The Angry Future Expat

Hey, Timmeh Geithner, You Suck!

Posted in Assholes, banksters, debt, Deflation, Financial "Reform", Lost Decades, Timmeh by angryfutureexpat on July 21, 2010

I don’t think anyone would mistake me for a fan of Obama and his mancrush Timmeh Geithner, but you do have to give the guy credit for some monster-sized balls.  After shepherding a toothless financial regulation bill through Congress, implementing a perpetual bailout mechanism for the biggest Wall Street players, and enshrining the predatory, extractive, and sleazy big banks as the cornerstone of the American “economy,” Timmeh has decided he’s not done quite enough to fuck over American households.

But before we get to that, let’s start with the mythmakers at the Washington Post doing their best impression of a panegyrist:

These officials said Geithner endeared himself to Obama and senior White House advisers by advocating a response to the financial crisis that later proved correct. Geithner vigorously resisted calls by some lawmakers and financial experts to nationalize the nation’s largest and most troubled banks during the most perilous days. Instead, he helped get the financial system back on its feet, in particular by pressing for stress tests of big banks. The results of these tests showed that nearly all the banks would be able to weather the financial storm and quickly restored investor confidence.

These people don’t seem to know, realize, or care that the unemployment rate is still near 10%, the underemployment rate near 20%, and banks that are only able to show “profits” through accounting tricks and playing the yield curve on government debt with free money.  There is not one demonstrable way of significance to real people in which Timmeh’s “response to the financial crisis later proved correct.”  Not one.  As Naked Capitalism points out with respect to Financial “Reform,” the bill left out just about everything that actually matters, and that might help resolve the economic crisis:

Make no mistake:  this is Timmy’s bill, plain and simple, as the Post makes clear: “The bill not only hews closely to the initial draft he released last summer but also anoints him — as long as he remains Treasury secretary — as the chief of a new council of senior regulators.”

The Geithner Treasury repeatedly pushed back against many sensible legislative proposals that would have made significant structural changes to practices that brought about the current economic crisis. And the article itself represents latest in a series of attempts to embellish the Treasury Secretary’s hagiography.

Reading it, one wonders whether the Washington Post inhabits a strange parallel universe.  Have the writers actually paid attention to what is truly happening in the economy?

What is happening in the real economy is exactly the opposite of an approach that has been “proven correct.”  First, millions of people have been or are being thrown into foreclosure, but despite two years of “effort,” the HAMP program has resulted in only a few hundred thousand “modifications.”  Modifications, btw, which are almost certain to fail given the overall debt burdens of the participants:

Debt-to-income ratios

If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.8% – the same as last month. And the back end DTI was an astounding 79.9 (up slightly from last month).

Think about that for a second: for the median borrower, about 80% of the borrower’s income went to servicing debt. And the median is 63.7% after the modification.

Second, small business formation is falling off a cliff because there aren’t any customers and, shocker!, banks won’t lend to and investors won’t invest in businesses without prospects for revenue and profit:

The activity of new entrepreneurs plunged in the first half of 2010, falling to the lowest rate in more than two decades as more workers found employment or were driven away from start-ups by a feeble economy.

Start-up activity fell to an average 3.7% in the first two quarters of this year, down from 7.6% in the first half of 2009 and 9.6% in the second half, according to a survey of about 3,000 job seekers by global outplacement and executive coaching firm Challenger, Gray & Christmas, Inc. Many of those surveyed are former managers and executives.

Third, desperate and unemployable young people are heading off the college and grad school in record numbers and signing themselves up for a lifetime of debt slavery, because there isn’t any fucking work for them to do. By way of example:

UC Berkeley’s Boalt Hall School of Law saw a 4.7 percent increase in applications for its class of 2010, setting a new record for the number of applicants, officials said yesterday.

The school has counted a total of 8,317 applications, compared to 7,940 last year – which, by the way, broke the previous record. In fact, the school has seen a 19 percent increase from 2007 to 2010. Applications had to be postmarked by Feb. 1, so a few more could still trickle in, spokeswoman Susan Gluss said.

****

Gluss attributed the rise, in part, to the tendency of more people to apply for graduate school during a recession, and in part, to Berkeley’s enhanced loan forgiveness program (AFEP: Hooray!) for students who work for nonprofit public interest groups or government agencies and earn below a certain threshold.

The news comes as several media reports have documented the increasingly tough job market that law school graduates face, a problem that is compounded by law graduates’ high levels of debt.

And now, for the coup de grâce, Timmeh has decided to tube Elizabeth Warren as the head of the consumer protection agency – one of a relatively small number of useful things in the Financial “Reform” bill. And why?

On top of all this, it now appears that Secretary Geithner will oppose Elizabeth Warren becoming the new chief regulator responsible for protecting consumers from defective financial products – despite the fact that she has led the way for this issue, on both intellectual and political fronts, over the past decade.  The financial sector has abused many of its customers badly over the past decades.  This simply needs to stop.

Throughout the Senate debate on financial reform, Treasury insisted that complex details regarding consumer protected need to be left to regulators – and thus the Geithner team pushed back against many sensible legislative proposals that would have tightened the rules.  Treasury also promised – although in a nonbinding way – that the new generation of regulators would be an order of magnitude more effective that those who eviscerated whatever was left of our oversight system during the Bush years.

With his track record of survival, Geithner and his team apparently feel they can push hard against Elizabeth Warren and give the new consumer protection job to someone closer to their philosophy – which is much more sympathetic to the banking industry.

While Timmeh is denying that he’s try to kill a Warren nomination, if you believe that, I’ve got a bridge I’d like to sell you, really! email me at angryfutureexpatATgmail.com!

What Timmeh can’t, or perhaps refuses to, see is that the problem isn’t liquidity, it isn’t a matter of kicking the can down the road and letting ourselves “grow” out of the problem.  It’s that people owe too much fucking money, and make too little. Period. Full stop.

So, Timmeh, if we were to actually solve the problem, we would print money and give it to people.  Or here’s another solution:

Last week The IRA spoke to Lee Quaintance, co-founder of QB Asset Management. Lee had worked in high yield credit and government bonds for several decades for the likes of Goldman Sachs (GS), CSFB and DLJ. Lee and his partner Paul Brodsky write a fascinating monthly market comment.

The IRA: So Lee, we see deflation as far as the eye can see but also rising costs. What’s your view of the inflation/deflation debate amongst the chattering classes?

Quaintance: Credit inflations create asset bubbles that destroy the organic equilibrium mix between the factors of production. The deflation process curtails production and shrinks overall wealth but, ironically enough, redistributes a vast portion of the wealth that’s left to the privileged few, mostly banks and government.

****

Quaintance: We have some basic views on what should be done and it comes in two steps. First, there needs to be a coordinated global currency devaluation. We argue for the Fed to tender for private gold holdings at something like $5,000 per ounce and to maintain that bid/offer. This would be the true economic/regulatory function of a central bank and/or monetary authority.

****

Quaintance: Precisely. The second step would be a major policy-mandated contraction in unreserved bank lending. These two simple steps would not only rebalance the financial books globally but would prevent leverage from over-inflating asset prices going forward, in turn creating another non-sustainable bubble economy. This isn’t just theory. Let’s look back. Employment trends in developed economies are being strangled presently by prior asset price inflation. As an admittedly crude example, the cost of shops on Main Street are overvalued and require artificially high rents to service debts. The average would-be shop owner can choose to pay his inflated lease or choose to pay workers – but not both. So, asset price inflation due to excessive unreserved credit expansion is not wealth enhancing but, rather, productivity destroying.

****

Quaintance: You want organic employment growth? Lower the relative price of other factors of production. Boosting asset prices unilaterally while wage rates remain relatively stagnant is a recipe for unemployment. This is just common sense and it’s what we’re seeing today. The system yearns for more money, not more credit.

The IRA: Yes, their operating costs are rising but selling prices are compressed, just like our favorite Italian food dispensary in New York. As we have long argued with our friend Bill Greider, consumers and small businesses who do not do business with JPMorgan and Goldman Sachs are the big losers in the fiat system. You must be smart enough to surf the waves of inflation, not just swim with the tide, and that makes us all speculators. (It is really the arbitrariness of the money that is a root cause, and the creation of a monopolization of credit under an incompetent/corrupt Federal Reserve – Jesse)

Quaintance: Agreed. In the end, credit inflation historically leads to asset inflation while base money inflation leads to wage and basic goods/consumables inflation. No matter how you slice it, the ratio of outstanding global debts to global base money is irreconcilable. This is a mathematical tautology. From this imbalance flow many of the imbalances you cite, in my mind. Chris, as I said, we think this is as simple a problem as too little “money” in existence attempting to service and ultimately reconcile too much debt.

The IRA: So where do we go from here?

Quaintance: When the ratio of productive asset prices exceeds a theoretical limit vis-à-vis the other factors of production, the productive process breaks down. In the case of the U.S., it headed to developing economies overseas where labor demographics, regulatory apparatuses and asset pricing environments were far more in balance. This trend should continue until there is a serious reconciliation of that debt-to-base money gap.

***

Quaintance: It’s all about excessive unreserved credit having created real economic distortions that can’t be reconciled through further debt creation. For a true financial reconciliation to occur the debt-to-monetary base ratio has to narrow significantly, and to set a sustainable course the growth rate of global money should be capped in a credible fashion. The easiest way to do this is by reinstituting and maintaining a true gold standard, at least for base money. This is not a radical notion. Remember the reason the gold standard “failed” historically was not the basic mechanics of hard money being “too restrictive”. The problem has always been unreserved leverage that accompanies “gold standards” creating non-sustainable economic imbalances. There is plenty of gold, at the right price, to reserve all money and credit.

Basically right.  Too little “money,” too much credit floating on top of it. Get rid of the debt, create wage inflation, or some combination, but we can’t resolve the economy by continuing to treat the banks, the skimmers of wealth, as too important to the economy to fail or rein in.

But then again, Geithner knows who he works for:

The deflation process curtails production and shrinks overall wealth but, ironically enough, redistributes a vast portion of the wealth that’s left to the privileged few, mostly banks and government.

And it ain’t us.  Heckuva job, asshole.

[Update] My effort at Xtranormal filmmaking from a few months ago has held up pretty well:

9 Responses

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  1. JD Underdog said, on July 21, 2010 at 8:27 am

    I like the movie!

  2. Sovereign Defaulting on Debt said, on July 21, 2010 at 2:37 pm

    Which is why the idea of the Dept. of Education buying my federally-backed student loans under a consolidation plan and allowing me to pay $0/month if my income remains as it is now and then write off the balance after a certain length of time was a decent idea. I think there are a lot of us out there who would happily take bankruptcy in exchange for freedom from the private loans, too.

    If I understand you correctly, because there is and has been too much credit generally, creating a class of bankrupts who wouldn’t be extended credit in the medium term would actually be sound economic policy because, once freed of massive debt, on balance you would end up with consumers who have a little more purchasing power than they did before, but who can’t really be sucked into the credit vortex again by the banks (both because the banks likely will not want to suck them in and because they just won’t let themselves use credit).

    Bush had round after round of stimulus checks, but they only went to people who paid taxes (generally not students). At the very least, the unemployment insurance should get passed, and then there should be some kind of further stimulus on the consumer level, whether it comes in the form of a relaxed bankruptcy code, reform of the credit-reporting rules to incentivize bankruptcy, other ways of allowing people to write off debt, or simply by writing consumers checks.

    That aside, I would distinguish between the problem of banks refusing businesses credit because the banks are uncertain of their own solvency (as in 2008) and banks refusing businesses credit because the banks simply think that it’s a bad deal because there is a consumer-level problem which will interfere with the ability of the business to survive. And in that respect, none of this is surprising. The banks see what we see, which is that the micro-economic hurricane of 2008 and 2009 is over but may reappear. By bailing out the banks, it is true, you do save the payment systems from causing a huge, economy-wide clusterfuck and dragging the economy to the bottom of the ocean; but, ultimately, the problem was not just one of manufactured financial instruments; it was one of bad lending, as we all pretty much knew. It was the primary assets that were faulty and the obligors on the mortgages that were really up the creek, and it was disingenuous to argue that this was a liquidity problem for banks. The banks did cause a liquidity problem for themselves, but the fact is that if the underlying assets had been good, there would not have been a liquidity problem coming from the derivative products. As I said at the time, you have to do something about the consumer because their household balance sheets are the root of the problem; their mortgages were the originators of the secondary instruments causing the bulk of the problems for the banks. So, in the end, what we got was a remedy that solved the micro-economic storm that was immediately apparent, without anyone thinking (really) that there was a macro-economic catastrophe brewing. Basically, we created healthy banks (Did you see the quarterly profit reports today?) with no one they feel comfortable lending to. Small businesses won’t have any customers. Why would you lend them money? Of course, there is some lending happening, and a lot of lending that is still outstanding, and eventually, as businesses close, the macro-economic crisis we’re in right now will work its way back up to the banks who won’t be able to collect on the loans they’ve made; that will cause a problem for the obligations they still have on the securitized instruments, and we’re right back where we started: bailing out the banks.

    That’s my amateur analysis and understanding of the problem, anyway. What’s worse is that I said it (Not here.) but two years ago. No one listened. They never do.

    • angryfutureexpat said, on July 23, 2010 at 10:07 am

      As you point out, a solvency crisis will always manifest itself as a liquidity crisis, at first. But if you attempt to resolve a liquidity crisis by guaranteeing debt, rather than loaning against “good” collateral at a penalty rate, it morphs into a bailout of the financial sector. And Timmeh – as I point out below – jumped straight to the bailout mechanism because, well, because he’s a douchebag and a tool for the banksters.

      On the student loan issue, you should take a look at this summary of how the Australians set up their income-contingent repayment plan. It has the elements that make it workable – it’s simple, it’s automatic, and it’s relatively fair. Not like the clusterfuck of requirements, limitations, and restrictions that define the IBR program here in the States.

      • Bukko Canukko said, on July 25, 2010 at 11:56 am

        Good onya for bringing up HECS, mate!

        During the four years I was lucky enough to live in Oz, I worked with a lot of fresh young nurses who had just come out of uni. (And some older ones, too, who were making a second career. Nursing takes a four-year college degree down there, unlike the U.S. where it’s a two-year community college program.) Occasionally someone would mention their “Hex” payment (Aussies like to abbreviate everything and pronounce the acronyms, like “TAFE” for “Tertiary Adult and Further Education”” i.e. “trade school.”) Nobody whinged about how much it was setting them back, or how they couldn’t go on holiday because debt repayment was monkeying on their back. (Australia is ALL about the holidays. Whenever you meet an Aussie, ask about where they’ve been on trips recently, and you’ll have an instant yabber. It’s what they talk about instead of the bloody weather like Poms do.)

        Anyway, HECS is one of those things that allows young Aussies some breathing room. There’s a downside to it, and their university system, because so much of it depends on government approval. A big thing each spring is when the standardized test scores are published in the newspapers, because your score determines which uni programs you can get into. (Very much like the British system.) In the U.S. you have more freedom to get into educational programs, as long as you can afford it, or take on the debtburden to do it.

        Aussies don’t worry about debt so much (except with their home-buying madness.) They also don’t have to worry about the cost of getting sick or injured, thanks to socialized medicine. That’s unlike America, where people live in fear of illness and debt, because they will be bled to death financially from it. Aussies grizzle about taxes that pay for it, but not even as vehemently as Americans, because Down Under, “the tax” is just part of the accepted background. I prefer the way they (and Canajuns) do it compared to America.

  3. Bukko Canukko said, on July 21, 2010 at 5:56 pm

    My question, which is a rhetorical one because no one except the top news-brass knows the answer, is “Why do papers like the WaPo and NYT publish economics articles that are so out of touch with reality?”

    Are these journalists with jobs so out of touch with what it’s like for average Americans that they don’t realize how hollow their stories sound? Have they bought into the green-shoots or neo-liberal propaganda? Or are they willing tools to push the propaganda line? Are they acting on orders from above, the publisher level maybe, to put a happy face on a steaming turd?

    You’ve ragged on the New York Times for highlighting tales of “victims” of the economy who have it pretty damn good, like that 24-year-old, job-refusing slack-ass with the poly-sci degree and zero debt. The commenters zinged the story hard. Do reporters not read the comments to their own work, to see how it’s perceived?

    In my previous career, I was a newspaper reporter for 10 years. Went to journalism school at a state university in the late 70s-early 80s, so I graduated without debt. I was inspired by the Washington Post of Watergate days, so my underlying aim was always to bust the chops of people with power. I thought that if newspapers didn’t expose their financial corruption and conflicts of interest, there was no way to keep the government honest. Because I had no debt burden, I could work at smaller newspapers, pursue what I thought was justice, and not worry about what might happen.

    As a consequence, I got fired a lot. Sometimes it was because I ticked off powerful people, but other times it was because I pissed off my bosses by being a sarcastic iconoclast. Finally I had to get out of it after an extended period of being unable to find a job, which led me to my globe-spanning career as a butt-wiper.

    When I was in tne nooz biz, I would have been insatiably curious if there had been a “comments” feature with my stories. Not just to see how I was being perceived, but if there were comments that could give me new angles to advance the story. Seems like that curiousity is not there, if reporters keep churning out the same tripe even though they’re ridiculed. Or maybe they take the attitude of “Fuck you irate readers. I’m better than you soreheads, so eat it!”

    People used to ask me “Why do you just report the bad news?” My standard reply was “Nobody wants to read about the 999 airplanes that land safely. You want to read about the one that crashed. News is “bad” because bad is the exception to the rule. When “good” becomes the unusual thing, and newspapers have to start reporting good news, you’ll know we’re in trouble.”

    We’re there, mate.

    • angryfutureexpat said, on July 23, 2010 at 10:11 am

      Funny. I never would have had you pegged as a journalist that got fired a lot!

      It is “amusing” (sad, pathetic, embarrassing, etc.) that the American media is now in the “good” news business. I guess if they were to cover what is really going on there would be riots in the streets and bankster heads on pikes up and down Wall Street.

      And that would be a shame.

  4. Nando said, on July 21, 2010 at 7:49 pm

    Timothy Geithner is a cockroash and a tool of the Big Banks – as have all who have ever occupied the office of U.S. Treasury Secretary. However, this bastard has the gall to act as if he has helped the average worker, against the unrelentless attacks of Industry.

    Hell, the rat previously “served” as president of the Federal Reserve Bank of New York. That pretty much tells you all you need to know about the “man”; anyone with a modicum of intelligence can CLEARLY see who this pig serves.

    • angryfutureexpat said, on July 23, 2010 at 9:51 am

      The moment I realized Geithner was a complete tool, and evil to boot!, was when I heard about his suggested “solution” to the financial crisis a couple months before Lehman’s bankruptcy:

      Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.

      The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.

      Guaranteeing all the debt in the banking system, i.e. taking our tax dollars to pay off the holders of the debt that we can’t pay back, aka double fucking us. The “brilliance” of Timmeh Geithner is nothing more than making all debt markets work like the student loans, so he can funnel money to the banks from both our debt payments and our tax payments.

      What a douchebag.


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