are you and your company willing to pay to the American people to mitigate the damage and suffering, to prevent the breakup of your company, and to keep your worthless hind parts out of prison?

15 comments:

KayInMaine said...

The question that is always asked: HOW COME NONE OF THESE THIEVES HAVE BEEN BROUGHT UP ON CHARGES AND THROWN IN JAIL TO SHOW OTHER BANKSTERS THEIR FATE?

Infuriating!!!!

TomCat said...

A good onre, Kay. How's Portland?

Lisa G. said...

"Where the FUCK is my money? I want it back now, and then you assholes can go to Marion or Joliet in gen pop."

SJ said...

Unless a question can be framed in the form of a knuckle sandwich, I don't think I have one.

Seriously though. We bail these greedy creeps out with TARP, and they turn around and decide they're not going to start lending money to get small businesses going, or to the individuals (US THE TAXPAYERS) who funded TARP with our future earnings.

What was the point?
(-Wait, I guess that's my question-)

I never want to hear the words "too big to fail" ever again, from anybody.
-SJ

MadMike said...

I would like to see the Sarbannes-Oxley act of 2002 expanded to cover these thieving pricks. Brilliant piece. Just brilliant.

an average patriot said...

Funny but I never heard of the Pecora commission until I just read a piece on it at Holte's

They are still screwing us and could care less what we say, they will never be honest, we should be use to that now.

Holte Ender said...

I can't think of a polite question to ask and my mother always said: "if you can't say anything nice, don't say anything at all."

But I would like to see some justice done.

Oso said...

I especially like what Yves Smith wrote.

And I'm with Lisa G. Marion or Joliet would be fine for them to spend the next 20 or so years. At taxpayer expense, like what they're accustomed to.

otis said...

Well, here are my questions:
1)As of close of the Markets today, what is the current leverage of your firm, including all derivitives, CDSs, and any other 'creative financing' instruments? Why does this total not match what you are allowed to carry by SEC regulation? If you don't know the answer to this question, why are you running the company?
2) What are the ethics of banking as you understand them and why?
3) Since when does the definition of a 'bank' include trading other people's capital in your firm for your own profit while the underlying capital holder only gets prime -2% in the form of interest paid in either savings or Money Market?
4) If commercial real estate falls 10% in the next 2 quarters, and residential falls another 3-5%, what guarantees do we, as former or current, investors in your companies have that you will not need more capital? If you have no guarantees, have you started registering all of your trades with the FDIC to better facilitate the unwinding of your company in an orderly bankruptcy?
5) If you don't believe such a scenario as the previous question would happen, wasn't that your belief prior to the crisis about what you were doing?
6) Long Term Capital Management was a hedge fund that most of you had some involvement in facilitating its 'orderly demise', you were all at the very least aware of what happened. Other than the vehicles used, what is the difference between what you did and what LTCM did?
7) You told your customers, the public, and yourselves that the investments you were in, the leverage ratio you were at, and the forward looking prospects were good. Why should we believe a word you say now?

Jay said...

Very nice blog you have here. I like reading political blogs for some reason. Anyway, I have a site myself where people from around the world come and debate on popular issues. I feel as if this will give citizens some form of power, letting their voices be heard.

I'd like to exchange links with you to help spread some traffic around between each other. If you'd like to, please leave a comment under our "Compadres" page when you've added our link and we'll return the favor.

Until then, keep up the good work.

Jason
DEBATEitOUT.com

Oso said...

otis,
You should team up with Yves-all good questions too.

In absolute seriousness-what puzzles me,what absolutely staggers me is this-there are trained economists, trained investors who absolutely didn't see the bubble and it's resulting effect coming. Yet people like TC and so many others, I'll include myself in the mix just to show how low the standards can be-we DID see it coming. I mean, we could detail things which were wrong and out of line with fundamentals.We saw lack of regulation and overleverage.

Excluding the people who had a financial interest in lying and playing stupid-how could these trained and educated people miss what us "graduated high school cause they needed the seat" types saw ? Were they blinded by ideology and us self-educated types think independently?

the walking man said...

Hey sonsabitches why do you think you do not belong destitute as the nation and people you stole your wealth from?

rjs said...

just FYI: The Financial Crisis Inquiry Commission: Bankers vs. Lawyers? - The Financial Crisis Inquiry Commission, a panel created by Congress to look into the causes of the financial crisis, holds its first hearing today. But, as the Wall Street Journal points out, its members aren’t exactly neutral investigators... & CBS’ Jill Schlesinger points out that although the panel attorneys are “counterbalanced” by others on the panel, “if these guys are asking questions to the FCIC witnesses primarily to create a permanent record to be used later to sue these firms, we’re not going to get very far in the regulatory reform process.” (details: links in the above)

TomCat said...

Good one, Lisa!

Great point, SJ.

Thanks Mike. So would I.

It's hard, Holte. Me too.

Otis, brilliant questions. I particularly liked #3 and #7.

Thanks and welcome, Jay. Works for me. Done.

Oso, I don't think they were blinded at all. They rode the wave as long as homeowners had blood to suck, used AIG to take the downside, and use the taxpayers to fund AIG to cover their losses. The question is one of integrity, not foresight.

Amen, Mark.

RJ, I hope we do sue the bastards.

TomCat said...

Sorry I missed you, Jim. We should not HAVE to be used to it.