Looting the Ruins of Wall Street

Not much of this is new, but the article provides good overall perspective.

Reckless greed on Wall Street is a dog-bites-man story. Still, the renewed feeding frenzy of the alpha dogs of finance in the embers of the bonfire of their own vanities has inspired amazement and disgust across the political spectrum.

Despite the damage it yet may cause, though, the spectacle does seem to be helping to disarm some of the banksters' ideological weaponry. In the debate over why the financial system collapsed and how to rebuild it, economic assumptions that have enjoyed hegemony for the past 30 years are being questioned, and a swelling chorus is supporting a return to stronger regulation.

David Stockman, President Ronald Reagan's director of the Office of Management and Budget, recently weighed in: "The baleful reality is that the big banks, the freakish offspring of the Fed's easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed."

Stockman welcomed President Barack Obama's proposed tax on banks because its message is that "big banking must get smaller because it does too little that is useful, productive or efficient."

While the United States economy remains mired in a weak, jobless recovery, the financial sector has used its political clout and government largesse to once again go for the gusto. In the third quarter of 2009, according to economist Dean Baker, finance grabbed 34 percent of all U.S. corporate profits, a far bigger share than at the peak of the housing bubble.

In the political arena, too, Wall Street is back in force. As Congress debates proposals for financial re-regulation, the financiers have cried "Havoc" and let slip the canines of K Street against the reforms.

At Goldman Sachs, the leader of the pack, any embarrassment over the savaging of the global economy is well-hidden. The investment bank, popularly dubbed "Goldman Calf", reportedly has given its employees some 13 billion dollars in bonuses for 2009. That nearly triples its largesse in 2008 when, according to the Wall Street Journal, 953 employees received bonuses of over one million dollars each.

The bank reported earnings of 13.4 billion dollars for 2009, nearly matching the 15 billion dollars combined total of the five other biggest banks. Its net profit margin was 23.85 percent.

Goldman received 10 billion dollars in funds from the U.S. government's Troubled Asset Relief Program in 2008, which it paid back with interest in 2009. The firm also benefited from other forms of government generosity, including an estimated 12.9 billion dollars as a counterparty of AIG.

The failed insurance behemoth used bailout funds to pay off credit default swaps and other complex wagers on bond markets at allegedly inflated values to Goldman and several other U.S. and European financial giants. For some time before the crash, GS had reportedly been betting against the mortgage market.

The apotheosis of Goldman Sachs has relied on a revolving door between the firm and lofty precincts of the federal government. Henry Paulson, the George W. Bush administration's secretary of the Treasury responsible for TARP, formerly served as the firm's CEO. Robert Rubin, Treasury Secretary under President Bill Clinton, and many other power brokers in both major parties are also alumni.

A long year after the industry's near-death experience, Goldman's glass is either full or overflowing, depending on how you look at it. So is popular anger against it. Rolling Stone magazine writer Matt Taibbi celebrated the investment bank as "a giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

Satirist Andy Borowitz reported tongue-in-cheek that Goldman was in talks to buy the Treasury Department. He quoted an apocryphal Treasury spokesman as saying that the merger would create efficiencies for both because of the high volume of employees and money already flowing back and forth between them. The only hard part, the spokesman said, "is trying to figure out which parts of the Treasury Department we don't already own."

Belatedly, Obama and the Democrats seem to have decided that popular anger on the right and the left churned up by the financial industry may be a political wave they can ride.

In December, the House of Representatives passed a bill that would create an independent financial protection agency for consumers, a measure long lobbied for by Harvard law professor Elizabeth Warren, director of the Congressional Oversight Panel for the bank bailout.

The legislation would also increase banks' capital requirements and limit their leverage, the extent of their reliance on borrowed funds. And by requiring lenders to hold on to some proportion of the loans they make, the law would restrict securitization, the practice of bundling mortgages into complex derivatives that frequently have turned toxic, dragging down financial institutions that hold them.

In the Senate, though, prospects for 60 votes to break a potential filibuster look dubious. Republicans appear to be nearly unanimous in their opposition to the reforms…

Inserted from <Common Dreams>

I’ve discussed my solutions enough times that I won’t repeat them today, but one thing is clear.  The only way to accomplish even minimal banking reform is through reconciliation.

Bankster Bounces Back

Do you remember John Thain and his infamy?  Like fair-weather friends on payday, he’s back.

John Thain is getting a second chance.

CIT Group Inc., the lender that is trying to regain its former stature after almost collapsing during the financial industry crisis, said late Sunday it has hired the former Merrill Lynch & Co. CEO as its chairman and chief executive.

Thain is also trying to repair his own image. He brokered Merrill's sale to Bank of America Corp. as the credit crisis peaked in the fall of 2008, but was forced to resign after the deal closed because of controversy over employee bonus payments and mounting losses at the investment bank.

CIT, which lends to more than 3,000 businesses including supermarkets and department stores, went through bankruptcy reorganization late last year after it failed to restructure billions of dollars in debt. It was also hurt by rising loan losses as more customers fell behind on repaying loans.

Thain, 54, is taking over a company that has seen its business shrink dramatically as customers fled. He'll have to find a way to bring in new customers. And he'll have to find new sources of funding because short-term lending known as commercial paper essentially disappeared during the credit crisis and has yet to revive.

Analysts say Thain's experience makes him an ideal candidate to rebuild CIT's business. He was able to get Merrill shareholders the best possible price for their stock in the Bank of America deal. And as CEO of the New York Stock Exchange, he expanded the stock market through a series of mergers and acquisitions.

"He's taking on an extremely challenging situation," said Steve Hagenbuckle, managing principle of private equity fund TerraCap Partners. "If he survives and rights the ship, then I think his legacy has been written. It's a perfect storm to come out a hero or come out a failure."

Thain took over Monday. He replaced interim CEO Peter Tobin, who will remain on CIT's board of directors. Tobin had served as CEO since Jeffrey Peek retired Jan. 15.

Hal Reichwald, co-chair of the banking and specialty finance practice group at the law firm Manatt, Phelps & Phillips LLP, said Thain's job will be made easier by the fact that few other lenders picked up the business the company lost as it headed toward bankruptcy.

"No institution has stepped up to challenge CIT," Reichwald said. That could be because banks are still tentative about lending.

"The marketplace needs a CIT," Reichwald said. But, he said, CIT can only be viable long-term if it finds new sources of funding.

Thain, a former president of Goldman Sachs Group Inc., might have been brought in because of his extensive connections on Wall Street. His experience in investment banking may help CIT find a new partner or even parent, Hagenbuckle said.

CIT will pay Thain an annual cash salary of $500,000. He will also receive $5.5 million in stock annually, of which $2.5 million will be subject to a one-year holding period. The remaining $3 million cannot be sold for three years.

Thain could also receive up to $1.5 million in bonuses based on the performance of the company. The board will determine whether to award the performance-based bonuses.

Thain's deal to sell Merrill was considered a lifesaving move at the height of the financial crisis. But he was criticized for having paid out $3.6 billion in bonuses to Merrill employees just before the deal closed, and for spending more than $1 million to redecorate his office at Merrill despite its massive losses.

Thain resigned as head of global wealth management of the combined company in January 2009, after news of the bonus payments surfaced. Bank of America last week agreed to settle a case with the Securities and Exchange Commission over claims it misled shareholders about the bonuses and more than $15 billion in fourth-quarter losses at Merrill to ensure the deal would be approved… [emphasis added]

Inserted from <AP>

It seems that no matter how much these banksters fail, no matter how far their companies fall, and no matter out outrageous their abuse, they always have a multi-million dollar job waiting.

A Move Against Banksters

I’m pleased to see a beginning of activity to recover the people’s money from the banksters\, but skeptical.

Democratic Senators Jim Webb and Barbara unveil another proposal aimed at allowing taxpayers to recoup bailout funds from recipients of exorbitant bonuses at firms that received more than $5 billion in TARP funds:

WASHINGTON, Feb 4 (Reuters) - Two Democratic senators on Thursday proposed legislation that would impose a one-time tax on bonuses paid to executives of companies bailed out with taxpayer money.

Senators Barbara Boxer and Jim Webb proposed a 50 percent tax on 2009 bonuses above $400,000 at any firm that has received more than $5 billion in government assistance.

The next question is whether or not this is just another press release or if it actually has a chance of becoming a law.

The senators said they had not yet gathered broad support for the proposal, and neither sits on the tax-writing Senate Finance Committee, which would likely have to take up the bill. A 35 percent tax on bonuses at bailed-out companies was proposed last year by the leaders of the Finance Committee, Democrat Max Baucus and Republican Charles Grassley, but it has not been acted on.

So you can add this to a list of ideas floating out there to make taxpayers whole after the bailout spree, but the question still remains: will Democrats in Congress actually do anything to make any of those ideas become reality?…

Inserted from <Daily Kos>

Cousin FatCat thinks this is a terrible idea.  He thinks taxpayers exist for the sole purpose of providing him the finest caviar.

I think it’s a good idea, but think that, if it does actually get through the US $enate, it will be challenged.  It’s close enough to being a Bill of Attainder that a reasonable court might overturn it, let alone the fascist five Justices of the Extreme Court.

Paul Volker: How to Reform Our Financial System

I think that Volker has some excellent ideas.

PRESIDENT OBAMA 10 days ago set out one important element in the needed structural reform of the financial system. No one can reasonably contest the need for such reform, in the United States and in other countries as well. We have after all a system that broke down in the most serious crisis in 75 years. The cost has been enormous in terms of unemployment and lost production. The repercussions have been international.

Aggressive action by governments and central banks — really unprecedented in both magnitude and scope — has been necessary to revive and maintain market functions. Some of that support has continued to this day. Here in the United States as elsewhere, some of the largest and proudest financial institutions — including both investment and commercial banks — have been rescued or merged with the help of massive official funds. Those actions were taken out of well-justified concern that their outright failure would irreparably impair market functioning and further damage the real economy already in recession.

Now the economy is recovering, if at a still modest pace. Funds are flowing more readily in financial markets, but still far from normally. Discussion is underway here and abroad about specific reforms, many of which have been set out by the United States administration: appropriate capital and liquidity requirements for banks; better official supervision on the one hand and on the other improved risk management and board oversight for private institutions; a review of accounting approaches toward financial institutions; and others.

As President Obama has emphasized, some central structural issues have not yet been satisfactorily addressed.

A large concern is the residue of moral hazard from the extensive and successful efforts of central banks and governments to rescue large failing and potentially failing financial institutions. The long-established “safety net” undergirding the stability of commercial banks — deposit insurance and lender of last resort facilities — has been both reinforced and extended in a series of ad hoc decisions to support investment banks, mortgage providers and the world’s largest insurance company. In the process, managements, creditors and to some extent stockholders of these non-banks have been protected.

The phrase “too big to fail” has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times. The sense of public outrage over seemingly unfair treatment is palpable. Beyond the emotion, the result is to provide those institutions with a competitive advantage in their financing, in their size and in their ability to take and absorb risks.

As things stand, the consequence will be to enhance incentives to risk-taking and leverage, with the implication of an even more fragile financial system. We need to find more effective fail-safe arrangements.

In approaching that challenge, we need to recognize that the basic operations of commercial banks are integral to a well-functioning private financial system. It is those institutions, after all, that manage and protect the basic payments systems upon which we all depend. More broadly, they provide the essential intermediating function of matching the need for safe and readily available depositories for liquid funds with the need for reliable sources of credit for businesses, individuals and governments.

Combining those essential functions unavoidably entails risk, sometimes substantial risk. That is why Adam Smith more than 200 years ago advocated keeping banks small. Then an individual failure would not be so destructive for the economy. That approach does not really seem feasible in today’s world, not given the size of businesses, the substantial investment required in technology and the national and international reach required.

Instead, governments have long provided commercial banks with the public “safety net.” The implied moral hazard has been balanced by close regulation and supervision. Improved capital requirements and leverage restrictions are now also under consideration in international forums as a key element of reform.

The further proposal set out by the president recently to limit the proprietary activities of banks approaches the problem from a complementary direction. The point of departure is that adding further layers of risk to the inherent risks of essential commercial bank functions doesn’t make sense, not when those risks arise from more speculative activities far better suited for other areas of the financial markets.

The specific points at issue are ownership or sponsorship of hedge funds and private equity funds, and proprietary trading — that is, placing bank capital at risk in the search of speculative profit rather than in response to customer needs. Those activities are actively engaged in by only a handful of American mega-commercial banks, perhaps four or five. Only 25 or 30 may be significant internationally.

Apart from the risks inherent in these activities, they also present virtually insolvable conflicts of interest with customer relationships, conflicts that simply cannot be escaped by an elaboration of so-called Chinese walls between different divisions of an institution. The further point is that the three activities at issue — which in themselves are legitimate and useful parts of our capital markets — are in no way dependent on commercial banks’ ownership. These days there are literally thousands of independent hedge funds and equity funds of widely varying size perfectly capable of maintaining innovative competitive markets. Individually, such independent capital market institutions, typically financed privately, are heavily dependent like other businesses upon commercial bank services, including in their case prime brokerage. Commercial bank ownership only tilts a “level playing field” without clear value added.

Very few of those capital market institutions, both because of their typically more limited size and more stable sources of finance, could present a credible claim to be “too big” or “too interconnected” to fail. In fact, sizable numbers of such institutions fail or voluntarily cease business in troubled times with no adverse consequences for the viability of markets.

What we do need is protection against the outliers. There are a limited number of investment banks (or perhaps insurance companies or other firms) the failure of which would be so disturbing as to raise concern about a broader market disruption. In such cases, authority by a relevant supervisory agency to limit their capital and leverage would be important, as the president has proposed.

To meet the possibility that failure of such institutions may nonetheless threaten the system, the reform proposals of the Obama administration and other governments point to the need for a new “resolution authority.” Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization.

To help facilitate that process, the concept of a “living will” has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts.

To put it simply, in no sense would these capital market institutions be deemed “too big to fail.” What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.

I do not deal here with other key issues of structural reform. Surely, effective arrangements for clearing and settlement and other restrictions in the now enormous market for derivatives should be agreed to as part of the present reform program. So should the need for a designated agency — preferably the Federal Reserve — charged with reviewing and appraising market developments, identifying sources of weakness and recommending action to deal with the emerging problems. Those and other matters are part of the administration’s program and now under international consideration.

In this country, I believe regulation of large insurance companies operating over many states needs to be reviewed. We also face a large challenge in rebuilding an efficient, competitive private mortgage market, an area in which commercial bank participation is needed. Those are matters for another day.

What is essential now is that we work with other nations hosting large financial markets to reach a broad consensus on an outline for the needed structural reforms, certainly including those that the president has recently set out. My clear sense is that relevant international and foreign authorities are prepared to engage in that effort. In the process, significant points of operational detail will need to be resolved, including clarifying the range of trading activity appropriate for commercial banks in support of customer relationships.

I am well aware that there are interested parties that long to return to “business as usual,” even while retaining the comfort of remaining within the confines of the official safety net. They will argue that they themselves and intelligent regulators and supervisors, armed with recent experience, can maintain the needed surveillance, foresee the dangers and manage the risks.

In contrast, I tell you that is no substitute for structural change, the point the president himself has set out so strongly…

Inserted from <NY Times>

Cousin FatCat, the Bankster, does not agree with Volker.  He agrees with Tim Geithner.  He wants business as usual, so he can get new diamonds with which to fill his litter box.  Why do you think he does not like Volker?

Obama Low-Key But Masterful in State of the Union Address

In my opinion, Barack Obama hit a home run with his State of the Union address last night.  I do not agree with everything he said.  However, I respect opposing points of view. My most serious criticism is that he is still clinging to bipartisanship and gave Republicans far more respect than they deserve.  However, he made it clear that he took office in the midst of crises, and that the vast majority of debt under his administration was from enacting the bailout passed before he became President.  He made fools of the Republicans be enumerating the many tax cuts that have been enacted under his administration.  Because Republicans parrot “middle class tax cut” continually, they could not object.  They had to be fuming, because in GOP-speak “Middle Class Tax Cut” means “Tax Cut for the Rich”.  Obama’s tax cuts really were for the middle class.  I also liked the way he lampooned the Senate, by listing all the bills the House has passed and making it clear that inaction by the Senate is the sticking point.  I liked the way he called on Congress to end Don’t Ask, Don’t Tell.  Although he could simply instruct the military not to enforce it, it is the law.  If he did, he would let Congress off the hook, and leave the law on the books for some future administration to enforce.   Congress passed it.  Rescinding it is their obligation, one which I fully support.  He also made it clear that Republicans are engaging in pure obstructionism, and made it clear that if they continue that tactic, they will have to answer to voters for it.

Keith Olbermann’s coverage excelled, as usual.  Here are two videos.  The first is with Howard Fineman:

 

Visit msnbc.com for breaking news, world news, and news about the economy

The second was with Markos Moulitsos:

 

Visit msnbc.com for breaking news, world news, and news about the economy

McClatchy DC has the full text of Obama’s speech.

According to a CBS News Poll, 83% of those interviewed approved of Obama’s proposals.  Only 17% did not.

Virginia Gov. Bob McDonnell gave the Republican response.  McClatchy also has the full text of his speech.  While more respectful, better constructed, and better delivered that the Bobby Jindal fiasco after Obama’ last address to Congress, it contained only the standard GOP talking points.  One thing was clear.  McDonnell had not even listened to Obama’s speech before responding, because he did not know that Obama had put domestic fossil fuel development on the table.

Republicans were also polled. ;-)

(The Borowitz Report) - President Barack Obama's State of the Union address has already gotten a big thumbs-down from one key group of voters: Republicans who did not see the speech.

According to an instant poll conducted by the University of Minnesota's Opinion Research Institute, 90 percent of Republicans who did not see the President's speech strongly disagreed with it.

Additionally, 95 percent of Republicans polled agreed with the statement, "If I had seen the President's speech, I'll bet I would have hated it even more."

Davis Logsdon, who supervised the poll, said there were certain difficulties in polling Republican voters: "Many of them would not let us finish asking the question before answering 'No.'"… [emphasis added]

Inserted from <Huffington Post>

Although Joe “You Lie” Wilson, promised to be on his best behavior, these Republican leaders just don’t seem to understand is that there are people watching who are trained to read lips.

Tonight in his State of the Union address, President Obama outlined steps he plans to take “to pay for the $1 trillion that it took to rescue the economy last year.” However, he first addressed right-wing criticisms that he is overseeing out-of-control spending by noting the situation he faced when he took office:

By the time I took office, we had a one year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade. Most of this was the result of not paying for two wars, two tax cuts, and an expensive prescription drug program. On top of that, the effects of the recession put a $3 trillion hole in our budget. All this was before I walked in the door.

The camera then cut to Sen. John McCain (R-AZ), who leaned over to Sen. Lindsey Graham (R-SC) and appeared to whisper, “Blame it on Bush.” The two men then laughed. Watch it:

… [emphasis added]

Inserted from<Think Progress>

That was John “McConJob” McCain’s best act since singing “Bomb, Bomb Iran” into a mike he did not know was open.

But even worse was the despicable breech of decorum by reactionary-right activist Justice Samuel Alito.

Justice Samuel A. Alito Jr. responded to President Obama's criticism Wednesday night of a Supreme Court decision last week by appearing to mouth the words "not true."

Obama took issue with a ruling that overturned two of the court's precedents and upended decades of restrictions on corporations being able to use their profits to finance campaigns for and against candidates.

It proved to be a striking State of the Union moment: With six justices seated in their black robes directly in front of him in the House chamber, Obama said: "With all due deference to separation of powers, last week the Supreme Court reversed a century of law that, I believe, will open the floodgates for special interests, including foreign corporations, to spend without limit in our elections."

As Democrats applauded, cameras showed the justices sitting expressionless. Except Alito.

"Not true, not true," he appeared to say, as he shook his head.

"I don't think American elections should be bankrolled by America's most powerful interests or, worse, by foreign entities," Obama continued. "They should be decided by the American people. And I urge Democrats and Republicans to pass a bill that helps correct some of these problems."

The court's 5 to 4 decision, in which Alito was in the majority, said it did not have to address the question of electoral spending by foreign firms, because the law being considered did not differentiate between domestic and foreign corporations... [emphasis added]

Inserted from <Washington Post>

 

I was impressed with Obama for taking on the Supreme Court to their faces for that horrid decision.  While technically the court did not have to address the question of electoral spending by foreign firms, as Alito said, what Alito did not say, a lie by omission, is more important.  The court did not have to address the question of electoral spending by domestic firms either.  The only question before the court was whether or not broadcasting a single film crossed the line under settled law, well established by precedent.  This decision was judicial activism at its worst, and Obama said so.

In summery, the speech was masterful.  It was not what I would have said, but although I consider myself a wordsmith, Obama’s talents surpass mine far and away.  What remains to be seen is whether or not he follows it up with appropriate action.  I’m willing to give him the benefit of the doubt, which I admit is considerable.

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:

...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?

Obama Considers a Big Banks Tax

Well, something has to be done!

President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday.The president has yet to settle on the details, and his senior economic advisers are weighing a number of options as they finish the budget proposal Mr. Obama will release next month.

The general idea is to devise a levy that would help reduce the budget deficit, which is now at a level not seen since World War II, and would also discourage the kinds of excessive risk-taking among financial institutions that led to a near collapse of Wall Street in 2008, the officials said.

But the president also has a political purpose — to respond to the anger building across the country as big banks, having been rescued by the taxpayers, report record profits and begin paying out huge bonuses while millions of Americans remain out of work.

The administration previously rejected two ideas that have received much attention in recent months: a transaction tax on financial trades and a special tax on executives’ bonuses.

The most likely alternatives would be a tax based on the size and riskiness of an institution’s loans and other financial holdings, or a tax on profits.

Lobbyists for bankers, taken by surprise, immediately objected to any new tax. They said financial institutions had been repaying their portion of the bailout money in full, with interest. Losses from the $700 billion bailout fund — estimated to run as high as $120 billion — are expected to come from the automobile companies and their finance arms, the insurance giant American International Group and programs to avert home foreclosures, and the president is aiming to recoup that money.

“It is perplexing to us,” said Edward L. Yingling, president and chief executive of the American Bankers Association. He recalled that Mr. Obama recently had two White House meetings with bankers to urge them to provide more loans to credit-starved small businesses. But a tax, he said, would be “a hit on banks that will decrease their ability to lend.”... [emphasis added]

Inserted from <NY Times>

Of course cousin FatCat and his bankster buddies oppose this, but their arguments are pathetic.  The statement that they are paying back everything they got with interest ignores a crucial fact.  A huge portion of governments $120 billion loss comes from bailing out AIG, and most of those funds were payments to banks, snuck through the back door by Geithner and Paulson.  Saying that a tax would decrease their ability to lend is bogus, because they aren’t lending anyway.  They’re speculating.  I can’t say whether or not I endorse Obama’s plan until he presents it.  I cannot evaluate it until I know what it is.

They Actually Think They’re Entitled!

From all reports, the bankster bailout while ignoring the needs of main street is a major success.  This is how the banksters say thank you.

2009 closed with the stock market rebounding 61 percent from its March lows, and “Wall Street is ready to pat itself on the back for its huge gains with big bonuses,” potentially surpassing the record payouts of 2007. Analysts estimate that Wall Street’s 2009 bonus pool could total $200 billion — led by Goldman Sachs’ $23 billion — as the New York Times reported today, the return to big bonuses will also allow Wall Street banks to claim billions in tax breaks:

Many American banks already pay minuscule federal income taxes, because of various deductions and clever tax planning; the payout-related breaks will reduce their tax bills further in coming years…Altogether, the top three Wall Street banks — Goldman Sachs, JPMorgan Chase and Morgan Stanley — will gain nearly $20 billion in tax breaks based on their employee compensation this year.

Compensation related tax deductions will total about $80 billion across Wall Street, according to New York City tax analyst Robert Willens. In 2008, Goldman Sachs paid an effective tax rate of just 1 percent thanks to a variety of deductions and keeping profits offshore. [emphasis original]

Inserted from <Think Progress>

That’s $20 billion that’s needed to feed hungry people, provide health care, create jobs, rebuild our crumbling infrastructure and bring our educational facilities into the 21st century.  The Banksters are rubbing our noses in the bull’s ass.  Are you mad enough to take action yet?  When Congress reconvenes, each one of us need to become hounds from hell plaguing them daily with our demands.

Action Alert: Repo the Dough!

There’s a good petition for you to sign, but first some bankster news.

Health care reform suffered the torments of partisan obstruction. Now gird yourself for financial reform and the perils of bipartisan blight.

In health care, lockstep Republican opposition caused months of delay, and empowered the likes of Connecticut's embittered Senator Joe Lieberman and Nebraska's compromised Ben Nelson to exact cankerous concessions to forge a super-majority.

So Washington pundits rail against bitter partisanship. Republican Senator John McCain charges that Obama is to blame for the partisan divide, even though the President wasted months while Max Baucus courted coy Republicans. Senator John Cornyn, the most rabid of Republican obstructionists, damns the partisan process as a reason to oppose the health care bill. This is akin to a gang of thieves lamenting crime in the streets.

Next year, assuming that this health care bill, like a large kidney stone, must eventually be passed, the Congress will turn to financial reform. In the House, Republicans remain in lockstep opposition, providing not one vote for a measure that would take the first steps towards limiting the ability of banks to fleece us again. But in the Senate, we may well witness not the price of partisan rancor, but the blight of bipartisan cooperation.

Senate Banking Committee Chair Chris Dodd put forth a strong legislative proposal, one far better than the administration's plan. When the Committee's senior Republican, Alabama's Richard Shelby, scorned that in an extended rant, Dodd decided to pair up Democrats and Republicans on the committee to come up with bipartisan solutions. And now reports suggest that a bipartisan plan may well be unveiled in January, with Dodd pushing for an early vote.

Hold onto your wallets. We don't yet know what is in the bipartisan bill, but we do know what has been kicked to the curb. Shelby announced one price for his cooperation: no new agency to protect consumers from financial fraud or abuse. Want Republican cooperation? Then the proposed Consumer Financial Protection Agency - with a mandate to police everything from mortgage fraud to preposterous bank overdraft charges - is verboten. Grateful banking lobbyists will insure him a lucrative retirement.

We continue to suffer a pandemic of bank fraud and abuse. In the housing bubble, mortgage companies rewarded brokers for peddling exotic mortgages to customers that the brokers knew couldn't afford them and didn't understand them. Now, banks are raking in record sums from overdraft charges, credit card fees, and preposterous ATM charges. Payday lenders are pocketing the equivalent of 1000% interest from the poorest working people.

The White House has sensibly championed a new agency devoted not to the health of the banks but to the protection of consumers. Already the banking lobby succeeded in weakening the proposal in the partisan House, exempting auto dealers - hell, we know they are honest, right? - and over 90% of all lending institutions, and eliminating the mandate to offer "wonder bread" or plain vanilla loans along with the exotica banks prefer to peddle.

But that was with House Republicans in opposition. In the Senate, the price of bipartisanship is to trash the whole concept. Caveat emptor, baby… [emphasis added]

Inserted from <Huffington Post>

There’s a black sheep in every family.  Cousin FatCat, pictured above, is thrilled that his bankster owner will be able to keep him on a generous diet of 100% caviar, because the Repuglicans know only one definition for bipartisan: Democratic cave-in.  I’m sure there will be a petition circulating on this bill, and when it surfaces, I will put it up for you.  In the meantime, here’s one to tax Wall-Street speculation:

…Reckless Wall Street gambling collapsed the economy. The big bankers, like Mr. Potter, got theirs – an unbelievable $3 trillion in government help! It worked so well that Wall Street will pay out some $140 billion in bonuses this year.

But what about George Bailey and the rest of us? Where is the help for the 16 million Americans who are now out of work? The millions of unemployed facing foreclosure? The millions more teetering on the brink of personal bankruptcy?

The banks were aided on the condition that they free up credit, modify mortgages and help put America back to work. They have not kept the bargain. Tell Congress, it’s time to take some of the big bailout bucks back and pass a small transaction tax on stock market speculation to pay for new job creation. Leftover bailout funds should also be put to work creating jobs.

Please sign our New Year's petition calling on Congress and the President to "Repo the Dough" by taxing speculation and putting Wall Street to work rebuilding Main Street! And, please ask your friends to join in this petition from BanksterUSA.org and CMD, by sharing this link: http://tinyurl.com/RepotheDough.

Lisa Graves is the Executive Director of the Center for Media and Democracy based in Madison, Wisconsin.

Inserted from <Center for Media and Democracy>

To sign just click the link above.

When it Comes to Banksters, You’ll Need Vaseline

Here’s another example of how Geithner and Summers are screwing you for their millionaire buddies.

Taxpayers are getting a raw deal in Citigroup's plan to repay its bailout funds, but you wouldn't know it from reading the news. Policymakers are emphasizing the wind-down of the unpopular Troubled Asset Relief Program, and most media outlets are doing the same. But the sloppy structuring of Citi's repayment plan is going to cost the government literally billions of dollars.

The government has two types of investments in Citi: $20 billion in the company's preferred stock, and a 34 percent stake in its common stock. Preferred stock is basically a loan that Citi has to pay back with interest, while each share of common stock gives us partial ownership of the firm. With an interest rate of 8 percent on the preferred stock, the loan is well below market rates, since the government funneled the money to Citi when it was on the verge of collapse last year, and emergency loans like that carry a very high interest rate among investors. But we do at least get paid a return on that investment.

The value of our 34 percent stake in Citi's common stock, by contrast, depends on the stock's trading price. The government bought its roughly one-third stake in February for $25 billion. On Friday, the last trading day before Citi announced plans to repay TARP, the value of that stake had risen to $30.7 billion, for a gain of $5.7 billion. That's a terrible return given the risk taxpayers were taking, but it's still a return.

On Monday, Citi said that in order to have enough money to pay off the government's $20 billion loan, it was going to raise about $20 billion by issuing more shares of common stock. The company's financial health has improved; it can raise money from the private sector and pay back the taxpayers. Sounds great, right? Wrong.

Taxpayers are getting screwed. Citi's stock market value at the end of Friday was roughly $90 billion. If Citi issues another $20 billion in common stock, the company does not magically become more valuable. It's still got the same credit card and mortgage problems it had last week, and the same shaky profit prospects. Since $20 billion is about 22 percent of $90 billion, everybody who owns a stake in Citi's common stock, including the taxpayers, will see the value of their investment decline in value by about 22 percent.

How big a deal is this? Well, 22 percent of the government's $30.7 billion stake is $6.8 billion. That means Citi's plan to "repay" the government actually ends up costing taxpayers money. Not only will our $5.7 billion profit be wiped out, but the value of our common stock investment will actually drop below what we first paid for it in February.

The government doesn't have to let Citi get away with this. The Treasury could just tell the company to keep making its regular interest payments on the $20 billion loan, and pay it off once the company has scored enough profits from its ordinary banking activities. That would take time, but by footing the bill for the loan with profits, rather than through new investors, Citi could pay back one taxpayer investment without destroying the other one. But there are no indications that policymakers are taking the taxpayers' interest seriously--instead, negotiations have centered around how much money Citi must raise from the private sector to qualify as healthy enough to exit TARP.

Why is Citi in such a hurry to pay back its loan? It wants to be able to offer executives bigger bonuses. When Citi pays back TARP, it will no longer be subject to pay czar Ken Feinberg's executive compensation restrictions...

Inserted from <The Nation>

To simplify this  Geithner could easily tell Citi’s banksters to back off and pay the TARP when they can afford to do so out of profits.  He is not doing so.  Therefore instead of making a profit of 5.7 billion, we the taxpayers will take a $1.1 billion loss.  In addition, their stockholders, including pensions, IRA, etc., will take a $19.8 loss due ton the decrease in value of their stock.  And the banksters?  They get to go back to giving themselves obscenely fat bonuses.  Why isn’t Geithner stopping this?  Why isn’t Summers advising Obama to order Geithner to stop this?  They care for their Wall Street cronies and don’t give a damn about Main Street.

Obama needs to fire Geithner and Summers.

Bernanke’s Failure

Here’s an excellent analysis I found this morning.

Foreclosures already pocked Chicago's poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007.The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.

Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.

"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."

He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.

Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.

The central bank's performance has sparked a great debate about its future as a regulator, pitting those who want to expand its role against those who want to strip its powers. It also has come under pressure from politicians seeking greater oversight of its primary job, adjusting interest rates to moderate economic growth. The battles have complicated Bernanke's bid for a second term as chairman. The Senate Banking Committee voted to approve Bernanke 16 to 7 on Thursday, setting the stage for a January battle on the Senate floor.

The Fed's failure to foresee the crisis or to require adequate safeguards happened in part because it did not understand the risks that banks were taking, according to documents and interviews with more than three dozen current and former government officials, bank executives and regulatory experts.

Regulatory agencies exist to lean against the wind. But rather than looking for warning signs, the Fed had joined -- and at times defined -- the mainstream consensus among policymakers that financial innovations had made banking safer. Bernanke said the economy had entered an era of smaller and less frequent downturns, which he and others called "the great moderation."

The consequences of this miscalculation can be seen in the stories of three large banks the government ultimately rescued from collapse... [emphasis added]

Inserted from <Washington Post>

This is less than the first page from a five page article that goes into much more detail.  I encourage you to click through and read it all.

I disagree with the folks who want to do away with the Fed.  I think we need a central bank to enact monetary policy.  However, I think that the Fed’s role should be restricted to monetary policy only, with all fiscal regulation in the hands of another agency.  In addition, the Fed as a hybrid organization of shared power that is mostly in the hands of banksters is obsolete.  The Fed needs to be moved fully under government control, because banksters have proven they are too disingenuous to oversee their own privies, let alone our nation’s monetary policy.  There are none to whom this applies more than Ben Bernanke.  He should be removed from the Fed, just as Geithner should be removed from Treasury and Summers from his post as Chief Economic Advisor.