Couldn’t Have Said It Better, So I Won’t Try
From Digby:
“Savvy businessman” Jamie Dimon gave words of wisdom to college graduates this week-end:
“Throughout my life, throughout this crisis, I’ve seen many people bury themselves by failing to stand up, being mealy mouthed and simply going along with the pack,” said Dimon at the university’s Carrier Dome, where more than 5,000 students received diplomas.
He told students to “do the right thing, not the easy thing” and not to become someone else’s “lap dog.”
Dimon, 54, who was the subject of student protests before the ceremony, was met at the end of his speech with loud applause by the audience of more than 17,000.
“Have the courage to speak the truth, even if it’s unpopular,” said Dimon. “Have the courage to put yourself on the line, strive for something meaningful, even to risk the embarrassment of failure.”
****
When there is 10% unemployment, the whole workforce is under stress. And the longer it goes on, the more frustrated, angry and depressed the average working stiff feels. Masters of the Universe can drone on about being brave and finding meaning and telling the truth even if it’s unpopular, but he might as well be speaking in tongues for how relevant it is to workers right now.
Those kids may not know it, but they soon will. And I hope they find it in themselves to look back on this day and wish they’d turned their backs on that bastard when they had the chance. It was probably their last opportunity for a good long while to follow his advice.
And to sum up from Subprime JD:
Fuck you Mr. Obama and fuck you Larry Summers and FUCK YOU Timothy Geithner and FUCK YOU BENRON BERNANKE. You can keep on sprouting your lies about “green shoots” and “recovery” the fact of the matter is that millions in this country are languishing in poverty and distress while you motherfucking fucks raid the treasury on a daily basis. Know this, that all of you and your buddies on the board of Goldman, JP Morgan, Bank of America, and Citi, et al, will burn in hell for all of eternity.
WORD!
Update: Robert Kuttner writing over at Huffpo on financial reform:
This bill should be understood as just a first step. It will only partly transform the business model of the post-1980 financial industry, in which creation and trading of abstract securities rather than traditional banking are the main source of profits; and middlemen add too much risk to the economy and take too much of a cut for themselves.
The entire financial industry needs more drastic simplification and shrinkage. Exotic instruments that add no value to the economy need to either be banned entirely or rendered unprofitable with taxes or reserve requirements. The pervasive conflicts of interest need to be expunged from the system. Banking needs to revert to the quasi public utility role that it played during the 30-year boom after World War II. High rollers need to play only with their own money.
The dynamics of deeper reform are very reminiscent of the 1930s. In that decade, it took progressive senators and grass-roots movements to push Roosevelt and his financial advisers beyond their comfort zone. The Roosevelt White House did not always lead — the FDIC was imposed on Roosevelt by Congress — though FDR led rather more than the Obama Administration is current leading. Ultimately, it took six landmark reform bills stretching over seven years, beginning with the 1933 Glass-Steagall Act and ending with the Investment Company Act of 1940 before the edifice of New Deal financial reform was complete. By that calendar, it is only May 1934 right now, and we have a long way to go.
Thanks to that epic cycle of reform, the financial economy efficiently served the real economy for nearly half a century, until a new round of “innovation,” regulatory end-runs, and speculative excess caused the cycle of collapse and reform to repeat. We are witnessing only the opening chapter in a long battle to restore the financial economy to its proper role as servant of the real economy.
Of Bread, Circuses, Secretaries, And Other Distractions
One of the enduring mysteries of the economic meltdown – at least to me – is not only how sanguine our political and financial elites are, but also how subdued the people suffering from long-term unemployment are. It wasn’t always thus. Over at The Big Picture, Barry Ritholtz posted some articles discussing a riot in Iowa back in the 1930s. My favorite snippet:
The abduction followed Judge Bradley’s refusal to swear he would sign no more mortgage foreclosures. The farmers had entered his court room to discuss with him hearings which are to determine the constitutionality of two new laws relating to mortgage foreclosures.
The judge requested them to take off their hats, and to stop smoking cigarettes.
So the farmers grabbed, him, beat him up, and put a rope around his neck. Awesome. But that’s just the tip of the iceberg, from the arrival of the “Bonus Army” to various other hunger marches and riots, people just didn’t take the Great Depression lying down.
There are a number of reasons we haven’t responded by taking to the streets this time: 1) the fact that the war on drugs has already incarcerated huge numbers of our rowdiest citizens, 2) unemployment insurance, which is just enough to keep people in their apartments, watching cable, surfing porn, and playing Wii; and 3)the unemployment rate among the well-educated is still low (through underemployment is high).
Perversely, the cushions that have been put in place, are causing our downward mobility to feel less sudden, and more grinding – well, not mine, which was sudden – but long-term downward mobility warps perspectives and misdirects anger. People should be pissed off at Wall Street – and they still are – but as far as I can tell, brick 1 has not been thrown through a plate-glass window of any of the Wall Street banks.
Much more common is the attitude of Cynthia Norton, a former secretary from Jacksonville profiled in the New York Times:
Ms. Norton has sent out hundreds of résumés without luck. Twice, the openings she interviewed for were eliminated by employers who decided, upon further reflection, that redistributing administrative tasks among existing employees made more sense than replacing the outgoing secretary.
One employer decided this shortly after Ms. Norton had already started showing up for work.
Ms. Norton is reluctant to believe that her three decades of experience and her typing talents, up to 120 words a minute, are now obsolete. So she looks for other explanations.
Employers, she thinks, fear she will be disloyal and jump ship for a higher-paying job as soon as one comes along.
Sometimes she blames the bad economy in Jacksonville. Sometimes she sees age discrimination. Sometimes she thinks the problem is that she has not been able to afford a haircut in a while. Or perhaps the paper her résumé is printed on is not nice enough.
Misdirected blame toward herself, and more ominously:
Ms. Norton says she cannot find any government programs to help her strengthen the “thin bootstraps” she intends to pull herself up by. Because of the Wal-Mart job, she has been ineligible for unemployment benefits, and she says she made too much money to qualify for food stamps or Medicaid last year.
“If you’re not a minority, or not handicapped, or not a young parent, or not a veteran, or not in some other certain category, your hope of finding help and any hope of finding work out there is basically nil,” Ms. Norton says. “I know. I’ve looked.”
The article really isn’t that good, and comes across as a preachy screed from the elites to the poor, but Ms. Norton’s an example of how grinding downward mobility warps your perspective, and impairs your judgment. Believe it or not, Ms. Norton’s story actually gets worse:
Ms. Norton, for her part, may be reluctant to acknowledge that many of her traditional administrative assistant skills are obsolete, but she has tried to retrain — or as she puts it, adapt her existing skills — to a new career in the expanding health care industry.
Even that has proved difficult.
She attended an eight-month course last year, on a $17,000 student loan, to obtain certification as a medical assistant. She was trained to do front-office work, like billing, as well as back-office work, like giving injections and drawing blood.
The school that trained her, though, neglected to inform her that local employers require at least a year’s worth of experience — generally done through volunteering at a clinic — before hiring someone for a paid job in the field.
Uh, yeah, the school “neglected” to inform her. I suspect the school actively misled her about her job prospects, but when you’re desperate anything that could provide a leg up sounds desirable, and it’s difficult to ask the tough, probing questions in such circumstances.
Look, this lady should be furious, but not at the minorities, young parents, handicapped, and veterans that she perceives (mostly incorrectly) have at least some government support. Her anger has been misdirected away from the elites who caused her problem in the first instance – she should be bitching about Jamie Dimon, Lloyd Blankfein, and Larry Summers – yet they earn nary a mention.
Instead, the grind of downward mobility had warped her perspective, severely impacted her judgment (17k for medical assisting, really?), and has misdirected awareness away from the true causes of her hardship: Wall Street, the incestuous relationship between the banks and government, the lack of an adequate social safety net, the (no doubt) for-profit school that hung 17k in non-discharageable debt around her neck for a worthless “certificate.”
Ironically, the best thing about the Great Depression in the U.S. was that is was quick, severe, and widespread enough that it gave rise in short order to the New Deal. What we’re going through now is much more like death by slow puncture, and with every passing month the elites are counting on us forgetting what happened, and who’s to blame – and it may be working.
Lloyd, You’re Confusing “America” And “Goldman Sachs” Again
Charles Wilson, the President of General Motors once famously said during congressional hearings that, as Secretary of Defense, he would be able to make a decision adverse to the interests of GM but that such a situation was virtually inconceivable “because for years I thought what was good for the country was good for General Motors and vice versa”. For decades, Charles Wilson has stood alone as the Platonic ideal of corporate whores and douchebags who have no compunction about plundering the public and the Treasury to serve their corporate ends, because, well, hey if it’s good for us, it’s good for the America.
I doubt I could ever be mistaken for a “fan” of Lloyd Blankfein – If anyone ever put him out of our misery, I’d probably go piss on his grave – but it is hard to deny that this guy has a level of narcissism and grandiosity that is virtually unparalleled, even by Charles Wilson. Take this comment:
Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker “doing God’s work”
Sarcasm? Hardly, this was an unintended – or perhaps fully intended – bit of honesty. In other words, fuck you all, I’m touched by god, and will do whatever the fuck I want – sort of a “family” of the financial world. Because of that, there is nothing surprising about this series of douchetastic calls that Blankfein made to various Goldman clients:
Lloyd Blankfein on Wednesday attacked the Securities & Exchange Commission’s fraud charges in telephone calls to clients as Goldman escalated its campaign to stem the damage to the bank’s reputation.
One person who received a call from the Goldman chief said he was told the regulator’s case against the bank was politically motivated and would ultimately “hurt America”
Goldman doesn’t need to consider whether it’s lost its way, or maybe went too far on this trade, it’s unpossible! It was a Goldman-organized trade and that’s all you need to know, and any attack on the trade is ipso facto an unfair attack on Goldman and therefore an attack on America itself. I’m surprised he didn’t call the SEC “traitors.” These guys are so demented, so evil, so disconnected from the reality that they are bad for America – and the World – that there is simply no way to deal with them other than by taking away all their money, and throwing them in a pen.
And, that, would be good for America,
The Magnetar Trade – CDOs, Pricing Arbitrage, Vampire Squid, And Hand Jobs
By now, I’m sure everyone knows that the great vampire squid has been civilly sued by the SEC relating to the Abacus trade. Seems like the sort of thing that, complex though it is, I should make a few comments about. The essence of structured finance is that it’s possible to allocate and slice up credit risk. If you combine 10 mortgage payments into a single structured financial product, you can allocate the risk of default to various purchasers based on their tolerance for losing their payment stream. You can have one investor that is willing to lose their investment if one of the ten mortgages defaults, another that loses if 2 default, and so on and so on, until there is someone that makes out unless everyone defaults.
These are called the tranches of a structured finance product. They rely on the law of large numbers in order to allocate the risk among the tranches – it is unlikely that everyone in any given group will default, but it’s also likely that someone will. As such in these structured finance products, it’s cheap to buy the low value “tranche” (usually called equity, then mezzanine) and relatively expensive to purchase the senior tranche, which back in the bubble days were often rated AAA because such a large number of people needed to default before the cash flows were affected.
Many types of debt were structured in this way – mortgage, student loans, car loans, credit cards, etc. 
Here’s a chart that lays some of it out. The AAA tranches were generally sold to investors that could only invest in AAA securities, e.g. insurance companies and pension funds. While the mezzanine and equity tranches were generally purchased by more risk-loving groups, including hedge funds, wealthy individuals, or were held by the issuing banks.
With that as background, let’s discuss Magnetar. Magnetar was a hedge fund (they seem to be based in Evanston Illinois) that noticed an interesting fact about CDOs backed by certain residential real estate loans (.pdf):
Magnetar’s strategy was in essence a capital structure arbitrage. This type of strategy is broadly employed in corporate credit markets, and is based on the relative value between differing components of a company’s capital structure (in our case the different tranches or classes of a CDO), and on the supply‐demand imbalances which can be exhibited in the pricing of rated and non‐rated tranches. From early 2006 to late 2007, there was a systematic relative value mispricing between the equity tranches of Mortgage CDO structures, which offered approximately 20% target yields, and mezzanine debt tranches of Mortgage CDO structures, on which credit protection could be bought for between 1% and 4% (depending upon which tranche and CDO).
In essence, Magnetar claims that they realized they could buy the equity tranche, cheap natch!, and hedge the bet by purchasing cheap insurance against the mezzanize tranche. Thus, if the homedebtors paid, Magnetar made money, and if they defaulted, Magnetar made money – They just didn’t give a shit which outcome came to pass – 6 of one, half dozen of the other.
If true, and I have to assume that the SEC, despite being a bunch of ass clowns, is looking into it, Magnetar almost certainly didn’t do anything illegal. They noticed a pricing asymmetry, and took advantage of it – good for them. Unfortunately, that pricing asymmetry that they found goosed the demand for equity tranche mortgage CDOs and threw gasoline on the housing bubble fire.
You may be asking yourself “AFEP, why would the SEC go after the Squid, but not Magnetar, isn’t it the same thing?”, and the answer is only sort of. What the great Vampire Squid concocted didn’t involve taking the equity tranche. In essence, Paulson – in the great squid deal of 2007 only made money if the homedebtors defaulted, there was no equity tranche upside for Goldman or its client if they kept paying. That, as they say, is the difference between being socially malignant pieces of shit, like Magnetar, and being socially malignant pieces of shit and criminals, like Goldman Sachs and John Paulson. If you look at the SEC complaint, Goldman was scrupulous about leading ACA and, by extension the investors in Abacus synthetic CDO, that Paulson was, in fact, the equity tranche investor – in other words that Paulson was likely playing the Magnetar trade rather than building a CDO that was specifically designed to fail top to bottom.
What does this have to do with hand jobs? This:
The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can’t even get used to the tragedy of having to fly coach. “These people need their trips to Baja, their spa treatments, their hand jobs,” says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. “They don’t function well without them.”
Maybe not, but could we at least make sure that the worst offenders get their hand jobs from their cellmates? Maybe, please?
Updated slightly.
World’s Biggest Assholes Watch – The Return of Stephen Schwarzman
Welcome back for another edition of the World’s Biggest Assholes Watch, where we keep tabs on the comings and goings of the World’s Biggest Assholes™. In this week’s edition, we answer the questions that you need to know. Has hack Charlie Gasparino redeemed himself, or is he an even bigger hack? Does Goldman Sachs putting a picture of a manufacturing facility on their annual report make their role in shipping the manufacturing base of the United States to China a “no harm no foul?” What is the sound of one of Larry Summers’ hands clapping? Does Jamie Dimon know what qualifies as appropriate attire for a tennis tournament?
Stephen Schwarzman is back! Personally, I was hoping that he would stay in India, but he came back and threw a shindig at the Waldorf. Charlie Gasparino was not impressed by the spread. I stayed at the Waldorf once when I was in New York for a job interview back in the late 90s, and I agree that the food sucks – I also agree that Ketel One is the best vodka. So, hack Charlie Gasparino has, in my book, moved from true hack to just kind of hacky hack.
Of course, Steve-o doesn’t just throw parties, he also spoke to the Japan Society and noted that “Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half,” and that “This is absolutely unprecedented in our lifetime.” Of course, if the government is guaranteeing the debt “assets,” the only people that are getting screwed are the taxpayers – once because they need to pay off Blackstone, and once because they have to pay off the collection agents, as only the creditors get bailed out. For his role in engineering a mighty double fisting of the middle-class, we declare SS an asshole – but you already knew that. Or make that a triple fisting, as Hilton (one of Schwarzman’s babies) is trying to severely cut back on health benefits for Hilton workers making between 30,000 and 35,000 a year.
Asshole Lloyd Blankfein has taken a break from his efforts to perfect the Aristocrats routine, to send a letter to shareholders who want a greater say in the structure of the company and executive pay. In true asshole form, Blankfein’s response is “Fuck you shareholders!” The Goldman Boys are also declaring “clean hands” relating to AIG and betting against their own clients. Methinks the lady doth protest too much. But Goldman Sachs loves the manufacturing economy as you can tell from the front image on their recent annual report:
This raises the real question, do the poor slobs in this picture realize that their jobs are about to be shipped to China, I mean, why else would someone associated with Goldman Sachs be taking pictures in a manufacturing plant? Anyone, anyone? But the best Goldman news of the week came from Businessweek in the article “Not Guilty. Not One Little Bit,” where the hack writer notes that in interviews with several top officials “the overall message was emphatic and unified.” Really? You interviewed four top executives about AIG and the mortgage market and got a unified response? Why, it must have taken almost two hours to prepare those execs for that interview, especially considering “The defense mounted by Goldman lacks critical details, a consequence, the firm argues, of its overriding need to protect the confidentiality of its clients.” Trust me, it ain’t hard to come up with a unified story, if you can withhold the documentary evidence that you’re lying. I declare GS, assholes and guilty as hell.
Could it be true? Is Larry Summers on his way out? It would be a pity if we didn’t have Larry to kick around any more, but having that disastrous retard as far away from the levers of power as possible would be an unequivocal good. Speaking of which, Larry thinks that the U.S. economy has reached escape velocity and “The process of recovery seems to have started earlier and more vigorously than was common in such crises.” Not all agree, of course. But if true, I say, “Awesome!” and can I have your job when you get the boot?
Jamie Dimon is no shrinking violet, with snaps of him at the U.S. Open Tennis Tournament hitting the wire this week. More interesting is that Jamie is slated to be the commencement speaker at Syracuse this May, but the communists, really communists, are circulating a petition in protest. The irony of the protest is that Jamie Dimon is the biggest socialist of them all. Bailouts 4eva! On a highly related note, Jamie’s firm led all Wall Street banks on lobbying last year – clocking in at 6.2 million.
Geithner seemed to be a somewhat low profile asshole this week, striking a deal with China to allow a full 3-5% appreciation in the Yuan! Wow! That’s certain to bring manufacturing jobs flooding back. Geithner, much more effectively, went to bat for U.S. based hedge funds and private equity groups, urging the Europeans not to “discriminate.” Because really, manufacturing doesn’t add value – it’s hedge funds and private equity that matter most.
Richard Fairbank and Capital One suck, and debt repudiation gains another supporter (I think).
Until next week.
World’s Biggest Assholes Watch
Welcome back for this week’s edition of the World’s Biggest Assholes Watch, where we keep tabs on the comings and goings of the World’s Biggest Assholes™. In this week’s edition we answer the questions that have kept you on the edge of your seat for the last week: Has hack Charlie Gasparino become an even bigger hack? Is Goldman Sachs developing a vampire squid edition of the Aristocrats? Is it possible that Jamie Dimon is one the 50 biggest anythings other than assholes? No way to know without reading further – so without further adieu…
Capital One and its shitbag CEO Richard Fairbank are offering customers advice on how they should use their tax refund to further their financial goals. That’s funny, just last week I got a letter from Capital One suggesting that I sign my tax refund over to their collections department, and that’s utterly inconsistent with my financial goals. Ironic. My advice: find a credit union, stiff Capital One, and move out of the U.S. – or perhaps I’m projecting.
Jamie Dimon is not only an asshole, he’s also one of Businessweek’s 50 most important people in real estate. Way to go Jamie! I trust it’s just a coincidence that new home sales hit a record low last month. I was not surprised to find out that Jamie Dimon is a fan of mountain top removal mining – and for that you really have to be an asshole – and some people from West Virginia aren’t to happy about his company’s role. They’re erecting mud mountains in Manhattan with a letter to Jamie on top asking him to withdraw JP Morgan’s support for MTR mining.
Might work if Jamie Dimon had a soul, but since he doesn’t, I’ll just say good luck guys. Paul Krugman, who I often like, claims that Jamie Dimon was right about there being a financial crisis every 5-7 years (Krugman “examines” 1870-1933 and claims no crisis again until 2007). I remember at least the Latin American debt crisis of the 80s, the S&L crisis, the Mexican meltdown of 1994, and the Long-Term Capital Management fiasco in 1998. For defending, even if only tongue-in-cheek, a huge asshole, and especially for doing it with erroneous data, Paul Krugman is an honorary World’s Biggest Asshole™ this week. Lastly, JP Morgan’s “research” arm issued a report blaming unemployment insurance for high and prolonged unemployment. Jamie, not sure if you greenlighted this nonsense, but it still proves you are an asshole.
Goldman Sachs is not only the poster child for evil, but it also stands as a pro-nepotism bulwark against meritocracy. Turns out that both of the junior Blankfein boys have worked at daddy’s shop. One of them, a recent college grad, made$155,000 last year – real money for a kid that doesn’t have to tithe any of it to Sallie Mae. The other junior Blankfein is writing his Harvard senior thesis on the pre-FDIC insurance system. Hey, you need to know the history of bailouts to engineer them successfully.
Looks like Goldman execs like to keep their families around, which leads us to conclude that Goldman Sachs executives are trying to perfect the Aristocrats routine (Vampire Squid Edition):
Or maybe we’re just cynical. But Goldman Sachs cares about mentioned its public perception, designating adverse publicity as a “major risk factor” in an SEC filing – of course if they weren’t so dependent on suckling at the public teat, adverse publicity among the rubes wouldn’t really be a problem would it? Me? I think they’re just assholes. But hack Charlie Gasparino who was out ginning up sympathy about Lloyd Blankfein’s hate mail last week, now claims Lloyd was not due $9,000,000.00 in 2009, but rather $100,000,000.00 – pretty hacky Charlie. Kind of an asshole move by Blankfein to send Charlie out to say it, but Charlie works for Fox Business now, so he doesn’t have to worry about little things like “accuracy” or “credibility.”
Asshole Timmeh Geithner had a busy week chatting up the AEI, Congress, and just about everyone else. But Timmeh, I’m going to leave you out of this week’s edition, because you’re such an asshole you’ve already said something retarded enough that I could write an entire post about it. So, give it up for Timmeh who will, no doubt, make a triumphant return as one of the World’s Biggest Assholes™ next week.
I haven’t been able to find out much about Stephen Schwarzman recently which I find irritating since I’m sure that if he’s breathing he’s acting like an asshole. If anyone has the scoop on what’s up with Steve-o, drop me a line or post it in the comments.
A special shout out this week to President Obama, who managed to push through his health bill which requires just about everyone, without regard to debt service or other payment obligations, to spend somewhere between 8 and 15%+ of their income on health insurance and out of pocket expenses. The bill simultaneously imposes minimal limitations on health insurers, lets them keep their antitrust exemption, and includes no public plan to keep them honest. Only a true asshole could come up with something that was that big a clusterfuck, so President Obama we are awarding you our Asshole of the Week Trophy™. Congratulations Mr. President!
Until next week.
Financial “Reform” – Us Versus Them Edition
My plan for reforming the financial system, which basically involves letting all the terrorists out of Guantanamo Bay and filling it up with the top executives of the Wall Street banks, doesn’t seem to be on the agenda. So I suspect that I’ll be spending a bit of time writing about the various financial reform plans. Since passing the health care “reform” bill, the Democrats seem to have found their balls and are now talking big about what sort of financial industry reform measure will make it through Congress:
The health care vote even prompted Mr. Frank to make a quip about the financial overhaul. “There are going to be death panels enacted by the Congress this year — but they’re death panels for large financial institutions that can’t make it,” he said. “We’re going to put them to death and we’re not going to do very much for their heirs. We will do the minimum that’s needed to keep this from spiraling into a broader problem.”
I’m a little hopey that Frank is playing it straight (pun intended!) as putting the big banks to death really is the minimum that’s needed, but somehow I doubt that’s going to happen. Timmeh!, of course, will fight to the death to protect the big banks from even the most trivial, but potentially effective, regulations. One idea is to change how the head of the NY Federal Reserve Bank is elected.
For example, as it stands now, the bank’s head is elected by a Board of Directors that consists primarily of the very banks that are being governed – that is, after all, how Timmeh got the job.
Currently, the New York Fed chief is chosen by the bank’s directors, six of whom are elected by member banks in that district. That, in fact, is how Geithner got his job as chief of the New York Fed before he was tapped to be treasury secretary by President Barack Obama.
Critics say that arrangement gives banks too much authority over the Fed, which regulates them. They point to JPMorgan Chase CEO Jamie Dimon, who today sits on the board of the New York Fed, which would be the lead agency deciding whether or not to bail out Dimon if JPMorgan were ever to look as though it might go the way of Lehman Brothers. Dodd agreed.
But in remarks on Monday at the American Enterprise Institute, Geithner objected to the idea. The Dodd proposal, he said, would change two things: who chooses the president of the New York Fed and the process for choosing members of its board of directors. “I’m enthusiastic about the latter, not so much about the former, in part because I think it would change the basic balance in the Fed,” Geithner said.
But it’s not just Dodd that thinks bringing a little accountability to NY Fed is a good idea:
But the ranking member of the Senate Banking Committee stands with Dodd on this. In an interview with The Huffington Post in October, Sen. Richard Shelby (R-Ala.) called the current New York Fed situation “an obvious conflict of interest.”
“It’s basically a case where the banks are choosing — or having a big voice in choosing — their regulator. It’s unheard of,” Shelby said.
And this is the NY Fed that put together the AIG bailout that funneled billions to Goldman Sachs, encouraged AIG and the SEC to withhold that information from the public, looked the other way while Lehman engaged in a massive, ongoing accounting fraud, and is the perch from which Timmeh suggested that the government guarantee every debt in the financial system (they ultimately guaranteed a little less than that, but not by much).
So, of course, the banksters don’t want to bring any real political accountability to the NY Fed. It could cause them problems with the Bailouts 4eva! gravy train.
And, as usual, Timmeh is going to bat for them instead of us.
Why does he still have a job? Oh yeah, it’s because we’re a banana republic ruled by banking oligarchs.
Asshat Corzine Says I Envy Goldman Sachs – Fucking-A Right I Do! Can I borrow 100,000,000 at 0% from the Fed for a Year or Two?
King asshat, corrupt piece of shit former New Jersey governor, and former Goldman Sachs CEO Jon Corzine claims that people are envious of Goldman Sach’s success and that it is the “envy” that is the source of all the populist outrage toward Goldman.
Yeah, well, I suppose there’s some truth in that. Corzine identifies Goldman Sachs’ success and correspondingly my failure as the root of the problem. Here’s a money quote from Dealbook:
When you’re successful it brings envy … It is easy to misphrase something at the wrong time. Maybe you thought you were tongue in cheek. These things are at a time when people are extremely sensitive — and the other issue is that people are broadly frustrated with the financial institutions, and since it is the leader of the industry and has shown great success over a long period of time, I think it’s more vulnerable.
What I would like to suggest is the modest proposal that the Feds cut me the same deal that they cut Goldman. As reported by Bloomberg:
Those benefits, along with a drop in the Fed’s benchmark borrowing rate to as low as zero, have slashed Goldman Sachs’s interest costs to the lowest this decade, though its debt was higher in the first nine months of 2009 than in any comparable period except the previous two years. For those three quarters, the firm’s interest expense fell to $5.19 billion from $26.1 billion a year earlier.
“You can’t give a small group of firms this privilege, where they get free money from the Fed and a taxpayer guarantee and they can run the biggest hedge fund in the world,” Niall Ferguson, a professor of history at Harvard University and author of “The Ascent of Money: A Financial History of the World,” said at a Nov. 18 panel discussion in New York.
I have about 450,000 in debt because of my education, my house, and my efforts to prop up my (now failed) business. So here it is Ben Bernake, Timmeh, and Larry Summers, loan me 100,000,000 at zero percent interest from the Federal Reserve for a period of two years. I will invest in a risk-free asset (so you can be guaranteed principal return) such as a two year treasury.
According to the U.S. Treaury, the yield on a two-year treaury is .87, which means that over the course of the two-year loan, I can gross about 1.7 million risk free, pay off my debt, pay taxes on the income, return the principal, and still make about a $500,000 profit.
Sound good?
Give me that deal and I’m sure I’d be the envy of everyone I know. Just like Goldman Sachs.
Assholes.
Johnson and Boone Agree that Timmeh Sucks
Ok, that’s not quite what they wrote, but it is the implication of the piece. The basic premise is the the governments of the world have entered into a thieves bargain with the finance sector and have generated a negative feedback loop of increasingly severe financial crises. Because U.S. and European governments (Don’t forget about Japan guys!) have been so willing to bail out large financial institutions every time they have gotten into trouble by blowing ever-larger asset bubbles rather than forcing these institutions to deleverage, we are now on the verge of seeing the entire system collapse.
At the root of their theory is the relationship between the enormous increase in private sector debt relative to GDP (in the U.S. in their example) and Fed rate cutting designed to bail out the masters of the universe each time they fuck up and trigger a crisis:
Indeed, Uncle Alan Greenspan’s “put” seems to have been played repeatedly since the mid-1980s, or as my good buddy Jamie Dimon put it, “every five to seven years.” Johnson and Boone set out a “doomsday cycle” over explicit and implicit government backing, risk taking, losses, regulatory capture, and bailouts reflected in this image:
Timmeh!, of course, is set out as the poster boy for regulatory capture. As the Wall Street journal reported yesterday:
Interviews with dozens of government officials show that Mr. Geithner has acted as a brake on administration officials seeking punitive action against big financial firms.
Thanks Timmeh!
Back to Johnson & Boone, they argue that:
We must stop sending the message to our bankers that they can win on the rise and also survive the downside. This requires legislation that recoups past earnings and bonuses from employees of banks that require bailouts.
Yes, that would be terrific. Except for the fact that the banksters have so deeply intertwined themselves with the government and political process that even after a bankster-induced clusterfuck of epic proportions:
Goldman Sachs was lucky to gain access to the Fed’s “discount window”, so averting potential collapse.
Yup, it sure was “lucky” that they installed their former chairman as Treasury Secretary at exactly the right moment. But it’s not just the great vampire squid:
Bankruptcy reform lost because twelve Democrats joined the Republicans to vote for bankers and against embattled families. Senators Baucus, Bennet, Byrd, Carper, Dorgan, Johnson, Landrieu, Lincoln, Ben Nelson, Pryor, Specter, Tester.
Dick Durbin could not conceal the bitter aftertaste. He told a hometown radio interviewer: “Hard to believe in a time when we’re facing a banking crisis that many of the banks created–they are still the most powerful lobby on Capitol Hill. And frankly, they own the place.”
But here’s where we start getting to the nub of the issue. Johnson & Boone are the good guys. They’re the ones who want to reform the system to bring it under control, but in the doomsday cycle, they don’t seem alert to the real problem with why there are “too many loss making bets.” Here’s a hint, it has to do with the GDP to credit relationship reflected in their first chart. Once debt reaches levels like, well, like today, the winning bets are few and far between, because income cannot support the kind of debt levels that exist in the United States. Or to put it in equation form (since they’re economists):
ΔX/ΔY = ΔZ
X is private debt stock
Y is income
Z is fragility of the financial system
This is intuitive to individuals, but for some reason most economists don’t get it. Of course, what individuals and households really understand – and they get it at the most fundamental level – is this:
Smaller institutions are naturally easier to let fail, and this will make creditors nervous when lending to them, so we can have more confidence that creditors will not lend to highly risky small institutions.
Now, Johnson & Boone are talking about small finance companies, but it’s a principle that people know applies to them. Individuals and small businesses are simply left to fend for themselves. They just don’t matter. Hey you, go fight for your life in bankruptcy court, dodge the collection calls, sleep on your buddy’s couch, go find a shelter and a food shelf! Real people? Fuck ‘em! After all, “smaller institutions are easier to let fail.”
On that note, file this one under the least surprising news of 2010.
One gauge, measuring consumers’ assessment of current conditions, dropped to 19.4 from 25.2, the lowest level since 1983. The other barometer, which measures their outlook over the next six months and had been rising since October 2009, fell to 63.8 from 77.3.
It’s easy to let small institutions fail, and the people know it. Big-time investors know it too:
Today, Bank of America and the Royal Bank of Scotland are each priced to have just 0.5% annual risk of default above their sovereigns during the next five years in credit markets. This is a remarkably low implied risk considering that both banks were near to collapse just a few months ago. Creditors are clearly very confident that they will be bailed out again if necessary.
Now, if only ordinary people could do something that would force our betters to give us a bailout…
Update: This doesn’t warrant its own post, but apparently 3.6 percent of people in the consumer confidence survey said jobs are plentiful. That’s low, but still, who are these people? Lobbyists, Goldman Sachs employees, residents of asylums ? I don’t see how anyone could believe that, and yet, apparently some do. Strange stuff.
Matt Taibbi: “They raped the taxpayer, and they raped their clients”
Amen to that.
Matt Taibbi – I’ll admit that he’s one of my favorite writers (even before I went broke and became angry) – has an excellent piece in Rolling Stone this month about the financial sector’s outright looting of the taxpayer over the past 18 months. Taibbi analogizes the sickening exercise to various well-established cons. They include – any notes from me are designated AFEP:
The Swoop and Squat (AFEP: an insurance scam)
****
Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn’t going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral.
Goldman plunders AIG ahead of its demise and then has the insurer (U.S. taxpayer) pick up the rest of the tab. Of course, what I am most pleased about is Taibbi’s citation to the movie Goodfellas, which I also cited in a comment a few days ago (same scene in fact) when discussing letting the banksters get their hooks into you. Thanks for validating some of my rhetoric Matt! Just so you know, if you got the idea from me, that’s ok, in fact, since I’m a fan, feel free to take any of my material, I hereby agree not to enforce my copyrights (BTW this is limited to Taibbi, everyone needs to ask – but permission is likely to be freely granted).
The next scam is:
The Dollar Store (AFEX: Create a fake environment to rip off the mark)
****
Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies…. the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent.
This is the one that has pissed me off the most. Anyone who was paying attention knew that TARP was just the beginning of the big ripoff. It was the free money from the Fed that really saved both the banks and the non-bank investment houses.
Taibbi lays out a few other scams, and I strongly encourage everyone to read the entire article, but the client ripoff, man, that is a thing of beauty:
The Wire (AFEP: Knowing the result before the mark)
One of the most common practices is a thing called front-running, which is really no different from the old “Wire” con, another scam popularized in The Sting.
****
Say you’re working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he’d end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn’t keep banks from screwing their own customers in this very way.
Classic. And Goldman Sachs, at least, doesn’t even hide it. In fact, my buddy Lloyd Blankfein in testifying before a government panel admitted that Goldman frontruns and as much as said his clients are happy about it, “These are the professional investors who want this exposure,” said Blankfein. Awesome!. Must be OK, then.
Torches, pitchforks, criminal indictments, trips to Guantanamo. If anything, they are too nice for these motherfuckers. The only thing I can see working is simply withholding your money.
Some other worthwhile Taibbi reads:
angryfutureexpat
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