WHY GEITHNER MUST LEAVE

If you're wondering why Washington DC is abuzz with talk about having Treasury Secretary Tim Geithner's job you need look no further than the incredibly pathetic jobs picture, and the fact that Wall Street has been laughing all the way to the (taxpayer funded) bank. People are not happy that after spending (or guaranteeing) trillions of U.S. taxpayer dollars on failed Wall Street institutions there's little to no good news (1) on the job's front, (2) in the area of commercial lending, or (3) tied to consumer confidence. Americans are pissed, and with reason.

So, how do you screw up a multi-trillion dollar bailout and expect a pat on the back? That's a good question. Unfortunately, Tim Geithner and Team Obama aren't prepared to answer this one.

It appears that things aren't going to get any better for President Obama. Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), is going to issue a report on Tuesday. The report will say that while the New York branch of the Federal Reserve was under Tim Geithner's leadership it “refused to use its considerable leverage” to extract concessions from the failed institutions as it handed out hundreds of billions in the form of U.S. taxpayer dollars and other guarantees.

The New York Fed did several other things wrong when it was under Geithner's stewardship.

* At the beginning of the first bailout the New York Fed saw itself a creditor of failed institutions like AIG, rather than a regulator.

* It treated foreign banks as if they were domestic banks because they didn't want to incur the retaliation of their host nations (anyone who continues to think "We're #1" and the "bad ass of the world" needs to let that one sink in).

* Because the New York Fed - again, then headed by Tim Geithner - was bailing out Wall Street, and refused to consider imposing bankruptcy terms on firms like AIG, other countries wouldn't consider intervening in the affairs of their banks. Nor would they ask their banks to consider reducing the amount owed to them by U.S. insititutions because of the legal implications.

The end result? In spite of all the stupidity that Wall Street concocted we ended up using bailout money to pay the failed financial institutions and their creditors 100 cents on the dollar. More succinctly, we rewarded stupidity, greed, and failure.

Worse, as Paul Krugman points out, both President Bush and President Obama ended up bungling the rescue of an economy by throwing a lifeline only to the idiots who did their level best to sink our economic ship.

This, in turn, has soured Americans on additional bailouts that are necessary for getting money into small and local community banks, and for the infrastructure projects necessary for creating much needed jobs.  The highest ranking person who spans this incompetence is Tim Geithner (first as head of the NY Fed, and now as U.S. Treasury Secretary).

It should not come as a surprise that people are now calling for his head.

- Mark

CHOOSING THE STAIRS

How do we get people to do what's good for them? This is pretty cool ...



- Mark

THE BORN CONSPIRACY (redux) ... STARRING ELIZABETH WARREN

One of the more exciting series I've watched is the Bourne trilogy, starring Matt Damon. Painted as an out of control experiment gone bad, Jason Bourne is pursued by powerful forces trying to protect both themselves and a turf they believe others simply don't understand. The Bourne reference to Elizabeth Warren will become clearer below ...

In 2007 Elizabeth Warren, head of the Congressional Oversight Panel for the Troubled Asset Relief Program, penned an article that argued for a new model of financial regulation. She wrote that financial products should be subject to the same - and by now routine - safety screens that "governs every toaster, washing machine, and child's car seat." You know, the kind of government-driven safety measures that we all take for granted and assume are "market-driven." As is the case with all good legislation, Warren was clear that the focus should be "primarily on consumer safety rather than corporate profitability." Specifically, Warren wrote:

No one expects every customer to become an engineer to buy a toaster that doesn’t burst into flames, or analyze complex diagrams to buy an infant car seat that doesn’t collapse on impact. By the same reasoning, no customer should be forced to read the fine print in 30-plus-page credit card contracts to determine whether the company claims it can seize property paid for with the credit card or raise the interest rate by more than 20 points if the customer gets into a dispute with the water company.

After what we've learned about the financial sector's abuses of consumers and their own markets in 2008 and 2009 one would think that developing a financial product safety commission that focuses on the economic health of consumers would be a slam dunk. Think again.

Thomas Cooley, dean of New York University’s Stern School of Business, is part of growing group of special interests - led by the Chamber of Commerce, the American Bankers Association and the Financial Services Roundtable - who sees a wild-eyed fundamentalist in Elizabeth Warren. Cooley argues that her regulatory efforts make her little more than “an ideological crusader” who will "stir up a lot of trouble.” Using the same tired arguments built around "free markets" and their magical powers to reign in stupidity, greed, and fraud, Cooley is effectively arguing that the same markets that helped create and fund lending activities before the 2008 market collapse only need to be tinkered with by "thoughtful people" doing "thoughtful analysis." Elizabeth Warren, according to Thomas Cooley, is not one of these people.

Accusing her of “waging a self-righteous holy war” Cooley makes the same arguments that were made about Brooksley Born, former head of the Commodity Futures Trading Commission (CFTC), who warned about the dangers of an unregulated derivatives market in the mid-1990s.

Born, whose warnings were famously ignored and criticized at the time by Alan Greenspan (Federal Reserve Chair), Larry Summers (Clinton's Council of Economic Advisors), Robert Rubin (Treasury Secretary), and Arthur Levitt (SEC Chair), was labled as an out of control zealot. Because of her efforts to audit and regulate the derivative market, which helped bring down the American economy in 2008, Born was painted as an "irrascible, difficult, stubborn" woman who was "unreasonable" when it came to judging the power of markets.

The logic of the market was presumed to be so powerful at the time that Alan Greenspan even went so far as to argue that fraud could be handled by the market and should not be regulated. This is all discussed in the Frontline video, The Warning (Arthur Levitt is not pictured in this Frontline ad/promo; presumably because he later regretted going after Born, and was interviewed saying as much).

For her efforts, Greenspan, Summers, Rubin, and Levitt conspired to work against Born, eventually forcing her from her post as director of the CFTC. In many respects their efforts could have been labled The Born Conspiracy.

Cooley revives this anti-regulatory mentality, implying that Warren is devoid of "rational and clear-headed perspective." He even goes so far as to disparagingly suggest that Warren's goals are Crusade-like and little more than her war of "faith" on markets. The implication is clear. Like Jason Bourne in the trilogy - and Brooksley Born in the 1990s - regardless of the talent, skill, and motives involved in her efforts, Elizabeth Warren is viewed as an out of control force that needs to be stopped.   

That this kind of mentality exists, so close to the market collapse, is troubling. It also helps explain how, if we continue to do nothing to discipline or regulate market players, we're setting ourselves up for another market collapse.

- Mark

FORGET H1N1 ... WORRY ABOUT THE STUPID VIRUS

This clip on the Birthers is too funny ...



- Mark

IRON MAIDENS & OUR MEDIEVAL-LIKE FINANCIAL RESCUE

Of all the "fun" things humanity has figured out the prolonged and brutal torture of each other seems to be among the most creative of our efforts. Among the many tools that we've concocted include the Iron Maiden. While there were many variants, one iron cast model, like the one shown here, was built to follow the general contours of the human body.

In this model, a hinged front door allowed torturers to put their subjects in, and helped keep them upright. Generally there was a small opening around the face so that the torturer could interrogate their victim, and hear their confessions (they usually confessed), with knives and nails fastened securely on the inside for maximum effect. Often times slits were placed throughout the Iron Maiden so that the torturer could continue to pierce and/or kill their standing target at their discretion. Most often the slits were placed, by design, so that they would miss important organs which allowed for slower death and greater pain and suffering. These little toys of humanity worked so well that even Saddam Hussein's son, Uday, had one. But, apparently, it didn't look like this one ...

I bring all of this up because it would appear that the financial mandarins of America are not only afraid of having their emergency treasure chest of TARP money dry up, but that they have assigned the name "Maiden" to the institutions they created to help transfer money to the failed financial sector. How appropriate.

More specifically, as Willem Buiter pointed out about seven months ago, the Federal Reserve created three "Maiden Lane" corporations. If we cut through all the legalese, at the end of the day these institutions forcefully extract and transfer money from the American taxpayer to America's collapsed financial institutions. For this reason I think it would be more appropriate to call these institutions Financial Iron Maidens, or Iron Maiden Lanes.

Instead of extracting confessions - and under the authority of 13(3) of the Federal Reserve Act - today's Financial Iron Maidens are forcefully extracting money from the American taxpayer ... and lots of it ($23.7 trillion to date).  And like the Medieval model, modern day Financial Iron Maidens are propping up dying entities.

In real simple terms Iron Maiden Lane I made the debts of Bear Stearns good by taking Federal Reserve funds (i.e. taxpayer money) and using them to replace the toxic assets Bear Stearns had on the books. Iron Maiden Lane I then handed the cash over to JP Morgan Chase whose "innocence" in this mess, as we all know, made them prime candidates for taxpayer money. JP Morgan Chase executives celebrated like any Grand Inquisitor who got what they wanted by giving each other bonuses and jacking up the credit card rates of America's card holders. American taxpayers, for their part, are getting the functional equivalent of this ...

Things worked out so well for JP Morgan Chase that Iron Maiden Lane II (for AIG loans) and Iron Maiden Lane III (for AIG default swaps) were created and used to make hundreds of billions in toxic and failed AIG contracts whole. If the market continues to slowly collapse we just might have to bring out the "skull splitter" ...

Good times. Whoever thought the instruments of torture could be so educational?

- Mark

REALITY SHOT: LOBBYING, JOBS & AFGHANISTAN

It appears that lobbyists and members of Congress got caught making each other's job much easier. Statements made by House members during the health care debate were written either in part or entirely by lobbyists from Genentech, one of the world's largest biotech companies. No surprise here. Members of Congress have been writing favorable legislation and doing industry business for some time now (the dergulation of the financial sector is just one example). Still, it's interesting that the NY Times actually got a hold of e-mails confirming what most of us already know: Lobbyists are writing legislation, and they're also telling our members of Congress what to think.

Also in the news ... As I've been arguing for some time now, it appears that things will get worse on the job front rather than better.

Economist Nouriel Roubini, who was one of several people telling the world that the market was going to collapse in 2008, says the worst is not over. The result of our job's picture isn't good. According to Roubini:

... we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.

Those of you who read this blog regularly know why I agree with this assessment. I'll be posting some graphs by the end of the month showing why things will get worse, rather than better.

Finally, on the war front (with a hat tip to Dogan). We have former Marine (who served in Iraq) and U.S. diplomat in Afghanistan, Mathew Hoh, discussing why we need to leave Afghanistan. 





Hoh - who resigned his diplomatic post recently - has been hearing from active military who see no end in sight, and who don't have any real sense for what the mission is now. This is not good. Still, I'm sure, the military crazies in this country we cry foul if we don't stay, in the process propping up a corrupt and kleptocratic regime that only wants us to stay to help keep them in power.

- Mark

THE END OF ECONOMIC COMMON SENSE

In my classes, and in my book, I discuss the history behind the Glass-Steagall Act (1933), and why it was so important to the post-war economic stability and growth we enjoyed throughout the end of the 20th century. MSNBC's Dylan Ratigan presents us with a humorous take on how Glass-Steagall came to an end in 1999, and what it means for us today.



If you're still unsure about the Glass-Steagall Act (1933) and/or Gramm-Leach-Bliley (1999), which effectively repealed what was left of Glass-Steagall (the financial sector had been hammering away at it for years), you can do two things: (1) click on the labels below for references on my blog, or (2) you can read all about it in my book.

- Mark

UNDERSTANDING THE ECONOMIC MESS WE'RE IN

If you want to have a better understanding of the dynamics behind the 2008 meltdown, and don't have the time to read all the great books out there, try these FRONTLINE videos.

First up, we have Inside the Meltdown, which describes the lead up to meltdown, and what was happening in Congress during those ugly September through December 2008 days.

Next, we have Breaking the Bank, the story of the forced Bank of America and Merrill Lynch merger.

Finally, we have The Warning, which introduces us to those who saw it coming ... but were ignored.

- Mark

LEFT HAND ... MEET RIGHT HAND, PLEASE

Here's a classic case of the left hand not knowing it has a right hand ....

Left Hand: According to Neil Barofsky, the head of the the federal government's program responsible for overseeing the $700 billion financial industry bailout, the Troubled Asset Relief Program (TARP) will “almost certainly” result in a loss to U.S. taxpayers. Why? Because the auto bailout, the steady string of failed banks, and our role in the management of failed firms will continue to lose money, and drain our national treasure.

Why is this important? Because ...

Right Hand: According to Bloomberg.com, the Obama administration’s special master for executive compensation, Kenneth Feinberg, said that he is “very concerned” that his pay cuts may drive talent away from companies bailed out by U.S. taxpayers. According to Feinberg he is walking a fine line to insure that executives (who, in my world, would be unemployed and/or in prison) are properly compensated for the bang up job they did last year.

Hey, I have an idea. Why doesn't Neil Barofsky call Kenneth Feinberg. He could tell him that he shouldn't allow anyone in the taxpayer rescued industry to make any real money until (1) the American taxpayer is paid back in full and (2) the trillion dollar guarantees created for the financial sector are removed.

If the executives don't like it they can always leave, and flood the market with all their talent. God knows that with all the insider trading still going on, there are plenty of options for the talented but morally bankrupt out there ...

- Mark

P.S.: I almost forgot. All those "smart" market players aren't really that smart. They're just greedy. Here's an excellent Bloomberg piece from Michael Lewis - of Liar's Poker fame - outlining how self-absorbed and clueless these "talented" people really are. It was written before the meltdown.

HANNITY & FOX NEWS STILL LYING

Most of you have already seen this clip. It features Jon Stewart catching Sean Hannity and FOX News manipulating the news.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Sean Hannity Uses Glenn Beck's Protest Footage
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Here's Hannity's apology, which included another lie.



Look, anyone who has ever worked in the media, or with the media, knows that these developments don't just happen. Putting these kind of clips together takes effort. For Hannity to suggest that using a clip from two months earlier was "inadvertent" or an honest mistake is, quite frankly, another lie.

From Media Matters, here's a long (and, no doubt, partial) list of FOX News' "video-doctoring iceberg."

- Mark

OBAMA TO REJECT OPTIONS IN AFGHANISTAN

While I have become a bit disappointed in President Obama's handling of Wall Street's corruption, his lackluster effort in pushing for a real Public Option, and his continued embrace of President Bush's Blundering Wars Project, this bit of news is both stunning and promising.

President Barack Obama does not plan to accept any of the Afghanistan war options presented by his national security team, pushing instead for revisions to clarify how and when U.S. troops would turn over responsibility to the Afghan government.

It turns out that "forceful reservations" from the U.S. ambassador in Afghanistan, Karl Eikenberry, may have had an impact on President Obama. Ambassador Ikenberry, a former military commander in the region, simply doesn't trust President Karzai. With this in mind, and because of his concerns over an open-ended commitment, President Obama appears ready to "reject all Aghanistan options" currently being prepared (all of which involve more troops and no withdrawal timelines).

If true, this is very good news. As I noted in the previous post, the reasons for leaving Afghanistan are many:

* We have no money and are breaking the bank.
* The Afghanis are not afraid of us.
* The Afghanis now see us as occupiers.

Throw in the fact that the people we're really after, al Qaeda, are in Pakistan and the reasons for staying in  Afghanistan are weak at best.

Apart from a lack of withdrawal timelines and mounting questions about the credibility of the Afghan government under President Hamid Karzai, President Obama could also be looking at these developments: Current military spending is now increasing unemployment and reducing economic growth in our nation at a faster rate than previously projected, while the Iraq war alone is projected to cost our nation $3-5 trillion.

At the end of the day - and apart from appeasing the War Crazies - it's clear that there are few reasons to up the ante in Afghanistan. We need to put some distance between the policies of a president who once thought reducing troop levels in Afghanistan was a good idea because he naively believed (as Senator John McCain famously put it) we could "muddle through" in Afghanistan.

Now if we can just get President Obama to alter his policy course and become more aggressive when it comes to Wall Street and the Public Option.

- Mark

BUSH DEBACALYPSE SPREADING IT'S WINGS?

If anyone is wondering whether the Bush Debacalypse is over we need to look no further than these three stories ...

Robert Benmosche, the CEO of government bail out champion AIG, is threatening to quit because he's not getting his way on everything he wants from the federal government. Will the government cave in to his demands? I don't know, but I suspect so. Given the Obama administration's reluctance to take on Wall Steet's malfeasance and incompetence I have to believe that Benmosche's arrogance will somehow be rewarded. Here's an overview from nakedcapitalism.com of a man who (1) took a two week vacation before he started work, (2) then told everyone that he - and not Uncle Sam - was in charge, (3) handed out bonuses to incompetents in a collapsed industry, and (4) then publicly went after NY Attorney General Andrew Cuomo for drawing attention to the bonuses. It's not pretty.

If you're not sure whether to support the notoriously weak health care reform passed out of the House of Representatives on Saturday this link from Firedoglake won't help. But it provides more information than most media outlets have on what's really wrong with the House bill. At this point, while I don't like much of what's in the House bill, the trajectory we're on is worse. Damn.

Finally, we have the Obama administration's uncertainty over what to do with President Bush's Bungled Wars Project (Here's a hint: We're broke, they're not afraid, and they see us as occupiers. Leave).

With Congress operating as if it's business as usual on something as important as health care, Corporate America's CEOs still pushing their weight around as if their industry deserves a prize for ruining the economy, and President Obama's uncertainty over a failed war project that threatens to last longer than any war in American history (whatever happened to the "last throes" Cheney talked about?), my hunch is that things are going to get worse before they get better.

Is the Bush Debacalypse spreading into the Obama administration? It would appear so. Stay tuned.

- Mark